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Tech Traders 3/29/01 Market Summary
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Technical Traders Subscribers:

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THE PLAYS

Continuing Plays: HSIC broke out, and the aggressive can look at playing that move higher. Other stocks that continue looking good: CHIC, AMD, ADVP, SRCL, THQI, HOTT, among others. As is the norm in this market, new and continued puts are included.

Semiconductor stocks:

SMTC (Semtech--$29.75; -0.31; optionable (QTU)):
http://biz.yahoo.com/p/s/smtc.html
STATUS: The stock has pulled back in the kind of orderly manner that we like; a gradual drop back to support on steadily decreasing volume. SMTC showed a tight doji on closing above the 18 day MVA (29.36) after tapping support at the 50 day MVA on the low of 28.38. That is good action, and we anticipate a move up from here or the 18 day MVA on higher volume. The stock hit a high of 37.50 (back over the 200 day MVA at 34.42) on Monday. The pullback is a bit over-extended, but allowances are made for bear markets when the price/volume action is good. Initial target on a move over the 200 day: $38-40.
BUY POINT: Aggressive: On a move up from here or the 18 day (29.36) on rising volume. Stop loss: 29.25-29.50. Breakout: 35.63, on volume of 1.7 million or better (Thursday's volume was 1.4 million; avg. 1.16 million). Stop loss: 35.50-35.75.
BUY POINT: Aggressive: June $22.50 or $25 calls to buy (QTU FR or FE). Breakout: Stock and/or June $30 calls to buy (QTU FF).

Continued Plays that look good:

ADVP (Advancepcs--$55.06; -0.69; optionable (QVD)): Health Services
http://biz.yahoo.com/p/a/advp.html
STATUS: Continued the pullback but shortened the move, up from a test of the 10 day MVA (52.75). Volume was lower as well (842,700; avg. 765,000). Looking for a move back up after this test of the breakout. Initial target on a move over 59: $65-68.
BUY POINT: Aggressive: Up from here on stronger volume. New high: Over 59 on volume of 1 million or better.
POSITION: Aggressive: Stock and/or June $50 calls to buy (QVD FJ). New high: Stock and/or June $50 or $55 calls to buy (QVD FJ or FK).

HOTT (Hot Topic--$26.25; +0.37; optionable): Textile-apparel.
http://biz.yahoo.com/p/h/hott.html
STATUS: Moved up slightly from support (18 day MVA, 25.88) on stronger volume (308,300; 534,000). The low tested lower support (50 day MVA, 24.63), and we look for a continued move up from here on increasing volume, for a breakout from the ascending wedge. Initial profit target is 32-34. February high: 29.88.
BUY POINT: 28.63, on volume in the range of 721,000. Stop loss: 28.13-28.38.
POSITION: Stock and/or August $25 calls to buy (UHO HE-low open interest).

THQI (Thq Inc--$37.44; +0.91; optionable (QHI)): Multimedia & Graphic Software
http://biz.yahoo.com/p/t/thqi.html
STATUS: Pulled back from its breakout Wednesday, and tested lower today at the 10 day MVA (35.42) on lower volume (525,400; avg. 419.045). The stock moved up despite that, and looks ready to move back up from this breakout test if volume surges back in. If the Nasdaq bounces, we will look for the move. THQI hit a breakout closing high of 38.88. Continued strong money flow and buying, and relative strength has broken out ahead of price. Still looks strong. Initial target: $43-45.
BUY POINT: Over 39 on stronger, rising volume (709,000 or better). Stop loss: 38.50-38.75.
POSITION: Stock and/or June $30 calls to buy (QHI FF).

New:

RSG (Republic Srvcs--$19.01; +1.05; optionable (RSG)): Materials and construction
http://biz.yahoo.com/p/r/rsg.html
STATUS: Making a strong move up from the handle in a 21-month cup base. Handle high is 19, and on the strong volume (1.17 million; avg. 871,136), the stock looks ready for the breakout. Huge money flow and relative strength has broken out ahead of price.
Initial target on the breakout: $21-22.
BUY POINT: Breakout: 19.13, on continued rising volume. Stop loss: 18.63-18.88.
POSITION: Stock and/or July $17.50 calls to buy (RSG GW).

http://www.investmenthouse.com/ct/rsg.html

PUT PLAYS: CHKP, VRTS, FLEX, NEWP and QQQ have performed well. We are looking for stocks to set up again in the event of a market bounce, looking at stocks that are ready to hit resistance and turn back down again, in addition to EBAY, in the interesting head and shoulders pattern (as was the SOX index recently). 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.

