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Begin Part 2 of 3

SUBSCRIBER QUESTIONS

Q: In the weekend report you said mutual funds were in the process of unloading high P/E tech stocks from the prior bull market rally. Who is buying them?

A: There has been selling all the way down punctuated by periods of buying. In each case the selling has overcome the buying ultimately and pushed the stocks lower. There are mutual funds still dumping shares as we saw with WCOM and ORCL on very high volume, and other tech stocks as well as they continue their downtrends. You are correct in pointing out that for every seller to make a sell there has to be a buyer. Mutual funds that want to get rid of these stocks tend to sell into rallies or sell when bad news hits or they break support levels. When the stocks are rallying, hope springs eternal for retail investors and even for the institutional investors. They try to pick some of the stocks up on rallies, looking down the road 5 and 10 years. On the selling they pick up some more shares, averaging in at different levels. While there are as many buyers as sellers, the pressure is down on price because buyers are only willing to pay so much for the shares; the market maker or specialist must lower the bid to get buyers to take on the shares. There is simply less demand for the stock than there is willing supply, and the price thus drops. As long as the willing supply is there to sell even as the stock price falls, the share price will fall and that is the selling or dumping of shares by mutual funds. That it happens on high volume is a certain sign of institutional selling.

THE PLAYS: With the recent market action that has given us some really good downside plays and some upside, we are left today with very little set up in either direction. We are looking at a possible bounce, and we are not ready to chase beaten-down stocks on a move up that could be short-lived. However, such a bounce could again set up some nice downside plays. Remember - you do not have to trade every day, and forcing a play can be expensive. We let it set up to our liking, and then go for it.

BONUS PLAYS: Not that many out there today; as with the best plays, we are watching many plays set up to the up and down sides.
BVN tried a move but pulled back, still holding support. LZB dropped but could show us a test before a further drop. POT is still set up well.

EXPE (Expedia--$72.03; -1.60; optionable): Internet software
http://biz.yahoo.com/p/e/expe.html
STATUS: Put. EXPE made a double top in May, failing on a third attempt to reach back up to the highs at 84.50. It dropped back last week, taking out the 50 day MVA (73.58), recovering on a gap Monday but reversing on huge volume (on news that a holder is increasing its equity holding). It could not hold up, today gapping back through the 50 day, showing a doji on reduced, but continued strong volume (2.65m; avg. 1.6m). It is just over the May low and some April highs at 70, and we are looking for a breakdown through that level for a put. We could see a test of the 50 day first. Target: 63
BUY POINT: A drop through 70 on continued strong volume. Stop: 74
POSITION: July $75p to buy (UED SO).

Quick updates prior bonus plays:

ACXM - Pulled back but holding prior highs
INTU - Held up over the 18 day MVA, and could give a bounce; we will gauge its strength on the move
MKSI - Hit the target on the nice put play
BJ - Continued down nicely the last two sessions
PSUN - Still battling the 200 day, and still looking for a failure
THQI - Struggling with the 50 & 200 day at 33, and probably will challenge on a market bounce
FNF - Holding support at the 18 day
EME - Still on the downtrend, and will look for a bounce to fail
WY - Testing the 50 day after dropping back off of the double top, looks like it will bounce
ATVI - Good bounce up!
IGEN - Hanging on, being stubborn in a consolidation under resistance
LNY - Also stubbornly holding up under resistance - if it holds here and makes a move back over the 50 day it will be showing an ascending wedge - trouble to the upside
CCRN - Still solid
GRMN - Dropping back and we are cautious that it could turn over
DISH - Fell back but is holding for now at support at 24
CCRD - Could not take out the 18 day, so still looking for a fall
TDY - Back to test the 50 day, and holding for now. Looking for a bounce.

PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: None for this week.

PRE-ANNOUNCEMENT BEST PLAYS:
1) NYT - Still holding support
2) MUR - Could test the breakdown

NYT (New York Times--$49.46; -0.28; optionable): Newspapers. Forecast to announce a split the week of June 17 in conjunction with a board meeting or on 7-16-02 before the market opens with earnings.
http://biz.yahoo.com/p/n/nyt.html
BACKGROUND: Last announced a 2:1 split on 6-17-98 in conjunction with a board meeting. The stock price was $73.50. Before that it announced in 1986 at a similar price. The annual shareholder meeting was on 4-16-02 at which time no additional shares were authorized. The company has sufficient shares for a 2 for1 split.
STATUS: A stock that is holding up well. It pulled back with the market the last two sessions, but after tapping the highs in its March-May lateral consolidation NYT recovered to show a doji over the 18 day MVA (49.31). Relative strength has broken out for this stock, and a bit of a rally could send it on its way up. This handle-type pattern formed after NYT's early-May breakout from the recent lateral consolidation. We will see if we get a bounce and breakout. Still shows good buying. Target 61.
BUY POINT: Aggressive bounce: In a rally, over 50 with increased volume (up to 486k today; avg. 482k). Stop: 47.80. Original buy point: Over 51 on increased volume. Stop: 47.80
POSITION: Stock and/or October $45c to buy (NYT JI - 89 OI).

