us stock market, stock trading

* * * *
5/08/02 Technical Traders Report
* * *
Technical Trader Report Subscribers:

MARKET ALERTS

Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm

Emails: We love your emails. We receive hundreds of emails a week, but we don't mind. We respond to them all as fast as we can, so bear with us.

SUMMARY:
- Massive rally on strong volume ignites a lot of hopeful chatter.
- Stocks that were diving reverse for 20% gains and more. Too much too fast?
- Recent leaders lag as money chases the old favorites.

Huge surge as money seeks tech stocks with renewed hope of the good old days.

Sometimes I wonder if I have dyslexia in hearing. I heard what Chambers said last night. I heard him say he had no idea if the business had bottomed. Yet, I heard several analysts say that CSCO's news showed the bottom had been hit in the business cycle. Where was the supplemental press release that said this? CSCO's news was not that good. It was an operational success, i.e., cost cutting as Chambers said. There was no real improvement in business. The market was so oversold, however, it needed just a catalyst to send it higher. The patterns on the close Tuesday indicated an oversold rally was coming as noted in our last alert of the session, and then CSCO's earnings were enough to set it off. Too bad CSCO's numbers came out Tuesday instead of today. That would have given us a much better chance to play the upside. Today there was a big gap higher that always makes things more difficult.

There was a lot of hope on the financial stations as there were claims of a 'broad' rally by the anchors. A general feeling of mirth and good will toward stocks glossed over the nature of the move: short covering after a strong downtrend, fairly weak A/D line given the upside moves, and the lack of any real change in the economy as confirmed by CSCO's own statements. Those factors were brushed off after brief mention as it was much more fun to compare the session to prior glory days moves.

Stocks breaking apart Tuesday reverse as shorts cover.

Many tech stocks were in a complete retreat Tuesday, but then sported 20% or better gains today. The patterns were in complete distribution mode and then leapt higher on rising volume. That is classic short covering on good news. That is not necessarily bad in and of itself as most rallies start with short covering. It does show us, however, that today was not really an accumulation session: stocks that were being sold hard reversed hard; it won't be until next week we will see whether this move has any staying power.

Key factors missing for a true reversal that holds.

What really bothers us about this type of rally is the size of the gains in one session. EMLX up $6, BRCD up $5, etc. Are these stocks really worthy of such moves in one session? Maybe; they made some strong moves (not this strong, however) off of the September bottom. Is there, however, anything different today than yesterday other than CSCO saying it was more efficient in operations and thus made a bit better profit? In September there was massive pessimism and fear along with a feeling that things could only get better that helped trigger a reversal. There is nothing really here to change reality of a very slow tech recovery.

We always see strong moves off of the lows when reversals come. Thus, this could be a reversal that is in fact the successful test of the bottom. While the tech stocks soared, some of the leading sectors took a pause or sold back as money chased the 'got to get in' stocks. This is typical and something we expected in our report last night. That led some to say this could be the transition from the lead by the economically sensitive stocks back to the techs. We considered that prospect as well, believe me.

The problem with that: the lack of factors that historically indicate the start of a real new rally, e.g., sentiment extremes and the most important of all, GOOD patterns in the group getting all the attention (technology stocks). There are horrible patterns in technology. There has been no accumulation of these stocks. That is the huge, huge flaw in calling today a bottom. In 1998 there were great tech patterns to lead. This may in fact be the successful test for the MARKET OVERALL, but for the Nasdaq, it is a long, long way away. The patterns of distribution have to turn to patterns of accumulation and get rid of the overhead supply. They can bounce on an Arms/oversold rally, but reality will come home to roost, i.e., CSCO's news was not great news and that there is still no growth in technology yet (Cisco even said that Tuesday). Without good patterns showing accumulation, the moves flame out and fail.

At best the techs work on rebuilding for a while. We can make some money when they do, but we need to understand what we are getting into just as we did back at the September bottom. Many big names rambled off the bottom in September, but they did not have accumulative patterns, and they stumbled and fell as the small and mid-caps continued to rally. Again, we can make money on them and we were in after KLAC for example today. But we also know that we are not planning on KALC being a long term hold in this pattern which more resembles a bearish head and shoulders than anything else.

THE MARKET

We were looking for a relief rally at the close Tuesday, and the CSCO earnings later that night gave the catalyst for a blast off. Very typical, sharp rally on massive volume that occurs after a steep downtrend. The desire is to make it into more than it is, and we heard and read some commentators saying to assume it was not a reversal with legs was foolish. Until we see some follow through from LEADING stocks in GOOD patterns, call us foolish, at least as far as the Nasdaq is concerned. We looked for bullish patterns again just to make sure we were not missing anything (e.g., double bottoms). If anything, we saw the big name techs in bearish patterns (e.g., EMLX in a head and shoulders). As discussed above, the elements of a lasting reversal are not in place. We still see many stocks to short out there, but we also see many leading stocks taking a break and setting up for good upside moves once again after money chased the crushed techs on Wednesday's rally. These stocks are the real hope for the market. These stocks can in fact lead if this was a successful test and we get follow through next week.