New Put:

EBAY (Ebay Inc--$34.13; -2.06; optionable (QXB)):
http://biz.yahoo.com/p/e/ebay.html
STATUS: The stock is in a head and shoulders pattern, left shoulder from December, head in January/February, and currently forming the right side of the right shoulder, still above the low point in this part of the pattern (31.19). The stock broke below the short term moving averages the last two days on rising volume (hitting 4.37 million Thursday; avg. is 5.1 million). The aggressive can look at playing this one on a move down from here on continued strong volume, with the safer entry point below 30 (lower support in the pattern in the left shoulder) in market selling.
BUY POINT: Aggressive: On a continued move down on strengthening volume. Watch the 31 range if volume is light on the move down. Safer: Below 30 on above average and rising volume.
POSITION: Aggressive: May $45 puts to buy (QXB QI).

http://www.investmenthouse.com/ct/ebay.html

Continued:

OEX (Standard & Poors 100--$584.90; -3.40; optionable (OEY)):
STATUS: Showed a doji on a smaller move down, with volume lower as well (1.07 million; avg. 1.2 million), so it appears the index may test the 10 day MVA (591.41). We are looking for a turn back down from there for a put down to the 570 range (a short consolidation above the March low of 548.16).
BUY POINT: On a move down after a test of the 10 day MVA (591.41), in market selling, April $595 puts to buy (OEY PS).

DJX (1/100 Dj Indu--$97.99; +0.14; optionable (DJV)):
STATUS: Moved up slightly after Wednesday's stronger-volume drop from the 18 day MVA, showing a tight doji. Volume was lower (1.07 million; avg. 1.2 million) as the stock pulled off a high of 98.83 to close just under resistance (10 day MVA, 98.13). The index is juicy for a move down from here, possibly after a quick pop higher. On that move we will look at buying puts for a target of 91, March low.
BUY POINT: On a move down from here on strong selling volume, May $104 puts to buy (DJV QZ).

THE SUMMARY:

TONIGHT:
- Dow a bit indecisive, and looking weaker.
- Nasdaq tries to toe the line at 1800, and MU's earnings won't hurt.
- The quarter is over this week. Will that bring more confessions on Monday? Downgrades?
- GDP a tenth lower, and jobless claims fall for first time in 2 months.
- Subscriber Questions.
- Team Trades.

THE SUMMARY

Dow finishes positive, but it was no show of strength.

The Dow continues its attempts to find its true identity with another choppy session. It was all over the map, gapping lower, racing higher, crashing back down to the lows, and rallying again in the last hour. The 110-point move in the last hour was impressive, but we saw that action Wednesday before it tanked on today's open.

Moreover, volume peeled back 5.5% on the gain, underscoring the indecision reflected in the price swings. When the smoke cleared, the index showed us a doji on the candlestick chart with a close just below the 10 day MVA. But, it did hold above the 9750 level where there is some support. It can be read either way, but on the scale of investing, it looks weaker than it is stronger. We are looking to play the downside on this index one more time.

The S&P 500 and S&P 100 showed similar action, tossing out a doji after tapping at the 10 day MVA on the high (1161.69). Volume was lower on the fall as it should be, so there is something of a question mark here as well. The selling on Wednesday was on slightly lighter than the buying on Tuesday. Technically the price/volume action is the way it should be, and that casts doubt on an otherwise weak pattern. A little bad news from some more big names could send it lower. Futures are up after hours, however, and it is showing some life. Maybe a bit of a bounce Friday before more selling. It may be ready to try and break the downtrend, but we will have to see it. Our money is on maybe another test of the resistance, but the downtrend is still well in force.

Nasdaq stands its ground pretty well.

