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stock trading, stock option trading
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10/29/02 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: SLE; KSWS
Trailing stops issued: None issued
Stop alerts issued: None issued
THE MARKET
Test of the 50 day MVA finally yields a move up.
When a stock tests the 50 day MVA, you really like to see it ricochet off that level like a superball smacking a concrete surface. That may be a bit overboard, but the idea is that you want to see buyers jump back in at that level, viewing the pullback as a great buying opportunity as they scramble over each other to buy. Tuesday the DJ30 and SP500 both tested the 50 day MVA and even slightly undercut it. They did not leap off of that level. As noted in an intraday alert, it was more like slogging through knee deep mud as they churned sideways at that point. At least they did not just roll over at that point and sink into the quicksand.
It took all afternoon, but with an hour left the indexes all started a solid if somewhat less than spectacular move off the lows. The Dow turned ever so slightly positive while Nasdaq and SP500 moved well off the lows. Volume was up on the NYSE, lower on Nasdaq; good action for the Nasdaq and somewhat for the Dow, not so good for the large caps. What can be said: there was a test of the 50 day MVA and it produced a solid bounce. It was not a massive reversal that signaled the next big run had begun, but it was another move inside the trading/consolidation range that kept stocks working on consolidating the recent gains and somewhat blunting the distribution sessions. It needs to continue to work laterally and improve that price/volume action to work those out of the system, and then breakout on strong volume. That is how success on this move will be measured.
Looking at the index charts, it is important for further upside that the indexes move up out of this consolidation. They cannot really afford to make a lower high here. Some are saying a 50% test of the move off the lows (Dow to 7872; SP500 to 837; Nasdaq to 1227) would be normal, but a look at the charts reveals that such a move would produce very, very weak chart patterns that would basically confirm the continuing downtrend. In order to change the direction, to change the character of the action for the past year or more, the indexes really need a positive breakout from this trading range without undercutting the range too far (there can always be intraday tests lower that act as shakeouts).
Right now the indexes are basically forming handles to the double bottom patterns off the July and October lows. If the pattern breaks down the underlying accumulation and shakeouts that occur in such a pattern are undermined and the market is open to more selling. That is why we are so keenly watching the action within this trading range and larger pattern. That is why the price/volume action is so important. It needs to complete the pattern and then breakout to the upside to have any chance of really rallying into the end of the year. For now the indexes are mostly doing what they need to do, but price/volume action must improve or else the accumulation seen thus far will be undone and the pattern will fail. The Tuesday action helped try to set the indexes back on the right path.
Sentiment Indicators
VIX: 36.8; +1.13
VXN: 52.47; +0.95
Put/Call Ratio (CBOE): 0.74; +0.03
Nasdaq
A deeper test that still did not hit the 50 day MVA on the low given Nasdaq had been edging higher and higher, it managed to reverse as well, dragged by the other indexes.
Stats: -15.29 points (-1.16%) to close at 1300.54
Volume: 1.594B (-2.75%). Volume edged back on the loss and reversal, better price/volume action.
Up Volume: 366M (-302M)
Down Volume: 1.189B (+243M). There was no power in the reversal. As noted, Nasdaq was dragged along on the afternoon move higher.
A/D and Hi/Lo: Decliners led 1.2 to 1. Another very modest breadth decline, a continued positive in the face of the distribution on the index.
Previous Session: Decliners led 1.15 to 1
New Highs: 34 (-19)
New Lows: 67 (+17)
The Chart: http://www.investmenthouse.com/cd/$compq.html
After edging higher on low volume the Nasdaq started to form something that looks more like the early stages of a consolidation. The Nasdaq kept cheating higher after breaking over the 50 day MVA 2 weeks back, never really giving good consolidation action. Tuesday it reached down and on the low was still above the 50 day MVA (1272.66) when it managed to recover 21 points of losses. It finished the session lower and on lower volume so you cannot really call it a reversal. It also was not a distribution session. It was a day where it was yanked lower by news and managed to recover and maintain the current range. It could stand to slowly move lower and test that 50 day MVA on lower volume and then start a stronger volume move up and out of the range that roughly runs from 1270 to 1300. The action is the start of what it needed to settle down in this range and really consolidate the prior moves to give it a chance at a further, sustainable break higher.
S&P 500/NYSE
Traded below the 50 day MVA and finally found traction for a move higher.
Stats: -8.08 points (-0.91%) to close at 882.15
NYSE Volume: 1.445B (+4.15%). Volume rose, officially a distribution session on the large cap index as volume again rose (this time to average) on another selling session. As the index was able to reverse we are not too worked up over this session, but it needs to improve that price/volume action during the consolidation.
Up Volume: 447M (-145M)
Down Volume: 980M (+198M)
A/D and Hi/Lo: Decliners led 1.31 to 1. Decliners held flat on the session after jumping over 2:1 early in the session. Once again very narrow selling overall.
