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6/11/01 Stock Split Report Market Summary
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Stock Split Report Subscribers:

PLAYS TO LOOK AT: From the weekend bonus plays, OCLR and LZ are still looking good.

BONUS PLAYS:

GNTA (Genta--$12.79; +0.52; optionable (GJU): Biotech
http://biz.yahoo.com/p/g/gnta.html
STATUS: The stock is in a 14-month base (high at start of the base is 16) and raced up early this month, pulled back and on strong volume today headed back up after testing the recent breakout (1.2 million; avg. 538,000). That breakout ran the stock up into the upper right side of the base, and we are looking for continued strong move and run up to complete the cup. Target: $16. Huge money flow and good buying.
BUY POINT: 12.98, on continued strong volume (min. breakout volume is 807,000). Stop: 12.07 (10 day MVA, 11.59).
POSITION: Stock and/or August $10 calls to buy (GJU HB).

VAR (Varian Medical Systems--$74.60; -2.19; optionable): Scientific & Technical Instruments.
http://biz.yahoo.com/p/v/var.html
STATUS: VAR has been strong, recently testing a breakout (out of its third base) and moving back up the last couple of weeks. Today we saw an interesting phenomenon, as VAR dropped back on low volume (101,700; average 195,000) on no news. It is possible that it was confused with Varian Semi (VSEA), which warned with respect to earnings today. We suspect that this was the case, and we are going to at least make a short term trade out of this, though VAR is a leading stock of late. We will see if it tests the 18 day MVA (73.45), and look for a rapid move back up toward the high of 77.25. Strong money flow, buying and relative strength.
BUY POINT: A move back up on increased volume, perhaps after a test of the 18 day MVA.
POSITION: Stock and/or August $70 calls to buy (VAR HN low open interest).

TTEK (Tetra Tech--$28.61; +0.10; optionable (TQI): Diversified Services
http://biz.yahoo.com/p/t/ttek.html
STATUS: The stock is in a fine shakeout as volume drops ever lower below average (122,200; avg. 521,454). TTEK tried to break out of a 6-month cup with handle last month but has instead pulled back from that attempt (June breakout high is 31.32) in what we consider a continuing handle (the June high is the handle high). Monday the stock closed just under the 18 day MVA (28.73), the high tapping resistance at the 10 day MVA (29.10). After a 4-day pullback and showing the doji here on the low volume, we are looking for the move back up. Money flow and buying look great. Target: $36.
BUY POINT: Aggressive: Over the 10 day MVA (29.10) on rising volume. Stop: 27.06 (just above the 200 day MVA). Breakout: 31.45, on volume of 782,000 or better. Stop: 29.25.
POSITION: Both: Stock and/or September $25 calls to buy (TQI IE).

PRE-ANNOUNCEMENTS: Also looking at BMET, which made a low-volume pullback, and FISV made a decent move.

KRB ($36.98; +0.13): Forecast to announce a split on 7-10-01 in conjunction with earnings. At this time the company cannot confirm an earnings date. Showed its third consecutive doji on support (18 day MVA at 36.76) as it moves in the handle to its cup pattern. Volume moved back up today as the stock pulled back from its intraday low at 36.44. Looking for a breakout move, so on a run over 38.58 on volume of 3.7 million (today up to 1.74 million), stock and/or September $35 calls to buy (KRB IG).

FITB ($59.60; -0.33): Forecast to announce a split on 6-21-01 in conjunction with earnings. At this time the company cannot confirm the date. Continues to test its breakout from a cup with handle, pulling back a bit more today on increased volume (1.33 million; average 1.78 million), but holding its 10 day MVA to close. If we can get a move up over today's high of 60.30 on increasing volume near the average, we can look at stock and/or July and August $55 calls to buy (FTQ GK and FTQ HK). The breakout high was 61.11.

CHV ($97.50; +1.06): Forecast to announce a split on 7-25-01 before the open in conjunction with earnings. At this time the company cannot confirm the date. Made a move up today in its ascending wedge, having held support at its short-term MVA's (18 day at 96.04). It tapped 97.90 at its high, just below the high in the pattern at 98.49. On a move over 98.59 on increased volume (up to 2.33 million today; average 2.42 million, stock and/or September $95 calls to buy (CHV IS).

