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Tech Traders 1/18/01 Market Summary
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Technical Traders Subscribers:
Continuing Plays:
JNPR (Juniper Networks--$136.63; +0.44; optionable (JUY)): Tested support (18 day MVA at 127.58) on the low, then moved up in the ascending wedge, though volume was lower (still strong and above average at 19.3 million). The stock looks ready to move from here, in a continued rally. Pattern high is 145. 50 day MVA is at 140.54. Strong buying.
BUY POINT: Aggressive: Up from here on rising volume. Breakout: 145.13, on volume of 21 million or better.
POSITION: Aggressive: Stock and/or April $135 calls to buy (JUY DG). Breakout: Stock and/or April $145 calls to buy (JUY DI).
http://www.investmenthouse.com/ct/jnpr.html
(Click to view the chart)
SUB (Summit Bancorp--$41.31; -0.75; optionable (SUB)): Showing a perfect doji at support (10 day MVA) on continued below average volume (518,600). Looks ready to move up from here. Excellent money flow and buying.
BUY POINT: Aggressive: On a move up from here on stronger volume. Breakout: 43.69, on volume of 1 million or better.
POSITION: Stock and/or April $40 calls to buy (SUB DH).
http://www.investmenthouse.com/ct/sub.html
(Click to view the chart)
SWBT (Southwest Bancorp of Tx--$44.56; +2.87; optionable (ZRQ)): Looks ready to break out of the ascending wedge as volume shot above average (365,100) on a strong pop from the up trendline (noted in Wednesday's report). Looking for a breakout over pattern high of 45.63 on continued strong volume. Strong money flow and high relative strength, an improving buying.
BUY POINT: 45.76 on continued strong volume. Remains a buy up to 48.05 on the breakout.
POSITION: Stock and/or May $40 calls to buy (ZRQ EH).
http://www.investmenthouse.com/ct/swbt.html
(Click to view the chart)
TXN (Texas Instruments Inc--$51.25; +0.69; optionable (TNZ)): Moved up in the pennant on lower volume (11.9 million; avg. 11 million), showing that it is ready to move on a volume surge. Pattern high is 54.69. Buying continues to improve nicely.
BUY POINT: Breakout: 54.82, on volume of 14.8 million or better. A buy on the breakout up to 57.56.
POSITION: Stock and/or April $55 calls to buy (TNZ DK).
http://www.investmenthouse.com/ct/txn.html
(Click to view the chart)
C (Citigroup--$54.25; +0.44; optionable (C)): Squeezing down in the trading range (handle) and holding above support (10 day MVA at 53.64). The stock moved up from a low of 53.38 that tested near the 18 day MVA (52.95) on stronger, average volume (14.1 million). Handle high is 57.38; look for the breakout on continued rising volume.
BUY POINT: Aggressive: On a move up from here on contintued rising volume. Breakout: 57.51, on volume of 19.5 million or better. Remains a buy on the breakout up to 60.39.
POSITION: Aggressive: Stock and/or March $50 (C CJ). Breakout: Stock and/or March $55 calls to buy (C CK).
http://www.investmenthouse.com/ct/c.html
(Click to view the chart)
New Play to look at:
MRCY (Mercury Computer Systems--$43.50; +0.12; optionable (QYR)): A formerly covered telecom stock that is moving in a volatile handle to a 9.5-month cup base. Showing its second consecutive doji at support (18 day MVA at 43.60), the volume spike thrown today (990,800; avg. 209,681) indicates an imminent move up. Handle high is 52.38. Improving buying.
BUY POINT: Aggressive: On a move up from here on continued strong volume. Breakout: 52.51, on continued strong volume.
POSITION: Aggressive: Stock. May $40 options had insufficient open interests (23) for the stock (QYR EH).
http://www.investmenthouse.com/ct/mrcy.html
(Click to view the chart)
MU (Micron Technology Inc--$44.44; +5.19; optionable (MU)): The chip stock is breaking out of a pennant pattern that formed above the 50 day MVA (38.12), and is almost at our limit for buying on a breakout (5% above the buy point of 42.51, which is 44.64). Technically, therefore, the stock remains a buy on this breakout up to 44.64, but on this kind of volume, looks ready to continue moving higher than that. Money flow, relative strength and buying are improving nicely. MU is coming up off the bottom of its base (28.06).
BUY POINT: Aggressive: On further upward movement on continued strong volume.
POSITION: Stock and/or April $40 calls to buy (MU DH).
http://www.investmenthouse.com/ct/mu.html
(Click to view the chart)
THE SUMMARY:
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
TONIGHT:
- Another solid day on all indexes.
- More good earnings after the bell.
- Good and bad economic news. Or is it bad and good?
