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us stock market, trade stock
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10/22/02 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
Volume edges up on the selling.
Overall volume moved up on the NYSE and Nasdaq, indicating some mild distribution, i.e., broad-based selling of stocks by big money institutions. It was not a crushing reversal, just ticking higher. Still, after some lower volume gains that has to get you alert. We noted Monday that the low volume rally sessions the previous two sessions were setting up some steeper selling. That was no doubt a part of the Tuesday action. While overall volume rose we noted that many name brand stocks did not see a similar volume increase as they pulled back; a bit of a silver lining.
On top of rising volume, some leadership groups, namely education and game software makers, were tossed back from their highs like last week's garbage. A laggard in the game software sector reported poor results (THQI's chart is in a downtrend while the others in its sector are near highs) and that trashed the entire sector. In education, CECO met results but indicated that Q4 enrollment numbers might be a bit light. Shoot first, ask questions later. CECO was downgraded on valuation, and CECO, COCO, EDMC all got the wood put to them on high volume. Two leadership sectors got whacked and that is always a red flag waiving in the face of a rally.
Why? In a bull market, leadership stocks that are growing earnings should be embraced as they move higher over resistance; there are no sellers overhead ready to shed shares, and if earnings are growing, valuations are not as large a concern. When valuation downgrades start knocking leaders back, a rally is starting to get into some trouble as investors are nervous holding onto shares that could be perceived as overvalued. A market without leaders is a market that is not going to go very high.
That said, Tuesday was not a signal to dump all shares and run. The selling volume was up but it was not heavy. Other successful rallies off lows have suffered a session or two of higher volume selling and still continued their recovery moves (e.g., October 1998). The losses were limited and the indexes still have a good cushion before the 50 day MVA to consolidate the gains again. What you don't want to see is volume spike up as they head down toward those levels.
Sentiment Indicators
VIX: 39.34; +0.43
VXN: 53.61; +1.27
Put/Call Ratio (CBOE): 0.83; +0.1. Jumped back up on the selling as it continues to trade in the higher end of the range.
Nasdaq
The lower volume set it up for upset, and Tuesday there was a modest pullback, less than we anticipated after the low volume rise.
Stats: -16.87 points (-1.29%) to close at 1292.8
Volume: 1.723B (+9.31%). A more than negligible rise in volume as the Nasdaq sold, rallied back, and then gave it back. A caution flag; on further selling the volume should not continue to increase.
Up Volume: 794M (-360M)
Down Volume: 907M (+512M). Fairly even action even on a session that lost over 1%.
A/D and Hi/Lo: Decliners led 1.44 to 1. Did not get out of hand on the Nasdaq even with the TXN problems.
Previous Session: Advancers led 1.49 to 1
New Highs: 34 (-13)
New Lows: 70 (+6)
The Chart: http://www.investmenthouse.com/cd/$compq.html
A gap down as it did after the Intel numbers back on 10/16, but the index rallied back from the open price and contained the damage quite well. It is still sitting above the 50 day MVA (1263.71) and has a decent cushion to suffer a couple more sessions where point losses match Tuesday and still manage to hold above that level. The 50 day MVA becomes the natural focus here as this is the level it peaked above in the August rally for two sessions and then gave up, and if this rally has any further life in it that level should bring out the bigger buyers. But for the overall bump up in volume the action was very good.
S&P 500/NYSE
Very similar action to the other indexes, recovering much of the lost ground from the session low. NYSE bumped higher as well, raising that caution flag.
Stats: +0.03 points (0%) to close at 890.16
NYSE Volume: 1.503B (+5.64%). Not as large a volume push on the broad NYSE, a better though not great sign.
Up Volume: 470M (-704M)
Down Volume: 1.042B (+789M). Not nearly as tight as on the Nasdaq. The people active in the market were predominantly sellers.
A/D and Hi/Lo: Decliners led 2.11 to 1. The selling grew in intensity.
Previous Session: Advancers led 1.57 to 1
New Highs: 17 (-18)
New Lows: 89 (+5)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Hit 882.40 on the low and then rallied back twice. The last one did not take back all of the losses, but it made a significant dent in them. That action was the continued solid action we have seen; yes it was a down session, but buyers did not just give up. Volume did increase, but it was well, well below the volume at the first of the month. It alerts us to watch what the rest of the selling this week looks like as the index heads toward the 50 day MVA (871.17) to test that key level.
Dow:
Stats: -88.08 points (-1.03%) to close at 8450.16
Volume: 1.503B (+5.64%)
Similar story to the other indexes, a test lower (8376.15) in an intraday downtrend, and then a late move up shaves off a chunk of the losses. Continued buying when a perceived opportunity arises. They were just not as willing to do so Tuesday. There is plenty of room above the 50 day MVA (8206.74) for further consolidation of this move. Over the next 2 to 3 sessions a lower volume slide down toward that level would be very good for the market.
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
Very light economic calendar the next two sessions with the Fed Beige Book out at 2:00ET and then jobless claims on Thursday morning. With economic light, earnings will again take focus. After hours KLAC reported and did not have a stellar report card. SLAB reported what appeared to be solid numbers, was rallying sharply, and then fell sharply. Tech stocks were generally down after hours but futures never tanked sharply and moved back up to flat. While that is not guarantee as to Wednesday's early action, it does indicate that investors were not shocked.
