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Begin part 2 of 3
SUBSCRIBER QUESTIONS
Q: On Friday morning, CNBC gave an advisory that Trimtabs.com was indicating that the market would sell off next week do to liquidity problems. Seems that due to a large number of offerings of new stock, they feel that there will not be enough buyers and/or money to absorb the new issues. Seems something like 8 billion dollars worth of stock if I understood correctly. My question is, what do you know about these people, and is their call a legitimate one. I would appreciate and value your call concerning this matter. Also, I am very impressed with you insights on the market. Very informative. Thanks.
A: Thanks for the kind words. Trimtabs issues these reports every time there is a greater than usual number of new offerings coming to market. This could be in the form of IPO's or additional offerings from existing exchange companies. The idea is, as you point out, somewhat intuitive in that there has to be enough demand in the market to buy the stock that is hitting the market. Either the new issues will suffer, existing issues will suffer, or the whole market will suffer as this stock hits the street and pushed up the amount of available product so to speak.
There is some basis in this if you look at stock split plays. As a stock moves into its split it tends to run higher and then back off when it splits as there is much more stock on the market and trade has to be greater to drive shares higher. Of course the price is lower so it is not an exact correlation: a $50 stock split to $25 still takes the same amount of money to impact the price the same percentage. Still we would often see stocks fall right at the split as more stock was on the market. That is not always true, however. One thing we saw in the bear market was stocks actually rallying higher as the split became effective. Basically investors wanted the stock and rallied it higher even though there was 'more' stock in the market. The stocks were rallying on a perceived economic improvement, and big money was moving in at the split and driving it higher.
We have seen many of these Trimtabs calls on market supply. They are very short term calls (the one you reference discussed the next two weeks as being lower). Sometimes the market moves lower, sometimes it moves up. Intuitively it makes some sense. In real life there are many more variables. Primary is the demand for stock, something the Trimtabs calls suupsedly take into account. Right now institutions are accumulating stock. There is still $2 trillion on the sidelines. If insitutions want to continue to buy good stocks they have plenty of capital to do it.
Further, history shows some very important details. First, all during the bull run, new IPO after new IPO hit the market, yet the market continued to move higher. What did that mean? It meant that when demand is high enough, it will absorb new issues. Thus Trimtabs is absolutely right that if there is more supply than demand the market will suffer. But it is the degree of demand that will determine how the indexes perform. There could be excess supply for the ENTIRE market to absorb, but we would most likely see the leaders continue to attract their share of existing funds. Thus even if Trimtabs is right it would be a short term effect and it does not impact the leading stocks to a great extent.
Finally, there is one statistic that flies the the face of an idea that new issues hurts the market. In all important market moves, the number of new issues directly correlates to market performance. New issues tend to become the new market leaders as they bring the latest and greatest technology to market. They tend to have stellar sales and earnings. When a market is healthy, the economy is or is going to be healthy, and new issues start to surface. History shows that markets tend to perform better the more new issues come to market. What drives the market is demand, and we have seen Trimtabs' calls correspond to market activity and we have also seen them not. The question is how much aggregate demand there is. Trimtabs does a good analysis of existing demand based on average shares traded, but that is a crude measure of latent demand.
THE PLAYS
Good movers Monday: BCR; ADSK; ADTN; ALGN; EPIC; FDX; FFIV; GRMN; HIL; KLAC; LEXR; NSM; SSYS; YHOO
Best Plays:
1) FLSH: Ready to breakout on strong volume.
2) WCS: Starting the breakout on strong volume.
3) HYSL: Very nice pattern.
4) MED: Very nice test.
5) MEDI: Starting up on strong volume.
NEW PLAYS:
Play Date: 05/12/2003
FLSH (M-Systems Flash Disk--$8.92; +0.54; no options): Semiconductor memory chips
http://biz.yahoo.com/p/f/flsh.html
STATUS: Reverse head and shoulders. FLSH is nearing the breakout of its 6-month base showing solid 7 to 3 accumulation (7 up weeks on rising volume to 3 down price weeks on rising volume in the base). That accumulation indicates that there are more buyers than sellers in the stock and it forms a solid foundation to move higher. It formed a very nice right shoulder, holding the 18 day MVA (8.16) on the low; that makes this a shallower shoulder than the left, indicating more strength in the pattern. It is right at the neckline breakout point and shows strong money flow as well.
