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stock watch, stock option
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5/22/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Thursday: MRGE
Buy alerts issued: VIVO; FLSH; ABTL; MED; VSTA
Trailing stops issued: None issued
Stop alerts issued: None issued
Late day comebacks presage solid advance.
The late session rallies Tuesday and Wednesday after early selling held leading stocks and the indexes at near support, setting the stage for Thursday's rally. Stocks did not wait long Thursday, dipping early and then catching a bid that rallied them straight up to lunch. A 3.5 hour lateral move set up a late surge that was blunted somewhat by a late pullback, but it was a minor pullback that was met with buying right at the close. Nasdaq volume jumped 200 million shares as volume shot higher in the last hour surge. Breadth spread out again with NYSE posting 2+:1 gains.
It was a solid bounce session though it would be a stretch to call it a major breakout session. Buyers used the dip over the prior four sessions to move back into stocks after they proved resilient Tuesday and Wednesday. Many leading stocks moved up off their near term support, and we used this to enter more positions. We would prefer a more prolonged pullback, but when leaders start to move again on volume we defer to the action they are showing. The overall market was not a barnburner, but leaders, by definition, start moving higher ahead of the overall market. We focused on these stocks again as they provide the best moves in a rally, something we have seen happen the past few months.
In the unending game of 'pin a reason on the move,' the deal regarding the tax cut was credited for the rally. Word came down from the President Thursday that an agreement had been reached, and that supposedly surprised investors. Hardly. The only surprise has been how hard the road has been convincing some economic Neanderthals that history shows tax cuts really do spur economic growth. A package of some sort was going to be passed, and the smallest of the possible versions certainly was not a rallying point for the market. It did not hurt, however.
THE MARKET
The Thursday rebound did not launch the market convincingly to a new up leg, but the action was good. After just 3 to 4 down sessions (depending upon which index you want to look at) the indexes started back up on rising volume. Nasdaq volume was solid as it rebounded and many leaders started up on volume as well. Indeed, volume was better than expected on a Thursday before the Memorial Day weekend. That feature made this move more than we expected.
The decline has been fairly quick and straight down. There has not been much time to consolidate the gains, but buyers moved back in on the dip, using the pullback to enter. That is what they were doing on a small scale Tuesday and Wednesday, but the buyers were not ready. Thursday they came out in more force, unwilling to let a dip go by. We don't necessarily like the immediate return to buying after so little rest as it makes it harder for stocks to maintain their upside move. When we see leaders rebounding on some rising volume and breakouts on strong volume, however, we don't try to substitute our gut feelings for what the market is doing. We will remain cautious, not loading the boat so to speak on this move and being quick to protect these positions if the bounce cannot sustain itself, but we will still participate when the market is showing good action.
Market Sentiment
VIX: 21.62; -1.59
VXN: 30.11; -0.77
Put/Call Ratio (CBOE): 1.16; +0.16. Has been at 1 or better the entire week. Perhaps it is helping spur the rally up off the near support.
Nasdaq
Volume jumps as Nasdaq moves up to the 10 day MVA.
Stats: +17.68 points (+1.19%) to close at 1507.55
Volume: 1.794B (+13.01%). Much better volume than anticipated for late in the week ahead of a holiday. Buyers were definitely back into the tech stocks.
Up Volume: 1.344B (+616M)
Down Volume: 428M (-386M)
A/D and Hi/Lo: Advancers led 1.59 to 1. Decent volume but not blowout.
Previous Session: Advancers led 1.14 to 1
New Highs: 142 (+58)
New Lows: 13 (+4)
The Chart: http://www.investmenthouse.com/cd/$compq.html
After the test of 1475 (January high at 1467) Tuesday and Wednesday Nasdaq used that support to start another move higher on volume. It rallied to 1512.80 on the high, but then fell back to close right at the 10 day MVA. It got some relief as MSFT and other large cap techs stopped their fall for a day though they were not racing higher. Thus while the price/volume action was excellent, the quick fall was not a great consolidation, and we still think it will be hard for Nasdaq to rally over the May high without more rest. As of yet, however, Nasdaq has continued to surprise most stock watchers with its leadership and continued strength. Resistance is at 1522 and then the May high at 1553. The 1525 to 1530 area is one to watch as well. Nasdaq and SP500 have the start of a potential short term head and shoulders pattern as further discussed in the 'subscriber question' section. The strong price/volume action belies this somewhat, but it is a point to watch.
