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us stock market, trend trading stock
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Tech Traders 3/01/01 Market Summary
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Technical Traders Subscribers:
Continuing Plays:
CORS (Corus Backshares Inc--$50.50; +1.12; no options): Banking
http://biz.yahoo.com/p/c/cors.html
STATUS: Breaking out of the ascending wedge on good volume (34,800; avg. 34,636). Buy point is 50.26, so look for stronger volume. Buying and money flow remain outstanding. Relative strength is out ahead of price.
BUY POINT: A buy on the breakout up to 52.77.
POSITION: Stock.
http://www.investmenthouse.com/ct/cors.html
(Click to view the chart)
EDS (Electronic Data Systems--$64.59; +0.76; optionable (EDS)): Software
http://biz.yahoo.com/p/e/eds.html
STATUS: Moving up for the third day as volume shot higher (4 million; avg. 2.4 million). The stock hit an intraday high of 65.25, close to the February high of 65.50, and looks ready to take it out. Great money flow and high relative strength, in addition to good buying.
BUY POINT: Breakout: Over 65.50 on continued strong volume.
POSITION: Stock and/or June $65 calls to buy (EDS FM).
http://www.investmenthouse.com/ct/eds.html
(Click to view the chart)
IVGN (Invitrogen Corporation--$79.63; -0.87; optionable (IUV)): Biotechnology
http://biz.yahoo.com/p/i/ivgn.html
STATUS: Pulled back from the ascending wedge breakout (breakout high is 82.88), showing a tight doji Thursday as volume dropped back below average to 664,500 (avg. 734,000). Look for a move back up from the doji on stronger volume. Excellent money flow, high relative strength; buying is looking good. November high is 87.44.
BUY POINT: A move over 82.88 on above average volume (897,000 or better).
POSITION: Stock and/or May $80 calls to buy (IUV EP).
http://www.investmenthouse.com/ct/ivgn.html
(Click to view the chart)
New Plays to look at:
UTX (United Technologies Corp--$78.01; +0.10; optionable (UTX)): Conglomerates
http://biz.yahoo.com/p/u/utx.html
STATUS: Covered earlier this week, and still looks good in its ascending wedge. Price dropped back to test support again the last two days (18 day MVA, 77.21), then moved up to show a doji. Volume dropped back but remains above average at 2.26 million (avg. 2 million). Continue to look for a breakout over the pattern high of 80.40. Excellent money flow and high relative strength (that has moved out ahead of price).
BUY POINT: 80.53, on volume of 2.7 million or better. Remains a buy on the breakout up to 84.56.
POSITION: Stock and/or May $80 calls to buy (UTX EP).
http://www.investmenthouse.com/ct/utx.html
(Click to view the chart)
PHCC (Priority Healthcare--$41.94; +1.06; optionable (UHP)): Drugs wholesale
http://biz.yahoo.com/p/p/phcc.html
STATUS: Ready to break to a new high, the stock closing at the previous all-time closing high of 41.94, hit in February. Volume surged to 949,500 (avg. 541,136), but the stock pulled off the high of 42.94. Look for a break of the resistance on rising volume. Good money flow, and relative strength has moved out ahead of price.
BUY POINT: Up from here on continued strong volume.
POSITION: Stock and/or July $40 calls to buy (UHP GH); options have 13 open interests.
http://www.investmenthouse.com/ct/phcc.html
(Click to view the chart)
A Put Play:
BOBJ (Business Objects--$66.53; +7.34; optionable (BBJ)): Software
http://biz.yahoo.com/p/b/bobj.html
STATUS: The stock moved up toward its 10 day MVA (68.95) on continued strong volume, that was lower at 1.65 million (avg. 627,181). The stock can move up to the moving average (50 day MVA is just above the 10 day at 69.74), but we are looking for a turn back down from there. The ORCL news will most likely affect the sector negatively, at least in the near term.
BUY POINT: On a move back down from here or from the 69 range (10 day MVA) on continued strong volume, for a move to at least 60.
POSITION: April $75 puts to buy (BBJ PO).
http://www.investmenthouse.com/ct/bobj.html
(Click to view the chart)
THE SUMMARY:
TONIGHT:
- Nasdaq and Dow bounce off support as the Nasdaq traces an intraday double bottom on a strong-volume reversal.
