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trade stock, stock market today
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Tech Traders 5/29/01 Update
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Technical Traders Subscribers:
THE PLAYS: Several are holding up well (MSCC, HB, WFMI, LTBG) and others that are covered below. Still finding good upside patterns (AMGN looked good today), but we are looking at some puts if we get continued selling.
Continuing Plays:
BLPG (Boron Lepore--$13.39; 0.00; no options): Diversified services, business
http://biz.yahoo.com/p/b/blpg.html
STATUS: Tightening in the handle of its cup base, as volume remains very low (37,300; avg. 92,000). The stock is holding above the 10 day MVA (13.30). Looking for the breakout. Previous basing high is 14.88. Target: $16-17. One of the better patterns of accumulation in the bases we have been watching.
BUY POINT: 14.01, on volume of 124,000 or better. Stop: At or near the 18 day MVA (13.02).
POSITION: Stock.
KOSP (Kos Pharmaceuticals--$26.60; +0.05; optionable (KQW): Drugs
http://biz.yahoo.com/p/k/kosp.html
STATUS: Still in good position as it tests the recent strong breakout from the saucer with handle. Volume surged close to average (63,100) and the stock hit a high of 27 before pulling back down to a doji. Looking for a move up again on a follow-through of the momentum. 10 day MVA is at 25.52. Great money flow and buying. Target: $31-32.
BUY POINT: Aggressive: Over 27.50 on strong volume. Stop: 25.58 (or the 10 day MVA).
POSITION: Stock and/or August $25 calls to buy (KQW HE).
IRM (Iron Mountain--$39.99; -0.33; optionable (IRM): Diversified services
http://biz.yahoo.com/p/i/irm.html
STATUS: Tested support (18 day MVA) on the low of 39.70, just as it did Friday. The stock is in a cup with handle pattern. Volume was sharply lower at 48,600 (avg. 180,000) as the stock holds at the 40 level; look for a move back up from here on a surge in volume for the breakout. Target: $48-50.
BUY POINT: 41.63, on volume of 270,000 or better. Stop: 38.72 (or the 50 day MVA at 38.42).
POSITION: Stock and/or July $40 calls to buy (IRM GH).
Revisited: Keep an eye on MMM and BVF. They are at support and look ready to move up. WFT is looking interesting again, bouncing from its 50 day MVA in a wedging pattern. For another good biotech, see AMGN on a move over 67.75.
HGSI (Human Genome--$68.51; -0.93; optionable (HHA): Drugs
http://biz.yahoo.com/p/h/hgsi.html
STATUS: In a cup with handle, testing support in the handle on the low of 67.20 (10 day MVA). Volume is well below average and slightly higher today as the stock pulled up from the low and showed its second doji since Friday (1.5 million; avg 3.4 million). Looking for a breakout over the May high (74.25). Money flow is strong and buying looks good. Target: $82-86.
BUY POINT: Aggressive: Up from the 10 day MVA or here, on rising volume. Stop: 62.64-63.71. Breakout: 74.38, volume 5 million or better. Stop: 69.17.
POSITION: Aggressive: Stock and/or July $60 calls to buy (HHA GL). Stock and/or July $65 calls to buy (HHA GM).
RE (Everest Re--$66.65; +0.56; optionable (RE): Insurance
http://biz.yahoo.com/p/r/re.html
STATUS: Is in a base of 5 months, and back at support after retreating from resistance at the 68 range, a pullback after a decent run up over the first 3 weeks of this month. The stock has held support (18 day MVA, 66.02) the last four days and moved back over the 10 day MVA (66.45) on strong volume Tuesday (359,000; avg. 339.136), enjoying a Legg Mason upgrade. Looking for a break of resistance (April high at 69.30) and ultimately a breakout from this base (previous basing high is 74.75).
BUY POINT: Aggressive: Up from here on continued rising volume. Stop: 61.98. Break of resistance: Over 69.30 on volume of 485,000 or better. Stop: 64.45.
POSITION: Both positions: Stock and/or Stock and/or July $65 calls to buy (RE GM).
