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us stock market, trend trading stock
Begin Part 2 of 3
Support and Resistance
Nasdaq: Closed at 1362.42
Resistance: The 50 day MVA (1372). The 18 day MVA at 1407 and the 10 day MVA at 1403 are still teamed up. The August high at 1427 is the focal point. Price resistance at 1500 and the 200 day MVA (1477). 1574, the May low, is next.
Support: 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. Some price support at 1300.
S&P 500: Closed at 889.48
Resistance: The 50 day MVA (899.60) and the top of the late October consolidation range at 899. The 18 day MVA (907.50). The July, August and September interim highs at 909 to 911. 921 is some price resistance. The early November high at 925.66 and key resistance. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high.
Support: The simple 50 day MVA (888.89) held on the Friday low. The bottom of the October consolidation range at 875 is some price support. The September 2000/May 2001 downtrend line at 862. The March down trendline at 844. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8433.71
Resistance: The October high at 8500 is some resistance along with the 50 day MVA (8517). The 10 day MVA (8589) and the 18 day MVA (8608). The late July and early September interim high at 8726 to 8762.14 (8745 closing). The early November high at 8800 is key. A range of resistance from 9000 on up to 9050.
Support: The simple 50 day MVA (8408.62) held on the Friday low. Then 8250, the bottom of the October consolidation range.
Economic Calendar
12-17-02
CPI, November (8:30): 0.2% expected, 0.3% prior.
Core CPI: 0.2% expected, 0.2% prior.
Housing starts, November (8:30): 1.690M expected, 1.603 Prior.
Building permits, November (8:30): 1.700M expected, 1.722M prior.
Industrial Production, November (9:15): 0.2% expected, -0.8% prior.
Capacity Utilization, November (9:15): 75.4% expected, 75.2% prior.
12-18-02
Trade balance, October (8:30): -$37.0B expected, -$38.0B prior.
12-19-02
Initial jobless claims (8:30): 441K prior.
Leading Economic Indicators, November (10:00): 0.3% expected, 0.0% prior.
Philly Fed, December (12:00): 5.3 expected, 6.1 prior.
Treasury budget, November (2:00): -$50B expected, -$54B prior.
12-20-02
Q3 GDP, final (8:30): 4.0% expected, 4.0% prior.
Chain deflator (8:30): 1.0% expected, 1.0% prior.
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SUBSCRIBER QUESTIONS
Q: With gold prices breaking $ 330.00 an ounce yesterday and the dollar losing its value where do you see the equities going? I do see the economy picking up some and I know we need to let the market tell us what its doing but it sure looks like the market is a long ways from recovering. Just wanted to get your feedback on this. Thank You.
A: Gold has been depressed for a long time and it is finally making another run. It made a run a year ago but that was a move based on actions of gold suppliers and producers and it faded. This move has the 'traditional' substance behind it, e.g., global tensions including Iraq war possibilities, Al Qaeda bio weapon threats, Iran's nuclear sites, North Korea reactiviating its nuclear program, and now Venezuelan unrest. Uncertainty about war causes gold to rise in anticipation of events. It spiked in 1991 on the Kuwait invasion as well. It did not take it long to fall back, however, once the parameters of the war became clear.
The market has also seen better days, but compared to the prior 30 months, it has seen much worse days. Since the October bottom up to a week ago it was looking fine. One thing that is hard to do is to try and wipe away what has happened before much like a professional athlete has to forget a mistake and go on with the game and try to make something good happen. Sure you have to know where past support and resistance points are, where the trendlines are in order to project how the market will react in the furutre, but you have to take the current market action for what it is without the overhang from the past. You are right when looking at the economic situation improving; the market has been taking that into consideration even as most thought the economy was weakening further. That is the trap that many analysts and brokerages have fallen into with valuation calls; fear of the past is making them fear the future without looking at what the market is actually doing. They are so tied up in where the market has been that they don't act when the market is looking healthier. That is why many missed out on the move up. If you wipe away that prior downtrend, the market the past three months looks pretty solid and there has been some big money made just in that move.
The same analysis keeps you always looking ahead. The action up to thie latter part of this week was still solid, a normal part of the pullback. While the economic picture remains improving and we think the market will continue to follow after this pullback, we cannot let individual positions get out of hand to the downside for a number of reasons. With options you have time against you and riding a position down can be okay if it is a normal pullback to near term support and the trend is still easily in place. If the action worsens such as falling below the near term trend we are playing with options, we have to decide to ride the position and take our chances or close it out and preserve what we can. Unlike stock, if the position breaks down, we don't have the luxury of time to potentially correct the decision.
