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Begin Part 2 of 3

THIS WEEK

Another week stacked with economic data (CPI, housing starts, trade balance, leading indicators) that, with the current mood, have to be very impressive to convince investors the economy is not heading down the toilet. It is not as the very data some were saying last week showed slowing actually show gains as we pointed out.

Basically the market is where it was the previous Friday, just lower. The prior Friday there was a reversal off of some ugly selling on Thursday that appeared it could lead to a fast and significant slide lower. This past week the same action: selling on Thursday after an attempted bounce Wednesday, and then a big sell off Friday that reversed off the next potential support level. Sentiment indicators rose but did not hit critical levels. Again, same story, just a bit lower.

Monday we anticipate a bit more follow through on the reversal as we have seen in the past bounces off support. Without sentiment hitting the highs that historically indicate a reversal of substance, any bounce will struggle at resistance levels and then most likely continue the trend of making lower lows until something major causes sentiment indicators to rise significantly or just he continued selling gives the same result.

This week we anticipate a bit higher bounce than the recent previous attempts. The losses on the S&P 500 and Nasdaq have been smaller and smaller, the Nasdaq almost making a higher close on Thursday. We are watching for the 10 day MVA to hold or the immediate down trendlines. If the indexes behave as before, they will close off the highs on the session they run out of steam. We will use that move to take some more downside positions and see if the sentiment indicators can run up on the next test lower.

Support and Resistance

Nasdaq: Closed at 1504.74
Resistance: May down trendline at 1502. The 10 day MVA at 1539.86. Then 1550 that held as resistance in recent sessions. The 18 day MVA (1573.91) and 1600. The second March down trendline at 1605. Then the following March to April trendline now at 1641 and the February low at 1700.
Support: 1500 is still fighting to hold. 1460 is some support. 1425 to 1430 is the bottom channel of the May down trendline. Then there is the bottom channel of the May downtrend at 1420. After that is the September low at 1387.06.

S&P 500: Closed at 1007.27
Resistance: Closed at the September 2000/May 2001 down trendline. Then the first March down trendline at 1025 and the 10 day MVA at 1027.74. The 18 day MVA at 1042.06 and 1050 are next followed by 1060 that offers minor resistance from previous prices. The second March/April down trendline at 1055. Then the February lows at 1074.
Support: 1008 is the September 2000/May 2001 down trendline. Below that is the bottom of the March downtrend channel at 1000 to 999. The September low is 944.75.

Dow: Closed at 9474.21
Resistance: 9500 and the March down trendline at 9525. The January and February lows at 9620, followed by the 10 day MVA (9634.71). Then 9750 and the 18 day MVA (9748.61). The April and May lows at 9800 to 9811. The 200 day MVA (9853.04). The September 2000/February 2001 down trendline is at roughly 9940. Then 10,100, followed by 10,250 to 10,300.
Support: Still on the bottom of the shelf of support from 9500 to 10,100. 9250 rose up from nowhere to turn the Dow Friday; possible support there. Then 9000 to 9100. There is a rest stop at 8500. The September low is 8062.

Economic Calendar

6-18-02
CPI, May (8:30): +0.1% expected versus 0.5% prior.
CPI, core (8:30): +0.2% expected versus 0.3% prior.
Housing starts, May (8:30): 1.600M expected versus 1.555M prior.
Building permits, May (8:30): 1.620M expected versus 1.634 prior.

6-20-02
Current account, Q1 (8:30): $-107.5B expected versus -$98.8B prior.
Trade balance, April (8:30): -$32.1B expected versus -$31.6B prior.
Intial jobless claims (8:30): 38kK expected versus 390K prior.
Leading Economic Indicators, May (10:00): 0.2% expected versus -0.4% prior.
Philadelphia Fed, June (12:00): 10.6 expected versus 9.1 prior.
Treasury Budget, May (2:00): -$60,0B expected versus -$27.9B prior.

THE PLAYS: Puts keep hitting their targets, with LLL, FITB and DHR hitting them Friday!

BONUS PLAYS: AET is still setting up nicely. FTEK and INTU suffered the dip back at the open, but held on nicely in their patterns by session's end.

Downside:

MNTR (Mentor--$36.14; +1.04; optionable): Medical appliances
http://biz.yahoo.com/p/m/mntr.html
STATUS: One of the healthcare sector that has enjoyed a nice run, but MNTR has turned over and is now breaking down. It peeled back from its April high over 41, forming a descending wedge as it took out its 50 day MVA (37.50) to start this month but consolidated under that level. Wednesday MNTR fell very hard, tapping 34 at its low before rebounding the last two sessions. The rebound was on much lighter, below average volume (104,900; avg. 114,600), indicating weakness that often precedes a strong drop back. MNTR tapped its 10 day MVA at its high of 36.48, and closed at recent lows. Looking for a failure here, and put positions on a drop back. Target: 32 (200 day MVA at 31.94).
BUY POINT: From here or after a failed move toward 37, a drop back through 35.85 on increased volume. Stop: 38
POSITION: October $40p to buy (MNQ VH, -62 delta).