- AMCC and IBM targeted as catalysts, but could it be that investors are finally realizing that good economic news is good news?
- Feverish talk of a bottom on each rally attempt.
- ORCL, SBC and SANM news splashes cold water on many winners after hours.
- Greenspan back in Washington tomorrow.
- Team Trades
Nasdaq and Dow test support and bounce.
The markets resumed their selling right off the bat and they gave us several good put plays as downgrades continued and the economic news was difficult to digest as good or bad. We used the selling as an opportunity to take even more positions to the downside on the QQQ and others. This worked out well as the market continued to sell lower and lower. AMCC then announced it was taking down its own earnings, and the little rally attempt that started at 1:30 ET dropped hard to a new low at 2070. It found support there just 20 points above that 2050 level that we have been looking at as potential support for quite some time. It started showing signs of a bottom: it undercut the previous low of the session and started tapping the low but most trades occurring above the low. Looked like a double bottom forming at support, so we exited our trades and were going to wait for the resistance at the highs of the session to re-enter to the downside.
Well, they never did stop. The QQQ, BRCM and other great put plays for the day past few days just kept on running up. So, we let them go and missed on a great chance to play the upside. We did contemplate the upside, but that does not make you any money. In any event, it looks as if the selling may resume tomorrow as after hours ORCL warned it would not make its number and SANM said it would miss its revenue numbers. Heavy, heavy selling after hours.
A catalyst appears?
The talk was that AMCC was a catalyst: the company fessed up, and it was not as bad as some thought. Maybe, but when the news came out, the initial half hour reaction was a selloff. That is what pushed many of our put plays to our profit targets and made us take a closer look at the pattern the Nasdaq was forming intraday. Maybe it was the catalyst for today's move, but not in the way most thought: it completed the intraday double bottom as many tech investors said "I'm out" on the news and headed for the door. Maybe.
Then there was the IBM rumor that it was issuing a statement that was saying it was upping its quarter. Not according to IBM's official statement, but the stock shot up anyway on the rumor even when the company said it was standing by its previous guidance.
Could it have been that investors finally started viewing economic news that continues to beat expectations as good news as opposed to bad news? That would be prudent as it does not appear Greenspan is going to cut rates before March 20, especially with today's economic data. Doing otherwise would be denial of what Greenspan said and what the reports are showing. Still, we doubt that investors all of the sudden capitulated to the Fed, at least not yet.
Volume was good, but was today anything but an oversold bounce?
The talk was hot and heavy about this being a bottom, that the Nasdaq was going to rally to the low 3,000 level, and that in a week the Nasdaq would start back up. Other than the AMCC and IBM stories, about the only reason given was an oversold condition. Yes the Nasdaq is oversold, but it has been oversold for quite some time. We would love to see a lasting move, but today was not proof of that. We will know more about that next week.
What we do know is that it made a good bounce on good volume. That might carry it up higher and maybe get us back up to the 2400 or 2500 level we were looking for before Wednesday's disappointment. That is a tall order right now. All we can really say about today was that the Nasdaq traced out a double bottom intraday and a lot of roughed up tech stocks jumped up. They still have horrid patterns and are not ready to lead any market higher. Without the good patterns we have seen each rally make some headway and give up. We would love to be wrong and see the market slide into a nice rolling trading range to form some good bases for a solid breakout in the not too distant future. This move at 2070 is the place to start as there is some support here. Right now we have to sit tight and see if this is a transition or a brief respite before continued selling. The volume was the one factor that keeps anyone from ruling the move out as a fluke. That is about all, however.
ORCL spreads no joy after hours.
ORCL announced after hours it was going to miss earnings by 2 cents (0.10 versus 0.12). Looks as if the downgrades of the software are coming home to roost. The stock was halted, but other stocks stepped in for it and sold hard. Software was murdered as SEBL, BEAS, VRTS and others were chopped to ribbons. When ORCL opened it fell from its 21.38 close to 18, and was down at 17 the last time we looked. Other tech stocks from other sectors were down $3 - $5, but at least were not getting blown out.
SANM did not help, saying its revenues would not be up to snuff. That hurt FLEX and JBL after hours. SBC said it would miss earnings, and it took some telecom stocks back down with it as well. Futures were tanking, but we will have to see how it shakes out overnight.
THE ECONOMY
Loads of economic data point both ways, but the consensus is the economy is still heading north, not south.
