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Begin part 2 of 2

Overall market stats:

VIX: 21.91; -1.95. Volatility has fallen back into the 'low' range, and with the indexes tapping against resistance, we could very well see them sell back a bit before attempting another run to break through the roof.

VXN: 52.06; -2.46. Volatility was down in the Nasdaq as well. It is now down to the levels it hit in May when the Nasdaq topped twice and started to sell back. Again, with the Nasdaq at resistance, we could see some selling again near term.

Put/Call ratio (CBOE): 0.67; +0.07. Put activity moved slightly higher, maintaining the level at the higher end of the range as options buyers continue to bet the indexes will head lower near term. They are usually wrong and were so as the indexes rallied in April and May.

NASDAQ:

Stats: Up 27.52 points (+1.4%) to close at 2058.76.
Volume: 2.187 billion shares (+3.7%). Another day of accumulation as buyers were again in the majority as volume was again above average. Those days are the strongest indications of market direction, up or down. 1.276 billion shares to the upside versus 712 million downside shares. After weak volume we finally see volume really pick up on the buying.
A/D and Hi/Lo: Advancing issues maintained their lead at 1.23 to 1 (1.06 to 1 Wednesday). New highs rose to 117 (+42) as new lows fell to 100 (-55).

The Chart: http://www.investmenthouse.com/cd/$compq.html

Another slow start that found its feet for a late morning and afternoon rally on higher volume. Again bullish action overall, but the index did drop about 18 points in the last hour as sellers came in, worried about the MU numbers and the fallout of two solid days in the market. The Nasdaq was able to rally the past two sessions, but it was unable to punch back through into its trading range. Indeed, it turned tail when it hit 2077.43 on its high, just below the 2077.98 closing low of the trading range. It is quite possible that the Nasdaq could form another trading range at this point between 1990 and 2100; not much of a range, so that is unlikely. It is also showing very solid buying on the move higher, meaning that between buyers and sellers, there are more buyers out there: the index is moving higher so we know there are more buyers, and it is doing it on higher volume than the selling, so we know that there are more buyers than sellers. Question is, can it keep it up? More than likely we will see the MU news push it back tomorrow early, and then we will just have to see if it can recover. It would be very bullish indeed to recover after a slow start based on MU.

Dow/NYSE: Similar story on the Dow: a slow start, a rally on strong volume, but then a pullback in the latter part of the session, shedding about 50 points. Not the most bullish way to end a session, but it was up on stronger volume once again, and that means buyers are doing battle with the resistance at this point.

Stats: Up 68.10 points (+0.6%) to close at 10,715.43.
Volume: 1.477 billion shares (+9.4%). Another advance on rising, above average volume. Those are accumulation days, something nice to see after the selling down. Does it wash away the distribution days? Not totally; it needs to break resistance to do that. Up volume was 906 million shares versus 548 million to the downside.
A/D and Hi/Lo: Advancing issues 1.28 to 1 (1.43 to 1 Wednesday). New highs climbed to 156 (+19) as new lows fell to 45 (-39).

The Chart: http://www.investmenthouse.com/cd/$dja.html

The tapping at the support at 10,560 yielded another move higher on strong volume. But, there is that resistance at 10,750 to 10,800 that is the 50 day MVA (10,776.88) and just below the down trendline. The Dow tapped at that level on its high (10,759.64) and retreated. This is some strong resistance that is fighting the strong accumulation we have seen the past two sessions. The better economic news is helping, but some more positive statements from companies would help. The Dow is somewhat squeezed here between the 10,500 level and 10,800. Again, not much of a range, and if it does sell, it needs to turn right back up and take out that resistance. The price/volume action is encouraging, but we will have to see it to believe it at this point.

S&P 500: The big caps turned in a nice percentage gain on the session as it too rose on stronger volume but then ran into resistance on the high (1240.24). 1232 to 1250 is the resistance level, and there is a down trendline and the 50 day MVA together at 1245.99. 1250 is going to be really tough for the big caps. MU may or may not help tomorrow; just how keen is the market on the future versus the here and now? The big caps may take a turn back down from here to once again test support at 1200.

Stats: Up 13.90 points (+1.1%) to close at 1237.04.
Volume: NYSE volume was again above average at 1.477 billion shares (+9.4%).

The Chart: http://www.investmenthouse.com/cd/$spx.html

TOMORROW

There is a fight going on right now between the buyers looking down the road at an economic recovery, and those looking at the current earnings reports. It just so happens that the buyers are in a bad position for the moment with resistance immediately overhead in the form of the bottom of the previous trading range. Volume has been good on this move higher, and we continue to see stocks breaking out. Many of these are in the retail, financial, building, and supply areas that tend to be the first runners when signs of better economic times appear. We have seen this before, however, when the Fed was in the early stages of its rate cutting.