TIF (Tiffany & Co.--$35.48; -0.77; optionable): Jewelry stores
http://biz.yahoo.com/p/t/tif.html
STATUS: A nice October-April run, but it has pulled back the last month, breaking its uptrend and 50 day MVA. After giving up its 50 day (37.22), TIF bounced in a consolidation between it and 36, pushed down by the 10 day MVA (36.65). Friday TIF gapped below the consolidation lows, tapping 35 before bouncing back to close. Volume was up at 814k (avg. 648k), and we could see a bit more of a push back up to 36 or a bit more. That is fine, as we are looking for weakness to prevail and for TIF to drop back and give us a put play. Target: 32 (200 day MVA and February lows).
BUY POINT: After a continued move up toward 36-36.50, a drop through 35.60 on continued strong volume. Stop: 37.50
POSITION: August $40p to buy (TIF TH, -72 delta).

Upside:

QGLY (Quigley Corp--$7.70; -0.10; no options): Drug delivery
http://biz.yahoo.com/p/q/qgly.html
STATUS: Made a fantastic breakout from a flat base in March, taking it from 3 to 8.85. From that nice move QGLY tested back to the 50 day MVA (then 6, now 6.89). It has battled back to form a cup of eight weeks. Tuesday QGLY hit up to 8.25, pulling back the last few sessions into a handle. Volume has been nice and low as the stock has dipped back, holding the 10 day MVA (7.60) with a doji Friday. Setting up nicely, and looking for a breakout. Target: 10
BUY POINT: 8.32 on volume of 180k (avg. 123k; Friday 31.8k). Stop: 7.74 (7%)
POSITION: Stock only (no option chain).

BPOP (Popular--$31.84; +0.75; optionable): Foreign regional bank
http://biz.yahoo.com/p/b/bpop.html
STATUS: Cup with handle. BPOP is in an 10 month pattern, forming the right side of the cup after breaking in May from a flat base stretching back to October. The handle has been forming over the last month, easing down on generally low volume, tapping the 50 day MVA on recent intraday lows (30.85 Friday) and recovering. Friday BPOP bounced up on sharply higher volume (123.3k; avg. 101.6k). Near the handle high and looking for a breakout. Money flow is pulling it up and relative strength has broken out. Target: 36.50
BUY POINT: 32.35 on volume of 150k. Stop: 30.50
POSITION: Favoring options, with October $30c to buy (BQW JG - 50 OI, .76 OI).

GGUY (Good Guys--$3.71; -0.09; optionable): Electronics stores
http://biz.yahoo.com/p/g/gguy.html
STATUS: A handle to a four-month cup turned into another six-week cup, and GGUY broke from that pattern at the end of May. The solid move hit up to 4.36, but GGUY has come back to test the move, holding prior cup highs and the 18 day MVA (3.70) with a lateral consolidation the last week. It has behaved well with volume dipping back, Friday at 42.4k (avg. 189k) on the doji. Showing excellent money flow and buying, and looking for a bounce upward. Target: 5
BUY POINT: 3.95 on volume of 240k. Stop: 3.67 (7%)
POSITION: Stock only (no option chain)

Quick updates prior bonus plays:

MAR - Gapped through the put buy point but we can look for a weak upward push to precede a failure and a renewed chance at positions on a drop
BAC - Still looking for a drop on this put play after a test of resistance
TECD - Consolidating a bit but looking for more of a drop
HCA - Testing the 18 day MVA; not bad yet but not what we were looking for
WHI - Great breakout and holding up
NEU - Still very weak and targeting 36
EXPE - Leveled out but continue watching for more downside
BJ - Battling the 10 day and still looking for a drop back
THQI - Holding 30, yet again recovering from a test below that level
DISH - Hit the target!
CCRD - Low volume ascent stymied at the 18 day; looking for a drop back toward the target of 12
ACV - Still consolidating under resistance, but we are watching for a strong drop
EME - Weak and holding positions for a continued drop toward the target
HP - On a drop we will look to exit remaining positions
HET - Hit the put buy point today before recovering a bit; looking for the downtrend to continue
LZB - Looking for it to finally take out support at 26
TKR - Following the put down with the trend

PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK:

PRE-ANNOUNCEMENT BEST PLAYS: Still looking at BRL, HSIC.
1) PHM - Setting up the put

PHM (Pulte Homes--$51.34; +0.72; optionable): Residential construction.
http://biz.yahoo.com/p/p/phm.html
STATUS: Put. After a strong move in April PHM has bounced between the 50 day MVA and 56. After making a couple of tops at 56, PHM could only reach 55 on the last surge before dropping back, and Thursday the selling volume spiked up as PHM fell through its 50 day MVA (52.10). That put PHM at the lows in its recent range, and with the early drop Friday the stock hit 49.60 before rebounding and scoring a gain on continued above average volume. We are not convinced, and look for a bit more of a move but ultimately a failure at the 50 day. Target: 45.50
BUY POINT: After an attempt at 52, a drop through 50.50 on increased volume (718,200 today; avg. 683k). Stop: 53.50
POSITION: October $60p to buy (PHM VL - 47 OI, -66 delta).

