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us stock market, stock watch
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Tech Traders 5/22/01 Update
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Technical Traders Subscribers:
THE PLAYS
Continuing Plays: OO, PRGN, and LTBG made good moves today.
UNFI (United Natural Foods--$17.60; +0.09; no options): Food Wholesale
http://biz.yahoo.com/p/u/unfi.html
STATUS: Still moving up in the handle, and the stock got a strong shot of volume Tuesday (132,000; avg. 143,136) for a slight move up. Showing a doji smack in the middle of the intraday range. Looking for the breakout over handle high of 18.12.
First Target: $20-21.
BUY POINT: 18.25, on volume of 215,000 or better. Stop: 16.82 (just below the 10 day at 17.07).
POSITION: Stock.
QCOM (Qualcomm--$69.91; -1.08; optionable (AAO): Telecom
http://biz.yahoo.com/p/q/qcom.html
STATUS: Holding at support (200 day MVA, 69.41) on lower volume of 10.9 million (avg. 18.3 million) after testing lower support on the low of 67. The stock broke the 200 day Monday on stronger volume, and we want to see a hold here for a move back up in a rally. Target: $75-78.
BUY POINT: Aggressive: On a bounce from support (200 day) on stronger volume. Stop: 64.55, just below the 10 day MVA at 64.74.
POSITION: Stock and/or July $60 calls to buy (AAO GL).
New:
SFA (Scientific-Atlanta--$64.70; +3.55; optionable (SFA): Telecom
http://biz.yahoo.com/p/s/sfa.html
STATUS: Breaking out of a pennant on good volume (3.4 million; avg. 2.2 million). The stock cleared resistance at the April high (64, the pattern's high price), and remains a buy on the breakout. The pattern formed on the 200 day MVA, just under the mid-way point in the right side of a 10-month base. Great money flow and good buying. Target:
BUY POINT: A buy up to 67.34 on continued strong volume. Stop: 60.17 (or at or near the 10 day MVA at 59.91).
POSITION: Stock and/or September $55 or $60 calls to buy (SFA IK or IL).
AEOS (American Eagle Outfitter--$41.28; +1.28; optionable (AQU): Retail
http://biz.yahoo.com/p/a/aeos.html
STATUS: Moved up from support at the 10 day MVA (39.79) but volume was lower at 1.45 million (avg. 2.1 million). The stock has consolidated along that support over the last week in a choppy handle to a 2-month cup base, from which it tried to break out 8 days ago but fell back to the support immediately. Volume has been up and down, not exactly the action we like to see in a handle, but the stock looks ready to move up from here, judging from the pop up from the Monday's doji. Initial target: $47-49.
BUY POINT: 43.13, on volume of 3 million or better. Stop: 41.40 (or at or near the 10 day MVA for a natural stop loss, 39.79).
POSITION: Stock and/or August $35 calls to buy (AQU HG).
UVN (Univision Comm--$46.27; +1.96; optionable (UVN): Media
http://biz.yahoo.com/p/u/uvn.html
STATUS: Making a solid move out of a cup with handle pattern formed off the October low of 24 (and inside a larger base). Volume is strong and rising (1.97 million Tuesday; avg. 1.1 million), and the stock remains a buy on the move. Buy point above the handle was 45.53. Huge money flow.
BUY POINT: 47.81, on continued strong volume (min. breakout volume is 1.7 million). Stop: 44.46.
POSITION: Stock and/or September $40 calls to buy (UVN IH).
Index Play:
A potential put play as the market pulls back:
DJX (1/100 Dj Indu--$112.57; -0.81; optionable (DJV):
STATUS: Looking for a pullback to the 18 day MVA (109.68), support that is reinforced by other price support from earlier this month, and November, January and February. The index turned down from resistance at the May high (113.46) on stronger volume (1.25 million; avg. 1.2 million), indicating some selling.
BUY POINT: Aggressive: Down from here on continued rising volume in market selling.
POSITION: June $113 puts to buy (DJV RI). Please check with your broker in the morning for deltas, which are unavailable at the time of this writing.
* * THE SUMMARY * * *
TONIGHT:
- After six days of gains on the Nasdaq, get ready for a bit of a pullback.