Previous Session: Decliners led 1.3 to 1
New Highs: 8 (-18)
New Lows: 55 (+19)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Undercut the 50 day MVA (874.50; 873.22 simple) on the low (867.91) and then rallied back to hold above the 10 day MVA (880.28). The recovery was needed as it keeps the large caps moving inside the range outlined by 900 on the high (on up to 911) and 870 on the low. The volume is still not what you want with down sessions coming on rising volume and up sessions on weaker volume, action that indicates there are overall more stock sellers than buyers in the market. The Tuesday action was a bit better and somewhat excusable given the intraday reversal after undercutting the 50 day MVA, but it still has not moved to positive or accumulative action. From here the index still has to complete its consolidation; another 2 to 3 sessions of lighter volume action would be positive.
Dow:
Nice action, tapping down just below the 50 day MVA and rallying back flat on slightly rising volume. Again the Dow looks to be putting together the best consolidation, helped by issues such as PG that has gotten back to basics.
Stats: +0.9 points (+0.01%) to close at 8368.94
Volume: 1.445B (+4.15%)
Tapped the 18 day MVA on the low (8198.04) and rallied back to close flat on slightly higher volume. The move took it below the 50 day MVA (8241.22) and support at 8250, and it was a good sign to see the Dow turn a 170 point loss into a flat session given the news on confidence. Again, the Dow is showing the best consolidation action of the major indexes, testing lower on mostly lower volume and then rallying back. Maybe the Dow is ready to lead. Nasdaq certainly was not up to the task Tuesday.
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
No economic news and earnings reports are getting thin and the earnings saturation is high as investors look to economic signals that suggest that the modest Q3 earnings improvement will continue. Inauspicious start Tuesday, and most are waiting for the big salvo of data Friday with the unemployment report, spending, income, ISM. Thursday is no slouch, however, with the Chicago PMI and preliminary Q3 GDP. In short, there is plenty of economic ammunition out there to drive the market. Wednesday, however, is going to be a sleeper as far as scheduled reports.
The lack of economic news Wednesday will give a peak into the market health somewhat as it will be able to move on its own without a lot of outside influence. It is still banging around in the range, and we suspect that it will try to continue to rise early in the session given the Tuesday rally off the lows. Given the hefty economic report card later in the week, however, an early move may give way to more testing of the range. We are always skeptical of stronger opens with or without cause (the open, that is), particularly so after the Tuesday move up that while nice, was less than inspired.
At this stage we have to be patient, letting the market move through its consolidation and either provide the breakout or fail. The recovery Tuesday was encouraging, but price/volume action is still poor. While we are not adverse to taking upside positions when they present themselves we looking at partial positions. If things work out we will complete the position at the next logical opportunity to get in, e.g., a test of the breakout or a test of the short term moving averages. Leaders will lead, i.e., start a bit early, before any overall breakout and those are the ones we will take a position on if they provide the move. if things work out we can always average up into a winner. If they don't, we have not committed our full position.
Support and Resistance
Nasdaq: Closed at 1300.54
Resistance: 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. Then some price resistance at 1500 and the 200 day MVA (1548.81).
Support: The 10 day MVA (1290.43). There is a downtrend line from the March and May highs at 1288. The 50 day MVA (1272.66). The 18 day MVA (1268.83). 1200 (August closing low) to the July intraday low at 1192.42. The March/May downtrend line at 1188. 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 882.15
Resistance: The March down trendline at 897. The September 2000/May 2001 downtrend line at 899. 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: The 10 day MVA (880.28). 875 is some price support. The 50 day MVA (874.50). The 18 day MVA (870.04). 850 to 855 (the October 1997 and Q2 1998 lows). The first March down trendline 817. Prior closing lows and highs at 800 from July and October. The July intraday low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8368.94
Resistance: 8500, former price points, is acting as the top of this range. 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 (9314.25). 9500 from June and July lows.
Support: The 10 day MVA (8304.37) is possible. 8250, the simple 50 day MVA (8220.52) and the exponential 50 day MVA (8241.22) are key. The 18 day MVA (8198.46). The second March down trendline at 8075. 8000 (August low at 8043; September 2001 intraday low at 8062).
Economic Calendar
10-29-02
Consumer confidence, October (10:00): 79.4 actual, 90.0 expected, 93.7 prior (revised from 93.3).
10-31-02
Q3 GDP, Prelim (8:30): 3.6% expected, 1.3% prior.
Employment Cost Index, Q3 (8:30): 0.9% expected, 1.0% prior.
Initial jobless claims (8:30): 400K expected, 389K prior.
Chicago PMI, October (10:00): 49.0 expected, 48.1 prior.
11-01-02
Auto sales, October: 5.7M expected, 5.5M prior.
Truck sales, October: 7.6M expected, 7.3M prior.