PRE-SPLITS:

DAKT ($31.42; +2.18): Splits 2:1 effective June 25. Continued its strong move that started after a pullback to the 50 day MVA (25.34) from its high of 32.36 (made in late May). The stock tapped up to 32.20 intraday before pulling back, with volume cresting up to 228,400 (average 70,300). We will watch carefully to see if the pullback from the high continues, but will keep our eyes open as the stock challenges its high on this pre-split run. On a strong move up from here, stock. The breakout play is on a move to a new high, with stock.

LOW ($71.90; -1.67): Splits 2:1 on or about June 29. Hit a high of 74 last week, but dropped back today off of Friday's doji. The pullback was on higher volume than we saw on Friday, but lower than what we have normally seen lately (1.55 million; average 3.3 million). It closed above its 10 day MVA (71.49), so we will look for this stock to hold here and make a strong move back up. On that move, stock and/or July $65 calls to buy (LOW GM).

FRED ($29.15; +0.55): Splits 2:1 effective 6-19. Is making a bit of a move, testing its 10 day MVA again at its intraday low of 28.11 before making a run up to close. The run started back at 27 after a pullback early this month from 30.20. Looking for a continued move, keeping a close eye on the 30.20 level to see if the stock will top there again or if it will push on through. On a continued move up, stock.

ESRX ($106.80; +3.27): Splits 2:1 effective on or about June 22. Tested its 10 day MVA again (102.13) at its low but that support has been firm, and ESRX went right back up today, closing just below last week's (and all-time) high of 108.03. Volume was a bit down at 642,500 (average 818,700), but ESRX is showing resiliency and strength as it continues to move up as it draws toward the split. We will carefully protect positions on a move up, looking for a strong push from here to a new high, with stock and/or August $105 calls to buy (XTQ HS).

CONTINUING CANDIDATES: Also worth watching are IGT, ITG, MMM, MIKE and ACF.

NVDA ($93.92; -2.83): Broke out of a small ascending wedge it had formed after its recent breakout from a cup with handle, but the last two sessions has made an orderly pullback on decreasing volume (2.42 million; average 5.58 million). It closed over its 10 day MVA (93) after dipping back to 92.42 at its intraday low, and looks like it could hold and make a move back up if the market cooperates. On such a move with increased volume back near the average, stock and/or September $90 calls to buy (RVU IR).

MERQ ($63.36; -1.38): Has made a light-volume pullback, and today tapped its 50 day MVA at its low of 62, but pulled back up to close with a doji. A promising pattern, and in a good market move we can look for MERQ to make a strong move. The recent high from last week is 67.65. On a move over 64.50 (18 day MVA at 64.28) with increased volume (up to 2.4 million today; average 4.83 million) in a good market, stock and/or October $60 calls to buy (RQB JL).

POST SPLITS:

BRCD ($46.07; +0.98): Tested back below its 50 day MVA (42.20) at its low of 41.05 today, but managed to recover and close to the positive side (and over its short-term MVA's, with the 10 day at 44.02). Volume was up and strong at 17.7 million (average 14.5 million) as the stock showed a loose doji, and BRCD could be poised to make a move in a decent market. The recent high from last week is 47.99. On a strong move up in a good market day, stock and/or October $40 calls to buy (UBF JH).

DGX ($65.64; +1.34): Has been consolidating the last several sessions along its 10 day MVA (64.03) since pulling back from an intraday spike that hit 70.15 just after the split (closing high 66.20). Today DGX make a little move up, but volume surged on the move, coming in at 786,700 (average 387,600). Looking for more of a move up, with stock and/or August $60 calls to buy (DGX HL).

FIC ($51.80; -0.35): Has gradually pulled back from the high of 53.33, showing several doji along the way on the low volume move. Today the stock showed a 'shooting star' doji just over its 10 day MVA (51.64), with volume picking back up to near-average levels at 82,000 (average 89,000). Has made quite a move up to this point, so we will carefully protect profits on a move up from here. Looking for positions on a strong move up with increased volume. Stock only.

