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Tech Traders 3/15/01 Market Summary
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Technical Traders Subscribers:
Continuing Plays: Adding a couple of plays that look good for upside plays, in decent patterns, for tonight's update, in addition to some continuing plays (HI, ADVP, LIN, SRCL are holding up). Many of the stocks on the reports are succumbing to this market, so the stocks featured are some of the best. Put plays are also continued; please see our note on them in that section.
RE (Everest Re Group Ltd--$63.95; +0.46; optionable (RE)): Insurance
http://biz.yahoo.com/p/r/re.html
STATUS: Still in the handle of the cup base, volume lower at 212,000 (avg. 469,000). Looking for a move up (to breakout) on a volume surge to break the stock over the handle high at 67.75. Moved up from a Wednesday test of the 50 day MVA and is sitting on top of its 18 day MVA. Initial profit target: $78-$81.
BUY POINT: Breakout: 67.88 on volume of 633,000 or better. Stop loss: 67.38-67.63.
POSITION: Stock and/or July $60 calls to buy (RE GL 12 open interest).
http://www.investmenthouse.com/ct/re.html
(Click to view the chart)
BKLY (W.R. Berkley Corp--$46.69; -0.37; no options): Insurance
http://biz.yahoo.com/p/b/bkly.html
STATUS: Holding the handle to its 10-week cup base, showing a third, looser doji on the slight pullback as the low tapped support, the 10 day MVA (46.38). Volume was appropriately lower on the move at 162,800 (avg. 344,000). Look for a move up to breakout over the handle high of 48.75. Initial profit target: $55-$57.
BUY POINT: 47.98, on volume of 516,000 or better. Remains a buy on the breakout up to 50.38. Stop loss on the breakout: 47.48 47.73.
POSITION: Stock.
http://www.investmenthouse.com/ct/bkly.html
(Click to view the chart)
LOW (Lowe's Companies Inc--$60.70; +1.98; optionable (LOW)): Retail
http://biz.yahoo.com/p/l/low.html
STATUS: The stock recovered back over the 10 day MVA to a high of 61.50, volume breaking above average to 3.6 million (avg. 3 million) as the retail sector held onto its one-day rally. LOW has been testing the recent wedge breakout as it tries to put together a breakout from its 11-month base, and dropped back to test the 18 day MVA (58.31) Wednesday. We will see if the move can take LOW up into the range of the March closing high of 62.47. Initial profit target on a breakout over that high: $72-$75.
BUY POINT: Over 62.47, on volume of 4.8 million or better.
POSITION: Stock and/or July $55 or $60 calls to buy (LOW GK or GL).
http://www.investmenthouse.com/ct/low.html
(Click to view the chart)
New Plays to look at:
STZ (Constellation Brands Inc--$69.25; +0.52; optionable (STZ)): Food & Beverage: Wineries
http://biz.yahoo.com/p/s/stz.html
STATUS: Pulling back in a test of its recent breakout from a pennant-type pattern of just five weeks. The stock ran to a breakout high of 70.50, and is pulling back on steadily declining volume in great price/volume action. STZ moved up slightly Thursday on lower volume (98,300; avg. 132,954), and that is not the best action, but shows that the stock is ready to make a move back up on stronger volume. Price is holding nicely above the buy point of 68.72 and the 10 day MVA (67.69). We are looking for a move up on better volume from here, for possible positions with stock and/or calls to buy. STZ shows strong money flow and buying, and relative strength is out ahead of price, a bullish indicator. Initial profit target: $81-$85.
BUY POINT: Breakout: 70.63, on volume of 179,000 or better. Stop loss: 70.13-70.38.
POSITION: Stock and/or July $70 calls to buy (STZ GN).
http://www.investmenthouse.com/ct/stz.html
(Click to view the chart)
HSIC (Henry Schein Inc--$33.38; -0.12; optionable (HQE)): Medical Equipment Wholesale
http://biz.yahoo.com/p/h/hsic.html
STATUS: Pulling back in the handle of a double-bottom pattern of almost three months duration. Volume has been high in the handle, not what we like to see, but it did drop back to 296,800 Thursday (avg. 421,727) as the stock showed a tight doji. Price dropped to a test of the 10 and 18 day MVAs at 32.67 and 32.22 (respectively) and closed nearer the high of 34.06, but the volatile volume means we might see a pullback to at either of those lower moving averages. Regardless, we will watch for a breakout over the handle high of 34.63. Outstanding money flow and buying. Initial profit target: $39-$41.
BUY POINT: 34.76, on volume of 633,000 or better. Stop loss: 34.26-34.51.
POSITION: Stock and/or July $30 calls to buy (HQE GF).
http://www.investmenthouse.com/ct/hsic.html
(Click to view the chart)
Puts: We continue to look at put plays in the context of two possible scenarios: a breakdown on the ORCL and CPQ news, or in a market bounce as support holds on the Nasdaq. In a breakdown, we will play the puts from here or on a retest of resistance levels. On a bounce, if the stocks break resistance on strong volume, they can head up to the next resistance level for possible upside plays. Once there, they may set up for moves back down later. As always, keep reasonable loss cutting rules in place, be ready to close positions quickly if necessary, and make sure you see the downside move, along with the market going down as well, and then enter.
