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understanding the stock market, stock split
Begin Part 2 of 3
Support and Resistance
Nasdaq: Closed at 1182.17
Resistance: Price support from 1190 to 1200 (the July intraday low is 1192.42) is now acting as resistance, pushing the index back twice Tuesday. 1230 and 1250 are more price resistance points. 1270 is still more price resistance from the September lows. The 10 day MVA (1236.31). The August down trendline at 1240. The 18 day MVA (1262.26). Price resistance at 1300. 1316, an early August interim high. The March/May downtrend line at 1315. The 50 day MVA (1322.16). The late July high (1354.48) and 1357.09, the October 1998 bear market low. There is another downtrend line from the March and May highs at 1378. 1418, the interim test after the September low. That is followed by price resistance at 1500.
Support: The Nasdaq is now down to 1996 levels. There is price support from 1080 to 1100. Then there is a big shelf of support at 1050 down to 1000.
S&P 500: Closed at 819.29
Resistance: The first bottom channel line in the March downtrend (833). 850 to 855 (the October 1997 and Q2 1998 lows). The 10 day MVA (858.51). 875 is price resistance of some significance along with the March downtrend line at 875 and the 18 day MVA (874.46). July and August interim highs at 911.64. The 50 day MVA (905.31). The September 2000/May 2001 downtrend line at 924. The downtrend lines from the March and April highs (938) along with price resistance at 950. 965, the September 2001 closing low. Then 1000 is psychological resistance.
Support: The lowest channel line in the March downtrend channel (797) along with price support at that level. Then the July low at 775.68 and marks the culmination of the short head and shoulders pattern. 750 to 760 with an intraday touch to 730.
Dow: Closed at 7683.13
Resistance: The lowest bottom channel line of the March downtrend (7905). The August lows (8043) and the September 2001 intraday low (8062). The 10 day MVA (8083.99). The September closing low at 8235.81. The 18 day MVA (8244.64). 8250 acted as resistance before after acting as support. The March down trendline at 8300. Some price resistance at 8500. The 50 day MVA (8554.28). The late July interim high at 8762.14 (8745 closing). A range of resistance from 9000 on up to 9050. Then 9250 and then 9500.
Support: 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
9-23-02
Leading Economic Indicators, August (10:00): -0.2% actual, -0.1% expected, -0.1% prior (revised from -0.4%).
9-24-02
Consumer Confidence, September (10:00): 93.3 actual, 92.4 expected (prior 95.0 expected), 94.5 prior (revised from 93.5).
FOMC meeting results, 2:15: No change in rates, bias, worried about war.
9-25-02
Existing home sales, August (10:00): 5.35M expected, 5.33M prior.
9-26-02
Durable goods orders, August (8:30): -1.8% expected, 9.2% prior.
Initial jobless claims (8:30): 420K expected, 424K prior.
New home sales (10:00), August: 990K expected, 1.017M prior.
FOMC minutes, 8-13 meeting (2:00)
9-27-02
GDP Q2 final (8:30): 1.2% expected, 1.1% prior.
Michigan Sentiment revised (9:45): 86.2 expected, 86.2 prior.
SUBSCRIBER QUESTIONS
Q: Do you ever short stocks, as opposed to buying puts?
A: Yes if we see a really good short with no option chain or if we really like the short but the options do not have a good price/delta/anticipated fall mix (i.e., given the price and delta and how far it could fall, the return is not good enough for the risk). One of the reasons we like buying put options is that our risk is defined heading into the play. If something bad happens the worst we can do is lose the investment. With shorting stocks in theory your potential downside is unlimited. Of course you would take the money off the table on a move against you, but it is still a potentially unlimited risk.
