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world stock market, us stock market
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Tech Traders 1/23/01 Market Summary
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Technical Traders Subscribers:
Continuing Plays:
JNPR (Juniper Networks--$135.66; +8.10; optionable (JUY)): Tested the short term up trendline on the low of 121.94, then headed up the rest of the day on excellent volume (21.4 million; avg. 15.6 million). The stock is in an ascending wedge pattern, moving up to resistance (50 day MVA 139.63 and the pattern high of 145. Good buying.
BUY POINT: Aggressive: On further upward movement on continued strong 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). Credit spread: February $135 puts to sell (JUY NG) and February $130 puts to buy (JUY NF), for a net credit of $2.37 or better. Breakout: February $145 puts to sell (JUY NI), and February $140 puts to buy (JUY NI), for a net credit of $2.88.
http://www.investmenthouse.com/ct/jnpr.html
(Click to view the chart)
EMLX (Emulex Corp--$109.59; +11.09; optionable (UEL)): Broke to a new high on stronger volume (6.2 million; avg. 4.4 million). Prior basing high is 112.75, and after the last two days of pulling back (Monday on lower, below average volume), looks ready to break out of the base. The stock just passed 108.76, above Friday's high of 108.63, (handle high). Great money flow and good buying.
BUY POINT: Breakout: On further upward movement, on volume of 6.6 million or better.
POSITION: Breakout: Stock and/or April $105 or $110 calls to buy (UEL DA or DB). Credit Spread: February $110 puts to sell (UEL NB), and February $105 puts to buy (UEL NA for a net credit of $2.25 or better.
http://www.investmenthouse.com/ct/emlx.html
(Click to view the chart)
GLW (Corning Inc--$70.00; +2.37; optionable (GRJ)): Moved up on stronger volume as the stock moves toward the earnings report out Wednesday after the bell. Volume remained below average but higher at 8.8 million (avg. 11.7 million) as the stock moves up from a short handle to a short cup base (6 weeks). Look for a continued move up from here with a just above the handle high of 71.19. Positive buying.
BUY POINT: Breakout: 71.32, on volume in the range of 17.5 million or better.
POSITION: Stock and/or May $70 calls to buy (GRJ EN).
http://www.investmenthouse.com/ct/glw.html
(Click to view the chart)
AMAT (Applied Materials Inc--$48.25; -0.69; optionable (ANQ)): Looks great in the ascending wedge, testing support (10 day MVA 47.26) on below average volume (16.5 million (avg. 21 million). Pattern high is 51.50. Look for a move up; the low tested close to the 50 day MVA (45.77) at 46.94.
BUY POINT: 51.63, on volume of 28 million or better.
POSITION: Stock and/or April $50 calls to buy (ANQ DJ).
http://www.investmenthouse.com/ct/amat.html
(Click to view the chart)
PLT (Plantronics Inc--$52.94; +2.00; optionable (PLT)): Moving up on better volume (401,900; avg. 380,000), from the base of the handle in the stock's cup base. Handle high is 54.81. High money flow.
BUY POINT: 54.94, on volume of 570,000 or better. Remains a buy on the breakout up to 57.69.
POSITION: Stock. May $50 options (PLT DJ) had insufficient open interests (too illiquid for this stock) at 24.
http://www.investmenthouse.com/ct/plt.html
(Click to view the chart)
XOXO (Xo Communications--$27.19; +0.25; optionable (QNF)): Looks ready to move up after pulling back from Friday's breakout high of 29.94 (after testing a wedge breakout). The stock tested 24.81 on the low, then moved up to close near the high of 27.31. Volume maintained previous session levels (6.3 million); look for stronger volume in a rally. Excellent buying and continued strong money flow.
BUY POINT: A move up from here on stronger volume (7 million or better).
POSITION: Stock and/or April $25 calls to buy (QNF DE).
http://www.investmenthouse.com/ct/xoxo.html
(Click to view the chart)
New Play to look at:
XLNX (Xilinx Inc--$55.38; +1.75; optionable (KLW)): Has tested the 50 day MVA (52.80) (on low volume Monday), and moved up slightly from there Tuesday on stronger volume (7.3 million; avg. 9.8 million). The stock is ready to move on stronger volume. XLNX has been climbing steadily from the November low of 35.25 and shows positive buying.
BUY POINT: On further upward movement on average or better volume.