Volume: 307.75K Avg Volume: 127.681K
BUY POINT: $3.06 Volume=195K Target=$3.94 Stop=$2.85
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/flsh.html
Play Date: 05/12/2003
MERQ (Mercury Interactive--$37.52; +1.77; optionable): Technical and system software
http://biz.yahoo.com/p/m/merq.html
STATUS: Cup w/handle. MERQ is making the breakout from a 4.5 month base showing solid 3 to 1 accumulation and solid money flow. MERQ remains well off of its prior highs, but it formed a double bottom in October, doubled, and then formed the current base in a very steady and controlled manner. Volume shrank after the rollover, then started to swell as it moved up to form the right side of the base. We are looking to pick up positions on a further rally on strong volume.
Volume: 5.793M Avg Volume: 4.551M
BUY POINT: $37.68 Volume=6.8M Target=$44.25 Stop=$35.04
POSITION: RQB GG - July $35c (70 delta) or RQB JT - Oct. $27.50c (56 delta) &/or Stock
http://www.investmenthouse.com/ct/merq.html
Play Date: 05/12/2003
WCS (Wallace Computer Services--$26.93; +0.48; optionable): Printed forms and labels
http://biz.yahoo.com/p/w/wcs.html
STATUS: Flat base. You could call this a saucer or a flat base. Either way you look at it WCS moved between 25 and 26 the lat 3.5 months following a strong gap higher that moved it out of a 7-month double bottom. After such a strong move it needed some time to consolidate, and now it appears to have done just that. The current base shows outstanding accumulation at 6 up weeks on rising volume to 0 down weeks on rising volume; all buyers for the most part. The price/volume action is also very good within the pattern: stronger on the initial selling, then drying up as the stock moved laterally to well below average at the pattern lows. Then when it started up the past month volume started to swell to above average levels. Monday WCS made a strong volume move out of the pattern. It looks solid and is still a buy at this point.
Volume: 720.7K Avg Volume: 340.318K
BUY POINT: $26.12 Volume=510K Target=$31.35 Stop=$25.24
POSITION: WCS IE - Sept. $25c (76 delta) &/or Stock
http://www.investmenthouse.com/ct/wcs.html
CONTINUING PLAYS:
Play Date: 03/04/2003
CY (Cypress Semiconductor--$10.15; -0.03; optionable): Semiconductors
http://biz.yahoo.com/p/c/cy.html
STATUS: Testing the breakout. This is a very nice test of the breakout, holding over the 10 day MVA (9.92) though we are somewhat surprised CY did not use the rally to run higher. It did show a tight doji right over that level as volume backed off but remained above average. This has been a solid performer in the chip sector, and we are still looking at positions on a move up from here.
Volume: 3.486M Avg Volume: 2.115M
BUY POINT: New: $10.35 (orig. $6.70) Volume=2.3M Target=New: $12 (orig. positions: $8.65) Stop=$9.48
POSITION: CY IB - Sept. $10c (60 delta, low OI) &/or Stock
http://www.investmenthouse.com/ct/cy.html
Play Date: 05/08/2003
FLIR (Flir Systems--$51.86; -0.01; optionable): Scientific and technical instruments. Splits 2:1 on 5-30-02
http://biz.yahoo.com/p/f/flir.html
STATUS: Testing the breakout. After that surge higher in late April/early May, FLIR is testing the breakout, holding above the 10 day MVA (51.65) and showing a tight doji on below average volume. FLIR is heading into a split on 5-30 and we are looking for a move up on rising volume from this breakout test.
Volume: 222.785K Avg Volume: 265.636K
BUY POINT: New: $52.05 Volume=401K Target=$58.75 Stop=$49.65
POSITION: FFQ GJ - July $50c (57 delta) &/or Stock
http://www.investmenthouse.com/ct/flir.html
Play Date: 05/06/2003
HYSL (Hyperion Solutions--$30.62; +0.64; optionable): Application software
http://biz.yahoo.com/p/h/hysl.html
STATUS: Cup with handle. HYSL started up Monday, looking for a breakout from its 3.5 month base, but volume remained quite low and well below average. Solid 5 to 3 accumulation and money flow is running higher and higher ahead of the stock price. Looking for a big breakout.
