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Begin Part 2 of 2

THE MARKETS

A rally off of support saved a nasty day. Did it start a rally or put off the inevitable? A lot of the late upward momentum was short covering as the indexes broke over their highs for the session, triggering the short covering. Rallies need to be confirmed, and that won't happen until next week. Perhaps Greenspan will be more repentant tomorrow and give the markets something to work with. If not, ORCL's warning after hours could test that low again. Bear market rally or the third leg: what is next? If the markets can recover from ORCL's news after selling down in the morning, it would be ready for that bear market rally as support held today and it would have recovered from a trial by fire.

Overall market stats:

VIX: 31.08; +0.08. The VIX hit 34.22 on its high, right at reversal levels, and low and behold there was a rally. All of the components meld together to give moves up. Lasting? Probably not. Playable? Bear market rallies can last for weeks.

Put/Call ratio: 0.69; -0.12. Put buying tanked on the rally, but it still remains in the upper end of the range. Once again it bounced higher, but never reached that fear level we like to see, i.e., a close over 1.0. Again that leads us to believe this bounce came premature to be lasting.

NASDAQ:

It tapped at support twice and then exploded to the upside. Stocks that have been crushed were given some new life on strong volume. That bodes well for a short term rally if they can overcome ORCL and company's warnings after hours as support held and gave rise to a solid bounce.

Stats: Up 31.54 points (+1.5%) to close at 2183.37, a 113 point recovery.
Volume: 2.259 billion shares (+7.9%), the first solid up volume gain in 11 sessions. It does not wash away all of the distribution, but it does give us another shot at a rally. Up volume shot up to 1.439 billion shares versus 732 million to the downside.
A/D and Hi/Lo: Declining issues still maintained their lead, 1.35 to 1 (1.6 to 1 on Wednesday). New highs rose to 56 (+1) while new lows jumped to 220 (+47). Not great internals for a reversal, but we need to see what they look like on a confirmation day next week.

The Chart: http://www.investmenthouse.com/cd/$compq.html

The Nasdaq tapped a new low right above support and reversed on higher volume. Another high-volume reversal. Let's see, we saw a load of those on the way down from September. Still, we always have to pay attention to them because the market has sold off hard since then and it could be ready to turn things around. We need to watch for a strong gain starting next Tuesday on again stronger, above average volume. That shows the money managers are buying in and can give the move some power.

That said, we have to also consider the woeful state of patterns on the Nasdaq. Based on what we see, the Nasdaq has more work ahead of it before it can mount a sustained move. Perhaps this move can shift it into a trading range to complete some patterns and prepare for a blastoff to better times. Still, with the lack of fear in the market we are skeptical that any rally will last without another further leg down. We may get a nice little rally to the upside here, but we will have to be vigilant.

Dow/NYSE: The Dow once again fought off serious trouble as it tapped down at 10,300 again on its low but then jumped right back up to close handily above support on stronger volume. It staved off disaster for now and may run again to 10,750. Without something really dramatic to change the market, however, it may have to test 10,000.

Stats: Down 45.14 points (-0.4%) to close at 10,450.14.
Volume: NYSE volume edged higher to 1.284 billion shares (+4.8%), a nice change from the frequent distribution of late. Down volume led up volume 704 million to 540 million shares.
A/D and Hi/Lo: NYSE declining issues continued to lead 1.06 to 1 (1.2 to 1 on Wednesday). New highs rose to 97 (+2) while new lows rose to 60 (+27).

The Chart: http://www.investmenthouse.com/cd/$dja.html

Found support once again at 10,300 and rallied to recover. It was needed as the Dow was ready to test 10,000. For now it may recover again to test 10,750, but the overall bias on the index is down. For now, one up day does not erase all of the distribution we have seen. Indeed, in order for the overall market to make a lasting move, the Dow might have to actually break down below 10,000.

S&P 500: The big caps tapped a new 52-week low again, brushing down at 1214.50 on its low before it too staged a strong reversal on rising, above average volume. It is still mired way down at the bottom of its pattern. It is set up for a bounce higher if it can overcome the ORCL news as must the Nasdaq. If it does, it is set up for a run back up to 1275 as a first step.

Stats: Up 1.29 points (+0.1%) to close at 1241.23.
Volume: NYSE volume rose to 1.284 billion shares (4.8%).

The Chart: http://www.investmenthouse.com/cd/$spx.html

TOMORROW

Friday again. Greenspan speaks again. The markets have to overcome some bad news after hours once again. Daunting, but not impossible.

