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Begin Part 2 of 2
TOMORROW
No big economic news Wednesday, so the market action will be dominated by market forces. On the close the indexes were shaping up for a bounce. After hours CSCO had its 'home run' quarter and that had stocks starting to move already. We are looking at many bounce plays to put some fast change in our pockets; sell offs are the fastest, but short covering bounces are not far behind.
If stocks gap higher we have that age-old problem of when do we get in. Usually we let the stock test back toward the open price or the prior close. Gaps open in downtrends are suspect, and we like to see them test and hold. It does not have to hit it, but test toward it. As these happen fairly quickly we won't wait around too long to act. These are not long term positions, but taking advantage of the repetitious bounces up and down in both uptrends and downtrends.
In addition to the upside bounce plays we continue to look for the best patterns in leader stocks as these are the most reliable. As for our downside plays, we will not abandon them on a bounce; as we have seen, these bounces have not lasted long in this downtrend and have come right back and given us nice gains.
Support and Resistance
Nasdaq: Closed at 1573.82
Resistance: 1600 to 1620 is some resistance. The down trendline is at 1650 (10 day MVA is at 1647.21), and the 18 day MVA at 1686.79. Then the February lows at 1696 to 1700. That is followed closely by resistance at 1743 to 1750.
Support: 1550 to 1560 are the October lows and could try to hold. Then 1500. After that is the September low at 1387.06.
S&P 500: Closed at 1049.49
Resistance: 1063, the late April lows. Then 1080 (February closing lows and the 10 day MVA at 1075.15). The down trendline is at 1085, and the 18 day MVA at 1088.12. Again, these are resistance points in a continuing downtrend. 1100 also represents resistance from previous price consolidations as does 1125. The 200 day MVA backs that up at 1125.64.
Support: 1050 represents the October lows and the last price consolidation level before the September low. There is possible support at 1000, but it is not much.
Dow: Closed at 9836.55
Resistance: 200 day MVA at 9918.63 was tested on the high Tuesday. Down trendline at 10,010 and 18 day MVA at 10,030.46). Then 10,100 is resistance from prior price consolidations. 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.
Support: Still holding at the recent lows at 9811. The bottom of the downtrend channel is at 9715. 9500 to 9600 are next as the index has entered into that shelf of support from 9500 to 10,100.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
5-7-02
Productivity-Prel., Q1 (8:30): +8.6% actual versus 7.0% expected and 5.5% prior (revised from 5.2%).
Wholesale Inventories, March (10:00): 0.0% actual versus -0.4% expected and -0.7% prior
FOMC Meeting (2:15): Rates held steady
Consumer Credit, March (Consumer Credit): $6.0B versus $7.1B prior
5-9-02
Initial Claims, 5/4 (8:30): 407K versus 418K prior
Export Prices es-ag., April (8:30): NA versus 0.2% prior
Import Prices ex-oil, April (8:30): NA versus 0.0%
FOMC Minutes, 3/19 (2:00)
5-10-02
PPI, April (8:30): 0.4% versus 1.0% prior
Core PPI, April (8:30): 0.1% versus 0.1% priorAuto Sales, April (00:00): 6.0M versus
SUBSCRIBER QUESTIONS
Q: One of the best services I have invested in. I am not only following your suggested plays, but trying to learn better techniques. I have a question regarding the average volume figures you use. What is the moving average that you place on the volume bars? Also, why do you use an 18 bar EMA rather than a 20 bar EMA which is much more common amongst the investment TA group? Thank you for your response.
A: Thanks for the nice comments. Always appreciated. First, for average volume we use the 50 day average. The reason is that matches an important price moving average, the 50 day MVA and it historically provides a very good measure of movement. We look at a lot of history to determine what works because the same patterns are repeated over and over in the market no matter if we are in an old economy, new economy or whatever. Emotions remain the same, and that is what drives the market. The 50 day average works well historically.
As for the exponential 18 day MVA, it has the same basis. We plot the 20 day MVA on our charts, but in 98% of the cases, the 18 day MVA is used as support in uptrends and resistance in downtrends as opposed to the 20 day moving average. We always plot several moving averages to keep up with what works. The market is dynamic and changes in cycles. The 18 day MVA gives a better read on what is going on in most cases.
THE PLAYS:
Good Movers from the report:
DKWD: Bounced from the 10 day MVA on slightly higher volume.
BRCD: Put. Broke below recent lows and fell almost 2 points on high volume.
Awaiting breakout watchlist:
ODSY: Moved up from the 18 day MVA on rising volume in the breakout test; looking for a move over the April highs just over 36.
GISX: May try to form a handle here after a three-day pop up from the 18 day MVA that slowed down at resistance (March high at 20.43).
New Plays:
OEX (S&P 100--$518.22; -1.26; optionable): S&P 100 Index
STATUS: Bounce. After giving a move down to the 519 range on the put play (taking out the initial 525 target), the index slowed the action Tuesday, showing a doji after a steep 2-day drop. Volume rose above average to 1.34 million (average is about 1.3 million) with the doji. We are looking for the index to give a relief bounce up to the range of its 10 day MVA at 532 for the quick play, taking profits there if resistance halts the bounce. On the heels of CSCO's earnings news we may see a gap higher; on that move we will look for a test of the opening price, or today's closing price for entry.
