|
|
us stock market, trend trading stock
Begin Part 2 of 4
S&P 500: The big cap index moved with the Dow, and that means it rolled over and died in the last two hours of trading. Volume expanded significantly on the NYSE, and what was a nice gain for the index in the 11-point range was washed away and replaced with a small loss. We chalk this one up to the bizarre trading day on the indexes, but we have to note that for the second straight session the S&P bounced down from the same level (1237.39 Friday; 1234.44 Thursday). That is that serious resistance at 1240 to 1250 we were talking about. That level represents some serious ice overhead in the form of the 50 day MVA (1240.81) and the down trendline that started back in September 2000. We may see the index squeezed back down to the 1200 level from here to see if that will hold. Not good to have such a quick test (same with the Dow). While we think the S&P is done testing its low, we have to be ready in the event it is not. Still, many of the stocks we are investing in on the reports have held up well even as the S&P has struggled as they are not the large cap heavyweights.
Stats: Down 1.82 points (-0.1%) to close at 1224.38.
Volume: NYSE volume leaped to 1.732 billion shares (+30.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
THIS WEEK
Economic reports take front and center again this week before earnings reports really get in gear the following week. Lots of key reports: auto sales, construction spending and the NAPM are out on Monday. These are important because they show what consumers and businesses are doing. We expect to see continued strength in autos and construction, and then improvement in the NAPM. Factory orders are out Tuesday. We expect those to be positive (+1.5% expected), another sign of improvement. Friday is the employment report, but that is a history lesson. Not every report will be positive, but we will continue to see the overall improvement that has started. As with the market it will be up and down, but the trend will be higher in our opinion.
So, we are bullish on the economy and the market. Again it is not 'buy everything now and ride it to millions,' but buy the leading stocks that we follow on the reports and buy them at the right time. Then let them do the hard work for you while you monitor them to make sure they are behaving properly: moving up on higher volume, selling back on lower volume, holding trendlines or other support lines, holding above the breakout. As long as they are doing that we can let them work for us. We can also use the covered call strategies for cash flow on new buys and long term holdings we learned in the covered call seminar. That is one thing we are doing: we are buying stock right now as they breakout, and then we are selling calls on them as the top and start to come back to test the breakout. We make money on the stock as it appreciates in value, and then we make cash when it tops and we sell the calls and buy them back. That is putting your money to work for you. We are positive and we are looking for ways to play that positive outlook. Breakouts, stock splits and covered calls are good methods to do that. But, we are buying as the stocks move higher.
At the same time we are not letting plays that don't work for us drag us down. If the play does not work, we get out. The market is still going to be up and down as we move forward and it trends higher. Hanging on when the stock turns against you can wipe out some good gains. If it drops 7% below the purchase price we bail out. If it crashes back below the breakout on high volume, if it cannot jump right back over it, get out. Keep it simple by keeping disciplined. The market is going to help us out over the next several months as it improves.
To us this looks like it will be the chance to buy that we will not see for years to come, but we need to buy the right stocks and not go back to the names that are not proving themselves to be leaders in this round. We see lots of stocks starting to form up patterns that were not doing much until recently. We like to see that because it means that as things continue to improve, we will see waves of stocks in different sectors coming to the forefront and moving higher. This gives us so many opportunities to make great money using breakouts, splits, covered calls, spreads, and the like. We are going to be looking at each of these more and more as the market starts to improve. Of course, improving markets always mean breakouts, and we can play those a variety of ways as well.
The Nasdaq has moved up 5 sessions. Perhaps we get some weakness ahead of the Fourth, but it is not a long holiday. If the economic news stays good, we will look for buying opportunities. Now, with earnings coming up we could also see some profit taking after this move higher as investors don't want to be holding ahead of the numbers. We do not think there will be major damage from earnings. We think the major damage was done in the warnings season in anticipation of earnings. We may just see a bit of selling and then see earnings turn into a catalyst for the next leg up. That is what we are really expecting.
Support and Resistance Levels
Nasdaq: Closed at 2160.54.
Resistance: 2160 to 2200. Then 2250.
Support: 1990. After that, 1961.
S&P 500: Closed at 1224.38.