MUR (Murphy Oil--$89.75; -0.70; optionable): Oil & gas.
http://biz.yahoo.com/p/m/mur.html
STATUS: MUR formed a head & shoulders pattern since late March. It did not break down in mid-May, instead bouncing from the neckline at 92, but it could not clear the short-term MVA's (then 94, now 93), making a descending wedge in the right side of the pattern. We got a drop through some recent lows at 90 today, but volume, though up, was light at 198k (avg. 280k), and MUR recovered a bit from its intraday low of 89. We will see if MUR tests the drop out of the bearish pattern, looking for a failure at 91-92, and a stronger drop back. Target: 84
BUY POINT: After a failed test of 91-92, a drop back through 89.75 on average or better volume. Stop 93.50
POSITION: July $95p to buy (MUR SS - 24 OI).

PRE-SPLITS BEST PLAYS: Remember, we try to grab Pre-Splits as they break out of good patterns or as they start a run right before the split. Not looking for home runs, but looking for those $3 to $4 moves running into the split, watching for topping signs and potential resistance. Not huge money, but it can be very steady. We set our initial stops at the 7-8% range below the purchase price (or just below obvious support), and move them up on a move to preserve our profits.
1) CPS - Looking for a strong move
2) FOSL - Started back up
3) ATK - Breakdown
4) STJ - The drop accelerates

CPS (Choicepoint--$59.50; -0.38; optionable): Business services. Splits 4:3 effective 6-7-02.
http://biz.yahoo.com/p/c/cps.html
STATUS: Ascending wedge. CPS has pulled back up after a test of the 50 day MVA (57.47). After pulling off of a high of 60.40 on big volume Monday, CPS looked to need a bit of rest before surging for a breakout, and today CPS dipped back a bit, closing with a doji over the support of the 10 day MVA (59.10). Going toward the split now, but in a decent pattern and looking for a breakout. Target: 66 on a breakout move.
PLAY: 60.50, with July $35c to buy (CPS GK).

FOSL (Fossil--$31.18; +0.93; optionable): Recreational goods. Splits 3:2 effective 6-10-02.
http://biz.yahoo.com/p/f/fosl.html
STATUS: Monday's gap below the 18 day (30.83) resulted in a high volume doji, and today FOSL hit our aggressive buy point on a bounce as it moved back over support. FOSL's pullback took it all the way back to test the May highs, over which it broke in a big way a couple of weeks ago. Looking for more on this move to take us into the split. The recent high is 33.61 (last week's high 32.29). Still targeting 36 on a pre-split run. Excellent money flow and buying.
PLAY: A continued move over 32, with September $30c to buy (QFS IF - 60 OI). Stop: 30

ATK (Alliant Techsystems--$99.26; -5.94; optionable): Aerospace/Defense. Splits 3:2 on or about June 11.
http://biz.yahoo.com/p/a/atk.html
STATUS: Triggered stops on any remaining positions with a huge drop today. ATK has been on a great run, showing some great plays along the way, but the last bounce from the 50 day MVA (104.37) did not do much, again stalling at 110. Even with stocks that have been good to us to the upside we need to be ready to take advantage of downside action - we can either add to the upside gains or turn a negative play positive. With the failure at the prior high, ATK turned back on light selling, but today crashed through the 50 day and really dropped (volume 703,300; avg. 337k). We will see if it takes a bit of a bounce here to test toward the 50 day, but after such strong selling, we will look for our favorite entry point on puts, which is the 'kiss goodbye' after a test of broken support. Target: 90 (200 day MVA at 88.13).
PLAY: After a failed move back toward 102-104, a drop through 100 on continued strong volume, with July $105p to buy (ATK SA - 48 OI). Stop: 106

STJ (Saint Jude--$80.88; -1.57; optionable): Medical appliances. Splits 2:1 effective June 29.
http://biz.yahoo.com/p/s/stj.html
STATUS: After a promising bounce last Thursday, STJ has turned over and sold back with increasing volume. After pulling up off the 50 day MVA (81.64) to close Monday, STJ picked up the selling again today, dropping on sharply increased volume (843k; avg. 688k), taking out the 50 day and the February-March highs. It managed to pull off of the low of 80.25, and may need a bit of a rest on the selling before it picks up again with gusto. However, a bounce to test the 50 day would set up the next round of selling nicely. We will see if it makes a move on the 50 day, preferably with lighter volume, and then will look for a drop back on strong volume from there. That is the entry point. Target: 75.50 (200 day MVA at 75.16).
PLAY: After a test up to the 50 day MVA, a drop back through 80.75 on above average volume, with July $85p to buy (STJ SQ).

