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5/23/01 Stock Split Report Market Summary
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Stock Split Report Subscribers:

Plays to look at: Got the announcement, as forecast, from ESRX! The stock was making a nice move after hours. Some healthy action otherwise as many stocks pulled back to support on lower volume.

PRE-ANNOUNCEMENTS: ESRX announced, and we are looking at CEFT tomorrow and LOW Friday.

ESRX ($92.95; -0.41): Announced at 2:1 stock split today, as forecast! The announcement gave the stock a nice pop after hours, as it was up and trading over 95. We often look to get in on announcements and then use the after-hours market to capture quick profits, and that is especially true in a weak market. In the current market environment, we are more inclined to look for more substantive longer-term gains. ESRX is near the high in its handle at 96.34, so on a continued move we will carefully watch that level as resistance. On a strong move up from here (increased volume from the 413,600 seen today; average 776,000), stock and/or August $90 calls to buy (XTQ HR - low open interest).

CEFT ($49.12; -0.53): Forecast to announce a split tomorrow in conjunction with its annual shareholder meeting, and is well within range. The stock has made a nice move in recent weeks, tapping up to recent highs (making a new high 50.10 yesterday). The stock pulled back slightly today, moving on low volume of 2.29 million (average 3.7 million), holding over March and April highs at 47.50. We will see if it can hold up tomorrow, giving us a good entry point going into the forecast. We would look for it to hold onto 48 or better, and if we get a strong move we will look at stock and/or August $45 calls to buy (SQL HI). Remember that stocks that have made strong moves going into the announcement can sometimes settle a bit on the news, using near support from which to take off.

LOW ($70.0; -1.00: Forecast to announce a split on 5-25-01 at its annual shareholder meeting. Has settled back after blasting up Monday, holding support over its gap-up point (69.60) after gapping down to a perfect doji. Appearing to weather a downgrade (typically ill-timed as a stock breaks out of a solid pattern), the pattern indicates a possible move back up going into the forecast Friday. On a strong move, stock and/or July $65 calls to buy (LOW GM).

PRE-SPLITS: STT and PKI are making pullback and are setting the stage for another move. We have added a new play tonight . . . enjoy!

OKE (Oneck--$43.15; -0.45; no options): Utility. Splits 2:1 effective June 12).
http://biz.yahoo.com/p/o/oke.html
STATUS: The stock is moving in a pennant (almost an ascending wedge, but the highs have decreased somewhat) formed since early March. As it has moved in the pattern it has broken its downtrend, and is now tightening. It pulled back a bit today, holding over its 10 day and 50 day MVA's (42.83 and 42.62, respectively). The drop was on sharply lower volume (97,900; average 132,600), so we will see if it can hold the 10 day and make a move back up.
PLAY: A move over 44 on increased volume near the average, with stock.

DGX ($122.30; -0.59): Splits 2:1 effective June 1. Has made a nice-looking pullback to its 10 day MVA (122.12), today showing a tight doji after dipping below that level intraday. Looking good for another pre-split move. On a strong move up, stock and/or July $120 calls to buy (DGX GD).

BAX ($97.96; -0.44): Splits 2:1 effective 5-31-01. Tested back near the 10 day MVA at its low of 96.70 before recovering to show another doji. The low tested the break from its ascending wedge, and we will see if BAX, after this rest, can make another move before the split. On a move over 98.70, stock and/or July $90 calls to buy (BAX FR).

FIC ($73.90; -0.32): Splits 3:2 effective June 4. Another tight doji today at the stock holds its 10 day MVA (73) in its flying plateau. On a move, we will diligently exercise discipline in protecting profits, as it has made quite a run. On a move over 75 on above average volume. Stock only.

CONTINUING CANDIDATES: Also worth a look at OMC (making a very strong move), BBT, CEC and NVDA (a lot of interest in the stock today).

GNTX ($29.39; -0.82): Testing the breakout from its cup with handle today, tapping back to 29.04 at its low (breakout point was 28.44). Volume was down, as is healthy (466,300; average 428,000). Looking for it to hold here, and then make a strong move back up on increased volume. Stock and/or September $25 calls to buy (GXQ IE).

MMM ($120.64; -0.36): Has pulled back to test the breakout from its cup with handle, showing a doji just under its 10 day MVA (120.88), and over closing highs in its former handle. Looking for a hold, then a strong move up off of this doji. On a strong move up, stock and/or July $115 calls to buy (MMM GC).

POST SPLITS: EMLX is also showing some healthy action.

BRCD ($48.02; -4.37): Gapped down and continued a pullback today, but volume was appropriately low at 9.46 million (average 15.3 million) and the stock is holding the 10 day MVA (46.94). Is a real mover in a rally, and we were looking for a low-volume pullback off of Tuesday's doji. After holding here, a move back up in a strong market, with stock and/or July $45 calls to buy (UBF GI).

SEBL ($50.26; -4.46): After a great move up, the stock showed a doji Tuesday and gave us the expected pullback on low volume (11 million; average 18.9 million). It is now just above support at 50 (early and mid-May highs over which it broke out Monday), and we are looking for it to hold and then make a strong move up from here. On a good move, stock and/or August $45 calls to buy (SGW HI).

