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us stock market, understanding the stock market
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Tech Traders 5/17/01 Update
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Technical Traders Subscribers:
THE PLAYS
Continuing Plays: FMX broke out today; PX and HAL continued their breakouts, and several continued plays on the report look really good. A previously covered play, EBAY broke out of its pattern. Lots of stocks looking very good this week.
OO (Oakley--$24.84; +1.57; optionable (OO): Sporting Goods
http://biz.yahoo.com/p/o/oo.html
STATUS: Breaking out on strong volume(723,300; avg. 304,500) as the stock moved over the 24 resistance. Remains a buy on this move; the stock can post strong gains after the successful test of the recent breakout. Stop losses can help preserve gains. Initial target: $29.
BUY POINT: Remains a buy up to 25.34. Stop: 23.10 (just below the 10 day MVA, 23.28).
POSITION: Stock and/or August $22.50 calls to buy (OO HX).
COLM (Columbia Sportswr--$68.23; +2.20; no options):
http://biz.yahoo.com/p/c/colm.html
STATUS: Bounced from the 18 day MVA then moved up on strong volume (527.500; avg. 186,000). The stock has been testing its recent breakout, and we are looking for a move back over the highs near 71. Target: $78-82.
BUY POINT: Aggressive: Up from here on continued rising volume. Stop loss: 63.45.
POSITION: Stock.
ZIGO (Zygo--$36.80; +5.88; optionable (UZY): Scientific & Tech Instr
http://biz.yahoo.com/p/z/zigo.html
STATUS: Making a breakout move from the base of its handle on strong volume (781,200; avg. 378,454). Looking for the breakout over the handle high in the 14-week base (41). The 200 day MVA is at 44, but our initial target is $47-51.
BUY POINT: Aggressive: Up from here on continued rising volume. Stop: 34.22. Breakout: 44.13, on volume of 568,000 or better. Stop: 41.04.
POSITION: Stock and/or July $30 calls to buy (UZY GF; low open interest). Breakout: Stock and/or July $35 or $40 calls to buy (UZY GG or GH; low open interest).
BBC (Bergen Brunswig--$19.48; +1.08; optionable (BBC): Drugs wholesale
http://biz.yahoo.com/p/b/bbc.html
STATUS: Broke higher on slightly stronger volume (1.04 million; avg. 1.05 million). The stock is trying to break out of its flat base, but will need even stronger volume for the breakout over the high of 20.39 (January high). Got a good start today. Initial target: $22-23.
BUY POINT: 20.52, on volume of 1.5 million or better. Stop: 19.08.
POSITION: Stock and/or June $17.50 calls to buy (BBC FW).
UNFI (United Natural Foods--$17.00; +0.10; no options): Food Wholesale
http://biz.yahoo.com/p/u/unfi.html
STATUS: Showing the 3rd consecutive doji at the base of its handle (in the 16-week cup base). Looking for a move up from here, as volume keeps rising (up to 185,300 today; avg. 154,000). Handle high is 18.12. Initial target: $21-22.
BUY POINT: 18.25, on volume of 231,000 or better. Stop: 16.97.
POSITION: Stock.
New:
BLDP (Ballard Power--$57.60; +8.37; optionable (DFQ): Industrial Electrical
http://biz.yahoo.com/p/b/bldp.html
STATUS: Breaking out on huge volume (4 million; avg. 710,000). Buy point was 56.03, making the stock a continued buy (5% limit is at 58.53). The stock has come off the bottom (33) of an 8-month base. The move was launched from the 50 day MVA (48.58).
Initial target: $64-67.
BUY POINT: Up to 58.53. Stop: 53.57.
POSITION: Stock and/or August $50 calls to buy (DFQ HJ).
Previously covered:
EBAY (Ebay--$62.55; +4.69; optionable (QXB): Internet Software
http://biz.yahoo.com/p/e/ebay.html
STATUS: On strong volume (13.4 million; avg. 5.6 million), EBAY broke out of a reverse head and shoulders pattern formed since early February. The stock is overextended for entry points here, though the aggressive may look at playing this move higher, as volume really surged today on this strong move. The stock is now heading up the right side of its 8-month base (previous high is 77.56). Initial target: $65-68.
BUY POINT: Aggressive: Up from here on continued strong volume. The use of stops can help preserve gains. Stop: 58.17. Pullback: On a move back up after a test of the buy point (56.42).
