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trend trading stock, trade stock
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11/20/02 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Wednesday: Several stocks were rallying to buy points but we decided to let them run given the start of the strong move (AVID; BSX; HNR; ARTI)
Buy alerts issued: NVLS; KRON; BER; POSS; SLE; VSEA
Trailing stops issued: STN
Stop alerts issued: None issued
THE MARKET
Tuesday we said during the session it was a time to be patient. We did not think our patience would be rewarded so soon, but the market had pulled back for two sessions as it held together reasonably well. That was apparently enough to get buyers back into the mood. A morning rally just would not quit, and you could see it happening all session: more and more money was being dragged in as investors feared missing another run.
That is the process we have been talking about: it is good that there is a lot of pessimism and uncertainty about the rally and whether the market is in just a bear market bounce or in a new bull run. The uncertainty and indecision keeps things under control. There is no huge blast off that sucks all of the money into the market. It is a steady trend higher though it is punctuated with events as we saw Monday and Tuesday. Those are nerve wracking when you are playing the upside given the market history the past 31 months, but as we have been saying, we have not seen the market breakdown and thus gritted it up and stuck with the upside trend. That anxious feeling you get when you initiate a play and then later see it test back is what millions of investors are feeling, some are not even in the market anymore and they still feel it. That keeps money on the sidelines, but the trend also keeps dragging money in dollar by dollar. That anxiety thus feeds the rally but it also does not dump all the food into the feedbag at once so that the market will founder itself. It may require an extra bottle or two of Pepto Bismal around the house or office, but that is not a bad tradeoff.
Volume rallied on the Nasdaq and NYSE, though it was not a massive blowout session. The large caps scrapped back and closed over the July, August, and September interim highs, a good first step to get over the early November and then August high. Breadth was good as well. Hard to complain about the action. Now the Nasdaq has made that higher low again and it needs to smash through that August high.
Sentiment Indicators
VIX: 28.66; -2.7
VXN: 44.82; -0.7
Put/Call Ratio (CBOE): 0.63; -0.18
Nasdaq
Rallied all session, fighting off a last hour urge to sell and closing at session highs. Right at key resistance with volume rising.
Stats: +44.84 points (+3.26%) to close at 1419.35
Volume: 1.774B (+9.33%). Back above average on the buying Wednesday as the Nasdaq found some buyers after two days of selling.
Up Volume: 1.533B (+1.098B)
Down Volume: 210M (-960M). Buyers way out in front, getting back to the characteristic we saw in the earlier stages of the rally.
A/D and Hi/Lo: Advancers led 2.18 to 1. Upside breadth is once again easily outpacing downside breadth.
Previous Session: Decliners led 1.36 to 1
New Highs: 51 (+12)
New Lows: 46 (+10)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq surged all session as the semiconductors cleared the way for the rest of the market to follow. It cleared some interim resistance at 1418, but the key is the August high at 1426.76. We really like the fact that Nasdaq made that higher low above the 18 day MVA (1364). Those higher lows with a constant top builds pressure: the index and its stocks work higher on rising volume, squeezed from the bottom by rising prices and squeezed from the top by the resistance at 1427. That can lead to strong breakouts as the index squirts higher like a watermelon seed from between your fingers. The Hewlett Packard news may be what it needs to make the break.
S&P 500/NYSE
After a test of the 18 day MVA, the large caps broke over some interim highs on some decent volume. A good start.
Stats: +17.4 points (+1.94%) to close at 914.15
NYSE Volume: 1.495B (+13.1%). Volume moved up but was barely average. Good but not great.
Up Volume: 1.128B (+612M)
Down Volume: 374M (-425M)
A/D and Hi/Lo: Advancers led 2.27 to 1. Very solid breadth advance as the NYSE also resumes its pattern of strong upside breadth and modest downside breadth.
Previous Session: Decliners led 1.27 to 1
New Highs: 25 (+3)
New Lows: 41 (+13)
The Chart: http://www.investmenthouse.com/cd/$spx.html
A quick test of the 18 day MVA on the low (895) produced a solid bounce as the Tuesday doji was a prelude to buying activity. Volume moved up to roughly average levels as the large caps were able to move through near resistance at 911. As with Nasdaq it had to recover late to regain that break, but the buyers did come back. Now it still has to move over the early November high at 925.66 on this move to put it to the next level so to speak where it can rally up to the August high (965) and then take another rest at that point. As with Nasdaq and the August high, the break over the November high is key for the near term.