New Plays:
FITB (Fifth Third Bancorp--$58.78; +0.18; optionable (FTQ): Regional Banks
http://biz.yahoo.com/p/f/fitb.html
STATUS: In the handle of a 5-month cup base. Volume has been below average in the handle, but was up a bit Tuesday (1.3 million; avg. 1.76 million) as the stock showed its 4th consecutive doji, and a slight rise. The handle high is at 59.23, so the pivot point for the breakout is plotted just above that. The 10 day MVA is at 57.89, and the previous high in the base is near 61. Huge money flow. Target:
BUY POINT: 59.36, on volume of 2.6 million or better. Stop: 55.20.
POSITION: Stock and/or August $55 calls to buy (FTQ HK).
Puts:
QQQ (Nasdaq 100--$46.12; -2.87; optionable (QQQ):
STATUS: Broke the 50 day MVA (47.02) on stronger volume (66.5 million; avg. 74 million). The index has potential support at the 45 level, but on a move below that in continued selling we will look at playing it down to the 42.80 range.
BUY POINT: Below 45 on average or stronger volume in market selling.
POSITION: June $54 puts to buy (QQQ RB). Please check with your broker in the morning for deltas; they are unavailable at the time of this writing).
CHKP (Check Point--$58.38; -2.92; optionable (KEQ): Security Software
http://biz.yahoo.com/p/c/chkp.html
STATUS: Broke support (10 and 18 day MVAs) on stronger volume of 7.8 million (avg. 14 million). The stock was holding above that support but had failed to break over the 50 day MVA (63.22) for the last 4 days. We look for a retest of the broken support (the 50 day MVA, simple, at 59.22, as well), and on a move back down will look at the downside play, in market selling.
BUY POINT: On a move back down after a test of the 50 day MVA (simple) at the 59 range, and/or the 10 and 18 day MVAs at the 60 level, in market selling. Target: 50.
POSITION: June $65 puts to buy (KEQ RM).
* * THE SUMMARY * * *
TONIGHT:
- Bad start for a critical week.
- Nasdaq (led by Nasdaq 100) and S&P 500 easily undercut support as Dow hangs on by a hair.
- Downgrades, and stronger economic news hurt as well.
- Warnings season starts today as SUNW and RSH lead the way.
- Short term could be gloomy as investors once again address what they already know: earnings this quarter will stink. Still, harsh reality is hard to handle.
- Team Trades
THE SUMMARY
Important week gets off with a stumble out of the gates.
All three major indexes closed last week right at support, and we felt that the tone for the short term would be set by how the indexes traded with respect to that support. It was not a great start for the bulls.
The Nasdaq wasted no time letting everyone know which way it was going: down. It gapped lower and never tried to come back, finishing just off of its session low. The S&P 500 tried to make a stand at 1270, but it slipped below that level at lunch and a few weak attempts to move back above it simply gave way. The Dow put on a show of 'strength' late in the session, rising 70 points off of the low to close positive.
Volumes were higher on the Nasdaq and the NYSE, but after Friday's sleeper, a troop of girl scouts selling cookies could have generated more volume. Again we cannot take too much from the Nasdaq's selling on higher volume and the Dow rising on higher volume because the totals were still light. Nonetheless, we saw big name tech stocks that had been struggling to pull of the bottoms of their bases turn and fall through support on higher volume. In the days of the downtrend, this was a certain indicator of more selling to come. In the short term it could lead to the same in this market.
Monday downgrades and stronger economic news.
It was definitely a Monday. Goldman wanted to beat everyone to the punch and cut estimates on EMC given that it closed Friday about 65% off of its high hit back in September of 2000. Good call guys. Seems this 'new era' of honesty among analysts is really catching on; and look at all of the positive benefits to investors! That was part of the problem, but let's face it, we have had these every Monday with little or no impact. Something else was going on, something we could sense over Friday's action.
Equally disturbing was the reaction to some better economic news. It had appeared that investors had finally realized that 250 basis points in rate cuts, a tax cut, and some better outlooks from companies was good for the market. Then today there was some higher personal income and higher spending and higher consumer sentiment, all indicating that at least the consumer was going to keep things going while businesses got back on their feet. The improved sentiment got a muted round of applause as all indexes rose on the news, but that little pop was met with a wave of selling that slapped stocks lower for the session. Good news is no longer good news.
Warnings in the back of investors' minds?
