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us stock market, trade stock
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1/29/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Wednesday: WSM
Buy alerts issued: SCSS
Trailing stops issued: None issued
Stop alerts issued: None issued
Market overcomes weak European markets, rallies after FOMC meeting.
Hard words from Bush and Powell regarding Iraq had overseas markets selling. U.S. markets started lower as well but rallied off the lows. When the FOMC left rates and the bias left unchanged the market breathed a sigh of relief and continued the rally to the close. In the end volume was up but breadth once more lagged far, far behind downside breadth on down sessions. Indeed, Nasdaq breadth remained negative. The market was led again by many of the beaten down big names rebounding. It was encouraging that many of those stocks moved on stronger volume, but floor traders were quick to point out to us that there were no big buyers in the form of institutions that would buy for appreciation but that the buying was in large part some continued short covering after the early selling attempt could not push the indexes lower. With resistance in the form of the prior bottom of the trading range ahead, the market needs more upside interest from the big funds.
THE MARKET
The market shook off lingering war worries, basically forgetting them for now. After all, that has been on the front burner for two weeks and it was time for the market to move on. It shook them off, rallied up to the Fed announcement, then rallied some more when the Fed did nothing (if only it had done that for the past 5 years).
Volume rallied on both NYSE and Nasdaq. That is a positive sign in most cases, but given the recent action it is suspect. A crash through the floor of a 2-month trading range that blew up the double bottom and nice consolidation of the subsequent move upset the picture of accumulation. Now the indexes are rallying back up after 8 sessions of an almost straight drop. They are still below resistance, and not many leadership stocks are surging to new highs. Instead we see the same old beaten down stocks making moves back up toward resistance as breadth remains very narrow on up sessions. That looks an awful lot like short covering following a plunge straight down. If the indexes can break back into the range with volume and hold that would change the picture a bit. For now they remain below resistance and there is anything but widespread buying occurring.
Given that picture we are not all that wild about racing into a bunch of new upside positions. Now there are many stocks that managed to hold up rather well all during the selling, holding near support of the 50 day MVA while otherwise maintaining their uptrends. That is good news for the market overall. It gives some upside potential should the rest of the market manage to recover into the trading range, breaking back over resistance that is the bottom of those ranges. Many of stocks are the ones that we see as upside plays on the report; they have undergone some selling during the overall market selling, but they have held their trends. Many have even managed to rise.
The key will be what happens at resistance. Thus far the market has not shown us the kind of breadth and volume to give us high confidence in such a move.
Market Sentiment
VIX: 35.22; -0.3
VXN: 43.64; -3.09
Put/Call Ratio (CBOE): 0.81; +0.19
Nasdaq
Managed to make it back to the 198 bear market low on the close, but still below the short term MVA.
Stats: +15.88 points (+1.18%) to close at 1358.06
Volume: 1.508B (+6.02%). Modest rise in volume, and still below average.
Up Volume: 999M (-79M)
Down Volume: 472M (+166M)
A/D and Hi/Lo: Decliners led 1.01 to 1. Even on an up day breadth fell off from an already weak session on the Tuesday gain.
Previous Session: Advancers led 1.67 to 1
New Highs: 54 (+6)
New Lows: 73 (-4)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Once again a choppy morning, but Nasdaq held 1320 again and rallied more or less the rest of the session. The move pushed it through the December lows and the 1998 bear market low that roughly marks the bottom of the November/December range. It has yet to try the short term MVA (1367 is 10 day; 1379 is 18 day MVA), and the simple 50 day MVA and 200 day MVA are converging at 1400 (1401 and 1410, respectively). Nasdaq held on the best during the selling, and it has been the first to start the recovery, breaking back into its trading range. The bigger test, however, will be when the Dow and SP500 make it to the bottom of their trading range.
S&P 500/NYSE
Tested all the way down to support at 850 once again and then managed to rally off that support on its journey back toward 875.
Stats: +5.82 points (+0.68%) to close at 864.36
NYSE Volume: 1.563B (+7.12%). Rising, above average volume on the move back up. That gives the move a bit more credibility.