* * THE SUMMARY * * *

TONIGHT:
- Earnings worries are the continued topic of fear, but not all sectors will come back at the same time.
- Foreign economic weakness.
- Indexes fail to make a higher high on this trip.
- Looking for another move up off the bottom of the trading ranges soon, but the lower high is a change of character we need to pay attention to.
- Subscriber Questions

A note on the flood: Thank you to everyone sending his and her wishes and prayers on the terrible weather we have had in the Houston area. I am happy to report that our house came within 3 inches of flooding before the rains stopped and the creek crested. We lost some items in the garage as that was flooded and we had to break out the boat to ferry ourselves and others to safety, but we all made it safely through a physically and mentally exhausting few days. Others were much less fortunate than we were and we have been helping those folks out the best we can. Let's not forget them.

THE SUMMARY

Monday picks up where Friday left off.

Friday Juniper Networks, a big workhorse in the massive bull run into 2000, confessed to weaker earnings and revenues coming. The negative mood carried over to Monday's trading, pushed along by more warnings from DuPont Photomask, Alliance Semiconductor, Varian Semiconductor, and Powerwave. The networking sector had another bad day and it continued to spread out with these other warnings. Volume was even lower on the Nasdaq than on Friday, and though the NYSE volume was higher, after no trading on many stocks Friday, there is really no comparison to that session. In any event, it was much less than the 1.08 billion shares traded on Thursday's gain, and that indicates the selling, while no fun at all, was not intense.

This raises an interesting point as we see the stock market and particularly the techs struggle to move forward out of the bear market. The tech sector is viewed as one, homogenous sector; it as viewed as either being up or down. But that is not realistic. There are many different areas of tech that will experience varying degrees of improvement as the next year passes. As we have seen, semiconductor makers such as INTC, AMD, MU, XLNX, BRCM, etc. are seeing some bottoming in their sector already and are looking to the second half for improvement. As we have also seen, networking has tremendous overcapacity, and it may not improve until 2002.

Problem is, they are all lumped together. Thus, a warning from one sector tanks the whole market. Well, more or less. There are still leaders in tech as we have noted even as the old standbys struggle up and sell back. You know the names, LLL, ACS, SDS, THQI, NVDA, etc. It is unrealistic to think that the massive overcapacity in networking gear entails the entire technology sector. We will see the software manufacturers continue to succeed where other sectors fail. We will continue to see the niche players such as NVDA perform well. Others are on the rise as well such as PSFT. These techs are in addition to the other sectors that we see moving higher as we have seen in the many breakouts even as the overall indexes move laterally.

This is why it is so important to find, and why we emphasize it so much, the stocks that have good earnings and sales and that are in the strongest patterns. These patterns tend not to break down as rapidly or as often as those for the stocks that are way off of their highs and struggling to overcome all of the overhead supply. Stocks in good bases such as double bottoms, cup with handle, flat bases and the like have weeded out most of the sellers and are held mostly by those wanting to hang onto them. When the last sellers at a price are gone, demand overwhelms supply, and the stock makes a solid advance.

THE ECONOMY

Another drag: Japan and Europe sport weak GDP.

Japan announced a contraction in its GDP of 0.2% after a brief move above water in the previous quarter and predictions of a 0.2% gain. It most likely means Japan is heading back into its fourth recession since 1990. That is the textbook definition. Japan has really been in recession that whole period.

Japan's news is on top of the EU's continued trouble as the overall measure for those 12 countries rose 0.5%. Germany's economy fell 0.9%, but at least that was better than the 2.8% drop in March. The EU may be in denial, but the slowdown is there. As the U.S. has gone, so has the world.

The Fed is bullish on the U.S.

Two FOMC members today talked about their belief the economy was going to make a good year out of it yet. Most notably, Robert McTeer of Dallas stated that the economy was bottoming now. As you know, despite the unpopularity of that notion, we are in that camp as well. Our research and review of history indicates that when things appear the worst and most economists and market watchers think the economy is in the toilet, that is about the time we start seeing a turn. It is not the entire economy at once just as the entire tech sector will not return to power at once. We are seeing some better numbers along with some really bad numbers. We think there are positives just around the corner that are going to be a surprise to most given they are looking at the very near term, i.e., Q2 earnings. It is actually a good sign that the market has been moving sideways even with all of the skepticism about what Q2 will bring; even though there are many doubters, the market has not rolled over. Still, expect the Fed to reduce rates again on June 27.

End Part 1 of 2

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