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6/25/01 Stock Split Report Market Summary
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Stock Split Report Subscribers:

PLAYS TO LOOK AT: Some huge movers even today, with bonus play ROOM taking off, can CECO breaking out again, and FHCC making that final pre-split move we were looking for. Today we have some setting up to the upside, but will be concentrating as well on good downside opportunities.

BONUS PLAYS: Some put plays.

QQQ (Nasdaq 100--$43.36; +0.11; optionable (QQQ):
STATUS: Showing a doji tucked under the 10 day MVA (43.65) as volume dropped lower below average (39 million; avg. 67 million). The index moved up from a low of 42.65 but if it cannot break the resistance of the moving average, we will look at shorting it down to the 41 range. That is a quick 2-point drop, and if the index breaks that support, we are looking at 40. Make sure the market is selling, and watch 41.
BUY POINT: Aggressive: Down from here on stronger volume in market selling.
POSITION: August $51 puts to buy (QQQ TY). Please check with your broker for deltas.

FLEX (Flextronics--$23.91; +0.35; optionable): Electronics.
http://biz.yahoo.com/p/f/flex.html
STATUS: Made a move back up last week, but has lost steam as volume drops and the stock shows tighter patterns, with a doji today just under its 18 day MVA (24.06). With the doji under support, looking for a move back down with increased selling volume. The target is the recent low at 20.
BUY POINT: A move back below the 10 day MVA (23.24) with increased volume near the average (5.55 million today; average 11 million).
POSITION: August $30 puts to buy (QFL TF).

NEWP (Newport--$25.38; +1.38; optionable): Electronics.
http://biz.yahoo.com/p/n/newp.html
STATUS: After a severe drop two weeks ago, but an attempted move up last week has stalled at the 10 day MVA (25.44). The stock has shown consecutive dojis under that level as volume has peeled back (2.38 million; average 3.4 million). Looking for a drop back to the recent low at 21.
BUY POINT: A strong move back down, looking for increased volume near the average.
POSITION: August $35 puts to buy (NZZ TG).

PRE-ANNOUNCEMENTS: FISV is still trying on its breakout move.

FITB ($61.75; -0.22): Looking for an announcement with earnings on 7-16-01 before the open. Made a big breakout move last week, and the last two sessions has gently pulled back to test that move. Today at its low it tapped 61.16, just above the pivot point of 61.11, with volume dropping back below the average (1.6 million; average 1.83 million). Looking for it to hold here and continue the breakout move. On a move over 63 with above average volume, stock and/or August $60 calls to buy (FTQ HL).

BMET ($47.14; +0.15): Forecast to announce a split with a board meeting 6-29-01. Pulled back but again managed to hold recent highs and its 10 day MVA (46.63). The pattern is solid, a 'shooting star' doji over support, with volume up but still rather light, as it was on Friday's selling (981,200; average 1.73 million). Looking for a bounce from here on increased volume, with stock and/or October $45 calls to buy (BIQ JI).

ATK ($85.10; -1.30): Forecast to announce a split on 8-7-01 in conjunction with its annual shareholder meeting. Has really fallen over the edge, dropping severely the past week. Generally we do not like to chase them down, but ATK tried a bounce today, hitting up to 88.89 before plunging back to make another loss on strong volume (266,400; average 184,100). Looks like we could get a further drop, with support at the April lows and March highs at 85. On a drop from here on continued strong volume, August $95 puts to buy (ATK TS). We are looking at a target initially at 80, then down to the 200 day MVA in the 75 range.

FDC ($67.27; +1.28): From its rolling range between 64 and 69 FDC tightened into a pennant pattern, and today made a solid move up in that pattern. Volume moved up with the price, coming in at 1.37 million (average 1.54 million). A solid move, and on a breakout over 69 with above average volume, stock and/or August $65 calls to buy (FDC HM).

PRE-SPLITS: LOW has pulled back to the 10 day MVA, and we are looking for it to hold and make a move from there.

