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us stock market, trend trading stock
Begin Part 2 of 2
THE MARKETS
Overall market stats:
VIX: 32.63; -1.97. Volatility continues to hold above 30 as the Dow and the S&P feel their way around for direction. We have a feeling the VIX will rise over the next few sessions as the Dow and S&P seek lower levels. Again, it needs to ultimately hit in the 45 to 50 range for more of a final bottom as opposed to the interim 'bottoms' that the 35 level has given.
VXN: 75.93; +2.32. Still rising on lackluster selling on the Nasdaq. That is something we like to see: no real technical damage on the day but negative sentiment rising significantly. That is what we want: fear rising but the index in good shape to rally. That is what gives rallies at this point; V bottoms are going to be very hard to come by.
Put/Call ratio: 0.92; -0.09. On a down day it falls and on up days it rises. Looks as if some companies were betting on a good bottom to sell some puts on, but it did not last. Still, we say good overall volume on Tuesday, and just because the markets did not rally today does not mean that the indicator is erroneous. Bottoms on a market bear this extended do not end in one day. As they say, they don't ring the bell at the bottom. Still, they do start putting up signs, and this is one that we like to watch. Now we need to get some solid price and volume action.
NASDAQ:
As noted above, a drop but not one that was technically damaging at this point. It was disappointing to see the attempted move up fail so quickly, but the higher gap was a red flag after a strong sell off. When we saw the gap higher to start things off, we knew we might not have to close our remaining put plays as we were thinking we might have to do last night if this move up got underway in earnest. If this 1920 level can continue to hold, the Nasdaq has the potential to buck the trend with a better bear market move than we have been seeing. We have to see a stronger high volume move and the better looking stocks racing ahead on strong volume as well. Otherwise, more of the same as we have seen: jumps higher that fizzle at resistance. We can play it either way, but we need to be ready for closing short positions on strong moves.
Stats: Down 31.38 points (-1.6%) to close at 1940.71.
Volume: 1.965 billion shares (-8.4%). Volume slid back below average on the selling, indicating there were not a lot of big sellers out there. Down volume was well ahead again, but lighter at 1.357 billion shares versus an almost steady 561 million to the upside.
A/D and Hi/Lo: Decliners continued to lead, 1.12 to 1 (2.52 to 1 Wednesday). New highs rose to 29 (+6) while new lows fell to 165 (-122). Again, these levels show no real dumping.
The Chart: http://www.investmenthouse.com/cd/$compq.html
We pretty much said it earlier. The Nasdaq is trying to set a move off of the 1920 level. It is still an uphill battle, but there was momentum higher after hours and there is a real fight going on at 1920. It will have to clear 2030, a level that is now holding it back as it bounces from 1920 to 2030, but can we not play that move as well? The index closed at 1940.71. A move to 2030 is 90 points, and the QQQ can give us a good move up to that point if we get one of those slow opens that starts to build. What we would really like is a move up off of 1920 that starts to build. That gives us a great run to 2030, and perhaps to the breakout.
Dow/NYSE: A weak move back over 10,000 on light volume. The Dow showed 9 lives for awhile, but we think they have been used up.
Stats: Up 57.82 points (-0.6%) to close at 10,031.28.
Volume: NYSE volume sank on the attempt at moving higher (1.229 billion; -12%). This is right at average. Up volume did lead 725 million to 493 million shares. Not a powerful move back over resistance.
A/D and Hi/Lo: NYSE advancing issues came out on top 1.14 to 1 (decliners led 3.02 to 1 Wednesday). New highs rose to 69 (+16) and new lows fell to 49 (-70).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Wednesday it broke 10,000, and today it made a run back at it. It managed to claw back over, but volume was not impressive. This is not what lasting reversals are made of. We are looking for the Dow to fail on this move and head back lower into the 9700, preferably lower range. And, we want it to happen fast; no lingering drop, but a scare them fast drop.