S&P 500/NYSE
The large caps rallied back on continued above average volume, but ran into resistance on the high.
Stats: +8.45 points (+0.92%) to close at 931.87
NYSE Volume: 1.446B (+0.19%). Volume edged higher as the large caps continued their move higher off the test of 911.
Up Volume: 1.125B (+174M)
Down Volume: 322M (-156M)
A/D and Hi/Lo: Advancers led 2.01 to 1. Solid upside breadth returns.
Previous Session: Advancers led 1.5 to 1
New Highs: 304 (+54)
New Lows: 15 (+8)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Cleared the 10 day MVA (929.86) on the close but ran into 935 resistance on the high (935.30) and fell back some. Price/volume action has been mostly solid: down on the Monday fall, up on the Tuesday reversal, and higher again on the Thursday gain. As discussed Wednesday, perhaps the large caps can step up and lead some given they are not nearly as extended as Nasdaq. 935 and the May and January highs (948, 954) are immediate resistance that SP500 will have to clear with some volume. A failure at 935 to 940 would match the early May high, a potential left shoulder to a short head and shoulders pattern.
DJ30:
Without MSFT pulling the other direction, MO was able to make a difference and help the Dow post its first gain in 5 sessions. Volume was lower but solid as upside volume led the way. 8750, the May high, still stands in the way but this move actually looks decent.
Stats: +77.59 points (+0.91%) to close at 8594.02
Volume: 1.446B (+0.19%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Long weekend ahead, and if the rally continues up through early afternoon we may see some pullback. If volume declines on the move the volatility will be higher, meaning a move can be pushed pretty hard. Of course that can also cause any late selling to accelerate as well as profits are taken before the weekend.
All and all, given the pullback early in the week, the market set up for a good bounce and started to deliver Thursday. Friday we would be surprised to see any real questions answered as volume will most likely drop off pace and the indexes would be hard pressed to clear the recent highs and thus renew the breakout. Thus about all we can look for Friday is another upside session in the recovery from the recent selling.
Thursday was a good day for rebounding leadership with many starting back up after the quick tests of near support. FLSH, ABTL, LEXR, MED, JNPR, BPOP, SOHU, SINA, NTES, etc. were all moving higher once again. As long as we continue to focus on these stocks that are showing the accumulation and continued support we will set ourselves in the best position for taking advantage of the market moves.
Support and Resistance
Nasdaq: Closed at 1507.55
Resistance: 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 18 day MVA (1498). The August 2001/January 2002 down trendline (1483). The January high (1467). The exponential 50 day MVA (1447). The March and August highs (1426 and 1427).
S&P 500: Closed at 931.87
Resistance: 935 (November and January peaks). 954 (December intraday high). 965 (August 2002 peak).
Support: The 10 day MVA (930). The 18 day MVA (926). Price tops at 911 (July). March and April highs (896 and 905). September 2000/March 2002 down trendline (899). The 50 day MVA (903) and the 200 day MVA (884).
Dow: Closed at 8594.02
Resistance: May high at 8743. November and January highs (8800, 8870). December high (9044).
Support: The 10 day MVA (8574). The 18 day MVA (8547). 8522 and 8520, the March and April twin peaks. The 50 day MVA (8402). The 200 day MVA (8330).
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): 428K actual, 420K expected, 417K prior.
SUBSCRIBERS QUESTION
Q: Appreciate your insight and analysis. I was wondering whether you see (as I do) the possible beginnings of a H-S top on the Nasdaq with the neckline around 1480, left shoulder topping at 1520 and the Head topping at 1550. If this pattern plays out, I believe we would see a rally to 1520 or so to form the right shoulder and then the drop. Would love to get your thoughts on this.
A: As we have noted, the indexes have run a long way without much rest, and Thursday they were running again on solid volume. That was not before making a lower low (SP500) and almost a lower low (Nasdaq). That action where a stock or index comes back to match or undercut a prior low during an uptrend indicates the trend is losing some of its strength. It sets up the potential for a head and shoulders top. After bouncing along in an uptrend and making higher highs and higher lows, the H&S can form after a failure to make a higher low on a pullback. There were not that many buyers this time around to keep the move humming along. Every once in awhile an index needs more rest, and we wanted to see more of a lateral move this week and early next, then maybe the start of another move higher. As it is Nasdaq, SP500, SP600, RUTX, and SP400 are all more or less displaying this pattern that can indicate a potential top to the current move.
