us stock market, top stock pick

* * * * *
6/18/01 Stock Split Report Market Summary
* * * *
Stock Split Report Subscribers:

PLAYS TO LOOK AT:

PRE-ANNOUNCEMENTS: ATK, BMET and CHV are still hanging in with decent patterns.

KG ($55.35; +1.53): Forecast to announce a split on 6-22-01 in conjunction with its annual shareholder meeting. Continued Friday's move, but much higher volume (2.34 million; average 1 million) accompanied today's move up toward the top of the handle (56.26). On the breakout (56.29) with continued strong volume, stock and/or October $50 calls to buy (KG JJ).

FITB ($59.03; -0.42): Forecast to announce a split on 6-21-01 with a board meeting. Pulled back again to support at its 18 day MVA, closing on that level as it continues to move in its nice, tight cosolidation. Volume dipped back on the drop, coming in at 1.3 million (average 1.8 million). On a move over 60.30 on continued strong volume, stock and/or August $55 calls to buy (FTQ HK).

FISV ($58.55; +1.38): We are working on a date. Made a strong move Friday, and today broke from its ascending wedge (formed after a break from a cup with handle). Volume dipped back to below average levels (856,600; average 1.48 million), so on a continued move we will need to see strong volume kick back in. Relative strength has broken out, and the stock pulled back today from a high of 59.10, just below last week's intraday high of 59.25. On a move up on above average volume from here or after a lower volume test of 58, stock and/or September $55 calls to buy (FTQ IK).

KRB ($33.19; -0.83): Forecast to announce a split on 7-10-01 in conjunction with earnings. At this time the company cannot confirm an earnings date. Has taken a serious dive, taking out its 200 day MVA (35.54) last week. After a bit of a relief bounce Friday, the stock headed back down hard today (3.6 million volume; average 2.5 million). There is some possible support from August-December lows in the 32.50-33 range (stock hit 33.03 at its low today), so we will see if, after perhaps holding here a bit or even making a slight bounce, it heads back below 32.50 on continued strong selling volume. Looking at an initial target of 30, with stock and/or August $37.50 puts to buy (KRB TU).

ADVP ($55.62; -1.91): Continued down today after cracking through the 50 day MVA (59.20) Friday. Volume edged up even higher at 1.22 million (average 841,000), and we are still looking at a put play down to support from the November, February and March highs at 50. We could get a move up toward the 50 day, but on strong selling back down through 55, August $65 puts to buy (QVD TM).

PRE-SPLITS:

LOW ($74.55; +2.17): Splits 2:1 on or about June 29. LOW just keeps showing strength, and today made a new high as it bounced up off of its 10 day MVA and out of a small ascending wedge. Volume increased (2.64 million; average 3.12 million), and we will continue to look for more going into the split. Stock and/or July $70 calls to buy (LOW GN).

ESRX ($106.99; -2.76): Splits 2:1 effective June 25. Another one that just keeps on going, and although ESRX pulled back today, it continues to hold its 10 day MVA (105.66) and volume fell on the drop (677,600; average 658,300). Looking for the stock to hold the 10 day and make a move back up, with the high Friday ahead at 110.35. On the move, stock and/or August $100 calls to buy (XTQ HT).

CONTINUING CANDIDATES: NVDA still has a solid pattern, and MMM is looking good. MERQ made a move down toward support.

MIKE ($39.95; +0.24): Has moved back up after testing its breakout last week and holding support at its 18 day MVA (38.62), but today it showed a doji as volume dipped slightly (148,900; average 213,200). The doji indicates a possible drop back, but we will look for it to hold the 10 day (39.29) for a move back up over the breakout high of 40.62. On that move, stock and/or September $35 calls to buy (IKQ IF).

CECO ($53.95; -0.05): After taking another solid bounce from the 50 day MVA (50.74) last week, the stock has pulled laterally and held on strong over its 10 day MVA (53.33). Today the stock showed its second consecutive doji, this one after reaching up to 55.20. Looking for a move over 55.25 on above average volume (high is 56.10), with stock.

POST SPLITS: KKD made another outstanding move, and BAX and JNJ may be topping for the moment.

