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Begin Part 2 of 2

THE MARKET

Overall market stats:

VIX: 25.13; -2.21. Naturally fell in the trading action. It gave us its signal back in December and February.

VXN: 60.22; -3.46. Nasdaq 100 volatility dropped as one would expect on a big rally. Recall that Lehman Brothers cited this as the main reason it said to sell stocks and get to cash in the Nasdaq. The folly: using a secondary indicator to set your primary investment plan. NEVER a good idea.

Put/Call ratio (CBOE): 0.64; -0.22. The put/call ratio was another key factor last night that told us a rally was in the works. It spiked higher as short interest rose, but there was not breakdown in the indexes. Today it fell back naturally as short sellers covered and joined the rally. Total option activity: 1.705 million.

NASDAQ: Started slow, but the good news from BRCD, QLGC, BEAS and others would not let it stay down. Slow to fast. That is the right speed. Stocks broke out all day long.

Stats: Up 80.86 points (+3.9%) to close at 2166.44.
Volume: 2.076 billion shares (+21.5%). Another big volume surge today as buyers rushed back into the market and pushed volume back above average. Up volume was 1.691 billion versus 364 million shares to the downside (4.5 to 1). This is a continuation of the good price/volume action we have been tracking the past three weeks. Some were saying it was bad (traders), but we know better.
A/D and Hi/Lo: Advancing issues widened their lead to 1.50 to 1 (1.19 to 1 Tuesday). New highs rose to 181 (+33) as new highs rose to 53 (+4).

The Chart: http://www.investmenthouse.com/cd/$compq.html

Tuesday may not have been a show of strength, but today was. We did not put much stock in Tuesday's move as being bearish. We said we though we would see a significant upside break later this week. We got it in one day. The index still has to fight with 2250, but we had many strong stocks breakout of good bases today, and that always is a confirmation of a good move. The Nasdaq appears to be building an ascending wedge pattern as it comes out of the April bottom. The breakout is over 2250, and that will be a test. That is another 90 points away; quite a run for a breakout, so we will see if we get somewhat of a pullback as it approaches that level, makes a higher low, and then breaks through. Nice day today after a three-week lateral consolidation that set the stage for the move.

Dow/NYSE: Powered through 11,028 as if it was not there. Oh, it paused there for an hour as short sellers tried to sell it back down. No dice.

Stats: Up 342.95 points (+3.2%) to close at 11,215.92.
Volume: NYSE volume shot higher to 1.353 billion shares (+26.3%), finally giving us some above average, positive price/volume action. A breakout was the way to do it. Up volume trumped down volume 1.151 billion to 193 million to the downside (6 to 1).
A/D and Hi/Lo: Advancing issues stretched their lead to 2.06 to 1 (1.63 to 1 Tuesday). New highs shot up to 258 (+98) as new lows fell to 25 (-1).

The Chart: http://www.investmenthouse.com/cd/$dja.html

The Dow finally took out the pernicious resistance at 11,028, and it did it on high volume. It also put enough distance between the close and that level to make the breakout very solid. It closed at a level it has not seen since September 2000. That represents the next level of resistance: 11,400. That is the next staging level before the all-time high of 11,750.28. When it moves, it moves fast. We expect a pause at 11,400 to 11,500 after such a massive run.

S&P 500: The big caps finally made their move, blasting through 1270 on sharply higher NYSE volume. Looking at the intraday chart, the short sellers tried to push it down for about an hour as it hit 1265. That had two effects: it got the weak holders out and it brought more buyers in when it did not fold. Then the stage was set for the breakout. The move pushed it over resistance at 1270 and above the down trendline formed by the September 2000 and January 2001 tops. That is the last down trendline that was ahead of the S&P 500. It does not mean there is no resistance ahead of it (former consolidations, tops, bottoms, etc.), but it is a major breakthrough. There is some resistance at 1300, and then at the 200 day MVA (1337.29) where there are also some price tops and bottoms at that level, and that makes more formidable resistance. Let's face it, after selling into a bear market, there is going to be resistance at all of those 'support' levels that were broken on the way down. It is a fight, and it won't be a straight line, but it got off to a good start today.

