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Begin Part 2 of 2
Support and Resistance
Nasdaq: Closed at 1600.85
Resistance: The down trendline at 1635. The 18 day MVA is next at 1675.12 (the 18 day MVA often acts as resistance in continuing downtrends). Some resistance at 1700 from a recent bottom and top. The next March down trendline is at 1725.
Support: Some support from 1600 to 1620 from the October consolidation. 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 1054.99
Resistance: The February lows at 1074. The down trendline at 1077 is now back in control, backed up by the 18 day MVA (1083.27). Then the next down trendline at 1090, backed up by 1100 from price consolidations. 1125 is the serious resistance as that represents strong price points and the 200 day MVA (1123.54).
Support: At the bottom of the downtrend channel on the close. The October lows at 1050 are the last price consolidation level before the September low. There is possible support at 1000, but it is not much. The September low is 944.75.
Dow: Closed at 9939.92
Resistance: The March down trendline is back in play at 9950. Then there is the 18 day MVA (10,037.42). 10,100 continues to block the passage (50 day MVA at 10,121.15). 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 200 day MVA stopped the fall Friday at 9910.29. Then recent lows at 9811. The bottom of the downtrend channel is at 9645. 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.
5-14-02
Retail Sales, April (8:30): 0.5% versus 0.1% prior
Retail Sales ex-auto, April (8:30): 0.4% versus 0.3% prior
5-15-02
CPI, April (8:30): 0.4% versus 0.3% prior
Core CPI, April (8:30): 0.2% verus 0.1% prior
Business Inventories, March (8:30): -0.1% versus -0.1% prior
Industrial Production, April (9:15): 0.4% versus 0.7% prior
Capacity Utilization, April (9:15): 75.7% versus 75.4% prior
5-16-02
Housing Starts, April (8:30): 1.63M versus 1.646M prior
Building Permits, April (8:30): NA versus 1.63M prior
Initial Claims, 5/11 (8:30): NA versus 411k prior
Philadelphia Fed, May (12:00): 11.0 versus 12.3 prior
5-17-02
Trade Balance, March (8:30): -$32.3B versus -$31.5B prior
Mich Sentiment-Prel., May (9:45): 93.0 versus 93.0 prior
SUBSCRIBER QUESTIONS
Q: Can you explain the advantage of and what exactly is a covered call and how to do it?
A: A covered call is where you sell a call option on a share of stock you own. What you are doing is selling the right to buy your stock at a specified price (the strike price) to someone else. Sounds pretty crazy at first, especially if you want to hang onto your stock. However, as we constantly write and teach in the online seminars, stocks move up, peak out, move down to consolidate, and then move back up. We like to take advantage of those inevitable peaks by selling calls against our stock positions. When they make a good run and then show signs of peaking on that move, we sell at or slightly in the money call options, let the stock fall, and then buy them back when the stock hits support. As the value of the call option falls as the stock price falls, our gain is the difference between the price we sold the call for and the price we buy it back for. This way our stocks make money for us not only when they appreciate, but when they inevitably pull back. We also use covered calls strictly for generating cash, i.e., where we don't really care if we are called out or not. It is a great defensive strategy, a great offensive strategy, and great for IRA's where we have large chunks of stock. We have a covered call seminar coming up next weekend. You can take it live or watch the rebroadcast the next week. You don't have to take all of the seminar series to learn about using covered calls to your advantage. To learn more, go to www.stockseminarsonline.com.
TEAM TRADES
NVLS: After the strong bounce Wednesday NVLS looked as if it wanted to roll over, and Friday we were looking at it and other downside plays. Now we could have (and maybe should have) jumped in on the downside on this one earlier in the session, but we wanted to make sure it was going to close below the 50 day MVA, and we wanted to do it on above average volume. The stock was already down over $2 moving into the last hour, but if the Nasdaq continues selling this week as we think it will, we were not worried about getting in on the move, especially when we saw it start to climb with about 15 minutes left in the session. It was setting itself up for a good entry point for more selling the next week. By rising up 50 cents in the last 20 minutes, it helped us get a better entry point for a move back down early. We love this kind of late action: when we are going upside, we often see late profit taking on stocks that look primed to continue the move higher. That gives us a good entry point, and if the stock continues its upward move the next session, we are almost immediately even or in the money. It gets us a small leg up. We were seeing the flip side Friday with NVLS. The options were right at 9.80 by 9.90 when the move started, and then they fell to 9.30 by 9.40 when it made its move higher. We issued the alert and went back to put in our order. The stock had pulled back a bit in the time it took to get the order entered, but we got a decent trade at 9.50. The stock fell a bit more and the options closed at 9.60 by 9.70. Not a bad entry point; a leg up so to speak.
