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us stock market, stock watch
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Tech Traders 2/06/01 Market Summary
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Technical Traders Subscribers:
NOTE: There are a lot of good-looking stocks on the report tonight, in addition to the featured stocks below; some of them are making breakout moves. Several others made nice moves today (ACS, IBM, HWP, NATI), while many of the financial stocks on the report continue to consolidate on low volume (PNC, NEU, CFBX, CSBI). Other stocks that look good are ESRX, ASD, FAF. A lot to look at tomorrow and the rest of the week, but we really like that we are seeing such good patterns and price movement.
Continuing Plays:
MAY (May Department Stores Co--$38.90; +1.05; optionable (MAY)): Retail
http://biz.yahoo.com/p/m/may.html
STATUS: Moving up to resistance on strong volume (1.57 million; avg. 1.4 million). The stock is ready to break higher in the upper right side of its lengthy base but has to break the 39 resistance first (that price was hit 4 times recently). February high is 39.50.
Huge money flow.
BUY POINT: Over 39.50, on continued rising volume.
POSITION: Stock and/or May $35 or $40 calls to buy (MAY FG or FH).
http://www.investmenthouse.com/ct/may.html
(Click to view the chart)
EDS (Electronic Data Systems--$58.55; +1.75; optionable (EDS)): Software
http://biz.yahoo.com/p/e/eds.html
STATUS: A strong move up in the pennant as volume shot above average to 2.5 million (avg. 2 million). Pattern high is 60; the pennant is in the upper right side of the lengthy base. Looking for a breakout. Relative strength broke higher.
BUY POINT: Breakout: 60.13, on volume of 2.7 million or better.
POSITION: Both buy points: Stock and/or June $60 calls to buy (EDS FL).
http://www.investmenthouse.com/ct/eds.html
(Click to view the chart)
AZPN (Aspen Technology Inc--$41.00; +2.81; optionable (ZQP)): Software
http://biz.yahoo.com/p/a/azpn.html
STATUS: Ready to break out of the handle of its 22-week cup pattern as volume surged and pushed the stock up from Monday's doji (1 million; avg. 355,090). Buy point in the handle is 41.38, so almost there. Good buying and money flow.
BUY POINT: 41.38, on volume of 533,000 or better. Remains a buy on the breakout up to 43.45.
POSITION: Stock and/or March $40 calls to buy (ZQP CH). May $40 calls (ZQP EH) have low open interests.
http://www.investmenthouse.com/ct/azpn.html
(Click to view the chart)
New Play to look at:
SBUX (Starbucks Corporation--$49.88; +1.94; optionable (SQX)): Leisure
http://biz.yahoo.com/p/s/sbux.html
STATUS: Making a breakout move on strong volume (3.4 million; avg. 2.36 million). The stock pulled back in the handle of an 11-week cup with handle, and shot up today on the volume surge. Previous basing high is 50.81; handle high is 50.06. High relative strength.
BUY POINT: 50.19, on volume of 3.5 million or better. Remains a buy on the breakout up to 52.70.
POSITION: Stock and/or April $50 calls to buy (SQX DJ).
http://www.investmenthouse.com/cd/sbux.html
(Click to view the chart)
CVC (Cablevision Systems Cl--$85.60; +1.78; optionable (CVC)): Media
http://biz.yahoo.com/p/c/cvc.html
STATUS: Formerly covered in the January 30 update report. The stock is making a move off its 50 day MVA (82.97) for a roll back up to the 90 level, where it topped out on its last run up from the moving average. Volume rose to 728,200 (avg. 577,000) as the stock hit resistance at the short term moving averages (10 day MVA, 86.05). Look for a move over that level on continued strong volume. Great money flow and high relative strength.
BUY POINT: Over 86.05 on continued rising volume.
POSITION: Stock and/or June $85 calls to buy (CVC FQ).
http://www.investmenthouse.com/ct/cvc.html
(Click to view the chart)
MANU (Manugistics Group Inc--$51.94; +3.38; optionable (ZUQ)): Software
http://biz.yahoo.com/p/m/manu.html
STATUS: Moving up on stronger volume (average, at 1.95 million) from support, the 18 day MVA at 48.95. The stock broke the 10 day MVA at 49.69 on the move up in its large pennant (pattern high is 66.06). We are looking for the stock to move up to that level for an eventual breakout. High money flow and relative strength. Possible resistance 55-57.
BUY POINT: Aggressive: On further upward movement as volume breaks above average. Safer: Over 57 on volume of 2.6 million or better.