LOW ($75.50; -1.50): Splits 2:1 on July 2. Has pulled back after last week's solid run up after breaking from a small pennant pattern. It held to close today on its 10 day MVA (75.34), but volume did not back off much from the buying volume, coming in at 3.4 million (average 3 million). Consequently, we will watch carefully to see if LOW can hold. If it can, we could see more of a solid move as we head toward the split. After the stock shows us it can hold here, on a strong move up, stock and/or August $70 calls to buy (LOW HN).

CONTINUING CANDIDATES: Still looking at MIKE and IGT.

CECO ($58.87; +2.98): After a brief pullback the stock broke out again today, hitting a new high (59.90) as it pushed back off its 10 day MVA (55.56). A strong move, boasting much higher volume than on last week's breakout move (380,900; average 251,500). Still targeting 65, with stock only.

MMM ($115.69; -1.09): Made another attempt to climb back over the 50 day MVA (117.68), but it failed at the 10 day (high of 118.68) and dropped back to close, moving down on higher volume (1.89 million; average 2.13 million). On a move back below 115 on increased volume, August $125 puts to buy (MMM TE).

MERQ ($52.37; -2.10): Fell back again, but volume, though higher, was still not strong at 2.99 million (average 4.55 million). However, its recent move up was a weak attempt that died at its 10 day MVA (56.40), and on a drop below the recent low at 51 (today's low 51.06) with increased selling volume near the average, August $65 puts to buy (RQB TM).

POST SPLITS: BAX and DGX and still showing strength, and ESRX looks like a continued put play off of the split.

JNJ ($51.60; -0.79): Made a pullback off of last week's post-split move, and today showed a tight doji over the support of its 18 day MVA (51.44), right at the high of its last pre-split run. Volume was above the average at 10.6 million (average 5.84 million), and the stock looks good with the doji on support. On a bounce back up over today's high of 52.30 on continued strong volume, stock and/or October $45 calls to buy (JNJ JI).

ESRX ($51.10; -2.56): Made the expected drop on the split, taking out our buy point of the 18 day MVA (52.07) with higher volume on the selling (861,800; average 660,000). We will see if it tests back up to the 18 day, but on a drop back on strong selling we will look at a move down to the 50 day MVA, at 48.66. We are looking at August $55 or $60 puts on the move (XTQ TK or XTQ TL); check price, delta, etc. with your broker, as it is unavailable at the time of this writing.

FIC ($55.36; +1.99): Another strong move for FIC out of the small ascending wedge it had formed, making a new closing high, and hitting just short of its all-time high of 56.27. Volume supported the move, spiking way up above the average at 185,000 (average 95,300). This is a stock that has really performed, and we will look for more, continuing to protect positions diligently with stops. On a continued move with strong volume, stock.

SEBL ($40.06; -2.20): Has pulled back from the 50 day MVA (44.55), dropping back today on increased volume at 14.2 million (average 16.7 million) to close at last week's low. Not tremendously strong selling, so we will see if the stock makes a quick bounce up from here, but if it fails and we have Nasdaq weakness, we will look for a drop back through 40 on increased volume. On that move, August $50 puts to buy (SGW TJ).

* * THE SUMMARY * * *

TONIGHT:
- Mixed, low volume Monday ahead of FOMC meeting.
- Some stocks setting up for a move higher, others a move lower.
- Hope rising for a 50 basis point hike. Does the weak second quarter warrant a 50 basis point cut given some improving economic numbers?
- May existing home sales solid.
- Subscriber Questions

Dow drops again as techs climb slightly.

The Dow continued to tank down toward potential support at 10,400 along with the S&P 500, while the Nasdaq again continued a slow rise higher, but this time on very low volume. It too is showing signs of topping out on this move ahead of the FOMC meeting. We think it will pull back tomorrow ahead of the results to be announced on Wednesday along with several of its stocks that are also running into resistance on slowing momentum.

