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us stock market, trend trading stock
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4/14/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Monday: BBA (showed a doji after strong run; took some gain, left some to run). Left others to run for us.
Buy alerts issued: BDX; LOOK; AFCO; APOL; FDX; RGEN; MATK
Trailing stops issued: None issued
Stop alerts issued: None issued
Solid price gains, some on volume but most not.
This was the first Monday in the last four that did not end up with either a big loss or a gain that was quickly dumped. The DJ30 and SP500 both closed above their 200 day MVA, a key resistance point that tossed the indexes back the past month. That is a positive, but it is not salvation. The indexes managed a close over the 200 day MVA toward the end of March, but that lasted just a session as that was the end of the first leg of the rally from the March low that immediately preceded the Iraq war. Since then the market has moved laterally below the 200 day MVA.
Monday's move was significant, but the light volume accompanying the gains provided no foundation for the move. Volume did surge in the last hour as stocks spurted higher in the last half hour. That was promising. The indexes are still in the middle of the past month's trading range, however, and to make a break higher from them they will need more buyside trade than the last half hour Monday. There were some very good individual volume movers Monday, not a lot of breakdowns even with the Barron's attack on the internet, and NYSE breadth was excellent. There was help from C and its earnings, but not a bailout. As earnings season breaks on the market, investors were not in a stampede to snap up stocks. Monday was an example of what a little bit of news can do when coupled with some very light volume.
THE MARKET
Solid point gains on nice breadth for the large caps, though the tech move was much narrower. The move made a lot of investors feel better after three straight Mondays with a lousy disposition to the upside. We would have been more comfortable with more overall volume as that would have given a better peak at the market's hand. As it turned out the signals remained mixed: still in the trading range, still low volume, still some good breakouts, still a few breakdowns, still the weakening price/volume action with some mild distribution sessions and low volume recoveries. That action below the recent twin tops in March and April does not feel us with a warm glow, but it has not kept us from taking advantage of good moves as they present themselves. The market is a grouping of stocks. More have been moving up than down, and there continues to be a cadre that are moving up well. We won't ignore that action just as we don't ignore the mild distribution and eroding price/volume action overall.
Indeed the market showed a bit of character, though it had some help. Barron's was all over the internet sector, gleefully warning of a second internet bubble with AMZN, EBAY and YHOO its main rags. AMZN has struggled, and we had already long exited those positions. EBAY and YHOO held up very well even with the story. Other stocks are getting a lot of 'valuation' downgrades; they hit new highs and stock analysts, most still nursing third degree burns from the stock meltdown, are quick to hit the panic button and scream 'sell' as a stock hits a new high. How well stocks react to such criticism says a lot about market health. Monday stocks did pretty well when faced with criticism. A market that knows what the score is and where it is going tends to respond better to such attacks. A market that is ready to wet its pants will do so when the analysts bark. Monday the market ignored analysts for the most part.
It also received help from Citigroup and other financial stock earnings. C beat the street by 2 cents and was fairly chipper about its prospects. This is a big consumer bank with its consumer credit sector making up the bulk of its earnings. That made investors feel pretty good on the heels of the higher retail sales reported Friday. Earnings are the focus going forward. IBM missed on the earnings number but beat on revenues (the flip of the usual IBM scenario), and NVLS hurt the chip equipment sector with its earnings and lackluster view. Inauspicious start and could be a problem. The future as stated in the conference calls is the key.
How the indexes trade around the 200 day MVA and the top of the trading range will tell much about the Monday action. It did not wipe away the distribution sessions, and with the disappointing IBM and KLAC numbers, higher volume selling on Tuesday would be a bad sign.
Market Sentiment
VIX: 26.47; -1.8
VXN: 39.51; -0.11
Put/Call Ratio (CBOE): 0.79; 0
Nasdaq
Managed to recapture the loss from last week in once session, quite a change from prior Mondays. Still very low volume, the lowest in over a month. Not much strength.
Stats: +26.1 points (+1.92%) to close at 1384.95
Volume: 1.17B (-5.03%). Lower and lower below average volume. This continues the erosion of the good price/volume action that led the move off the March low.