POSITION: Aggressive: Stock and/or April $50 calls to buy (ZUQ DJ). Safer: Stock and/or April $55 calls to buy (ZUQ DK).
http://www.investmenthouse.com/ct/manu.html
(Click to view the chart)
THE SUMMARY:
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
TONIGHT:
- Nasdaq finally moves up on stronger volume, but gave most of it back even before CSCO missed earnings.
- While the Nasdaq climbed, the Dow and S&P 500 fell on higher volume as the markets continue to misfire and stumble along.
- After CSCO: tomorrow's ride.
- Team Trades
A gain on higher volume, but it did not inspire many.
The Nasdaq was giving signs of a move up that we picked up on Monday, and today it followed through on those signals. At its high it was up 62 points to 2705.59. That was as lunchtime on the east coast hit; after that high point the Nasdaq sold down the rest of the afternoon, turning what could have been a solid day into a lackluster showing. Volume was stronger on the gain, just what we wanted and a sign that there was more punch behind the buying than the recent selling. That is what we want to see, and perhaps the afternoon selling was related to CSCO's earnings announcement that was coming after hours. That certainly took more luster off of the session, and it makes tomorrow's trading session a potentially wild one.
Speaking of CSCO, it missed its target top line earnings by a penny, and revenues came in below the $7.2 billion anticipated. Inventories shot up to $2.53 billion, or 25% sequentially. As for guidance, CSCO still says things are unclear based on the economy, but it is looking for a 'V' bottom economic slowdown that will really only impact its next two quarters. As a result of that slowdown CSCO is widening growth expectations to 30% to 50%, saying the lower end of the range is anticipated. Third quarter sequential revenues are anticipated at 0% to -5% growth, and fourth quarter are expected to be flat. Not stellar news, but not falling off the cliff either. The stock hit a high of 36.18 right before the close, and tanked to 33 on its low after hours. It fought back to 33.56 late. How much damage will be done? The stock has been cut almost in half since October and it was not crushed after hours. Still, expect a raft of downgrades in the morning now that analysts know what the numbers are expected to be. We don't see it going below 32. Incidentally, these are CSCO's slowest growth since its IPO. A giant leader is getting huge, and the economic slowdown is bad timing for it.
CSCO's numbers rocked tech stocks after hours with selling across a pretty broad spectrum. This was on top of an afternoon that saw some decent gains pared back, so even though the Nasdaq was up on the session, there was not a lot to show for it. How much will CSCO impact the overall Nasdaq? Pretty much everyone expected something less than 'normal' for CSCO, and most rebounded after hours but came nowhere near their closing prices. We saw a move higher on higher volume ahead of the earnings. If they were being discounted into prices ahead of time, the Nasdaq could test lower in the morning and then recover. Buyers have been in the majority as we continued to see accumulation even as the Nasdaq sold back recently. We will see how much fortitude they have.
The Dow and S&P 500 sell on higher volume.
Meanwhile the other two major indexes fell back slightly on slightly higher volume after trading in positive territory early on. The action was a mirror image on all indexes. The Nasdaq started the session higher, so it was able to hold off negative territory at the close while the other two slipped into the red. The Dow once again failed to hold over 11,000, while the big caps again found some support at the 50 day MVA. That may be the catalyst for it, but it seems all indexes are spinning their wheels.
THE MARKETS
Up and looking pretty solid early, then down and trying to hang on later. Today was not a strong affirmation of the buying we have been seeing in technology or in financial stocks. There were some good moves in preparation of breakouts in retail, financial and even some techs, but we have to see another day of strong volume buying. The move has been set up and we will see if it can follow through.
Overall market stats:
VIX: 23.82; -0.57. Volatility continues to be low as the indexes appear stuck in the mud.
Put/Call ratio: 0.71; +0.17. A fairly dramatic rise in put buyers today as the Nasdaq made headway. That is a sign of some potential short covering, but the fact that the index sold off belies that to some degree. We do, however, like to see the put buying spike higher on some uncertainty as some investors and traders get frustrated and impatient with the market's failure to make headway. That is another sign that a change of character is in the air: when frustration hits a level where rash moves are made, that often precedes a stronger move.
NASDAQ:
The move was set up and things were taking shape well: a pre-market that looked slightly negative, a weaker open, and then a strong recovery. In the end there was a gain on higher volume, but it will have to get better than this.
Stats: Up 21.28 points (+0.8%) to close at 2664.49.
Volume: 1.790 billion shares (+8.5%). Volume is harder to gauge right now as Nasdaq volume counting now allows certain transactions without a market maker, i.e., a sale where a buyer and seller is matched up without the market maker actually buying the shares. These formerly were counted as double trades. As we said before, this is supposed to take 5% to 10% off of volume. In any event, the recent selling was on lower volume even if measured by former counting methods, and today's volume was higher than the selling volume. Up volume took out down volume 993 million to 746 million shares. This is the right price/volume action that we were looking for, but as we said, it needs to continue with a solid move higher.