Up Volume: 936M (-141M)
Down Volume: 624M (+254M). Pretty even match even on an up day.
A/D and Hi/Lo: Advancers led 1.33 to 1. Weak A/D line, and it needed all of the late rally to pull positive.
Previous Session: Advancers led 1.78 to 1
New Highs: 42 (-6)
New Lows: 68 (-8)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Tapped support again at 845 - 850, feeling it to make sure it was still there. When that held, the shorts started to cover positions, and that set off the general bounce for the session in the broader market. The large cap index saw volume gains in MSFT, INTC and the like, stocks that had been banged around pretty hard in the selling. That kind of higher volume can mean buyers were rushing in to snatch up the stock at the lower value, that shorts were covering their positions, or some of both. We feel that it was more short covering after the initial selling failed to break below 845. Later in the session after the FOMC announcement there was more covering and then some late buying as well. SP500 still has 875, the bottom of the trading range to contend with and that will be the more critical level. It could break through it intraday and then fail. Again, much will depend upon the volume on the move and whether stocks are making important moves along with the other beaten down stocks recovering from the selling.
DJ30:
As with SP500, DJ-30 tapped at support again on the low and then continued the rally that started Tuesday. Dow volume was up similar to that of the SP-500, a solid rise on the move. It is still buried below its trading range with the bottom at 8250.
Stats: +21.87 points (+0.27%) to close at 8110.71
Volume: 1.563B (+7.12%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
With Iraq on the back burner until February 5 when Powell will deliver the goods to allies, the market will focus again on economic issues. Thursday that means jobless claims and Q4 GDP. GDP is going to be weak with expectations near 1% versus the 4% from Q3. It could be lower as the trade balance was very lopsided and inventories were lower. That is almost perverse in the way it is counted. High imports at least mean the consumer is consuming something and has not gone into hibernation. Inventories are that half-full/half-empty economic measure. If they are lower that takes away from GDP, but it could mean that there is continued consumption as opposed to lack of production. In this case it probably accurately reflects more of a lack of production than consumption outstripping inventory supply.
GDP is expected to come in at 0.9%. If it comes in below that things could turn over pretty quickly, especially if it is negative. Yes it is a report about the past, but there is a rub: the Bush economic package is going to get democratic roadblocks at every step in the war of politics and the goal of regaining power as opposed to helping the country overcome its troubles. With lower economic output and the perception of a stalled economic package to help the economy, the market could turn tail below resistance and start the selling anew. GPD comes out before the open, so we will have a pretty good picture when the bell rings.
If GPD does not torpedo the move up, Thursday we are going to be watching keenly as the indexes approach resistance at the bottom of the range. This weekend the war fear is not as high and there may not be as strong an urge to square positions before the weekend. Volume on the move and how the indexes trade when they get to that level will be the key. As of now we are looking at this move as a bounce that has to deal with significant resistance and has yet to show it can make it. If it falters and reverses at that level we will close out the positions that have rallied back but are not making solid moves.
If GPD is significantly worse than expected the market may just turn down from here and really get ugly. The next test would be at the support it has been testing the last two sessions.
Support and Resistance
Nasdaq: Closed at 1358.06
Resistance: The exponential 50 day MVA (1380). The simple 50 day MVA (1401). The 200 day MVA (1410). The August high at 1427. Price resistance at 1500. 1574, the May low, is next.
Support: July, August, and September interim highs at 1345 is still in the picture. 1357, the 1998 bear market low. There is some price support at 1327 from the late December low, then 1300.
S&P 500: Closed at 864.36
Resistance: The bottom of the October consolidation range at 875. The exponential 50 day MVA (896). The simple 50 day MVA (904). The July, August and September interim highs at 909 to 911. The early November high at 925.66.
Support: 850 to 855 (the October 1997 and Q2 1998 lows). The September 2000/May 2001 downtrend line at 826.