S&P 500: Big caps also managed a meek recovery today on lighter, average volume. As with the Dow, the index closed well off of its intraday high (1182.04), trying to hold at some potential support around the 1175 level. The lower volume does not give us much confidence it will do so. The index has finally hit bear market status the past couple of weeks, but it appears to still have more selling ahead of it as it plays more catch up. We think this one is rolling over as well; it may have to test 1200 first, but it looks weak.
Stats: Up 6.85% (+0.6%) to close at 1173.56.
Volume: NYSE volume slid on the gain to 1.229 billion shares (-12%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Another Friday, and another week with some great put plays, a few solid upside plays, and many good patterns that stalled or crashed. Ah the life of a bear market. What does it show us? We should not feel good when the market goes up and bad when it goes down just because it makes those moves. If we are on the wrong side, then we will feel bad. But what we have been seeing and playing, and we hope you have been as well, is that in this bear market the stocks and indexes are rising to resistance and then selling back. That is bear market action. We are still seeing strong patterns break higher, but those require extra caution (see 'Subscriber Questions') because in a bear market there are more breakdowns. We are still seeing solid gains, but the breakout process is just the last winnowing out of those going somewhere and those hanging on or falling back.
The key is to get on the right side of the action. Last night we were concerned about a move higher, but with the gap up, we had a feeling it was going to fall back down, and it gave us more entry points on plays we outlined last night. As we have been saying and playing over the past several weeks, the tech stocks rise into resistance on these continual 'oversold' bounces we see, and then they collapse back down. Today was another classic day for this play: VRTS, MERQ, CHKP and others moved up to resistance and then rolled right back down. We tell our brokers what stocks we think are going to hit resistance and fail, the point we are watching for that failure, and what we want to buy when it occurs. Or when looking at a breakdown, we tell them the stock, the breakdown point (opposite of breakout point on upside plays), and what position we want to play on the break. It is the same as playing upside bounces and breakouts, but we just are playing the current trend that is down and not up.
The tech stocks were trying to move up after hours despite any news that was coming out. That indicates there continues to be some floor building in the low 1900's. We have no delusions about this being the ultimate bottom, but as the Dow and S&P 500 and mid-caps sell down the techs are showing more resilience. It may be a false illusion and the Nasdaq may roll over as well. If we see a flat to weak open that builds but then reverses and sells off, that will tell us that this floor may be a trap door. If it starts soft and closes strong on rising volume, preferably above average volume, we think this could be the start of a decent run into the FOMC meeting that we can play the stronger tech stocks on the move (we still like the NVLS, KLAC despite their drops today; they are building lateral bases that can give good moves in a rally to the FOMC meeting. At the same time, we will watch to see if stocks continue to hit resistance on low volume and peel back. As long as that happens, the indexes are not going higher and we continue to play the downside when the moves fail. If we see stocks starting to break support again, the same applies: play the downtrend while it shows it is in force.
Support and Resistance Levels
Nasdaq: Closed at 1940.71.
Resistance: Building at 2030 to 2050. Then 2250 to 2300. 2400 to 2500.
Support: 1750
S&P 500: Closed at 1173.56.
Resistance: 1215. Then 1265, followed by 1285 to 1300.
Support: 1130
Dow: Closed at 10,031.28.
Resistance: 10,000. Then 10,300 and 10,750. Then 11,020 - 11,028.
Support: 9750.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-13-01
Retail Sales, February (8:30): -0.2% actual versus 0.3% expected and 1.3% prior (revised up from 0.7%).
Retail Sales, ex-auto, February (8:30): -0.3% actual versus 0.1% expected and 0.8% prior.
3-14-01
Business Inventories, January (8:30): +0.4% actual versus 0.2% expected and 0.0% prior.
3-15-01
Initial Claims, 3/10 (8:30): 375K actual versus 370K expected and 375K prior (revised from 370K).
Export Prices ex-ag., February (8:30): 0.2% versus 0.2%.