POSITION: Stock and/or March $55 calls to buy (KLW CK).
http://www.investmenthouse.com/ct/xlnx.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:
- It took a while today, but Monday's candlestick patterns foretold a rise as volume surged in the last hour.
- Earnings continue mixed: very good, good, okay, wait 'til next year.
- Retails sales weak, but now everyone seems to think things are just peachy in the economy. That is scary.
- The FOMC hype has officially begun.
- Subscriber Questions
- Team Trades
Slow start and fast finish. Just the way we like it.
Monday appeared to have set the stage for a move up today with the major indexes and key stocks coming to rest on top of support in the form of down trendlines and key moving averages. It took a bit, but the market caught fire and gave us some great entry points on some of our favorite stocks and plays that were developing. We were worried about volume as it was looking like a lower volume up day. Then buyers ignited things with about an hour to go and volume raced ahead to the close. All major indexes joined in on the higher volume move.
Earnings are solid once again.
That put a good face on a pretty good session: higher (but not blowout) volume, decent A/D line, and positive responses to good and even negative earnings news. After hours some of our old favorites put a cap on the day. SEBL blew out earnings and sees nothing inhibiting its growth (5 cents over expectations, revenues up over $100%). One analyst said SEBL would be a $12 billion revenue company before long. The stock exploded after hours. BRCM beat the street in earnings and revenues and said "we are expecting a lot of growth" in the coming quarters. It was labeled the "fastest growing semiconductor" by some analysts based on its wide array of customers and semiconductor markets. EMC got things rolling before the market with its "strongest fourth quarter ever," then MER crushed estimates as well.
There were misses as well, but as of now, 49% of the S&P 500 companies reporting earnings have beaten estimates. Granted they are lowered, but with the leaders such as JNPR, SEBL, the estimates have not been lowered one bit. CPQ beat its lowered estimates and surged after hours, and LRCX also beat the street by 2 cents and it was rushing up after hours.
Investors were feeling pretty good with the earnings, and then LEH got everyone feeling heady with its report that of the chief information technology officers it interviewed, 50% said they were going to keep on buying at year 2000 levels. That was just peachy.
All of the sudden things are just wonderful. Yea, right.
Notice the metamorphosis in the reporting over the past few sessions? When things were really dicey still (despite what we knew by looking at the market indicators that matter) all we heard from were those who felt the economy was still going to act as a drag on the market, that no one was willing to commit big money to the market until they started to see economic improvement, how recession was imminent. Sounds just like us last year warning of the potential recession that was coming thanks to the precarious position the Fed put us in. When these 'seasoned veterans' were saying to stay away we were saying it was time to start getting into the market because, despite what the television was saying, the signs were there that big money was going to work. You cannot ignore those signs no matter how weak the stomach may be.
Well, now we have talk about not a real recession at all and how if that is the case there will be tremendous upside for stocks. We hear about fund managers being nervous that they missed out on the bottom and are doing some buying just in case. We heard the rumor about hedge funds trying to short the market last week to get it lower so they could get in on 'the rally.' This is dangerous, crazy talk most likely brought on by the fact that earnings from the leaders are after all not that bad. It could be true that things just go onward and upward from here, but that talk is not historically good to hear for the long term.
We would prefer to continue to hear them scowling about how this was way too risky to invest in, how doom was on the horizon. That would give us some comfort level that there was a buffer zone of skepticism. If all of the skeptics throw in the towel the market will move higher, but it might burn itself out too soon. Moreover, if everyone suddenly becomes believers in the market, it becomes susceptible to upset. It has been swallowing bad news and running ahead for now. What happens if everyone thinks things are rosy, yet harsh reality, the final arbiter, says no?
The economy is not great.
Today the weekly retails sales were released and they were once again weak, reflecting the poor consumer confidence that peaked way back in August and hit almost shocking lows in the latest Michigan sentiment survey. Those saying there will be no recession are apparently hanging their hat on the last week or so of December when retails sales really kicked into gear; they were not strong, they just prevented an utter collapse in consumer spending. They ignore some other critical, meaningful economic evidence in favor of their emotional need to feel everything will turn out okay.
Why did the Fed cut rates by 50 basis points inter-meeting? There is no 'hidden boogeyman' as some are saying. The evidence is clear: a recession in manufacturing sectors and the very real threat of deflation in the economy here in the U.S. and abroad. Look at the signs. Back before the Fed started raising interest rates and Greenspan was getting us really PO'ed with his tough talk against the markets and 'pressures in the economy,' we noted that what was going on in world commodity markets did not correspond to his statements. The U.S. was in a bad drought and crops were burning on the vine, but food prices were falling. Gold was and still is in a swoon; its price shows no sign of inflation. Oil was in a glut and prices were at levels that would not sustain a U.S. energy industry. Long term interest rates were low and going nowhere.