Dow: Closed at 8110.71
Resistance: 8250, the bottom of the October consolidation range. The exponential 50 day MVA (8480). The simple 50 day MVA (8564). The late July and early September interim high at 8726 to 8762.14 (8745 closing).
Support: 8000. Then 7500.
Economic Calendar
1-27-03
Existing home sales, December (10:00): +5.2% to 5.86M actual, 5.61M expected, 5.56M November.
1-28-03
Durable goods orders, December (8:30): 0.2% actual, 1.0% expected, -1.3% November (revised from -1.5%).
Consumer confidence, January (10:00): 79.0 actual, 78.5 expected, 80.7 December (revised from 80.3).
New home sales, December (10:00): +3.5% to 1.082M actual, 1.035M expected, 1.045M November (revised from 1.069M).
FOMC meeting day 1.
1-29-03
FOMC announcement (2:15): No rate change and no change in bias. Feels that once the global problems are over the monetary policy will work. Have heard that before and it was wrong. Congress should say 'fool me once, shame on you; fool me twice, shame on me.'
1-30-03
Initial jobless claims (8:30): 385K expected, 381K prior.
Advance GDP, Q4 (8:30): 1.0% expected, 4.0% Q3
Employment Cost index, Q4 (8:30): 0.9% expected, 0.8% prior.
1-31-03
Personal income, December (8:30): 0.2% expected, 0.3% November.
Personal spending, December, (8:30): 0.7% expected, 0.5% November.
Michigan sentiment, January (9:45): 83.7 expected, 83.7 advanced reading.
Chicago PMI, January (10:00): 52.2 expected, 51.3 prior.
SUBSCRIBER QUESTIONS
Q: I have a question on options. If the strike price for the call is $12.50 does this mean the options price at the expiration date has to be $12.50 or does this mean the price of stock has to be at $12.50 or greater. And what does delta mean?
A: Good questions. The strike price determines if you make money or lose money at expiration. If the strike is $12.50 on a call, if the stock price is greater than 12.50 on expiration the option's value will roughly be the difference between the stock price and the strike price. For example, if the stock is at 15, the value of the option at expiration will be 2.50. Why? Because you could exercise the option and buy the stock at $12.50 (the strike price you bought) and then go out and sell the stock for $15 and make roughly $2.50. If the stock price is less than 12.50 (say $10) at expiration, the option will be valueless because you would not exercise the option to buy the stock at $12.50 to go and sell it at $10.
Thus the strike price helps set the value of your option not only at expiration but anytime during the option's life. If the stock is $2.50 above the strike price (known as 'in the money') the options value will include that $2.50 intrinsic value as well as a time element (at expiration there is no time left so it is 0) and a volatility element (stocks that run up and down or make big moves have a higher volatility element in their options).
We typically buy options not to exercise them but to sell them when the stock makes the move we want. The intrinsic value will increase as the stock moves in the direction we want and volatility may increase as well if the move is a sharp one. That volatility element will fade if the stock settles down a bit; once the news is disseminated it is not news and volatility thus drops and so does the option value even if the stock price does not change. Given the volatility and time component, we rarely hold options until expiration unless the stock just continues to move steadily in our favor enough to offset the falling time value as time runs out. Thus when we have a target hit on an option play we usually take the gain as opposed to letting the play run out of gas and come back on us.
Option strategies can get quite complex. We try to keep it simple and take the mystery out of it in our "Options You Can Use" seminar.
SEMINARS ON CD
There is an incredible wealth of knowledge, years of experience, and 'how to' plans of action in these seminars. As one graduate put it, "I had no idea how little I knew about market direction and the reasons behind it until I took your course." Our graduates over the past year and one-half have made the bear market in stocks their own private second bull market because they learned how to and when to enter the downside and make dramatic profit from what most investors dread. Have the knowledge to take advantage of any kind of market as well as the confidence to act when you see the action unfold. We cover it all from trends, to accumulation/distribution, patterns, stocks, buying and selling options naked, covered, or creating spreads. Go to
http://www.stockseminarsonline.com
This is Jon Johnson's own site devoted exclusively to seminars designed to teach you what you need to know about the stock market and stock movement and how to take advantage of those moves without incurring the usual high costs of travel and related expenses usually associated with seminars.