Unemployment rate, October (8:30): 5.8% expected, 5.6% prior.
Non-farm payrolls, October (8:30): 0K expected, -43K prior.
Hourly earnings, October (8:30): 0.3% expected, 0.3% prior.
Average workweek, October (8:30): 34.2 expected, 34.3 prior.
Personal income, September (8:30): 0.5% expected. 0.4% prior.
Personal spending, September (8:30): -0.2% expected, 0.3% prior.
ISM Index, October (10:00): 48.9 expected, 49.5 prior.
Constructoin spending, September (10:00): 0.1% expected, -0.4% prior.
SUBSCRIBER QUESTIONS
Q: Please define target volume. I assume once a price crosses a pivot point @ target volume a buy alert is issued? Thanks
A: Target volume is the volume we look for on the move we are anticipating. It is not always automatic, that is, stock hits buy point, volume is at target, buy order put in. It is great if the stock is at, close to, or above the target volume when the stock hits the buy price. That usually happens later in the session or if there is some major buying early in the session with institutions getting on the stock early. That makes it relatively easy. Many times, however, volume is not there. Most volume occurs in the first and last hours of a session. If volume is not strong in the first hour and the stock is hitting the buy point we will fight the urge to move in too early. We prefer to let the action unfold and see whether volume builds. In many cases if volume is not there a stock will have a hard time holding the move. We prefer to see how it is building throughout the session. If it is on track when we check (e.g., 50% of target at lunch) it could be worth taking a position. Heading into the close we have a better picture of the volume and the intraday price action. If the stock is holding up well, i.e., has not reversed intraday off its highs or given the move back, we can move in at that time as well as we have a very good picture of the stock's performance on the breakout or other move we are looking for. We can often get in on a small pullback in the last half hour as some of the day traders take some gains that temporarily pressures the stock.
THE PLAYS:
Upside:
LXK (Lexmark Intl.--$58.01; -0.99; optionable): Printers
http://biz.yahoo.com/p/l/lxk.html
STATUS: Cup w/handle. Six-month cup that is now forming a handle, finally giving an entry point if the pattern continues to hold up. LXK has been outperforming the market, reporting excellent earnings earlier this month. It is one of the few tech stocks that is outperforming, running up the right side of its base on some serious volume as it should be doing. Now it needs to form a handle that dips back as it is doing on lower volume. Tuesday was a good start with the stock pulling back on below average volume, testing 57 on the low and recovering to close at 58.
Volume: 1.203M Avg Volume: 1.451M
BUY POINT: $60.29 Volume=2.2M Target=$72 Stop=$56.07
POSITION: LXK DK - April $55c (63 delta) and/or Stock
http://www.investmenthouse.com/ci/lxk.html
KROL (Kroll--$21.61; -0.09; optionable): Security services
http://biz.yahoo.com/p/k/krol.html
STATUS: Cup w/handle. KROL is moving through a 3.5 month cup base and looks to be attempting to form a handle as it moves down to test the 10 day MVA (21.05) on the low and rallying back up on stronger volume to form a doji. Accumulation is positive at 3 up weeks on rising volume to 2 down weeks on rising volume. Now we wait for it to complete its handle and deliver a high volume breakout.
Volume: 537.443K Avg Volume: 448.5K
BUY POINT: $22.94 Volume=673K Target=$27.55 Stop=$20.85
POSITION: KRQ CD - Mar. $20c (68 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/krol.html
Downside:
TECD (Tech Data--$30.32; -2.31; optionable): Wholesale computers
http://biz.yahoo.com/p/t/tecd.html
STATUS: Put. Unlike many stocks, TECD did not form a double bottom, tanking straight to an October low at 24. From there it rebounded with the market, but peaked out Monday on some higher volume and then rolled back through the 50 day MVA (30.92) as volume moved even higher, rising above average. Some support at 32 that it needs to move through on continued volume.
Volume: 1.021M Avg Volume: 744.318K
BUY POINT: $29.49 Volume=900K Target=$26.35 Stop=$31.15
POSITION: TDQ XG - Dec. $35p (-88 delta)
http://www.investmenthouse.com/ci/tecd.html
Revisited:
Play Date: 10/03/2002
AGAM (Acres Gaming--$6.13; +0.18; no options): video poker
http://biz.yahoo.com/p/a/agam.html
STATUS: Cup w/handle. Starting up on some strong volume Tuesday, rising off the 10 day MVA (5.90) on an outstanding volume surge. Looks ready to make the move out of this short base in a larger 17-month base.
Volume: 162.2K Avg Volume: 59.09K
BUY POINT: New positions: 6.25 (orig. $5.71). Volume=100K Target=$7 Stop=$5.31
POSITION: Stock (no option chain)
http://www.investmenthouse.com/ci/agam.html
End Part 1 of 2
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stock trading
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