BUY POINT: From here: 520 on continued rising volume. Target=532 initially. Stop=515
POSITION: June 515c to buy (OEB FC; low open interest).
http://www.investmenthouse.com/ct/$oex.html
|mktall|Pivot=520 Bounce Tgt vol=1.5M Tgt $=initial 532 Stop=515 (7%) OEX (OEB FC)
|mktall|Target hit 532 on buys at 515 (Bounce)
SOX (Phili Semi--$470.14; -3.00; optionable): Semiconductor Index
STATUS: Bounce. After falling from its 200 day MVA the last four days (it broke that support late April and has not recovered), the SOX showed a pretty tight doji at the top of its intraday range (tapped 455.27 on the low). The close near the daily high suggests the index can bounce back here, and if it does we are looking at getting in on a quick run back up to test resistance, in this case the 500 range (below the current level of the 10 day MVA at 515, and at the February low, 500.57). We will look for a possible gap higher because of the CSCO numbers, but after a test of the opening price or today's closing price, will look at getting in quickly for the bounce.
BUY POINT: From here: 474 on rising volume. Target=500. Stop=465
POSITION: June 470c to buy (SXX FN).
|mktall|Pivot=474 Bounce Tgt $=500 Stop=465 (7%) SOX (SXX FN)
|mktall|Target hit 500 on buys at 474 (Bounce)
KLAC (Kla-Tencor--$53.99; +1.33; optionable): Semiconductor equipment.
http://biz.yahoo.com/p/k/klac.html
STATUS: KLAC has tumbled with the market, making a good put play over the past couple of weeks. It has now found support at the 200 day MVA (52.47), and today reached through that level (low of 51.60), but bounced back up to close, with volume up to 16.6m (avg. 9.24m). Now we can look at an aggressive trading play on a bounce up. KLAC is set up well, holding strong support with strong volume. With CSCO we are expecting a move, and will look to catch KLAC on a run up to 60. Potentially a quick play, and we will not look to ride it down if when the move loses momentum.
BUY POINT: Looking for a move over 54.75; if we get a gap up to open, we will look at the initial test back, and take positions on a move back up from the test. Target: 60. Stop: 51.50
POSITION: June $50 calls to buy (KCQ FJ).
http://www.investmenthouse.com/ct/klac.html
HSIC (Henry Schein--$49.16; +1.90; optionable): Medical equipment (wholesale)
http://biz.yahoo.com/p/h/hsic.html
STATUS: New high breakout. HSIC broke out of a 2-month cup base in mid-April off of a bounce from the 50 day MVA, and then tested back to the short term moving averages, first the 18 day and now the 10 day MVA. Tuesday the stock made a nice gapping move up from the latter after reporting this morning that earnings beat estimates by three cents. Volume was strong on the move at 916,600 (avg. 306K), and we are looking for the stock to continue this bounce on the momentum. The low tapped just above the 10 day MVA after the stock opened higher, then ended the day closing a nickel above the previous May high. Money flow and relative strength are breaking out.
BUY POINT: 49.40 on continued strong volume. Target=56. Stop=46.50
POSITION: Stock and/or July or October 45c to buy (HQE GI or JI).
http://www.investmenthouse.com/ct/hsic.html
Current Play:
JILL (J. Jill Group--$33.16; +0.90; optionable): Catalog sales
http://biz.yahoo.com/p/j/jill.html
STATUS: Flat base post breakout of cup w/handle. Volume remains below average in the base but rose Tuesday (184,400; avg. 250K) with the stock bouncing up from some support at 32 (the 10 day MVA is at 32.05) and moving up to resistance at the top of the pattern (near the buy point at 33.70). After bouncing first from the 50 day MVA in March and the 18 day in April, JILL is getting ready for another move (typically a $4-5 bounce). Good accumulation in the base.
BUY POINT: Breakout 33.70 on 350K or more. Target=36. Stop=29.95.
POSITION: September 25c to buy (JUI IE; delta 89; 65 OI).
http://www.investmenthouse.com/ct/jill.html
Updated:
QFAB (Quaker Fabric--$13.65; -0.08; no options): Textile manufacturing
http://biz.yahoo.com/p/q/qfab.html
STATUS: Breakout test. QFAB broke out of a 10-month cup with handle in February and is now testing a strong mid-April move up, continuing to hold up above the 18 and 10 day MVAs (showing its second tight doji above the latter support Tuesday). Volume is lower the last three days in the lateral pattern, falling to the lowest levels since early April today to 55,500 (avg. 112K). Looking ready to make a move up here! Near term high is 14.49.
BUY POINT: 14.31 on volume of 200,000 or more. Target=17.50. Stop=13.25
POSITION: Stock (no option chain)
http://www.investmenthouse.com/ct/qfab.html
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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