THE PLAYS:
Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.
THE PLAYS:
Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.
Stocks from Thursday's report:
LPX: Cup base/wedge. Pulled back after Thursday's breakout move off the 18 day MVA.
SRZ: Put. A few cents higher on rising volume; still below the 10 and 200 day MVAs.
CHGO: Continued 50 day MVA bounce. Pulled back to support on lower volume.
DLTR: Flag. Volume slid lower and the stock inched higher, showing a doji.
Good Movers: IMAX
Continued Plays:
AMI: Testing the cup with handle breakout and has been volatile, but on low volume pulled back to test support at the 10 day MVA. Looking ready to head up again!
AXP: Has not made the move we wanted, after the stock gave the nice bounce from the 50 day MVA. It sold back below its 18 day MVA Friday.
BBA: A mid-April play, the stock has been flying and gave it another push Friday on higher volume.
CAO: Fell back on lower volume from the flag's lateral movement, sliding below the 10 day MVA support.
CLF: Test breakout. Closed just under support in the test (18 day MVA), with volume a bit higher.
FDC: Already hit the 78 target for the put, but sold down to 75.85 Friday; the 200 day MVA is at 74.52.
GIVN: After hitting the 14.80 buy point (cup with handle), the stock has pulled back again to support but on much lower volume; it has been a more orderly pullback, thus, a better handle. May give the move up to a breakout this time.
HLT: Sold below the 50 day MVA on higher, above average volume. Looks ready to fall.
HUM: Broke support (18 day MVA) on rising volume. Testing April run.
IMAX: Blasting up on strong volume off a 50 day MVA bounce.
LBIX: Broke out last week off of its 18 day MVA and now is testing the 10 day MVA on low, decreasing volume. Can hold at that level for a move back up.
MEOH: Broke over near-term resistance, the 18 day MVA on a slight rise in (low and below average) volume, moving up in the handle to its cup base.
OATS: Just keeps on climbing, up again Friday on a rise in volume. It is out of reach for now, but we can try to catch it again after a pullback to the 14 range.
PG: Shaking out holders in the tail of an ascending wedge, but weekly volume shows less accumulation than what is preferred.
PLB: Nice pattern developing in the test of the base breakout; a flying plateau with support at the 10 day MVA about a half-point below Friday's closing price.
PSSI: Sold off Friday and trashed the ascending wedge pattern.
RPM: Looks ready to make a move over recent highs after pulling back to the 18 day MVA on low volume (cup with handle).
UPL: Looks ready for another bounce from the 18 day MVA.
Best Plays:
1) TSN: Ready to move up in its handle.
2) HNT: Preparing for a bounce.
3) USTR: Broke support.
4) ACN: A continuing downtrend.
New plays:
TSN (Tyson Foods--$14.19; +0.18; optionable): Meat Products
http://biz.yahoo.com/p/t/tsn.html
STATUS: Cup with handle. TSN is in the handle of the 18-month base, and has found support at the 18 day MVA (13.84) after pulling off the May high at 15. Volume has been below average in the handle, good action, and was up slightly Friday when the stock tested the 18 day on the intraday low then bounced back over the 10 day MVA (14.08). Money flow is out ahead of price, as is relative strength, and accumulation is good in the base (14 up weeks on rising volume vs. 10 down weeks on rising volume). Looking for the move up from here, and a breakout over that high. Volume was at 820,800 (avg. 1.14 million).
BUY POINT: Breakout: 15.10 on volume of 1.7 million or higher. Target= 18.12. Stop=13.50 (just under the 18 day MVA).
POSITION: Stock and/or October 10c to buy (TSN JB; delta=100, OI=52).
http://www.investmenthouse.com/cd/tsn.html
Revisited:
HNT (Healthnet--$29.15; +0.54; optionable): Health care plans
http://biz.yahoo.com/p/h/hnt.html
STATUS: 18 day MVA bounce. HNT tested the 50 day MVA mid-April and bounced, then bounced again from the 18 day MVA later that month to reach the May high at 30.15. It has tested back to that support again, but in Wednesday's rally dropped precipitously under the 18 day on some selling to test support at some April prices at the 27.50 range; the 50 day MVA just below that at 27.10. The intraday recovery from that drop is what adds interest to the stock's current hold at the 18 day MVA - that test can give it more strength coming off the 18 day MVA, from where we expect HNT to bounce again. Volume was higher Friday at 1 million (avg. 641K).
