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Begin Part 2 of 2
Support and Resistance
Nasdaq: Closed at 1770.03.
Resistance: 1800 stopped the bounce attempt Friday. That is followed by a jumble of trouble at 1850 with the simple 50 day MVA (1840.63). Then 1875, the bottom of the November consolidation and the 200 day MVA (1871.27). The top of the November consolidation at 1934 to 1941. After that is 1980 (the December gap up point) and some minor resistance at 2000. Then the January top at 2098.88.
Support: 1775, the October high, and 1170 are trying to hold. Then the early November gap up at 1768 and 1745, where it launched from on that gap. That may not be very solid. After that it is 1700.
S&P 500: Closed at 1122.73.
Resistance: The 200 day MVA (1138.40). There is some resistance at 1150 as well. After that the December high (1173.62) and the January high (1176.97) are the real key. Those points also mark roughly the lows of summer 2001 consolidation that runs up to 1240. Before that point there is some resistance at 1183 from March 2000.
Support: 1120 has been holding on the low, trying to hold on near 1125 (former price consolidations and the 'hump' in the brief November double bottom). 1100 has acted as support as well. 1075 marks the bottom of the February double bottom pattern.
Dow: Closed at 10,271.64
Resistance: The January high at 10,300 is the first level to clear, and it held on Friday's high. Next is 10,400, the barrier to the upper half of the March trading range. The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high) marks the top half of the March trading range. 10,800 represents some resistance. That is followed by resistance at 11,000 on its way to the May 2001 high at 11,345.72.
Support: The simple 50 day MVA (10,162.67) held Wednesday and Thursday. Then 10,000 followed up by the 200 day MVA (9963.89).
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-8-02
Wholesale Inventories, February (10:00): 0.0% versus -0.2% prior.
4-11-02
Initial Claims, 4/6 (8:30): na versus 460K.
Export Prices ex-ag., March (8:30): 0.0% versus 0.0% prior.
Import Prices ex-oil, March (8:30): na versus -0.5%
4-12-02
PPI, March (8:30): 0.6% versus 0.2% prior.
Core PPI, March (8:30): 0.1% versus 0.0% prior.
Retail Sales, March (8:30): 0.5% versus 0.3% prior.
Retail Sales ex-auto, March (8:30): 0.4% versus 0.4% prior.
Michigan Sentiment-Prel., April (9:45): 97.3 versus 95.7 prior.
SUBSCRIBER QUESTIONS
Q: I would like to know if you still consider a stock a buy if you miss the buy point on a gap up but the stock pulls back to the point during the day.
A: From your question I assume the point the stock pulls back to is the buy point. There is a reason we picked the buy point; usually it represents a break over resistance. When resistance is broken it is 'soft' support, i.e., it should hold as support on a test lower. It does not become 'hard' support until it is tested and the test holds. When stocks build pressure to breakout, often it gaps over the resistance and the buy point. That is good, strong action. If it comes back to test that level and it holds, that resistance that was broken is becoming hard support. The early sellers are gone, buyers have moved back in, and the stock starts to head back up. Thus, the test of the breakout after the gap over that level, as long as it holds, it a good sign and a good entry point.
TEAM TRADES
Thursday we made some tough decisions on loss cutting, but Friday even with the continued market doldrums we saw strong stocks breaking out. CF, Charter One Financial is a savings & loan in a nice cup with handle and ready for a new high. The stock started strong, surging higher on strong volume spikes. About an hour into the session it surged to the buy point at 32.60. The move was so strong we wanted to see it test back a bit before we got in. It pulled all the way back to 32.35, holding roughly at the first morning top. From there it started a stair-step up the 15 minute MVA. Right at 10:30 it hit the buy point again and then pulled back again. When it came off the 15 minute MVA once again that was the buy point. Volume was near 60% of average, not bad for that time of the morning. We entered with a stock position; once again the stock bounced to the 32.65 level and fell back to the 15 minute MVA; an ascending wedge forming intraday. It broke out right after that and moved to 33 before re-testing the 32.60 breakout and rising a bit to the close. Volume was excellent, and this is one area that continues to do well. A new high on strong volume. Like to see that.
THE PLAYS:
Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.
Stocks from Thursday's report:
JNC: Held its ground on a down session as volume fell back below average. Still looks ready for the breakout.
PG: Nice hammer doji with a low on the 18 day MVA. Ready for the breakout.
PKG: Gapped slightly higher and then fell back to close slightly lower. Volume pulled back but was still above average.
CR: Made the breakout move Friday, but volume was less than we wanted.
Continued Plays:
MLS: Still looking very good in its saucer pattern, approaching the breakout Friday on rising, above average volume. Looking very strong.
UCI: After the big breakout over 16, UCI has hit 19 and pulled back last week. Friday it bounced off the 10 day MVA, but volume was low. We need to be careful at 19 if volume does not run back up.
YHOO: Never made the move we were looking for, but earnings are out Wednesday after the close. Friday it made a move up off the 50 day MVA after holding on a doji above that level Thursday. Volume was up on the move (9 million). We could see a pre-earnings move to 21 for the aggressive types.
FMX: Testing the breakout, and Friday bouncing up off the 18 day MVA on rising, average volume. It also held at the June top at 45.
RGCI: Never hit the buy point and tanked Friday. Not the move we were looking for.
ASX: Semiconductor holding tough as we head into earnings season. A doji Friday could indicate a pullback to 5.
AGAM: Gapped higher Friday on sharply higher than average volume.
OLGC: Gapped higher but could not make the breakout, finishing flat on rising, above average volume.
SBUX: Continued the move, gapping higher on the strong news but selling back on the close. Needs to bounce from here.
