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Begin Part 2 of 2

TOMORROW

The Producers Price Index is out before the open Friday. This is more of an inflation gauge, and inflation has been pretty tame in all reports though prices paid components have been rising. We have to remember, however, that even those do not mean a whole lot. Businesses continually state that they have no pricing power and have to eat price increases. Good for consumers, not good for companies. So while prices paid may not mean much as far as inflation is concerned (and that is usually the focus when you hear the numbers), it has a big impact for on profits. That is what the market reacts to, not inflation worries.

Friday will show more about the near term move. After a rally, a down session inside the prior move indicates weakness. The third day, however, tells the near-term story. Being a closing tweezer pattern on the candlestick indicates a downward bias (the general trend of the market). That does not mean there is no possibility of a follow through next week; as long as the Wednesday low is not undercut, the reversal remains alive. That is worth keeping in mind, but the trend is still down on the Nasdaq and the S&P 500. Wednesday tried to reverse that, but it will take more than Wednesday.

As for tomorrow, we don't expect much from the big indexes. We could be totally wrong, but again, we feel the moves will revert to the recent mean, i.e., the smaller issues in economically sensitive sectors outperforming the big names. Thus we stick to the primary game plan we have been playing.

Support and Resistance

Nasdaq: Closed at 1650.49
Resistance: The February lows at 1696 to 1700. That is followed closely by another down trendline from March at 1733 and resistance at 1743 to 1750. The 50 day MVA is at 1755.65
Support: 1650 held today on the close. That is followed by 1620. Looks like it is going to try and fill the gap to 1600. 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 1073.01
Resistance: As noted Wednesday, 1080 (February closing lows) had not been completely broken. They are still unbroken in the big picture. The down trendline at 1080 is now back in control, backed up by the 18 day MVA (1086.60). Then the next down trendline at 1095, backed up by 1100 from price consolidations. 1125 is the serious resistance as that represents strong price points and the 200 day MVA (1124.34).
Support: Hanging onto the February lows at 1074, but barely. After that is 1063, followed by 1050, 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 10,037.42
Resistance: 10,100 continued to keep the index in check along with the 50 day MVA (10,128.55). After that, 10,300 holds the key to reaching toward the March high. 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: The down trendline is now at 9975, and the index could ride down that. Not much support, however, as it can trend lower and still hold above that line. The 200 day MVA (9913.64) is the next real level. Then recent lows at 9811. The bottom of the downtrend channel is at 9675. 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): 411K actual versus 407K expected and 422K prior (revised from 418K)
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%

TEAM TRADES

Though retail is showing some signs of stress, there continue to be retailers that are strong, showing very good consolidations and then great buy points on the continued moves higher. LIN had formed a big cup with handle over the past year, riding up the 50 day MVA as it climbed the right side of its base. It had pulled into a three-week handle where volume just dried up, coming in well below average for two weeks as buying indicators continued to rise, i.e., good price accumulation. We had good moves from ANN on Wednesday, and LIN showed a volume spike that day though it lost a bit of ground. Today with the same store sales numbers coming out, we were looking at the leaders. CHS, CHBS, LIN, ANN all made great moves.

LIN was moving well early, but we did not want to rush in. We wanted to make sure it was amassing the volume needed for the breakout of such a long pattern. We watched and waited as it build toward the breakout at 36.60. Volume was solid, and looked as if it was going to meet our target. It made two runs toward 36.60 before lunch, and then backed off in a very tight range. We noted this and set a buy point alert below the buy point but above the session high to keep us right on top of it. That triggered right before noon central. Volume was solid. We were watching volume move into the stock as it hit the buy point. We shot out the alert and then looked at picking up some positions on this one. It could be a split candidate soon so we were looking at some stock positions. The spread was anywhere from 5 cents to 2 cents. We were going to try and shave it a bit as it was showing 36.55 by 36.60, but then the spread narrowed to a penny; obviously someone was trying to do what we were thinking of doing. With the market maker playing that game and with the volume good, we did not want to mess around too much. Instead we went ahead and limited the order at 36.60; if we got better, great. If not, at least we should get the fill at our breakout price. The latter is what happened. The stock made a continued move higher during the session with some profit taking at the close that pushed it back a bit, but still in the black for the day. The key is the good volume as it cleared resistance. This is one we want to try and hold for quite awhile.

THE PLAYS:

Notes on some current plays:
DKWD: Test of breakout. Holding at the 18 day MVA on very low volume; it made a heavier drop yesterday but held the support. Will watch for a move up from here.
KLAC: Made the move up to the 18 day MVA Wednesday (58.82) and held there for a point loss. We were looking for that quick bounce to resistance to cash in on the trade; target was 60 but on higher volume the stock pulled back a point.