A/D and Hi/Lo: Advancing issues moved back ahead 1.14 to 1. Again, another sign that things were not really strong. New highs fell to 83 (-6) along with new lows that fell to 23 (-5).
The Chart: http://www.investmenthouse.com/cd/$ndx.html
The Nasdaq rose to 2705.59 on its high and then pulled back. This move kept it over a support level at 2640, but it did not give a strong launch up higher to overcome the recent tops at 2800 to 2900. At this point the market may give us a test of the 2640 level or lower in the morning on the heels of the CSCO earnings. Again we want to see it hold at 2600 or so for a bounce back up, and we want to see that bounce on continued strong volume. It will need leadership from stocks other than CSCO and SUNW. Perhaps DELL which is showing solid life right now. There are other techs, but there are also Nasdaq financial stocks and retail stocks that have great patterns. They can lead, and they are needed now.
Dow/NYSE: The Dow once again traded over resistance at 11,020 to 11,030, but it could not hold onto the move. Indeed, it reversed after hitting 11,035.14, falling back on higher volume. It only gets so many chances before a move fails. Usually it is three. It looks as if it is on try number two now.
Stats: Down 8.43 points (-0.1%) to close at 10,957.42.
Volume: NYSE volume rose on the selling, climbing to 1.052 billion shares (+3.8%). At least volume was still below average. Moreover, up volume topped down volume 550 million to 489 million shares.
A/D and Hi/Lo: NYSE advancing issues continued to lead today after taking back over on Monday, 1.18 to 1. A very slight rise. New highs rose to 181 (+13) while new lows fell to 6 (-3).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow tried another run at resistance, but then gave it all back. It showed a doji at the top of its recent range, and that usually means a turn back down is coming. Note also that it closed well off of its high, another sign that an attempt to take out resistance may have failed. At a minimum it looks as if the Dow is going to pullback toward 10,750. Still, if the techs sell off hard, there may once again be flight into defensive sectors that could help the Dow. We are not counting on that move right now.
S&P 500: The big caps showed some opposite action from the Dow, tapping support on the low (1350.04) in the form of the 18 day and 50 day MVA and closing higher. Unfortunately, the tap of the support came in the last half hour of trading after the index had squandered a 9-point gain. The volume was higher on the reversal from the session highs (1363.55), and that is not a positive sign for continued upward action. Still, the index is holding at support and hanging onto the gains after the first rate cut on January 3. That is a logical launch pad for the next move up if the overall market can catch some firm ground and start rising on this higher volume. There is accumulation, but it keeps running into sellers. Eventually the sellers will be washed out, but that has not occurred yet.
Stats: Down 2.05 points (-0.2%) to close at 1352.26.
Volume: NYSE volume rose but remained below average at 1.052 billion shares (+3.8%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
CSCO will set the tone early on, but we also have fourth quarter productivity numbers hitting the market before the open. Productivity is expected to drop as companies have invested in less IT equipment in the fourth quarter and as workers are kept on but are not worked as hard. Not too much impact as we see it unless, as always, the numbers are a surprise. We don't think they will be.
As noted above, CSCO will taint the morning session, and the trick will be whether the news has already been more or less factored into the market. Judging from after hours activity, not just quite. But this is a golden opportunity to see what the market is made out of. CSCO is the last big dog to report earnings (other than DELL). The dirty laundry is out flapping in the breeze, and we have guidance on what this quarter is shaping up to be. The market can start looking forward to the second, third and fourth quarters, the latter two which are supposed to show recovery. We think that might start showing up in March.
Thus far, the market is resisting somewhat looking to the future. Prime example: we keep hearing talk about layoffs (they are happening, but we don't hear the full story) and how retailers and financial stocks are overvalued. First, there are layoffs occurring, and we were reporting them when they started occurring back in October long before we started hearing about layoffs on a daily basis. Some are very deep, but others are in the 3% range. Three percent is normal yearly attrition for most larger companies. Many are being pushed into early retirement or reassigned. JC Penney is closing a lot of stores, but a large percentage of the employees are being reassigned to other stores. And there are new jobs as we saw last Friday that are soaking up many of these workers. There are some aberrations going on out there as one subscriber pointed out with an aluminum company that laid off two-thirds of its employees and ceased making aluminum. Instead it is selling its electricity for more than it could sell the aluminum it was making. That happens when the market gets distorted by government interference as we have seen in the California power 'deregulation' fiasco. Still, it is exacerbating the problem, showing the ripple effect that this has on the economy. Nonetheless, we are once again getting only a part of the story; before we got only the good stuff, but now that it is in vogue to talk about how bad things are, we only get the bad stuff. We are seeing signs that things are not horrid in the job arena, and we will keep our eye on Thursday's jobless report.
