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Begin Part 2 of 2

TOMORROW

Housing starts and permits are out before the open, then Philly Fed hits at noon. With the intraday action seen today, however, we don't expect these reports, no matter if much better than expected (won't be), to keep the market from pulling back and testing lower. The indexes showed classic signals they were ready for a further pullback after the two big gains. The issue is how strong will the drop be. Will volume jump up and just start another round of distribution as shares just bought are dumped? We think the rally has more behind it, again based on the building action, the volatility, the follow through.

Does not mean the Nasdaq does a 1933 and never looks back, however. We are willing to take part in some upside trades on a few of the big names that are poised to give the moves, but that does not mean we are married to a big tech recovery. As we have seen, big techs in bad patterns can rally sharply (off the September lows), but they eventually run into trouble if they have not gone through the process of weeding out the overhead supply. Eventually that overhead supply gets to them if they cannot just blow past all levels. Now a lot of time has gone buy since March 2000, but there have been many buying periods since then, the most recent being off the September bottom up to January 2002. There has not been enough time to weed those buyers out, and the patterns have not done the weeding process yet. Thus, on any moves higher we have to be ready to take gains when there are topping signals. There are a few exceptions, e.g., QLGC that is in a double bottom and looks as if it is going to try and form a short handle here. There are not many, however.

Tomorrow we anticipate a weaker open for the major indexes. We would be surprised, pleasantly so, if the indexes were able to find support tomorrow and resume the rally. There is options expiration on Friday, and we may see more weakness tomorrow adjusting for that. Friday, however, we may actually see the indexes bottom and start the next leg of this rally attempt. All of that depends on the volume. Right now the markets seem able to handle the daily unrest in the world. With Dell earnings out after the close Thursday, however, we don't expect a rally ahead of those as the market did its pre-earnings run before the AMAT numbers. That sets up a move for Friday if Dell's numbers are better based on the Asian recovery as we are anticipating.

Support and Resistance

Nasdaq: Closed at 1725.56
Resistance: The second March down trendline has not been completely broken (1705). The simple 50 day MVA at 1771.17. The January/March 2002 down trendline at 1790 and the 200 day MVA at 1823.91.
Support: 1700 is some support (recent lows and highs) and where we want it to hold. 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 1091.07
Resistance: Still at the second March down trendline at 1090. After that is 1100 from price consolidations. 1125 is the serious resistance as that represents strong price points and the 200 day MVA (1121.99).
Support: February lows at 1074. 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 10,243.68
Resistance: The January/September 2000 down trendline at 10,290. 10,300 is the next level that 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: 10,100. Then the 200 day MVA (9907.34). After that two lows at 9811. 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): 1.2% actual versus 0.7% expected (revised from 0.5%)
Retail Sales ex-auto, April (8:30): 1.0% actual versus 0.4% expected

5-15-02
CPI, April (8:30): 0.5% actual versus 0.4% expected and 0.3% prior
Core CPI, April (8:30): 0.3% actual versus 0.2% expected and 0.1% prior
Business Inventories, March (8:30): -0.3% actual versus -0.1% expected and -0.1% prior
Industrial Production, April (9:15): 0.4% actual versus 0.4% expected and 0.4% prior (revised from 0.7%)
Capacity Utilization, April (9:15): 75.5% actual versus 75.7% expected and 75.3% prior (revised from 75.4%).

