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Begin Part 2 of 2
THE ECONOMY
No economic news today, but we do want to comment on the Fed meeting next week. The economic news last week was viewed as poor. That has moved the FFF contract up to a 50% chance of a 50 basis point rate cut next week. When the meeting is less than 10 days away and the measure moves and holds over 50%, it has a very good track record of accurately predicting the size of any Fed action. 25 basis points are baked into the cake right now. The big question is the other 25. Will the Fed go 300 points so soon? The LEI's will tell us more this week. From the comments we have heard from the FOMC members, the Fed appears to believe that things will get better later in the year.
THE MARKET
Selling resumed again in tech land, and as noted, it was just panic selling of telecom and networking sectors. The ORCL news is helping after hours, and guidance is that things bottomed out in the last quarter and are now improving and there is more upside than downside. LVLT warned today, but it is in telecom, and telecom is in the tank. As we said, other areas will rise even as telecom and networking continue to sink. It looks as if the good guidance has started with a big name. Just as with the market, there needs to be some follow through this week with MU. Semiconductors tend to lead technology out of the doldrums, and MU is a big name that cannot let the market down.
Overall market stats:
VIX: 25.83; -0.50. Volatility is not going anywhere. It is either very accurate or very wrong. It is simply not showing us much as it is right in the middle after hitting 27.31 on the high today.
VXN: 56.40; -4.15. The Nasdaq was really in trouble today, but its volatility measure tapered off all session after hitting 60.04 early in the session. 68 would be getting to a 'high' level, but today it lost ground even as the techs took it on the chin.
Put/Call ratio (CBOE): 0.64; -0.28. Friday's action was expirations driven, but we cannot discount the previous sessions, however, where the ratio was in the 0.8 range. Today's drop was a bit surprising given the selling we saw in networking and telecom, but again that was just two sectors and not the whole market. Still in the higher part of the range where it has been hanging out of late.
NASDAQ:
Stats: Down 39.80 points (-2.0%) to close at 1988.63.
Volume: 1.568 billion shares (-25.6%). Volume dropped, but Friday was options expiration day, so volume was revved up. Today it was back well below average, but down volume was way out in front 1.321 billion to 233 million shares.
A/D and Hi/Lo: Decliners exploded to lead 2.22 to 1 (1.31 to 1 Friday). New highs rose to 71 (+14) as new lows rose to 120 (+17).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The techs closed below 2005, the point where they gapped higher on April 18. The close below that level opens the door for further weakness as that floor of the gap up point is now broken. As noted above, that makes 1961 to 1852 as the next levels to look to, though they are not 'solid' support by any stretch. As we have seen before, if the sellers are there, the index will fall. Right now with ORCL's news the futures are up nicely. Will any resulting rally hold? Again, the Nasdaq has a tough road now that it has broken below its trading range. 2050 is a tough resistance point now on up to 2100 to 2150. The Nasdaq will need more good news form other companies such as MU. If it again stalls at 2050 without further good news, the downside is open to play again.
Dow/NYSE: The Dow rode the back of UTX and HON today, but that was about it. It made lower highs throughout the session, not good action. But ORCL and SLR may help IBM, MSFT and INTC tomorrow. Will it be enough? Probably not without more good news.
Stats: Up 21.74 points (+0.2%) to close at 10,645.38.
Volume: 1.106 billion shares (-32%). Volume fell back down below average where it has spent most of the last several months. Not great price/volume action. Down volume led 682 million to 409 million shares.
A/D and Hi/Lo: Decliners led again at 1.35 to 1 (1.1 to 1 Friday). New highs rose to 94 (+14) while new lows rose to 66 (+4).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow fell all session from its highs, but it did manage to close above the 200 day MVA (10,630.11). Not a powerful hold at that level as volume shrank dramatically on the session. However, during the summer, Monday's and non-expiration Fridays tend to be lower volume. The Dow continues to tread lightly as it broke below that down trendline that has converged with the 50 day MVA (simple and exponential at 10,783.38 and 10,792.46, respectively). That is some stout overhead resistance that will attempt to block any move higher. Any bounce higher tomorrow or later this week will be tested at that point. Unless we get some more positive guidance from the likes of MU and others that gets investors looking ahead again, it will have a hard time crossing over.
S&P 500: The big caps gave us an 'inside' day, i.e., where the index traded inside the range of the previous session. After selling down for the past two weeks, this could be a positive. Still, let's not get too excited. The index tested 1200 Friday, and today it did not approach that level in a relative sense. But, it traded lower all session and closed just off of its lows for the day. Not bullish action, but now we have ORCL with positive guidance moving forward. That will help, but the big caps have been the stocks that have felt the greatest selling impact during this last correction. They will have some tough sledding on any bounce when they reach 1232 to 1250. Again, unless we get some other solid guidance from companies such as MU on Thursday, those levels may prove to be good points to enter put plays to the downside.
Stats: Down 5.93 points (-0.5%) to close at 1208.43.
