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Support and Resistance

Nasdaq: Closed at 1730.44
Resistance: 1750 and the 50 day MVA (1743.45) are the immediate overhead resistance with the simple 50 day MVA (1767.97) backing them up. The January/March 2002 down trendline at 1785 and the 200 day MVA at 1822.64.
Support: 1700 is some support (recent lows and highs) and where we want it to hold. The second March down trendline is also right at 1700. 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 1098.23
Resistance: Holding just over the second March down trendline at 1089. After that is 1100 from price consolidations and the exponential 50 day MVA at 1103.76. 1125 is the serious resistance as that represents strong price points and the 200 day MVA (1121.58).
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 10,289.21
Resistance: The January/September 2000 down trendline at 10,289 is right overhead. 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 (9906.76). 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): -5.4% (1.555M) actual versus 1.63M expected and 1.646M prior
Building Permits, April (8:30): +0.3% (1.634M) acutal versus 1.63M prior
Initial Claims, 5/11 (8:30): 418K actual versus 405K expected and 416k prior (revised from 411K)
Philadelphia Fed, May (12:00): 9.1 actual versus 12.0 expected and 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: I have heard from others to always exit a pre-split play before the split date, to be out no later than the pay date--no matter what. Do you ever take this stance as well?

A: Static approaches to the market usually land you in trouble. We are always looking at the dynamic processes in the market, and playing pre-splits is no different. In an established bull market, the 'typical' split play is to get in before the announcement to get any upside on the bullish news. As we have seen this year, as the economy improves and the leaders make their strong moves, the announcement can drive them higher in a hurry (e.g., LLL, PNRA, PFCB, WSM). The next play is in the two or so weeks ahead of the actual split, where stocks tend to give us a nice move into the actual split. After the split, stocks tend to dip or slump as the additional shares require a lot of buying to move the stock higher. It has to digest those shares and then set up another pattern for a move higher. In that situation, we often take profits before the split effective date if we have a nice run, particularly if we see the topping signs that so often occur during this volatile time after a good run and right before the actual split.

What we have seen in this market this year, however, is different. We have an economy that is recovering. We have a stock market coming off its longest bear market in 28 years. There has been a sea change of leadership, and now we see economically sensitive stocks taking the leadership roles and of course announcing splits. Instead of slumping on the actual split, however, investors are using the 'lower' price to buy more shares. Indeed, we have seen many stocks set up bullish bases moving into the split and then breaking out on the actual split date or shortly thereafter. Why? Investors are focusing on the areas that are working in the recovering economy and market. Economically sensitive stocks are outperforming, and more money just keeps flowing into those stocks even as they split. Thus, they are being driven higher post split. We will still exit if we have had a good run and the stock shows us topping signs as we teach in our seminars, but if we see a solid pattern, we will also hold some positions if it continues to perform well. Indeed, we have often bought into the stock on the split as they have broken out on the split.

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 Tuesday's report:
USPI: 18 day MVA bounce. Still tightening up to the support on decreasing volume.
UAG: Flying plateau. Tested back to the 10 day on rising volume.
PEET: Cup with handle. Holding support in the handle, volume still very low.

Good Movers: CAO, CHGO, USAP, NCC

Continued Plays:
CHGO: Nice, high volume breakout off the 18 day MVA. Still just under the April high, but it's close.
CLF: Still holding the 18 day MVA in its pullback after the strong 50 day run.
DLTR: Holding above support in the flying plateau.
HKF: Still tight as it holds above the 10 day MVA on low volume; looking for a bounce back up.
LBIX: Pushed higher again after the cup with handle breakout; volume was stronger.
NCC: Broke out of the 10-month cup with handle base!
PVAT: Looking pretty good as it holds the 50 day MVA; it bounced from that support again Thursday (has done so several times this month) and if it can get some volume behind will work on the April high.
SSFT: Bounce. Continued higher Thursday after a doji yesterday. Volume was lower, however.
USAP: Volume followed through and the stock hit a new high!
VWKS: Test of breakout. Still looks good in the lateral consolidation.

Best Plays:
1) TMCS: Poised for a fall in a head and shoulders pattern.
2) SNS: Looking for a bounce.
3) COL: Three days and three dojis on low, decreasing volume.

New plays:

TIF (Tiffany & Co--$39.76; -0.44; optionable): Jewelry retail
http://biz.yahoo.com/p/t/tif.html
STATUS: Double bottom with handle. TIF is in a big base dating from August of 2000. After crossing over the 200 day MVA in December, the stock bounced twice from its 50 day MVA then again from the 18 day MVA (late April). It then settled into a handle that is holding above that support level (now at 39.06). Volume was high on the last bounce, but fell off overall as the stock retreated, down Thursday to 703,100 (avg. 727K). Today TIF pulled back, showing a loose doji above the 10 day MVA (39.54), after a Tuesday test of the 18 day when it posted a small gain on news of a 6% profit gain for the last quarter, but did not break out of the handle. The stock's prior highs in the large base are just over 45, the initial target on the breakout. Look for a move off the 10 day or the 18 day MVA to kick off the run (higher target is 49). TIF has strong money flow and shows good buying; accumulation in the base shows 21 up weeks on higher volume again 12 down weeks on higher volume.
BUY POINT: 40.60 on volume of 835K or higher. Target=45 (initial). Stop=38
POSITION: Stock and/or August 35c to buy (TIF HG; delta= 0.78).

http://www.investmenthouse.com/cd/tif.html

Put:

