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us stock market, trend trading stock
Begin Part 2 of 2
THE MARKET
There is still some fear out there, but it is waning a bit. We heard those phrases on the television such as 'missing out on the rally,' 'forcing mutual funds to get in.' Well, as discussed above, we have been seeing individual stocks racing up lately, but there has not been a flood of institutional action this last week.
Overall market stats:
VIX: 27.59; -0.60. Volatility continues to head south as the markets continue to rise and approach resistance. 26 to 24 would be something to watch for if price/volume action on the S&P 500 as measured by the NYSE does not improve.
VXN: 65.46; -3.25. Volatility on the Nasdaq 100 is hitting lows not seen since the index was created (59). It has crashed through the bottom of the range that started in early March. Does that mean the index is going to sell off? No. volatility shows fear, and it is showing less fear in the market right now, but with all we hear in the financial rags and television stations, there still is fear out there. Just dissipating a bit as you would expect.
Put/Call ratio (CBOE): 0.64; +0.15. Put activity rose even on though the indexes climbed. Probably had a lot to do with the early weakness. The fact that put activity was higher on some light selling still shows there is some fear out there. Total option activity fell to 1.055 million (1.219 million Monday).
NASDAQ: Opposite action from Monday: started soft, rallied, but did so on lighter volume. Not bad, but still in the need of institutional support.
Stats: Up 52 points (+2.5%) to close at 2168.24.
Volume: 1.922 billion shares (-5%). Volume slipped further from average on a solid price gain. That is not the best action, but it was not distribution or a massive falloff in volume. Still, with the two previous distribution day last week, we need to watch for a resumption of higher volume selling as a sign to take care of short term positions. 1.481 billion shares to the upside with 425 million to the downside.
A/D and Hi/Lo: Advancing issues still lead, though a bit down at 1.56 to 1 (1.65 to 1 Monday). New highs fell to 120 (-28) as new lows fell to 28 (-1).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Again, very positive price action as it tapped the 50 day MVA on the low (2088.61) and then broke higher and rallied the remainder of the session. The test of the 50 day MVA was important and we were glad to see it hold, though we would have preferred to see higher volume on the move up. It now faces a real test that will require more institutional buying to get through (2202.86); this is the intraday high it hit two weeks ago as it peaked after its move off of the April bottom. It must break free of this level and clear 2250 on high volume over the next several sessions. It is acting right, just wavering a bit here. We have to watch how it handles these two levels. We do not want to see any reversals off of these points on sharply higher volume. That would mean sellers are jumping back onto the sell side at these overhead supply levels.
Have not seen that yet, so we are preceding with good plays making good moves while we have our brokers watch for the tell tale action of topping if it comes. We don't have to bail on that day, so no sense of panic. Just being ready. Remember, the last part of the day sets the stage for the next morning. Could get a rise and then a pullback if buyers don't jump in. Something to be ready for with short term positions. Overall, however, the Nasdaq continues to look very solid.
Dow/NYSE: The Dow jumped back in the game, but on lower volume after Monday's higher volume selling. It is again at resistance and needs some buyers.
Stats: Up 163.37 points (+1.5%) to close at 10,898.34.
Volume: NYSE volume slid back again on the gain, falling to 1.165 billion shares (-8%). The Dow is struggling a bit as well with its price and volume action. 792 million upside shares to 363 million to the downside. As the index approaches resistance, volume action takes on major significance.
A/D and Hi/Lo: Advancing issues once again led, rising to 1.6 to 1 (1.26 to 1 Monday). The NYSE A/D line continues to raise a good sign. New highs fell to 113 (-32) as new lows rose to 16 (+5).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow is right at resistance again, just under the 11,028 level and the sludge of closing prices between where it closed today (10,898) and that level. This is the critical, critical level for the index. If it can punch through on some volume and successfully test it, there is plenty of upside. If it cannot and starts to sell on higher volume, it will seek some lower support point. We would hope the 200 and 10 day MVA's that are converging right now (10,616 and 10,620.74, respectively). If there is higher volume selling, however, it could seek 10,300. That simply means we protect our short term positions that are influenced by the Dow (if any) and watch for that support. The aggressive can play the DJX to the downside on a high volume reversal. A strong break over 11,028 could put us into DJX calls.
S&P 500: The S&P 500 rose as well, but it rammed into resistance at the close and it did so on lower NYSE volume. Not much power behind the move, and as with the Dow, we have to watch for potential selling from here if the institutions do not step in. It needs to clear 1270 on a solid increase in volume. If it can, the S&P 500 looks very, very good. Critical resistance for this index as well. If it cannot clear it, we will look for support at the 50 day MVA and 18 day MVA's at 1218.27 and 1216.70, respectively.
Stats: Up 16.98 points (1.4%) to close at 1266.44.
Volume: NYSE volume fell 8% to 1.165 billion shares.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The last part of the day tends to color the open the next day. The futures are up after hours as are stocks. That, however, tends to be as fugacious. We much prefer to see days such as today as they build as opposed fading. Still, if institutions feel this is the time to put money into the market at this resistance level, we could see the things take off. That would be great.