Stats: Up 35.55 points (+2.8%) to close at 1284.99.
Volume: NYSE volume surged back above average at 1.353 billion shares (+26.3%). That was finally some very positive price/volume action.

The Chart: http://www.investmenthouse.com/cd/$spx.html

TOMORROW

Last night we ended saying that we liked what we were seeing. Today we liked what we saw even more as we got the powerful breakouts we have been looking for after this good lateral consolidation. Now what is ahead?

There are stocks breaking out and breaking resistance still. Heck, we were buying some at the close, those we did not get a shot at earlier. That was riskier as there may be softness in the morning after such a big move, but we were looking at breakout stocks and we knew they had the volume we were looking for. We were taking partial positions and will take more on successful tests or if the power on up from here. The odds of a test by a strong stock breaking out are 50-50. We don't want to bank on the test as it may not happen. That is why we started some partial positions at the close.

Tomorrow we may see some softness after such a surge. It may come before the open and then reverse (the best action), or we may see a stronger open as a follow through to today's action and then a pullback on some short term profit taking. The Nasdaq futures are up 11 after hours, and if things stay this way, we may see the latter scenario unfold. That is a great time to squeeze some more out of the short term option plays before taking profits when the move starts to stall. Some profit taking might lead to some tests of breakouts that will give more opportunities to buy. At this point remain calm and patient. Let the plays come to you. It may take a day of profit taking or just a morning. Patience and fight your emotions.

If you are playing options, let them run within reason. If the gains are already good, we will consider selling a partial position on any weakness and let the others run. When it turns back up we can put more money into the play and ride the move higher. On the breakouts we are playing with stock, we are going to let them run and add to positions on tests. If you are uncomfortable, take partial profits and treat it the same was as the options, adding when the next opportunity comes. We are going to look for stocks to start riding up their 10 and 18 day MVA's after breaking out; that is typical bullish action. If those patterns set up, let them ride and also look at trading them short term on the tests of those levels. In addition, keep watching for the breakouts from the basing stocks we are putting out. Keep them on the radar screen so you know when they are moving. We had so many today we could not have kept track without alarms. Nice problem to have.

A great day that we were looking for. Let's keep our heads and know resistance levels, support levels, buy points, etc., and take advantage of what is happening. There will be down days to go with the up days, but that is normal. The market performed as if we had planned out the move ourselves, but we know there will be down days as well. Keep focused on buy points and your profit targets while letting the strong stocks move.

Support and Resistance Levels

Nasdaq: Closed at 2166.44.
Resistance: Cleared the 50 day MVA, but still has 2250 ahead of it as the major resistance. After that 2500.
Support: We will have to see what forms. Most likely is the 50 day MVA at 2105.79. 2005 after that.

S&P 500: Closed at 1284.99.
Resistance: 1300. Then the 200 day MVA at 1337.39.
Support: 1270 should act as some support now. After that, the 18 day MVA at 1246.62.

Dow: Closed at 11,215.92.
Resistance: 11,400 to 11,450. Then the old high at 11,750.28.
Support: 11,000 should now act as some support (old resistance usually becomes support). After that the 18 day MVA at 10,788.73.

Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.

5-14-01
Business Inventories, March (8:30): -0.3% actual versus -0.2% expected and -0.4 in February.
Industrial Production, April (9:15): -0.3% actual versus -0.2% expected and +0.1% in March (revised down from + 0.4% prior.
Capacity Utilization, April (9:15): 78.5% actual versus 79.1% expected and 78.9% in March (revised down from 79.4%).

5-15-01
FOMC announcement (2:15): 50 basis point rate cut. Next meeting June 27. Greenspan speaks next on May 24.

5-16-01
CPI, April (8:30): 0.3% actual versus 0.4% expected and 0.1% prior.
Core CPI, April (8:30): 0.2% actual versus 0.2% expected.
Housing starts, April (8:30): +1.5% versus an expected 0.5% drop.
Building Permits, April (8:30): Down 2.5% versus an expected 2.7% gain.

