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us stock market, trade stock
Begin Part 2 of 2
THE MARKETS
Waiting on Bush and Greenspan. The markets sorely need leadership. Consumers need to feel reassured. Reagan had a way of making people proud to be Americans again, and that was an important part of getting his economic plans passed. Tonight we will see if Bush can capture some of that charisma as he introduces his budget to the U.S. citizens. Then we will have Greenspan tomorrow; did he take out the references to technology causing its own ills? He needs something more than his usual tap dancing to get the markets and U.S. citizens back on board. Like it or not, warranted or not, this economy is going to be placed on his shoulders. His legacy is coming down to whether he can get the 'V' bottom on the economy or whether it drags out in a prolonged downturn and recovery. He needs to tell Congress that the U.S. needs a capital gains tax cut and a withholding reduction on an immediate basis. We don't think we will get it, and we think today's action shows that the market figured out that it was rallying on a pipedream.
This led to a quicker turn down than anticipated. The Nasdaq did not even try to get to 2400. Several of our put plays got going today, e.g., MERQ, CHKP, OEX, and QQQ, all heading down on significant and steady selling all session. These were easy plays to make in this market that just bled all day long.
Overall market stats:
VIX: 29.03; +1.69. Volatility climbed back toward 30, but the move was not terrific as the Dow and S&P 500 suffered milder losses. The quick drop in volatility from Friday's spike to 35 showed this rally was in trouble fast. It still has a ways to go to really act as a longer term catalyst.
Put/Call ratio: 0.79; +0.27. Good movement on the put/call ratio today after a precipitous drop on Monday. The fact that it gave a good jump higher today is positive as it did not take put buyers long to get back into the market when the selling started. That gets us closer to some significantly higher readings in the near term on more selling. Again, we want to see a close over 1.0.
NASDAQ:
The selling started early, and overcame a brief rally attempt in the morning. After that it was steady selling all day as volume edged up a bit. The sellers won the battle today, and volume edged higher for another distribution day. With many name brand stocks such as JDSU, GLW, JNPR, AMCC, SEBL and others hitting new 52-week lows on strong volume, the downside risk remains high without some catalyst to turn it back up. The Nasdaq was in a bad spiral on January 3 when Greenspan stepped in the first time. We may see him step in on Thursday with a rate cut if his testimony does not help end the selling.
Stats: Down 100.68 points (-4.4%) to close at 2207.82.
Volume: 1.808 billion shares (+4%). Volume edged higher (though still below average) on today's selling as some big names hit new lows on higher volume. Down volume swamped up volume 1.602 billion to 180 million shares. No buyers today; appears that they are all waiting on policy direction from Washington.
A/D and Hi/Lo: Declining issues destroyed advancers 2.05 to 1. New highs held steady at 63 (+0) while new lows rose to 83 (+30).
The Chart: http://www.investmenthouse.com/cd/$compq.html
A 52-week closing low today once again as the Nasdaq attempted to rally before lunch, but sellers cut that short and sent the market down to its low on the close. That is not bullish action, and with the earnings warnings after the close from ALTR and CHRT we could get a lower open as investors mull Greenspan's pre-released testimony, GDP, and the Chicago PMI.
The selling started earlier than we wanted. We were looking for 2400, maybe 2500 to really set things up. Doesn't always work as planned, however, and we went ahead and took what the market was giving. With the big names heading lower on high volume, they could take the index down with them. It would have been a neater package if we had the rise to 2400; now we are left with the wildcard of what Greenspan is going to do on Thursday after his speech. A rate cut then would put a crimp on put plays as everyone scrambles to cover. Lack of action will continue the downward pressure. After this rally tanked this fast, it is hard to see upside action without a Fed cut as a catalyst.
Dow/NYSE: The Dow was able to minimize its loss, and it did so on slightly lower, below average volume. It held up fine as UTX and MO performed very well, offsetting other weakness. Its candlestick pattern indicates a stall just below the 50 and 200 day MVA's, however.
Stats: Down 5.65 points (-0.1%) to close at 10,636.88.
Volume: NYSE volume edged back to 1.106 billion shares (-2.2%). At least it avoided further distribution if it cannot muster higher volume on its gains. Down volume overtook up volume 566 million to 506 million.