Another reason related to this that most planners do not get into is opportunity cost. Even with stock in a long term account (say an IRA) we prefer to exit a position that is not performing if it breaks key support. Why? Because there are other fish that can make us money, regaining any loss and then adding positive gains while the other works through its woes. I have a friend that bought one telecom stock years ago because it was going to be a barn burner. It came onto the U.S. market and sold from the opening minute. I owned some on an overseas market on the move up, but when it went to the U.S. market and started to sell I was out fast. He held on for several years because it was a 'long term investment.' It was actually a long term loss. It went from 40 to 5. That is why we are watching this recent action with a keen eye and sticking with positions that are holding up well while weeding out those that are breaking key support levels. Let the better stocks work for you and cut the ones that are not acting well early so they don't hurt you and take away good gains.
THE PLAYS:
Best Plays:
1) MERQ: Soldi volume starting the move back up.
2) SCSS: Nice lateral consolidation of the breakout.
3) AFCO: Held up well, ready to move.
4) AVID: Very stingy with its gains.
5) CREE: Can run when it gets started.
6) JEC: Beautiful handle.
7) UTHR: Moving on volume now.
8) CVH: Ready to fall.
New Plays:
Downside:
Play Date: 12/14/2002
CEPH (Cephalon--$49.34; -1.48; optionable): Drugs
http://biz.yahoo.com/p/c/ceph.html
STATUS: Put. CEPH formed a quick double top in late November and fell to the 50 and 200 day MVA (coincident right now at 51.25). It tried to hold but then gave up Friday, making a cleaner break as volume moved up on the selling. Looks ready for a dip to the mid-October lows from 45 to 45.50.
Volume: 2.04M Avg Volume: 2.5M
BUY POINT: $49.19 Volume=2M Target=$45.51 Stop=$50.65
POSITION: CQE NJ - Feb. $50p (-46 delta)
http://www.investmenthouse.com/ct/ceph.html
Play Date: 12/14/2002
HSIC (Henry Schein--$46.18; +1.08; optionable): Medical equipment
http://biz.yahoo.com/p/h/hsic.html
STATUS: Put. HSIC is in a continuing downtrend that started in october when the stock rolled over. It sold down then bounced up in November, then sold again. It spent the last two weeks rallying back up to the down trendline on lower, below average volume. It reversed Thursday at the trendlien and then fell Friday on sharply rising, above average volume. It managed to hold the short term MVA on the close, but we don't think that is going to stop the move in the continuing downtrend. Looking for that trend to assert itself again for a nice move lower.
Volume: 629.315K Avg Volume: 591.5K
BUY POINT: $44.15 Volume=667K Target=$40 Stop=$41.06
POSITION: HQE MI - Jan. $45p (-47 delta, low OI)
http://www.investmenthouse.com/ct/hsic.html
Upside
Play Date: 12/14/2002
BBY (Best Buy--$25.8; -0.17; optionable): Consumer electronics
http://biz.yahoo.com/p/b/bby.html
STATUS: Test 18 day MVA. We are looking at this play as a short term trade. BBY is enjoying a great holiday season, holding the 18 day MVA in a very tight range on lower, below average volume after the big spike in late November. The tight trading range is something that we like to see on upside plays, and we want to make a nice, quick option play to the target.
Volume: 3.359M Avg Volume: 6.2M
BUY POINT: $26.55 Volume=500K Target=$30 Stop=$24.69
POSITION: BBY CX - Mar. $22.50c (70 delta)
http://www.investmenthouse.com/ct/bby.html
Play Date: 12/14/2002
MRCY (Mercury Computer Systems--$30.91; -0.27; optionable): Telecom equipment
http://biz.yahoo.com/p/m/mrcy.html
STATUS: Pennant. After a strong jump higher in October to early November that broke MRCY out of a short cup base, MRCY has moved laterally, forming this pattern that uses the 50 day MVA (now at 29) on the low as it makes higher lows. After the last move lower that tested the 50 day MVA, MRCY is holding the short term MVA on this pullback. That action indicates that the stock may be ready to turn up from here. Good accumulation in the base and on this move at 5 up weeks on rising volume to 2 down weeks on rising volume.
Volume: 153.238K Avg Volume: 250K
BUY POINT: $31.65 Volume=350K Target=$37.85 Stop=$29.43
POSITION: QYR EF - May $30c (63 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/mrcy.html
CONTINUING PLAYS:
Play Date: 12/07/2002
AFCO (Applied Films--$18.7; -0.05; optionable): Semiconductor
http://biz.yahoo.com/p/a/afco.html
STATUS: Testing the breakout. Despite all of the semiconductor downgrades, AFCO has held up very well, giving a very low volume pullback to the 18 day MVA last week. It is showing some tight doji's on the 18 day MVA, and looks very good.