Continued Puts:
DJX ($100.31; +0.58; optionable (DJV)):
STATUS: Got the relief bounce but the index pulled off the high of 100.97. Volume was lower, but on a break below 100, we are going to look at puts as the Dow threatens to roll over.
BUY POINT: Below 100 on strong volume. The index may move up to test 100 after breaking the support; on a move back down from that test is the entry point (the "kiss good-bye").
POSITION: April $110 puts to buy (DJV PF).
JPM (JP Morgan Chase & Co--$45.26; +1.51; optionable (JPM)): Financial
STATUS: Moved up from Wednesday's new March low of 43.39, but volume was weak and below average after the selling, at 8.5 million (avg. 10 million). Looking for continued weakness and a move down, perhaps to October-December consolidation levels around 37.50, but we are first looking at 40 as our initial profit target. This bounce does not appear to have strength or staying power, and the stock will likely turn down from resistance in the 45.30 range.
BUY POINT: On a turn back down (from a retest of 45-46 resistance) on strong, above average volume.
POSITION: April $55 or $50 puts to buy (JPM PJ or PK).
http://www.investmenthouse.com/ct/jpm.html
(Click to view the chart)
IMPH (Impath Inc--$40.00; -4.94; optionable (QPH)): Health Services
STATUS: Finally dropped for the put play, and may be ready to offer more. The move down was on lower volume (248,100; avg. 342,045), but if the stock is hit with some selling it can fall to 35 (our target). The stock may move back up to attempt another test of the 200 day MVA (45.43) though potential resistance at 41-42 can hold it back from that move. We will look at more puts on a move down from this resistance (or 200 day MVA) and break below 40 on strong volume.
BUY POINT: On a move down after a retest of the 200 day MVA or 41-42, looking for increased, above average volume on the selling.
POSITION: April $50 puts to buy (QPH PJ).
http://www.investmenthouse.com/ct/imph.html
(Click to view the chart)
OEX (Standart & Poors 100--$600.71; +4.61; optionable (OEY)):
STATUS: Moved up slightly on lower, average volume (1.2 million), closing off the high of 605.36. On a move below the low of 597.79 on strong volume we will look at buying more puts.
BUY POINT: On a move below 597 on stronger, above average volume, March $605 puts to buy (OEY OC). Deltas not available at the time of this writing, though this should be a delta of 0.7 or better. Please check with your broker in the morning.
http://www.investmenthouse.com/ct/$oex.html
(Click to view the chart)
VRTS (Veritas Software--$54.38; -5.31; optionable (VUQ)): Computer Software & Services: Application Software
STATUS: We were looking for a move up to the 18 day MVA, and the stock did just that, gapping open at the resistance then heading down on stronger volume (22.1 million; avg. 13 million). The stock closed above the March low of 52.13, and on a move below that possible support, we will look at puts again. On a bounce that follows that of the market, the stock will offer the upside play, but look for resistance at 60 (10 day MVA) or the 18 day MVA (64).
BUY POINT: Downside: On a break below 52 on continued strong volume. Upside: On a bounce from here on continued strong volume.
POSITION: Downside: April $85 puts to buy (VUQ PU). Upside: Stock and/or May $50 calls to buy (VIV EJ).
http://www.investmenthouse.com/ct/vrts.html
(Click to view the chart)
THE SUMMARY:
TONIGHT:
- Holding pattern for the techs while the Dow and S&P 500 give a meek bounce.
- Earnings warnings and announcements after hours not showing a lot of negative impact.
- Economic data still mixed ahead of Greenspan speech and PPI on Friday.
- Subscriber Questions.
- Team Trades.
A real nowhere day.
The indexes were up and down, but there was not much change when all was finished. The Dow moved back over 10,000 on weak volume while the Nasdaq bounced early but did not have any punch, and after fighting to hold positive it dropped steadily to the close. Going by the prices alone, the Dow and S&P 500 looked stronger while the Nasdaq looked the weakest. Factor in the volumes and where they closed relative to recent action, however, and the tables turn.
The Dow managed to climb back over 10,000, a support and psychological level. But it closed 66 points off of its session high and volume dropped significantly (-12%). The bounce was weak, and we are looking at playing the DJX to the downside once it drops back below 100. The S&P 500 provided similar action as it too closed well off of its high on lower NYSE volume. We are looking at OEX puts as well when it breaks lower again.
The Nasdaq was a bit different. It gapped higher, rose a hair more, but then spent the rest of the session selling down. We were looking for the Nasdaq do give us a pop, but this one had no punch to it at all. We never like these gaps higher as they usually result in selling given this market. Remember, when any index opens substantially higher on a gap move, we usually see it give us a pullback no matter how strong the move is. If it is strong, it will give back 25% to 30% of the move and then resume the run on a volume spike. If it just keeps sliding back down, we have to wait to see if it is going to set up another bottom pattern intraday (usually a double bottom) and then starting to run from there. However, if it gives back more than 40% we have to view the gap higher as suspect. Today it just bled back all day.