Until the indexes can break that resistance, they have downside potential, at least to their recent lows of the past week. It may be that they regroup at that point that has been acting as some support, and then move back to test resistance again. They could just power on through from here. The problem: no real catalyst, at least not after today. We were looking for something better from MU, but we did not get it. We do not think the information MU provided will be enough to be read as a major positive and ignite a strong rally through resistance. What it really comes down to is whether investors are truly looking down the road and at the better economic news that is starting to come out. Short term we have to be ready for the indexes to bounce back down to test the recent lows, but we are very pleased with the higher volume moves up off of levels that the indexes have not wanted to break below.

For the real short term, tomorrow we expect a lower open based on MU, but anything can happen; some analysts may come out and say something positive about the report (may is the operative word). If the indexes do start selling, the big test is whether they will find support above the recent lows and turn back up to show that bullish action of starting weaker and rallying to the close. Volume is usually lighter on Fridays and Mondays in the summer, so unless we get a breakout above resistance tomorrow on high volume we may not know much about where the market is going until we get back into next week.

What we will do: continue to play the breakout moves that look the best. Today we had 7 alerts on 14 stocks we added to our eSignal pages last night. There were plenty to choose from. We will continue to look for more breakouts tomorrow and keep an eye on previous breakouts to make sure they are holding up. Some stocks have broken out and then given up, but most have continued to move well. Always keep an eye on your buys and don't let them backslide on you past your stop points.

Support and Resistance Levels

Nasdaq: Closed at 2058.76.
Resistance: 2052 to 2077 is the bottom of the trading range, and the index bounced down from 2077 today. 2126.88 is the 50 day MVA.
Support: 1970 down to 1961. Then 1852.

S&P 500: Closed at 1237.04.
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 10,715.43.
Resistance: 10,750 to 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 10,776.88). 11,000 is possible resistance after that. Then 11,196.53 (the last top). After that, 11,350.
Support: 10,560 is trying to form as support. Then 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): 1.622M actual versus 1.60M expected and 1.629 prior (revised upward from 1.609M).
Building permits for May (8:30): 1.621M (+2.1%) versus 1.630M expected and 1.587M prior.

6-20-01
Leading Economic Indicators for May (10:00): 0.5% actual versus 0.2% expected and 0.1% prior.
Treasury Budget for May (2:00): -$17.5B expected versus -$3.6B prior.

6-21-01
Initial jobless claims (8:30): 400,000 actual versus 430,000 expected and 434,000 prior (revised from 428,000).
Trade balance for April (8:30): -$32.2B versus -$30.9B expected and -33.1B prior (revised from -$31.2B).
Current Account for Q1 (10:00): -109.6B actual versus -$106.0B expected and -116.3B prior (revised from -$115.3B).
Philly Fed for June (12:00): -3.7 actual versus -10.0 expected and -8.8 prior.

TEAM TRADES

FITB: FITB set off an alert at 9:37. The stock had closed previously at 60.24, rising on stronger volume in the handle of its cup base, and we were looking for a breakout. The pivot point was 61.24 but the alert had been accidentally set for 61.34, so the stock was already on its way to a breakout, at least from the price standpoint. Volume at that point was at 645,000, and had closed Wednesday at 1.67 million, average. In the next couple of minutes, though, volume was up to 661,000, so that looked good. August $55 options were trading at 7 by 6.70, and since the stock looked to be resting here (topping out on its first strong move of the day), an order was put in at the bid of 6.70 when the stock was at 61.31. It then dropped back to test 61.15 for the fill just before 10:00 CT. A stop loss on the options was set at 5.

The stock went on to climb to a high of 62.90, hit just after 2:00, then pulled back but surged back to close at 62.65, options at 8 by 7.90. Not great, but not bad either, since we are looking for a continued move up on the breakout.

BBY: We were looking for some more retailers, and BBY made a solid breakout move from its ascending wedge early in the session. It then started moving laterally above 64.50 for the next three hours. We told our broker to await a test of the breakout at 63, and when we checked in in the last hour the stock was falling back. We ended up buying some shares right before the close at the 63.50 level as the stock was pulling back after a good session on strong volume. We liked the play and the breakout, looking for a move up to the 75 level. Then came the after hours news: $300 million in convertible debentures to be offered. We have been seeing that more of late as companies seek more money to expand and run the business. Being convertible, there is the potentially dilutive effect, and that is where the selling comes in. BBY dropped to 60 on the news and then finished the late session around 61. No way of avoiding this kind of news consistently, and we will be looking to see how the stock responds. We are still above our stop point at 59.13, but this is not the way we wanted to start this play.

Good Investing!
Jon Johnson and the Technical Traders Team

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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