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Nasdaq

Gapped down to the next level of support at 1500, sold a bit more, and then spent the day reclaiming ground. On the high it was 5 points from positive territory, but then it spent the last 1.5 hours drifting lower. The big drop and bounce at potential support was a signal for some shorts to cover, and that was a large part of the move on some hefty volume.

Stats: -19.40 points (-1.25%) to close at 1535.48
Volume: 2.111B (+29.69%). Big volume spike, well above average. This is a normal event we have seen each time the index has moved to or slightly below a potential support level. What has failed to happen with any staying power is continued investment picking up after the short covering session moves the index higher.

Up Volume: 1.003B (+684M)
Down Volume: 1.092B (-202M). Up volume rallied, almost pulling even with down volume as shorts bought shares back to cover.

A/D and Hi/Lo: Decliners led 1.01 to 1
Previous Session: Decliners led 2.57 to 1. The A/D line early was as bad as Thursday, but of course the rally pulled things even.

New Highs: 43 (-1)
New Lows: 259 (+65). Still a large number of new closing lows. An underlying weakness in the Friday action.

The Chart: http://www.investmenthouse.com/cd/$compq.html

The Nasdaq tested 1500 Friday as anticipated. Unfortunately for the near 'long-term', it rallied to recover most of the 59-point loss and returned the sentiment indicators to lower levels before they could really spike higher. That prevented the cascading fall that we were looking for, but the Nasdaq still has major problems. It has sold for three weeks and many are saying it is so oversold it has to bounce. Oversold conditions can get worse and worse, however; there is no magic level of oversold status that accurately indicates a bounce. It did bounce from the potential support we were looking at, doing so on massive volume. From here it has to deal with the May low at 1560 and near term down trendline started in May at 1565. Then the 10 and 18 day MVA at 1595.25 and 1622.49, respectively. There is also the April 2000 low at 1619 adding some resistance. With the sentiment indicators not hitting the levels we wanted, the bounce off of 1500 appears to be another step before a test of the September 2001 low.

Dow/NYSE

Looked like Tuesday and the prior Thursday where the Dow sold sharply and then rallied back sharply on rising, above average volume. It is 210 points lower than that Thursday, but the Dow held up longer than the S&P 500 and the Nasdaq, and it can fall a lot further. We were just disappointed it did not go a head and bank the big losses on the session. That would help out longer term.

Stats: -34.97 points (-0.36%) to close at 9589.67
Volume: 1.8B (+11.75%). Rising volume on the reversal as shorts covered here as well. Two points. First, once again NYSE volume as a percent of Nasdaq volume was impressive, indicating that the techs are getting a bit sold out compared to the stodgier NYSE stocks. That is a positive for a reversal and one of the planets lining up. Second, TYC (200 million; 25 million average) and NT (288 million; average 19 million) accounted for 488 million shares. Without them it was a 1.3 billion share session, just average.

Up Volume: 932M (+685M)
Down Volume: 847M (-495M)

A/D and Hi/Lo: Advancers led 1.31 to 1
Previous Session: Decliners led 2.21 to 1. Dramatic reversal after another 2+ to 1 A/D line early in the session. The small and mid-caps did the leading as the broader market advanced.

New Highs: 43 (-20)
New Lows: 131 (+21). Yet another session of greater than 40 new lows, continuing the string. That indicates further selling.

The Chart: http://www.investmenthouse.com/cd/$indu.html

The Dow performed as did all the major indexes, tanking down to near term support on the low (9472.54; support at 9500). Then it reversed and climbed into positive territory only to fall 47 points in the last hour to close negative. This inability to hold positive territory is a technical negative; short covering helped rally it, but investors in the stocks were unwilling to hold onto them after the recovery off the support at 9500. The Dow has sold 600 points over the past three weeks in a series of lower lows, each time testing the next lower support level. 9100 is the March 2001 low and represents the next support level. We think the Dow will seek that before it makes a meaningful attempt at moving higher. On the upside it is just below the March down trendline and then as the 10, 200 and 18 day MVA all stacked in together (9802.99; 9871.27; and 9901.16, respectively). It may give a modest bounce early this week toward 9750, but we expect it to test nearer to 9000 before it gets back to 10,000 on this leg.

S&P 500:

Tested the bottom of the downtrend channel on the low (1012.49) and just below the September 2000/May 2001 down trendline before rebounding. We anticipated that the lower channel line might hold, preventing the index from making the 1000 level we were looking for. It moved positive 2.50 points before it gave back the gain. NYSE volume was heavy, but again 488 million attributable to TYC and NT. Remember when ENE skewed the NYSE volume? Not much upside came of that either. Resistance at 1035 (first March down trendline), followed by 1050 (May low and 10 day MVA). The 18 day MVA at 1062.06 is next. The S&P has undergone heavy selling and it may try to bounce early in the week to test the 10 day MVA. As with the Dow, however, we think it has more downside testing to do near term.

