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us stock market, understanding the stock market
Begin Part 2 of 2
Dow: Closed at 10,257.11
Resistance: Just above the down trendline from March (10,235), but below the up trendline off of the September low (10,330). 10,300 blocked the move the last time it made to that level. After that 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: 10,100 has been holding on the lows the past two weeks. After that 10,000 represents some support. That is backed up by the 200 day MVA (9945.64). From 9500 to roughly 10,000 - 10,200 is recent support off of the September bottom that for now is holding up.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-24-02
Durable Orders, March (8:30): 0.5% versus 1.8% prior
New Home Sales, March (10:00): 880K versus 875K prior
Fed's Beige Book (14:00)
4-25-02
Initial Claims, 4/20 (8:30): 425K versus 445K
Employment Cost Index, Q1 (8:30): 0.9% versus 0.9% prior
Help-Wanted Index, March (10:00): NA versus 51
Existing Home Sales, March (10:00): 5.60M versus 5.88M prior
4-26-02
GDP-Adv., Q1 (8:30): 5.0% verus 1.7%
Chain Deflator-Adv., Q1 (8:30): 1.5% versus -0.1% prior
Mich. Sentiment-Rev., April (9:45): 95.0 versus 94.4 prior
SUBSCRIBER QUESTIONS
Q: We day traders are essentially very bearish and expect a crash to 9.11 if the market does not hold up for the next few days. The reason is essentially the high tech recovery is not there. Any thought?
A: As you can tell from this weekend's market summary, we are seeing signs of problems in some of the sectors that were leading higher based on an economic recovery scenario. The economic recovery is still on, but many of these sectors have enjoyed strong runs. That in and of itself is not something that necessarily means a selloff. When a sector is strong, it can continue to move higher and shake of valuation downgrades. Indeed, perhaps this is just a respite, a pit stop for a few weeks before these stocks continue higher on the back of the economic recovery story. In any event, we also agree with your assessment that the tech recovery is not happening as fast as investors had factored. The distribution is an indication that there is money moving, and the lack of positive reinforcement from earnings may just be the catalyst to move even more money out of tech and some of the sectors that have performed above the overall market.
Down to the post 9-11 lows? What got the market there in the first place? Right before the attack it looked to us as if the market was just beginning to factor in the positive economic gains that were starting to show up. The attack nipped that in the bud and sent to its lows. Since then the economy has improved from where it was before the attack. Tech stocks may have rallied too fast and far off of that low and now the lack of earnings may cause them to fall further toward 1700 and even lower. There is improvement in many tech sectors; not great increases, but improvement. Unless tech stocks were substantially overvalued right before the attacks, the improvement or slowing in the drop in tech business would indicate they should not fall that far. The market tends to overshoot, however, so that is never out of the question if the Nasdaq breaks down.
We also need to keep in mind that the market looks ahead at a minimum 6 months and as far as 18 months down the road. Thus unless there is a view that substantial recovery is not viable by the fall 2003 there should not be a total collapse. Something serious could trigger a sharp selloff, e.g., another terror attack, but a recovery is underway for most of the economy. The Fed is going to let it grow. As we said before, however, it may take most tech sectors into 2003 to start seeing appreciable recovery. Techs could suffer and we could see some short term selling on other sectors as well. As for non-techs, however, we do not see it as severe because while we do not see a roaring economy, we see a steady recovery. The non-tech stocks should not tank to the lows given that background even if the techs make a run for it.
THE PLAYS:
Good movers: ASCA gave a nice breakout. NFB just keeps moving up.
Best Plays: Many of our stocks have made good moves!
1) DAV: Making the break from its flying plateau.
2) MVL: Nice wedge.
3) NAV: Ready to fall further.
4) SYMC: Looks ready to drop.
5) ULAB: Just needs volume.
6) XL: As ready as it can get.
7) ESI: Tested the bounce and looks ready for more.