Resistance: 1240 to 1250 where the down trendline and 50 day MVA (1240.81) are. Then 1285.
Support: 1200. Head and shoulders bottom and the breakout support from the double bottom pattern is right at 1182.
Dow: Closed at 10,502.40.
Resistance: The 200 day MVA was unbeatable again on Friday at 10,600.10. After that, the remains overhead at 10,603.56. The down trendline and 50 day MVA are at 10,723. It is not really clear up to 10,800, but that is the road it has made. 11,000 is possible resistance after that. Then 11,196.53 (the last top). After that, 11,350.
Support: 10,400. Then 10,200.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
7-2-01
Auto Sales, June (0:00): 6.4M versus 6.4M prior.
Truck Sales, June (0:00): 7.1M versus 7.2M prior.
Personal Income, May (8:30): 0.3% versus 0.3% prior.
PCE, May (8:30): 0.4% versus 0.4% prior.
Construction Spending, May (10:00): 0.1% versus 0.3% prior.
NAPM Index, June (10:00): 42.5% versus 42.1% prior.
7-3-01
Factory Orders, May (10:00): 1.5% versus -3.0% prior.
7-5-01
Initial Claims, 6/30 (8:30): 393K versus 388K prior.
NAPM Services, June (10:00): 47.0% versus 46.6% prior.
7-6-01
Nonfarm Payrolls, June (8:30): -40K versus -19K prior.
Unemployment Rate, June (8:30): 4.6% versus 4.4% prior.
Hourly Earnings, June (8:30): 0.3% versus 0.3% prior.
Average Workweek, June (8:30): 34.3 versus 34.3.
SUBSCRIBER QUESTIONS
Q: First of all, I would like to tell you how much I have learned from the summary each day that you write about and also the daily. You really know your stuff. I do have a couple questions too. If a stock makes a nice advance, but it is on less than average volume is that a bad sign that maybe the run is over? This is after a nice breakout and a pullback. Also if a stock breaks out on heavy volume and say does a pullback then resumes again making some gains then say breaks out on heavy volume again, how do you know when the base starts? I know it's not wise to buy into the
4th or 5th base breakouts. I understand the base suppose to last at least 7 weeks, but I don't understand when to determine when the base starts.
A: Thank you for the compliment. Stocks can move up on below average volume and just keep on going. Most of the time, however, the move can get into trouble. If a stock is heading to a new high but volume is low, that is a topping sign on that run. Think of it this way: a stock is like a rock being pushed up a hill. As the rock goes higher up the hill, those pushing get tired. They may quit or they need help. If no help comes in or they quit, the rock rolls back down the hill. Thus, if no buyers come in, eventually there are no more buyers and the stock will fall. This is really true if a stock is running up near a resistance level. After a strong breakout and then a test of that breakout, the stock can rise back up to the first high after the breakout, but if it does not get a volume surge along the way, it could run into trouble at the previous breakout high. If it surges over that level on strong volume, it is going higher. What I just described is a break to a new high after a test of the breakout. If it does occur on strong volume, this is not a new breakout of a base really, but another entry point after the test as the stock has shown it has a lot of buyers at this level. You can buy as the stock moves up off of support on higher volume after a test, or you can buy as it breaks over the high in the breakout run if it occurs on a volume surge.
When we talk about the number of bases, we are talking about full-blown bases that last at least 7 weeks. In some stocks it takes years before they base 4 or 5 times, running higher 100% or more, then forming a base where it corrects 30% or so, and then breaking out of that base. These bases can last 7 weeks, 2 months, 4 months, etc. depending upon the market. One pattern we are seeing a lot right now and one that we like a lot because it usually is setting up for a strong move ahead is the combination base such as the cup with handle followed by a flat base or an ascending wedge. EBAY did this as did RCII, ELON, BBY (it is overcoming that convertible offering, but doing well as it does), and FISV. What happened was the market started to improve coming out of April and into May, and stocks were breaking out. Then the correction occurred and the stocks pulled back, but held above their previous bases for the most part. They would not knuckle under, however, and now they are starting to spring higher. We love these patterns because they usually lead to big gains. NVDA is trying to do the same now, but its ascending wedge has turned into a pennant. Not as bullish, but we love the tight range on low volume over the last few sessions - - crouching for the move higher we believe.