- Topping action in many stocks today indicate a pullback just as the shooting star doji's last Tuesday indicated the big move higher.
- Dow and S&P 500 suffer some light distribution.
- Team Trades.
THE SUMMARY
After another powerful move Monday, the Nasdaq appears ready to take a breather.
The Nasdaq rallied 228 points (10%) since the close on May 15 when the Fed cut interest rates for the fifth time in less than 150 days. After some strong moves up through resistance, the index is showing signs of the need for a pullback to test what should be support at the resistance it just broke at 2232 and 2250. The candlestick chart today showed a tight doji, i.e., where the open price and the close price are close together. After a move up as we have enjoyed, the doji shows that the sellers have pretty much caught up with the buyers and the index is ready for a rest.
The Nasdaq has been showing very good price/volume action where the index rises on stronger volume and pulls back on lighter volume. Today the index again showed good price/volume action as the index recovered from weakness early in the session and closed higher on higher volume. It did, however, sell back in the last half hour after matching its early morning high, struggling to hold positive on the day. Overall the price/volume action remains healthy.
Looking at individual stocks, we again see many doji's on the candlestick pattern after the solid moves higher they have given over the past week. As with the overall Nasdaq, that is an indication that we are going to see some pullbacks to test near term support. When we checked at the close we realized that the Nasdaq and many stocks were going to close on doji's; we started selling calls on several stocks we have just purchased on their moves up with the intention to buy them back when they hit support and turn back up. Indeed we have already calculated the buy back points and entered the buyback orders based on how far we think the stock will fall to support, the delta, and the option price at the close.
That is not a bad thing. Many of the stocks we have been following have broken out and given us some great moves short term. We have locked in some profits on option plays and will do so tomorrow if we get more weakness. What we are going to look for with our other positions is a pullback to near term support, most likely in the form of the 10 or 18 day MVA or the breakout point in some instances. That will establish the trendline on the move higher as discussed in our Technical Analysis seminars, and we can play the moves up off of that level for new positions on the stocks we missed on the breakout or want to add to. As long as the pullback is on lower volume the action is healthy, and we can jump back on board when they move up off support on stronger volume.
Dow and S&P 500 show some distribution.
After Wednesday's big move and the follow up day on Thursday last week, volume on the NYSE has not been all that powerful. Indeed, it dropped back below average Friday and Monday. Today it ramped back up slightly above average as the two indexes sold. That renews some distribution again, and that is always a flag of caution. One day of distribution is not really bad in and of itself when some selling kicks off, but we don't want to see it continue or grow in strength.
After the strong moves made this past week and the big move on Monday, some pullback is usually in the cards, and today the two big indexes spent a lot of the day in the red. When it was all over the attempts to turn positive failed and both closed in the red. As with the Nasdaq, it looks as if the pullback will continue on into tomorrow. We want to see the volume back off and the indexes find near term support that sets up another bounce higher. Have to keep an eye on that volume, however.
THE MARKET
Looks like a time for a rest after some powerful moves higher. Rest is good as long as it is quiet.
Overall market stats:
VIX: 23.49; +0.25. Volatility rose, but barely as the S&P slid just a few points. We would like to see volatility increase more on the selling to come; that would indicate there are still bears out there.
VXN: 52.90; -0.07. Held steady in a tight range, much as did the Nasdaq. We will most likely see this rise a bit on some selling to come, but it will be interesting to see how much it rises. We would like to see it jump up on selling, but things are pretty quiet overall.
Put/Call ratio (CBOE): 0.60; +0.13. A nice pop higher in the put/call ratio on the CBOE as the Dow and S&P 500 topped out and sold down a bit. This is what we like to see: short sellers and put buyers jumping in at the first sign of weakness. Overall option activity fell to 1.39 million on the CBOE (1.643 million Monday).
NASDAQ: Overcame sellers to close higher, but the late selling brought it almost flat for the day, and the candlestick indicates the sellers may have the upper hand tomorrow.
Stats: Up 8.26 points (+0.4%) to close at 2313.85.