SUNW was the news all day, moving its conference until after the close of trading. That pretty much assured everyone that the company was going to announce that it would miss earnings, and the market behaved accordingly all day. After the close it confirmed this as being the case (it did this earlier in the year as well) and that sent stocks even lower. The retailer Radio Shack (RSH) then announced it would not come close on its numbers as well. The party has started.
Is this something unexpected? Of course not. Let's remember that other than the most robust guidance from the first quarter said that the second quarter would be a bottoming quarter. That means earnings would be lower than they were in the first quarter. We all know that is the case. The real trick is whether investors continue to look further down the road to better times or if they get skittish.
It is one thing to say with reasoned calm that we can expect another quarter of weaker earnings before things get better and that we are investing for that future time. It is another when harsh reality slaps you around a bit when the numbers actually hit. Investors trade with emotion, and that is what we are seeing now. There is fear about second quarter numbers that everyone knows are going to be weak. But, it is the uncertainty about what will be said looking forward: will there be retractions on positive views given at the end of the first quarter? The uncertainty sends tremors through the market.
Downturn to continue or a quick rebound?
With the Nasdaq breaking decisively below what should have been a support level and the big name techs blowing out the bottom of their recent consolidation ranges, we could easily see more short term selling on the index and the S&P 500 as investors retrench ahead of the news they already know the punchline to.
Short sellers were putting on some more positions today and are going to be putting more shorts out again with more vigor if the Nasdaq breaks below the 50 day MVA at 214.01. That is more pressure on the index. A breach of the 50 day MVA would put the Nasdaq back down close to 2000 where it gapped higher on April 18. That would be the key point.
Still, we are not there yet. We saw many big name techs break support today, and we are looking at playing them to the downside if they test the support and then start to fall again. We are not going to get in a rush here, but be just as patient on the downside as we have been on the upside. Volume was not huge on the selling today (still well, well below average), the Nasdaq is still above its 50 day MVA, and the vast majority of breakouts are still holding up well. They are ready to pullback or are doing so, and the key will be whether they hold up. Indeed, we may get some good downside plays on the tanking big tech names while the breakouts test their breakouts and then rebound.
In a way this is classic action: breakouts holding up well after moving out of sound patterns while some of the big name techs trying desperately to stage recoveries simply cannot overcome the overhead supply of sellers when some selling finally hits the market. We have seen 30%, 50% and even 100% moves in some of these names since April, but the patterns are nowhere near rock solid, and they are easy targets for sellers.
Overall you still cannot argue with 250 basis points in rate cuts and signs of an improving though still balky economy. Looking down the road 3 to 4 and more months, we still view stocks as being ahead of where they are now. We may have some interim profit taking where we have to tend to our positions (we sold several more today to preserve gains), but then we take advantage of the leading stocks as they start to move higher once again as we feel they will do given our believe that the economy and earnings are going to improve despite the weak performances we see right now. Those are already baked into the cake. It will cause some to lose their nerve, but we will have more good opportunities to the downside and then upside because of it.
THE ECONOMY
Personal income and Personal spending rise. Incomes rose 0.3%, lower than the previous 0.5% gain, but in line with expectations. Spending rose 0.4% versus 0.2% in March (revised lower), and that was also in line with expectations. Not major buying, but consumers continue to increase consumption. Wages and salaries rose 0.5% while savings fell for the tenth month in a row by 0.7%. That is a very restrictive number and does not reflect what is really going on. Durable goods purchased fell 0.6% while non-durables (clothing, etc.) rose 0.7%. Overall, spending over the 3-month period from February to April was up 1.9%. Not bad, but that was the slowest 3-month reading since April 1995.
The personal consumption expenditure deflator, a measure of income and spending factoring out monetary changes was very low. The core rate rose just 0.2%. There just is not a whole lot of pressure from inflation at this stage.
The number that almost got the market moving was the Conference Board's monthly consumer confidence figures. Friday the Michigan survey showed some improvement, and today's report reflected that with a reading of 115.5, well above consensus numbers that ranged from 110 to 112. Current expectations came in at 158.6 versus 156.0 last month, and future expectations rose to 86.8 versus 79.1 last month. Those are strong readings to the upside, and they garnered some attention briefly. But, the consumer has been relatively strong the entire downturn. Consumers wavered recently, but the rising equity market helped their resolve. If the market decides to take a siesta now, will confidence remain?
End Part 1 of 2
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