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us stock market, stock trading information
Begin Part 2 of 3
NASDAQ:
Falling on higher volume with the big names leading the way, closing right at where it ended 2001. As we said above, it is set up for a reflex bounce or a further plunge toward 2300.
Stats: Down 91.10 points (-3.6%) to close at 2470.96.
Volume: 1.882 billion shares (+1.7%). 1.537 billion shares to the downside versus 306 million to the upside. As noted, the third distribution day in 8 sessions, and that can spell doom for this rally as institutions are selling more tech shares than they are buying.
A/D and Hi/Lo: Declining issues jumped higher to 1.75 to 1 (1.22 to 1 Thursday). New highs fell to 80 (-7) while new lows rose to 60 (+24).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq did not hang onto 2500; it did not even make much of an attempt at it. Selling on higher volume Friday again, but the stocks that had been hit the hardest of late were not dropping much. That indicates an oversold bounce is possible after some more selling to start the session Monday. As noted above, that can give us a rally for a couple of sessions. What we have to look for again is volume on any moves. Renewed buy volume will indicate the start of something positive, but as we know, a few institutions can prop things up for a session or two. What we will look for is a rally higher on stronger volume, some lighter volume selling, and then renewed buying on volume. That will show us the buyers winning the battle. It may come on the relief bounce, it may come after a further test of the previous lows.
Dow/NYSE: Suffered another bout of selling on Friday, but on lighter volume and tapped support on the low before moving up slightly to close.
Stats: Down 99.10 points (-0.9%) to close at 10,781.45.
Volume: NYSE volume eased again to 1.075 billion shares (-2.9%). That is what we prefer on selling, and the Dow avoided a day of distribution Friday. It has showed two such days since the second Fed rate cut, a reason to be wary but not a red flag at this point. Price/volume action has been less than stellar the past two weeks, but it has not been damaging. Down shares topped up volume 649 million to 396 million Friday.
A/D and Hi/Lo: NYSE decliners continued to lead 1.2 to 1 (1.15 to 1 Thursday). New highs held steady at 155 while new lows rose to 16 (+1).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow continued to pull back as expected, and the lower volume was key to us given the Nasdaq's selling on higher volume once again. We were looking for 10,750 to hold as support, and so far that has worked well as it tapped 10,754.96 on its low and recovered to close. The lighter volume selling indicates there is not a lot of share dumping going on, so it has a better chance of holding support for another move up at 11,020.
S&P 500: The S&P 500 is a step ahead of Nasdaq, though its pattern is not nearly as dour. It is not great, but it is not horrid. Friday it sold back on lighter NYSE volume, indicating that the heavy selling that occurred Wednesday is backing off. Hand-in-hand is the fact that the index tapped its down trendline on its low (1309.98) and bounced up to close. That was key as it allowed the index to hold above support at 1300 and it kept the rally in tact. Low-volume tests of a previously broken trendline are good as it indicates fewer sellers as it approaches that potential support level. We want to see the trendline (now at 1305) hold for a higher volume move back up.
Stats: Down 17.77 points (-1.3%) to close at 1314.76.
Volume: NYSE volume fell on the selling to 1.075 billion shares (-2.9%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
THIS WEEK
Thursday we said we would have to be very patient in this market. It is frustrating to see the Fed move in yet the market still stalls after a move up. Remember how a week into the rally there was talk on the financial stations that fund managers and others were afraid they had missed the bottom? We labeled that 'crazy talk' at the time and warned that might spell trouble in the short run. When there is a rush to get in for fear of missing out, the jig is up in many cases. We thought the rally, because it was so new, might be able to fend off that mindset. It has sold back, and now the risks are to the downside to borrow the Fed's phraseology. The market is indeed testing everyone's patience.
We have to continue with patience at this point until the market can show us just what it is going to do: rally from here or sell down to test the earlier lows. The S&P 500 is holding just above its down trendline and used that as support on Friday, a perfect point to rally from if it is going to do so. Indeed, we would expect it to do so if there is any life in this market. The Nasdaq is not helping it, however, as its big boys are taking a licking. While the Nasdaq was down 3.6% Friday, the Nasdaq 100 was down 4%. The new crop of Nasdaq powerhouses could be ready to make a stand, but there is nothing at this point to make us bite deeply on any move until we see some continued positive action as discussed above. Again we are looking at those Nasdaq powerhouses to see if they hold at their 52-week lows and start to move up on stronger volume. Not holding our breath, but watching.
We will be interested in playing these stocks if they start a run back up as they can give large moves and quick gains. AT this time we will not be looking for more out of them other than making some money on an oversold bounce. We will follow the moves with trailing stop losses and if we see any weakening in the move, we will be history. These stocks are ripe for a bounce and we will participate and hit some easy singles and move on if it does not last.
We are also interested in the continuing string of solid stocks that are breaking out of patterns and moving well such as SDS, NATI, ASD, EDS, and FRED. Each day we see a few more break out of the good patterns we are tracking. In this market keep the best patterns on the screen. Other than an oversold bounce and a run by the beaten up big techs, strong patterns give you the edge you need on the market, especially in times such as these. When a stock breaks out of a solid pattern on strong volume in this market, that is a sign that it has some strength. It does not relieve us of taking care of positions with stop losses whether mental or mechanical, but it gives us more confidence in the trade. When other stocks are tanking we keep following the strong patterns. Not all will break out; that is a fact of the market. The ones that do on strong volume, however, are the ones we get into.