CONTINUING CANDIDATES BEST PLAYS: CYN is also setting up a put
1) KLAC - Looking for more of a bounce to set up downside

KLAC (Kla-Tencor--$51.16; +1.71; optionable): Semiconductor equipment.
http://biz.yahoo.com/p/k/klac.html
STATUS: Put. A big April drop caught support at the 200 day MVA, but after a strong bounce with the market KLAC started another downtrend, and this time it has crashed through that support (at 52.81). The breach and drop was not on big volume, but the momentum is decidedly down. Today KLAC touched down to 48.87 but rebounded with the market, showing a relief bounce that could test the 200 day (volume sharply up at 16m; avg. 11.96m). We are looking for a such a test, and perhaps KLAC will take out the 200 day, but at this point we are looking for a failure, and on continued selling down, looking at a new put. Target: 44.
BUY POINT: After a test of 53, a drop back through 51 on above average volume. Stop: 54.50
POSITION: July $60p to buy (KCQ SL).

POST-SPLIT BEST PLAYS:
1) PRHC - Nice pullback sets up a bounce
2) WLP - Setting up to the upside with a consolidation
3) FBC - Looking to continue the move up
4) CHBS - Retailers looking weak
5) SONC - Another restaurant losing support

PRHC (Province Healthcare--$24.93; -0.27): Hospitals. Split 3:2 effective 5-1-02.
http://biz.yahoo.com/p/p/prhc.html
STATUS: The handle to the double bottom has turned into a small cup as PRHC has made a move up from its 50 day MVA (currently 23.42). Last Thursday saw a good volume surge push the stock up toward the recent (handle) high at 26.15. It has since pulled back a bit, but behaving well with light volume on the retreat, holding the 10 day MVA at its low today of 24.73 (volume down to 434k; avg. 617k). Off of today's loose doji we could get the start of the next move. Target: 30 on existing positions; on a strong breakout we can modify that.
PLAY: Aggressive: A bounce over 25.50 on above average volume, with stock and/or September $23.375c to buy (DAH IW - 5 OI).

WLP (Wellpoint Health--$74.08; -0.56; optionable): Health care plans.
http://biz.yahoo.com/p/w/wlp.html
STATUS: After the great March-April move, WLP came all the way back to test prior highs at 66-68, taking out the 50 day MVA in the process (currently 70). WLP has made a steady recovery, showing a strong, solid push last Thursday. It has since pulled laterally and slightly down, consolidating nicely to set up a continuation of the move. Aggressive from here, but WLP has been strong and could give another nice ride up the short-term MVA's (10 day at 72.84). If we get a bit more consolidation that tests that level, that is fine. The recent high is 78. Target: 87
PLAY: Aggressive: Over 75.35 on volume of 1.5m (today 1.25, the average), with stock and/or October $70c to buy (WLP JN).

FBC (Flagstar Bancorp--$19.91; -0.75; optionable): Savings & Loans. Split 3:2 effective 6-3-02.
http://biz.yahoo.com/p/f/fbc.html
STATUS: Made a big bounce on the split Monday. FBC had stair-stepped it back to the 50 day MVA (16.82) after its great April run, and like strong stocks do, it showed strength on the bounce yesterday. It could not continue today, pulling back but holding the short-term MVA's (19.90) as volume was down at 119,400 (avg. 77,200). Looking for a hold here and for the strong move to continue. Target: 25
PLAY: Over 20.60 on volume of 100k or better, with stock.

CHBS (Christopher & Banks--$36.22; -1.92; optionable): Apparel Stores.
http://biz.yahoo.com/p/c/chbs.html
STATUS: Retailers having trouble, and CHBS crashed hard today through the 50 day MVA (37.31). However, the stock did hit down to an intraday low of 34.73, pulling up to close, so we will see if there is continued upward momentum to push it back up to test the 50 day. As it is, it closed at the recent lows. We will watch the move and gauge the test, and if CHBS fails to hold a break back through the 50 day, we will look at a put play on a drop back down. Target: 31
PLAY: After a failed test of the 50 day, a drop back through 36 on continued storng volume (way up to 584k today; avg. 453k), with July $40p to buy (URH SH - 5 OI).

SONC (Sonic--$27.93; -0.86; optionable): Restaurants.
http://biz.yahoo.com/p/s/sonc.html
STATUS: Since breaking from a double bottom with handle in April, SONC has moved in the 28-30 range, holding the 50 day MVA (28.43) and prior pattern highs at 28. SONC sold back to the 50 day with gusto last Friday, but held on. Today it gave way, dropping through on very strong volume (736k; avg. 330k). Another one that recovered a bit from its intraday low (27.55), so we will see if we get a test or a continued fall. On a test we will look for a failed move back over the 50 day, but from here we can look at a put back through 27.55, targeting the 200 day MVA at 24.30.
PLAY: A drop through 27.55 on continued strong volume, with September $30p to buy (ZSQ UF - 10 OI).

End Part 2 of 3

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