DGX ($63.93; +0.94): Split 2:1 June 1. Trying to move back up, today gapping down again but pushing back up intraday to close over its 10 day MVA (63.53) after tapping 64.95 at its intraday high. Volume is still solid (down to 511,600 today; average 397,700), so we will continue to look for a move over 65 on increased volume, with stock and/or August $60 calls to buy (DGX HL).

* * THE SUMMARY * * *

TONIGHT:
- Another light volume Monday in early summer dominated by downgrades.
- Nasdaq breaks down below the next support level, hurt by semiconductor downgrades late in the session and ahead of ORCL earnings.
- ORCL thinks it hit bottom last quarter and things are improving right now.
- Speculation rising once again about the next company that will miss Q2 revenues. ORCL was two weeks ago, and now MSFT is added to the list.
- Q2 worries continue as the fear over earnings gets excessive.
- The key is patience and good patterns as even today several of our stocks moved higher.
- Fed Funds Futures contract pushes over 50% probability of a 50 basis point cut.
- Team Trades

Light volume Monday with no news but downgrades.

It was hard for the market to do much of anything today. It appeared that it was going to attempt a bounce up after breaking down below its recent trading range, but that gave way quickly for all indexes other than the Dow. It was a familiar story: a weak attempt at a rally followed by selling down to the session lows at the close. That is not the stuff bull rallies are made of, and today's action sets up the Nasdaq for further downside action even though it has closed down 7 sessions in a row and will try to bounce soon. Today some of the usual Monday downgrades really hurt the index later in the session. Indeed, Salomon said that it would take until 2004 for tech earnings to recover to 2000 levels. With no good news out there anyway, this kind of doomsday scenario was pretty much a guarantee of a poor session.

Before we move on, let's think about the Salomon call. 2000 earnings levels (before the crash) were very high. Of course, the Nasdaq was at its high as well. By saying this, Salomon is implying that techs will not be good for anyone until they recover to their former earnings power. But, that is as wrong as saying the Nasdaq won't be worth investing in until it recaptures its past high. We know that is malarkey; the index can rise to 4000 and be up 100% and still be over 1,000 points from its old high. This type of talk just fuels misconceptions about stocks and the market.

The Dow managed a positive close, but volume was not what you want to see, nor was the intraday pattern: a series of lower highs, unable to follow through on its earlier rise. The big cap index mirrored the Nasdaq's weakness, it too closing right at its session low.

Nasdaq breaks even lower and takes out an important level, but ORCL gives the next round of good news.

The techs tried to rally, but there was just too much molasses on the index and it soon turned negative for good. There was just no buying interest ahead of ORCL's numbers. Then MU comes out on Thursday with its earnings, and Joe Osha over at Merrill wanted to beat the Christmas rush, so he downgraded the stock ahead of its Q2 numbers. Remember, MU stated a couple of months ago that it believed Q2 would be the bottom for its business. For the moment that is not holding any water, but that may be different come Thursday.

In any event, that late-day call hurt the techs. The were holding above 2005 level where it gapped up to back in April, but the third bounce down to that level hesitated as it tried to move up, and then it failed and the Nasdaq fell another quick 15 points. That was about the time the downgrades came out, and a market that was already weak just gave up. Once again this is all related to speculation on Q2 earnings being poor. Heck, there should not be any speculation; they will be poor. But in the summer, any excuse to sell after a move higher (April and May run) is a good enough reason to sell. Investors are not looking ahead in this 'what have you done for me lately' mentality. With nothing but declining earnings and more to come shortly at the end of Q2, that is not a scenario for stellar gains.

The break and close below 2005 hurts the Nasdaq as it is now below the point where it gapped higher on that big breakaway gap. That eliminates that level as a floor, and it makes it much easier to fall down to the next support at 1961 or even down to 1852. None of these now are solid support by any means. They are simply levels that could slow down the fall and give a turn back up with the right news.

The index, however, is due for a bounce higher after 7 days of selling and some very good news from ORCL will help. Most likely will not carry it out of the doldrums without others coming to bat as well with better looking futures, but ORCL will help. Specifically, ORCL said it thinks the quarter just ended was the bottom and it is seeing improving business right now. Right now. SLR missed its number, but it said it sees more business opportunities developing right now as well. The market needs some more positive guidance going forward, and we mean some real solid guidance. That will get investors thinking about the future other than through the glasses Merrill and Salomon are looking. MU on Thursday is the next step.