This week we also have some important economic numbers. Retail sales come out on Tuesday. Greenspan gives the second part of his testimony on the economy on Wednesday. The PPI is out Friday. Another busy week of economic news that could have potential impact on the stock markets, but the question is which way. If retail sales come out stronger than expected, will that cause market selling for fear of no further rate cuts in the near future? Again, that is simply foolish, and the market will at some point wake up to the idea that now that the economy is really slowing and the Fed is alarmed, good economic news is actually good for the economy and good for the market. Greenspan most likely won't give us any new clues as to what is going on in his mind, but he will reiterate that the Fed stands ready and he may indicate the need to protect consumer confidence, indicating that the Fed will step in to help the market if need be. That will never be admitted, but Greenspan said as much already. Again, at some point fund managers will recognize that better economic news or at least no longer weakening economic news means that earnings will improve faster than now believed and the markets will start climbing again, repairing the damage of the past year.
Support and Resistance Levels
Nasdaq: Closed at 2470.97.
Resistance: 2650. 2890 to 2900 is next before the 3000 level.
Support: 2300.
S&P 500: Closed at 1314.76
Resistance: 1360 to 1375.
Support: Down trendline at 1300 to 1305.
Dow: Closed at 10,781.45.
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.
2-13-01
Retail Sales, January (8:30): 0.5% versus 0.1% prior.
Retail Sales ex-auto, January (8:30): 0.4% versus 0.0% prior.
2-14-01
Business Inventories, December (8:30): 0.4% versus 0.5% prior.
Greenspan semi-annual testimony on economy
2-15-01
Export Prices ex-ag., January (8:30): -0.2% versus -0.2% prior.
Import Prices ex-oil, January (8:30): 0.9% versus 0.9% prior.
Philadelphia Fed, February (10:00): -23.0 versus -36.8 prior.
2-16-01
PPI, January (8:30): 0.2% versus 0.0% prior.
Core PPI, January (8:30): 0.1% versus 0.3% prior.
Housing Starts, January (8:30): 1.550M versus 1.575M prior.
Building Permits, January (8:30): 1.493M versus 1.493M prior.
Capacity Utilization, January (9:15): 80.3% versus 80.6% prior.
Industrial Production, January (9:15): 0.0% versus -0.6% prior.
Preliminary Michigan Sentiment, February (10:00): 94.0 versus 94.7 prior.
SUBSCRIBER QUESTIONS
Q: In your Investment House newsletter, specifically the option recommendations, you list out of the money option positions as a safer investment. I am still in the learning process, but I thought out of the money options are riskier since the underlying stock movement must be greater and you have very little intrinsic value. Also, your report does not recommend entry points on the options. I appreciate any information you could provide on this matter.
A: When looking at the plays, you need to read the 'Buy Point' and 'Position' sections together. If a play is aggressive, that usually means it is a play from that point and still has some resistance to conquer. The aggressive position goes with that play. The 'safer' play is when there is near term resistance (e.g., a down trendline or a breakout point) and the entry point is when the stock breaks that resistance. That breakout point is higher than the aggressive play, so in many cases the options selection is at a higher strike price than the aggressive play. In other words, you would not buy the 'safer' option play until the stock has broken the resistance. At that point the option we are looking at is usually in the money. Only when we are looking 4 months or more out do we look at options at the money. Otherwise when buying options we almost always buy in the money.
As for entry points, we don't look at the option price as our cue to when we enter but instead use the stock price as the cue. As the option price generally moves with the stock movements, when the stock hits our buy point, that is when we enter on option plays as well.
TEAM TRADES
SDS: SDS is a continuing split play that has been moving up while the Nasdaq moves down. Business software continues to be strong, and SDS made a breakout move on Wednesday and Thursday ahead of its earnings that were announced Thursday after the close. We entered some positions prior to the earnings announcement when we saw the stock start to run Wednesday, and we tried to enter more on Thursday but got caught in the stock's up and down action and just made a partial fill on our order. After the earnings came in stronger than expected we wanted to get in more positions if we got the chance. We have been looking longer term on the stock because it looks so solid, and the earnings confirmed this. We were not sure if the stock would get sold off or would rise on the earnings, but the stock was powering into the announcement.
Friday the stock opened flat but immediately sold down to 51. That is the low it hit Thursday, and it is also the top from the previous week. Thus, it looked like solid support and with the earnings we would see if it could bounce off of that level. It stopped at that point and immediately attempted to move up. It then gapped to almost 52 and then gapped to 52.50. We tried to catch it on the move with some July $50 options that were trading at $7.50. We put in a limit order at 7.50 but the stock made a quick move to 74, then 75, but the stock ran on away from us. It then sold back to 53 and started back up. As the stock opened at that point and previously closed at that point, we were looking at it as a potential support level now. When we saw the stock hold and start up, we looked at the options once again, and they were asking 7.88. We had the order already to go and just typed in the price and fired it off. The fill was made almost immediately as the stock moved through 54 and back to 55 over the next two hours. It spent the last 2.5 hours moving between 54.50 and 50 as the Nasdaq sold lower. After hours we saw trades over 55, but that is all problematical. We are going to be watching the 55 level Monday. The stock hit it 5 times Friday but could not break it. If it gaps higher, we will most likely put in a stop for the options at $9 or just under in the event it falls back through 55 and cannot break back over. We would rather capture that gain on all positions and try again than lose a gain in this market.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
End Part 2 of 3
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us stock market
stock trading information
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