Stats: -1.62 points (-0.2%) to close at 1027.53
NYSE Volume: 1.8B (+11.75%)

The Chart: http://www.investmenthouse.com/cd/$spx.html

THIS WEEK

The market did tank lower but it staged a recovery. While the easy argument is the market is oversold and is destined to bounce, we are not convinced it is done selling on this leg. The VIX hit near 30 and the put/call ratio has spiked higher in recent weeks and in February that led to a short term rally in March. So there is the possibility that the market has hit a level that will spark a more sustained move up. At this point with the indexes closer to the September low than not, we believe there is more testing to be done. We are not convinced that Monday will continue the reversal Friday. There is a lot of bad news priced into the market right now, but the overall indicators did not signal an important turn.

Moreover, a lot of stocks moved back up Friday but to resistance levels. Volumes were up, but the fact they could not close above resistance just as the fact the indexes sold back the last hour and could not recapture positive territory is important. An intraday move that cannot take out resistance that session starts from scratch. We anticipate a further move up Monday in an early attempt to continue some of the reversal action Friday, but we also anticipate that to dissipate Monday or Tuesday.

Support and Resistance

Nasdaq: Closed at 1535.48
Resistance: 1560 is the May low (October low is there as well). May down trendline at 1565. 1600 is some resistance, and the 10 day MVA (1595.61) is right there. The 18 day MVA after that is (1622.49). Then the second March down trendline at 1635. The next March to April trendline now at 1663 and the February low at 1700.
Support: 1500. After that is the September low at 1387.06.

S&P 500: Closed at 1027.53
Resistance: The first March down trendline at 1035. Then 1050 is some resistance along with the 10 day MVA (1050). 1060 offers minor resistance after that from previous prices. The second March/April down trendline at 1062 along with the 18 day MVA at 1062.01. Then the February lows at 1074.
Support: There is some support at the bottom channel of the first March downtrend at 1011. The possible support at 1000. The September low is 944.75.

Dow: Closed at 9589.67
Resistance: Closed right at the March down trendline (9635). The 10 day MVA is near the May lows at 9811 (9802.99). That is followed by the 200 day MVA (9871.27) and the 18 day MVA (9901.16). 9811, the April and May lows. The 200 day MVA (9875.06). The 18 day MVA at 9937.80. The September 2000/February 2001 down trendline is at roughly 9965. Then 10,100, followed by 10,250 to 10,300.
Support: 9500 to 9600 in the shelf of support from 9500 to 10,100. Then 9000 to 9100. There is a rest top at 8500. The September low is 8062.

Economic Calendar

6-12-02
Export Prices ex-ag., May (8:30): NA vs. 0.3% prior.
Import Prices ex-oil, May (8:30): NA vs. 0.4% prior.
Fed's Beige Book (2:00)

6-13-02
Initial claims, 06/08 (8:30): NA vs. 383K prior.
PPI, May (8:30): 0.1% versus -0.2% prior.
Core PPI, May (8:30): 0.1% versus 0.1% prior.
Retail Sales, May (8:30): 0.0% versus 1.2% priorl
Retail Sales ex-auto, May (8:30): 0.3% versus 1.0% prior.

6-14-02
Business Inventories, April (8:30): -0.2% versus -0.3% prior.
Industrial Production, May (9:15): 0.4% versus 0.4% prior.
Capacity Utilization, May (9:15): 75.7% versus 75.5% prior.
Mich. Sentiment-Prel., June (9:45): 97.0 versus 96.9 prior.

SUBSCRIBER QUESTIONS

Q: You said "Futures are massively lower on the INTC news". How can we check the index futures after hours? This would be quite valuable on a daily basis.

A: There are a few sites that do this. One good one is http://money.cnn.com/markets/afterhours/.

THE PLAYS

Good movers: FTEK exploded as did CVH. Another solid move by NX.

Best Plays:
1) ATH: Looks ready again.
2) IBC: Breaking out.
3) PNR: Ready to fall.
4) BL: It is either going to breakout big or plunge.
5) JBHT: Holding tough with great accumulation.
6) ERTS: Forming that handle.
7) Watchlist: FSS; HI, PBG; HGR.