Jobless claims up, but the headlines are confusing as usual.
Jobless claims were higher than expected at 372,000, up 39,000 from the 333,000 the prior week and the 355,000 expected. That was higher than expected, but also once again the prior week's number was revised substantially lower. That has been something we have seen each week since December: the headline number is higher, but then the revision knocks the initial numbers down significantly. Last week they revised the prior week down 12,000. This week they revised last week down 15,000. As a result, the 4-week moving average is not racing ahead as one would expect. It came in at 352,500 up modestly from 350,750 last week. Thus, while 372,000 is a big number, if the trend holds, it will get a big write down as well. Also, continuing claims fell from 2.503 million to 2.463 million, reversing the recent move to more an more unable to find work right away.
Moreover, note that most layoffs were in the auto industry from areas outside of Michigan. As we reported over the past two months, the auto layoffs are temporary plant closings. Under union contracts, employees receive 95% of their salary if a layoff is temporary. That might impact some spending, but 95% for not working is not bad at all.
NAPM scratches out a gain.
Following the Chicago PMI, the national reading edged higher to 41.9% (42.0% expected) versus January's 41.2% reading. Still well below the 50 reading that would indicate expansion, but with talk of the economy sliding further into the pit, at least the manufacturing sector is trying to hold the line for now. Significantly, the prices paid component slid in lower at 58.1 versus 61.57 in January. That is good to see as it helps alleviate the fear of inflation the PPI raised.
Construction spending jumps as do personal incomes and spending.
Another sign of continued strength, real strength, is the 1.5% gain in construction spending, far outpacing the 0.5% gain anticipated. Further, December's number was revised higher to 1%. The January jump was the largest rise in 10 months.
Personal incomes rose 0.6%, above the 0.5% expected rise and the 0.4% move in December. Spending (PCE) rose 0.7% versus the 0.6% expected. December's spending was revised higher to 0.4% from 0.3%. These increases are the largest since the 1.1% and 0.8% gains respectively back in September 2000. Still, adjusted for inflation, spending rose just 0.2%. That is not getting us there.
Auto spending down but not nearly as much as thought.
All three major U.S. auto producers reported lower sales, but all solidly above expectations. Ford said consumer spending was more resilient than the confidence numbers were suggesting, and indicated it looked for 16.5 million unites for the year, the third best year ever (15.5 million units in the year ended in December). GM reported a 9% decrease in sales, but that was much better than the 15% to 17% decline expected. And Chrysler was expected to limp in with sales 20% lower, but suffered just a 10% decline. It does appear that the consumer confidence numbers are not translating 100% into sales in several parts of the economy.
How low can the stock market go before it really destroys the U.S?
Many say that Greenspan is not worried about the market as his goal is to maintain a stable economy an stable inflation. But in a cause and effect world, he has to worry about this and work in conjunction with the Treasury Secretary and others in the administration. The reason is one we have talked about many times in the past: if the market falls too much we start to lose investment in the U.S. That sets off a chain reaction where foreign money is taken out of the market and put into investments elsewhere in the world. To do that, dollars must be converted into the currency where the money is to be invested. That drops the value of the dollar and the snowball effect starts: more money taken out of the U.S., the dollar buys less, you need more dollars to buy the same item. Uh oh. That is inflation.
So, even if Greenspan sees the economy in a recovery glidepath and inflation threats low, he still cannot let this piece of the puzzle unravel. If the Dow, the last major index holding up, breaks below the 10,000 level and the Nasdaq and S&P 500 cannot recover, he may be compelled to drop rates sooner than later. Just something to keep in the back of your mind when you hear the analysts on the tube say it won't happen based on what Greenspan said Wednesday. That is overly shallow analysis as it ignores reality.
Greenspan on the Hill again.
Greenspan speaks to the House Budget Committee tomorrow the day after it passed the Bush tax cut and is ready to send it on to the full House. Greenspan will have a chance to mitigate some of his harsh words from Wednesday, but the economic data out today appears to bolster his position if he is now inclined to allow for a slower road to recovery. It is a bitter pill to swallow as he had intimated in January he wanted a V bottom to the economy. Maybe we will hear some words to that effect tomorrow, but we doubt anyone will be expecting him to embrace the markets with open arms.
End Part 1 of 2
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