Now the Fed has raised rates 1.75 points to fight off inflation that was never there. Despite the hike in short term interest rates, long term rates continue to fall. Gold is still in the tank and shows no hint of inflation. Last year's fires and drought (once again) could not boost grain prices. Energy prices shot up after OPEC artificially cut production, but prices for goods and services did not rise. Indeed, oil prices have now fallen even as OPEC cut production again. And with all of this historically low unemployment, wages have barely hiccupped. On top of that we have a stock market that has been strangled by lack of liquidity, and businesses cannot even borrow money to conduct business.
So, when the Fed saw how fast things were dropping at home, it had no choice (unless it wanted global economic crisis to emerge unimpeded) to cut rates immediately. The stock market was ready to dive to new lows on the very day the Fed cut the Fed Funds rate. That plunge was going to result in a test of 2000 and possibly lower. What was a lame economy would turn into a disaster. The Fed had to act.
The situation has not changed with that one rate cut. The threats are as real as they have ever been. The stock market, despite its recent little run, needs more IV's. It is not about to trigger any consumer confidence rise or any buying sprees. Let's face it, trillions of dollars were wiped away over several months. Two weeks of timid rallying on the Nasdaq is not going to erase that. There is a lot of damage to repair in the market and in investor confidence. No one we know is running out to buy that new car right now based on what has happened the past couple of weeks. Yet, we hear analysts and economists saying things are not that bad when things have not changed from three weeks ago; that is emotion talking once again, and that is setting us up for some possible trouble ahead.
The Fed hoopla hits full stride.
Today an article came out from a source stating that some St. Louis Fed officials were saying that the Fed was talking 25 basis points, not 50 basis points at the next meeting. We will know more tomorrow when Mr. Greenspan addresses the Senate, but Fed officials are not inclined to give out this information on a private basis. Some said the Fed was using the reporter as a messenger to ease the market's expectations. Whatever. This was designed to capture some headlines and stir the pot some more. It also focused the spotlight even tighter on Greenspan, something we think he likes and something this little story was designed to do. On the news the Fed Funds Futures contract dropped the odds of a 50 basis point cut from 92% to 68%. The reason for the lighter cut? Supposedly that the Fed saw stability in the equity markets and a pickup in consumer buying in January. As we said, the market is hardly stable, and if the Fed rests on that January 3 rate cut, things will turn to crap pretty fast.
We said this would happen. We said to be ready. Fortunately the market was not buying it today; we will see what happens when the ECI comes out and Greenspan talks tomorrow. Not only does the Fed need to drop rates another 50 basis points, the Congress needs to get on board with the tax cut that is going to be put forth soon. This economy, indeed the world economy, is extremely precarious right now. We think Greenspan knows this, but he has been so obstinate in taking action. It literally took the shocking NAPM numbers to get him to do what he knew had to be done. That is why we are concerned that with the market not diving he may do something really stupid, taking a 'gradualist' approach that some on the television smugly say needs to be done. Funny, the economic slowdown has not been 'gradual.' The cure should match the slowdown at least. The Fed will get a look at consumer confidence on Monday, and fourth quarter GDP numbers will be out on the morning of 1-31. The Fed will see some of its handiwork before it acts.
Fed Funds Futures Contract takes a hit, but still shows a higher probability of a 50 basis point cut than not.
When the dust settled, the February Fed Funds Futures contract showed a 70% chance of a 50 basis point rate cut. Now 25 basis points is not bad, but it is not what is needed. The Fed needs to be aggressive. Investors and analysts are deluding themselves with this talk that everything is going to be just fine. We even heard one rationalization being that if the Fed thought only 25 basis points was necessary, the economy must not be in bad shape after all. Of course that 'logic' ignores that the Fed caused much of the problem in the first place by being WRONG about the economy (or at least having ulterior motives) and that it knows 'just how much' tweaking needs to be done to get things rosy. The Fed has shown it has the light touch of a pile driver, so why should we have confidence in its judgment? We will get a peek at Greenspan's thoughts tomorrow, but until 2:15 ET on Wednesday, no one knows for sure.
End Part 1 of 2
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world stock market
us stock market
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