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10/21/02 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Monday: None issued
Buy alerts issued: BLUD; SCSS; CCE
Trailing stops issued: None issued
Stop alerts issued: MMSI; COO
THE MARKET
The market rallied again without taking any rest. That would be okay as we indicated last week; a market that is recovering and in a strong rally can continue to move higher and higher without rest if the volume is there. The past 2 sessions the market has continued the rally but without the rising volume (Nasdaq lost, NYSE gained ever so slightly). Two gains on lower and lower volume is not a good sign. It does not mean that the rally is going to die, but rallies on low volume tend to correct harder because they kept moving up without heavy buy support. This happened in August and the rallied died. Again this is not entirely the same as volume up to this point has been solid.
After hours TXN tossed water on things guiding Q4 to 0.02, plus or minus. Expectations were for 0.11. Revenues are to be 10% lower as well. TXN was getting thumped after hours along with other techs. When the market rallies on low volume it is subject to upset on this kind of disappointment. The market has been able to rally over bad news of late. It will run out of gas trying to continue to do that, particularly if there is no volume. It needs a rest, and after approaching some resistance points it is getting close to a pullback.
Sentiment Indicators
VIX: 38.91; -0.91
VXN: 52.34; -2.99
Put/Call Ratio (CBOE): 0.73; +0.05. Rising on an up session is not the norm. It indicates there is still concern that rises as during the morning selling.
Nasdaq
It did not wait and rest a few days over the 50 day MVA, but rallied on low volume up to the March/May down trendline. It either needs a big volume injection or it is going to find tougher sledding.
Stats: +21.81 points (+1.69%) to close at 1309.67
Volume: 1.576B (-5.56%). Barely above average on the gain. Not inspiring.
Up Volume: 1.154B (+144M)
Down Volume: 395M (-243M)
A/D and Hi/Lo: Advancers led 1.49 to 1. Meager advance though it was quite a turnaround from the morning action
Previous Session: Advancers led 1.1 to 1
The Chart: http://www.investmenthouse.com/cd/$compq.html
Rallied up close to the March/May down trendline (1312), closing near the high. It jumped off the 50 day MVA (1262.52) quicker than we would want, and given the TXN earnings after hours, it may have needed that rest. In any event, it gave itself some cushion above the 50 day MVA to come back and consolidate a big more at that level. It would be nice if the Nasdaq would just pull back in small chunks of 15 points as opposed to 40+ point plunges on down sessions. That would be a better sign of overall strength as no one was rushing to the door to get out. As it is, with the weak volume move up to next resistance, Nasdaq has set itself up for a fall back to the 50 day MVA. The key will be if volume stays under control.
S&P 500/NYSE
No hesitation as the large caps moved off the 50 day MVA as well and on toward the next important test. Volume would have helped.
Stats: +15.33 points (+1.73%) to close at 899.72
NYSE Volume: 1.423B (+1.07%). Again squeaked by average with a slight rise in trade. A gain, but hardly inspiring.
Up Volume: 1.174B (+417M)
Down Volume: 253M (-391M)
A/D and Hi/Lo: Advancers led 1.57 to 1. Middle of the road action.
Previous Session: Decliners led 1.05 to 1
New Highs: 35 (+11)
New Lows: 84 (-11)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps took one more look at the 50 day MVA (870.39) and then rallied. Volume did not back the move, however, as the S&P 500 gets over the preliminaries and now faces the July, August and September interim highs (909 - 911) as well as the March down trendlines (905). That is where some real resistance will show itself, particularly given the lack of volume the last two moves higher. It is showing that bullish intraday action of overcoming early weakness and closing at the highs, but it has to have serious buying behind it or that is just the minority calling the shots for the day. Unless buyers were sleeping in Monday and decide to come into the market Tuesday with some big volume to push it past those down trendlines, the S&P's gas tank will be running dry and another test of the 50 day MVA would appear in order.
Dow:
Stats: +215.84 points (+2.59%) to close at 8538.24
Volume: 1.423B (+1.07%)
The Dow plowed right through that downtrend channel that was discussed Friday without too much hesitation. If it had made the move on stronger volume it would have been more convincing; now it is like the S&P 500: if buyers wake up and decide to buy Tuesday it could cure itself. With TXN disappointing big that will not likely happen, at least not at the close. The indexes will more likely give back the recent low volume gains and the key will be whether they hold the 50 day MVA (8196.81) as an important support level. Upside the Dow still has interim July, August and September highs at 8745ish just as the other indexes, and that will act as the next resistance if it can keep the upward move alive at this point.