Volume: 2.315 billion shares (+0.25%) and still above average. Up volume still led with 1.269 billion shares, but down volume swelled from 243 million shares up to 1.019 billion shares. That is another sign that the sellers were catching up with the buyers today. Still good price/volume action, but more like churning than a strong advance.
A/D and Hi/Lo: Advancing issues continued to lead, but the margin shrank to 1.23 to 1 (1.89 to 1 Monday). New highs fell to 201 (-18) as new lows rose to 40 (+7).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq recovered from early weakness to post a gain for most of the afternoon, but it did sell back down in the late afternoon to barely hang onto its gain. The first action was bullish, the last half hour not. We like to see softer opens and strong finishes; when an index falls at the end of the session, the sellers are on top and that usually carries over to the next session. As noted, the candlestick chart indicated the same action on the close today as it showed a doji. We would like to see the index hold at 2250 or 2232, the resistance it just broke on Monday. Resistance should become support on such a strong move as we saw Monday. If not, it has a lot of layers of support from the 10 day MVA at 2200 to the 50 day MVA at 2127.90. We do not want to see it down there. We want a low volume pullback to test what it just broke through and then another move higher.
Dow/NYSE: The Dow was in trouble from early on. After the Nasdaq started pulling higher it did make a move into positive territory, but as indicated in the Monday report, it looked ready to drop. The one thing we did not like was the once again light distribution.
Stats: Down 80.68 points (-0.7%) to close at 11,257.24.
Volume: NYSE volume pushed back above average by a fraction at 1.255 billion shares (+3.5%). That means the selling was on higher volume, meaning there were more sellers today than there were buyers on Monday or last Friday. That is a distribution day. Now, a day of distribution here and there during a rally is not necessarily a bad thing, and it is fairly common. A good run leads to some more vigorous selling for a session. That is okay. We want to see it slow down, however, and resume a more stable and orderly pullback where investors (especially the institutions) are not dumping shares. Down volume led 662 million to 565 million shares.
A/D and Hi/Lo: Declining issues moved into the lead for the first time in a while, 1.08 to 1 (Advancing issues led 2:1 Monday). New highs fell to 238 (-36) as new lows rose to 21 (+11).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow has capped out right at the resistance from the last set of highs before it could make a run at an all-time high. It has been looking ready to make a bit of a retreat after failing to carry above resistance following the big move last Wednesday, and it did not participate in Monday's big Nasdaq move. So we had the Dow bump its head at resistance right at the 11,400 level and sell back on some higher volume. Where does it stop on the downside? If selling is orderly, not too far we would think. The 50 day MVA crossed over the 200 day MVA today, and that is a bullish sign for a further move higher. Now we have seen in the past the Dow come all the way back and test the 50 day MVA in such an instance before it started back up. Possible, but that is a 600 point run to the downside. More likely pullback is to test the recent resistance at the 11,000 level.
S&P 500: We got more volume today, but it was to the downside as the big cap index gapped slightly higher but then reversed to finish slightly lower on the session. The rising, above average volume on the move, however, told most of the story as the index topped out and looks ready after a big point gain on Monday to pullback with the other indexes. Support can be found at 1281 (the 10 day MVA is at 1282.20 and there is price support from back in June and August of 1999) and then 1270, the point of resistance that it broke last Wednesday.
Stats: Down 3.45 points (-0.3%) to close at 1309.38.
Volume: NYSE volume jumped back above average on the selling, rising to 1.255 billion shares (+3.5%). Some distribution as the index looks to have topped for the moment.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Nasdaq futures were higher after the close and S&P futures were up fractionally before news that one of the Republican senators (Jefferds) indicated he was going to vote with the democrats on the tax cut. That caused a hiccup in the futures. Not sure what that means at this point, but the futures turned around on the news when it hit the wire. Goes to show how the market is anticipating a tax cut, even as shriveled as this one had become. This may not be the case at all as there was some 'mystery' around the announcement of the statement to be made. Will that have an impact tomorrow? We will see what he says, but it is an obvious ploy to grab some attention as being an 'independent thinker.'
Chip stocks will most likely be under pressure as the chip book to bill ratio came in at a meager 0.4, the lowest in over a year. That had the chips under pressure after hours as well.