Price/volume action has not been stellar, and combined with the resistance, an early open could turn around. We will be patient as always, letting the stocks come to us. Heck, we may get a chance at some of the recent breakouts for additional or new positions. Watch short term positions with options on any big move to the upside in the morning. If it is here to stay, there will be a bit of a pullback and then a resumption of the move. We have some good gains on short term option plays, so if we get a big move early, we won't cry if we get taken out after we slide our trailing stops higher as the stocks open higher.
That is short term. Let's look at the big picture for a minute. The Fed is cutting rates, the President and Congress compromised and cut taxes, inflation is low, commodities are stabilizing (no deflation), and money supply is rapidly expanding. We have stocks breaking out of good patterns. We saw investors leaving the market with mutual fund outflows, bears on Time and Newsweek, short sellers in vogue, the VIX spiking high, the put/call ratio over 1.0 on three occasions, bears rising to 46%. Get the picture? Stocks are factoring in better times down the road. If we get another volume surge on a breakout over these current resistance levels, we may not have to worry about that retest of the lows. But do not get cocky. We are going to keep a close eye on the market right now. Things look good, but the market has a way of turning a sure thing into a sure disaster. Keep focused, take advantage of the plays as they present themselves, know your goals.
Support and Resistance Levels
Nasdaq: Closed at 2168.24.
Resistance: 2202.86. 2250, then 2290 to 2300. It is very congested in this range (thicker ice).
Support: The 50 day MVA is at 2083.03. The 18 day MVA is at 2023.63. After that, 2000.
S&P 500: Closed at 1266.44.
Resistance: 1270.
Support: The 10 day MVA is at 1233.96. The 18 day MVA is at 1216.70 and the 50 day MVA is at 1218.27 (convergent with 50 day MVA).
Dow: Closed at 10,898.34.
Resistance: Real congestion remains from 10,750 to 10,900. Then 11,028.
Support: The 200 day MVA and the 10 day MVA are converging (10,616 and 10,620.74, respectively).
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-30-01
Personal Income, March (8:30): 0.5% actual versus 0.5% expected and 0.3% prior.
PCE, March (8:30): 0.3% actual versus 0.2% expected and 0.3% prior.
Chicago PMI, April (10:00): 38.9 actual versus 40.0 expected and 35.0 prior.
5-01-01
Auto Sales, April (0:00): 6.4M versus 6.4M prior.
Truck Sales, April (0:00): 7.5M versus 7.7M prior.
Construction Spending, March (10:00): 1.3% actual versus 0.2% expected and 0.9% prior (revised from 0.6%).
NAPM Index, April (10:00): 43.2 actual versus 44.0 expected and 43.1 prior.
5-02-01
Factory Orders, March (10:00): 1.4% versus 0.4% prior.
5-03-01
Initial Claims, 4/28 (8:30): 390K versus 408K prior.
NAPM Services, April (10:00): 50.2 versus 50.3 prior.
5-04-01
Nonfarm Payrolls, April (8:30): 25K versus -86K
Unemployment, April (8:30): 4.4% versus 4.3% prior.
Hourly Earnings, April (8:30): 0.3% versus 0.4% prior.
Average Workwee, April (8:30): 34.2 versus 34.3 prior.
SUBSCRIBER QUESTIONS
Q: Thanks for noting stop loss parameters. I'm not clear about how or if to apply stop loss prices when you've written covered calls. Keep up the good and conscientious work!
A: Very good question. This is one of the downsides of covered call writing: a stock that looks good starts to fall on you due to market conditions or bad news. You have those calls out there that require you to hold the stock in order to cover. In non-retirement accounts we go ahead and set a stop loss below support. If the stock breaks it, the calls will be lower in price anyway, and we don't want to break our stop rules because we are using a different strategy. If it is normal action in the trading range, we don't worry as long as price/volume action remains overall healthy. It is when it breaks below the range we are playing or the trend we are playing that we have to be ready to enforce stop rules. At that point we can let the calls ride because the stock has broken its pattern that we were playing, and they will most likely continue to lose value. This is a subject covered in detail in the Covered Calls seminar.
TEAM TRADES
THQI: We have been watching THQI for about two weeks. We have said you need to let the plays come to you. It takes patience. We had an alarm set on THQI on eSignal, so we were set. The breakout we had set was 40.95. The stock hit that an hour into the session and before we could do anything (did not have a buy stop order in), it jumped up to 41.75. But, it fell back to 41.25 on the bid. With the volume we were seeing, it was the opening we were looking for: a test of 40.95, but we were not going to wait around to see if it would test exactly the 40.95 level and miss the move. This is an important point; when we see a powerful move we don't want to quibble over a quarter point or half point necessarily. If the volume was there (and it was this morning), we want to be in on the breakout. The stock was moving back up and bids and asks were flying all around. We saw 41.25 by 41.28 to 41.34. We put in a limit order at 41.30 and that was good enough. The stock rose to 42 and then stalled. It traded in a very tight, flat range for the next three hours on practically no volume. False breakout? We put a stop order at 39.88, just below the breakout. The stock then exploded on huge volume at 1:30 and shot higher, closing at 44.84. Another great breakout.
Investment House subscribers are offered a special from eSignal for those interested in a realtime service. Contact:
Genevieve Tsamoudakis
Account Executive
Data Broadcasting Corporation
800-322-1617
gtsam@dbc.com
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www.esignal.com
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Good Investing!
Jon Johnson and the Tech Traders Report Staff.
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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us stock market
trend trading stock
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