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6/27/01 Stock Split Report Market Summary
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Stock Split Report Subscribers:

PLAYS TO LOOK AT: We are still seeing solid moves and some good patterns, as well as some good put opportunities.

BONUS PLAYS:

RCGI (Renal Care Group--$29.53; +0.33; optionable (NUQ): Health Services
http://biz.yahoo.com/p/r/rcgi.html
STATUS: In an ascending wedge and moved off support (18 day MVA, 28.92) on strong volume (which has been building over the last 7 days) of 639,100 (avg. 474,000). Looking for a breakout over the pattern's high point at 30.05. The pattern formed after a breakout from a flat base. Shows strong money flow and decent buying. Relative strength is out ahead of price. Target: $35.
BUY POINT: 30.18, on volume of 640,000 or better. Stop: 27.77 (just below the 50 day MVA, 28.19).
POSITION: Stock and/or September $30 calls to buy (NUQ IF).

LEN (Lennar--$42.16; +0.90; optionable (LEN): Materials & Construction
http://biz.yahoo.com/p/l/len.html
STATUS: The stock has formed a double-bottom with handle pattern. The right leg of the pattern formed on a June 20 bounce from the 200 day MVA (currently at 36.11), when the stock gapped hugely on a strong earnings and future revenues report. It reached a high of 42.75 on that run (the handle high), and is now consolidating above support of its 50 day MVA (simple, 40.69) on the pullback. Wednesday the stock moved up from that support, though volume was lower at 525,000 (avg. 930,000). Look for stronger volume for the breakout. Good money flow. Target: May high of 46.69.
BUY POINT: Breakout: 42.88, on volume of 1.4 million or more. Stop: 39.45 (18 day MVA is at 39.41).
POSITION: Stock and/or August $35 calls to buy (LEN HG).

BVF (Biovail--$42.78; -0.17; optionable): Drug delivery.
http://biz.yahoo.com/p/b/bvf.html
STATUS: Has been trending up in the right side of a cup base dating back to early March, making frequent, short runs up followed by the same sort of move back down. It was moving along its 50 day MVA (40.05) and has now edged up to use its short-term MVA's (10 & 18 day at 42.45 and 41.73, respectively) as support. The last three sessions it has pulled back from a high of 45.10, showing a doji today over its 10 day MVA as volume has settled (down to 424,200 today; average 671,000). Looking for a bounce from here, watching possible upper channel lines at 44 and 45 as possible resistance.
BUY POINT: A bounce up from here on increased volume near the average. Stop: 39.80.
POSITION: Stock and/or $40 calls to buy (BVF JH).

SRNA (Serena Software--$33.29; +4.99; optionable): Software.
http://biz.yahoo.com/p/s/srna.html
STATUS: Broke out of its cup with handle today (handle started forming in early June, the cup, part of a larger cup pattern, in January), moving over the pivot point at 32 with outstanding volume (1.83 million; average 594,500). Still a buy up to 33.60, but after the move we could get a pullback, looking for it to test the 32 level, but hold on there for another strong move up. That will give us another chance to get in on the strong breakout.
BUY POINT: From here: Still a buy up to 33.60. Stop: 30.96. Test: A move up on strong volume after a lower volume test of 32. Stop: 29.76 (10 day MVA at 28.90).
POSITION: Both buy points: Stock and/or August $30 calls to buy (NHU HF).

PRE-ANNOUNCEMENTS: FISV, FDC and CEFT are still looking good, with THQI and ADVP making some momentum moves of their own.

BMET ($47.64; -1.15): Forecast to announce a split with a board meeting 6-29-01, or on 7-9-01 before the open with earnings. Going into the forecast Friday BMET continues to show strength as it steadily makes it way up its short-term MVA's (10 & 18 day at 47.14 and 46.45, respectively), today pulling back to tap the 10 day on lower volume (1.39 million; average 1.7 million). The stock has been making strong surges from support and pulling back again, showing overall good price/volume action. Looking for the stock to hold the 10 day and make another surge up on increased volume. On that move, stock and/or October $45 calls to buy (BIQ JI).

FITB ($61.50; -0.29): Forecast to announce with earnings on 7-16-01 before the market open. Has pulled back from its breakout high of 63, holding support over its 10 day MVA (61.02). Wednesday it showed a 'shooting star' doji over that level, reaching up to 62.92 at its high. A bullish pattern, and on a move over 63 on above average volume (up to 1.6 million today; average 1.74 million), stock and/or August $60 calls to buy (FTQ HL).