THE PLAYS:
Good movers: ANF; CURE; CVD; MSN; NSCN; NTES; SCSS
New:
Downside:
Play Date: 01/29/2003
WB (Wachovia Corp.--$35.72; -0.17; optionable): Money banking
http://biz.yahoo.com/p/w/wb.html
STATUS: Put. 200 day MVA test. WB broke below the 200 day MVA at 36 Monday and has spent the last three sessions unable to recover over that level. Wednesday it sold to 35 and rallied back on stronger, above average volume, but again failed to make the move over the 200 day. Looking for the stock to fail at this level or at 36.50 at the 50 day MVA.
Volume: 3.125M Avg Volume: 2.933M
BUY POINT: $35.28 Volume=3.5M Target=$32.05 Stop=$36.05
POSITION: WB PU - April $37.50p (-57 delta)
http://www.investmenthouse.com/ci/wb.html
Upside:
Play Date: 01/29/2003
BG (Bunge Ltd.--$25.59; -0.24; optionable): Agricultural chemicals
http://biz.yahoo.com/p/b/bg.html
STATUS: Testing the breakout. BG broke to a new high early in the month and continued to rally up until the recent selling. It pulled back and held above the 50 day MVA just below 25. Volume on the pullback has been lower and below average. The selling is abating on this move to test as BG showed a doji over the 50 day MVA. Solid accumulation at 10 up weeks to 3 down weeks since April. Strong stock and looking for a move over the 10 day MVA on a volume surge.
Volume: 250.6K Avg Volume: 459.954K
BUY POINT: $26.25 Volume=675K Target=$31.45 Stop=$24.41
POSITION: BG GE - July $25c (63 delta) and/or Stock
http://www.investmenthouse.com/ci/bg.html
Play Date: 01/29/2003
CBRL (CBRL Group--$31.97; +0.55; optionable): Restaurants
http://biz.yahoo.com/p/c/cbrl.html
STATUS: Cup w/handle. Working in the handle of an 8-month base, the handle holding the 18 day MVA on the low (31.11). Wednesday CBRL started up off the 18 day on rising, average volume. Nice looking pattern with solid accumulation and a relative strength breakout ahead of the stock.
Volume: 704.94K Avg Volume: 626.181K
BUY POINT: $32.95 Volume=925K Target=$38.45 Stop=$30.64
POSITION: CBQ FF - June $30c (66 delta) and/or Stock
http://www.investmenthouse.com/ci/cbrl.html
Revisited:
Play Date: 01/25/2003
COLM (Columbia Sportswear--$41.91; +0.25; optionable): Sportswear
http://biz.yahoo.com/p/c/colm.html
STATUS: Put. Still struggling below the 10 day MVA at 42.75, COLM has churned the last two sessions on heavy volume, unable to participate in the rally. That is a signal the stock is running in place beneath a critical resistance point.
Volume: 911.778K Avg Volume: 381.909K
BUY POINT: $41.96 Volume=475K Target=$38.15 Stop=$43.15
POSITION: TQQ PI - April $45c (-55 delta) or TQQ OI - Mar. $45p (-59 delta)
http://www.investmenthouse.com/ci/colm.html
Play Date: 01/25/2003
BVF (Biovail--$29.26; +0.21; optionable): Drug delivery
http://biz.yahoo.com/p/b/bvf.html
STATUS: Put. Still struggling below the 50 day MVA (29.35) on low, below average volume. BVF has moved up the past two sessions but has been unable to generate any volume to push it over that level. Looking for this low volume weak move to fail to continue the downside.
Volume: 429.3K Avg Volume: 1.024M
BUY POINT: $28.85 Volume=1M Target=$25.55 Stop=$29.65
POSITION: BVF PF - April $30p (-51 delta)
http://www.investmenthouse.com/ci/bvf.html
End Part 1 of 2
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