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understanding the stock market, top stock pick
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11/14/02 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Thursday: QCOM
Buy alerts issued: DELL; HYSL; ALN
Trailing stops issued: None issued
Stop alerts issued: None issued
THE MARKET
The indexes did what they had to do, rising off support levels after a couple of hesitant steps Tuesday and Wednesday. Unlike those sessions the indexes did not give back the gains. Volume increased on the NYSE and fell a bit on the Nasdaq but remained above average. Breadth was impressive.
On top of that, those stocks that did not give in Tuesday and Wednesday helped propel the market higher. Many breakouts on solid volume and many tests of breakouts bouncing higher on solid volume. That is exactly what we were talking about earlier in the week with stocks that are leading starting moves ahead of the rest of the market, e.g., TSCO that started back up from its test Tuesday. Thursday the rest of the market got the nod with the better than expected economic numbers, the merger, the Intel stock buyback, TGT's outstanding earnings report, and IBM's affirmation of 2003. Even AMAT's somewhat disappointing outlook was looked past given the increase in its business that we noted last night.
This move took the indexes out of immediate danger and puts them below some important resistance they must take out to make a higher high and keep the rally shipshape. There are still many pessimists regarding the market action, and as we indicated last night, we view that as a continued positive for the rally and look for it to take out the August highs. An important and tall order, but we think it can do it based on the leadership in the breakout stocks that just blossomed all over the place.
Sentiment Indicators
VIX: 32.6; -3.68
VXN: 52.4; -2.06
Put/Call Ratio (CBOE): 0.58; -0.17
Nasdaq
Gapped higher and closed at the high, not giving back any gains Thursday. Volume was lower but still above average as many tech stocks posted strong gains on volume.
Stats: +50.18 points (+3.69%) to close at 1411.52
Volume: 1.759B (-7.78%). A bit lower but still above average. Solid volume on the upside continues.
Up Volume: 1.489B (+120M)
Down Volume: 261M (-254M). All buyers Thursday.
A/D and Hi/Lo: Advancers led 2.15 to 1. A solid surge and very nice breadth.
Previous Session: Advancers led 1.02 to 1
New Highs: 55 (+27)
New Lows: 43 (-8)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Another gap up from just about where it gapped up in early November. The key now is whether the index will take out the August high (1427 intraday) and make that higher high this time around as opposed to peeling back. The improvement in price/volume action the past three weeks along with the strength in areas such as software and internet are helping support an overall move higher.
S&P 500/NYSE
Solid surge on some rising though not blowout volume. Made the move it had to make.
Stats: +21.74 points (+2.46%) to close at 904.27
NYSE Volume: 1.497B (+4.87%). Volume rose to average levels on the buying, something you like to see, but above average volume would have put real strength in the move.
Up Volume: 1.269B (+544M)
Down Volume: 215M (-486M)
A/D and Hi/Lo: Advancers led 2.71 to 1. Very solid breadth, one of the hallmarks of the rally.
Previous Session: Decliners led 1.08 to 1
New Highs: 31 (+11)
New Lows: 36 (-19)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps jumped up off the doji's at the 50 day MVA (883), clearing some resistance at 900 and now looking at the July, August, and September interim highs as the next resistance point (909-911). That is just the start before the November high at 925 and then the August high at 965. The large caps have a lot of work ahead of them but are making a good and necessary start, dragged along in part by the Nasdaq.
Dow:
The blue chips were up off of support as well, but Dow volume faded leaving the move somewhat disappointing.
Stats: +143.64 points (+1.71%) to close at 8542.13
Volume: 1.497B (+4.87%)
After the doji at the 50 day MVA (8345) Tuesday and Wednesday, the blue chips moved past resistance at 8500, closing right at the session high. As with the SP500, this was a necessary move up off support. The Dow still needs to clear 8762 to 8800 that mark the July, August and September interim highs as well as the early November top. Clearing 8800 will be key, but a higher high comes in over the August top at 9077. With tech leading (MSFT, IBM performing well), we see the Dow stair-stepping up to that level.
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
A spate of economic news out before the bell (inventories, PPI, industrial production and capacity) and then Michigan sentiment right after. There will be more opportunity for good news to help the session though DELL's numbers disappointed in that DELL did not beat the estimates it gave to the street after raising estimates twice. Seems investors were miffed DELL did not fool them and tell them 21 cents when it knew things would be 22 cents. Even with that disappointment, DELL affirmed Q4 estimates at current levels, and most likely we can expect DELL to up those estimates during the quarter as it did in the last. On top of all the economic news there is a double witching session Friday that can add to volatility, though typically the volatility occurs midweek these days.
After the strong move and the Dell earnings there may be some early weakness Friday. Given the gap up Thursday, a softer open would be better to set up more strength to test the more critical resistance coming up. Even with a good rally tomorrow, however, we would be surprised if the indexes were able to take out that resistance without taking a breather. We would like to see it power through it and then come back to hold on it when it takes a rest; that would be the best action. For now, however, we like the move that the market has given thus far.