NEW PLAYS:

Upside:

ATH (Anthem--$71.90; +1.45; optionable): Health care plans
http://biz/yahoo.com/p/a/ath.html
STATUS: New high breakout. ATH is already a play, but with the health care plans performing well and ATH moving up Friday on above average volume, it looks ready for a new buy. Friday the health care plans were leading again, showing that the market is still defensive. ATH is coming off of the 50 day MVA (66) on this move, and buying is picking up as it does. Money flow remains strong and relative strength has already broken out.
Volume: 1.776M Avg Volume: 1.241M
BUY POINT: $72.25 Volume=1.8M Target=$86.75 Stop=$67.19
POSITION: ATH IN - Sept. 70 call (62 delta) and/or stock
http://www.investmenthouse.com/ct/ath.html

PCLE (Pinnacle Systems--$11.14; +0.21; optionable): Photo equipment
http://biz/yahoo.com/p/p/pcle.html
STATUS: Testing breakout. Another stock that is already a play, but that does not mean we cannot get in again or at another good buy point for the first time. For the past three weeks it has moved laterally after its break over resistance, building upside pressure as it moves above the 18 day MVA (10.60). PCLE continues to perform with good accumulation and money flow is leading the price move higher. Friday it made a move toward clearing the May high on stronger, above average volume.
Volume: 930.8K Avg Volume: 583.681K
BUY POINT: $11.50 Volume=850K Target=$19.94 Stop=$10.25
POSITION: PUC JU - Oct. $7.50 call (89 delta) and/or stock
http://www.investmenthouse.com/ct/pcle.html

IBC (Interstate Bakeries--$28.00; +1.14; optionable): Processed food and drink
http://biz/yahoo.com/p/i/ibc.html
STATUS: Testing the breakout. IBC broke out of an 8-month flat base in May, tested the move the past three weeks, and started back up on Friday with a sharp volume spike. In this market we like to see successful tests of the breakout, and this one looks good with accumulation during the base very solid with accumulation weeks leading distribution weeks 10 to 2. Relative strength has already broken out and money flow remains strong.
Volume: 456K Avg Volume: 232.863K
BUY POINT: $28.60 Volume=400K Target=$34.96 Stop=$26.60
POSITION: IBC JE - Oct. $25 call (74 delta) and/or stock
http://www.investmenthouse.com/ct/ibc.html

Downside:

PHTN (Photon Dynamics--$36.83; +0.58; optionable): Chip equipment
http://biz/yahoo.com/p/p/phtn.html
STATUS: Put. Photon crashed through the 200 day MVA Monday and accelerated the move Tuesday on tremendous volume. It climbed back up the remainder of the week, but Friday the move up was on much lighter volume and it appears the test of the breach of the 200 day (39.27) is not going to be successful. In other words we expect PHTN to rise a bit more, perhaps to the 10 day MVA (38.37) before it rolls back over.
Volume: 775.3K Avg Volume: 526.409K
BUY POINT: From here: $36.25. After a test of 38.37, 37.45. Volume=650K Target=$32.5 Stop=$39
POSITION: PDU VU - Oct. $37.50 put (-52 delta)
http://www.investmenthouse.com/ct/phtn.html

PNR (Pentair--$45.66; +0.52; optionable): Machinery
http://biz/yahoo.com/p/p/pnr.html
STATUS: Put. This sector performed well and now is suffering, having broken below the 50 day MVA (46.20) Monday and giving a weak test of that level Thursday and Friday on very low volume. A failure here will form the right shoulder in a head and shoulders pattern. We like to take positions on this pattern as it comes down from the peak of the right shoulder, particularly when that peak is turned back by important resistance such as the 50 day MVA.
Volume: 169.1K Avg Volume: 306.363K
BUY POINT: $44.70 Volume=300K Target=$39.75 Stop=$47
POSITION: PNR TJ - Aug. $50 put (-66 delta)
http://www.investmenthouse.com/ct/pnr.html

CONTINUING PLAYS:

Upside:

BL (Blair Corp.-- $22.78; -0.12; no options): Play Date: 05/21/2002
http://biz/yahoo.com/p/b/bl.html
STATUS: Cup w/handle (5 month). Patiently waiting for the stock to makes its move out of this tight handle. Friday BL showed a very tight doji right over the 18 day MVA as volume spiked higher and above average. Again, there is excellent accumulation in the base with money flow leading the way up and relative strength ready to breakout as well.
Volume: 21.7K Avg Volume: 14.454K
BUY POINT $23.85 Volume=45K Target=$27.5 Stop=$22
POSITION: Stock (no option chain)
http://www.investmenthouse.com/ct/bl.html