Speculation on the next big earnings miss, but the real key is what MU and others will say.

Two weeks ago it was ORCL going to miss its numbers and really hurt the tech sector. Well, ORCL did not come close to blowing things out of the water, but it did not miss its numbers with a win on the earnings front and a slight miss on the revenues. Moreover, it gave very positive guidance moving forward. So, ORCL not going to provide the negatives for you? Okay, pick another big name, one not too obvious. Let's see, how about MSFT? Yes, let's start the rumor mill on MSFT not making its number.

In our opinion that is what it is: rank rumor. That is what it was on ORCL, and no sooner than stoies come out saying that ORCL will probably make its number, rumors about MSFT come out. The bears have to keep the pot stirred with some potential disaster waiting in the wings. Keep the turmoil and uncertainty alive as long as they can. Economic times are going to improve and their game will be over.

The key to us? Well all along we have been saying it is the economy, and we will eventually need to see improving numbers. Right now we are still looking at pictures from the rear view mirror. In other words, the economy will start improving before we see it in the lagging numbers the government keeps. So, what do we use in the interim? Well, ORCL got the ball rolling. MU comes out with earnings on Thursday, and MU was one of the companies a couple of months back that said things were getting better. MU will be a key as to the future. The Leading Economic Indicators due out on Wednesday will also be key as they look 6 months into the future, not two months back. They are expected to rise 0.2% versus a 0.1% gain the prior month. We are looking for a 0.3% rise; any upward surprise will be good news, and if MU can come through with some more upbeat guidance, that is a good 1-2 punch.

All part of the continued Q2 earnings worries as gloom is getting excessive.

Why no buyers? Because the pervasive mood is that Q2 will be bad, and there are not many wanting to take positions before the speculation becomes news. BUT, and we mean BUT, just as with the overall market discounting for future events, investors will start taking positions before the news is fully out. That is always the case. That is why this selling down now is going to lead to a move back up when the news starts to trickle out that things continue to improve. The anticipation of bad news will pave the way for those that start to buy in anticipation of the good news. It is a cycle as old as the market.

Do we think there will be a recession? We are in a recession. The economy has dropped from over 6% growth per quarter to 1% or lower per quarter. That is a recession in effect if not in fact. We are going to skate close to a textbook recession, but to do that both the second and third quarter would be negative or the third and fourth quarter. We don't think that is going to happen as we see positive growth, accelerating growth, resuming before the end of the year. We have already had a recession compared to where we were. That is really what has made this slowdown so painful. I think anyone would have taken a 3% decline in GDP growth down to 3% (remember the old Fed 'target' rate of 3% or 3.5%?) as opposed to the almost 6% plunge we have endured.

Still, we continue to believe that the economy is going to recover and that this action is short term. Perhaps we get a lower test of the April low, but even with the telecom and networking collapse and the panic selling we saw in those sectors today, that DOES NOT mean that the entire tech sector much more the rest of the economy are going the same route.

Indeed today we saw some just ridiculous selling again in telecom and networking. Those sectors are epitomizing the fear in the market right now, and the selling going on there is very much the same as what we saw in March and April in the market overall. These sectors have already hit new lows well ahead of the indexes. There is major overcapacity in these areas, and they are way out in front in the selling, but they are NOT representative of the entire economy. They are the worst part of the economy right now, but they are being viewed as the proxy for the economy overall. That is absolutely incorrect. This is getting as overdone as the selling in April before the rally started. We are getting closer to a turn, but the Nasdaq has made it very hard for itself right now by breaking below 2005.

The key: remain patient and invest in good patterns.

Today we saw techs looking like junk overall and the big caps suffering again as well. Yet, there was KG, LOW, FISV, OCLR, BBBY, ELN, THQI, and ORLY, all plays from the reports and all moving up today. The key in times such as these: stick with the stocks with the numbers and the solid patterns, and let them make the moves we want. Make them prove to us they are worthy to buy. That has been the best plan of attack, and we are also just taking some profits when our targets are hit as well. When in doubt, take some profit. We don't always close out the entire position, but we will take some profit and let the rest ride some more if all looks good.

End Part 1 of 2

us stock market
top stock pick