TMCS (Ticketmaster--$24.07; -0.01; optionable): Internet software
http://biz.yahoo.com/p/t/tmcs.html
STATUS: Head and shoulders. TMCS is at the top of the right shoulder in the pattern (which peaked in the head at 30). The stock has been trying to get over the 50 day MVA for three days (at 24.48); on the highest volume of the three days it sold back down to the 18 day MVA (23.70). Volume fell back the next 2 days (down Thursday to 207,300 (avg. 892K) allowing TMCS to hold the 18 day MVA, but on a break of that support on rising volume the stock can drop back to the 200 day MVA (19), initial target. Neckline is at the 21.50 range; completion of the breakdown can take the stock to 16.
BUY POINT: Aggressive: 23.25 on strong, rising volume (900K) or higher. Target=(initial) 19. Stop=25
POSITION: October 27.50p to buy (QMF VY; delta= -0.93)

http://www.investmenthouse.com/cd/tmcs.html

Revisited:

SNS (Steak N Shake--$14.45; -0.07; no options): Restaurants
http://biz.yahoo.com/p/s/sns.html
STATUS: Ascending wedge. SNS was covered back in early April when it made a bounce from the 18 day MVA. The stock eventually tested back to the 50 day MVA after being unable to make it (on the bounce) back up to the previous high from February (15.10). It came close, but resistance at 15 sent the stock back down in another test of the moving average, and now SNS is riding the 18 day MVA on low volume (until Thursday, when it moved back over average levels at 121,700; average is 106K). The higher lows the stock is putting in as it climbs the 50 day MVA, and the upper resistance is forcing the stock into the ascending wedge pattern. We are looking for the Thursday doji and higher volume to pop it up from here, toward the breakout. Once it hits the 15 range again, it can either break out then or test support again as the pattern tightens up. Money flow has moved out ahead of price, which is bullish, and accumulation is good at 5 up weeks to 2 down weeks (on rising volume).
BUY POINT: 15.20 on volume of 143K or higher. Target=18.25. Stop=13.88 (50 day MVA at 14.06 marks the up trendline that supports the pattern. We can always move the stop loss higher at the MVA moves up).
POSITION: Stock.

http://www.investmenthouse.com/cd/sns.html

COL (Rockwell Collins--$25.91; 0.00; optionable): Aerospace/Defense
http://biz.yahoo.com/p/c/col.html
STATUS: 18 day MVA bounce/Cup with handle. Made a $4 run off the 50 day MVA at the first of this month; the stock has pulled back to the 18 day MVA (25.55) over the last several days, forming a pennant-type pattern as volume decreases below average (Thursday to 277,200; avg. is 462K). This pullback pattern can be the handle to the large base (that began forming last June when the stock was issued); it has been volatile but the last three days has settle back into consecutive dojis on the below average volume. That is good action, and we like the accumulation shown in the base (12-4 up weeks versus down weeks on rising volume). The stock also shows money flow that is ahead of price, which is bullish. Looking for a bounce back up and breakout over the May high at 27.70.
BUY POINT: Aggressive on the bounce: 25.50 on volume in the range of 500K or higher. Stop=24. Breakout: 27.80 on volume of 693K or higher. Target=33.30. Stop=25.85 (7%)
POSITION: Stock and/or October 22.50c to buy (COL JX; delta=0.72)

http://www.investmenthouse.com/cd/col.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.

RMCI (27.75; +0.80): Looking better in the ascending wedge with the stock moving off the 18 day MVA on a rise in volume. After RMCI did not break out of the 5-month cup, it formed this pattern and looks like it will try for a breakout over resistance at the 28 range. Buy point for that move is 28.61 on above average volume (372K or higher), for stock and/or October $25 calls to buy.

http://www.investmenthouse.com/cd/rmci.html

LLL (129.61; +0.46): Holding the 18 day MVA after some selling back to that support Wednesday. Volume dropped back, and the stock showed a doji and the little bounce from the support. It has made its third pullback to the 18 day now; the last bounce was not a strong one. On the previous 50 day MVA bounce run (which started mid-January)
LLL tested the 18 day MVA three times before making a correction to the 50 day, and the last bounce was weak.

DGX (90.01; -1.18): Closed at an up trendline that connects its February and April closing lows. Volume was slightly higher as the stock sold back a little, falling below the 18 day MVA. We will look at taking new positions on an above-average bounce back over the intraday high at 91.88. If it breaks, the stock can fall back to the 50 day MVA at 86. Some potential support just above 89 if volume remains low.

UP & COMERS PORTFOLIOS: BBBY, SRCL

SRCL (70.55; -2.41): Announced a stock split and sold back to the 18 day MVA on higher volume. The stock has trying to consolidate above 70 after the nice run up from the 50 day MVA, but is looking shaky here. A correction could set it up for a nice run into the split, set for June 1.

MEMBER PORTFOLIO: CSCO, SEBL, EMLX, BRCM, HDI, BRCD, BUD, AMGN, WMT, ORCL, HB, NOC

CSCO (17.01; +0.45): Moved up to the 200 day MVA but on low volume; can pull back if we have a light volume day Friday, but could hold support above at 16 or above.

WMT (58.35; +1.58): Nice move back over the 50 day MVA; volume was lower but was just above average, still strong. Looking for the stock to hold this support level now as it consolidates ahead of more upside.

NOC (123.14; +1.30): Holding at the 10 day MVA on low volume, trying now to form an ascending wedge after breaking out of the lat one.

EMLX (31.26; +1.10): Was back over the 50 day MVA Thursday; volume was lower and under average, but we like the bounce back up above this major support. Will see how it acts Friday; a pullback to the 50 day can set it up for a bounce.

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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