|
|
us stock market, top stock pick
* * * *
8/19/02 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS
Target hit alerts issued Monday: INTL
Buy alerts issued: GE; IWM; WTFC; QLGC (covered call)
Trailing stop alerts: None issued
Stop alerts: None issued
To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
Emails: We love your emails. We receive hundreds of emails a week, but we don't mind. We respond to them all as fast as we can, so bear with us.
SUMMARY:
- Indexes refuse to sell, big three breaking and holding the 50 day MVA.
- Higher volume though it still appears to be summertime lazy. Is it?
- Leading indicators lower again
- Indexes getting near initial targets on this move.
- Team Trades
No backing off yet.
The Dow and S&P 500 looked to be losing momentum just below their 50 day MVA, but Monday wasted no time in rejuvenating the move. Early on they ran into the 50 day MVA and barely sidestepped before continuing higher. It was a surprising and impressive showing, and it was not just a few stocks. The NYSE A/D line was once again better than 2:1, indicating it was not just the large caps at work. The large caps did show the strongest moves overall, but some of the best volume breakouts were in the small and mid cap stocks. Those have been doggedly forming better patterns under accumulation and then making high volume moves out of them.
A close over the 50 day MVA has a snowball effect.
Volume is relatively light, coming in consistently below average following the first big move off of the July low. That has been the biggest question mark on this move up, but we also note that price/volume action has been good for upside moves, i.e., rising on up sessions and falling on pullbacks. The good price/volume action has kept the indexes building on the moves as it shows that of the investors in the market, there are more buyers than sellers. More buyers means demand to keep stocks moving up until something changes the landscape.
Another thing that helped Monday's move in particular is the continued success. Success begets success in many endeavors, and in rising or selling markets a trend leads to further moves on that trend as important levels are reached. To the upside, as resistance levels are cleared more shorts close out positions because there are no longer the shorts rushing in to sell the market as key resistance is hit. Moreover, once a resistance level is broken it emboldens more investors waiting for the right time to enter (evidenced by the $5.8B that moved into stock funds late last week). It is a double whammy: success brings more investors into the market while it also chases more shorts from the market. When shorts are chased out that means additional buy side pressure as they have to buy back shares to get out. Buying to close a short position is the same as buying for upside gain: it creates demand for shares. The snowball rolls and gets bigger.
Volume higher though still languid.
Once again volume rose on a gain in the indexes. That continues the string of positive price/volume action that has helped define this move higher. Compared to June and July volume the action is rather tame, looking very much the same as typical late summer volume. The June and July volume, however, was a surge in volume; the July volume was a tremendous surge. That bumped up average volume to levels well ahead of all 2001 and the first 5 months of 2002. But for that action, volume would be right at average now. In that light the current volume is not all that bad. Given the positive price/volume action, it takes on a mush better light.
THE ECONOMY
Leading economic indicators -0.4% versus -0.5% expected.
It was not great news at all, but the market viewed it as dodging a bullet. When the number came out it looked as if the market was going to sell but then it turned and continued the rally. It was the fourth down reading in 5 months and the largest drop since September 2001 and the baggage carried at that time, but it did not matter to the market today. It was not as bad as anticipated, and that has been making the difference of late.
We noted last week how the retail and other economically sensitive stocks were making moves and doing so on volume. Despite all of the talk about the poor economic showing and double dip, once again the market has made a turn in the depths of despair. The old adage the market bottoms when everyone worries the most again has some merit to it. This may just be an interim move before another test, but regardless, there are good moves being made, and when they occur it behooves us to be buyers and simply exercise stop losses if things sour.
THE MARKET
All indexes moved up together Friday without any bifurcation we were concerned about over the weekend. There was very little testing lower before the move resumed. The move over the 50 day MVA on rising volume is good action. The volume may be below average, but that is somewhat deceptive given the surge in June and July on the selling that pushed average levels much higher. Indeed, the recent action would be on average volume but for that heavy selling that worked to clear the pipes for the time being.
We have to keep an eye on the price/volume action and how the breakout stocks are performing. For now they are working as they should, i.e., good price/volume action and breakouts holding onto and adding to gains. The S&P 500 is now getting closer to our initial target off the low. It is up 19% from the closing low in July (25.8% from the intraday low). 950 was one of the first levels of resistance on up to 980 where the March downtrend lines now reside. The Nasdaq is up roughly 17%, the Dow up roughly 19% from the intraday lows. This is getting close to the 'typical' amount of rallying off a first low before that low is tested. Ideally we would like to see the move carry through to the end of August and then some testing; gives it more time. In any event it is important to watch the market action at these junctures and let it direct us as to whether we should take some money off the table, sell out, or just keep accumulating.