POSITION: Both positions: Stock and/or July $55 calls to buy (QXB GK).
* * THE SUMMARY * * *
TONIGHT:
- Decent day after Wednesday's surge as breakouts continue.
- Earnings after hours not inspiring.
- Economic numbers look better, but there is a long way to go.
- Team Trades.
Calm day after the surge.
All major indexes rose today on more or less good price and volume action. NYSE volume was a bit lighter, but it still came in above average, something it had been unable to do for the two weeks preceding Wednesday's session. All in all it was about as expected with the surge carrying over into the first part of the day but ultimately weakening as the session wore on.
All in all the session was not bad. Wednesday we had short covering and real buying come in. Short covering is how these things usually start. The shorts get nervous because there are some better economic numbers, they were unsuccessful in pushing the market down after the Fed announcement, and stocks continue to breakout on strong volume. They start covering, i.e., buying back the shares they sold, and that increases upward pressure on shares as they compete with the investors that are buying. That gets things rolling, and then more buyers come in and it snowballs.
After such a huge move Wednesday we could have seen profit takers really come into the picture. As it was, buyers were still out in the morning, and that pushed more stocks to breakout levels. Again we had alarms popping off throughout the day; nothing like Wednesday, but still making solid, high-volume moves. The stocks that we did see pull back mostly did so on lighter volume, a sign that the selling was much less potent than the buying on the previous session. In other words, there were more buyers Wednesday than sellers today. Again this is the type of price/volume action we like to see when stocks pull back after nice gains.
Where from here?
Of course because the move was not as strong as Wednesday's, many were already talking about the pullback and to where things would fall, etc. This is conditioning after twelve months of bear market action. Nothing to the upside can last very long. Well, we know that we have a strong break higher with institutional buying taking place, that on the heels of an earlier follow through, breakaway gap, and lateral consolidation. That indicates a much stronger more lasting move, the likes of which we have not seen since last summer (and that one did not have the much better patterns we have now).
Even with new bull markets there will be pullbacks after big runs. That is how a healthy market works. We simply want to see the pullbacks in the indexes and individual stocks to occur on lighter volume. That is what we saw on most stocks today that pulled back while at the same time we saw breakouts on the heavy volume that we need to see on those moves (OO, FEIC, EBAY, JAKK). There were exceptions such as the networking group where the speculation was whether JNPR actually warned about something or not.
Thus, after some good moves we will see some profit taking. Tomorrow is Friday, and there have been some very good moves this week. Earnings after hours were not stellar, and that may lead to weakness early on. Will we get that soft opening and strong finish we like? Nasdaq futures are lower after the earnings reports. We will see. We might get some great chances to pick up stocks on tests of their breakouts and ride them higher. See the move off of support first, then get in. It may be that Friday is all selling after two good days.
The key is patience and understanding what is going on. By that we mean understanding how stocks and indexes behave as touched on above. We won't panic on the pullbacks after the runs; we watch support, price and volume, and the market as a whole. We make our moves accordingly. For example, we caught ourselves getting all uptight trying to get into a trade today when we were put on hold while calling a broker (major faux paux). The stock was moving up and we were miffed that we were 'missing' the trade. But, it was a breakout, and we know we usually see at least one intraday test of that level, and we were still well in the buy zone. Sure enough it came back, we saw the chance, and we got in. If we see selling tomorrow we keep our heads, look for opportunity, take action.
Earnings not inspiring much good after hours.
Dell hit the lowered numbers but operating margins would be flat to slightly down. That did not have people jumping on board after hours. The Gap beat its number by a penny, but things were not rosy, and it sold down after hours. That story was repeated on almost every stock after hours. The news was just not good enough to push stocks higher after two days of rallying. Futures were down after hours and stocks were selling down as well. Looks like a weaker open. Again, will it be a stronger recovery or just a slower day before the weekend?
THE ECONOMY
Jobless claims fall for second straight week.
Down to 380,000, 8k lower than the 388,000 prior and the 395,000 expected. Two weeks in a row getting it back below 400,000; much as with a bear market, however, if you are dancing in that range you are pretty much there. Indeed, the four-week average, while down, was 401,250 (403,500 the prior week). That looks better, but continuing claims are still in an uptrend.
Leading Economic Indicators looking better, but it is not widespread.