A/D and Hi/Lo: NYSE declining issues jumped back ahead of advancers 1.09 to 1. new highs climbed anyway to 106 (+8) while new lows held steady at 22 (+0).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow hung on today, but it was unable to hold positive and shows a very tight doji on the candlestick pattern after it tried to challenge the 200 day MVA. It was a weak attempt as volume was below average. This pattern indicates the move may have topped out already, but where the market goes over the next few sessions is almost totally news driven, and that can jerk it one way or the other.
S&P 500: The big caps turned back as well after attempting a rally in the morning session. It rolled over at lunch and never came back. Many big caps sank to new lows on increasing volume, but the index is still holding above its recent lows as the selling of all big caps was not totally widespread. For example, technology makes up just 20% of the index as opposed to over 30% early in 2000. Thus when technology burns now, it does not harm the S&P 500 as much. The index is still in poor shape below its down trendline with resistance at 1285. It too is awaiting Bush, Greenspan, and any Fed action. That may give us the move higher, but then we just have to see if the buying comes in from the big institutions that have been holding back billions and billions of dollars for fear of committing to the market until they are sure. Are you ever sure?
Stats: Down 9.71 points (-0.8%) to close at 1257.94.
Volume: NYSE volume fell back again to 1.106 billion shares (-2.2%) indicating there was not any wholesale dumping going on today. More of a wait and see day.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
We will have to see how the Bush then Greenspan plans impact the markets. At this point, we cannot see it having a lasting impact to the upside. Why? This is a 'show me' market. Greenspan tried to hold it up with words back in December and that failed miserably. Greenspan delivered 100 basis points in rate cuts within 30 days of one another and that did not stop the slide in the Nasdaq or S&P 500. Several big fund managers controlling billions of dollars have professed (to the cameras at least) that they want to see signs of improvement before they commit their billions. The consensus is that the Fed let things get out of hand and may not be able to get it under control all by itself. If they see that tax cuts are close to being a reality (something that is far from happening right now as the market is showing us), more rate cuts and continued strength in retail sales and housing, perhaps things will move.
Until then, and even if we do get a rate cut, we are not overly optimistic for the short term. A rate cut could take the Nasdaq to 2500 where it would get its first test. At this stage we don't think it would hold even with that rate cut. We think sellers would still be there to overwhelm the buyers this early in the game. That could send this market back to new lows even with 150 basis points in cuts. Unprecedented, but this market is not behaving exactly according to precedence. We would be ready to play that move as well.
Don't get us wrong. We still see decent economic data that don't point to catastrophe just yet. Things could always worsen, but if we get the cuts timely and get assurance of an economically meaningful, retroactive tax cut, we believe the economy will recover and the market will start to discount that recovery ahead of that event. Again, we are just not too confident of near term success because of the attitudes of fund managers displayed thus far and how the market has reacted to rate cuts. Again, the pervasive feeling is that the Fed has not been up to the challenge and has let things slip too far. Until decisive action is taken that shores up this investor confidence, we continue to believe the downside risk is predominant.
So for tomorrow we are watching how investors react. Today we saw several of our put plays start earlier than anticipated, and several are out ahead of the indexes, hitting new 52-week lows on above average volume while others appear to be reversing from the recent rally and ready to fall. A rate cut would most likely give the market a pop up, making us move out of our put plays for the short term. We feel we will have at least until Thursday, however, to continue to ride them down. If economic data Wednesday and Thursday shows the economy hanging in there, that may just eliminate the Fed's inclination for yet another inter-meeting rate cut. In that event we will continue to hold our positions. If there is a cut, after any rise we will be looking for the moves to stall and then we can pick up plays again.
That does not mean we have abandoned upside plays. To the contrary. As we have seen, even as the techs are in a bear market, other sectors are performing very well and continue to do so. A rate cut would propel those sectors higher, and we do not believe those would be as prone to selloffs after the move, particularly if the volume on the breakouts are strong. These include several of the retailers, financials, materials/construction, and others we have been tracking. Look for the strong volume on the breakouts, keep stop losses in place, and let them run for as long as they will.
Support and Resistance Levels
Nasdaq: Closed at 2207.92.
Resistance: 2400 to 2500. Then 2650. 2890 to 2900 is next before the 3000 level.
Support: 2050
S&P 500: Closed at 1257.94.