The internals were basically good, particularly on the Nasdaq now that it finally had support from the large cap techs. The Nasdaq A/D line was not bad even as the big name techs were torched. With their help the A/D was solid. It was not huge, however. Back in the 1998 recovery and in other reversals that truly were reversals, we saw 3 to 1 on the A/D line. We talk about 'relative' relative strength in the seminars, i.e., how a stock's relative strength today compares with its relative strength at other important times in its life history. The Nasdaq's strength is good compared to recent history, but nothing compared to what it was in its leadership roll in years gone by.

The NYSE internals were yawners given the move. This is another indication this was a short covering rally. Again, short covering rallies are always the start of any rally; they just don't guarantee a lasting rally. What do we do on this is look for follow through and stick with the good patterns, the patterns and stocks that really are leading the market. If this is the successful test of the bottom, they will lead to even better returns long after this move in the stocks with poor patterns flame out or go about rebuilding their bases while market leaders go about hitting new highs.

The S&P 600 (small cap) made a strong move from just above its 50 day MVA. The S&P 400 (mid-cap) made a solid recovery over its 50 day MVA, but has to clear 545 to make real headway. These were very solid moves, and we have been focusing on these as an important key to the market overall.

Put/Call Ratio (CBOE): 0.65; -0.08. The put/call ratio never closed over 1.0 on this round of selling, indicating that fear never really made it that high. We heard talk of capitulation, but it never showed up in the sentiment indicators. Heck, VXN volatility only made it to the 200 day MVA at 50 before rolling over and tanking over 4 points today. Nowhere near an extreme level.

Nasdaq

Bigger than any move off of the September bottom by far. Some said that was good. To us we would prefer some 2% to 3% gains, not a huge move higher that is not supported by good patterns in the big names on the index. We would prefer to see building, not racing half way to the moon and then looking for that second stage rocket to use Greenspan's analogy. It was damn impressive, but more in a statistical sense to us than a real recovery.

Stats: +122.47 (+7.8%) to close at 1696.29-4.66
Volume: 2.402 billion (+12.3%). Massive volume, but still not as big as on the moves off of the September bottom. Again, impressive, but many short covering rallies we have seen on the way down were short covering rallies.

Up volume: 2.030 billion (+879 million)
Down volume: 347 million (-617 million). Impressive upside surge.

A/D and Hi/Lo: Advancers led 2.28 to 1. Best in a while. Decliners led 1.43 to 1 Tuesday.

New highs: 147 (+16)
New lows: 58 (-117)

The Chart: http://www.investmenthouse.com/cd/$compq.html

Gapped over near term resistance and powered up close to the February low (1696). The Nasdaq likes to gap at this level. It gapped down from here in August 2001. It gapped over this level in October 2001. It may want to come back and fill this one before it continues its move higher. The patterns on the index certainly do not support a strong move at this point. As for resistance, the next level is the down trendline off the March and April highs at 1740. There is a range of resistance from that level to 1750, and that is followed by the 50 day MVA (1759.95). After that dip below the April 2001 lows it reversed on some big volume; as we said, perhaps this was the successful test where it will now build back again. In past bear markets, a 100% test was not always required for a successful test.

Dow/NYSE

Stats: +305.28 (+3.1%) to close at 10,141.83
NYSE Volume: 1.484 billion (+10.5%). A nice surge, but not its best volume even in the past two weeks.

Up volume: 1.234 billion (+710 million)
Down volume: 275 million (-548 million). A lot more buyers than sellers.

A/D and Hi/Lo: Advancers led of course, but at 1.72 to 1, it was not impressive. We have seen advancers top decliners well in excess of 2 to 1 over the past month. We wanted more from the Dow, particularly as it is in much better shape than the other two big indexes.

New highs: 114 (+12)
New lows: 22 (-56). After nine sessions of new lows greater than 40, they finally weakened substantially. Took a 300 point gain to do it.

The Chart: http://www.investmenthouse.com/cd/$indu.html

After holding at 9810 in late April and again this week, the Dow exploded higher, clearing near term resistance as well as its recent down trendline with ease. As noted, it is in the best shape of the big three indexes, and with IBM up $6 and MSFT +$5, it had plenty of upside fuel for a change. Unlike the Nasdaq, its pattern is decent and investors have been buying many of its stocks recently as opposed to dumping them. It has plenty of resistance ahead still at 10,300 at the January high. That would finally give it a leg up on testing the high.

S&P 500:

Massive move off the bottom that carried it just above the steeper March down trendline. It stopped just above the 18 day MVA (1088.20), and faces another down trendline at 1100, a level of prior price consolidations at the highs of the October consolidation. It has another major hurdle at 1125 as well. Lots of work ahead, and the large caps have not been under a lot of accumulation as the S&P's pattern indicates. 1100 will tell us a lot about the potential for further upside, but if it can make 1125 we would be surprised if it can clear it without a consolidation.

Stats: +39.35 (+3.8%) to close at 1088.85
Volume: NYSE volume surged to 1.484 billion (+10.5%). Strong, but not the strongest in the past two weeks.