Up Volume: 902M (+368M)
Down Volume: 237M (-433M)
A/D and Hi/Lo: Advancers led 1.89 to 1. Solid, but not really strong. The move in the index was mainly due to the large cap techs that dictate the index' moves.
Previous Session: Decliners led 1.11 to 1
New Highs: 99 (+13)
New Lows: 27 (-17)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Up off the exponential 50 day MVA (1359), making a higher low in the trading range (the bottom of the range at 1336 where the recent lows and the 200 day MVA reside), Nasdaq moved where it need to make a move. Higher lows after a missed opportunity to take out the March high (1425) give the index a better technical look, at least from the perspective of breaking out of the range. It is not a stellar, mark your calendar type of move, but it is what Nasdaq needed to do to keep some life in the rally. It was the minimum, however. There was no volume on the move, and that makes the move totally suspect. What really counts is what Nasdaq does at 1400 and then at 1425. That is where its guts will be checked. Call it intestinal fortitude if 'guts' is a bit crude for you. In short, Nasdaq made a nice price move for the day. It still has to prove something, and tech earnings, despite easy comparisons, are not generating a lot of excitement.
S&P 500/NYSE
Strolled through the 200 day MVA on the close on volume that can be best described as strolling volume. Higher low is good, how it holds the 200 day MVA is the real story.
Stats: +16.93 points (+1.95%) to close at 885.23
NYSE Volume: 1.098B (-1.64%). Low volume, and without the last spurt of volume in the last half hour, it would not have beat a billion shares.
Up Volume: 945M (+400M)
Down Volume: 150M (-414M)
A/D and Hi/Lo: Advancers led 2.81 to 1. Outstanding breadth all session and it only got better late.
Previous Session: Advancers led 1 to 1
New Highs: 86 (+17)
New Lows: 23 (-3)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps did something they could not do for over 3 weeks, i.e., close over the 200 day MVA (881.45). Volume overall was not enough to hold the index at that level. Earnings, particularly guidance, will play a large roll in how the index moves from here as the war has wound down, 2 carriers are heading home, and we are probably not moving into Syria right away. The real interesting test comes over 900 when SP500 tries to take out 911. That is just the first hurdle. Anyone want to buy some large caps? They are not our favorites right now, but we would like to see others buy them.
DJ30:
The blue chips also managed to move over the 200 day MVA (8340), moving off a higher low from the 18 day MVA (8196). As with the large caps, this was the first close over the 200 day since it spent one session there in late March. IBM was up after hours, adding $1.50. Then it gave the move back, trading back to the 4:00 close. How it trades tomorrow will key the Dow. MSFT and INTC report after hours Tuesday. Given the importance of IBM, INTC and MSFT to the index, the Dow might even lead the market tomorrow though Nasdaq will have something to say with chip equipment stocks pretty much stinking things up after hours. The Dow has done what it needed to do, i.e., the higher low and moving over the 200 day MVA on the close.
Stats: +147.69 points (+1.8%) to close at 8351.1
Volume: 1.098B (-1.64%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
Oil is heading lower now with little impediment. The dollar gapped higher Monday but could not hold the gains. Somewhat curious action in the dollar given the market strength. The primary driver Monday appears to have been some solid financial sector earnings and the falling price of oil. Tuesday the driver will be the earnings that hit after hours.
Those earnings did not light the scoreboard, at least to the upside. NVLS met views but had a disappointing outlook. Chip equipment stocks were pounded lower after hours as IBM gave up its early after hours gains as well. Despite the late-session volume increase as stocks finished on a high note, the corporate outlook will be a primary market driver. IBM affirmed its year but it still fell as NVLS provided a tepid outlook. The market needs chips to do well; while chip equipment stocks are not exactly chips, if there is no need for extra chip making ability, the outlook for chips overall is not very good. A Nasdaq with the chips down is a Nasdaq that has a hard time moving up.
Futures were all over the map after hours, but futures can trade all over the map after hours and then morph overnight. The key to this move remains clear: the indexes need to continue to build up to and take out the March and April highs on volume as a first step to continuing the rally from the March lows. If the market turns over Tuesday on rising volume (something that, when you think about how low the Monday volume was, would not be too hard to do) on the heels of IBM and NVLS, that would not be a positive for the rally. If volume jumped substantially on such action, that would really put the rally in jeopardy with another distribution session. Moreover, high volume reversals at resistance points are typically bad signs for upside moves.