Sentiment Indicators
Money flowing back into market.
$5.8 billion moved into equity funds late last week. More and more analysts are saying the move has legs and the other typical clich s to describe the action. At some point the enthusiasm gets too strong and the market has to correct even after such a big sell off as seen in late July. At some point is key. Sentiment indicators are not necessarily timing devices; they give you the lay of the land and get you ready. The market tells you when it is time to act.
VIX: 31.57; -1.25
VXN: 47.02; -3.63
Put/Call Ratio (CBOE): 0.61; +0.1. Ticked back up on a strong session. Like to see it pop higher in any event; keep some pessimism out there.
Nasdaq
Found just slight resistance at the 50 day MVA, clearing that resistance on increased volume for the first time since March.
Stats: +33.53 points (+2.46%) to close at 1394.54
Volume: 1.58B (+5.14%). Another gain in volume on rising volume, keeping the mostly positive price/volume action in place. Again, volume was below average, but as discussed above, below average volume today is pre-June average or better volume.
Up Volume: 1.251B (+269M)
Down Volume: 305M (-151M)
A/D and Hi/Lo: Advancers led 1.50 to 1. Decent but not a huge advance.
Previous Session: Advancers led 1.37 to 1
New Highs: 39 (+10)
New Lows: 99 (-13)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Cleared the 50 day MVA (1388.31) for the first time since March, closing near the session high on some rising volume. The move over the 50 day MVA was rather unchallenged. It now has to deal with the September 2001 lows and some downtrend lines coming off of the March and April tops. That gives it some headwinds from about 1420 (one of the September intraday tests) to 1450ish. At this point with the move over the 50 day MVA we simply keep an eye on the price/volume action and the leading stocks in the index as we ride existing positions higher and pick off new breakouts and opportunities as they arise.
S&P 500/NYSE
Blew past the 50 day MVA without hesitation on some rising volume. It is at the start of the range that could start to slow it down after the move off the bottom.
Stats: +21.93 points (+2.36%) to close at 950.7
NYSE Volume: 1.288B (+2.61%). Volume picked back up on the Monday rally, keeping some good price/volume action in place.
Up Volume: 1.07B (+464M)
Down Volume: 187M (-468M). Big upside volume; not many sellers.
A/D and Hi/Lo: Advancers led 2.1 to 1. Solid advance across the board.
Previous Session: Advancers led 1.3 to 1
New Highs: 40 (+9)
New Lows: 33 (-11)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Momentum may have been shifting Friday, but a new week brought new buying without any further testing. The index cleared the 50 day MVA (934.94) without a problem, closing at the session high. It still has to deal with the September 2001 closing low (965.80) and then a downtrend line from March near 960. It has made a strong move off the low, and a move up to that downtrend line to near 1000 will be a significant gain off the low, not to mention a significant gain on this move. For now we continue to let the positive price and volume action direct our investing.
Dow:
Stats: +212.73 points (+2.42%) to close at 8990.79
Volume: 1.288B (+2.61%)
Blew through the 50 day MVA (8870.64) with no problem, but that puts it right at some June and July bottoms right at 9000. This is another important level to clear to get to the 9250 level on up to the 9500. At 9250 the move will be 20% off of the closing July low (7702.34); 9500 is 23% from that level (26% off of the intraday low at 7532.66). Those are the points on this run we need to be aware of as levels where the move off the July low has hit levels that could prime it for a correction. Being aware of them does not mean they are automatic sells when and if those levels are hit. They are road signs that say 'caution,' not get out.
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
There was not a rush back to the market Monday, but the action was solidly upside with rising volume. As is the case with upside moves through resistance, the move up snowballed with buyers coming in on each pullback. When it became clear the indexes were going to close over the 50 day MVA, they spurted toward the close as more shorts moved to cover and not ride the positions overnight.
The momentum is definitely up; the indexes handled the 50 day MVA with ease. Price/volume action remains solid, and we continue to see breakouts from good patterns. With that backdrop it is hard to be very bearish at this point. The moves off the July lows, however, are closing in on the 20% and 25% levels, and that puts up a caution flag for us to be watching. While we don't want to get happy feet and get out of a good move before it has started to top, we don't want to be lulled into a false sense that this rally is going to never test lower. Odds are there will be a test; it may not happen, but we keep on our toes and not get into the mindset it cannot happen. Our goal is not to squeeze every penny out of investments we do not mean to keep long term but to take the sweet spot, particularly on option plays that are time limited.
