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Tech Traders 5/31/01 Update
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Technical Traders Subscribers:

THE PLAYS: BLPG (on Wednesday's report) still looks ready to move up in the handle

Continuing Plays:

WFMI (Whole Foods--$57.27; +0.67; optionable (FMQ): Retail
http://biz.yahoo.com/p/w/wfmi.html
STATUS: Popped up on stronger volume (558,800; avg. 528,545) in what we call a shooting star doji a bullish move. Look for a breakout over the handle high of 58.83 from the cup with handle pattern. The stock is going to split June 5, and we're looking for a pre-split run. Target: $65-68.
BUY POINT: Breakout: 58.96, on volume of 793,000 or better. Stop: 54.83 (or at or near the 18 day MVA, 54.37).
POSITION: Breakout: Stock and/or August $50 calls to buy (FMQ HJ).

DGX (Quest Diagnostics--$123.61; +1.96; optionable (DGX): Health services
http://biz.yahoo.com/p/d/dgx.html
STATUS: Looks ready to move up in the handle again if it can get the volume to back it. The stock tested the 18 day MVA on the low of 120.57, support that's held it for the last three days. Pulled off the high of 125.50 as volume dropped back a bit to 295,200 (avg. 359,227). Target: $142-149.
BUY POINT: Aggressive: Over 126 on continued rising volume. Stop: 117.18. Breakout: 129.63, on volume of 539,000 or better. Stop: 120.56 (18 day MVA, 120.70).
POSITION: Both: Stock and/or August $120 calls to buy (DGX HD).

Revisited: Watch AMGN on a move over 67.75 on strong volume.

HGSI (Human Genome--$66.35; +1.15; optionable (HHA): Drugs
http://biz.yahoo.com/p/h/hgsi.html
STATUS: Still in the cup with handle and moved up from a test of the 18 day MVA (65.07). The stock tested that level Wednesday as well. Volume was down but near the average (2.9 million; avg. 3.2 million) as the stock pulled off a high of 68.30. Looking for a breakout over the May (handle) high of 74.25. Money flow and buying look good.
Target: $82-86.
BUY POINT: Aggressive: Up from here, on rising volume. Stop: 61.71. Breakout: 74.38, volume 4.8 million or better. Stop: 69.17.
POSITION: Aggressive: Stock and/or July $60 calls to buy (HHA GL). Breakout: Stock and/or July $65 calls to buy (HHA GM).

New Plays:

ABGX (Abgenix--$39.86; +0.92; optionable (AZG): Biotech
http://biz.yahoo.com/p/a/abgx.html
STATUS: In a cup with handle below the 200 day MVA (51.32), and looking ready to move up after testing support the last 2 days (18 day MVA, 39.01). Volume was higher at 1.25 million (avg. 1.7 million) on the move up; look for continued rising and strong volume for a breakout over the handle high of 46.50. Money flow looks good. Initial target: $51.
BUY POINT: Aggressive: Up from here on volume of 1.6 million or better. Stop: 37.07.
POSITION: Stock and/or July $35 calls to buy (AZG GG).

GENZ (Genzyme--$106.94; +3.52; optionable (GZQ): Biotech
http://biz.yahoo.com/p/g/genz.html
STATUS: Heading to a split June 4 and climbed toward it today on stronger volume (2 million; avg. 2.8 million). The stock hit a high of 111.50 on its recent breakout, and has tested back to the 50 day MVA three times since. Today's move is on the second day after hitting that major support again. Target over the high: $130.
BUY POINT: Aggressive: Up from here on continued rising volume. Stop: 99.45.
POSITION: Stock and/or July $95 or $100 calls to buy (GZQ GS or GT).

ADVS (Advent Software--$65.26; +2.99; optionable (UIV):
http://biz.yahoo.com/p/a/advs.html
STATUS: Made a bid for the May high of 65.95 as volume broke out hugely (4.1 million; avg. 396,000). The stock was added to the S&P index after the close today. Interestingly, the stock was trading down slightly after hours, but watch for a gap up in the morning. On a test of today's close (or the high at 65.95), look for a subsequent move back up. The stock's in a 8-month base.
BUY POINT: Aggressive: Up from here on continued strong volume. Stop: 60.69 (just below the 10 day MVA, 61.84).
POSITION: Stock and/or August $60 calls to buy (UIV HL).

Puts:

QQQ (Nasdaq 100--$44.73; +0.30; optionable (QQQ):
STATUS: Hanging near yesterday's closing price, failing to break back over resistance at the 10, 18, and 50 day MVAs (pretty hefty resistance) as volume dropped back to 68 million (avg. 73 million). The doji shown is at the low (44.30), and suggests a move down if the market begins selling off again. If it breaks support (50 day MVA, simple, at 44.03), we will continue to look at playing it down. Target: $42.80, an interim high. Then $40.
BUY POINT: Below 44 (50 day MVA, simple is at 44.01) on rising volume in market selling, OR, on a move back down after again testing the upper resistance.
POSITION: June $53 puts to buy (QQQ RA). Please check with your broker in the morning for deltas; they are unavailable at the time of this writing).

SOX (Phili Semi--$598.71; +13.10; optionable (SOW):
STATUS: Sold below the 50 day MVA (624.35) the previous 2 days, but found support at today's low of 580.32 and bounced back to a high of 610.88 (the simple 50 day MVA). The index pulled back from there, and may try to move up to test that level again. On a failed test and move back down from there, we will look at playing the index down if the market is selling. Initial target: $575.
BUY POINT: On a move down after a failed test of 610-611, on strong selling volume.
POSITION: June $610 puts to buy (SJX RB).