BLC (Belo-- $24.01; +0.30; optionable): Play Date: 05/25/2002
http://biz/yahoo.com/p/b/blc.html
STATUS: Flat base. BLC is getting a bit volatile after the flat consolidation the past two weeks as part of the bigger base. Thursday it tested the 18 day MVA, the Friday it was right back up on continued above average volume. It may have shaken out the last sellers; relative strength is breaking out already.
Volume: 300.8K Avg Volume: 281.454K
BUY POINT: $24.25 Volume=342K Target=$30 Stop=$22.55
POSITION: Stock and/or BLC JD - Oct. 20c (delta 94)
http://www.investmenthouse.com/ct/blc.html

CAND (Candies, Inc.-- $4.75; -0.17; no options): Play Date: 06/06/2002
http://biz/yahoo.com/p/c/cand.html
STATUS: Test breakout. After Thursday's powerful move on strong volume CAND took a breather on very low, below average volume. This is a pullback to the 18 day MVA after its first breakout run, and we are looking to pick it off when it clears that resistance just below 5. This one has made us money in the past, and it looks ready to do it again.
Volume: 240.4K Avg Volume: 269.363K
BUY POINT: $4.98 Volume=500K Target=$6.95 Stop=$4
POSITION: Stock (no option chain)
http://www.investmenthouse.com/ct/cand.html

ERTS (Electronic Arts-- $63.25; +0.30; optionable): Play Date: 05/30/2002
http://biz/yahoo.com/p/e/erts.html
STATUS: Cup. Tested the 18 day MVA Thursday and then got a bit wild Friday with a test all the way to the 50 day MVA on the low (61.00) and then a sharp recovery to post a slight gain on rising volume. Looks as if ERTS is forming that handle that we were wanting it to form to make a stronger pattern. The stock is very near a new high; some tech stocks are leaders still in the right niche. This bounce off the 50 day MVA could have shaken out he last sellers and send it higher.
Volume: 3.115M Avg Volume: 2.927M
BUY POINT: 65.10. New high: $66.12 Volume=4M Target=$79.50 Stop=$61.49
POSITION: EZQ IL - Sept. $60 call, delta 68 and/or stock
http://www.investmenthouse.com/ct/erts.html

JBHT (JB Hunt Transportation-- $26.95; +0.82; optionable): Play Date: 06/01/2002
http://biz/yahoo.com/p/j/jbht.html
STATUS: Ascending wedge. Continues to dance near the 50 day MVA in its pattern with a nice comeback Friday after testing lower Thursday. Volume was light both sessions, and this has more of a look of a shakeout. Relative strength is breaking out now and money flow is leading higher with a positive divergence (it is rising while the stock moved sideways; tends to 'pull' the stock up with it). Very solid looking and some great accumulation (accumulation weeks outnumber distribution weeks 7 to 2 in the base).
Volume: 281.6K Avg Volume: 438.227K
BUY POINT: $28.72 Volume=545K Target=$36 Stop=$25.40. More aggressive can look at a move over 28 with the same volume.
POSITION: JHQ KX - Nov. $25 calls, delta 74 and/or stock
http://www.investmenthouse.com/ct/jbht.html

OSI (Outback Steakhouse-- $39.27; +0.09; optionable): Play Date: 05/29/2002
http://biz/yahoo.com/p/o/osi.html
STATUS: Test breakout. OSI moved right back up the 10 day MVA and ready for a move over the recent highs, but volume has not moved with the price, remaining below average. It made the breakout just over two weeks ago, and the stock is moving laterally with lows climbing the 10 day MVA. Looks to be building for another move higher with relative strength leading the way.
Volume: 364K Avg Volume: 489.772K
BUY POINT: New positions over 39.75 (original buy point at $39.05). Volume=720K Target=$46.94 Stop=$36.32
POSITION: OSI KG - Nov. $35 call, delta 75 and/or stock
http://www.investmenthouse.com/ct/osi.html

SALM (Salem Communications-- $29.13; +0.39; no options): Play Date: 06/03/2002
http://biz/yahoo.com/p/s/salm.html
STATUS: Cup w/handle. Dipped to the 18 day MVA Thursday and Friday on the lows (28.40) and recovered both days. This is very good action in the handle of the 10-month cup with handle: we want to see some lower intraday lows to shake out the last sellers. Volume remains below in the handle as well, another good attribute as it shows there are not many sellers at all even as the stock tests lower. Outstanding accumulation with accumulation weeks over distribution weeks 12 to 2. Again we are being patient to let the breakout occur.
Volume: 13.2K Avg Volume: 66.5K
BUY POINT: $30.17 Volume=100K Target=$36.2 Stop=$27.50
POSITION: Stock (no option chain)
http://www.investmenthouse.com/ct/salm.html

End Part 2 of 3

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