Volume: NYSE volume fell off the table after triple witching, coming in at 1.106 billion shares (-32%, or how much it gained on Friday's expiration action.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Man was today's session gloomy. There was nothing but gloom and doom out there, and it was even heavier than last week. Then after the session CNBC had its bull session, and instead of disagreeing, the two they had were ready to leave us all crying in our beers as they talked of an economy that was not going to recover until 2002 at best, etc. We have not been overly optimistic on the economy, but at the same time we have been looking at more nuts and bolts and history. Maybe we are wrong, but we don't think so.
With all of the gloom here comes ORCL and beats its number. Lots of talk as to whether ORCL did so by cutting costs, etc. Moot point. The real issue was the guidance: ORCL thinks last quarter (the one just reported) was the bottom and that business is looking better right now. That is the big news, not quibbling about history. ORCL was up 8.5% after hours. SLR said it saw more business opportunities. CD sees itself beating views for the next couple of quarters. The better news is coming around, but no one wanted to hear it because it was easier to wallow in misery than to buy. That is okay. That cycle will end soon enough as the gloom plays out and is, we think, replaced by more positive outlooks for the future. That is where stock prices are driven higher: expectations of a better future, not the recent history. Remember when stocks ran up into earnings and then sold off if they were not quite good enough to justify the higher price? Now they sell off ahead of time and make the canvas ripe for moves higher if the guidance going forward is good. We think we are going to see bad numbers but good guidance moving forward with optimism about the future replacing worries about the past.
What do we have to do? Be patient. In this market we need to make the stocks prove to us that they have the mettle to get our investment dollars. As noted above, today's selling did not keep many, many of our newsletter plays from rising quite nicely. Superior patterns and superior fundamentals as we view them win out. In a tanking market they won't race ahead 30% in three sessions, but they will give us 10%, 15%, and 20% gains. That is great particularly in a market where the indexes are struggling. We are scouring the market for those plays, and they are making the moves. We are not being unrealistic in our targets, taking the gains or at least part of the gains off the table when our targets are hit. Stick with the good patterns, buy when the buy points are hit, stick to the stop losses, and bank gains when targets are hit or the move starts to run out of steam. Then we will get some better economic news and more positive, solid guidance from the companies themselves, and we are in business.
Support and Resistance Levels
Nasdaq: Closed at 1988.63.
Resistance: 2052 to 2077 is the bottom of the trading range. 2145 is the 50 day MVA.
Support: 2000 failed to hold. Now it is 1961 to 1852.
S&P 500: Closed at 1208.43.
Resistance: 1232 to 1240 are the bottoms of the trading range. Then 1250.
Support: 1200 is the next level. Head and shoulders bottom and the breakout support from the double bottom pattern is right at 1182.
Dow: Closed at 10,645.38.
Resistance: 10,800 where the down trendline between the January 2000 all-time high and the September high is currently (and the 50 day MVA is at 10,792.46 as well). 11,000 is possible resistance after that. Then 11,196.53 (the last top). After that, 11,350.
Support: Still trying to hold the line at the 200 day MVA at 10,630.11. After that, 10,400 is the point of consummation for the head and shoulders pattern and some previous lows.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
6-19-01
Housing starts for May (8:30): 1.60M expected versus 1.609M prior.
Building permits for May (8:30): 1.630M expected versus 1.587M prior.
6-20-01
Leading Economic Indicators for May (10:00): 0.2% expected versus 0.1% prior.
Treasury Budget for May (2:00): -$17.5B expected versus -$3.6B prior.
6-21-01
Initial jobless claims (8:30): 430,000 expected versus 428,000 prior.
Trade balance for April (8:30): -$30.9B expected versus -$31.2B prior
Current Account for Q1 (10:00): -$106.0B expected versus -$115.3B prior.
Philly Fed for June (12:00): -10.0 expected versus -8.8 prior.
TEAM TRADES
KG: Good pattern, and it started moving up sharply early in the session, bucking the market trend. It hit our buy point in the first hour, but we decided to hold off and see how the day unfolded. Patient, and we had all day as the stock was pulling back right after hitting 55.72 at that time. It spent the next couple of hours testing the previous close, and started moving back up off of that point (54.40). Volume was good early, and it remained solid throughout the day, shooting up on the moves higher. Toward the end of the session the stock was running back up to the buy point and we were ready to take a partial position as it did so. It hit 55.70, but then pulled back as fast as it did. It tested 55, and turned back up in the last 20 minutes of the session. The spread was anywhere from 9 cents to 5 cents. We saw a bid of 55.25 by 55.30, and we dropped an order in at the ask. That was good enough and the stock then continued to move up a bit to the close. This was below the actual breakout point, but we liked the high volume and the continued run at the breakout. It was also a partial position that we stand ready to exit if the big breakout does not come. If it does, we will be in for more shares. This is a more aggressive play, but we were getting the breakout move we wanted earlier and later, and indeed felt we were going to get one at the close. We think it will come tomorrow.
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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