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us stock market, stock watch
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5/21/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: LXK; ADVP; TLB; FFIV; MAT
Trailing stops issued: None issued
Stop alerts issued: None issued
Another rally back to flat.
Now that the market has shown it has entered into a consolidation phase valuation downgrades continue to flow. Morgan Stanley downgraded biotech in general Wednesday while other leading stocks (e.g., SSYS) were targeted as simply being too successful. That is the life of a leading stock that is growing earnings and sales at a strong clip and thus attracts a lot of investment dollars. It is the continual target of value based analysts who view value as some set figure etched in stone in the halls of Wall Street as opposed to the truth: what a willing buyer will pay. When a stock is growing its earnings faster than its competition, has a bright future, and the market is pricing in future economic growth, buyers are willing to pay more for it.
In any event, the market had to deal with analyst calls, Greenspan evasiveness, more mad cow concerns, more terror concerns, etc. Just another typical day for stocks. Right now investors are using news as a reason to take some gains. When the market is rallying investors either ignore such news or they view it as a reason to buy. Thus it was another day of volatility as the sellers tried to push the market lower but buyers were able to rally it back in the afternoon. In the end things were flat again as neither side could gain the advantage. After such a large run that is not bad action.
THE MARKET
Look at the charts and it is easy to see the market is in a pullback after the nice run higher. A quick drop to touch support and a resumed rally, or a more prolonged stay? The intraday action shows the volatility that accompanies a consolidation. Before the Monday drop and subsequent to that drop the market ran up and down intraday in a fairly tight range. This is the volatility we discussed last week that is not shown in the VIX because the trading range is fairly narrow. This action results when there are fewer buyers willing to buy given the higher prices and sellers entering the market to take profits and to try to sell short to push the market lower. There are not enough sellers to really push the market lower and there are enough buyers still stepping in on the dips to offset that modest selling. The result is the action we see: attempts to sell and then some buyers entering to move the market up to the close.
If this is a short pullback we will know soon as buyers will enter with force and send the leaders and the indexes higher on volume. Right now we are looking at 4 sessions of pullback, hardly much of a consolidation. The indexes are poised at a good point, however, to rebound if they are going to provide a quick move. The Russell 2000 and SP400 both moved up off their 18 day MVA Wednesday, and obviously many of their component stocks did the same. As we have mentioned before, the leaders start to move before the rest of the market. We don't really consider Wednesday a banner day for leaders breaking higher. Most of what they did was recover from the Monday and Tuesday selling but did not put together a lot of volume. If they start moving ahead again on strong volume that would indicate the rally is ready to resume after just a short pullback.
Our belief is it will take a bit longer to work out the excess from the rally. Nasdaq ran to 15% over its 200 day MVA and on cue started to struggle. It has pulled back 5% off of its high at 1552 and is now 10% over its 200 day MVA. Unless Nasdaq is going to run higher than the average historical norms, it would need some more time to let the 200 day MVA rise toward current prices. That usually means more lateral and somewhat lower consolidation. That would really be much better for the index as well because as we have noted about this rally from the October low, it has been staid and steadier than prior bear market rallies, taking its time to rally and rest, rally and rest as opposed to one big shot higher that burns out. Thus we are not getting too excited about a quick move back up and that is why we closed many positions earlier this week. We may be wrong and if we are we get back in to those stocks that are moving well. If not we wait and pick our shots when they appear.
Market Sentiment
No real sea change in sentiment. The weekly survey of investment advisors shows that bulls stopped climbing, but they did not fall much if at all. Bears stopped falling, but they too did not show any real gains. These lethargic sentiment levels do not help a market that is struggling, but as we have noted before, they don't automatically condemn it. Volatility can hover at low levels while the market continues to run. Eventually it will combine with other forces to correct the market, but as with Greenspan, when is the question. Sentiment indicators are typically not great timing devices.
VIX: 23.21; -0.16.
VXN: 30.88; -1.34
Put/Call Ratio (CBOE): 1; 0
Nasdaq
Another rally back late closes the techs with just slight losses.