As the Nasdaq looks ready for a bit of a fall ahead of the Fed meeting, the Dow and big cap index are already ahead of it. The Dow is already close to support at 10,400 (hitting 10,468.12 on its low today) while the S&P 500 is heading toward support at 1200 (1213.60 on the low). These two appear as if they will hit and perhaps find support over the next two sessions and will be ready to rally on the FOMC news if it as investors want it to be.

Some stocks ready to rise, some ready to fall.

Today was a very quiet Monday on most fronts. Volume was low, and while there were movers both to the upside and downside, overall most stocks held pretty much pat. Not much to drive them higher just yet with the Feds meeting and an announcement on Wednesday afternoon. Before that, however, we are looking at taking something from both sides, but we have to realize that moves either way are liable to be short-lived.

Many of the tech stocks that have been making modest moves higher are running out of steam along with the Nasdaq. After a couple of good moves on strong volume last week, we are seeing many stocks making smaller gains the past two sessions as volume drops well below average. Moreover, they are running into resistance in the form of the 50 day, 10 day, and/or 18 day MVA. That combination, without some outside stimulus to drive them higher, usually results in downside action. We are looking to make some quick profits on that, but we do not see the downside as necessarily huge here. These stocks are right above potential support and it may not be much of a move down, just one we can play before the FOMC announcement. As for the outside stimulus, well, the Fed decision may help. No doubt it will help down the road, but will it just right now?

Hope rises for that 50 basis point cut.

Over the past week we have seen the rhetoric about a 50 basis point cut rise after it was universally accepted that 25 basis points was the real target. While we would prefer a 50 basis point cut and then the Fed to say it is done unless it sees something it does not like, we are not buying off on the additional 25 basis points, at least not totally.

Why? Well, there are some great arguments for 50 basis points, the primary one being there has simply been no tangible improvement in actual business. It is one thing to talk about recovery, but another one to actually see it. The Fed usually likes to see things working, and then it will slow down or cease its action. As for other tangibles, the economic numbers of late, while not stellar, are improving. Housing has remained solid, there is some improvement in regional indexes, leading indicators are rising, and unemployment claims maybe (just maybe) are falling. The Fed has already been expressing concern about not being too aggressive as they could overshoot the mark (when did it not overshoot the mark either way?), and the economic news we have seen of late indicates that there is firming going on.

The economic news we are talking about is not the Q2 earnings and warnings we have been hearing. Those are short term and historical; the Fed's focus is at least 6 months down the road. There have been reports that indicate continued weakness in semiconductors and telecommunications, but as we have said before, that is not the whole economy. We still think chips are going to rebound this year, but telecom, that is a way off it appears. Thus, unless the Fed is really worried about the consumer and today's report on lower investor optimism that hit the street today, we anticipate 25 basis points. If we are surprised by 50, great. We can handle that.

What does this mean? Well, we saw in the past that when investor hope got ahead of reality, when reality hit, the market sold off. Hope is a dangerous thing in the stock market. That is why we feel that though there very well could be a 50 basis point cut as the Fed seeks to insure a strong recovery and calm the markets, trading in anticipation of that is dangerous. We are looking for downside plays to exit ahead of the announcement so as not to get caught in any whipsaw. We see downside action setting up on the Nasdaq, and if it gives us two days of selling, it may be ready to rise on the FOMC news. In any event, we have made our trades and profits ahead of the news that could go either way this time around.

THE ECONOMY

Existing home sales rise above expectations.

A busy economic week got off to a good start today with existing home sales rising when they were expected to drop. Home sales rose 2.9% to 5.37 million (annualized) versus the steady 5.2 million units expected. That is a 3.5% rise over the same period in 2000, and it shows that low interest rates, particularly mortgage rates, continue to have a positive impact on home sales. Indeed, the supply of existing homes fell 6.1% in May.

Tomorrow the market gets the durable goods orders, consumer confidence, and new home sales reports. Those are all potentially market moving, but again, we have the governor of the FOMC meeting. While that may keep stocks from rising, a weak consumer confidence number may push stocks lower ahead of the FOMC result.

End Part 1 of 2

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