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us stock market, top stock pick
Begin Part 2 of 2
THE MARKET
CMVT beat the street after hours and that had the stock moving. XLNX came out and reaffirmed its lower guidance, but said that order cancellations and pushbacks were slowing down. That had the chip stocks moving higher after hours, with XLNX, AMAT, ALTR, PMCS, VTSS and others moving higher. Will it carry over? Will it combine with the good moves in the breakouts we saw today to give the indexes another good run? They need it.
Overall market stats:
VIX: 22.83; -1.99. Sinking toward the 20 level which is considered to be in the bottom of the range. At this point it is starting to show some apathy, and that is why we want to see some good buying volume again.
VXN: 57.07; -0.12. Reflected the day on the Nasdaq: up and down and nowhere.
Put/Call ratio (CBOE): 0.60; +0.07. Not a dramatic move, but it continues to reflect the attitude toward this market: not a lot of believers. Every time the market hesitates or fails to advance solidly, the put activity rises. On all 5 option exchanges Friday it was 0.70. As we said, there is still a lot of distrust for this market, and that is good overall. Option activity was light again at 701,495 (728,555 Friday).
NASDAQ: Third advance in a row, but volume was weak.
Stats: Up 6.49 points (+0.3%) to close at 2155.93.
Volume: 1.313 billion shares (-13.7%). Lowest volume of the year, and of course, well below average volume (average is right at 2 billion shares). 671 million upside shares, 599 million downside. Pretty much a standoff and not very good price/volume action. At least nothing to change the recent sluggish action we have seen.
A/D and Hi/Lo: Advancing issues managed another victory at 1.14 to 1 (1.36 to 1 Friday). We like the continued positive improvement in the ratio as it is what brought this rally to life. New highs rose to 149 (+26) versus 26 new lows (+8).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Intraday the Nasdaq sold off and then recovered back above the 50 day MVA and moved laterally for the rest of the session. It tested just below the 50 day MVA (2141.40) and recovered to close just below its 10 and 18 day MVA's (2170.52 and 2166.44, respectively). Weak volume and a 'hanging man' doji (a negative sign on the candlestick chart) could spell short-term trouble for the index without some good news.
Now, we have the other side of the coin. The index started higher, sold back, and then managed to rally to the close. Not bad price action. Today was really a nothing day for the big techs and thus the Nasdaq. Once again we have a pullback on fairly low volume over the past week, we have some very, very low volume as the index wanders sideways, making a higher low last week. That is not a done deal at this point of course, but it is a positive that the index turned higher at that point (2052.41 was the previous May low). We continue to have high pessimism about the market with most analysts we saw today again saying nothing good as we had earnings warning worries to fight and the need for to see a real turn in technology. Short interest remains at a 19-month high. We have smaller stocks that have been the leaders anyway jumping up out of bases on high volume. This is pretty much what was going on the last time the market jumped higher. Everyone is giving up on the market. That is usually the time it moves. The news from XLNX sparked interest in the chip sector after hours. So many are ready to give up on the economy, the Fed, the tax cut and anything else they can think of that the time is almost ripe again for another move higher.
Dow/NYSE: The Dow put up its third gain in a row, but it too mae the move on low volume. Cracked 11,000 and held.
Stats: Up 71.11 points (+0.6%) to close at 11,061.52.
Volume: NYSE volume was 840 million (-17.24%) and well below average (average is near 1.2 billion). Up volume won the day with 528 million shares to 293 million on the downside. The entire pullback was on below average volume. Is the Dow setting up for a move higher as well?
A/D and Hi/Lo: Advancing issues again won the day at 1.81 to 1 (1.47 to 1 Friday). New highs climbed to 161 (+57) as new lows fell to 22 (-1).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow continued up off of its down trendline, and it broke over 11,000, tested it at 2:20 CT, and then moved up well to the close. The lighter volume move means no real conviction, but then again, this has been another pullback in the face of a lot of negative sentiment. It did manage to move up over that immediate resistance at 11,000 as well. True the move was not strong, but we may see some volume come back in this week to the upside. If not, it may just be a roll back up toward that 11,300 level before another roll back down.