Overall, not much has changed. The indexes are still in their trading ranges, still trying to make a higher low to test the top of the range yet again. Overall they are still in a short term uptrend off the March low, trying to consolidate the move in this trading range to make the next leg higher. They are still, however, in much larger downtrends and the DJ30 and SP500 have yet to make a higher high in the overall larger downtrend. That is what their real struggle is right now. They have been in accumulation up to the last two weeks and are now testing the buyers' resolve. Stocks continue to breakout, more than are breaking down. The foundation is still there to make the move higher in the next leg in the rally, it is just having to work through the process to set up the move. Whether it does or not will now be driven by earnings outlooks primarily, and economic reports secondarily.
What we do is continue to buy those stocks that make the breakouts from good patterns or break down from weak patterns though overall there is more upside potential than downside right now. If the market reverses on volume we move out of upside plays and look to good downside plays and let others develop. Overall we expect the market to make it up to test the recent double top given this higher low. What it does there will tell us what the market is going to do in this rally.
Support and Resistance
Nasdaq: Closed at 1384.95
Resistance: 1400 is some resistance formed over the month. The early November, March and early November highs (1420, 1426, and 1427, respectively). The January high (1467). The December high (1521).
Support: The 18 day MVA (1371). The exponential 50 day MVA (1360) and 1357, the 1998 bear market low. The 200 day MVA (1337) and the simple 50 day MVA (1341). The January 2002/January 2003 down trendline at 1316.
S&P 500: Closed at 885.23
Resistance: 200 day MVA (882) is not completely broken given the low volume. Then price tops at 911 (July) and 925 to 935 (November and January peaks).
Support: The bottom of the October consolidation range at 875 down to 868, the top of the January trading range. The 18 day MVA (869) and the exponential 50 day MVA (862). 850, the bottom of the January trading range. The simple 50 day MVA (848). Price support at 825.
Dow: Closed at 8351.10
Resistance: 200 day MVA (8340) has not been totally broken. 8522 and 8520, the March and April twin peaks. November and January highs (8800, 8870). December high (9044).
Support: 8250, the bottom of the October consolidation range and other index lows is some resistance. The 18 day MVA (8196). The top of the January range at 8160. The exponential 50 day MVA (8138). The simple 50 day MVA (8008). Price support at 8000 (bottom of January trading range) and then again at 7750.
Economic Calendar
4-14-03
Business inventories, February (8:30): 0.6% actual, 0.3% expected, 0.2% January.
4-15-03
Industrial production, March (9:15): -0.2% expected, 0.1% February.
Capacity utilization, March (9:15): 75.4% expected, 75.6% February.
4-16-03
Housing starts, March (8:30): 1.685M expected, 1.622M prior
Building permits, March (8:30): 1.725M expected, 1.811M February
CPI, March (8:30): 0.4% expected, 0.5% February.
CPI core (8:30): 0.2% expected, 0.2% February.
4-17-03
Initial jobless claims (8:30): 420K expected, 405K prior.
Philly Fed, April (12:00): -6.5 expected, -8.0 March.
SUBSCRIBER QUESTIONS
Q: I had purchased BBA at $5.88, and sold it prematurely at $6.80. However, it still looked to be very strong with huge volume and money flow, even in the lukewarm market that we had on Thursday. In a case such as this, is it advisable to buy it again at the price it closed ($6.82) on the expectation that it still has plenty of life left in its recent run or should I sit it out to see if it takes a pause or does a pullback before trying to buy it again? I know you might not have a clear cut answer to this, but in the short time I've been a subscriber, I've come to really value your commentary. Thanks for the help.
A: Excellent question. One of the things you want to avoid is the urge to buy in too late on a strong move. It is a constant fight and we still do it, but when we do we usually buy into it with a partial position with the idea that if the move pulls back we can average into the stock at a lower price when it holds at support and starts back up. As we have gone through two additional sessions since then, we kind of have the benefit of hindsight, but the principles are the same.