Q: Your newsletter states that the Put/Call ratio has been over 1.0 for the past 5 sessions and this is usually an indicator (contrarian) of a possible bottom. Is it possible for the ratio to be so high, not as a sign of a bottom, but as a sign of overall failing confidence in the market in general. Thanks for your time and for the great newsletter
A: You could very well be right at least in part. There is an awful lot of selling ongoing, but there is also hedging always taking place. A lack of confidence that the market will go up can result in selling (either long term positions or selling short) or hedging to cover long term positions. This protects long positions from downside as money is earned on the puts. Big institutions do this frequently.
The psychology of the put/call ratio is that while there are funds hedging their positions, there are also a lot of options speculators out there that tend to guess on which way the market is going, taking short term, out of the money positions. With speculation as a whole, when the crowd moves predominantly in one direction, that usually means the move is ready to reverse.
Given that the high put/call ratio has yet to deliver a strong reversal, the idea that there are other forces at work such as larger than usual hedging is not off the mark. Ultimately, however, if all of the market loses confidence, that is the usual recipe for reversals. Thus we keep watching all of the indicators to see if they all line up.
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THE PLAYS:
NEW BONUS PLAYS:
Upside:
MBG (Mandalay Resort Group--$32.39; -0.42; optionable): Resorts and casinos
http://biz.yahoo.com/p/m/mbg.html
STATUS: Cup w/handle. Working in the handle of a 5 month base after blasting higher last week. It is pulling back above the 10 day MVA (31.92) in the handle as relative strength breaks out during the handle. Accumulation weeks lead distribution weeks 5 to 3. The casinos overall are performing well.
Volume: 655.9K Avg Volume: 719.863K
BUY POINT: $33.51 Volume=1M Target=$38.55 Stop=$31.16
POSITION: MBG AF - Jan. $30c (75 delta) and/or Stock
http://www.investmenthouse.com/cs/mbg.html
Downside:
ETR (Entergy--$38; -1.29; optionable): Electric utility
http://biz.yahoo.com/p/e/etr.html
STATUS: Put. Continuing in the downtrend off of the August high that was the recovery high off the July low (32.12), ETR tanked Tuesday on very strong volume. There is some support at 38 where it closed, so we are looking for a break below that level on more strong volume.
Volume: 2.34M Avg Volume: 1.073M
BUY POINT: $37.88 Volume=1.3M Target=$34 Stop=$40
POSITION: ETR XH - Dec. $40p (-69 delta)
http://www.investmenthouse.com/cs/etr.html
CONTINUING BONUS PLAYS
Downside:
WEN (Wendys International--$32.22; -0.31; optionable): Burgers and fries
http://biz.yahoo.com/p/w/wen.html
STATUS: Put. Showing a doji below the 10 day MVA (32.60) on some rising though still below average volume. Second doji in a row and it looks as if WEN is ready to roll over. We were going to wait for a test of the 18 day MVA (33.32), but it does not look as if it will make that.
Volume: 1.293M Avg Volume: 1.363M
BUY POINT: 32.15. Volume=1.6M Target=$30 (initial) Stop=$33.33
POSITION: WEN XG - Dec. $35p (-57 delta)
http://www.investmenthouse.com/cs/wen.html
Upside:
APPX (American Pharmaceutical--$16.52; +0.62; no options): Drug manufacturer
http://biz.yahoo.com/p/a/appx.html
STATUS: Cup w/handle. Starting the move up on the handle on some rising, above average volume. Accumulation is solid at 8 up weeks on rising volume to just 4 down weeks on rising volume. Looks ready but want to see the breakout.
Volume: 195.962K Avg Volume: 143.181K
BUY POINT: $17.11 Volume=225K Target=$20.55 Stop=$15.85
POSITION: Stock (no option chain)
http://www.investmenthouse.com/cs/appx.html
BYD (Boyd Gaming--$17.69; -0.01; optionable): Resorts and casinos
http://biz.yahoo.com/p/b/byd.html
STATUS: Flat consolidation. MBG is not the only casino looking good. BYD is still moving laterally above the 18 day MVA (17.33) as volume fades lower and lower below average. It is a tight range with continued solid accumulation and money flow. It has held up as the market has tanked. On a test of the lows and rebound BYD is ready to move up in the next leg.