So, no compressed spring exploding higher today. What did happen was a below average volume slide back down to just above its recent floor at 1920. That maintains the building pattern in the index, and the low volume indicates there were not a lot of sellers on the slide back down to that level today. As we know, lower volume pullbacks to support are the preferred forms of selling as it shows that big institutions are not dumping shares. Thus, the support has a better chance of holding, and the longer the Nasdaq can build on this level on the right price/volume action, the better the odds for a bear market rally to the upside.
After hours action not bad on ADBE and ORCL earnings.
Warnings and earnings after hours have not dampened what appears to be some post-close modest rallying. ADBE beat its earnings estimate by 5 cents, and though it lowered estimates on second quarter revenues, that did not seem to bother after hours traders. ORCL met its lowered expectations and popped up on the news, but then fell back when it said visibility was still low and its applications sales numbers were quite lower than expected. It is hovering near where it closed. CPQ warned again and was plowed lower, but then it recovered well and was trading close to flat. Other stocks continued to drift higher after hours; they spiked on the ADBE and ORCL news, but then fall back. Still, they were moving higher and continued to do so.
Nasdaq drifting higher after hours.
The after hours action indicates that the tech stocks still want to rise off of the 1920 level even with mediocre news. In turn that shows that there is some pent up demand that can still provide a bear market rally from here. With the FOMC meeting on Tuesday, if we get decent economic numbers in the morning, i.e., a PPI that does not show increasing wholesale prices will help bolster the hope that the Fed may lower rates by 75 basis points. As we have seen in the past, that hope can provide a couple to three days of rallying ahead of the actual event. In addition, we have Michigan Sentiment survey results again and triple witching expiration. These could all give us a surge on a Friday ahead of the FOMC.
On the other hand, if the 1920 level breaks tomorrow and the index cannot climb back up and move ahead on strong volume, the recent attempt at bucking the overall market and actually trying to build a floor loses strength, something that each such attempt has done the past year. Unfortunately, there are no neon lights flashing that signal a bottom. We watch the price/volume action of the overall market, of individual indexes, individual stocks, and then look at economic news, sentiment gauges, and world events. About all anyone can say at this point is that the Nasdaq is trying to buck real weakness in the Dow, S&P 500, and the mid-cap and small-cap indexes, but it has yet to show it is ready for a real move. There are some good patterns developing in former leading names, but they slid back today after attempting moves early in the day. At where it closed today, it would only take one bad news story to send it below 1920 and some more selling with the Dow and S&P 500.
THE ECONOMY
Jobless claims hold steady, kind of.
Jobless claims rose 5,000 to 375,000, but that was actually no gain because the prior week's report of 370,000 new jobless claims was revised higher to by 5,000 to 375,000. Gets really confusing following this stuff, huh? You can hardly ever trust the raw headlines that you see; today jobless claims were reported as flat, i.e., no gain and no loss. But you had to know that the reported number was higher than the previously reported number that was revised higher. In any event, the real number to watch today was the four week moving average.
After trying to fall earlier in the year when jobless claims started a steady drop, it has now re-established its uptrend, rising to 364,250 (well above the 356,000 level last week), the highest level since July 1998. The trend is now firmly higher. Still, the level is well below recession levels (500 to 700). The problem, however, is the sharply reversal in the trend from starting to fall last month to racing to a 2.5 year high. The economy really needs to see that strength the Fed is talking about (and indeed, we were seeing ourselves until the past three weeks) to avoid this number spiking higher. This is another sign that the Leading Indicators we reported on last week were correct in suddenly pointing lower and threatening recession. When they drop that rapidly once again as we saw with other indicators dropping in September through October, that really concerns us that the Fed is well behind the curve in staving off recession. Consumer sentiment is still locked in a battle with consumer spending. So far so good; but, if weekly jobless claims (a leading indicator as opposed to the unemployment report) continue on this pace, there is little doubt that the dropping sentiment will win out over signs of continued consumption.
Philly Fed report shows less weakness.
This measure of business activity in the east came in at -23.5, a bit better than the -25 expected. In other words, activity was weak, but not as weak as expected. Break out the champagne. Even with this 'good' news, the prices paid component rose from 13.1 to 15.2, indicating potential inflation. We keep seeing this pop up in all of the reports, but it is important to understand that in slowdowns we always see this increase as we have explained in previous reports: demand continues while supply has been cut down heading into the slowdown.
Inflation? Not by most standards.
While you cannot dismiss signs of higher prices in each report that comes in, it is comforting to look at the traditional indicators of inflation: gold and commodities. Gold tried to spike higher, but has been cascading lower the past three sessions. Appears as if those who said the rise was based on complex leasing arrangements were correct. Commodities continue to tank; really tank. Today it broke that support that we referenced earlier in the week, and it is plunging. And the dollar is flying higher the last few sessions. A strong dollar is very good for the U.S. right now from a financial market standpoint: the last thing we need is foreign investors nervous and ready to pull dollars in favor of investments elsewhere. If the dollar is strong they will want to keep their investments in dollar-based investments. That is huge, especially given the current state of the U.S. economy and the financial markets.
End Part 1 of 2
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