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Begin Part 2 of 2
Corrects Best Plays
Support and Resistance
Nasdaq: Closed at 1363.05
Resistance: The exponential 50 day MVA (1372). The 10 day MVA (1382) and the 18 day MVA (1392). The August high at 1427 is the focal point. The 200 day MVA (1464). Price resistance at 1500. 1574, the May low, is next.
Support: 1357.09, the October 1998 bear market low is still holding. July, August, and September interim highs at 1345. Some price support at 1300.
S&P 500: Closed at 895.76
Resistance: The simple and exponential 50 day MVA (899), and the top of the late October consolidation range at 899. 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 bottom of the October consolidation range at 875 is some price support. The September 2000/May 2001 downtrend line at 855. The March down trendline at 834. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8511.32
Resistance: The October high at 8500 is some resistance that has not been totally cleared. The exponential 50 day MVA (8513). The top of the recent range at 8630. 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: 8250, the bottom of the October consolidation range. Then 8000.
Economic Calendar
12-23-02
Personal Income, November (8:30): 0.2% expected, 0.1% prior.
Personal Spending, November (8:30): 0.4% expected, 0.4% prior.
12-24-02
Durable goods orders, November (8:30): 0.9% expected, 2.4% prior.
12-26-02
Initial Jobless claims (8:30): 400K expected, 433K prior.
12-27-02
Michigan sentiment revision, December (9:45): 86.5 expected, 87.0 prior.
New home sales, November (10:00): 1M expected, 1.007M prior.
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SUBSCRIBER QUESTIONS
The Thursday night 'editorial' portion of the market summary in the reports (and there was a warning it was editorial before the soap box was pulled out) drew many responses. Many were in agreement about shrinking government and providing stimulus addressing the root problem. Many addressed the comments regarding the extension of unemployment benefits being useless as a form of stimulus and not the best way to spend dollars that were supposed to be used to stimuluate the economy. A lot of those comments correctly accused me of being insensitive to the unemployed who are exasperated by the inability to find a job in this economy.
My purpose was to further stir that exasperation and anger and to provoke responses, ideas, and hopefully action. It is easy to write about the problems, but so hard to come up with solutions that are acceptable to enough to get them enacted. Even if good ideas arise, it takes action (calls, letters, emails, you know, just being the squeaky wheel) to get an idea rooted so it can grow. I have had the unpleasant experience of graduating with degrees twice in my life when the country and the field I had studied for were in recession. Did what I was told, got my degree and even re-educated myself when my other field was dead, and still it was a struggle. I have been there and it is frustrating, daunting, and dispiriting. The one thing those experiences taught me was to face all of those emotions with a simple attitude: they can only say 'no,' it only takes one 'yes,' and that I can make that 'yes' happen. That helped me deal with the 50+ face-to-face 'no's' and the hundreds of 'thanks but no thanks' letters. Seeing so many in that same situation today and knowing it was caused through the poor choices those in power made is one of the reasons I am so angry and so adamant about getting the government to fix what it broke and help those that lost most everything get it back NOW while there is time to enjoy the rest of the lives that were tarnished.
As a result of the nerves touched, there were some great ideas that came out. One of the most innovative and one that should be palatable to all comes from another worker laid off but then re-educated at his own expense only to find no work in this economy. Here is the idea:
"I do agree that the Fed can and should do something about this problem and my thought is to provide businesses with a full tax credit for every person they hire. The business gets the tax credit and the Fed gets increased revenue as the formerly unemployed person is now a tax payer. The people currently working at the business and who are in all likelihood over worked will finally get some relief. The problem that we have is 20% of the people are doing 80% of the work. Pareto's Law in action.
Unfortunately I don't believe that this government is innovative enough to do something like this and if they do it will be so watered down as if to be non-existent. Don't believe all the rhetoric about things getting better because they are not."
This is an excellent idea. It addresses some of the roots of the problem and has the beauty of having an IMMEDIATE impact: it gets businesses to invest in their business (personnel make it all happen), it puts workers back to work and part of the productive system, it obviates the need for spending scarce resources on unemployment benefits, and it helps unlock more consumption by those unemployed put back to work. Combine that with a modest $2500 to $5000 investment tax credit for capital equipment purchases and you have one of the most powerful, directed, and immediate economic stimulus plans ever devised.
Keep the ideas coming, and please do your part and take action by calling, writing, and being that squeaky wheel to those in Congress and in the White House. If it is demanded often and loud enough they will listen.
THE PLAYS
Plays for Friday: A very nice day for the Thursday night plays
BEAS: Hit the buy on a huge voume surge.
C: Ditto.
NTES: And yet again.
BCGI: And why not one more time?
Best Plays:
1) ARB: Lots of momentum and solid money flow.
2) MRK: Very orderly pullback.
New Plays:
LOOK (Looksmart Ltd.--$2.71; +0.01; no options): Internet information provider
http://biz.yahoo.com/p/l/look.html
STATUS: Cup w/handle. Nowhere near its all-time highs (but most stocks are not), LOOK is nonetheless forming its own 8-month base, working on a lateral handle the past three weeks after breaking over its 200 day MVA in late November. The handle is a wedge with a top at roughly 2.75. Those sometimes are not the perfect handles, but they do often deliver explosive moves higher that we can capitalize upon. The stock is showing positive accumulation during the base and money flow is rising nicely ahead of the stock price as it moves laterally. That along with the consolidation of the break over the 200 day is a combination that we saw pay off handsomely in October and November. Looking for LOOK to give us a similar play from here.