Volume: 261.8K Avg Volume: 366.227K
BUY POINT: $18.05 Volume=461K Target=$20.75 Stop=$16.79
POSITION: BYD LC - Dec. $15 c (78 delta, low OI) and/or Stock
http://www.investmenthouse.com/cs/byd.html
PRE-ANNOUNCEMENT PLAYS
CECO (Career Education--$45.44; +0.39; optionable): Forecast to announce a split on 10-31-02 in conjunction with earnings. At this time the company cannot confirm a date but based upon our research this is the date for the release.
http://biz.yahoo.com/p/c/ceco.html
BACKGROUND: Last announced a 2 for 1 split on 7-31-01 in conjunction with earnings. The stock price was $61. The annual shareholder meeting was on 5-17-02 at which time no additional shares were authorized. The company has sufficient shares for 2 for 1 split.
STATUS: Still moving laterally above the 50 day MVA (44.23) in a narrow $2 range as volume remains below average. Another stock showing its strength as it does not sell off with the market. Excellent accumulation in the pattern at 7 up weeks on rising volume to just 3 down weeks on rising volume. Relative strength continues to breakout as the stock holds its ground. Again, CECO has been one of our former pre-announcement, pre-split, etc. plays, and after the July shakeout it looks ready to make another breakout to a new high
Volume: 368.616K Avg Volume: 689.636K
BUY POINT: $46.55 Volume=700K Target=$53.53 Stop=$43.29
POSITION: CUY AH - Jan. $40c (70 delta) and/or Stock
http://www.investmenthouse.com/cs/ceco.html
EDMC (Education Management--$41.61; -0.61; optionable): Education and training. Forecast to announce a split on 10-24-02 in conjunction with earnings. At this time the company cannot confirm this date, but based upon our research this is the date for the announcement.
http://biz.yahoo.com/p/e/edmc.html
BACGROUND: Last announced a 2 for 1 split on 12-2-98 at a stock price of $46. The annual shareholder meeting was on 11-8-01 at which time no additional shares were authorized. The company has sufficient shares for a 2 for 1 split.
STATUS: Reverse head and shoulders. EDMC is now forming an ascending wedge above the 50 day MVA (40.73) the past 4 weeks. Accumulation is good and the stock is showing good money flow. Just waiting for the breakout move.
Volume: 351.638K Avg Volume: 350.954K
BUY POINT: $44.03 Volume=520K Target=$49.45 Stop=$40.95
POSITION: UKN LH - Dec. $40c (65 delta, low OI) and/or Stock
http://www.investmenthouse.com/cs/edmc.html
CONTINUING CANDIDATES
AZO (Autozone--$73.05; -1.73; optionable): Auto parts is parts
http://biz.yahoo.com/p/a/azo.html
STATUS: Ascending wedge. AZO succumbed to some nervousness Tuesday before its earnings release Wednesday morning. In the after hours AZO halted its stock trade ahead of the earnings. Not sure what that means. In any event we need to see the breakout from AZO
Volume: 1.074M Avg Volume: 1.191M
BUY POINT: $75.69 Volume=1.5M Target=$82.55 Stop=$71.25
POSITION: AZO LN - Dec. $70c (64 delta) and/or Stock
http://www.investmenthouse.com/cs/azo.html
HSIC (Henry Schein--$52.08; -0.94; optionable): Wholesale medical equipment
http://biz.yahoo.com/p/h/hsic.html
STATUS: Test 18 day MVA. HSIC broke below the 18 day MVA (52.60) Tuesday on some massive volume. It rallied off the low (51.29) and held some support at 52. IN late August HSIC did this same thing before it started on its next leg up. We will see if it does it again this time and hits the buy point on some good trade. Again, stocks typically climb up the short term MVA's 4 to 5 times before going back to test the 50 day MVA. This second test is a perfect place to pick up positions for that next bounce. The stock has been giving about $4 on these bounces, a great return on options. On stock positions we ride the stock up for a few more bounces.