Stats: -1.22 points (-0.08%) to close at 1489.87
Volume: 1.587B (-6.43%). Volume backed off to below average as Nasdaq spent another session of consolidation.
Up Volume: 728M (+72M). Very evenly divided volume ratio matches the consolidation action.
Down Volume: 814M (-205M)
A/D and Hi/Lo: Advancers led 1.14 to 1. Advancers leading on a down session shows the underlying strength.
Previous Session: Decliners led 1.11 to 1
New Highs: 84 (0)
New Lows: 9 (+1)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq is carving out some support at 1475 as it moves laterally, tapping that level the past two sessions. It paused below that level on the way up in April and early May, a point that is just over the January high (1467), so there is a shelf there for it to try and hold. Volume backed off as Nasdaq showed another doji as it continues to hold a lot of its gains as it works to consolidate the move higher. This would be the ideal point for it to hold and work laterally, keeping the January high as its support. With stocks such as MSFT nose diving, however, the index will be hard pressed. It can handle one or two such collapses, but no more as it is an index made up of large cap techs. It is showing good consolidation action for now but the large caps will have to hold support as well.
S&P 500/NYSE
Managed a modest gain on declining volume. Holding steady right now is not a bad thing at all.
Stats: +3.69 points (+0.4%) to close at 923.42
NYSE Volume: 1.443B (-3.12%). Volume backed off as the SP500 was basically flat. No accumulation, no real distribution.
Up Volume: 951M (+263M). Interesting that upside volume was in the lead and solidly so.
Down Volume: 478M (-325M)
A/D and Hi/Lo: Advancers led 1.5 to 1. Breadth was pretty inconsequential.
Previous Session: Advancers led 1.3 to 1
New Highs: 250 (+65)
New Lows: 7 (-6)
The Chart: http://www.investmenthouse.com/cd/$spx.html
SP500 held over 911 again, managing to rally off the lows in the afternoon session to close with a small gain. That continues the intraday bullish activity other than the Monday dump lower, and helps build for the next move higher. Unlike Nasdaq, SP500 has a lot of upside room to run. It is roughly holding the breakout from its cup with handle formed this year, and the SP500 has outperformed Nasdaq this week. Perhaps it is time for the other indexes to assert themselves more just as the RUTX and SP400 are doing right now, take a leadership roll, and give Nasdaq a breather. While the large caps may not provide that push as they continue to consolidate below the 18 day MVA, it looks as if those two smaller cap indexes will be ready to step in.
DJ30:
Similar action as the blue chips again tested toward the 50 day MVA (8395) on the low and rallied back for a slight gain. As with the SP500 that keeps the intraday action with a bullish flavor. Volume shot higher on the Dow as MO soared on a favorable court ruling and MSFT tanked on volume. The 50 day MVA needs to hold, and we can expect some more lateral action before making the next attempt higher.
Stats: +25.07 points (+0.3%) to close at 8516.43
Volume: 1.443B (-3.12%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Jobless claims are out but again we are not anticipating much improvement as jobs are not being created. The big issue is whether jobs are still being lost as last month showed. Aside from that there are the same issues (terror, economy) that investors can look to if they want to find a reason to stay on the sidelines. Given that there is a long weekend ahead, we are more or less anticipating volume to continue to decline Thursday and Friday as investors see no real reason to get into new positions with the current moderate pullback and a long weekend.
That can exacerbate the volatility we have seen intraday though in the big scheme the relatively tight range keeps overall volatility limited. What we are going to watch are stocks such as GRMN, SCSS, SINA, SOHU, EBAY, YHOO, etc. and see how they respond to the pullback. Many are set up to bounce, and if they get some solid volume on a rebound that could indicate the broader market will be following shortly. In any case, if they start to make that kind of move we will be ready to pick them up. When leaders go on sale after a pullback, it pads the brokerage account.