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.

THC and JILL are still holding up well, but look to be pulling back a bit to set up the next move.

CONTINUING CANDIDATES BEST PLAYS: CYN and MMM are also setting up puts
1) PII - Setting up a drop
2) ASD - Gapped through the 50 day
3) TGH - Testing support

PII (Polaris Industries--$67.35; -0.66; optionable): Recreational Vehicles.
http://biz.yahoo.com/p/p/pii.html
STATUS: Made solid upside moves for us in March and April as it broke out from successive flag patterns, but has turned back over. After gradually pulling back and giving up its 50 day MVA (69.45), PII found support at March highs and an up trendline (connecting September, February and March lows). It managed a rebound, but Thursday dropped back through the 50 day, forming the right shoulder of a head and shoulders. Friday PII dipped below the trendline (at 68.50) but is holding a doji at the March highs. We could see another attempt to test the 50 day, but are looking for a breakdown. Target: 60.
BUY POINT: After a bounce fails, a drop through 66.50 on increased volume (up to 233k today; avg. 175k). Stop: 71
POSITION: September $75p to buy (PII UO - 120 OI, -66 delta).

ASD (American Standard--$72.64; -1.17; optionable): Building materials.
http://biz.yahoo.com/p/a/asd.html
STATUS: Broke out in March and made a nice run for us, but could now be headed down one of the company's better-known products (that is, a toilet). It fell off its high of 79 and gave up its 50 day MVA (73.96) early this month, rebounding but not able to make it back to the prior high. It fell back all week, Friday gapping back through the 50 day, tapping 72.05 at its low as volume rose to 621k (avg. 564k). Another one that could be in for a test of the 50 day, but on a failure of that move it will be set for a fall. On a drop, targeting 67 (200 day MVA at 66.29). ASD hit an intraday low of 70.75 on its early-June drop.
BUY POINT: After a failed test of 74, a drop through 72.50 on volume of 700k. Stop: 75
POSITION: October $80p to buy (ASD VP - no OI as yet, -62 delta).

TGH (Trigon Healthcare--$105.33; -0.52; optionable): Health care plans.
http://biz.yahoo.com/p/t/tgh.html
STATUS: Hit the buy point earlier in the week, hitting 109.30 but the move did not continue. However, TGH looks good as it has pulled back on light volume, Friday showing a doji at the prior highs (105), tapping the 18 day at its low of 104 but recovering to close. Being acquired by ATH and moving in sync with that stock, and looking good with its sector. On a hold of support here, we can look for a bounce to take new or additional positions. Target 125.
PLAY: On a hold of 105 and move back over 107 on volume of 600k, stock and/or October $100c to buy (TGH JT).

POST-SPLIT BEST PLAYS: RYL started down and is still a put buy
1) RYL - Looking to bounce and set up another drop
2) FOSL - Still strong

RYL (The Ryland Group--$49.10; -0.08; optionable): Split 2:1 effective 5-31-02.
http://biz.yahoo.com/p/r/ryl.html
STATUS: A strong run up since September, but RYL has now dropped back through that up trendline and 50 day MVA (51.97). After a breach and test of the 50 day, we picked up positions on Thursday's drop through 50. Friday RYL gapped down and touched 47.58 but rebounded with the market; however, it pulled back from 50.70 to close. We are targeting 42.50 on the play, but we could get another opportunity to pick up positions upon another attempt to move up that fails. That is what we will look for.
PLAY: Upon a failed move back over 50, a drop through 49.20 on continued above average volume (700k; Friday 956k). October $57.50p to buy (RYL VT - 115 OI, -63 delta).

FOSL (Fossil--$22.19; -0.36; optionable): Recreational goods. Split 3:2 effective 6-10-02.
http://biz.yahoo.com/p/f/fosl.html
STATUS: A great move up from 20 the last week. After running hard last Friday, FOSL this week has pulled back but held the recent highs in the 22 range (and 10 day MVA, at 21.93). FOSL pulled back slightly Friday, holding support and moving on lighter volume (144,700; avg. 136k). Looking good on this test, and looking for a continued move. Pushing target out to 27. Good money flow, buying, and relative strength is breaking out again.
PLAY: Over 23 on volume of 220k, with stock and/or September $20c to buy (AFU ID - 60 OI).

End Part 2 of 3

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