- Fed Funds Futures contract edging close to 100% on a 50 basis point cut.
- Team Trades
Indexes power ahead in sync.
Last night we said there were mixed signals on the Nasdaq but that we were going to use any weakness to take additional positions based on the strong price/volume the Nasdaq and its leading stocks were showing us. Today the index did show us some weakness in the first half hour, but not a lot as it turned and ran higher yet again on solid (if not rising) above average volume. The S&P 500 continued its move up on rising volume, and the Dow joined in today with a gain on higher volume for a change. This move is showing amazing durability.
The party continued after hours today as key stocks continued to meet or beat expectations. EBAY continued to show it is a pure internet business that is a pure money maker as it beat estimates by 2 cents and turned in revenues 6.7% higher than expectations ($134 million). EMLX crushed its earnings and was soaring after hours. SFA beat the street by 3 cents. MSFT met earnings and beat revenues. NT did the same. The only real blight on the night was SUNW who met earnings but showed revenues of $5.12 billion versus $5.3 billion expected. That stock was one of the few trading down after hours. After the IBM earnings on Wednesday, SUNW's earnings were disappointing. Sun's CEO is on CNBC in the morning, and perhaps he can generate more interest. Still, the party continued for most other stocks with the leading stocks moving higher pretty much across the board after hours.
What is happening here?
Earnings are not stellar all around. We saw great things from JNPR, AMCC, EMLX, CTXS, EBAY and the like, but others are missing their numbers and are being treated fairly well. Bob Pisani of CNBC was fretting after the close about how bad the Philly Fed's numbers were and how there were "still a lot not convinced" about what was happening in the markets.
That is great. We need the doubters out there. One of the things that helped get things going was the pessimism about the stock market. While standard measures never really hit reversal levels, many surveys of investor associations and reports form many stock brokers across the nation indicated that investors were very jaded and did not want much if anything to do with stocks. We continue to be concerned that some traditional sentiment indicators never hit high levels, but we also like the fact that much of the popular media is reporting things are still bad. It keeps the fear level up so the rally has more room to run.
Further, as we have said repeatedly, markets look forward. We all know the current quarter and the next are going to be slow, but the markets look at the macro picture of what is happening with monetary policy and how that will impact the economy. There is a lot of money flowing into the market from institutions. Just the volume numbers alone show this. Just as the market forecast the current economic slowdown when it started to sell off last spring, it is now starting to build in better earnings for the future with an improving economy. Yes the Philly Fed was way down, but that just turns up the heat more on the Fed to really cut rates aggressively for what lies ahead, not what has transpired. We don't want to sound too positive, but the market is speaking again for now, and we need to heed what it is saying.
THE ECONOMY
The good news is bad news.
Housing starts higher than expected. Wednesday night we said that housing starts due to lower mortgage rates had been holding the economy higher. Today they showed a modest gain of 0.3% to 1.575 million units, but it was a gain. Single family homes, the most important segment, jumped 6%. While that was good news, it was viewed as bad news regarding the Fed rate cut as things did not look too dire. But no need to worry because the housing market has remained the last stronghold because of mortgage rates as we said. Moreover, permits dropped sharply, falling 6.6% in December. Houses won't keep selling indefinitely if the buyers continue to see the economy slowing and layoffs rising.
Speaking of jobless claims, they pulled a surprise also, coming in at 'just' 306,000, down from a revised 343,000 last week. That had many jawing again about the Fed and rate cuts, but note that the four week moving average is at 350,000, still a very high number and that was down from the 362,250 average (revised higher) from the previous week. There is no question that jobs are still tanking and in a downward trend. In any event, they are well off of the 200,000 and lower levels of just last year.
The bad news is good news.
Manufacturing in recession already. The Philly Fed released its current activity report today, and the economic index fell to minus 36.8 from minus 4.2 in December. That is the lowest level since the 1990-1991 recession.
The first economic results had the treasury market and equity markets worried about what the Fed would do. Equity markets were concerned that the Fed might not be so aggressive in cutting rates because the numbers were not a lot worse. Good news is bad news.
Then the Philly Fed came out showing just how bad things are out in the manufacturing areas of the country. That indicated the Fed has a lot more work ahead of it to turn the tide. Equities liked that. Bad news is good news.
Fed Funds Futures: The manufacturing report pushed the Fed Funds Futures contracts higher, and the February contract at its close now indicates over a 90% probability of a 50 basis point cut on 1-31. There was even talk in the pits today of a move before 1-31 given the continued slump in manufacturing.