Volume: 370.406K Avg Volume: 695.59K
BUY POINT: $30.83 Volume=1M Target=$37 Stop=$28.67
POSITION: WQE HF - Aug. $30c (57 delta) &/or Stock
http://www.investmenthouse.com/ct/hysl.html
Play Date: 04/28/2003
MED (Medifast--$8.26; -0.49; no options): Wholesale health and diet products
http://biz.yahoo.com/p/m/med.html
STATUS: Testing the breakout. After a massive breakout earlier in the month, MED has come back to test the 10 day MVA on lower volume, tapping that level on the Monday low (8.00) and then rebounding. This was a new issue in December, and it spent this year forming the current cup base that gave way to the big breakout. We love to enter breakouts on the first test of the short term MVA (10 or 18 day MVA) when they bounce up off those levels on rising volume. Solid accumulation and money flow, it looks as if MED is ready to make the move back up.
Volume: 352.6K Avg Volume: 123.863K
BUY POINT: New: $8.42 (orig. $7.12) Volume=145K Target=10.12 Stop=$7.55
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/med.html
Play Date: 05/06/2003
MEDI (Medimmune--$35; +1.02; optionable): Biotechnology
http://biz.yahoo.com/p/m/medi.html
STATUS: Breakout test. MEDI has made a nice 50 day MVA (33.28) as it moves higher in its continuing uptrend. Stocks trending higher typically test the 50 day MVA in the uptrend and then rebound from their to start the next leg. Monday MEDI started the bounce on some rising, above average volume. With money flow rising ahead of price we are looking for additional gains from here.
Volume: 4.189M Avg Volume: 3.75M
BUY POINT: $35.55 Volume=5M Target=$41 Stop=$33.15
POSITION: MEQ IG - Sept. $35c (57 delta) &/or Stock
http://www.investmenthouse.com/ct/medi.html
Play Date: 05/03/2003
NBIX (Neurocrine Biosciences--$46.46; -0.38; optionable): Biotechnology
http://biz.yahoo.com/p/n/nbix.html
STATUS: Cup w/handle. Still holding in the handle of its 5-month base showing good 4 to 2 accumulation. Volume remained above average as NBIX turned in a small loss but held the 10 day MVA (46.38) on the close. Solid money flow, so we are going to be patient and let NBIX make the strong volume breakout. That is the key here, just being patient.
Volume: 465.186K Avg Volume: 393.09K
BUY POINT: $48.20 Volume=600K Target=$54.25 Stop=$45.96
POSITION: UOT HI - Aug. $45c (64 delta) &/or Stock
http://www.investmenthouse.com/ct/nbix.html
Play Date: 04/23/2003
NSCN (Netscreen Technologies--$20.58; +0.88; optionable): Security software
http://biz.yahoo.com/p/n/nscn.html
STATUS: Reverse head and shoulders. NSCN along with other security software stocks was a leader off the July low. It peaked and formed a double top in January and February and started the current 3.5 month base, now moving back up to the neckline (20.80) on some rising though still below average volume. Money flow has held up during the formation of this handle and we are looking for a higher volume breakout.
Volume: 1.433M Avg Volume: 1.662M
BUY POINT: $21.17 Volume=2.5M Target=$25.42 Stop=$19.69
POSITION: QKN ID - Sept. $20c (63 delta) &/or Stock
http://www.investmenthouse.com/ct/nscn.html
Play Date: 05/10/2003
UIS (Unisys--$11; +0.17; optionable): Information technology software
http://biz.yahoo.com/p/u/uis.html
STATUS: Cup w/handle. UIS formed the current base on top of the double bottom formed off the July and October lows. We like these 'base on base' formations as they allow the stock to shake out all of the sellers to set the stage for a real move. Accumulation is excellent at 8 to 3 and money flow is moving up ahead of price, increasing its rise. Volume is starting to surge and was up on Monday back above average. It is close to the breakout and we are ready to move in on a run through the target. Volume has already hit our buy volume, so if it remains solid as UIS moves through the buy point that will be the buy time.
Volume: 1.517M Avg Volume: 1.102M
BUY POINT: $11.05 Volume=1.6M Target=$13.25 Stop=$10.38
POSITION: UIS JB - Oct. $10c (67 delta) &/or Stock
http://www.investmenthouse.com/ct/uis.html
End part 2 of 3
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