Import Prices ex-oil, February (8:30): 0.3% versus 0.3%.
Current Account, Q4, (10:00): -$117B versus -$113.8B.
Philadelphia Fed, March (10:00): -23.5 actual versus -25.0 expected and-30.5 prior.
3-16-01
PPI, February (8:30): 0.1% versus 1.1% prior.
Core PPI, February (8:30): 0.1% versus 0.7% prior.
Housing Starts, February (8:30): 1.6M versus 1.651M prior.
Building Permits, February (8:30): 1.697M versus 1.697M prior.
Industrial Production, February (9:15): -0.2% versus -0.3% prior.
Capacity Utilization, February (9:15): 80% versus 80.2% prior.
Michigan Sentiment-Preliminary, March (10:00): 87.0 versus 90.6 prior.
Options expiration, March.
SUBSCRIBER QUESTIONS
Q: You state that we should put a stop loss in 7% - 8% under our initial purchase price. However on stocks that you are recommending lately like KLAC for instance, you state that the buy price is 46 3/8 on 10M shares and put a stop in at 45 7/8. This is much less than 7% - 8%. Why are you calling for such a tight stop? Is it the current market conditions or should we start putting in tighter stops on all new positions? By the way, I like your new format. It really helps when you state your buy price, volume at that price, target price and stop loss price. Those stats cover everything needed to place a nearly risk free trade! Very good addition to your letter! Thanks!
A: Over the weekend we discussed that we were starting to place stop losses on breakouts right up under the pivot point as a function of the market that we are in. The Nasdaq is in a bear, and now the S&P 500 has joined it with the Dow starting to spiral down as well. That makes it harder for breakouts to succeed. Everything can look super and the stock breaks out on strong volume. Then news hits and shuffles the deck again and some of the solid breakouts fail. That can happen in any market, but in a bear market investors are nervous and ready to sell. In a bull market we can give a little more rope with the 7% stop loss. Now that the other two major indexes are failing, breakouts have it even harder, so we are shortening the rope on them. As we never want them to fall below their pivot point anyway, we are not taking chances if the breakout falls to that level. It is too risky in this market if the strong volume on the buying is met with strong selling volume after a gain. On options we often just go ahead and close them out when the move starts to stall, mainly looking for the day it is going to close well off of its intraday high. When that happens we have told our brokers we want to exit the position when we are in options. We don't want to let a gain evaporate. In sum, it is a function of the market now that the Dow and the big caps are selling as well.
TEAM TRADES
VRTS: A stock that we felt could either move well in a Nasdaq rally and lead up, or stall at the 18 day MVA. We have been traveling around the country this week, so we were telling our brokers what we were looking at with certain stocks, breaking them down into upside and downside plays. Talking with one of our brokers before the open we saw VRTS set to open at the point we had marked on our scorecard, the 18 day MVA. We said we wanted to get in on the downside if it could not break over the 18 day MVA and started to move down. We said we wanted to buy the April 85 puts to get the delta we wanted for the move down. VRTS was one of several we gave to the broker, and then went about some other business as we could not watch things ourselves. About a half hour later we received a call from the broker that VRTS and several other put candidates had hit resistance, tested it, and were starting down along with the Nasdaq and the QQQ. The options were trading roughly 25.50 by 26.25. We told the broker to slice off one-eighth to one-quarter and go for it. We also talked about what to do with some other positions (some triple Q puts from Wednesday) and some other puts and breakouts. While we were doing this the VRTS was taken care of. We went over the sell point again with the target at 52 to 54 on the stock. As turned out, the stock tested 53 and change on the low and bounced at the close. Our broker had put in an order to sell, but it was not hit for some reason; he is checking into that tonight, but we may get another chance early tomorrow to sell as well if there is some early softness.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Good Investing!
Jon Johnson and the Tech Traders Report Staff.
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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us stock market
trend trading stock
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