Q: ANSS...nice call...bought the stock today @ 16.32. Read your comment to buy @ 17.08 on 176,000 shares. Huge volume today in excess of 300,000. My question: you have a target of 20. Do you wait 'til 20 to sell? Or do you take partial profits here? I don't know how you guys handle a breakout. Does the stock more than likely have to retest the breakout level, which in this case is 16.95? Input would be much appreciated. Also, related question: many times you have the stock a buy "on the breakout" to a certain level BELOW your target. Does that mean you sell the stock at that level regardless, or is it just a level at which you no longer want to buy the stock because the risk/reward is not that good?
A: Thanks. ANSS had a great move that we could not resist either. The stock raced almost to our initial target in one session. Strong moves like this can lead to some selling early the next session as the market maker was selling stock like mad at the close and will most likely need to replenish his inventory. He might open it down to get some sellers so he can buy, and then if the buyers are still there, send it right back up. If it moves back up over the previous close on strong volume still, that is bullish. At this point we are inclined to let it run to see if it will hit 20 and keep on trucking. If it stalls there, we have choices. We can ride it down to see if the test is successful, we can sell out here and then pick it back up if it starts to move higher again after a successful test (we can lock in a gain and then pick it up again for a potentially bigger advance), or we can sell half our position, let it test, and then decide if we want to buy more or not if the test is successful. This was a huge move in one session. Stocks that move 20% on a breakout can be big winners, but Friday was a bizarre day. We anticipate somewhat of a test after such a strong move, but we do not anticipate it to come all the way back to the breakout.
As for the 'buy up to' language, that refers to the fact that in most instances we don't like to chase a stock on that initial move 5% past the breakout point. If it gets away from us, we will wait for that test and then pick it up. If it tests and then moves up over that first breakout high, that is another buy point as it has already tested and is ready to move higher. In other words, it has proven itself and the 5% limit is no longer applicable.
NOTE ON THE ALERT SERVICE:
Our new alert service will be up and running later this week and we will be sending all subscribers information on the service. It will provide alerts to your email address whether computer, handheld, pager, or mobile phone when one of the plays hits the breakout buy point! It will provide the ticker, the price, the volume, the percent of average volume for the session, the pivot point, the pattern or play type, the target volume and our stop point. We will also throw in anything else that is necessary specific to that play! We are extremely pleased with the system and have been beta testing it among ourselves with great results on placing orders. Indeed, the service will pay for itself with a fraction of one trade. Again we will provide additional information and sign up details this week!
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Investment House subscribers are offered a special from eSignal for those
interested in a realtime service. Contact:
Jeff Whitney
Account Executive
800-322-1875
Office hours 6:30-3:30 PST
www.esignal.com
THE PLAYS:
THE PLAYS:
PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: None for this week, but we have quite a few coming up as earnings season picks up steam and a lot of great patterns that are raring to go, split or not!
NEW PRE-ANNOUNCEMENT PLAYS:
ACS (ACS Inc.--$71.91; -1.60; optionable): Forecast to announce a split on 7-31-01 before the market opens in conjunction with earnings.
http://biz.yahoo.com/p/a/acs.html
BACKGROUND: Last announced a 2:1 split in October 1996 at a stock price of $60. The annual shareholder meeting was on 10-26-00 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Has been trending up solidly the past year, making a new high at 55 in December and continuing up along its 50 day MVA. The stock has pulled back this week, Friday dropping back to close just below the 50 day (72.07). Volume was rather robust on the selling, at least compared to recent levels, but is below average and was down to 514,500 Friday (average 774,200). It was due for a test of the 50 day, having made periodic bounces from that support on its steady move up. We will look for another here, watching for continued strength as we go toward the forecast.
BUY POINT: Aggressive: A bounce up in a strong Nasdaq on increased volume.
POSITION: Stock and/or October $70 calls to buy (ACS GN).