KRB ($32.55; -0.10): Forecast to announce a split on 7-10-01 in conjunction with earnings. At this time the company cannot confirm an earnings date. Gave a little bounce back up to 33.54 today, but pulled back to close slightly down as volume continued to be very strong (4.5 million; average 2.4 million). The intraday pattern was a double top, with most of the volume on the selling down from that pattern. We will see if it tries the 33 level again (the recent low before Tuesday), and on a strong drop back through 32.25 we will look at more put positions, with August $37.50 to buy (KRB TU).

CHV ($91.40; -3.30): Forecast to announce a split on 7-24-01 before the open in conjunction with earnings. A disappointing fall recently out of a promising pattern, but we like to take advantage of a change in character. CHV tried to move back over its 50 day MVA (94.35) but fell back hard from that level today, taking out some possible support at 92. We will see if the stock gives a bit of a relief bounce, perhaps testing the 92-93 level again, but on a drop back on continued strong volume (up to 2.64 million today; average 2.3 million), August $100 puts to buy (CHV TT). We are targeting the March-April lows in the 86 range.

ATK ($85.47; +0.78): Forecast to announce a split on 8-7-01 in conjunction with its annual shareholder meeting. It is trying to find support at its April lows and March high in the 85 range, today showing a loose doji on the heels of Tuesday's tighter version. It reached back up to 86.15 as volume dropped to 184,000 (average 188,000). We will see if it will be able to bounce up a bit more, or if it falls back strong from here without the bounce. On selling back on increased volume, August $95 puts to buy (ATK TS).

PRE-SPLITS: MTON continues to trend upward.

KG (King Pharmaceuticals--$53.49; -1.08): Splits 4:3 on or about July 19. Is now consolidating a bit in the range of its short-term MVA's (10 & 18 day at 54.13 and 53.29, respectively), today pulling back to the 18 day on increased volume (1.44 million; average 1.12 million). It is right in the range of the handle from which it broke going into the announcement, so we are looking for it to hold the 52.50 range and make a strong move back up. On a move over 55 on continued strong volume, stock and/or August $50 calls to buy (KG HJ).

CONTINUING CANDIDATES: CBH made a strong move, with CHBS still looking like a put after a strong move down.

CECO ($60.57; +1.47): Made another strong move up off of its 10 day MVA (57) after gapping down to that level to open. We expected a test of the 10 day off of Tuesday's doji, and after the gap down the stock took off on very large volume (709,400; average 248,000). The target is 65, and on a continued move, stock.

ACF ($52.75; +1.90): Had been in a tight consolidation of dojis over its short term MVA's (10 day at 50.43) since bouncing from the 50 day (47.43), and today finally was able to make a break, jumping up on increased volume (1.83 million; average 1 million). Back now in the range of a little consolidation it formed after hitting its high of 55, we can play a continued momentum move, with stock and/or August $50 calls to buy (ACF HJ).

POST SPLITS: LNCR could make a bounce, and FIC just continues to move.

DGX ($70.92; +1.42): Since its solid breakout move last Friday, the stock has wedged laterally, holding well over its 10 day MVA (68.06), today moving back up slightly on lower volume (497,400; average 439,500). Looking good and we will watch for a move back over 73 on increased volume, with stock and/or August $70 calls to buy (DGX HM).

GENZ ($56.06; +1.56): Has some momentum, continuing up today after having made a strong move up Tuesday after the stock gapped below the 50 day MVA (52.62) and surged up. Volume was slightly down but continued to be strong at 4.1 million (average 3 million). The high is 58.44, and last week hit a high of 57.32 before puling back. The aggressive can play a continued move on increased volume, with stock and/or October $50 calls to buy. On a breakout over 58.44 on increased volume, stock and/or October $55 calls to buy).

BAX ($52.46; +0.31): Has pulled back from its last run, a solid move that hit 54.50, but is holding strong at support now. Today its showed its second consecutive doji over the 10 day, a loose version that hit up to 52.90 at its high as volume dropped (1.89 million; average 1.64 million). On a move over 53 on continued strong volume, stock and/or August $50 calls to buy (BAX HJ).

* * THE SUMMARY * * *

TONIGHT:
- Fed cuts 25 basis points, the markets hiccup and then continue what they were doing.
- Think small for bigger returns: Indexes look weak, but note the again resilient A/D line means small and mid-cap stocks are on the rise again and are all over the reports.
- More important economic news tomorrow after the Fed: will it continue to show strength?
- Team Trades

THE SUMMARY

The indexes were all to the upside ahead of the Fed announcement. As typical, they sold back just before the news. When the news came out re 25 basis points, the first reaction was down: the hope for 50 basis points was gone and all indexes sold. Then they rebounded as we anticipated. The Nasdaq held onto its rebound, the Dow and the S&P could not.

The post-announcement movement told a big part of the story. The Dow and S&P sank right back down, unable to follow through on the Tuesday's attempted reversal. The Nasdaq held onto much of its gain, though it traded off the high late. This continued the recent action: the Nasdaq outperforming the large cap dominated Dow and S&P. The Nasdaq is no lightweight, but its techs are performing just a bit better.