5-17-01
Initial Claims, 5/12 (8:30): 384K versus 384K prior.
Philadelphia Fed, May (8:30): -10.0 versus -7.2 prior.
Leading Indicators, April (10:00): 0.1% versus 0.3% prior.

5-18-01
Trade Balance, March (8:30): -29.0B versus -27.0B prior.
Treasury Budget, April (14:00): $180.0B versus 159.5B prior.

SUBSCRIBER QUESTIONS

Q: Lots of help on the stock charting question last night. Several with great features are as follows:
www.stockcharts.com
http://www.prophetcharts.com/

You can have a few moving averages going and it gives you the actual price level as well. Thanks for the help!!

Q: I am a daily subscriber to your service and from time to time see you mention your following certain stocks on your Palm VII. I am thinking about purchasing one and was wondering if you could tell me if you are able to get real-time quotes and/or real-time streaming data on charts for the stocks you are watching. Also what brokerage service supplies this info to you. I have heard that Etrade is supposed to have some award winning service involving the Palm VII. Any information you can provide is appreciated.
A: Yes I personally use a Palm VII and like it very much. One drawback for getting alerts: you have to access the message software. In other words, it does not alert you, but you have to check your messages to see if there is an alert that has been sent. FreeRealTime provides free snapshot realtime quotes. BigCharts provides decent charts. Fidelity and E-Trade have very good services on the Palm where you can get realtime quotes and decent charts. Palm is going to come out with their replacement for the Palm VII in the late summer/early fall, and we hear it will have better features that will actually alert you without accessing the network. That sounds really interesting; also, there is already a phone out there that has the Palm interface on it and I believe is offered by Sprint. Have to check it out.

TEAM TRADES

We were on the hunt with the softer open and what we thought would be a rally after that. We were not disappointed as FULL, BMET, KREM and SNPS broke out of their patterns. We were also jumping into BRCD and SEBL, both looking very solid.

FULL: An alarm went off early on FULL, and we liked the volume on this fairly lightly traded stock. It was jumping up well and the stock hit our buy point early. We thought about waiting, but we also thought today would be a good day. We jumped in at 45.79 at 8:40 CT. We were getting on board early as the stock was in a hot sector and breaking out.

BMET set off an alarm at about 9:45 CT. It ran to 44, then sold back below the breakout. Volume was not as solid as Tuesday, and it hit 43.40 on the pullback. That was where the 15 minute moving average was, however, and the stock jumped back up from there. When it crossed back over the breakout we were interested, but we wanted to see it take out that morning top. We set a buy order at 44, and in about 10 minutes (about 10:15) it ran up and took that out as it moved higher.

SDS just announced a split and it also had a great pattern. We were willing to jump on board on this breakout when it jumped over 60, the buy point, an hour and one-half into the session. We set a buy just over 60. The stock peaked over that level and we were in business. It then gapped higher, surging and moving sideways the rest of the session before it really rallied in the last hour and one-half.

BRCD is another stock we were looking at as it reported good numbers, firming future, and it held above its 50 day MVA on the recent lateral movement. We saw it start higher today, racing up almost to 44 on the opening run in the first half hour. It then pulled back to 43, holding above Tuesday's 42.50 closing price, and turned back up. That was good enough for us. We checked the bid and ask, and dropped a limit order in at 43.69. It jumped over us somehow, but it came back in the next 5 minutes and took us out, then moved higher. A great session for BRCD.

KREM: Broke out on the good numbers, gapping up to 52.74. It then ran to 54.20 before pulling back to 53.40 and bouncing in $1 range for the next hour. We jumped in when it broke above 54, taking out the morning high. It then tanked right back down into the range, but caught support and then broke out just before 10:00. It then ran to 55.60. A great breakout on KREM.

Today we were confident of the market as we indicated in Tuesday's report. We were ready for the breakouts and the good bounces by the strong stocks. We got it today, and we were all over them when they moved.

Good Investing!
Jon Johnson and The Stock Split 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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