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
TXN has set the futures back after hours and that is impacting much of the Nasdaq. Without a good consolidation along the 50 day MVA but instead rallying on lighter volume, the stage is set for a disruption such as the TXN news. That will push the indexes back for a test of the recently crossed 50 day MVA, and that has many thinking back to August when the indexes crossed the 50 day for a few sessions and then flew south for the autumn. That pessimism is good when combined with the bullish price action on the indexes. It gives more substance to a test and consolidation at or near the 50 day MVA that holds for another more serious run higher. Again investors could wake up after some selling early Tuesday on the TXN news and then once again rally stocks, this time with volume. That is always something we will be watching for but the better action would be a consolidation along the 50 day MVA; as noted above, at least it has given itself some cushion to fall to that level with the recent low volume gains.
We have naturally been very selective with what we are entering into. There are many stocks that are forming up well and many that have incredibly wild and loose patterns that are providing breakouts but require a steady source of Pepto Bismal to get into. Of those forming good patterns, a few are breaking out on strong volume while others edge higher on lower trade; the latter tend not to hold the breakouts. Thus we are moving into just a few positions over the past few sessions as we look for the volume moves that signal there is a lot of interest in the stock, and that can continue to push it higher and help it hold up better on the market pullbacks.
Tuesday we are expecting that softer open once again, this time on the substantial Q4 TXN warning. We will watch to see if support holds and another big rally off the lows begins or if stocks stay down but fall in an orderly, i.e., low volume and moderate price losses, manner. After the lighter volume rally we would suggest the latter.
Support and Resistance
Nasdaq: Closed at 1309.67
Resistance: There is a downtrend line from the March and May highs at 1312. July, August, and September interim highs at 1345. 1357.09, the October 1998 bear market low. 1418, the interim test after the September 2001 low, and 1426 the August high.
Support: The 50 day MVA (1262.52). The 10 day MVA (1243.84). The 18 day MVA (1229.50). The March/May downtrend line at 1220. 1200 (August closing low) to the July intraday low at 1192.42. 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 899.72
Resistance: The September 2000/May 2001 downtrend line at 905 and the downtrend lines from the March and April highs have merged. July, August and September interim highs at 909 to 911. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high.
Support: 875 is some price support. The 50 day MVA (870.39). The 10 day MVA (859.91). 850 to 855 (the October 1997 and Q2 1998 lows). The 18 day MVA (851.68). The first March down trendline 827. Prior closing lows and highs at 800 from July and October. The first bottom channel line in the March downtrend (790). The September 2000/January 2001 down trendline at 780. The July intraday low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8538.24
Resistance: The late July and early September interim high at 8726 to 8762.14 (8745 closing). A range of resistance from 9000 on up to 9050. The 200 day MVA (9363.98). 9500 from June and July lows.
Support: Some price support at 8500, but weak. The simple 50 day MVA (8261.69). 8250 acted is some support. The exponential 50 day MVA (8196.81). The second March down trendline at 8175. The 10 day MVA (8088.74). 8000 (August low at 8043; September 2001 intraday low at 8062). The 18 day MVA (8006.05). The August down trendline at 7470.
Economic Calendar
10-21-02
Leading economic indicators, September (10:00): -0.2% actual, -0.2% expected, -0.1% prior (revised from -0.1%).
Treasury budget, September (2:00): $40.0B expected, $35.4B prior.
10-23-02
Federal Reserve Beige Book (2:00)
10-24-02
Initial jobless claims (8:30): 405K expected, 411K prior.
10-25-02
Durable goods orders, September (8:30): -2.0% expected, -0.4% prior.
Michigan sentiment, October final (9:45): 81.0 expected, 80.4 prior.
New home sales, September (10:00): 985K expected, 996K prior.
Existing home sales, September (10:00): 5.35M expected, 5.28M prior.