That said, again we are not expecting a rapid rally back up. It may happen because what you expect is often not what the market delivers. The run has been solid and sustained. A more sustained consolidation would be in the nature of this rally to now. Again, we exited many positions early in the week given what has happened to this point and what we were seeing. We will move into the leaders as they recover even if the overall market lags; that is the usual scenario anyway. It is just that we do not feel there is an overall sustainable surge off of this level. It may try it, but again, Nasdaq is still 10% over the 200 day MVA. That puts a cap on the rise. Again, stick with some recovering leaders if they show the moves and we should be in good shape.
As for existing positions, as long as they are holding the near support levels we are going to stick with them. This applies mainly to stock positions as options tend to lose value over time. Longer term options (2, 3 and more months out to expiration) are not as impacted and we have some time to see if a rebound comes sooner than later. For shorter term we were exiting early in the week and we will exit more if no bounce comes soon. Even a low volume bounce can provide a good exit point for these. Remember, the longer a stock sits and goes nowhere, time works against options you buy as well as volatility. As volatility falls that component of the option price will fall as well and that is another impact on your option value.
Support and Resistance
Nasdaq: Closed at 1489.87
Resistance: The 18 day MVA (1497). The 10 day MVA at 1508. The December intraday high (1522). Some resistance at 1550 to 1560. 1570 to 1578 (June 2002 closing low, May 2002 high). Down trendline from the May 2001/January 2002 intraday highs around 1580.
Support: The August 2001/January 2002 down trendline (1486). The January high (1467). The exponential 50 day MVA (1445). The March and August highs (1426 and 1427).
S&P 500: Closed at 923.42
Resistance: The 18 day MVA (925). The 10 day MVA (929). 935 (November and January peaks). 954 (December intraday high). 965 (August 2002 peak).
Support: Price tops at 911 (July). March and April highs (896 and 905). September 2000/March 2002 down trendline (899). The 50 day MVA (902) and the 200 day MVA (884).
Dow: Closed at 8516.43
Resistance: 8522 and 8520, the March and April twin peaks. The 18 day MVA (8542). The 10 day MVA (8570). November and January highs (8800, 8870). December high (9044).
Support: The 50 day MVA (8395). The 200 day MVA (8328).
Economic Calendar
5-19-03
Leading Economic Indicators, April (10:00): 0.1% actual, 0.0% expected, -0.2% March.
5-20-03
Treasury Budget, April (2:00): $51.0B actual, $50.0B expected, $67.2B March.
5-22-03
Initial jobless claims (8:30): 420K expected, 417K prior.
SUBSCRIBERS QUESTION
Q: Some stocks have many entry points on your list. When the market sells off it is
good time to look again . Which entry point shall I use the original [buy point] or
the new one? Thanks
A: This is a new one and a good one and we will look at it in the context of a stock that has made the move we wanted and is pulling back. There are quite a few report plays in that position right now. The primary consideration on a pullback from a good move is whether the stock is able to hold support. A strong stock will use the pullback to shakeout the short term holders, and when demand outstrips supply (i.e., the sellers are gone), the stock moves back up. The buy point on that can vary depending upon your category of risk. Some want to see the stock move back over the previous high before the pullback so it clears potential resistance at that last high. That is fine as it does clear resistance, but it also can cut off part of a nice gain for a strong stock that is ready to make another run.
If the stock is a strong mover with good accumualtion and price/volume action, we are inclined to step in when we see the stock make the bounce on rising volume. That signals to us that support has held and that big money is moving in to buy the stock on this pullback. We want to move in when that big money makes its move.
Thus, we would be inclined to look at the buy point closer to the price as the stock starts to bounce. Those points are typically picked as they allow the stock to clear resistance before the initial buy is made. That may be a bit too high as well, however, and you could give up a portion of a nice gain as outlined in first method. The key is having a solid stock that is moving well and thus won't be so deterred by the prior resistance. Indeed, it most likely has held close to that point on the pullback. Then you want to see that solid bounce on volume and moving in at that point.
