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us stock market, trend trading stock
Begin Part 2 of 2: Contrary to what the first email stated, there are two parts!
THE MARKETS
Overall market stats:
VIX: 24.09; -0.43. Volatility fell on a day of selling. There is massive complacency out there, and it is being reflected in option prices as well. Not a lot of great premiums on options for the covered call writers.
Put/Call ratio: 0.71; +0.13. Back to where it was on Tuesday as put action picked up as the markets showed that nagging propensity to sell into rallies. We like to see it climb on selling; about time. If we get more tomorrow we would like to see it move back over 0.90. Not enough fear right now to do that, but we do like the pop it gave today.
NASDAQ:
Techs sold into the rally, and many sold on higher volume even if the index volume was technically lower. Some poor looking patterns out there at or approaching 52-week lows. Will they find bottom here ahead of the overall index and start things back up? We will see.
Stats: Down 45.76 points (-1.8%) to close at 2562.06.
Volume: 1.855 billion shares (-10%). 1.120 billion shares to the downside versus 662 million to the upside. Volume was lower on the selling, technically a good thing and perhaps positive as many techs hit near their 52-week lows. Will they bounce? As we noted earlier, however, volume was still hefty if you factor out the aberrant CSCO volume on Wednesday.
A/D and Hi/Lo: Declining issues still led, but fell to 1.22 to 1 (1.50 to 1 Wednesday). New highs rose to 87 (+9) and new lows fell to 36 (-3).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq has firmly dropped below potential support at 2600, and it is just a skip down to 2500. The market has never looked just super this year, but it has shown promise. What was a consolidation attempt above 2750 that looked as if it could challenge 3000 started selling on higher volume. Key tech stocks that were trying to put together double bottom patterns rolled over and started selling on higher volume. As we said two reports ago, the market bias was down even as the index tried to set itself for moves higher. It stopped absorbing bad news, however, as the recession feeling has pervaded more investors, analysts, economists, etc. It now needs something to convince it that buying should start.
We know many are again worried about the market. We talk to brokers and investors every day and they are concerned once again. It is not showing up in the market, however, because it is in that area coming off a 25% move in January and not yet plunging to new lows. Welcome to bear market recovery even with rate cuts. The drops still occur, but the trend should remain up overall. What we have to keep an eye on is whether the Nasdaq continues down and takes out more of its interim lows. It has popped two already, and the next is a long way down. So far many stocks have already given up all gains from the first rate cut, but the index overall is still holding up more or less. It needs to hang on at 2500, however.
Dow/NYSE: Falling back a bit as we thought, but on lower NYSE volume and still looking decent.
Stats: Down 66.17 points (-0.6%) to close at 10,880.55.
Volume: NYSE volume pulled back to 1.093 billion shares (-5.6%), demonstrating a more orderly pullback on today's action. Down volume topped up volume 622 to 462 million shares.
A/D and Hi/Lo: NYSE decliners took the lead 1.15 to 1, a pretty dead heat. New highs fell to 155 (-29) as new lows fell to 15 (-4).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow is pulling back as expected after it attempted a few low-volume runs at 11,020. The selling was on lower volume and looks under control thus far. That is just what we were looking for, and the index is still above support at 10,750 where we want it to hold for another run at 11,000.
S&P 500: The A/D line was virtually a dead heat as the big caps sank to support, closing at the lows of the session. At least volume was lighter on the NYSE, and perhaps this level will hold as it is decent support. The bias appears to be to the downside at this point, however, and we want to see a move up on decidedly higher volume. Again, if it does not hold at 1325 on higher volume, there is downside risk to the 1300 level.
Stats: Down 8.36 points (-0.6%) to close at 1332.53.
Volume: NYSE volume fell on the selling to 1.093 billion shares (-5.6%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The indexes finished on their lows and the futures are lower. Looks like a recipe for a lower open which is not all that bad. We prefer that to today's early rally, quick flop. When the markets start slower, it gives us a chance to size up the move better. What we do not like, however, is that the market has been gasping this week, and Friday is not a good day to start a rally and take a lot of new positions. Why? Monday. In a weak market there are a lot of things that can impact stocks. One recurring problem we have had is brokerages huddling over the weekend and coming out with major downgrades on Monday, effectively gut-punching the market before it even knows what it wants to do.
Thus, with the weakness in the market, we will have to be impressed by any moves we see to take new positions. This is a time for extreme patience. Our time will come. As it turns out, this would have been a great time to short the market, but when things are so complacent we don't like to go short because moves up can be explosive. Also, as many stocks broke downtrends, it is not like playing the trend down as we were before the January move over the down trendline. The S&P 100 looks like a play to the downside, however, and there are a few of special note. As stocks approach their 52-week lows, we keep an eye out. Will they bounce or will they flop? If they flop, the downside could be wicked because we would be entering some uncharted waters with two Fed rate cuts and a tanking market. That is the Great Depression kind of action. The economy, however, is not in a Great Depression range by a long shot.
Support and Resistance Levels
Nasdaq: Closed at 2562.06.
Resistance: 2890 to 2900 is next before the 3000 level.
Support: 2500.
S&P 500: Closed at 1332.53
Resistance: 1360 to 1375.
Support: Right at support now. After that 1300.
Dow: Closed at 10,880.55.
Resistance: 11,020 - 11,028. After that, 11,400.
Support: 10,750. 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
CTXS: Wednesday's high volume turn above the 50 day MVA caught our attention. Today the stock was looking pretty salty even as other stocks were selling off. We were going to use some weakness as a chance to pick up some calls with expirations out in the summer as this stock has shown some real strength and we think it is going to do some leading in the next move up. So when it pulled back after the first hour on a sharp drop and touched 32 3/16 and buyers swarmed in, we went in as well. June $30 calls were trading at 7.38 by 7.625. This was a narrower spread than we had seen, so we jumped in immediately with a limit of 7.625. Well, by the time the order hit about 10 seconds later, the spread had moved to 7.38 by 7.88. Of course, once our order was in, the bid was moved to 7.625. The stock was hemming and hawing, and we thought we would get hit. Then it took off and ran to 33.25 and the options were asking $8 and more. Watching Nasdaq Level II, we saw some sellers again enter when the stock hit 33, and we decided to leave the order at 7.625 to see if the sellers would push it back. We did this because the stock was showing good action in a market that was weakening. Thus, after Wednesday's solid move, we did not think it would sell down hard.
Indeed, the stock turned right back down and tapped 32.50, and turned back up. The fill was made at that point. The stock danced and weaved as the market sold down, holding pretty tough. Then it rolled sharply down to 31.88 and we were concerned. But buyers jumped right back on and drove it to 33 in 20 minutes where it danced and weaved and held tough even as the overall index tanked. We made the play because this stock is showing us something others are not: resilience and tenacity. Also, it has sold hard for a year and has now turned the business around as management said it would. The recent earnings show that to be that case. We are going to buy even more if it continues to perform. Again, when we see what we perceive to be an emerging leader giving us good action, we like to focus money in that issue.
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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us stock market
trend trading stock
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