As for longer term investments we don't want to get shaken out too soon, but the rally is new, and if they start breaking below the breakout points or uptrends on higher volume we have to take note and follow our rules. Even if they are longer term investments we still have to watch what the market is doing; history favors a test. It does not mean it will happen, but we watch the price/volume action along with how breakout stocks are performing. If the selling ramps higher on stronger volume and breakouts fail, 3 out of 4 stocks will follow the market lower. We would rather lock in a gain we have, let the stock sell back down, and then reload when the market bottoms and it forms up again. Then perhaps there is a solid bottom set and we can hold a stock for a year and more. In this environment we would rather lock in a gain when things turn a bit sour and then have to get back in at another good entry point with a gain in hand than letting a position deteriorate on us in another test of the lows.
We anticipate the upside momentum to continue as the action has been positive. We don't want to chase positions too far, but our usual MO is to pick them up when they break out or test lower and turn back up. With that strategy you more often than not avoid getting in too late and catching the turn back down. Our strategy for now is to continue to pick up the stocks that clear resistance on some volume while letting existing positions that are in good shape continue to run. Later this week we feel the indexes will start running into some headwinds that could bring them back to test the last leg up or start a deeper test of the bigger move off of the July low. Again it may not happen as price/volume action is good, breakouts are holding up, and momentum is solid. It pays however to be mindful of history and just watch to see how the action unfolds. As everyone turns bullish, it is not time to turn a blind eye on what has happened the past two years and where the indexes are in an attempt to recover.
Support and Resistance
Nasdaq: Closed at 1394.54
Resistance: 1418, the interim test after the September low. The second March down trendline at 1395. There is another downtrend line from the March and May highs at 1440. That is followed by 1500.
Support: The 50 day MVA (1388.31). 1357.09, the October 1998 bear market low. The top of the wedge pattern at 1354.48. The 10 day MVA (1329.84). The 18 day MVA (1322.84). Some price support at 1300. The July lows at 1240 to 1230. Price support from 1190 to 1200 (the July intraday low is 1192.42).
S&P 500: Closed at 950.70
Resistance: 965, the September 2001 closing low. The next downtrend lines from March and April highs at 980. Then 1000 is psychological resistance.
Support: The 50 day MVA (934.94). The March down trendline at 925. The August uptrend line at 920. The top of the wedge at 911.64. The 10 day MVA (912.84) and the 18 day MVA (904.47). The July up trendline at 883. The lowest channel line in the March downtrend channel (858). 850 to 855 has previously held (the October 1997 and Q2 1998 lows). 800 is next. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8990.79
Resistance: 9000 represents some price resistance. After that price resistance at 9250 and then 9500.
Support: The 50 day MVA (8870.64). The late July high that is the top of the ascending wedge at 8762.14. The March down trendline at 8755. The 10 day MVA (8702.26) and the 18 day MVA (8638.73). The July uptrend line (84.25). The May down trendline and the lowest bottom channel line of the March downtrend (8420). The September closing low at 8235.81. 8062, the September 2001 intraday low, has tried to hold on a couple of occasions. Then the July low (7532.66). The October 1998 lows are at 7400 and 7467. After that is 7000, some 1997 lows and highs.
Economic Calendar
8-19-02
Leading Economic Indicators, July (10:00): -0.4% actual versus -0.5% expected. -0.2% prior (revised from 0.0%).
8-20-02
Trade Balance, June (8:30): -$37.5B expected, -$37.6B prior.
Treasury Budget, July (2:00): -$29.0B expected, $2.8B prior.
8-22-02
Initial jobless claims (8:30): 380K expected, 388K prior.
SEMINARS NOW ON CD!!
To learn more about options so you can take advantage of up and down markets, check out the Options You Can Use seminar now on CD's! Also be sure to look at the Technical Analysis series on CD as well as the stock splits and covered call series. Go to
http://www.stockseminarsonline.com
and look for the link to the CD seminars. This is Jon Johnson's internet site for online seminars and the theories taught are the same that have delivered dozens and dozens of fantastic downside put plays during this downtrend. Hope you check it out.
TEAM TRADES
TTWO: TTWO had set up a cup with handle, and while we expected the handle to form better over two more sessions, it wasted no time as the market broke higher Monday. TTWO is one of those stocks that set up with good accumulation and then took off on strong volume. The stock was moving on good volume, and at 12:40 CT it made the move. Volume was good but we held off until it tested the move intraday. Over the next hour it did just that as volume continued to accumulate. It tested back below 25 and down to the breakout point at 24.75, held, and then started back up. That was what we were looking for. At about 1:30CT it made the move next move off the breakout. The options were 6.70 by 7.00. We were able to get an order in at the ask, catching TTWO as it started back up after the intraday test. Th stock continued to rally and closed over 26 on some excellent volume. A solid breakout with the options closing at 7.40 by 7.80.
End Part 1 of 2
|
us stock market
top stock pick
|