THE MARKETS
Last night we mused about not enough rest for the Nasdaq. Apparently it has had 10 months of rest and has some staying power. This move is certainly very solid, though volume was down on the session. Earnings that are not atrocious and the idea of a bigger Fed cut are driving it for now, but we need to keep our eyes open for signs of a pullback; lower volume today on the Nasdaq is a sign to be careful on short term positions. Other than that, its action has been superb and the S&P 500 is putting in some good moves of its own.
Overall market stats:
VIX: 27.09; -1.42. Volatility fell throughout the session as stocks mounted solid gains through most of the session. There were ups and downs, but volatility continued a steady drop most of the session.
Put/Call ratio: 0.59; +0.10. Put activity rose this session on a broad rally, indicating there was some short covering going on.
Futures: Nasdaq +53.50. S&P +8.00 (+6.73 over fair value).
NASDAQ: A bit of early selling reversed at Wednesday's low, and it was all up from there with a healthy stair-step action up all session long. That surge, pullback, then surge back up action is very nice to see again. It has been a long time. The day was dominated by big cap techs as the Nasdaq 100 rose 111.80 points. After hours stocks were racing ahead again on stellar earnings from EMLX, EBAY, SFA, and very solid earnings from MSFT and NT.
Stats: Up 85.71 points (+3.2%) to close at 2768.49.
Volume: 2.561 billion shares (-9%). Still above average volume, but it was a drop off on a gain, and we have to keep alert for gains on lower volume. Still, volume on the move up has been excellent all week, so we will just keep an eye on it for now. Up volume was still in command at 1.682 billion shares to 780 million to the downside.
A/D and Hi/Lo: Advancing issues continued to lead 1.25 to 1(1.58 to 1 on Wednesday). As we noted Wednesday, this is a further narrowing of the gains and shows some of the power leaving the move. It does not mean it is over, just another signal of caution. New highs dropped to 73 (-54) and new highs fell to 15 (-3).
The Chart: http://www.investmenthouse.com/cd/$ndx.html
Tom Costello is breathing a bit easier tonight as the Nasdaq finally closed over 2700, the 'trendline' he has been harping about for the past week. The one thing lacking for a strong move was increasing volume, and the fact that the Nasdaq closed right at its 50 day moving average (2773.07) on lower volume does not look great. We discussed this resistance point Wednesday night. The Nasdaq did, however, break over the real down trendline on Wednesday on excellent volume, and that gives the move some legs.
Still, this index has been surprising with its power as stocks have continued to beat or meet estimates (some lowered, some not). Looked like it was winded on Wednesday, but it surged up today. Stocks are racing after hours and the futures are way up as well and still rising at this writing. That can change, and changes in direction often occur intraday. At some point the Nasdaq has to take another breather, and we anticipate that will be when earnings start losing some of their novelty. Again, we don't feel that any pullback is going to be nasty; the index has taken good and bad earnings and moved anyway, showing good volume. This is solid action, and with a fed rate cut looming, pullbacks look like buying opportunities to us.
Dow/NYSE: The Dow jumped back into the action on the right volume action. Even with MMM missing its number, UTX beat the street and now MSFT is looking strong after hours. The index is still trapped in its range as it could not hold onto its high through the close as did the Nasdaq, but we like the way NYSE volume improved on the rise. It still has to breakout, but this is encouraging.
Stats: Up 93.94 points (+0.9%) to close at 10,678.28
Volume: NYSE volume was up again, though slightly, rising to 1.369 billion shares (+1.5%). Not much change, but it was above average and it was a gain on stronger volume. Up volume improved to 799 million shares while down volume fell to 549 million shares.
A/D and Hi/Lo: NYSE advancing issues still led, coming in a bit higher at 1.26 to 1 (1.19 to 1 Wednesday). New highs fell to 150 (-38) and new highs fell to 10 (-4).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow broke over its 50 day moving average, but it stalled at the 200 day moving average (10,715.10) and the down trendline connecting the September and December closing highs (coincident with the 200 day MVA). This is some serious resistance ahead before it tries to breakout over 11,020. Got to start somewhere.
S&P 500: The big caps broke the downtrend and 50 day moving average today on a rise in volume, the second consecutive gain on rising, above average volume. It is right at its January high (1347.76) hit on the Fed rate cut. This was an important move; it reversed Wednesday's 'tombstone' doji and smashed the downtrend. That is very positive action. MSFT won't hurt it tomorrow.
Stats: Up 18.50 points (+1.4%) to close at 1347.97.
Volume: NYSE volume ratcheted up again to 1.369 billion shares (+1.5%). Still above average on another move up.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday. Buy on Monday, sell on Friday is the old adage. The market has been showing great strength, but there are some signs of slowing and the market still has a lot of proving to do. With that said, the Nasdaq futures are screaming tonight, rising all evening and there still seems to be a lot of positive momentum in the big money even as many continue to fret over whether this is the 'real thing.' We know something is the 'real thing' when it is over. Before then we have to look at what the market is telling us here and now.
