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6/06/01 Stock Split Report Market Summary
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Stock Split Report Subscribers:

PLAYS TO LOOK AT:

PRE-ANNOUNCEMENTS:

BMET ($46.24; -0.39): Forecast to announce a split with a board meeting 6-29-01. BMET continues to look strong, breaking from patterns and then consolidating over the prior breakout point. The stock broke from a small ascending wedge Tuesday, and today pulled back slightly on lower volume (1.28 million; average 1.83 million), testing the 10 day MVA at its low of 45. If we get another test of the 10 day, the aggressive could play a strong move up from there, with stock and/or October $40 calls to buy. On a breakout over 46.93, stock and/or October $40 calls to buy (BIQ JH).

FITB ($60.29; -0.69): Forecast to announce a split on 6-21-01 in conjunction with earnings. At this time the company cannot confirm the date. Tested the breakout from a cup with handle today, tapping its 10 day MVA at its low of 59.51 before recovering a bit to close. We could get another test, and the aggressive buy point would be on a strong move up from the 10 day after holding support there, looking for increased volume (1.47 million today; average 1.77 million). The breakout is on a move over the high of 61.11 on above average volume. For both buy points, stock and/or July and August $55 calls to buy (FTQ GK and FTQ HK).

CHV ($96.16; -1.54): Forecast to announce a split on 7-25-01 before the open in conjunction with earnings. Has been forming an ascending wedge, and off of Tuesday's doji the stock gapped down today, but caught the 10 day MVA to close with a doji. We will look for the stock to hold here, continuing the pattern, moving back up toward a break over the high in the pattern of 98.59. Looking for volume of 3.3 million (up to 2.9 million today), with stock and/or September $95 calls to buy (CHV IS).

PRE-SPLITS:

JNJ ($103.10; +0.91): Splits 2:1 effective June 12. Has made a fine pre-split move, and today its move was a smaller than what we have seen the last two sessions, but it still looks good after having broken over its May high at 102 yesterday. We will see if it can continue, and if we get a bit of a rest and pullback we will look for it to hold that 102 level. On a move up from here or after a pullback, stock and/or July $100 calls to buy (JNJ GT).

ESRX ($104.90; +4.64): Splits 2:1 effective on or about June 22. Continues its great move, running back up today after Tuesday's lower-volume pullback. Still looks strong, with solid volume behind today's move (up to 764,300; average 795,200). Ahead is possible resistance from the late December high at 107. On a continued move, stock and/or August $100 calls to buy (XTQ HT).

LOW ($72.07; +0.89): Splits 2:1 on or about June 29. Is trying to move, but is just edging up in its recent range forged after its strong breakout last month. The closing high is just ahead at 72.50, with the intraday high at 73.70. Today's move up was weak, with volume down to 1.76 million (average 3.36 million), so we could get a dip back to the 10 day MVA at 70 before a run up. The aggressive play would be on a strong, higher volume move up from the 10 day MVA after a low-volume drop to that level, with stock and/or July $65 calls to buy (LOW GM). On a move to a new high on above average volume, stock and/or July $70 calls to buy (LOW GN).

CONTINUING CANDIDATES: NVDA still looks good, with GNTX pulling back but holding support, and IFIN and ITG showing momentum.

ACF ($51.45; -0.55): The stock dipped back a bit to close today, dropping below the 10 day MVA (51.84) on increased volume (1.04 million; average 962,500). However, it is still within the range of its tight lateral consolidation, and over the 18 day MVA (50.82). This could be a little shakeout that precedes a run, so we will keep an eye on it, looking for a move over 53 on above average volume. Stock and/or August $50 calls to buy (ACF HJ).

KMP ($71.00; -0.44): Another stock in a lateral, tight consolidation, and it sold back a bit today, closing at its 18 day MVA. Volume was very low at 51,900 (average 137,500), and we are just patiently waiting for a move. On a move back over 72.50 on increased volume near the average, stock and/or September $70 calls (KMP FN).

MIKE ($39.80; -0.79): MIKE has made a nice breakout move, and today it made another low volume pullback like it did on Monday (92,000 today; average 248,800). The stock responded yesterday with a solid blast upward, and we will look for MIKE to hold support here, at the initial breakout high, and turn back up on increased volume near the average. The breakout high is 40.62. On a strong move back up, stock and/or September $35 calls to buy (IKQ IF).

MERQ ($65.89; +1.90): Has made a nice move the last couple of days, continuing up today with increasing volume (4.04 million; average 5.1 million) and taking out its 10 day MVA (63.81). If we get a nice market move, we will look for MERQ to make another strong move up. The May high (the last run) was at 75.50. On the move on increased volume, stock and/or October $60 calls to buy (RQB JL).

POST SPLITS: STZ and BAX in good-looking pullbacks.

GENZ ($56.99; -0.23): Pulled back a bit from its fine breakout move that came just one day after the split, but the drop was on lower volume (4.58 million; average 2.83 million) and the stock recovered to close after testing down to 55.66 (10 day MVA is at 54.71). We will see if GENZ can hold the 55.50 range if we get another test, looking for a strong move back up from there, with stock and/or October $50 calls to buy (GZQ JJ).