* * THE SUMMARY * * *

TONIGHT:
- Oversold bounce leaves a bit to be desired.
- Market providing plays both ways.
- Earnings warnings and affirmations: half empty or half full?
- Economic news weaker than expected, foreshadowing tomorrow's numbers.
- Fed officials strike a cautious tone.
- Team Trades

THE SUMMARY

Modest bounce after the selling: will it grow or just fade?

The reflex bounce we were looking for at the open turned out to be an all-day affair. Cannot really complain about that as these can always blossom into something better. The action after hours looked promising even with another warning, but we all know that can change quite a bit before morning. The more lasting signs for things to come show up in how the indexes and the stocks performed.

What we saw today was a decent bounce on moderate volume, but there was nothing that changed the character of the previous selling sessions. Many stocks tried to move higher intraday, but they faded toward the close in more classic bearish patterns. At least they did not close negative; find that silver lining. But looking at the indexes we see the Nasdaq and the SOX tapping at the 50 day MVA on the high (simple on the SOX; it is too far away from its 50 day exponential), and then falling to the close. That is a 'test' of the break through what was attempting to be support but now looks like resistance. That often leads to a further fall. BRCM, BRCD, MERQ and some other big names showed similar action: tapping the 50 day MVA on lower volume and then fading to the close. That does not indicate any power behind today's move.

Still, there were exceptions. SEBL jumped back over its 50 day MVA on above average volume, volume much stronger than any on the recent selling. EXTR could not close over its 50 day MVA, but it showed a shooting star doji right at previous price support as its volume jumped back above average as well. VRSN closed again above its 50 day MVA, sporting volume that was still below average but higher than any of the recent selling volume. CIEN also showed a doji and closed right above its simple 50 day MVA and still above the bottom of its sideways range it has built over the last 5 weeks. Some of the big name techs that were performing well in the last move up are trying to make a stand. Moreover, the leaders continued to lead: AVDS broke resistance on huge volume, LLL jumped off the 50 day MVA, and THQI made yet another move off of the 18 day MVA as AMGN and the other biotechs continue to form their handles.

What we see are plays to both sides with the leaders that emerged early still performing well and others struggling. Play the strong plays to the upside, take what the weak plays are giving. If today's action blossoms into something more to the upside for the market overall, we will let ourselves be pleasantly surprised.

More warnings and then a reaffirmation after hours.

ALTR warned after hours that its Q2 would be 5% light. Maybe the SUNW news took all of the sell out of market, but after selling down on the news, ALTR then recovered. More likely than not, ALTR was helped by news from NVLS that said it was reaffirming its target for the year and basically saw things status quo even though the CEO said there was not really a lot of good news to report. Things were on target for the year, but that was all dependent upon the economy. Nothing really new, but the stock rallied up $1.50 (3%) on the news.

This is the kind of reports we are going to see: some warning, some reaffirming. The market was clobbered by SUNW because it was a big name that supplies a lot of other tech companies. The news was not totally unexpected as we have discussed. Today investors had just had enough of the selling for the moment. To keep any upside going there has to be some reassurance from companies that they still see recovery ahead.

THE ECONOMY

Today's news was not encouraging. Jobless claims did not hold steady, rising to 419,000, well above the 407,000 expected by the consensus and the 411,000 prior (revised yet again upward by 4,000). We did not expect a light number as we stated Wednesday; there has been nothing to change the trend thus far. The 4-week moving average fell again, however, to 402,500 from 404,000 (but that was revised higher from 403,000), but that won't last if the weekly numbers resume the climb as they appear to be doing once again (third week in a row after posting a week of falling claims). The number is still not at 500,000 plus that we saw in the last recession, but 400,000 is a good barometer. You want to stay below that in the best scenario. The number has been over 400k for most of the past couple of months.

Continuing claims has to be the focus at this point as it shows if anyone is finding work. That number rose again, hitting 2.85 million for the week from 2.76 million the prior week (revised higher as well). That matches the February 1994 level.

Manufacturing hurting still.

Manufacturing is doing no better either. The Chicago PMI came in at 38.7%, down from April's 38.9% and much lower than the 40% expected. This report foreshadows the national report due out tomorrow, and thus we cannot expect much from the national scene. We hope we are pleasantly surprised, but it may be hard to hit that 45% level.

Friday's reports are important as well.

The employment report is out tomorrow as well, and that will have to show higher unemployment and most likely fewer non-farm payroll jobs once again. The consensus is a 25,000 drop in payrolls, but that might be wishful thinking. The rising weekly jobless claims and the further rise in continuing claims tells us that the employment situation is not really getting any better right now. To us this report is old news. The big story will be auto sales (we know they are down already from the durable goods report), construction spending (expected to rise slightly), and the NAPM. Those will tell us the rest of the story; inventories are said to have fallen significantly, but probably not enough to have really started a climb in the manufacturing end of the economy just yet. That may take another month or two before we see any improvement in that number.

Fed officials are cautious.

Dallas president McTeer predicted possible zero growth this quarter and said he did not know when things were going to get better. Moskow said the economy was going to get better, but he said there were still more risks to the downside than anything else facing it right now. To us we are pretty certain the Fed will cut again in June; whether there is more after that is up to the economy as the Fed has made it clear its goal is to avoid recession. It is not going to mess up Greenspan's batting average. The bond market is a pretty good gauge, and it is showing the cutting ending, but that is only because of its predictions on the economy. Bond yields, gold prices, commodity prices, fiscal stimulus, company reaffirmations all indicate better times down the road, and the bond market is keying in on that. If the economy is getting better, or more accurately, if Q2 is the bottom as many companies are saying, then this is an accurate assessment and it is a good thing. The market is kind of schizophrenic about a good economy versus more rate cuts at this point. It is not fully convinced the economy will make it, and thus it cannot let go of that desire for further rate cuts.

End Part 1 of 2

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