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SUBSCRIBER QUESTIONS
Q: First, I would like to compliment you: After spending 2 years trying to figure out how all this works and going through so much B.S. in the process, you are one of two people and two alone who I now follow. You both tell it like it is with no hype or personal agenda. The other person is John Murphy of Murphy's Message Service so I would say you're in pretty good company as I would suspect he's been around doing this a little longer than you. I understand pretty much everything when you give an explanation of your new picks except your accumulation figures(i.e., 5weeks up to 2 weeks down on rising volume).Would you please explain how you arrive at those figures as I never get the same numbers as you? Thanks and keep up the good work
A: Thanks for the compliment. When we refer to accumulation what we are looking for are clues as to whether the stock is being quietly purchased or dumped during the basing process. The purpose of a base whether cup, triangle, flat, saucer, reverse head and shoulders, etc. is to weed out the sellers and leave those holding the stock that want to hold it longer term. That usually means institutions as they try to acquire stock quietly so as not to tip too much of their hand. Good price/volume action, i.e., rising on up volume, falling on lower volume, indicates there are more buyers in a stock than sellers. In looking at a longer base, we look at the price/volume action on a weekly basis. We look for weeks where the stock gains ground on rising volume (accumulation) versus those weeks where it falls on rising volume (distribution). Each of those respectively shows buyers or sellers in control for that week. We go through the base and count up the accumulation weeks versus distribution weeks. We focus on those stocks that show positive accumulation (i.e., a simple majority of accumulation weeks), particularly those under heavy accumulation (e.g., 4 to 1, 5 to 2, etc.). Stocks with positive accumulation during the base have a stronger base of support and thus are more likely to make and hold strong breakout moves. This is another way of looking at a stock as it works through what looks to be a good base, another way to gain the edge as to what really are the best stocks to put your money into.
THE PLAYS:
Upside:
AMZN (Amazon.com--$19.26; +0.22; optionable): Internet retailer
http://biz.yahoo.com/p/a/amzn.html
STATUS: Cup w/handle. This is a seasonal play, at least it is shaping up that way. AMZN is in a 5-month cup w/handle base that is showing accumulation at 8 up weeks on rising volume to 4 down weeks on rising volume. That is solid accumulation. The past week it has been trying to form a handle but it is somewhat wild jumping from 22 to 18.50 as it rides up the 10 day MVA (18.54). We would prefer to see it test lower intraday in the handle to shake out the last sellers as it moves toward the breakout over the pre-correction high at 20. The past two sessions it has settled down to average volume the past two sessions. We want to see a very strong volume breakout, but beware the gap up as it showed Tuesday and Thursday when it gapped open and sold back. We want to see it open and then rally over the buy point on strong volume.
Volume: 6.763M Avg Volume: 7.083M
BUY POINT: $20.32 Volume=10M Target=$24.38 Stop=$18.9
POSITION: ZQN DO - April $17.50c (69 delta) and/or Stock
http://www.investmenthouse.com/ci/amzn.html
CMPC (Compucom Systems--$5.87; +0.49; no options): Wholesale computers
http://biz.yahoo.com/p/c/cmpc.html
STATUS: 50 day MVA test. CMPC broke out in August, rallied sharply, moving up the 10 and 18 day MVA as a good breakout should. It fell back in early October, caught itself near the 50 day MVA and made a solid jump Monday. Volume could have been better but it was up on the move. Stocks typically breakout, run up the short term MVA 4 or 5 times and then correct to the 50 day MVA (5.25). If it is strong it continues its move there, and that is what CMPC appears to be doing. Accumulation is still good during this recent pullback at 2 up weeks on rising volume to 0 down weeks on rising volume.
Volume: 212.215K Avg Volume: 229.909K
BUY POINT: $6.08 Volume=345K Target=$7.75 Stop=$5.35
POSITION: Stock (no option chain)
http://www.investmenthouse.com/ci/cmpc.html
ALLY (Alliance Gaming--$17.99; +1.82; optionable): Gaming
http://biz.yahoo.com/p/a/ally.html
STATUS: Breakout. The gaming sector is enjoying success now after most of the stocks in the sector formed bases over the past several months. Many of the sector stocks are breaking out right now, ALLY no exception. After a wild past two weeks ALLY found its footing and recovered, breaking out Monday on some huge volume. Accumulation is excellent at 9 up weeks on rising volume to 4 down weeks on rising volume. After such a strong move Monday we will most likely get a little weakness on the open Tuesday. A test back toward 17.25 or so would be a great entry point.
Volume: 1.896M Avg Volume: 561.636K
BUY POINT: Test: After a test of 17.25 a move over 17.50. From the close: $18.12 Volume=845K Target=$21.75 Stop=$16.85
POSITION: AQL DC - April $15c (76 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/ally.html
End Part 1 of 2
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