Volume: 75.1K Avg Volume: 167.863K
BUY POINT: Aggressive: $19.45. Next: $20.85 Volume=225K Target=$25 Stop=$18.79
POSITION: UOF DW - April $17.50c (55 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/afco.html
Play Date: 12/07/2002
AVID (Avid Technology--$18.85; -0.15; optionable): Consumer electronic equipment
http://biz.yahoo.com/p/a/avid.html
STATUS: Lateral consolidation. Still in the lateral test of the breakout showing a doji Friday at the 18 day MVA on continued below average volume. Being patient and letting this early leader prepare for the next move.
Volume: 172.74K Avg Volume: 299K
BUY POINT: $19.65 Volume=500K Target=$23.65 Stop=$18.05
POSITION: AQI FW - June $17.50c (71 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/avid.html
Play Date: 11/25/2002
AVP (Avon Products--$54.3; +0.16; optionable): Make-up, etc.
http://biz.yahoo.com/p/a/avp.html
STATUS: Testing the breakout. Strong move early last week and now AVP is testing the move on lower volume, tapping at the 10 day MVA (53.25) on the lows. May take another couple of sessions over the 10 day MVA to finish consolidating the move.
Volume: 919K Avg Volume: 1.2M
BUY POINT: New: over $55 (orig. $52.94) Volume=1.8M Target=$61 Stop=$51.35
POSITION: AVP DJ - April. $50c (66 delta) and/or Stock
http://www.investmenthouse.com/ct/avp.html
Play Date: 12/11/2002
BSTE (Biosite--$31.41; -0.49; optionable): Diagnostic substances
http://biz.yahoo.com/p/b/bste.html
STATUS: Ascending wedge. A bit wilder Friday, testing down to 30 on the low but rebounding on some volume. It is at the end of its base, pinching off as it should. It is time for the breakout this week if it is coming.
Volume: 284.056K Avg Volume: 643.954K
BUY POINT: $32.07 Volume=900K Target=$39.25 Stop=$29.83
POSITION: BQS DF - April $30c (70 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/bste.html
Play Date: 12/10/2002
CREE (Cree, Inc.--$19.14; -0.51; optionable): Chip equipment
http://biz.yahoo.com/p/c/cree.html
STATUS: Testing the 50 day MVA (18.71). CREE is holding up very well in the chip selling, managing to hold the 50 day MVA on lower, below average volume as the rest of the market sells off. Friday it tested the 50 day MVA on the low and recovered a lot of the loss. Looking for the bounce up on stronger volume.
Volume: 1.825M Avg Volume: 3M
BUY POINT: $19.65 Volume=4.1M Target=$24.25 Stop=$18.27
POSITION: CVO FW - June $17.50c (69 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/cree.html
Play Date: 11/30/2002
ISSX (Internet Security System--$22.30; +0.25; optionable):
http://biz.yahoo.com/p/i/issx.html
STATUS: Test 50 day MVA. Started a nice move off the 50 day MVA (20.45) on strong volume. Stalled at the short term MVA Friday after trading over them intraday. Looking for a continued move up from this early leader.
Volume: 2.99M Avg Volume: 2.135M
BUY POINT: Aggressive: 23.05; Next: $25.05 Volume=2.5M Target=$31 Stop=$23.3
POSITION: ISU DX - April $22.50c (72 delta) and/or Stock
http://www.investmenthouse.com/ct/issx.html
Play Date: 12/09/2002
JEC (Jacobs Engineering--$36.12; 0; optionable): Heavy construction
http://biz.yahoo.com/p/j/jec.html
STATUS: Cup w/handle. Very solid as JEC continues to work laterally over the 10 day MVA (35.75) in the handle to its 7-month base. Money flow continues to move up as the stock trades sideways on lower and lower volume. Very promising pattern, and we are waiting for that breakout.
Volume: 170.9K Avg Volume: 290.227K
BUY POINT: $36.75 Volume=465K Target=$42 Stop=$34.18
POSITION: JEC DF - April $30c (80 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/jec.html
Play Date: 12/11/2002
MERQ (Mercury Interactive--$30.31; -1.19; optionable): Technical software
http://biz.yahoo.com/p/m/merq.html
STATUS: Testing the breakout. Strong volume move thur was turned back some Friday, but volume was much lower on the selling as MERQ held support at 30 on lower trade. Looking for it to bounce back up from here.Good accumulation at 9 accumulation weeks to 5 distribution weeks.
Volume: 3.653M Avg Volume: 3.892M
BUY POINT: $31.55 Volume=5M Target=$38 Stop=$28.85
POSITION: RQB DF - April $30c (63 delta) and/or Stock
http://www.investmenthouse.com/ct/merq.html
End Part 2 of 3
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us stock market
trend trading stock
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