GE: Put. Gapped higher Friday and then sold back down, hitting a low of 36.77. We will watch for more weakness early this week and get out near 36.
ACAT: The low volume move higher Thursday was not enough as ACAT turned over on above average volume Friday.
CHK: Energy stocks continue to suffer, selling back and testing the 18 day MVA on rising volume. If it cannot hold 18 day MVA, we are out.
SYXI: Semiconductor. Very, very low volume pullback Friday.
Best Plays:
1) WTW: There are deductions in weight loss.
2) MLS (see summary above).
3) CHGO: Looks ready to move back up.
New plays:
WTW (Weight Watchers--$38.61; +0.65; no options): Weight loss
http://biz.yahoo.com/p/w/wtw.html
STATUS: Weight loss took on new meaning last week when the IRS said it would allow deductions on weight loss programs. Mighty big of them. WTW is a new issue that has rallied and is now going through an 8-week cup with handle, Friday starting up in the handle on rising, above average volume (159,900; avg. is 110,000). Relative strength is ready to breakout, and price/volume action is excellent.
BUY POINT: 39.90 on volume of 165,000. Target=47.88 (initial) Stop=37
POSITION: Stock
http://www.investmenthouse.com/cd/wtw.html
NCC (National City--$29.94; +0.04; optionable): Midwest regional bank
http://biz.yahoo.com/p/n/ncc.html
STATUS: Moving through a 7-month cup with handle base and forming the downward sloping handle on low, below average volume and above the 200 day MVA (29.25). Volume Friday was slightly higher though still below average (970,700; avg. is 1.2 million). Money flow is very good and price/volume action is solid with up weeks on rising volume outnumbering down weeks on rising volume in the base handily. Regional banks are one of the steadiest performers of late.
BUY POINT: 31.26 on volume of 1.8 million or better. Target=36.75 (initial; some resistance there). Stop=29.25
POSITION: Stock and/or July or October 25c to buy (NCC GE or NCC JE)
http://www.investmenthouse.com/cd/ncc.html
CHGO (Chicago Pizza & Brewery--$6.21; +0.11; no options): Restaurant
http://biz.yahoo.com/p/n/ncc.html
STATUS: This stick has been around for about 5 years but started making a good move about one year ago. Ran from 2.50 to 5.50 in a couple of months, and has since worked laterally toward the 200 day MVA. It hit that level in March and shot up $2 on some huge volume for the stock. It ran to $7, and has pulled back the past four sessions on a tightening trading range, showing two doji's at the end of last week. Friday volume dropped to 63,000 (avg. is 75K, but it has been trading in the 350K to 400K range for a month. We would like to see this pullback hold right around 6; it stopped just above the 10 day MVA (6.10) Friday with a very, very tight doji on that below average volume. It may be close to the turn for a run at another all-time high.
BUY POINT: 6.48 on volume that moves back to well above average levels (200K+).
POSITION: Stock (no option chain)
http://www.investmenthouse.com/cd/chgo.html
UNFI (United Natural Foods--$25.18; +0.59; optionable): Wholesale natural food
http://biz.yahoo.com/p/u/unfi.html
STATUS: Cannot seem to get off of the food angle today. Not at an all-time high but ready to try on a new 52-week high (all-time at 32.50). UNFI is working through a 3-month cup base after breaking out of a 5-month cup base in late December. You could even say that the current cup is a handle for the prior cup. Whichever way you want to look at it, price/volume action in the current cup is very good with up weeks on strong volume easily outnumbering the down weeks on volume. In addition, relative strength has already broken out ahead of the stock price move. Volume Friday started back up, but was still below average (143,800; avg. is 195K).
BUY POINT: 25.60 on volume of 290,000+ (easily doable for this stock). Target=31.90. Stop=23
http://www.investmenthouse.com/cd/unfi.html
PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that look ready to pick up a few shares.
THE LEADERS: DGX, FRX, LLL, MIK
DGX (82.50; +1.70): Won't give up yet, bouncing off the 18 day MVA Friday on rising, above average volume. The recent high is at 84.10; it fell from there on non-news. We need to watch the level for resistance, but it is looking like it wants to recover.
FRX (79.25; -0.91): Ducked further below the 50 day MVA, but not far and on very light volume. This looks like one of those short term breaches, but we want it to hold at the 78 level on continued low volume. On the move back up it needs to clearly break back over the 50 day MVA or else we could be getting that 'kiss goodbye' scenario.
LLL (120.52; -0.10): We said to watch out for 120, and sure enough Friday is shows a tight doji on higher volume (794,200). Maybe it will give us that lateral consolidation now.
UP & COMERS PORTFOLIOS: BBBY, SRCL
MEMBER PORTFOLIO: CSCO, SEBL, EMLX, BRCM, HDI, BRCD, BUD, AMGN, WMT, ORCL, HB, NOC
Many of these stocks are breaking down even further.
SEBL is playing around below the 200 day MVA for the second straight day. The breach was on high volume and Friday's move higher was on below average volume. It is right at the February and March lows and playing with fire.
EMLX: Back at the 200 day MVA on rising, average volume as it continues its downtrend from January. If it crashes to 26 you can hope for a double bottom.
BRCM: Looks to be trying a double bottom of its own, falling Friday on slightly highe rvolume and just off the 30 low in February.
BRCD: Trying to build a lateral handle to the double bottom from February and March. Not a powerful pattern, but showing more life than many of the big name techs.
WMT: The downgrade hurt. Some were ready to sell as the mid-March action somewhat indicated; we had concerns at that point, but we did not expect a downgrade to have this impact. It is moving laterally for now, having stopped the bleeding. Look for the test of the 50 day MVA near 60.50 and be wary of a higher volume reversal there.
Good Investing!
Jon L. Johnson and The Daily 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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