These indicators look 6 months into the future. They increased 0.1% in April after falling 0.2% in March. This was inline with expectations, and was the second increase in the past seven months. It was viewed as important because it avoided a third straight decline which usually means a recession (a textbook version) is coming. Problem is, the report was skewed by much improved yield spreads on bonds and more money available to business invest. All other elements were weak. Still nowhere near out of the woods.
THE MARKET
Overall market stats:
VIX: 25.52; +0.39. Volatility rose a bit even as the biggest cap stocks managed a gain. Not much to take from this number at this point.
VXN: 58.69; -1.53. Again volatility on the Nasdaq 100 fell as the Nasdaq rose. It is now at a level that is equal to where it was when the index was started. Does this mean a selloff is at hand? The overall market is not showing us this; if you looked only at volatility you would be preparing for a major decline. It is secondary, however, and we have seen nothing in the market that is terribly unsettling.
Put/Call ratio (CBOE): 0.59; -0.05. The ratio fell again on another gain, but it is still holding well above the 0.4 level that indicates possible complacency. Total option activity rose to 1.74 million (1.705 million Wednesday).
NASDAQ: Up and down session without a lot of direction after the big move Wednesday. About as expected, but we still saw buying on stronger volume. The fact that it did not reverse was a relief to many, but we were pretty sure that would not be the case after the solid building that has been going on for quite some time.
Stats: Up 27.24 points (+1.3%) to close at 2193.68.
Volume: 2.154 billion shares (+3.7%). Again we saw rising, above average volume on an up day in the Nasdaq, a sign that there were again more buyer, specifically institutional buyers, moving into the market. That is healthy action. Up volume was lighter at 1.363 billion shares versus 747 million downside shares (364 million Wednesday). Some deterioration, but this was profit taking for now.
A/D and Hi/Lo: Advancing issues maintained and widened their lead to 1.65 to 1 (1.50 to 1 Wednesday). New highs rose to 213 (+32) as new lows fell to 46 (-7).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Not the strongest session as the Nasdaq rallied up 50 points on its high (2216.36), but then gave up much of that in the afternoon. This looked to be largely profit taking after a day and one-half of rallying. The index fell short of actually tapping resistance at 2250 (some are calling 2200, but it needs to clear 2250 to break free), and as discussed above, it may be ready to pullback a bit on Friday before the weekend. After great gains at the end of the week, some investors may want to get out before the weekend. May want to. It is very possible that today was a day of rest, and after some weakness in the morning carrying over from the late day action and the after hours earnings, we may see the buyers come back in for stocks that are testing the recent move higher.
Dow/NYSE: As with the Nasdaq, the Dow was higher intraday, gave up quite a bit of ground, but still finished on the plus side with decent (not quite rising), above average volume. With the finish well off of the high, it is probably ready for a bit of downside action before it starts higher again.
Stats: Up 32.66 points (+0.3%) to close at 11,248.58.
Volume: NYSE volume was again above average, but at 1.342 billion shares, less than Wednesday (-4.5%). Up volume led the way again at 878 million shares versus 453 million to the downside. Shows the run higher then the selling on the pull back down.
A/D and Hi/Lo: Advancing issues were still in front, but not as dramatically as Wednesday (1.57 to 1; 2.06 to 1 Wednesday). New highs rose to 285 (+27) as new lows fell to 5 (-20).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow hit 11,328.61 on its high (up 110 points), but the last two hours it sold back with the rest of the market. It was too much running in too short a time, and the profit takers came in. They are still scared to let anything run. In any event, the close well off of the intraday high is a sign that we will get some carryover into tomorrow's session. As with the Nasdaq, the question will be whether the index catches itself after a bit more profit taking and then starts another move higher, or if it needs to take a whole day off and come back to work on Monday at some point. The climb today was on slightly lower volume, showing that the Dow is still not at the top of its game, but there was not large volume decline. Still above average, and showing that the buyers were still out there. After such a rise, hard to say where it will find support to start back up; 11,000 is the logical point, but it blew through that and put a lot of ground between it and that point.