The Chart: http://www.investmenthouse.com/cd/$spx.html

TOMORROW

Initial jobless claims are out before the open. They might be able to add fuel to the upside fire but won't be a major catalyst unless they show some dramatic improvement.

Lots of upside momentum. Now we will see if the next step can be made, i.e., avoiding the immediate slap down of distribution that has killed off each previous rally attempt. This has more going for it than the recent attempts as far as a point gain. If it can avoid distribution Thursday and Friday, then it has a chance to follow through next week with a 2% or better gain on rising, above average volume.

Don't get us wrong. There are leaders in the market that can continue to lead the market higher. They are just not the tech stocks as far as we are concerned. Their patterns are not patterns of accumulation. They can give big bounces up off the lows if this is the bottom similar to what we saw after 9-11. As noted, however, we don't see bullish patterns, and there is a lot of overhead to overcome. True buying can cut through that overhead, but at some point they will have to base out and get rid of that overhead to make lasting moves.

Thus, we don't mean to say today's rally cannot be the successful test of the lows that leads to great gains from here. We just don't think technology will be able to sustain the move right now. If the rally can continue, the techs will be able to work on their patterns, and perhaps late in the year or early next year take over leadership from the early leadership groups.

For now we still see short positions that are set up, but we also see leaders that have pulled back in the rush to big name techs, and we are looking at those for more good gains when the initial tech hysteria dies down. We are holding several puts on stocks that shot up today; with most strong moves there is a test of some degree, and instead of rushing to exit, we can get a better exit point after the initial surge is over and we get a test.

Support and Resistance

Nasdaq: Closed at 1696.29
Resistance: The February lows at 1696 to 1700. That is followed closely by another down trendline from March at 1740 and resistance at 1743 to 1750. The 50 day MVA is at 1759.95.
Support: 1650 could act as some support, followed by 1620. It may try to fill that gap to 1600 at some point. 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 1088.85
Resistance: 1080 (February closing lows) have not been completely broken, and the down trendline at 1082 is still close (18 day MVA at 1088.20). There is another down trendline from March at 1098, right on resistance at 100 from price consolidations. 1125 is the serious resistance as that represents strong price points and the 200 day MVA (1125.02).
Support: 1080 is possible, then 1063. 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 10,141.83
Resistance: 10,300 holds the key to reaching toward the March high. The simple 50 day MVA (10,276.63) is running interference for 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: 10,100 from price consolidations and the March down trendline. Below that is the 200 day MVA (9916.30). Then recent lows at 9811. The bottom of the downtrend channel is at 9700. Then 9500 to 9600 in the 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%

THE PLAYS:

Good Movers: THER, SOX, OEX, KLAC. Also from last night's report: QFAB is moving up on rising volume in the test of the breakout. Looks good!

Best Plays:
1) CACI: Setting up for a kiss good-bye.
2) RAH: Ready to break resistance.
3) PCLE: Looks like it's trying to make the move.
4) GWW: Still weak.
5) LPNT: Used the rally to firm up its pattern.
6) IRM: A higher volume bounce!
7) WL: Setting up for another fall.
8) GISX: Trying for a move out of the cup.

NEW PLAYS: We are skeptical of this rally, so continue to look for downside moves from stocks that are set up for such.

New Puts:

CACI (Caci Intl--$31.18; +1.76; optionable): Technical services
http://biz.yahoo.com/p/c/caci.html
STATUS: Put, kiss good-bye. After breaking down below the 200 day MVA in late April, CACI has made its way back up to that resistance (tapping it on the intraday high Wednesday at 31.65). Volume has been below average on the climb, punching up today to 649,900 (avg. 685K), still weak, and we are looking for the stock to move back down from the 200 day MVA, for a move back down to the range of the May low at 27.43. The stock can continue all the way up to the 200 day, and it may even cross it to test the 18 day MVA at 32, but if it does not get more strength behind it, look for the fall back.
BUY POINT: 31 on preferably rising volume (700K or more). Target=27.50 (initial). Below that, 25.50. Stop=32.50
POSITION: June 37.50p to buy (KFQ RU; delta -0.75, 87 OI).

http://www.investmenthouse.com/ct/caci.html

New Upside:

RAH (Ralcorp--$28.92; +1.02; no options): Processed foods
http://biz.yahoo.com/p/r/rah.html
STATUS: 18 day MVA bounce. RAH tested close to its 50 day MVA mid-March and again on Monday, both instances on above average volume which constitutes a good test even though the stock did not quite hit the support level (tapping just above it both times on the lows). The stock had a super run after breaking out of a flat base in December, the first test marking the beginning of a few weeks of volatility. However, RAH settled down nicely over the last week, moving in a tight lateral pattern above the 18 day MVA, and Wednesday popped up on a strong rise in volume from there (166,700; avg. 87K). It closed just below the April high at 29.05, but this move looks ready to take that out. Money flow is breaking out with price; relative strength is high.
BUY POINT: 29.10 on continued strong volume. Target=35. Stop=27 (50 day MVA is at 27.15).
POSITION: Stock.

http://www.investmenthouse.com/ct/rah.html

End Part 1 of 2

us stock market
stock trading