Basically on a breakout you want to try and avoid buying a stock that runs more than 5% beyond the breakout point. The reason is a stock can get overextended short term and then fall back to the breakout point to test the move. If you buy at say 10% past the breakout, you would have to risk a test the size of that 10% before you would know if the stock was going to hold the breakout. Buying no later than 5% (before that, i.e., right at the breakout if possible is always best), you can suffer a test of the breakout, even an intraday undercut, and if it does not hold, you can get out with a minimal loss.
With BBA at 6.82 on the close Thursday, that put it roughly 16% over the buy point. It can easily come back to test some of that gain with the 10 day MVA down near 6.20 after such a strong ballistic move higher. Monday BBA showed a doji, a 'tombstone' doji (runs higher from the open, then returns to the open price, all of this occuring after a definite move higher), a signal that it can come back to test the move to some extent. The powerful breakout on solid volume and the quick 20% move in the stock is a sign the test will hold up and that indeed the stock will run further after the first move is tested.
Thus, after such a strong move, don't sweat it. Stocks rise and fall, rise and fall. There is not just one entry point, but we need to, to the best of our ability, enter when the buy point is right. A trend makes entry points much easier; you don't have to be as exact as the trend is forgiving. Still, after a strong move up, let it come back and test. Wait for that next logical entry point. On a strong breakout, that is typically the 10 or 18 day MVA. When it comes back and holds and starts up, then move in. You can add to existing positions at that point as well as stocks that make big breakouts and add a quick 20% or so can be acontinued winner for you.
SEMINARS ON CD
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 moves: AOL; BWS; DKS; ELAB; FDX; JOSB; RGEN; MWD; SSYS; LOOK
New:
Upside:
Play Date: 04/14/2003
CLE (Claires Stores--$25.89; +1.59; optionable): Apparel stores
http://biz.yahoo.com/p/c/cle.html
STATUS: Cup w/handle. CLE is in retail, and retail apparel has formed up some nice bases the past few months, anticipating a return of consumer confidence and some spending. CLE is in a 4.5 month base, making the second strong volume move in three sessions, clearing resistance in the right side of the base. Accumulation in the pattern is solid at 6 up weeks on rising volume to 2 down weeks on rising volume (positive 6 to 2 accumulation). Relative strength broke out Monday as well as CLE surged higher. Very nice action and we are looking at positions on a further volume move.
Volume: 532.7K Avg Volume: 378.272K
BUY POINT: $26.05 Volume=567K Target=$30 Stop=$24.23
POSITION: CLE HE - Aug. $25c (63 delta) &/or Stock
http://www.investmenthouse.com/ci/cle.html
Play Date: 04/14/2003
PCNTF (Pacific Internet Ltd.--$6.42; 0; no options): Internet service provider
http://biz.yahoo.com/p/p/pcntf.html
STATUS: Cup w/handle. PCNTF is trying to breakout from a very nice, orderly 3-month base that is just about picture perfect. Volume dried up during the bottom of the base and then surged as the stock moved higher to complete the base. It then pulled back a few sessions on very low volume and then made a strong move Friday that broke it over the handle high (6.43). PCNTF showed a doji Monday on lower volume. Accumulation in the base is excellent at 4 to 0. We are looking for another strong volume move up to enter positions.
Volume: 92.55K Avg Volume: 116.09K
BUY POINT: $6.62 Volume=175K Target=$8 Stop=$6.16
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/pcntf.html
Downside:
Play Date: 04/14/2003
SYMC (Symantec--$40.01; +0.26; optionable): Internet software
http://biz.yahoo.com/p/s/symc.html
STATUS: Put. SYMC broke down in late February and started the current downtrend, using the short term MVA as resistance. After tanking last Thursday, SYMC rallied back up Friday and Monday on lower and lower volume. Monday it moved up just below the 18 day MVA (40.46) on very, very low volume. This looks very much like the lower volume test of resistance in a continuing downtrend. We are looking for SYMC to turn down here and pick it up on the move back down as volume rises.
Volume: 2.754M Avg Volume: 6.054M
BUY POINT: $39.45 Volume=6M Target=$36 Stop=$40.88
POSITION: SYQ SH - July $40p (46 delta)
http://www.investmenthouse.com/ci/symc.html
End Part 1 of 2
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us stock market
trend trading stock
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