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 movers Wednesday: ADVP; BCR; FDRY; FLSH; GPRO; MAT
New Plays:
Upside:
Play Date: 05/21/2003
ABTL (Autobytel--$5.01; 0; no options): Internet car sales facilitator
http://biz.yahoo.com/p/a/abtl.html
STATUS: Testing the breakout. ABTL shot out of a 4-month flat base in March, tested the 50 day MVA (now at 4.05) and rallied up to 5. It is now testing that move, holding the 10 day MVA on the low (4.80) and trying to move higher. Tuesday it did that on stronger, above average volume, and it repeated the move Wednesday after gapping lower, but on much lighter trade. This is its first real test of the 10 day MVA after the 50 day MVA test in April, and we view that as resetting the clock on the number of runs up the short term MVA (usually 4 to 5). That makes this a good entry point on a volume break higher. During the flat base accumulation was excellent at 5 up weeks on rising volume to 1 down week on rising volume. Money flow is strong and is leading the stock price, a bullish indication for a move higher.
Volume: 147.672K Avg Volume: 247.09K
BUY POINT: $5.09 Volume=371K Target=$6.75 Stop=$4.73
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/abtl.html
Play Date: 05/21/2003
NCN (NCE Petrofund--$8.19; +0.03; no options): Oil and gas investment trust
http://biz.yahoo.com/p/n/ncn.html
STATUS: Cup w/handle. NCN invests in oil and gas properties in western Canada. There has been a growing shortage of natural gas, and with Greenspan's comments today that helped spark many natural gas stocks. Excellent 5 to 2 accumulation in the base with strong money flow. The price/volume action in the base is excellent. Volume was higher as it sold off to form the right side of the base, it dried up at the bottom of the base, and then it started surging as it moved up and built the right side of the base in May. During the handle volume peeled back. The stock technically broke out Monday as volume surged, but it is still well within the buy range.
Volume: 396.7K Avg Volume: 169.59K
BUY POINT: $8.28 Volume=254K Target=$10 Stop=$7.88
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/ncn.html
Continuing plays ready to go:
Play Date: 05/12/2003
FLSH (M-Systems Flash Disk--$10.3; +0.5; no options): Semiconductor flash memory
http://biz.yahoo.com/p/f/flsh.html
STATUS: Testing the breakout. FLSH is one of those solid movers in this rally, having broken out of a 5.5 month cup with handle just two weeks back. It rallied sharply on strong volume up to 10, then fell back on lower volume to test the 10 day MVA (9.50). It tapped that level Wednesday and started up on strong, above average volume. Very nice first test of the breakout, and we are looking at positions here, new or additional.
Volume: 299.015K Avg Volume: 150.545K
BUY POINT: New: $10.37 (orig. $9.20) Volume=195K Target=$10.96 Stop=$9.11
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/flsh.html
Play Date: 04/15/2003
JNPR (Juniper Networks--$12.72; +0.13; optionable): Computer networking
http://biz.yahoo.com/p/j/jnpr.html
STATUS: Testing the breakout. JNPR is another strong mover in the rally, having broken out of 5-month flat base in April. It is now making its second test of the 10 day MVA, holding that level on the Wednesday low (12.40) and starting to move back up. Volume was still low and below average, but we are looking for volume to flow back in on a further move. That will be our cue for new positions. Relative strength has broken out and money flow is strong. Accumulation in the base was excellent at 5 to 1, so there is plenty of solid foundation for this move higher.
Volume: 6.792M Avg Volume: 12.341M
BUY POINT: $10.6 Volume=17M Target=$13.42 Stop=$11.94
POSITION: JUX GB - July $10c (56 delta) &/or Stock
http://www.investmenthouse.com/ci/jnpr.html
Play Date: 05/07/2003
VIVO (Meridian Biosciences--$9.55; +0.22; no options): Diagnostic substances
http://biz.yahoo.com/p/v/vivo.html
STATUS: Testing the breakout. VIVO moved over the buy point Wednesday, but it fell back toward the close, edging just below the buy point. It was a solid move with excellent volume, and we were set to enter but decided to hold off given the pullback. Excellent money flow and accumulation. On a follow through move tomorrow we will look for positions.
Volume: 168.702K Avg Volume: 34.181K
BUY POINT: $9.56 Volume=45K Target=$11.25 Stop=$8.94
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/vivo.html
End part 1 of 2
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