Volume was slightly better on the Nasdaq (but still below average) while the NYSE volume tapered a bit. That is the kind of price/volume action we prefer to see, but the indexes are wallowing in no-man's land above levels that recently held as support but are dicey and below resistance that is just overhead. Investors are getting the idea that the economy is improving and that they should be investing, but there was a lot of standing around after the announcement as traders and investors did not know what to do.

The real story continues to be the small and mid-cap stocks, however.

Tuesday we noted something interesting on the market 'internals': the A/D line on the NYSE and the S&P 500 was positive even as the Dow and S&P 500 were down. Today the same result. What does that mean? The big cap stocks as reflected in the indexes are doing nothing, but there are many more stocks moving up than down. That means that the small and mid-cap stocks that do not make up the major indexes are rising.

We continue to find solid pattern after solid pattern in these smaller issues. Now smaller does not mean that institutions are ignoring them. Indeed, there are many, many funds that are small and mid-cap investors. Thus, these meet all of our criteria for investing our hard-earned dollars: superior sales, superior earnings, institutional support, great patterns.

Moreover, many of these stocks are in sectors that will tend to lead as the economy recovers: retail, financial (insurance in specific), builders (coming back strong), and some small software companies. Even with a glut of hardware, there is still a need for better software to run the machines.

These stocks can give us solid and even faster returns than many of the big caps. They set up good patterns and explode on massive volume as institutions and retail investors jump in. The key is to get in on the breakout or on the subsequent test. These stocks are everywhere and they appear as stock split candidates, pre-splits, bounce plays, you name it. So, even as they moan and groan on the television news stations about the indexes, we see gold behind the scenes just as there was back in April and May. Back then the market was rallying, but the indexes had nowhere near the strength of the small and mid-cap stocks that were in the lead. They are still in the lead now, and they had a good day today and are setting up for even better moves ahead.

THE ECONOMY

Fed disappoints some, makes sense to others.

The Fed cut the expected 25 basis points but kept its outlook on the economy the same, i.e., the risks were to the downside. Indeed, it issued the very same statement it made the last time. What does this tell us? The Fed is still concerned about the downside and will be ready to step back in inter-meeting if the economic numbers that have just recently started to firm start to weaken again.

Yes the cut was just 25 basis points meaning the Fed feels it is getting closer to the end of the cycle and that it feels it is ahead of the curve, but it also means that the Fed will be very ready to step in with another 25 basis point cut at the first sign of trouble. It is ready to extricate itself from rate cuts, but it is not going to do so until it sees real improvement in the form of companies with concrete, empirical evidence that business is really picking up. As far as the Fed is concerned, that will be the last sign that its work is done. Until then it will be ready to step in and cut again. The fact that it went 25 basis points this time around does not mean it will automatically wait until the August meeting. It feels it now has bought itself some room to act again if things weaken up a bit after this recent firming, and it can do it at any time. Pretty shrewd when you think about it.

Of course, if you do not think the economy is improving, today's smaller cut was bitterly disappointing. We would have preferred 50 basis points just to let it be done, but we were forecasting better economic numbers, and those have been starting to surface. If the momentum can continue, perhaps the Fed did enough and did it fast enough. The irony is, the Fed was the one that stomped the economy down in the first place and necessitated the dramatic round of rate cuts (275 basis points in less than 6 months). Talk about creating a crisis and then rushing to the 'rescue.' Just one more great save by the 'maestro.' We only hope it is truly a save. Tampering with the economy and the market is a dangerous game. The Fed was playing with the lives of millions, setting many retirements back a decade or more.

Jobless claims out before the open.

Will the number of claims fall for the third straight week? We want to see the trend continue as at the least it will bolster confidence that the economy is improving. That is the key: we need to see continuing strengthening in the economic numbers just as we have been seeing the past two weeks.

Oil and gas prices continue to fade.

One of the big drags, indeed another tax on the economy, has been higher energy prices. The supply continues to grow with gasoline stocks rising as well. This is much needed. As noted, higher energy is a tax on consumers and a major drag on the economy. It is not inflationary as we saw: it slows the economy and thus stifles any price pressures as corporations continue to have no pricing power. Another irony: during this whole time did we get any real help from the federal government? Not a bit. It could have reduced or eliminated the federal tax on each gallon of gasoline we buy, but doing that would reduce revenues that our leaders are so hungry for. The thought of losing a source of revenue is enough to make many pop blood vessels. Once a tax is imposed, it stands a 99% chance of never being repealed. Just look at the telecom tax imposed in the Spanish-American war. It was not repealed until the late 1990's.

End Part 1 of 2

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