The Nasdaq was fighting hard all morning, but then gave it up in the afternoon. It looked as if a rout was in the making, but the Nasdaq hit 1802.76 on its low (prior low for the year was 1794.21 intraday) and bounced 15 points to the close. The candlestick chart showed us a doji while volume came in slightly higher (1.5%). Okay, you say, it sold down on higher volume, a continuation of Wednesday's distribution. That is a bad thing and means more downside. Yes, it was not a show of strength, but there are some items to note.

Primarily, though the Nasdaq sold down, the price loss was -1.8% versus -6% Wednesday. When a stock or an index sells on rising volume but the price loss shrinks, that is an indication that the move down is slowing. The reason: there are buyers stepping in. Think about it. The volume was higher on a down day. If buyers were not stepping in, the loss should be as much or more than the previous session as volume stepped up the pace. No, buyers were stepping in and doing some buying; not a lot of buying, but it was enough to slow down the train.

Second, the candlestick chart was a doji right on top of the previous low after testing that low. That is another indication that the index could be once again trying to find bottom here for another bounce. Great if it does, but after the immediate distribution day after a follow through day on Tuesday, we get a pretty clear image of more sellers out there than buyers. The Nasdaq is definitely trying to hold up here, but it has yet to put together the solid numbers together. It appears to be trading in a range from 1800 to 2000. Maybe it will pull one out of the hat here, but with anticipation of some bad news early this week, it will be tested. We were playing it to the downside today, and we could have (should have?) taken some good profits when the Nasdaq was fighting with its low late in the session. After hours it is up and futures look better. We may get stung tomorrow and in retrospect wish we had sold, but the index is in a downtrend and we anticipate more bad news ahead. We believe that investors may start selling into any rally (if one appears) tomorrow ahead of possible bad news coming out over the weekend and on Monday as the first quarter closes the books. Still, we cannot let any position get away from us.

THE ECONOMY

Fourth quarter GDP grew at a revised 1.0% in the first quarter, down from 1.1% as previously reported. No real major surprise here; this is looking back and we feel there is pretty solid evidence that there has been some improvement in the economy this quarter.

Jobless claims fell, coming in at a lower than expected 362,000, down 20,000 from the prior week (382,000, revised higher from 379,000 originally reported). Expectations were for 375,000 new claims. The four-week moving average fell to 374,750, down from 377,750 the prior week. That is the first decline in this measure in 8 weeks. That is good, good. The new jobless average was starting to get too close to the 400,000 level that is a sign of a recession. We want to see that thing continue to move down, but when Delphi cuts 11,500 jobs in the latest job cut news, it seems as if the economy is fighting an uphill battle.

THE MARKETS

Trying to show some life, but the pulse is not strong. Still, the grave is not dug yet either.

Overall market stats:

VIX: 33.83; +0.61. Volatility rose fractionally even though the session was all over the map. It remains above 30, an indication that there is still significant apprehension in investors. Still, significant needs to turn into white knuckle fear for a session or two.

VXN: 73.22; +4.85. A sharp gap higher on today's selling after really going nowhere on Wednesday's slaughter. Kind of a delayed effect. Well off of its recent peaks at 78 where the Nasdaq found bottom and charged higher. Perhaps it will find it tomorrow, but remember, this is a secondary indicator.

Put/Call ratio (CBOE): 0.91; +0.05. Edging higher in a choppy, mixed market. Overall volume remained flat at 1.12 million. No real jump in option activity, just more put activity. Maybe some short covering going on as well, but not a lot of action in options. We prefer to see the option activity balloon along with a sell off in the markets. That would show real fear.

Sentiment: Bulls and bears are getting cozier. Bullish writers dropped to 48.9%, the lowest in 20 weeks. Bears rose to 30.9%. They are not cozy enough, however. They should stare at each other as bears overtake bulls.

Remember, however, sentiment is a secondary indicator. While the fear being measured in surveys is not high compared to historical levels, it may be enough. What we have to keep our eye on is the pattern the indexes are setting up, the price/volume action, and whether there are solid, leadership caliber stocks ready to breakout.

End Part 1 of 2

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