The rally in the last hours of Thursday was on solid volume and it translated over into solid volume on individual stocks. There was a tremendous amount of pent up buying desire that was unleashed. It was ready to continue after hours until ORCL warned. Nasdaq futures are 45 points below fair value at the time of this writing, and S&P futures are 5 points below fair value. Not devastating, and levels that each can overcome if the desire to rally is there.

Without looking too far ahead (this is titled 'tomorrow' after all), if the market can recover we are not looking for any great rally, but we are not going to turn away from it. What does that mean? We won't go looking at the beaten up techs unless we see one or two that are just absolutely begging for a short term upside play. In all likelihood they are not going to move out of this range for some time, i.e., until they can build some bases. Many are on a 45 degree trajectory to the downside, and that is not much of a pattern for more than a quick move up.

What we are going to focus on are those plays that continue to perform even as the big name techs don't. As we have been seeing, those plays are still out there and we have more today. We will also take advantage of the selling that occurs once a rally starts to fizzle out. Last time it just made it to 2300 before it died. It has formed a head and shoulders with a weak right shoulder, and the potential is to the downside unless and until it changes its character. The trend remains down, so we will continue to look for those stocks that bounce up on new hope and then fail and start to roll over. Those plays to the downside give the more consistent gains with these stocks right now.

This is a time that does not come around often, but unlike other bear markets in the past, there are places to put money to work and make good money. Indeed, many plays are working just as they always do, i.e., playing the breakouts, just in different sectors from in 1999 and 2000. Many have walked away from the market even as it gets more predictable with its upside and downside moves. In addition to the breakouts in solid sectors, the back and forth action gives great opportunity to make money just watching when stocks hit resistance and fall and then hit support and bounce back up. Tomorrow we are going to look for those stocks that continue to breakout of solid patterns while we see how the rally versus ORCL announcement plays out. Patience waiting for the breakouts and patience to let the downside plays set up for the next round.

Support and Resistance Levels

Nasdaq: Closed at 2183.37.
Resistance: 2400 to 2500. Then 2650. 2890 to 2900 is next before the 3000 level.
Support: 2000 to 2050

S&P 500: Closed at 1241.23.
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 10,450.14.
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.

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): 372,000 actual versus 350,000 actual and 333,000 prior (revised from 348,000).
Personal Income, January (8:30): 0.6% actual versus 0.5% expected and 0.4% prior.
PCE, January (8:30): 0.7% actual versus 0.6% expected and 0.4% prior (revised from 0.3%).
Construction Spending, January (10:00): 1.5% actual versus 0.5% expected and 1.0% prior (revised from 0.6% prior).
NAPM Index, February (10:00): 41.9% versus 42.0% expected and 41.2% prior.

3-2-01

Michigan Sentiment-Final, February (10:00): 87.8 versus 87.8 prior.

TEAM TRADES

Once again we were out looking for the downside and breakouts: playing both ends of the spectrum.

QQQ: Went to the well again. We could have let Wednesday's play on these options hold over as the bias continued down from Wednesday to today's open. We happened to be at the screen all day so we rode it down and up and down. Today we missed the top in the QQQ about an hour into the session. We were watching it approach the morning high and had an idea it would not break it, but I was called away on a conference call and did not have a standing order in with any broker. Missed that one, but as has been its habit, the Nasdaq 100 made another run toward the high, and it too failed. As soon as we saw it start down we jumped on that one with the same April 55 puts to get the better delta once again as the options were trading at 8.9 by 9.2. That was the largest spread we had seen, so we but an order to buy in at 9.1. It was filled instantly. Have to love the liquidity of index options. The QQQ followed its 15 minute moving average down for the next hour and one-half, and then the AMCC news came out. They dropped from 46.60 to 45.80 in a half hour. That was close to our target profit, but we felt there was still some downside as the Nasdaq support we saw was 2050 to 2000. It rallied to 46.50 and we watched the index hit the 15 minute line and fall back. It tanked to 45.80 again for 10 minutes as the Nasdaq undercut the prior leg. At that point it started to show doji's, and after slightly undercutting its left leg, it looked as if it wanted to rise. The options hit our profit point and we sold at 10.1. The timing was good as the index started back up. We thought about playing the upside off the double bottom, but did not because we wanted to play the downside. We watched it climb, ready to get in when it hit the highs for the day. It hiccupped right there but then raced on ahead. We thought of buying at the close, but did not want to have to fight any momentum in the morning. Looks as if that won't be there in the morning, but you never can control news.

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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