We have been cautious on this move up, but you just cannot beat caution in taking positions. It has not kept us from taking positions, we are just being careful and watching the signs. Tomorrow looks like a boomer for an open if things stay the way they are. We are not a fan of big opens, especially when they come after a solid move up already. That can lead to intraday reversals that start a round of selling, especially on Friday. We cannot say that will happen, but the Nasdaq has made a solid move with little rest and it will take some at some point. After breaking through the down trendline it may just decide to test that move.
That is not a bad thing for the market if it remains on low volume. We just have to be concerned about any short term positions that need to be tended to. We are definitely looking forward to any selling on light volume as a chance to take positions for the next move up. Moreover, we won't turn our backs on good pre-announcement and pre-split split plays or breakouts on big volume. We just need to pay attention to volumes so we don't get sucked in just as the market turns. We are going to be cautious about opening new positions unless the stock is in a good pattern and starting a good move as we don't want to chase stocks that are a bit extended. If this market is as good as it looks right now, we will get more chances to play the great stocks that are running hard right now when they take a breather. There is a lot of action to choose from out there.
Support and Resistance Levels
Nasdaq:
Resistance: Now at the 50 day moving average at 2773.07. 2890 to 2900 is next before the 3000 level.
Support: 2620 to 2640.
S&P 500:
Resistance: 1360.
Support: 1335 to 1340. Then where it turned up last time at 1313.65.
Dow:
Resistance: 200 day moving average (10,717.50). Down trendline at 10,7715. Then 10,900 and 11,020. After that, 11,400.
Support: 10,300 to 10,400. After that, 10,000.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-16-01
Business inventories for November (8:30): 0.4% versus 0.6% prior.
1-17-01
Consumer Price Index for December (8:30): 0.2% versus 0.2% prior.
Core CPI (8:30): 0.2% versus 0.3% prior.
Industrial Production for December (9:15): -0.5% versus -0.2% prior.
Capacity Utilization for December (9:15): 80.9% versus 81.6% prior.
1-18-01
Initial jobless claims (8:30): 345,000 prior.
Housing starts for December (8:30): 1.5 million versus 1.562 million prior.
Building permits for December (8:30): 1.586 million prior.
Philadelphia Fed report for January (10:00): -7.1% versus -4.2% prior.
1-19-01
Trade balance for November (8:30): -$33 billion versus -33.2 billion prior.
Preliminary Michigan sentiment for January (10:00): 99.0 versus 98.4.
TEAM TRADES
VRSN: Looking strong and we wanted to start moving into positions after Wednesday's big move over some interim resistance on strong volume. VRSN bounced right off of the 86-87 level as we were looking for in the Daily, and we missed the move. Clean miss. It rallied to 92 and we were somewhat upset, but watching still. It started to slide back right after that, and we thought that we might get another shot on a test of 86. It touched down to 88 and started back up so we took a shot. March $85 calls were showing 17 by 17.75 when the stock was between 89 and 90. We put in a limit order at 17 as we were calculating where the stock would fall to based on the delta and where we wanted it to go. We added a bit to make sure we got hit. The stock fell some more, but we never saw the bid touch 17. We checked the screen and showed a fill. You never know.
It bounced to 91 and looked good, but then rolled over and crashed to, you guessed it, 86. Should have waited; patience. Well, the options were at 14 and change by 15. We liked the way the market looked and so thought we would average into some more positions and reduce our cost basis. Good plan, but for some reason our order was never filled. We are protesting it and we hope we win, because VRSN recovered and closed at 91.94. The options were at 18 by 18.75. After hours, however, the stock was at 98. That is the movement we were looking for.
BRCM: We also have liked the moves BRCM is showing, and we wanted some positions on weakness. Today gave us that. We were looking for a bounce off of the 50 day at 127, but it fell through that and we held off. The stock tapped at 121 and ran to 125. We tried to catch it on the move up, but the computer locked up. It was not our day. It started to fall and was bouncing off 124. When it bounced up the third time, we did some calculations using the delta and determined we could buy the May $125 calls for 28. We added a quarter to ensure the fill. The stock pulled back just before 11:00 CT and we got filled at 28.25. The stock ran up to the 127 level and bounced down to 125. When we saw it hit 124 again at 1:15, we started looking at more positions. Again we put in an order at 28.25, and were filled again. BRCM ran up to 129, but sold down to 127 on the close. Then after hours it exploded and was trading at 136 last we saw.
Good Investing!
Jon Johnson and the Tech Traders Report Staff.
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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