S&P 500: Big caps continued their move up off the 50 day MVA today as well, but again ran into trouble at the 10 and 18 day MVA's (1269.10 and 1267.02, respectively). That of course also coincides with the resistance at 1270 from past tops. It closed on its high for the session, and while not a guarantee of tomorrow's movement, it is much better than heading lower at the end of the session. That leaves the S&P in much the same shape as the other indexes: a pullback on light volume the last two weeks, a lot of pessimism coming into warnings season, and light volume. We could see the index move even higher this week if no bombshells appear. With the short interest already so high, will there be such a bombshell that will ignite more selling? Or, will it ignite a rally instead based on the idea that the worst has come and it is not all that bad?
Stats: Up 6.44 points (+0.5%) to close at 1267.11.
Volume: NYSE volume fell to 840 million (-17.24%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Productivity numbers are out before the open and they are expected to fall. There will be talk about how that is inflationary, but there is not a whole lot out there to be really inflationary at this point. Then Factory Orders are out at 10:00 and they are expected to be negative after March's 1.4% gain. Those will be the focal points in our opinion, but we don't think there will be too much reaction to them unless factory orders really tank below the -2.7% expected.
The focus will continue to be on earnings warnings for all of the media. That is just about all you will hear tomorrow. It is a lot more fun we suppose to ponder the fate of the old leaders than to cover the solid moves of stocks not many have heard about. Yes, much more fun to worry about whether a big name is going to pre-announce bad earnings and look all serious doing it. We know there will be poorer earnings, and we do believe there will be some earnings warnings from a big name or two. If Q2 is the bottom, earnings will have yet to turn up. The key will remain the guidance; several said last quarter that Q2 appeared to be the bottom, and when earnings do finally roll around, that guidance will be the key, not the numbers.
Until then we have to accept reality that there could be some big tech downside on earnings warnings or pre-announcements, but at the same time we see the bread and butter of this rally, the smaller cap and mid cap stocks, breaking out of sound bases on strong volume. The index charts also tell us we may just be ready for a move higher despite the fears as long as several good companies come out and continue to say things are improving (e.g., XLNX).
So, we are going to continue to monitor the stocks in good bases for their breakouts. At the same time, tonight we have patrolled for tech stocks and the like that may be in for some rough sledding if there are some high-profile 'unexpected' warnings. We are looking at those as downside plays to capture some of the quick downside action and then bail when things look as if they are firming up. Indeed, we might get a selloff on the news and then a recovery that can start another leg up. The breakouts have been one of the strong supports of the market, something that was not there in the previous rally attempts. If they continue to breakout and hold their moves that is only a positive for the market overall.
Support and Resistance Levels
Nasdaq: Closed at 2155.93.
Resistance: Immediate: 10 and 18 day MVA (2170.52 and 2166.44, respectively). Then 2232 and 2250. After that, 2328 where it stopped this last time.
Support: 2050 and then 1995 - 2005.
S&P 500: Closed at 1267.11.
Resistance: The S&P cleared the down trendline connecting the September and February highs at 1260. It now has the 10 day MVA and 18 day MVA's (1269.10 and 1267.02, respectively). Again, those combine with 1270 as the next level of resistance. After that, 1315.93 is the recent high it needs to plow back through.
Support: 1250. After that, possibly 1230 from some previous price bottoms. If that gives on strong volume, 1200 is more likely.
Dow: Closed at 11,061.52.
Resistance: Knocked through 11,000 again today on mild volume. It now has to deal with that last top at 11,350 and clear 11,450. The old high at 11,750.28 is looking pretty far away.
Support: Down trendline at 10,800. Then 10,750. 10,400 to 10,500 if 10,750 does not hold.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
6-04-01
Auto sales for May: 6.2M expected versus 6.4M priorl
Truck sales for May: 6.9M versus 7.0M.
6-05-01
Productivity, Q1, revised (8:30): -0.7% expected versus -0.1% prior.
Factory orders for April (10:00): -2.7% expected versus +1.4% prior.