S&P 500: The big caps showed the same action: up early, then selling from the high (1296.48) in the last 2.5 hours. We cited 1300 as some resistance, and it sure turned it back in a hurry today, turning a nice gain into a basically flat session. The close off the high indicates the profit takers were winning later in the session, and as with the other two indexes, the S&P may start the day on the downside and then try to build. Being Friday, it may just take a long weekend and look to Monday. It is still over 1270, the resistance it just shot through Wednesday, as well as the down trendline that started last September. That should prove to be good support for the index on any further profit taking.
Stats: Up 3.50 points (+0.27%) to close at 1288.49.
Volume: NYSE volume was again above average, but lower at 1.342 billion shares (-4.5%). Not the exact volume we wanted to see with a gain, but up volume and advancing issues still handily outpaced decliners on the NYSE.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday. In healthy markets the saying is buy on Monday, sell on Friday. The market is looking better right now, and maybe that will hold more sway. Still, we are continuing to look at the many very solid patterns that are forming. When a stock breaks out of one of those, you don't ask what day it is, just what is the price, what is the volume, and how many shares (or option contracts) do I want. Again, we saw more breakouts today from some solid sectors. Those two are a great combination.
We did see some big name techs sell back on higher volume (JNPR, CSCO, CIEN), but these appeared to be in the networking and related sectors where CIEN hinted at some challenging quarters ahead. That pushed the whole lot down on stronger volume. Overall we saw rises on higher volume, declines on lower volume, and some just undecided.
Now after two days of solid gains overall we may see the short term players take some profits ahead of the weekend, fearing bad news on Monday morning, the usual day the analysts come out and say their piece. Now we had some negative calls before this big breakout on Wednesday. There are some red-faced brokerages (you know the big names that were bad-mouthing the action before the breakout) and others with a vested interests that are going to come back out and try to save face and move the market a bit. Mobius of Templeton's foreign markets funds was out today saying that while the U.S. markets had a good week, foreign markets would outperform and the time for them to do so was now. Talk about a vested interest. Anyway, we expect to see some of this come Monday; that is fine. If the market is as strong as we think it is, it should maybe start slow and then the buyers will come in.
Tomorrow we are going shopping for stocks that might test the recent breakouts or hold at support and be ready for that move back up. Of course, we will also be on the lookout for more breakouts and good pre-announcement and pre-split plays that fall into place. There is a lot to choose from, and that is a lot of fun.
Support and Resistance Levels
Nasdaq: Closed at 2193.68.
Resistance: 2250. After that 2500.
Support: Looking at the 50 day MVA (2109.23) and the 18 day MVA (2115.57). 2005 after that.
S&P 500: Closed at 1288.49.
Resistance: 1300. Then the 200 day MVA at 1336.54.
Support: 1270 should act as some support now. After that, the 18 day MVA at 1251.03.
Dow: Closed at 11,248.58.
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).
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): 380,000 actual versus 384,000 expected and 388,000 prior.
Philadelphia Fed, May (8:30): -8.8 actual versus -10.0 expected and-7.2 prior.
Leading Indicators, April (10:00): 0.1% actual versus 0.1% expected and 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.
TEAM TRADES
Again another day of breakouts and good moves by solid stocks.
SGR: The energy plan was figured to be a boon for utility plants, and SGR is the leader in building and supplying the materials for them. It gapped higher, sold back to test the 18 day MVA, and then started back up after about 2 hours. It had bounced off the 50 day MVA Wednesday, so we were looking for another run up to 62-63, maybe higher. When the stock broke over 57.50 (clearing an earlier high in the session), we were ready. We were looking at options, and we did not want to buy more than we needed on a bounce up from the 50 day MVA, so we were looking at July $50 and $55 calls. We ended up buying both at 7.30 and 11, respectively. The stock ran up and we were looking great, well in the money. Then it started to top. We held on as it was not quite at 60. It dropped to the consolidation level at 59 and then bounced back to 60. It could not break it, a double top. So we punted the $55 calls for 8.40 and held onto the $50's for the next session.
OO: On our list and an alarm set. The alarm went off right before 1:00 (24 was the buy point and we set it for 23.90). Volume was solid, so we jumped in as the stock crossed 24. The stock came back in an hour and tested the break, stopping at 24.30. When it bounced higher we picked up some more shares as it was still well within the buy range. Leader in its sector, great pattern, good fundamentals.
Investment House subscribers are offered a special from eSignal for those interested in a realtime service. Contact:
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800-322-1617
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www.esignal.com
For a review of frequently asked questions, please use the link below:
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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
understanding the stock market
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