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

TEAM TRADES

PCLE: We had our eye on PCLE for quite some time. It was forming a nice cup pattern all year and tried to breakout in late April. It was not ready and collapsed back down with the market. It formed up again right away, however, and worked through a nice, lateral low volume handle in early May. Tuesday it started to move higher, gapping up with the market and showing above average volume. That had us looking for the move today, and today it made the breakout move. Our buy point was at 10.27 to clear the intraday high in the handle; that is the buy point on these patterns. It did not take long into the session before it hit the buy point. It was up almost 65 cents before it hit our buy point; that does not concern us when looking at breakouts. The key is hitting the buy point and on strong volume for the session. At just after 9:30 when it hit the buy point, volume was running over 80% of average. That indicated it was easily going to hit the target volume for the session, so we had no hesitation in taking positions. The spread was all over the map from a penny to 14 cents with the trading on the stock as there were many buyers. We issued the alert and then went about putting in a limit order given the wide ranging bids and asks. We put in the limit at 10.29 and after several sell side trades a fill was at 10.27. The continued its strong move up for the next half hour, but then topped out near 10.60 for the rest of the session, somewhat perplexing, but very good in that it did not give back its gains. A strong move, and we can even add more positions from here.

THE PLAYS:

BONUS PLAYS: GRMN made the breakout, but pulled back intraday to close. Looking for it to continue up. SERO also made the breakout, but it too pulled back to close, and SERO came all the way back into its handle. We will see if it can hold and try again. UVN made a small move up on strong volume, but still has a lot of resistance to push it back down. AGN is still set up for a drop.

BSG (Bisys Group--$35.90; +0.81; optionable): Business software
http://biz.yahoo.com/p/b/bsg.html
STATUS: BSG has been solid, trending up steadily and splitting its stock in 2000 and earlier in 2002. BSG dipped back below its 50 day MVA (then 33, now 33.80) in April, but reversed and has steadily moved back up. Today the stock made a solid move up from its 18 day MVA (34.52), and volume spiked up to push it along, coming in at 755k (avg. 513k). At its high of 36.15 BSG tapped to a new high, and we are looking for more, targeting 42.50. Great relative strength, which has broken out.
BUY POINT: Over 36.30 on continued strong volume. Stop: 33.76 (7%)
POSITION: Stock and/or September $30 calls to buy (BSG IZ - 48 OI).

RGFC (R&G Financial--$22.86; 0.00; optionable): Foreign bank
http://biz.yahoo.com/p/r/rgfc.html
STATUS: RGFC broke out from a double bottom with handle last Friday with a strong move, and after hitting up to 23.40 the stock has gently drifted laterally and back, with volume falling as we would like. Today RGFC showed a tight doji on volume of 43,300 (avg. 79k). Looking for this little consolidation to hold the 22.50 range, looking for a blast back up to continue the breakout. Good money flow, buying and relative strength. Target: 28
BUY POINT: 23.50 on above average volume. Stop: 21.86 (7%)
POSITION: Stock only.

CCRN (Cross Country--$32.55; +0.64; optionable): Staffing
http://biz.yahoo.com/p/c/ccrn.html
STATUS: CCRN broke from a cup with handle to start this month (the move started with a strong 50 day MVA bounce). The stock hit a high of 33.60 as it slowed on the move and then pulled back on light volume to hold the support of its 18 day MVA (31.26). After three consecutive dojis over support, CCRN tried a move today, hitting up to 33.48 intraday but pulling back to close as volume was not there (393k; avg. 464k). Looking good in this pattern, and we will look for much stronger volume to kick in a create a move. Good buying. Target: 39.75
BUY POINT: 32.70 on volume of 625k. Stop: 30.70
POSITION: Stock and/or September $30 calls to buy (QCK IF).

PRE-ANNOUNCEMENTS: ABC still showing a nice consolidation.

CAKE ($41.70; -0.10): Forecast to announce a split on 5-16-02 in conjunction with its annual shareholder meeting. CAKE is still consolidating over its short-term MVA's (18 day at 41.15), moving on low volume. That is a decent pattern to set up a move, and an announcement with the shareholder meeting could be a solid boost. Still looking for a move over 42.25 on above average volume (533k; today down to 329k), with stock and/or July $40 calls to buy (CFQ GH).

BMS ($54.15; -0.12): We are researching a date. Still trying to crack the 50 day MVA (54.26), today showing a 'star' doji at that level with reduced volume of 216k (avg. 281k). Still looking for a failure here, and on a drop through 53 on above average volume, July $60 puts to buy (BMS SL - 20 IO).