ADVS (Advent Software--$63.50; -1.59; optionable): Forecast to announce a split on 7-17-01 after the close in conjunction with earnings.
http://biz.yahoo.com/p/a/advs.html
BACKGROUND: Last announced a 2:1 split on 2-17-00 in conjunction with a board meeting. The stock price was $80. Prior to that announced a 3:2 split on 7-13-99 in conjunction with earnings. The stock price was $75. The annual shareholder meeting was on 5-3-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Moving in the handle to nine-month cup with handle pattern. The pattern is solid, but it has been showing a bit of volatility here, and we do not want that in a handle. Friday the stock had a wild ride, hitting 57.25 at its low and 68.25 at its high, and although Friday was an odd day, there have been several sessions with big swings recently. We will watch for it to settle down a bit on lower volume (continued strong Friday at 1.06 million; average 531,200), and then let it show us a strong breakout. The 10 and 18 day MVA's are at 64.56 and 64.35, respectively, and the handle high is 69.04.
BUY POINT: After settling down a bit on lower volume, a move to 69.17 on continued strong volume (minimum 800,000).
POSITION: Stock and/or August and November $65 calls to buy (UIV HL and UIV KL).
DFXI (Direct Focus--$47.50; +1.00; optionable): Forecast to announce a split on 7-18-01 in conjunction with earnings. At this time the company has not confirmed the time of the release.
http://biz.yahoo.com/p/d/dfxi.html
BACKGROUND: A frequent splitter, it last announced a 3:2 split on 12-12-00 in conjunction with a board meeting. The stock price was $44. Prior to that announced a 3:2 split on 6-28-00 in conjunction with a board meeting. The stock price was $44. See a pattern here? The annual shareholder meeting was on 6-4-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: A very solid stock that has performed well, and is proving to be a consistent splitter. It broke from a cup with handle recently and is on its second big surge. It is showing signs now of pulling back, rising up the last couple of sessions on lower volume (Friday below average at 312,300; average 325,300). We will look for that pullback, targeting the 10 day MVA as support at 43.66, and upon holding there we will look at positions on a strong move back up. Great relative strength, money flow and buying.
BUY POINT: A move up on increased volume after a lower-volume pullback to the 10 day MVA.
POSITION: Stock and/or October $40 calls to buy (DQF JH).
ELN (Elan--$61.00; -0.85; optionable): Forecast to announce a split on 7-18-01 in conjunction with earnings. The company has not confirmed this date.
http://biz.yahoo.com/p/e/eln.html
BACKGROUND: Last announced a 3:2 split on 3-2-99 in conjunction with a board of director meeting. The stock price was $76.88. Prior to that announced a 3:2 split on 8-15-96 at a stock price of $63.
STATUS: The stock has been moving well, recently breaking from a ten-month cup with handle base, and then coming back to test the breakout. It is now moving back up from that test, making a solid move Thursday but dipping back a bit Friday. The pullback was healthy, coming on lower volume (1.56 million; average 1.6 million), and closing over the 10 day MVA (60.69). Looking for it to hold here and continue back up, with the breakout high at 65. Good relative strength and buying.
BUY POINT: A move back over 62 on increased volume.
POSITION: Stock and/or October $60 calls to buy (ELN JL).
PDII (Professional Detailing--$92.00; +4.00; optionable): Business Services. Wildcard Forecast to announce a split on 7-11-01 with its annual shareholder meeting.
http://biz.yahoo.com/p/p/pdii.html
BACKGROUND: PDII has never split its stock. The annual shareholder meeting is scheduled for 7-11-01 at 10:30 am ET at which time additional shares will be authorized.
STATUS: Took a big drop from last November to February, and gradually showed strength by climbing back up steadily through May. It has since dropped back from that intermediate high of 97.83, finding support at 73 before making a strong move back up over the last couple of weeks. The stock took out its 50 and 200 day MVA's (81.77 and 81.66, respectively) on the initial move, and is now using the short-term MVA's as support on the move up (10 day MVA at 86.25). Friday the stock gapped down to that support but responded with a strong move, powering back up on sharply higher, strong volume (240,400; average 202,000). Looking for more going into the shareholder meeting, and eyeing the recent high on a continued move as this stock most likely will try a run to 100. Stocks that get close to 100 tend to make the move fast.
BUY POINT: A move back over 94 on continued strong volume.
POSITION: Stock and/or October $90 calls to buy (PKU JR).
End Part 2 of 4
|
us stock market
trend trading stock
|