It is just another indication of the caution we have on this renewed run and our interest in staying with market winners. It does not, however, always mean selling is to come. In late October and early November SP500, SP400, SP600 showed similar action but then continued the move higher. At that time they had run hard and long off the October low, something as they have done on the current move. But they also had going for them very good price/volume action. That helped the market carry higher before starting the longer consolidation later. Continued good price/volume action and solid leadership are supporting the current move. We still approach this level with caution again, however, given that strong run with little rest.
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 Thursday: ABTL; BCR; DKS; FLSH; MED; MRGE; NTES; SINA
New Plays:
Upside:
Play Date: 05/22/2003
LGTO (Legato Systems--$6.91; +0.83; optionable): Application software
http://biz.yahoo.com/p/l/lgto.html
STATUS: Ascending triangle breakout. LGTO has been working through a 6-month base showing solid 8 to 3 accumulation (8 up weeks on rising volume to 3 down weeks on rising volume). After a shakeout on lower volume early in the week LGTO shot higher Thursday on outstanding volume. Relative strength is ready to breakout as well as the software stocks have formed up and are starting to make breaks higher.
Volume: 4.644M Avg Volume: 1.793M
BUY POINT: $7.02 Volume=2M Target=$8.75 Stop=$6.53
POSITION: EQN IA - Sept. $7.50c (51 delta) &/or Stock
http://www.investmenthouse.com/ci/lgto.html
Play Date: 05/22/2003
WWCA (Western Wireless--$9.57; +0.87; optionable): Wireless telecom
http://biz.yahoo.com/p/w/wwca.html
STATUS: Cup with handle breakout. Wireless remains a strong tech sector, and WWCA has put together a nice 4-month base showing positive 5 to 4 accumulation. It exploded higher 7 sessions back on a breakout, moved laterally in a tight flying plateau, and then broke higher again Thursday on once again rising volume. Money flow continues to lead the way and relative strength made another breakout. We have no problem catching on to this move.
Volume: 1.114M Avg Volume: 549.363K
BUY POINT: $9.68 Volume=824K Target=$13 Stop=$9
POSITION: WRQ HU - Aug. $7.50c (77 delta) &/or Stock
http://www.investmenthouse.com/ci/wwca.html
Continuing plays ready to go:
Play Date: 03/29/2003
CTXS (Citrix Systems--$20.4; +0.63; optionable): Internet software
http://biz.yahoo.com/p/c/ctxs.html
STATUS: Ascending triangle. After a strong breakout from a cup with handle pattern formed January to April, CTXS has held its gains and is now working laterally up the 18 day MVA (19.16) as it holds a constant top at 20.60. Money flow continues to rise as CTXS works laterally on below average volume. Relative strength is already breaking out ahead of the stock move. Volume edged higher Thursday as CTXS moved up toward a breakout. We want to see volume jump on the breakout.
Volume: 2.428M Avg Volume: 3.954M
BUY POINT: New: 20.65 (orig. $14.12) Volume=5.3M Target=$24.75; (orig. $17.25) Stop=$18.56
POSITION: XSQ ID - Sept. $20c (59 delta) &/or Stock
http://www.investmenthouse.com/ci/ctxs.html
Play Date: 03/31/2003
UCOMA (United Globalcom--$4.55; +0.42; no options): Cable TV
http://biz.yahoo.com/p/u/ucoma.html
STATUS: Testing the breakout. UCOMA broke out of a 4-month base in April and ran up to 5. It has spent the past week pulling back on lower volume, held the 18 day MVA (4.21) and Thursday rebounded sharply on strong, above average volume. Money flow is leading well ahead of the stock price, and it looks as if this is another leg up starting for UCOMA.
Volume: 1.472M Avg Volume: 971.909K
BUY POINT: New: $4.66 (orig. $3.35) Volume=875K Target=$6 (orig. $4.48) Stop=$4.21
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/ucoma.html
End part 1 of 2
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