* * THE SUMMARY * * *

TONIGHT:
- Got the pullback today as volume pulled back sharply.
- Many stocks testing support on lower volume.
- Tax bill seems to be in the bag.
- First real economic news of the week up for the morning.
- Team Trades.

THE SUMMARY

All indexes pull back on lighter volume.

It sure looked like a pullback was coming and today it emerged on the Nasdaq and continued on the Dow and S&P 500. Volume was lighter across the board. Nasdaq volume was down 19% while NYSE volume was down 9.6%. Nasdaq price/volume action remains very good, and the NYSE volume was better today after showing some mild distribution on Tuesday.

As for where the indexes closed, they all managed to hold right at near term support. The Dow and S&P were well above support while the Nasdaq slid below 2250 (the first level we wanted to see hold) but closed above 2232, the high prior to Monday's breakout.

Stocks overall demonstrated the same action: down, but down on lower volume and holding above near term support. LOW, VRTS, VRSN, EXTR, etc. are some of the many examples of this. This was a day we were taking some quick profits on those short term plays we still had in place that had not hit our profit targets and buying back some calls we had sold. At the same time we were letting our longer term breakouts ride, checking them at the end of the session to see where they closed and what the volume was to determine if we have to take action tomorrow or can just let them run.

When the market is looking healthier overall, we still take care of short term trades regardless of the action, but we are a bit more comfortable in letting our longer term breakouts run and pullback, run and pullback as long as the action is healthy. Again, healthy action is price gains on higher volume, price declines on lower volume, holding above support (breakout point, up trendline, or the near term moving average that is acting as support).

THE ECONOMY

Today the tax bill passed the Senate and now goes to committee to be reconciled with the House bill. $1.35 trillion over 11 years. Not a whole lot of up front stimulus, but 70% of the U.S. wants a 'substantial' tax cut as the latest poll shows. If it makes them happy consumers once again, we are all for that.

Tomorrow the weekly jobless claims number comes out along with new home sales for April. The jobless rate is expected to hold steady at 380,000. That would not be bad, it would not be great. We would prefer to see this continue to fall as it has the past two weeks as it is a very important gauge of future consumer sentiment: if the threat of a job loss does not loom as large, a consumer is freer with the spending, and that in turn helps drive the economy back up faster.

New homes sales are also out tomorrow, and after declines in permits the past two months, they are expected to fall. This is one sector that held up the economy when everything else was in the tank, mainly because of the low interest rates. But, the lower permits mean ultimately fewer new homes sold as the inventory of new homes dwindles. Improving jobless claims, however, will ultimately help this number but it will take longer.

THE MARKET

Overall market stats:

VIX: 24.65; +1.16. Not a dramatic jump, but another climb as the S&P sold again. We would love to see it jump back up to 28 or so tomorrow on some early weakness, and then have the indexes start back up. That would show there are still investors quick to fear out there.

VXN: 53.64; +0.74. Not much of a gain on Nasdaq volatility in light of a 3% drop on the comp and a 4.2% drop on the Nasdaq 100. WE would like to see a higher move on some early weakness on Thursday.

Put/Call ratio (CBOE): 0.73; +0.13. The put/call ratio jumped the same as it did on Tuesday's selling in the Dow and S&P, and has now jumped 0.26 from the 0.47 reading on Monday. Volume has not shown us that sellers are in control, however. What this shows us is that the fear is still high and that there are still many that use any sign of weakness to try and play the downside. That is okay if you realize it is a short term game, but the historical reading of this ratio tells us that a lot of these playing the downside think things are going to tank. Good. Option activity fell to 1.043 million on the CBOE, but index options again surged to 1.26 to 1.

NASDAQ: Sold down today as expected, reaching down a bit lower than we wanted, but still above support and on lower volume.

Stats: Down 70.37 points (-3.0%) to close at 2243.48.
Volume: 1.885 billion shares (-19%). Back below average on the selling, and that continues the good price/volume action the Nasdaq has exhibited. Down volume was way out in front at 1.463 billion shares to 404 million upside shares, but it was a downside day all day from the start.
A/D and Hi/Lo: Declining issues took over control today at 1.65 to 1 (advancers led Tuesday 1.23 to 1). New highs fell to 112 (-89) as new lows fell also to 26 (-14).

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

The techs sold a bit more than we wanted. Looked as if they were going to hold above 2250 after testing that level three times intraday, but the last leg of late selling was too much, and it slipped below that level in the last 15 minutes.

The close at the low bodes more selling in the morning, but the lower volume on the session is a healthy sign that there has been no change in the otherwise healthy character of the market action we have seen. The spiking put/call ratio is again a good sign as we see many stocks falling back toward near term support; some are there with doji's while others have more to fall. As we said last night, this is the kind of action that sets up the next moves higher. We may see a test lower in the morning, but there is not a lot of room before 2232; we don't want to see it break that, but it might try the moving averages for support instead. The 10 day is at 2210.45; the 18 day MVA is at 2210.45, and the 50 day MVA is at 2170.00. That is a pretty solid lineup of hits, and we would expect them to hold if the action is to remain healthy. So, a pullback again early on; then we just have to see if it finishes the day lower again (6 days of gains preceded this selling) or decides to turn it back up.

End Part 1 of 2

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