In any event, if the futures hang in there we are going to beware of a higher open after what we saw in the indexes and the stocks today. It looks as if we are set up for some softness overall, and a move higher in the morning in our estimation will give us a move down before the session is over. It is one of those higher open that does not have a lot of support and then the sellers come in with a vengeance and take the market lower. That is what it looks like at this point, but the open is a long way away. A higher open will most likely have us selling some more calls on positions unless there is a real news story that shakes up the markets to the positive. A further scaled back tax cut won't help the market; that is part of what the market was pricing in on this last move.
So, we are going to look for a stronger open as a point to take some profits on short term option plays, sell some calls on our stocks that appear to be topping out (doji's today on lots of stocks such as BRCD, SEBL, CIEN, CSCO, HGSI, JNPR, LOW, VRSN, etc.), and look for moves up off of near term support levels such as the 10 or 18 day MVA and breakout points. Of course we will continue to play those breakouts that we see as the basing stocks continue to break out of their patterns and move higher (e.g., RCOT, PRGN). We may not get many tomorrow if the market is in pullback mode, but as a bear market sets the stage for good breakouts and advances, pullbacks after strong moves set the stage for new entry points. We are going to keep an eye on stocks at the buy point and then move in when they start their moves back up or breakout of their patterns to the upside.
Of course we could be wrong. New bull rallies find strength again and again when the odds are against it. What to do? Watch for those breakouts and strong moves up off of support. They are the ones who treat you the best.
Support and Resistance Levels
Nasdaq: Closed at 2313.85.
Resistance: 2500.
Support: 2232 to 2250 is the resistance that was just broken; resistance should become support.
S&P 500: Closed at 1309.38.
Resistance: 1334.34 is the 200 day MVA and some price consolidations from February and October of 2000 and the summer of 1999.
Support: 1300 and 1270 should act as some support now.
Dow: Closed at 11,257.24.
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). The 10 day MVA is at 11,118.03.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
5-24-01
Initial Claims, 5/19 (8:30): 380K versus 380K prior.
New home sales, April (10:00): 984K versus 1021K prior.
Greenspan addresses the New York Economics Club in the evening.
5-25-01
Durable orders, April (8:30): -2.0% versus 3.5% prior.
GDP-Prel., Q1 (8:30): 1.9% versus 2.0% prior.
Chain Deflator-Prel., Q1: 3.2% versus 3.2% prior.
Existing Home Sales, April (10:00): 5.27M versus 5.44M prior.
TEAM TRADES
BRCD: When we saw the market starting to close on a doji when we checked things out with about 15 minutes to go, we started looking at individual stocks again and realized they were doing the same thing. We started selling some calls on stocks that were showing doji's and had made strong moves. The idea: let them fall back to support and then buy them back and keep our stock as it moved higher. On BRCD we sold the June $50 calls for $5.50. The delta was 64 and we saw support at 50. WE set the order to buy it back as follows: 52.30 close - 50 = 2.39 move down to support. 2.30 x .64 = 1.47. That is how far the option should move when the stock hits 50. As the option closed at 5.50 by 5.70, when the stock hits 50 the options should be at 4.23. We set the buy order at $4 for now; a bit low, but we will be watching this one. We don't have to; we could set it at 4.25 and just let it alone and make over $1 per option on a quick play. Another way to ramp up the returns on the inevitable selling after good runs.
SGR: We took profit on some SGR options today when it could not break through 62 after hitting 63.48 on the high but started to sell off. That was a nice and quick play up off the 50 day MVA that started 5 sessions ago.
NVDA: Looking for a split announcement from NVDA, but it was not forthcoming. Still we used the pre-earnings selling to get into some options for the possible announcement. The stock started falling with a half hour to go, and we started watching with about 20 minutes left in the session. Our plan was to get in right before the close as the earnings sellers came in. they did just that as the July 85 calls fell from 16.40 on the ask to 15.90 in about 10 minutes. It happened like clockwork, we put in the order and then all we had to do was wait for the announcement. The stock moved up right before the close. The stocks sold on the announcement, but then moved back up after hours and closed flat. Nothing spectacular, and we have to watch the book to bill ratio and its impact tomorrow. We will use any bounce in the morning to exit or at least move some stop losses up to protect any move higher.
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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