NEW PLAYS:
DVA (Davita $25.97; +0.81; optionable): Specialized health services
http://biz.yahoo.com/p/d/dva.html
STATUS: Flying plateau. DVA jumped up on mid-March on a tender offer to shareholders. It moved laterally in a tight trading range since then on below average volume, but volume increased Thursday and then the stock started its bigger move with a gap up Friday on strong volume (1.52 million; avg. is 650K). Money flow is solid, and relative strength broke out on the move. A defensive area in the market.
BUY POINT: 26.05 on volume of 800K. Target=31.25 (initial). Stop=24.25.
POSITION: Stock and/or October 22.50c to buy (DVA JX).
http://www.investmenthouse.com/cd/dva.html
ESI (ITT Educational--$49.40; +0.85; optionable): Education and Training
http://biz.yahoo.com/p/e/esi.html
STATUS: Successful test of breakout. Broke out of a 9-month cup with handle 4 sessions back on a strong surge in volume for the entire week. Thursday it showed a doji and Friday it started back up. Volume was strong once again (284,600; avg. is 134K) as the stock started back up. Buying after a successful test of a breakout is one of our favorite points because the breakout has shown some staying power. Money flow is strong, relative strength has broken out, and the price/volume action in the pattern was solid.
BUY POINT: 49.60 on volume of 250K or better. Target=56.75 (initial). Stop=46.20.
POSITION: Stock and/or October 45c to buy (ESI JI; low OI currently).
http://www.investmenthouse.com/cd/esi.html
MANH (Manhattan Assoc.--$39.55; +2.30; optionable): System software
http://biz.yahoo.com/p/m/manh.html
STATUS: Software may be a problem in some areas, but MANH is performing very well as it continues to move up in its large base dating back to late 2000. It is just below the June 2001 high (42.16 intraday), making a solid move Friday to clear a lateral consolidation or handle to a rough, 10-month cup. Volume was solid, but not exactly what we want to push it through the prior high (594K; avg. is 558K). Money flow is very strong and relative strength broke out on the move.
BUY POINT: 40.25 on volume of 750K+. Target=38.44. Stop=37.25
POSITION: Stock and/or July 35c to buy (MQR GG).
http://www.investmenthouse.com/cd/manh.html
MVL (Marvel Enterprises--$8.20; +0.17; no options): Toys and Games
http://biz.yahoo.com/p/m/mvl.html
STATUS: Wedge. We have played MVL before earlier on the run with great success. It is now setting up again for another move up out of the most recent consolidation. Price/volume action has been excellent with the big volume spikes on days of strong upside action. The high volume in the first part of the pattern has subsided, though recently volume started to spike to above average levels on up sessions once again (530K Friday; avg. is 360K). Buying is great and money flow is strong. Relative strength looks ready to breakout again.
BUY POINT: 8.40 on volume of 500K or more. Target=10.05 (initial). Stop=7.65.
POSITION: Stock.
http://www.investmenthouse.com/cd/mvl.html
PUTS:
NAV (Navistar--$42.05; -1.07; optionable): Trucks
http://biz.yahoo.com/p/n/nav.html
STATUS: One of the sectors showing signs of breaking down. A double top in March and April, the second top on below average volume. Always a danger sign. The stock then sold down and broke the 50 day MVA on Friday on heavy volume (955K; avg. is 670K). Light volume double top, strong volume breach of significant support. It may continue lower from this point, and we will look at positions on further selling. We will also look for a test of the 50 day MVA (42.68) and then a fall from there.
BUY POINT: 41.70 on volume of 700K or more. Target=37.75. Stop=43.35
POSITION: July 50p to buy (NAV SJ).
http://www.investmenthouse.com/cd/nav.html
MER (Merrill Lynch--$49.30; +0.81; optionable): Investment brokerage
http://biz.yahoo.com/p/m/mer.html
STATUS: Broke below the 200 day MVA (50.30)7 sessions back on heavy volume and has since climbed back up but on lower and lower volume (6.58 million; avg. is 6.762 million). Friday it showed a doji on the candlestick chart, an indication that this test of the breach of the 200 day MVA may be at an end. This is where we like to enter these breakdowns, and we will be looking for a fall from here to enter the put play.
BUY POINT: 48.75 on volume of 7 million or better. Target=45 initial. Stop=51.