Volume: 587.232K Avg Volume: 428.636K
BUY POINT: Aggressive: 53.25. Breakout: 54.50 (orig. $52.05). Volume=550K Target=$59.85 Stop=$50.15
POSITION: HQE AI - Jan. $45c (74 delta) and/or Stock
http://www.investmenthouse.com/cs/hsic.html
PRE-SPLIT
EASI (Engineered Support--$60.8; -0.15; optionable): Defense. Splitting 3:2 on Oct. 31 (Boo!)
http://biz.yahoo.com/p/e/easi.html
STATUS: Testing the breakout. Strong move Monday on solid volume. EASI took a breather Tuesday as the market sold back. Showed a doji and held its ground on lower volume. If it tests back one more time toward the 10 day MVA (58.67) that will be an opportunity to take additional positions.
Volume: 273.053K Avg Volume: 208.636K
BUY POINT: New positions: 59.05 after a test of 58.67 (orig. $58.95). Volume=304K Target=$66 Stop=$56.25
POSITION: UFE KL - Nov. $55c (70 delta) and/or Stock
http://www.investmenthouse.com/cs/easi.html
RMCI (Right Management--$24.91; -0.72; optionable):
http://biz.yahoo.com/p/r/rmci.html
STATUS: Testing back to the 10 day MVA (24.45) on lower volume after the move up on the news of the split. It tapped the 10 day on the low and recovered a bit to close. It still has a lot of pop in it. Should hold 24 on this test, and we can look at positions up from there or from the Tuesday close near 25.
Volume: 164.585K Avg Volume: 152.227K
BUY POINT: $25.05 (orig. $25.75). Volume=225K Target=$29.75 Stop=$23.65
POSITION: UHU AD - Jan. $20c (74 delta) and/or Stock
http://www.investmenthouse.com/cs/rmci.html
POST-SPLIT
COCO (Corinthian Colleges--$35.92; -0.07; optionable): Education
http://biz.yahoo.com/p/c/coco.html
STATUS: Ascending wedge. COCO slipped below the 18 day MVA (35.89) Tuesday, but showed a nice doji on lower volume as it did. Still ready for that all-time high on the next upleg in the market.
Volume: 445.251K Avg Volume: 832.909K
BUY POINT: Aggressive: 36.65. Breakout: $38.11 Volume=809K Target=$42.75 Stop=$35.44
POSITION: UCS BF - Feb. $30c (74 delta) and/or Stock
http://www.investmenthouse.com/cs/coco.html
COH (Coach--$26.76; -0.74; optionable): Handbags, etc.
http://biz.yahoo.com/p/c/coh.html
STATUS: Cup w/handle. In the handle of its 4-month base, showing a hammer doji Tuesday as it tested the 50 day MVA (26.55). Volume pushed higher as it did, a good sign at the 50 day. Accumulation is good as is money flow. Looking for the breakout.
Volume: 835.9K Avg Volume: 993.227K
BUY POINT: $27.55 Volume=1.4M Target=$33 Stop=$28
POSITION: COH BE - Feb. $25 (77 delta) and/or Stock
http://www.investmenthouse.com/cs/coh.html
GG (Goldcorp--$11.2; +0.3; optionable): Gold mining
http://biz.yahoo.com/p/g/gg.html
STATUS: Cup w/handle. Moving in the handle of a 4-month base, holding the 18 day MVA (10.93) on the lows. Tuesday it jumped up off of that level on high volume, showing a doji on the close right at the 10 day MVA. Positive accumulation and relative strength is breaking out. Rates are lower, equities are lower, and gold is rising.
