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6/04/01 Stock Split Report Market Summary
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Stock Split Report Subscribers:

PLAYS TO LOOK AT: A big breakout move from FITB, with solid moves from pre-splits LH, ESRX, FIC and JNJ!

PRE-ANNOUNCEMENTS: CEFT could be ready for a move from here, and is worth a look (see weekend report).

FITB ($60.58; +1.12): Forecast to announce a split on 6-21-01 in conjunction with earnings. At this time the company cannot confirm the date. Started the breakout Friday and continued up today, blasting up with great volume behind it (3.17 million; average 1.74 million). It is now just below its December high of 60.88, and we can look at more positions on a move over that level, with July and August $55 calls to buy (FTQ GK and FTQ HK).

CHV ($98.03; +1.65): Forecast to announce a split on 7-24-01 in conjunction with earnings. At this time the company cannot confirm the date. Made a solid move, gapping up and then continuing the run. The stock closed just under the high in its ascending wedge pattern, which is at 98.49. While volume was up at 2.15 million, it was still below the average of 2.45 million. We will look for a breakout with volume up at 3.6 million, with stock and/or September $95 calls to buy (CHV IS).

BMET ($45.35; -0.01): Forecast to announce a split with a board meeting 6-29-01. Still looking good, testing back to the 10 day MVA (for the third straight session) at its low of 44.52. The stock has formed a small ascending wedge the last couple of weeks on the heels of breaking from a larger ascending wedge. It reached up to 46.47 to make a new high today, but pulled back to close, as volume increased to 1.51 million (average 1.84 million). Holding support is encouraging, so we continue to look for a strong move with volume above the average. On a move over 46.50, stock and/or July $40 calls to buy (BIQ GH).

PRE-SPLITS: LOW could be making a run soon.

LH ($155.00; +6.65): Splits 2:1 effective June 11. Another strong move from LH as it makes a pre-split run after having tested a break over its down trendline (the top line of a pennant pattern). The move took the stock over its April high at 151.12, and the February high in the pattern is up at 162. We will ride the stock up and watch carefully for topping signs (doji on high volume, close well off the intraday high, decreasing gains on decreasing volume), which are so key in gauging momentum on pre-split plays. On a continued move, stock and/or July $150 calls to buy (LH GJ).

JNJ ($100.14; +2.14): Splits 2:1 effective June 12. Made a good move today that could be the start of a pre-split run. The stock had pulled back into the range of its former handle, but today broke back over its 10 day MVA (98.24) and back toward the breakout high of 102. Looking for more, watching the 102 level for possible resistance, with stock and/or July $95 calls to buy (JNJ GS). Relative strength broke over the highs on the breakout with today's move.

ESRX ($103.75; +3.58): Splits 2:1 effective on or about June 22. After a nice, low-volume pullback that tested the 10 day MVA (97.16), ESRX has made a solid move back up. Today the stock broke over its breakout high from last week (100.84), and now faces a late December high of 107. Volume was up today at 640,400 (average 788,800), and we will carefully continue to look at ESRX as it makes this move, looking for increased volume. Stock and/or August $100 calls to buy (XTQ HT).

SDS ($62.80; +0.82): Splits 2:1 effective June 18. Is making a nice move up after having caught support at its 18 day MVA (59.72). It slowed a bit today after the big jump Friday, but it made a new closing high on volume that was slightly down (670,100; average 892,900). The intraday high from mid-May is ahead at 64.50 (the handle high). On a continued move up from here on increased volume, stock and/or July $55 calls to buy (SDS GK). Breakout 63.13 on volume of 1.3 million, with stock and/or July $60 calls to buy (SDS GL).

FIC ($79.50; +3.85): Splits tomorrow, and while stocks often experience difficulty moving after a split, FIC broke to a new high today. It was a solid move, with big volume behind it (143,600; average 86,000). We will continue to watch solid stocks in solid patterns even after the split, and FIC has been really strong, making this move after testing a breakout from a flying plateau (formed after a breakout from a saucer pattern that formed after a break from a cup pattern). That is quite a few breakouts and quite a run, so we will of course protect positions on a move up with stops. Stock only.

CONTINUING CANDIDATES: GNTX is still holding up, as is NVDA, and we are still keeping an eye on SRCL as a possible put.