What we anticipate is a further test of the 50 day MVA. That may be too pat as that is the logical place for the indexes to move back to and then rally from. Still, the market was pretty pat in its test of the S&P low in October and then the rally back up as per the 'perfect scenario' we set out in August. We will put it this way: in a healthy market, after a move up as it has made, it would want to go back and tap that important resistance now support level to consolidate the move and then move up from there. If it does that on lower volume on the way down and rising volume on the way up, that will be excellent action. One other thing. A healthy market that is recovering and has a lot of money to put to work may not make it back down but may check up short and then make the move. Either case won't be bad.
In the meantime many of the existing plays are still in good shape, some moving up, most consolidating their gains as well (with the exception of those leaders that got whacked Tuesday discussed above). We will let those complete their pullbacks as long as volume stays in control. At the same time there are some stocks in continuing downtrends that are set up to fall again on a further test lower by the indexes toward the 50 day MVA. We are looking to play those to the downside as well as a downside OEX play to the 50 day MVA. Those are more aggressive, but with the market set up to take a breather we will give them a look if they give us the chance.
Support and Resistance
Nasdaq: Closed at 1292.80
Resistance: There is a downtrend line from the March and May highs at 1310. 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 (1263.71). The 10 day MVA (1252.74). The 18 day MVA (1236.16). The March/May downtrend line at 1205. 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 890.16
Resistance: The September 2000/May 2001 downtrend line at 903 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 (870.39871.17). The 10 day MVA (865.41). The 18 day MVA (855.73). 850 to 855 (the October 1997 and Q2 1998 lows). The first March down trendline 826. Prior closing lows and highs at 800 from July and October. The first bottom channel line in the March downtrend (788). The September 2000/January 2001 down trendline at 778. The July intraday low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8450.16
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 (9355.25). 9500 from June and July lows.
Support: Some price support at 8500, but weak. The simple 50 day MVA (8256.92). 8250 acted is some support. The exponential 50 day MVA (8206.74). The 10 day MVA (8154.45). The second March down trendline at 8150. 8000 (August low at 8043; September 2001 intraday low at 8062). The 18 day MVA (8052.80). The August down trendline at 7460.
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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THE PLAYS:
Upside:
AMGN (Amgen--$45.79; +1.09; optionable): Biotechnology
http://biz.yahoo.com/p/a/amgn.html
STATUS: Testing breakout over 200 day MVA (49.55). Six sessions back AMGN broke over the 200 day MVA and has moved laterally on top of that key level since that time, the past three sessions on lower, below average volume. Very good test, showing a tight doji Tuesday. That can indicate a move is ready to take place, but we will need to see the stock make a strong, above average volume move to get us in. We are viewing this more of a trade for now back up to some resistance from a series of lows at 55 to 56 all through 2001. Thus we are looking predominantly at options on this play.
Volume: 22.214M Avg Volume: 17.028M
BUY POINT: $50.45 Volume=17M Target=$55.55 Stop=$46.92
POSITION: AMQ AW - Jan. $47.50c (63 delta)
http://www.investmenthouse.com/ci/amgn.html
COH (Coach--$29.4; -0.02; optionable): Apparel, handbags
http://biz.yahoo.com/p/c/coh.html
STATUS: Cup w/handle. COH has formed a new cup with handle over the past 7-weeks. Though a bit V-shaped, accumulation is positive at 4 accumulation weeks to 3 distribution weeks. It reported some excellent earnings, a 70% increase. This is the kind of leadership-caliber earnings you like to see. A breakout puts the stock at an all-time high.
Volume: 1.966M Avg Volume: 1.012M
BUY POINT: $30.25 Volume=1.5M Target=$36.35 Stop=$28.13
POSITION: COH BY - Feb. $27.50c (65 delta) and/or Stock
http://www.investmenthouse.com/ci/coh.html
Downside:
$OEX (S&P 100 options--$452.59; -3.65; optionable)
http://biz.yahoo.com/p/$/$oex.html
STATUS: Aggressive put. We are anticipating a test of the 50 day MVA (438.50) on this consolidation. That makes this a fairly tight play but it can produce a nice return, and if the 50 day MVA does not hold, it can provide more.
Volume: 10.412M Avg Volume: 0
BUY POINT: $451.35 Volume=1.5M Target=$438 Stop=$454
POSITION: OXB WK - Nov. $455p (-49 delta)
http://www.investmenthouse.com/ci/$oex.html
CVX (Chevron-Texaco--$71.75; -2.68; optionable): Major oil and gas
http://biz.yahoo.com/p/c/cvx.html
STATUS: Put. CVX was moving laterally above its 50 day MVA (73.61) until Tuesday when it gapped lower and sold below the short term moving averages on rising, above average volume. Its earnings are not out until 10-31, and a sudden drop like that ahead of earnings can mean something or it can mean major oils stocks had a bad day because the war talk over the weekend was not as strong. In any event, it was a high volume breach for CVX, and it can easily trade down to the bottom of its trading range at 68 if it does not jump right back over the 50 day MVA.
Volume: 3.43M Avg Volume: 3.02M
BUY POINT: $71.45 Volume=3.2M Target=$68 Stop=$66.45
POSITION: CVX LO - Dec. $75p (-66 delta)
http://www.investmenthouse.com/ci/cvx.html
End Part 1 of 2
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