POSITION: July 55p to buy (MER SK).
http://www.investmenthouse.com/cd/mer.html
Super thin volume, but a nice pattern. We put this in with the understanding that we do not own this stock. The analysis is purely on a technical basis; we like the pattern. The very thin trade makes it subject to price swings based on fairly small levels of buying and selling activity.
GMP (Green Mountain Power--$18.54; -0.02; no options): Electric utility
http://biz.yahoo.com/p/g/gmp.html
STATUS: Cup with handle. A 3.5 month pattern with the handle forming the past 5 sessions on mostly lower volume (3,400; avg. is 6454). The intraday handle lows have been lower, just what we want. Price/volume action in the base is solid, along with money flow and relative strength. This is one of those sectors we are seeing activity in given the increase in defensive bias in the market at the end of last week.
BUY POINT: 18.85 on volume of 15,000 or more. Target=22.62. Stop=17.75
http://www.investmenthouse.com/cd/gmp.html
CONTINUING PLAYS
PUTS:
OEX (S&P 100 559.79; +0.43; optionable): S&P 100 options
STATUS: Put. Gave us the entry point Friday by a hair as the FBI alert crossed the wire. The pattern is still working toward completing a head and shoulders with a breakdown at 548.50. We are playing the aggressive move down to that point, and if it breaks down from there we will add to positions for the head and shoulders move lower.
BUY POINT: 558.50. Target: 558. Stop=563. Breakdown: 548.45.
POSITION: May 560p to buy (OEB QL).
http://www.investmenthouse.com/cd/$oex.html
BRCD (Brocade--$25.30; -0.98; optionable): Telecom
http://biz.yahoo.com/p/b/brcd.html
STATUS: Put. BRCD started the fall we were looking for, passing through the buy point but on lower, below average volume (10.4 million; avg. is 16.48 million). A decent start, but we want to see more volume kick in to take it down to our target of 21.75. If the Nasdaq breaks down from there, we will ride it lower.
BUY POINT: New positions: a drop below 25.15 on 17M+. Target=21.75. Stop=27.75
POSITION: July $30 puts to buy (UBF SF).
http://www.investmenthouse.com/cd/brcd.html
SYMC (Symantec--$37.51; +0.11; optionable): Internet software
http://biz.yahoo.com/p/s/symcl
STATUS: Put. Still working on completing the head and shoulders pattern, with the right shoulder forming beneath the 50 day MVA (37.65). Thursday it dipped down to the buy point on the low (36.42) but rallied back up to show a doji. Friday the gain was on light volume (2.56 million; avg. is 4.3 million). Low volume on the test, so we are looking for the breakdown this week after this kiss goodbye. We can enter at two points: a fall from here and a break below 35 on rising volume.
BUY POINT: Aggressive: 36.65 on rising volume. Breakdown: Below 35 on above average volume. Target: 30. Stop=38.50.
POSITION: July 45p to buy (SYQ SI)
http://www.investmenthouse.com/ct/symc.html
VARI (Varian--$34.81; -0.09; optionable): Scientific & Technical Instruments
http://biz.yahoo.com/p/v/vari.html
STATUS: Head and shoulders. Tested the 50 day MVA Friday, moving over it intraday but then selling back below it on the close as volume moved further above average (466K; avg. is 295K). We want to see it start selling on even stronger volume.
BUY POINT: Aggressive: A move below 34.50 on 450K+. Target=31.50. Stop=35.75.
POSITION: August $40p to buy (IUA TH). Delta is -58 and low open interest.
http://www.investmenthouse.com/ct/vari.html
BASING/TRADING RANGES:
BYBI (Back Yard Burgers--$8.28; -0.22; no options): Restaurants
http://biz.yahoo.com/p/b/bybi.html
STATUS: Cup with handle. Still working in the 3 month cup with handle, pulling back to close right at he 10 day MVA Friday on below average volume (27,000; avg. is 46,722). The price/volume action in this pattern shows heavy accumulation, and the money flow is excellent.
BUY POINT: Aggressive: 8.85. Breakout: 9.55 on volume of 100K+. Target=11.50 (initial). Stop=8.15.