* * THE SUMMARY * * *

TONIGHT:
- Fear of overseas slowing stalls the market today as the major indexes pull back on slightly lower volume.
- Warnings and affirmations continue to pace each other.
- Stocks already showing topping signs at and before previous highs as the majority continue to move sideways.
- Subscriber Questions
- Team Trades

THE SUMMARY

Just as rally started to turn on the jets a bit, it hits a snag.

Tuesday the market posted solid gains on stronger volume that came after a few sessions of meager gains on light volume. Looked as if things were ready to move higher, but then there were some big names warning, and the day turned into a day of rest on lighter volume instead of another rally day. That is okay as it was on lighter volume, but we have seen a lot of lighter volume pullbacks that were pretty severe point-wise. As one trader said about the 'healthy reaction' to Tuesday's gains: some patients die even with healthy reactions. Overall we like what we see and don't think the market is going to die, especially with all of the negative sentiment out there. But, we do have to stay with our stop loss rules as this market is still backing and filling each move higher.

HWP (Hewlett-Packard) tossed its hat into the earnings warnings ring today, citing a global IT slowdown as the main culprit. This pretty much jibes with what other companies are saying: U.S. looking better, rest of the world starting to decline. As we said back in the spring and summer of 2000 when we started to see real problems with the U.S. economy, as the U.S. goes, the world goes. The U.S. economy dove down first, but now appears to be bottoming. Looks as if the U.S. will lead back up as well as lead down. JPM (JP Morgan) also added a warning today, noting a slowdown in its core businesses. As expected, the warnings keep coming.

But, so do the affirmations. CTXS said its quarter was better than expected. Proctor & Gamble, Clorox, and Avon all reaffirmed their earnings for the year. While the market remains skittish over who will be the next to warn, we are having just as many say they will make their numbers as others say they are seeing some signs of a turn. XLNX did that Monday night. Tonight, BRCM lowered its earnings estimates but also noted that it sees 'stabilization for the business in the second half of the year.' Those are the words of improvement, again in real time from the company affected, that again are indicative of the economic turn.

This makes sense as we have been discussing. There will be more warnings and worse numbers even as the 'bottom' in the economic cycle is hit. We are seeing the warnings and some pretty grim economic numbers. At the same time we will start seeing companies stating that things are looking a bit better. We are seeing that as well. We know the economic reports lag a month or two behind what the companies are reporting in real time every day. Thus, we have a hard time buying off on those that say the 250 basis points (and more to come) in rate cuts and a tax package are not going to do the trick for the economy. That is the same argument we heard from traders and some fund managers when they were saying in April that this bear market was 'different' and that the old indicators just 'did not work' anymore.

Yes we had a tremendous run up in the tech sector that collapsed. Yes those take time to heal. But, that does not mean they do not heal nor that leading companies do not perform very well. Look at NVDA, LLL, THQI, SDS, ACS, ESRX, the biotechs. They are all techs, but they are performing very well as leaders. NVDA is showing that very bullish breakout of a cup with handle followed by an ascending wedge as the market consolidates. Then we have all of the other stocks from various sectors that have been breaking to new highs on strong volume. Those are very positive for the market.

It is a slower move up out of a bear market such as the one we have experienced with up and down action. As we discussed, that makes it hard to play the former leaders that are still building their bases other than on a shorter term basis. They move up $12 and give back $12 as the bulls and the bears fight it out as they weed out the sellers as we discuss in the Technical Analysis seminars. Until the sellers are cleared out, they have very choppy action. Today we saw a bunch of doji's after a move higher, and that can indicate an interim top to the move higher.

While we do pick up and play the stronger patterns of the group, we spend more of our time focusing on the leaders that are breaking out on strong volume. These tend to hold their moves and then continue to move higher. It is not a flash and a 30% move (well, there is KKD and ESRX), but a steady climb higher with moves up and then pullbacks to test the last leg higher. It is a time for patience and selectivity, and we are finding many solid breakouts.

Shorter term, the emotion traders are the ones that have the financial stations' microphones.

Despite all of the talk about the VIX (it was still a big topic today) being low, fear does in fact remain high. There are so many on the tube and the radio who just will not believe that any move in any stock can last. The put/call ratio has climbed right back up to 0.73 today on some mild selling. The short interest remains at year and one-half highs. Those are much more indicative of a distrust of the market than the volatility indicator. The divergence in these secondary indicators is showing some of the battle that is going on between the bears and the bulls, but the short interest and put/call ratio help flesh out the story much better than just focusing on one indicator.

Short term, i.e., the next few weeks, there remains this battle going on between those that cannot see a move up without first seeing better company numbers and those who believe the moves start before that improvement actually shows up. We fall in the latter camp. After all, if you always wait until the news is out to act, you will always miss a lot of the move. You trust what the stock charts are showing you as they reflect the collective thoughts of the entire investment world. While this three steps forward, two steps backward action is not what investors were used to before the bear market took hold, the breakouts are just as real and are giving us nice returns despite the gyrations caused by the daily barrage of warnings and negative news stories.

End Part 1 of 2

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