KSS ($73.10; +0.10): Forecast to announce a split on 5-16-02 after the market closes in conjunction with earnings or on 5-21-02 in conjunction with its annual shareholder meeting. After the great move on the retail sales numbers Tuesday, KSS slowed to a tight doji today as volume dropped to 2.16m (avg. 1.8m). KSS could rest tomorrow if the market rests, and we will look for a hold of 72. Given the recent downtrend (and the move yesterday blasted KSS back over that line), aggressive for new positions from here going into the announcement with earnings. On a move over 74 or on a low volume test back that holds support (18 day at 72; the 50 day is at 71.35), we can look at stock and/or July $70 calls to buy (KSS GN).

EASI ($50.92; -0.30): Forecast to announce a split the week of 5-27-02 with earnings. At this time, the company cannot confirm this date. Same story as EASI holds support with a tight doji today in its handle. The buy point is 52.23 on volume of 290k, with stock and/or August $50 calls to buy (UFE HJ).

MHK ($66.91; +0.76): Forecast to announce a split at the shareholder meeting to be held 5-16-02. Moved up some more today but again volume was weak (372k; avg. 608k). Still looking for strength on a move, wanting volume of 900k on a move over 67.50. The high was established on the breakout attempt at 68.45. Stock and/or August $60 calls to buy (MHK HL - 78 OI).

PRE-SPLITS: APPB hit the aggressive buy point but pulled back to close.

PMI ($85.95; +0.67): Splits 2:1 effective June 18. Making a nice bounce from the 18 day MVA (83.29), and today PMI got a spike in volume behind it (387,500; avg. 310k). Looking for more on this move, and on a continued run through 86.50 with continued strong volume, September $85 calls to buy (PMI IQ). Target 96. Stop: 82.

YUM ($64.90; +0.75): Splits 2:1 effective June 18. Made the move today, volume spiking up to 1.36m (avg. 748k) as YUM broke from its ascending wedge. It pulled back from its intraday high of 65.78 to close, so we will keep an eye out for a continued pullback, but look for it to stay over 64 and continue up toward the target of 68.

LLL ($129.15; -2.70): Splits 2:1 effective 5-21-02. We could get one more move out of LLL for an options play. It has set up an ascending wedge, but the higher volume (975k; avg. 762k) on the drop back today is a concern. LLL did tap the 18 day MVA (127.69) at its low, so we are looking for that level to hold. The breakout is over 133.50, with the move over the closing highs on a move over 132. July $130 calls to buy (LLL GF).

CONTINUING CANDIDATES: THC could not make it over the short-term MVA's, but we will still look for a move. AHC is shaping up but looks to need a pullback first, and RCII is moving again.

ETN ($87.25; +0.73): Broke out of a small ascending wedge today on good volume (up to 505,300; avg. 431,400), but still faces its April high at 88.68 (closing high 87.85). Looking good again, and on a move over 87.85 with increased volume, stock and/or July $85 calls to buy (ETN GQ). Target: Run to 100. Stop: 82.50

POST SPLITS:

WTSLA ($22.22; +0.12): Split 3:2 effective 5-10-02. Still looks weak as it holds under the resistance of its 50 day MVA (22.57), today tapping down close the buy point (low of 21) and pulling back up to show a doji. Volume was lighter at 415k (avg. 304k), and we are still looking for the drop through 21 on volume of 500k, with July $25 puts to buy (WTQ SE - no open interest as yet).

JEC ($41.10; +0.10): Split 2:1 April 2. Little change as JEC showed a second consecutive doji over support. After the nice pullback, looking for a bounce play. 41.55 on increased volume (303k today; avg. 199k), with July $37.50 calls to buy (JEC GU).

Good Investing!
Jon L. Johnson and the Stock Split Report 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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