BUY POINT: Aggressive: 29.25 on continued rising volume. Target=33. Stop=27.50
POSITION: Stock and/or October 25c to buy (HNT JE; delta= 0.78). We will focus on options for better leverage on the move.
http://www.investmenthouse.com/cd/hnt.html
Put:
USTR (United Stationers--$37.48; -0.73; optionable): Basic materials wholesale
http://biz.yahoo.com/p/u/ustr.html
STATUS: Double top. The March highs represent the double top, then early this month USTR almost made it back up to that level (41.30-ish) but failed, falling below the 50 day MVA that the stock tested all week. Friday USTR moved below the week's lows; volume remained under average at 111,500 (avg. 151K), but we will look for that to rise on further selling. The stock's last high was in March at 42.40 but has posted lower highs since that time. Money flow has drained off to low levels.
BUY POINT: 37.15 on strong and rising volume. Target=34 (200 day MVA). Stop=39
POSITION: June 45p to buy (QTR RI; delta= -0.81).
http://www.investmenthouse.com/cd/ustr.html
ACN (Accenture--$20.46; +0.26; optionable): Business services
http://biz.yahoo.com/p/a/acn.html
STATUS: Put. The stock is in a continuing downtrend, having bounced down from first the 50 day MVA then the 18 day MVA in April. Last week CAN tested the 18 day again in the Wednesday rally but Thursday sold back down again. Lighter volume Friday (2 million; avg. 1.7 million) bounced it back from a lower low (19.50) but we expect the stock to continue the downtrend. Money flow is tanked.
BUY POINT: 19.70 on volume of 2.5 million or higher. Target=15.65. Stop=21.30
POSITION: June 25p to buy (ACN RE; delta= -0.72; low OI).
http://www.investmenthouse.com/cd/acn.html
PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that look ready to pick up a few shares.
THE LEADERS: DGX, FRX, LLL, MIK. New: ICUI; RMCI, and JNC.
MIK (40.30; +1.16): Made it back over the 18 day MVA Friday; volume lower but now that the stock has tested the 50 day MVA (Thursday) on high volume, it can perhaps hold this support for another run off the 18 day MVA.
ICUI (38.16; -0.05): Remained below the 18 day MVA, showing a doji Friday and a low that tested the 50 day MVA. Volume was rising; ICUI needs to move back over this resistance and has more at 40 and 42. It might drop back to the 50 day again before making those moves.
DGX (93.93; +1.31): DGX has made 4 bounces from the 18 day MVA since testing the 50 day back in late February; it's been a great ride and while the stock might squeeze out another bounce, a more extended pullback is in order. Not quite ready yet, but we will be watching resistance at; the stock has butted up against that level since the first of this month.
UP & COMERS PORTFOLIOS: BBBY, SRCL
BBBY (34.53; -0.61): Closed below the 50 day MVA on slightly higher volume but tapped just above support. Volume is still below average.
SRCL (70.51; -1.99): Fell back on decreased volume, closing a few cents below the 10 day MVA. This is the pullback the stock has needed and it can continue lower to the 18 day MVA (68.75).
MEMBER PORTFOLIO: CSCO, SEBL, EMLX, BRCM, HDI, BRCD, BUD, AMGN, WMT, ORCL, HB, NOC
CSCO (15.42; -0.33): The market retraced more of Wednesday's move, and CSCO was back below its 50 day MVA to close, volume slightly higher (and well above average). The low tapped just above recent support at 15 (the 10 day MVA is at 14.65) and the stock bounced, but the close below the 50 day MVA just shows that it wasn't the best day for techs again. EMLX, BRCM, BRCD, ORCL, AMGN and SEBL were all lower though volume was higher only for the last three.
HB (60.58; -3.24): Broke the 50 day MVA after giving a bounce from that support a try on Wednesday. Volume was still above average but decreased; the stock can grab support around 60 if that volume trend continues.
NOC (120.54; -1.23; optionable): Is testing the last 18 day MVA bounce run; the stock tapped that support Monday but as volume slipped lower and lower, it did not muster much of a move, and pulled back again Friday on pretty low volume. It closed at the 10 day MVA, and we are looking for it to hold in this range or the 18 day (119.12) before the next bounce. Getting there.
HDI (52.46; -1.38): Has tried twice to get back over the 50 day MVA so far this month, but Friday undercut the Monday low (51.61) though volume sank back to low levels. The 200 day MVA is at 50.75, and we look for HDI to hold that. Below it at 50 is potential support from the December and February lows, October tops and some November prices.
BUD (51.15; -0.47): Closed below the 50 day MVA, just bled lower as volume drained off below average levels. Showing a doji and we will want a quick move back over this level.
Good Investing!
Jon L. Johnson and The Daily Staff
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 of 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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