Dow:
The Dow joined the action, moving up off the 18 day MVA on a good surge in volume though still average. Some big names such as GE helped out.
Stats: +148.23 points (+1.75%) to close at 8623.01
Volume: 1.495B (+13.1%)
The Dow had help from some big names as IBM, INTC, MSFT and even GE rallied on some stronger volume. That helped the Dow move up off the 18 day MVA (8440) as it too made a higher low and started back toward the November high that coincides with the interim July, August and September highs (8745 to 8800). That is the key range for the Dow to take out on this move. HPQ and INTC were performing well after hours and could help spark that move.
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Stocks resumed more bullish action Wednesday, rising off support on stronger volume and overcoming some so-so news on the housing front. They also managed to shake off a late selling attempt and close back at the session highs. Solid action though we would have preferred stronger volume on the move.
Though it is not leaping ahead powerfully, the market continues to show bullish undertones that have thus far beat back the sell side. There is still a big test ahead for Nasdaq, and unless there is a nasty reversal ahead that has done a pretty good job of hiding itself we feel the recent action suggests a good breakout over that key resistance. We were in today taking advantage of good moves as they occurred and we were holding off on taking gains on several positions that hit the target but were running well. Until they show signs of losing some strength on the move (e.g., doji's after several up sessions, intraday reversals and closing near the session low) we are content to let them run as long as we have time on the option plays.
What we will be looking for tomorrow keys mostly on the Nasdaq. If initial jobless claims come in solidly below 400K once again and the Leading Economic Indicators show improvement again (10ET), that could be a further catalyst. For Nasdaq we will watch for a breakout over that August high at 1427. If it makes the move early, and it may just do that with the HPQ news after hours running stocks even higher, the key will be if it can hold the move through the close and show even better volume on that move. If the market is really in a bullish posture it should make the break on a solid jump in volume. Given the pattern the Nasdaq is showing (the higher lows and flat top, i.e., a small ascending wedge) we would expect strong volume on the breakout. If the Nasdaq cannot make the break or if it reverses the move and closes below resistance on more volume that is a poor technical sign and will be quite negative for Nasdaq and the market. We do not anticipate that give what we are seeing, but as always you have to be a skeptic.
So what do we do on new plays? Well, there are still stocks that are set up to move up well even after the Wednesday rally, and we will enter them if they are showing the right price moves and putting in some good volume. Nasdaq breaking over that August high should beget more buying if the move is truly bullish. Why? As indexes take out important resistance they inspire some short covering and more buying. If the move holds through the close that is a strong signal that a new level has been achieved, a new character is showing itself. That is why a breakout by Nasdaq over the August high is key.
Support and Resistance
Nasdaq: Closed at 1419.35
Resistance: 1418, the interim test after the September 2001 low has been cleared, but barely. The August high at 1427 is next and is key. Then some price resistance at 1500 and the 200 day MVA (1506)
Support: The 10 day MVA (1384) is possible support. The 18 day MVA at 1364. 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. The 50 day MVA (1323). 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 914.15
Resistance: Some resistance at 921 up to the November high at 925.66. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then price resistance at 990.
Support: July, August and September interim highs at 909 to 911. The top of the late October consolidation range at 899. The 10 and 18 day MVA (901; 895). The 50 day MVA (887). The September 2000/May 2001 downtrend line at 881. The March down trendline at 869. 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 8623.01
Resistance: The late July and early September interim high at 8726 to 8762.14 (8745 closing) and the November high at 8800. A range of resistance from 9000 on up to 9050. The 200 day MVA (9212). 9500 from June and July lows.
Support: 8500 from October high and the 10 day MVA (8515). The 18 day MVA (8468). The exponential 50 day MVA (8374) and then 8250. The simple 50 day MVA (8174). 8000 (August low at 8043; September 2001 intraday low at 8062).