Volume: 657.6K Avg Volume: 605K
BUY POINT: $2.94 Volume=950K Target=$4.95 Stop=$2.58
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/cd/look.html
ARB (Arbitron--$34.1; +0.58; optionable): Surveys and other research services
http://biz.yahoo.com/p/a/arb.html
STATUS: Cup. ARB is working on a 7 month base, the last 5 months of which it has traded in a range from 31 to 35. It is heading back up to the top of the range so you may be asking what do we see in it this time versus the last time it hit 35 and failed. Well, money flow is really running up ahead of the price and is higher now than it was when the stock was at 37 at the start of the base. That is a positive divergence and indicates that ARB is running stronger this move up, i.e., that there is more money coming into it now to push it even higher. Moreover, these rolls in a trading range only work 3 to 4 rounds, and ARB is on its third, maybe fourth such rotation. With the accumulation continuing and the money flow running higher this time, we are looking for the breakout. Aggressive positions on a further move up on volume and/or positions on a volume breakout.
Volume: 136.3K Avg Volume: 105K
BUY POINT: Aggressive: $34.66. Breakout: $35.15. Volume=155K Target=$39.85 Stop=$32.65
POSITION: ARB EF - May $30c (70 delta, no OI) and/or Stock
http://www.investmenthouse.com/cd/arb.html
Downside:
RIMM (Research In Motion--$13.06; -0.7; optionable): Telecom wireless devices
http://biz.yahoo.com/p/r/rimm.html
STATUS: Put (Descending wedge). RIMM tried to break over its 200 day MVA (14.75) after racing up to that level in the November rally, but it slid down along that resistance, and Friday the bottom of the pattern at 14 gave way on a strong surge in volume. These lower lows and constant lows form what is known as a descending wedge/triangle, and it is the opposite of the bullish ascendinge wedge/triangle. The breakdown on volume from this pattern indicates there is more selling ahead. The options have a decent delta and are priced right for a nice gain down to the target.
Volume: 2.901M Avg Volume: 1.77M
BUY POINT: $12.94 Volume=1.7M Target=$9.95 Stop=$14.04
POSITION: RUL OC - Mar. $15p (-54 delta)
http://www.investmenthouse.com/cd/rimm.html
Revisited: Some new buy points on these stocks
Play Date: 12/21/2002
MRK (Merck & Co.--$56.36; +0.08; optionable): Drugs
http://biz.yahoo.com/p/m/mrk.html
STATUS: Testing the 50 day MVA. MRK ran up and hit our original buy point and then has frittered away much of its late November gain. Thursday and Friday, however, the stock found support above its 50 day MVA (55.59), showing a pair of doji's with volume jumping back over average Friday. After an orderly pullback a doji over support is a very positive signal. We still need to see the stock turn back up on stronger volume, but this one looks pretty darn solid.
Volume: 8.875M Avg Volume: 7.5M
BUY POINT: $58.05 Volume=9.5M Target=$67 Stop=$55.94
POSITION: MRK DK - April $55c (69 delta) and/or Stock
http://www.investmenthouse.com/cd/mrk.html
Play Date: 12/21/2002
QCOM (Qualcom--$37.68; +0.04; optionable): Cell phones and cell phone guts
http://biz.yahoo.com/p/q/qcom.html
STATUS: Testing the 50 day MVA. Another QCOM play, but QCOM is showing different action from many of the large technology stocks. Instead of mimicking the head and shoulders patterns of the large indexes, QCOM has pulled back in November, but has held on the low above the October high that marks the left shoulder for most technology and many other large cap stocks. Friday QCOM reached all the way down to 36 and then rebounded to close over the 50 day MVA (37.42, simple); a tight doji with a long tail indicates that buyers jumped back on the stock as it traded below the 50 day MVA intraday. That is what you want to see. After a rather orderly, low volume pullback, QCOM looks ready to recover some of that lost ground as telecom continues to be one of the top performing tech areas.
Volume: 15.628M Avg Volume: 16.5M
BUY POINT: $39.15 Volume=18M Target=$48 Stop=$36.41
POSITION: AAW DU - April $37.50c (67 delta) and/or Stock
http://www.investmenthouse.com/cd/qcom.html
MEMBER PORTFOLIO: CUB, EBAY, HOTT; LOW, NOC, PG, QLGC, RCII, SRCL, WM
These are the stocks that our subscribers vote to put in a 'portfolio' to track their progress and comment upon when they reach buy points, sell points, or levels to write some covered calls on. They are not covered every report, but when something interesting is developing we take note.
Time for a new subscriber survey for new stocks to stock the portfolio. Start your votes so we can start the new year with a new batch of your favorite stocks.
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
CONTINUING/WATCHLIST: These are stocks that are current plays (the buy point hit), waiting for the buy point to be hit (buy not hit), or buy not made for various reasons (buy alert not issued). The date references the date the play first appeared on the report. Pivot is the buy point.
Our stock summary table program developed a bad case of the pre-holiday bah humbug's and crashed. We have been working all day on it but the fix is not quite in and thus we cannot generate the summary table. We apologize for this and are working to have it up and running for Monday.
Good Investing!
Jon L. Johnson and The Daily 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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