ACF ($52.20; +0.36): Continues in its tight consolidation along the 10 day MVA (51.92), showing yet another doji over that support as volume peeled back to low levels (531,500; average 972,000). We are patiently waiting for a move, with the recent high to watch at 55. We will be careful in using stops as the stock makes its move, protecting profits, as it has made a solid move this year already. On a move back over 52.84 on increased volume near the average, stock and/or August $50 calls to buy (ACF HJ).

IFIN ($59.80; -3.74): Took the big drop we have been looking for today for the put play, falling through its recent lows at 63-64. It could try to find support here at its January low, but on a continued fall on strong volume (up today to 612,400; average 365,500), the stock could fall back to March-April lows in March-April. On a move below 59 on continued strong volume from here or after a weak bounce up, July $65 or $70 puts to buy (FLQ SM or FLQ SN).

KMI ($55.29; +0.60): After the high volume drop Friday, the stock popped back up a bit today, but on weak volume (401,100; average 658,000). We are looking for this rebound to fail, and on a move back up down on volume at the average or better, we can continue to look at a put play. With a move below 54, July $60 puts to buy (KMI SL).

MIKE ($38.80; -0.75): A nice breakout move last week, and Monday MIKE pulled back a bit, but on the lower volume we look that signals a bit of profit-taking. The breakout point was 38.22, and we will look for MIKE to hold that level on any further selling, and after holding support we can look for a strong move back up on increased volume (today 132,600; average 246,000), with stock and/or September $35 calls to buy (IKQ IF) for new or additional positions.

KMP ($71.45; +0.05): Another stock upon which we are patiently waiting as it moves in a tight lateral consolidation along its short-term MVA's (10 day and 18 day at 71.45 and 71.07, respectively). It hit a high of 73.99 on the last move, and we will watch that level carefully on a strong move up, looking at positions with stock and/or September $70 calls (KMP FN) on a move over 72.50 with average or better volume (135,800; today 87,300).

MERQ ($59.92; -0.23): The stock has formed a lateral consolidation just under its 50 day MVA (61.68), a former support level that it breached with a strong move down last Wednesday. If we get some weakness with earnings forecasts that drives the market down, we will look for the big techs to present some put plays. On such a move below 58 on stronger volume near the average (5.24 million; today down to 2.2 million on the doji), July $65 or $70 puts to buy (RQB SM or RQB SN).

POST SPLITS: BAX continues to show strength post-split.

BRCD ($39.25; +0.45): The stock, like MERQ, made a strong move down and through its 50 day MVA (41.58) last week and has since moved laterally under that level with weak volume (today down to 6 million; average 14.7 million). Today the stock showed a doji, continuing with tight patterns just under resistance, and if we get a bout of more intense weakness in the market, we are looking at July $45 puts to buy (UBF SI) on a move down below 38 with volume back up near the average.

JNPR ($44.44; +1.65): Another weak-looking tech, JNPR making a slight move back up since last week's fall back to the 40 level. Today saw the stock show a doji (the 10 day MVA is ahead at 47.47), and in market weakness JNPR could drop back through that level and head back toward April lows back below 30. The more aggressive play is on a strong move down from here on above average selling volume (29.3 million; today 22.8 million), with July $55 puts to buy (JUX SK). On a move below the recent low at 40, July $50 puts to buy (JUX SJ).

* * THE SUMMARY * * *

TONIGHT:
- Indexes post slight gains on very low volume.
- Everyone worried about earnings warnings but they are missing the boat.
- Breakouts continue all over the place on heavy volume.
- Greenspan not worried about inflation for now, but is more concerned about oil.
- Subscriber Questions: covered calls
- Team Trades

THE SUMMARY

Another mild gain on low volume.

The big indexes, particularly the Nasdaq, went nowhere today on volume that fit the occasion. Lightest volume of the year on the Nasdaq and second lightest on the NYSE as the indexes traded in a range the whole session. On the good side they finished higher and near the highs for the session. If you are not going to have a definitive day, let it be a gain. On the negative side, there was not commitment to the move from the big names in the indexes and they continue their tenuous balancing act either right above support or right below resistance.

Earnings worries? More like earnings obsession.