Resistance: 1285 to 1300. Then 1335. Then 1360 to 1375.
Support: 1200 is the next clear level, and it was almost hit on Friday's low (1215.44).
Dow: Closed at 10,636.88.
Resistance: 11,020 - 11,028. After that, 11,400.
Support: 10,300 - 10,400. Then 10,000.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
2-26-01
Existing Home Sales, January (10:00): 4.65M actual versus 5.00M expected and the revised upward 4.98M for December.
2-27-01
Durable Orders, January (8:30): -6.0% actual versus -2.5% expected and 1.2% prior (revised down from 2.1%).
Consumer Confidence, February (10:00): 106.8 actual versus 111.0 expected and 114.4 prior.
2-28-01
GDP-Preliminary, Fourth Quarter (8:30): 1.1% versus 1.4% prior.
Chain Deflator-Preliminary, Fourth Quarter (8:30): 2.1% versus 2.1% prior.
Greenspan, Son of Humphrey-Hawkins, Part 2 (9:30).
Chicago PMI, February (10:00): 41.3% versus 40.2% prior.
3-1-01
Auto Sales, February: 6.5M versus 6.7M prior.
Truck Sales, February: 7.0M versus 7.5M prior.
Initial Claims, 2/24 (8:30): 350K versus 348K prior.
Personal Income, January (8:30): 0.5% versus 0.4% prior.
PCE, January (8:30): 0.6% versus 0.3% prior.
Construction Spending, January (10:00): 0.5% versus 0.6% prior.
NAPM Index, February (10:00): 42.0% versus 41.2% prior.
3-2-01
Michigan Sentiment-Final, February (10:00): 87.8 versus 87.8 prior.
TEAM TRADES
LTR: We were looking at some pre-split plays, which can be real movers, and one of the stocks we focused on was LTR, an insurance entity that made a good move up in its handle Monday. The stock had closed at 102.42 Monday, and the handle high was 105.40. The stock pulled back to 101.55 within the first 20 minutes, but then made a nice move up to 104 in the next 15 minutes. That looked good to us, but then the stock gave a bit of a pullback; after hitting 103, however, it started up again. With a pre-split we were not just waiting for a breakout, so we wanted to catch the next solid move up, so our cue was to be a move over 104. The April $100 options were 7.20 x 7.70 when the stock was back at 103. Unfortunately, we were called away from the computer. So we entered what we thought was a buy stop at 8.125 and left. Should have called a broker instead of relying on the computer system (user error). We ended up missing the move, which came just 15 minutes later. The stock bolted over 104 and the options went to 7.60 x 8.10. Too bad we missed it, because the stock went on to break out, hitting 106.90 at its high before closing at 106.40. Still a buy and we are still looking at it, as although we missed the big moves today, there could be more to come. The options we were looking at had very low open interest, but they closed for the day at 9.0 x 9.5, with the bid hitting a high of 9.4.
SEBL: SEBL has been getting hammered of late, and we some shares we just picked up last Friday when it touched near 45. We were taking for long term positions, but when the downgrade came out today we were concerned. As we said over the weekend, we had no desire to ride these positions down on another downleg. So, we thought about selling early, but the stock was holding at 46 to 47, so we were not too worried. We thought we could get some weakness, but as the stock was holding we decided to sell some calls and then buy them back if the stock pulled back a bit. We sold the March $50 calls for $2.62 when the stock was right at 46. It sold to 44 and we got fidgety. The market was looking weaker, but then SEBL started back up, hitting 45.50. The options were down, but not by much. It reversed immediately and then broke over its 15 minute moving average at 45.
At point we did something different: we sold the stock. Cut and run. Why? We looked at it and it was just below where we bought it and volume was racing ahead. That left us naked on the calls, but as we felt the stock was going to fall, we knew we could close them out before the end of the day and we would be just fine. Why was that a worry? Because the trade was in an IRA and we cannot go naked in that account. As long as we closed the trade before the market closed, however, it would all be a wash. SEBL tanked down to 41-42. The options fell to 1.5 by 1.68. We put in a limit order at 1.625 and the fill was made in about a minute. We did not get the gain on the stock, but we were able to used it to make $1 on the options we sold. Not a big score, but it turned a sow's ear into a gain.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
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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