POSITION: Stock
http://www.investmenthouse.com/cd/bybi.html
ULAB (Unilab--$27.75; +0.25; optionable): Healthcare software & services
http://biz.yahoo.com/p/u/ulab.html
STATUS: Double bottom. In the health sector (even if software) so we like it. Friday it hit the buy point on a move up in the handle, but volume was just not huge (472,900; avg. is 441,800). Great buying and money flow, however, and price/volume action shows positive accumulation over the base. We are looking for volume to run in early this week to give the breakout some staying power.
BUY POINT: Breakout: 29.25 on volume of 660,000. Target: 35. Stop: 26.97 (7%)
POSITION: Stock and/or August $25 calls to buy (HQZ HE)
http://www.investmenthouse.com/ct/ulab.html
Run to 100:
XL (XL Capital--$95.00; 0.00; optionable): P&C insurance
http://biz.yahoo.com/p/x/xl.html
STATUS: Run to $100. Okay, enough already. XL continues to throw out doji's in a very tight trade as it continues to snug up to the 50 day MVA (93.75) on this low volume pullback (593K; avg. is 815k). We are looking for that bounce up that we can get in on and ride a nice pop up to 100 or more. Continued strong money flow from a stock in a sector that has been moving well.
BUY POINT: 95.55 (moved from 96.55) on volume of 900K or better. Target: 102. Stop=94
POSITION: We are looking at options on this one as it is high priced and the move is limited. July 90c to buy (XL GR).
http://www.investmenthouse.com/ct/xl.html
WEDGES, PENNANTS, FLYING PLATEAUS
UPS (United Parcel Service--$61.44; +0.42; optionable): Delivery
http://biz.yahoo.com/p/u/ups.html
STATUS: Jumped Thursday on strong volume but could not hold the breakout. Friday price held, but volume backed off (1.35 million; avg. is 1.46 million). Not the explosive volume we wanted to accompany the breakout move that held. We will look for volume to ramp up early this week to support the move. If was a good sign that UPS followed Thursday's reversal off the intraday high with a move right back up. Need to have that volume now.
BUY POINT: New positions up to 62, but want to see volume of 2 million+. Target: 66.44 represents a former high and is the initial target. Stop Advisory: 59
POSITION: Stock and/or July 55c to buy (UPS GK).
http://www.investmenthouse.com/ct/ups.html
Watchlist stocks: Still looking strong but removed to make way for new plays as well.
MTEC: Still in the very nice consolidation and test of the cup with handle breakout. Moved up off the 18 day MVA Friday on rising volume. See Thursday's report.
CKP: Moving laterally on lower volume right at the 10 day MVA as it consolidates the breakout 8 sessions ago. Looks just about ready to continue the move higher. Over 18.20.
SIGM: Losing strength on the bounce without really going anywhere.
PLAB: Holding well in the 4-month flat base on very low volume the past two sessions. Looking for another move over 34.50.
ROOM: Holding steady on lower, below average volume as it tries to regroup for another move over 65. This is a bounce play we want to ride on to 68.
PHTN: After the breakout attempt Tuesday, PHTN has fallen back to test the 50 day MVA on very low volume. It is still easily in the test of the earlier breakout, resting right over the $45 level breakout point.
OAKT: In the same boat as PHTN, pulling back on low volume after a big move higher Wednesday reversed. Holding easily above the 10 day MVA.
NWRE: Snugging up closer to the 10 day MVA as it consolidates the bounce higher. It looks ready for the next bounce, but it may test 9.75 first.
PDQ: Not being fast about moving through the handle to the cup. Tight doji Friday on low volume, but the handle action is not looking all that good now.
AH: Has trickled all the way back to the 50 day MVA. Not a good move at all.
AEN: Holding above the breakout point, but volume peeled way back Friday. Price/volume action has not been supporting the move, and it could easily test 13.75 or lower if it does not get better. We are going to cut it off if it drops to 13.70.
Good Investing!
Jon L. Johnson and your Technical Traders Report Team
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 in 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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us stock market
understanding the stock market
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