We have used this old phrase before, but you could not swing a dead cat Monday without hitting someone talking about what big name company would be the next to warn. ORCL was the speculation last week (and we still think ORCL is a very likely candidate). Today the speculation swirled around INTC as it holds its first ever mid-quarter status meeting on Thursday after the close. CY (Cypress Semiconductor) did in fact warn today as it noted very tough sledding. Then NSM (National Semiconductor) announces earnings on Thursday as well. That has everyone in a tizzy about what will happen.

Worry about warnings? We would rather play all the breakouts?

You know what? All of this breath and print over who will be next is pretty much wasted on us. We don't worry too much about that as we are not really looking for downtrodden leaders to lead us to nirvana. Sure, we will take a nice ride on stocks such as SEBL, EXTR, VRSN, VRTS and the like (some of the firmer performers of late from this group), but we also know that these can be more short term and need to be traded with caution. Why? Because their stock charts show degradation that is usually a precursor to poorer news heading forward. It happens time and time again that a stock chart foreshadows good news or bad news.

How many times has a stock lost a hefty chunk of its value and then announced the bad news? The market tends to sniff this out long before it happens. On the flip side, we see a stock march up close to an old high or pre-correction top, pause, and then breakout on huge volume on some good news? The market is smelling better things for this stock and mutual funds have been accumulating the stock; demand then outstrips supply, and boom, the stock shoots higher.

And, that is exactly what we have been seeing and what we saw today in large quantities. Today we saw DFXI, WTSLA, HET, BORL, BLPG, and LTBG on the Technical Traders Report alone breakout of these very patterns. We saw ESI on the Daily do the same. Not to mention ESRX continuing its move, and FITB, FIC and LH moving ahead on the Stock Split Report. These were not low volume moves; they were breakouts on big volume. That is a sign of major buying in these stocks, and major buying by institutions. As covered in the seminars, institutions drive stock prices to the really solid moves. Big volume breakouts are one of the signs that institutions leave in the investment sand for us to follow.

These patterns tend to launch the bigger and steadier moves in the stocks that form the patterns and breakout. That has been the pattern this entire rally. As the major indexes moved up, consolidated, moved up, struggled a bit, etc., the smaller stocks continued to set up the good patterns and breakout. Today even though we saw light volume on the averages, we were heartened by the number of stocks breaking out of good patterns. Of course the indexes will have to come in with some good overall volume sooner or later or everything will fail. But, if we can capture 15%, 20%, 40% or more on these moves, do we care that much? We do because we want to see the moves continue to 100% or better gains, but the point is, if the plays are there, take them! Let the others worry about what ORCL is going to say or not say about earnings. Its chart is in the toilet, and that pretty much eliminates it from our realm of stocks we are worrying about.

THE ECONOMY

Greenspan spoke to the International Monetary Conference in Singapore via satellite today. He finds very little in the way of short-term inflation for the U.S., but notes that the Fed will remain vigilant. He noted a 'very extraordinary lack of pricing power' in the U.S. that was pressuring profits, not prices. More importantly, he noted that previous recessions were preceded by spikes in energy prices, and that is something we are obviously experiencing now (the spike in energy; textbook version of a recession? Maybe.). He said this back in October 2000, voicing his concern about rising energy prices impacting the consumer. Everyone read it wrong at the time (not us as you recall), interpreting it to mean that Greenspan was concerned about energy prices giving rise to inflation. Just the opposite was his concern, and it is clear that is exactly what he was thinking and what he is still thinking today. Higher prices are a tax on the consumer: dollars that would go to buying manufactured goods go to buying fuel that is necessary just for the economy to function. Not the best use of the consumer and business dollar.

This was a key topic today because OPEC decided not to change production quotas limiting the production of oil from member countries. On top of that, Iraq halted production in protest of the 1-month extension of the fuel sales for necessary aid items. Iraq wanted more time, so in a classic cut off your nose to spite your face move, halted production. There is an old saying: you cannot sell what you do not produce. Anyway, the events drove oil back over $28 per barrel. We don't think that is going to last long.

Job cuts taper in May. Challenger reported that job cuts in May fell below 100,000 for the first time in 5 months, coming in at 80,140. Not a great drop (27,031 in May of 2000), but it is encouraging to see perhaps the trend slowing. Remember, we said we would see up and down economic news and then some changes in the trends, or what is otherwise known as improvement. Could be starting already.

End Part 1 of 2

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