New Plays:

CLHB (Clean Harbors--$12.07; +1.26; optionable): Waste management
http://biz.yahoo.com/p/c/clhb.html
STATUS: 18 MVA bounce. Made a major breakout run starting in February when CLHB broke out of a flat base. It ran to the April high (12.55) then corrected back to the 50 day MVA early this month, slowly traveling higher on low volume until it crossed back over the short term MVAs this week. Volume slammed up to 416,900 (avg. 265K) Thursday, boosting price off the support. Looks like another run is commencing; the stock closed just over some early April resistance at 12. Money flow leading price higher, and relative strength is breaking out.
BUY POINT: Aggressive: 12.50 on continued strong volume (450K or higher). Target=17. Stop=10.70 (18 day MVA currently at 10.83).
POSITION: Stock and/or October $10c to buy (QPB JB).

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

Put:

MGAM (Multimedia Games--$27.17; -0.73; optionable): Gaming
http://biz.yahoo.com/p/m/mgam.html
STATUS: Put; kiss good-bye. MGAM double topped in March and April, and followed through with a gap-down break of the 50 day MVA mid-April on news that one of the company's games might not be used on Indian reservations. Earnings were good, however, and the stock managed to recover back to the broken support, but getting over it has been the problem. The 18 day MVA has come into recent play as well, pushing MGAM back down from a Wednesday tap at that resistance. Volume remains very low (152,400; avg. 430K) the stock posting a small loss today. We are looking for a move down to the 200 day MVA at 21.52.
BUY POINT: 26.50 on preferably rising volume. Target=22. Stop=28.50
POSITION: June 35p to buy (QMG RG; delta= -79).

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

On the current report:

GCI (Gannett Co--$74.50; -0.08; optionable): Media
http://biz.yahoo.com/p/g/gci.html
STATUS: Put. Target is 69 (200 day MVA) on the move down from the 50 day MVA (kiss good-bye 5 days ago) but GCI caught support on Tuesday's low (71.12) and bounced back up to resistance at the 18 day and 50 day MVAs. The stock crossed back over the 50 day MVA in regular trading today, moving through the suggested stop advisory at 75.50. However, it fell back below the resistance, pulling off the high at 76.05 and showing a doji on rising volume (996,600; avg. 1 million). On a move back down from here we can again look at getting playing it down to the original target, looking for strong selling volume on the move.
BUY POINT: 73.55 on rising volume. Target=69. Stop=75.50.
POSITION: July 80p to buy (GCI SP; delta -72; low OI).

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

LPNT (Lifepoint Hospitals--$40.55; -0.34; optionable): Health care plans
http://biz.yahoo.com/p/l/lpnt.html
STATUS: Cup w/handle. Continues to hold the handle to its 9-month base above support at the 18 day MVA (40.37), price tucking back into the support again as volume fell lower below average (245,600; avg. 404K). The handle is tightening up well, so we're continuing to expect a breakout.
BUY POINT: 42.50 on volume of 700K+. Target=51. Stop=39.50.
POSITION: Stock and/or August 35c to buy (PUN HG; delta 79; low OI).

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

Watchlists:
Currently monitored stocks: GISX tumbled to the 50 day MVA on stronger volume; tapped and bounced back up to close just under its 18 day MVA. A bit of a steeper drop than we anticipated for the potential handle formation.

QFAB (Quaker Fabric--$13.58; -0.32; no options): Textile manufacturing
STATUS: Breakout test, now resembling an ascending wedge. 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 4 consecutive dojis above the latter support). Volume remains low as the pattern tightens up (96,100; avg. 111K). Continue to look for a breakout on strong volume. Money flow remains high.
BUY POINT: 14.31 on volume of 200,000 or more. Target=17.50. Stop=13.25
POSITION: Stock (no option chain)

SCS (Steelcase--$16.80; -0.16; optionable): Business equipment
STATUS: Flat base. SCS is in a current 2-month flat base that has been riding the 50 day MVA on the low (16.47). This is part of a larger 20-month cup base where this flat base is serving as the handle. The last three days SCS has been holding with dojis at the 18 day MVA as volume fell well below average. That is good action, so we'll continue to watch this handle as it tightens up and expect a breakout.
BUY POINT: 18.10 on volume of 250K+. Target=22.25 (initial). Stop=17
POSITION: Stock and/or July 15c to buy (SCS GC; delta 83).

FDS (Factset Research--$31.80; +0.03; optionable): Information services
STATUS: Put. Hit the target Friday (32) but after tanking to 30 has moved back up to test the 200 day MVA (32.32), showing a doji Thursday on lower, below average volume. For any remaining positions the stock can fall back down for another test of 30.

ESI (ITT Educational--$50.58; -0.25; optionable): Education and Training
STATUS: Test of breakout. Continued to pull back but the move was on significantly higher volume Thursday; the stock is holding the 18 day MVA for now (50.23) but the April and May highs are close to being a double top. We will watch the action at support carefully.

UPS (United Parcel Service--$58.42; -1.26; optionable): Delivery services
STATUS: Breaking down. Stronger volume and a move down from the 50 day MVA (tapped on the intraday high at 59.55). The stock had closed just above the moving average Wednesday but resistance at 60 is proving tough. Can fall to the 57.50 range, if it does not head lower to the 200 day MVA (56).

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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