NAPM Services for May (10:00): 48% expected versus 47.1% prior.
6-07-01
Initial jobless claims (8:30): 430,000 expected versus 419,000 prior.
Wholesale inventories for April (10:00): -0.1% versus +0.1% prior.
Consumer Credit for April (3:00): $8.6 billion versus $6.1 billion prior.
SUBSCRIBER QUESTIONS
Several questions about covered calls over the weekend and how we play them. One of the things we like to do is pick stocks that are rolling in a range and then buy them when they turn up off the bottom of the range and sell the calls (or the stock if we want to) at the top of the range when and if the stock starts to turn back down. If it continues to run higher out of its range, why sell? If it does hit the top of that range and start down, we will go ahead and sell the calls.
It might still breakout, but our play was to ride it up to the top of the range and sell calls if it turned back down again. Do we want to chance riding it back down and having to wait for it to make the move once again? No, because we want to be able to play that move AS WELL. We like to ride them up, sell the calls when it peaks, then let it fall to the bottom of the range again. When we see it hit bottom and start back up, if there is enough time in the expiration period, we can then look at buying the call we sold back and letting the stock run back up with the goal of selling the call again should it turn back down. If there is not much time left in the expiration and we don't think the stock will make it back up to the top of the range before expiration and we just want to stand pat, we will let the stock move up and get called out. If we want to play it again even if we have to go to the next expiration period, however, (let's say there are great option premiums on this stock), we may just go ahead and buy it back anyway and then let it run up and sell the next month call if there is just a week or so left in the current expiration period.This way we can play one stock up and down without having to find new plays every month. As long as the pattern holds we are in good shape.
We also like to sell calls on our long term holdings in our IRA's and cash accounts, stocks that we do not want to lose. We sell when high and buy back when low, thus keeping our stock and getting hard cash into the accounts that we can use to buy more stock or use for living expenses (in our cash accounts). We use technical analysis to tell us when the time is right to sell and then we look for support as the time to buy back. With a large stock position you can make literally thousands per month without having to get too much movement in the option you sell and then buy back.
We also like longer term covereds on stable stocks to generate 25% or better returns over 5 months or so. We also like to use LEAPS to leverage our cash and not have to deal with margin problems.
These are fantastic cash building techniqes. All of these methods are taught in detail in our online Covered Calls and Protecting Your Downside Seminar that is to be given next week on three dates (June 13, 15, and 16). The cost is $300 and you get a top-quality reference manual that will be your covered call source for years to come. To sign up or for more details, visit the following link:
http://www.investmenthouse.com/signup1.htm
TEAM TRADES
FIC: A pre-split from the SSR that splits tomorrow, we were watching for the stock to see if it gave us another pre-split run after a nice $5 move two weeks ago and its slight bounce Friday off of its 10 day MVA; when a stock is looking good, a move back to the 10 day MVA can often trigger the next move up, especially if there is the momentum of a pre-split behind it. Well, the stock continued out of the gates today, and we wanted to capture all of the move we could given that the stock has no option chain and we want to get the best percentage return we can. The stock opened slightly higher, moved over 76 quickly, and then jumped to 76.60. It pulled back to 76.25, but then immediately jumped back higher about 30 minutes into the session. It was showing resilience and some more strength, so we decided to enter the play. The spread was 76.53 by 76.56 and we put a small limit order in at the ask. That was good enough, and then the stock gapped up to 76.80 and started to move more. We tried to put in another order as well after it started to move stronger (something we do when we see the move strengthen) and thought we were filled, but found out later it was only partial. Did not use an 'all or none,' and thus did not get all the fill. Anyway, the stock had a great day and closed at 79.50. We decided to hold through the split as the stock broke out of a saucer in April and then had moved sideways in a flat base before starting this move. That can lead to even greater gains ahead.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Investment House subscribers are offered a special from eSignal for those
interested in a realtime service. Contact:
Jeff Whitney
Account Executive
Data Broadcasting Corporation
800-322-1875
Office hours 6:30-3:30 PST
www.esignal.com
Good Investing!
Jon Johnson and The Stock Split 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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us stock market
top stock pick
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