While many stocks made good moves Thursday and others were already moving up Tuesday and/or Wednesday, there are still stocks that are ready to make the breakout moves or are just making them and are still buys. One thing we don't want to do is chase stocks that have already made their moves as that just tries your nerves even more on the pullbacks to test the move up. We still see many plays that are right at breakout points or are moving up off of breakout tests and those will be our focus Friday.
Support and Resistance
Nasdaq: Closed at 1411.52
Resistance: 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 (1515).
Support: 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. The 50 day MVA (1309). 1250 from some prior price lows. 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 904.27
Resistance: July, August and September interim highs at 909 to 911. Some resistance at 921. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then price resistance at 990.
Support: The September 2000/May 2001 downtrend line at 887 and the 18 day MVA (889). The 50 day MVA (883) and the March down trendline at 876. 875 is some price support. 850 to 855 (the October 1997 and Q2 1998 lows). 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 8542.13
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 (9238). 9500 from June and July lows.
Support: 8500 from October high. The 18 day MVA (8424). The exponential 50 day MVA (8344) and then 8250. The simple 50 day MVA (8173). 8000 (August low at 8043; September 2001 intraday low at 8062).
Economic Calendar
11-13-02
WMT earnings, before the open
AMAT earnings, after the close
11-14-02
Initial jobless claims (8:30): 388K actual, 396k expected, 396k prior (revised from 390K).
Retail sales, October (8:30): 0.0% actual, -0.2% expected, -1.3% prior (revised from -1.2%).
Retail sales, ex autos (8:30): 0.7% actual, 0.2% expected, 0.1% prior.
Dell earnings: 0.21 versus 0.21; affirmed Q4
11-15-02
Business inventories, September (8:30): 0.0% expected, -0.1% prior.
PPI, October (8:30): 0.2% expected, 0.1% prior.
Core PPI (8:30): 0.1% expected, 0.1% prior.
Industrial Production, October (9:15): -0.3% expected, -0.1% prior.
Capacity utilization, October (9:15): 75.6% expected, 75.9% prior.
Michigan sentiment, November preliminary (9:45): 82.0 expected, 80.6 prior.
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TEAM TRADES:
ALN: ALN had all the earmarks of a big move lurking below the surface after blasting over its 200 day MVA and then edging laterally toward the 10 day MVA on lower volume. Tuesday and Wednesday volume jumped up as the stock held tight - - a sign of flexing its muscles ahead of a breakout. Thursday it exploded higher, hitting the buy early and on volume. We did not hesitate on the move and jumped in 7.30. The stock was on a tear, surging all session and riding up the 15 minute MVA. Super move.
THE PLAYS:
NTST (Netsmart Technologies--$5.78; +0.23; no options): Business software
http://biz.yahoo.com/p/n/ntst.html
STATUS: Testing the breakout. NTST is testing the 18 day MVA (5.60) and is now starting to move back up on very strong, above average volume. Accumulation in the stock is outstanding at 8 accumulation weeks to 1 distribution week since the start of the run. We are looking at getting in on this move when NTST continues its run.
Volume: 180.175K Avg Volume: 77.636K
BUY POINT: $5.96 Volume=100K Target=$7.45 Stop=$5.54
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/ntst.html
PPD (Pre-Paid Legal--$24.9; +1.11; optionable): Pre-paid legal services (legal insurance)
http://biz.yahoo.com/p/p/ppd.html
STATUS: Breakout. PPD is working through an 8-month base, blasting over the 200 day MVA (23) Wednesday on some impressive volume. Accumulation is positive in the base at 8 accumulation weeks to 7 distribution weeks. Money flow has been leading the stock higher and relative strength is breaking out. After such a strong move we anticipate the stock will test 24 and then move higher. That is where we will look to pick it up.
Volume: 497.9K Avg Volume: 378.454K
BUY POINT: $24.55 Volume=450K Target=$29.55 Stop=$22.83
POSITION: PPD EY - May $22.50c (70 delta) and/or Stock
http://www.investmenthouse.com/ci/ppd.html
WFR (Memc Electronic--$7.99; +0.99): Semiconductors
http://biz.yahoo.com/p/w/wfr.html
STATUS: Cup w/handle breakout. WFR is breaking out of a 7-month base on a great volume surge, with money flow leading the way and relative strength breaking out. Accumulation is solid at 8 up weeks on rising volume to 5 down weeks on rising volume. Beautiful move and we want to pick up some positions on this breakout.
Volume: 339.6K Avg Volume: 193.181K
BUY POINT: $8.05 Volume=325K Target=$9.94 Stop=$7.25
POSITION: Stock
http://www.investmenthouse.com/ci/wfr.html
End Part 1 of 2
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understanding the stock market
top stock pick
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