As for the financials and retailers, the talk is that they have already made their moves in the 'rate cut euphoria.' Perhaps, but not by the patterns we are seeing. There are solid cup with handles, double bottoms and other bullish patterns that have formed on solid price/volume action. Maybe these patterns will collapse as many did when the summer rally died, but that would mean something happens to make retailers and financials less desirable. The point: it is not a one-shot item when the Fed starts to weigh in with rate cuts. We have yet to see the positive impact, and we are still in the realm of pricing those in, at least that is what the patterns look to be showing us. We are watching and playing these stocks because we are seeing them make the moves we want on the right volume.
As for tomorrow, we have to look at these patterns that have developed, the stocks that have set up good moves either in long bases or are ready to make short term moves. This market is still up and down even though overall it has been up. That is normal action when a market is trying to set up a move; we said it when the Fed cut rates the first time: the bias is up, but it is not a straight shot. Thus we take some longer term positions in stocks we really like when they pullback to levels we believe are buys and when we see breakouts that can run for quite a way. On other plays we continue to make the short term plays and not try to hit the home run on every play. As we have seen, even on the lower volume pullbacks the price drops can be steep.
Tomorrow we are looking for CSCO to bring things down early, but we are looking for support to hold anywhere from 2600 to 2640 and give us a snap back on the Nasdaq. Today the market showed it wanted to try a rally. If it is going to rally, it will most likely shake off the CSCO news after it shakes out the last sellers who are looking very short term and think if CSCO missed everything is bad. We are going to watch for support levels to hold in individual stocks that have the power to really move to the upside in a rally (our shorter term plays) and those that we want to see break out of their nice bases on strong volume. Not every play is a buy and hold forever. Let the stock's action tell you how far to let it run. Use trailing stop losses when you can; tell your broker what you want to do. We have been caught in a couple of positions recently that we did not take profits when we had them nicely in hand. No reason not to, just did not move those stops up to lock in gains if things moved against us. Hope rhymes with dope, and there was some of the latter floating around here recently. Get our plan and stick with it. That is a constant battle you have; be flexible if something great happens, but don't lose sight of why you entered the play in the first place. If it was to capture a quick move on a pre-split run and you do that, what are you waiting around for it if the move slows down or tops? Don't let the talk of a stagnant market get you down, but also don't think things are a straight ride up either. Be cautious and review your positions. If you have ask 'why am I in this play?', you probably need to do some quick re-evaluation.
Support and Resistance Levels
Nasdaq: Closed at 2664.49
Resistance: 2890 to 2900 is next before the 3000 level.
Support: 2600 to 2640. Then 2500.
S&P 500: Closed at 1352.26
Resistance: 1360 to 1375.
Support: 50 day MVA is at 1348.74. After that 1335 to 1340.
Dow: Closed at 10,957.42.
Resistance: 11,020 - 11,028. After that, 11,400.
Support: 10,750. 200 day MVA is 10,704.94. Then 10,650.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
2-5-01
NAPM services for January (10:00): 55.0% expected versus 61.1% prior.
2-7-01
Productivity (preliminary), Fourth quarter (8:30): 2.5% expected versus 3.3% prior.
Consumer credit for December (2:00): $8.5 billion expected versus $12.9 billion prior.
2-8-01
Initial jobless claims (8:30): 346,000 prior.
Wholesale inventories for December (10:00): 0.5% expected versus 0.4% prior.
TEAM TRADES
SBUX: Good earnings and pretty good coffee. Nothing like working on an ulcer when the market is tanking. Whatever the reason, SBUX has been selling a lot of coffee, and the stock is in a very nice 10-week pattern it is ready to break out of. Today it was every so close with volume jumping up as well. The breakout is at 50.06, and we were looking for a move to 50.25 on the volume we saw today. Okay, the stock runs straight up to 50 in the first two hours. We were ready. Then it pulled back and spent the next two hours trying to climb back up. It did that, hitting 50 again at 1:10 ET. It fell back and then did it again 10 minutes later. Then it hit it again right after that. Each time it fell back. It fell back to 49.25 where it first fell back. It bounced between that level and 49.62 for another two hours. Then with a half hour to go and good volume under its belt, it made another run to 50. We were every so tempted to get in, but since it hit 50 on three major runs and could not break over it, we held off. We thought surely it would do so in the morning and why not beat it to the punch? No, if resistance is proving tough, let it break it. Then you can act with confidence.
Good Investing!
Jon Johnson and the Tech Traders 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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