Economic Calendar
11-19-02
CPI, October (8:30): 0.3% actual, 0.3% expected, 0.2% prior.
Core CPI: 0.2% actual, 0.2% expected, 0.1% prior.
Trade balance, September (8:30): -$37.0B actual, -$37.3B expected, -$38.50B prior.
11-20-02
Housing starts, October (8:30): -11.4%; 1.603M actual, 1.710M expected, 1.810M prior (revised from 1.843M).
Building permits, October (8:30): +1.7%; 1.763M actual, 1.698M expected, 1.733M prior.
11-21-02
Initial jobless claims (8:30): 394K expected, 388K prior.
Leading Economic Indicators, October (10:00): -0.1% expected, -0.2% prior.
Philly Fed, November (12:00): -3.0 expected, -13.1 prior.
Treasury budget, October (2:00): -$51.3B expected, -$7.7B prior.
TEAM TRADES
NVLS: We really liked the action NVLS showed Tuesday, the doji at the 10 day MVA, and with the chip equipment price target increases, NVLS was off and running. After an early pullback it was up to the buy point again and moving on strong volume. We issued the alert and then looked at some March $30 calls. They were trading 6.50 by 6.80, but we missed that by the time we got the order entered. A quick modification and the trade was doen at 6.90. The stock continued higher, and the volume was solid. Good start to the move.
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THE PLAYS:
Good movers: Take your pick. ALN; AVID; IBM; KRON; KLAC, etc.
PIXR (Pixar--$56.11; +1.31; optionable): Animated movies
http://biz.yahoo.com/p/p/pixr.html
STATUS: Breakout coming. After reporting strong earnings in October, PIXR blasted higher topping out near 56. It tested the 18 day MVA then rallied again. It looked as if it was running out of steam but then popped higher Wednesday on some rising, average volume. Accumulation in the base that started in August is 4 accumulation weeks to 2 distribution weeks. PIXR has recovered off the 18 day MVA test and is ready for a new high. What we need to do is wait for the breakout on some very strong volume.
Volume: 486.893K Avg Volume: 518.363K
BUY POINT: $56.74 Volume=775K Target=$65 Stop=$52.77
POSITION: PQJ KD - April $55c (61 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/pixr.html
Revisited: Looking good.
Play Date: 11/06/2002
HYSL (Hyperion Solutions--$28.24; +0.49; optionable): Application software
http://biz.yahoo.com/p/h/hysl.html
STATUS: Testing breakout. HYSL broke out last week on strong volume and is now testing the move on lower volume. We picked up our first positions on the pullback Monday. Wednesday HYSL started up off the 10 day MVA on rising, slightly above average volume. Great accumulation and money flow is still leading the price higher.
Volume: 528.796K Avg Volume: 444.181K
BUY POINT: New positions: 28.45 (orig. $28.11). Volume=636K Target=$33.75 Stop=$25.94
POSITION: WQE EE - May $25c (79 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/hysl.html
Play Date: 11/11/2002
IBM (International Business Machines--$81.61; +3.24; optionable): Business services
http://biz.yahoo.com/p/i/ibm.html
STATUS: Breaking over the 200 day MVA (80.71). IBM bounced down from the 200 day last week and showed a doji Tuesday on the 18 day MVA. Wednesday it jumped off that level and moved through the 200 day on rising though still below average volume. Money flow is excellent and leading the way higher. Ready for new positions.
Volume: 9.073M Avg Volume: 10.085M
BUY POINT: New positions: 81.85 (orig. $78.45) Volume=12M Target=90 (orig. positions $82.45) Stop=$77
POSITION: IBM DO - April $75c (63 delta)
http://www.investmenthouse.com/ci/ibm.html
Play Date: 11/14/2002
WFR (Memc Electronic--$7.93; +0.43; no options): Semiconductors
http://biz.yahoo.com/p/w/wfr.html
STATUS: Cup w/handle. Poised on the edge of breakout, WFR moved right up to the breakout point on rising, above average volume Wednesday. Accumulation remains solid at 8 up weeks on rising volume to 5 down weeks on rising volume.
Volume: 247.8K Avg Volume: 195.136K
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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