Volume: 2.21M Avg Volume: 1.641M
BUY POINT: $11.98 Volume=2.4M Target=$14.45 Stop=$10.95
POSITION: GG AS - Jan. $8.75c (88 delta) and/or Stock
http://www.investmenthouse.com/cs/gg.html
GTK (Gtech Holdings--$24.27; +0.05; optionable): Business software
http://biz.yahoo.com/p/g/gtk.html
STATUS: Testing the 200 day MVA (24.33). Pulling back on very low volume to test the 200 day and support at that level. Showed a doji at that point, a signal the pullback may be over. Money flow is strong as is accumulation.
Volume: 488.2K Avg Volume: 758.409K
BUY POINT: $25.95 Volume=1.3M Target=$30 Stop=$24.04
POSITION: GTK CX - Mar. $22.50c (87 delta) and/or Stock
http://www.investmenthouse.com/cs/gtk.html
UOPX (University of Phoenix Online--$30.76; -0.44; optionable): Online education
http://biz.yahoo.com/p/u/uopx.html
STATUS: Cup w/handle. Looking very nice in the handle of a 4-month base as it continues to work along the 10 day MVA (30.72). Another one of our favorite stocks in this group, UOPX is set up for a nice move higher. Excellent accumulation in the base at 7 up weeks on rising volume to just 3 down weeks on rising volume. Money flow is leading way out ahead of price and relative strength has broken out.
Volume: 95.5K Avg Volume: 173.636K
BUY POINT: $32.1 Volume=262K Target=$37 Stop=$29.85
POSITION: UBY CF - Mar. $30c (65 delta) and/or Stock
http://www.investmenthouse.com/cs/uopx.html
STJ (St. Jude Medical--$35.66; -0.74; optionable): Medical appliances
http://biz.yahoo.com/p/s/stj.html
STATUS: Put. STJ started to fall Tuesday, dropping from a test of the 18 day MVA (36.53). Volume was not strong, back below average. Still ripe for more downside action from here.
Volume: 846.1K Avg Volume: 1.261M
BUY POINT: New positions: 35.45 (orig. $35.95) Volume=1.9M Target=$32.05 Stop=$37.35
POSITION: STJ MH - Jan. $40p (-54 delta)
http://www.investmenthouse.com/cs/stj.html
TVX (TVX Gold--$14.89; +0.14; optionable): Gold mining
http://biz.yahoo.com/p/t/tvx.html
STATUS: Cup w/handle. Another nice gold pattern post-split. TVX is in its handle, moving along the 10 day MVA (14.58) in a very tight range on below average volume. Volume nudged higher Tuesday, showing the third doji in a row. That can mean the stock is about ready to make its breakout over the high in the handle. Accumulation in the base is excellent at 5 up weeks on rising volume to just 2 down weeks on rising volume. Relative strength is breaking out ahead of price and is higher than it was back in June when the stock was at a slightly higher price.
Volume: 108.6K Avg Volume: 406.772K
BUY POINT: $15.45 Volume=685K Target=$18.55 Stop=$14.25
POSITION: TVX BV - Feb. $12.50c (74 delta, no OI) and/or Stock
http://www.investmenthouse.com/cs/tvx.html
YUM (Yum! Brands--$27.32; -0.47; optionable): Restaurants
http://biz.yahoo.com/p/y/yum.html
STATUS: Put. YUM won't give up 27 and sell off harder. Tuesday it started down but recovered, showing a doji on rising volume. It may be ready to fall here, but we need to let it make the move. it has not fully tested 29. We would like to see another test of 28.50 to 29 and then a failure there. May not happen, so we will be ready to take it from here if it tanks again.
Volume: 1.736M Avg Volume: 1.848M
BUY POINT: After at test of 28.50 to 29, 28.55 on the way back down. From here: $27.05 Volume=2.2M Target=$24 Stop=$29
POSITION: YUM MF - Jan. $30p (-65 delta)
http://www.investmenthouse.com/cs/yum.html
End Part 2 of 3
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understanding the stock market
stock split
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