us stock market, trend trading stock

Begin Part 2 of 2

THE MARKET

Overall market stats:

VIX: 20.29; -1.34. Volatility is very low, indicating apathy in the market, and that can lead to selling. But, pessimism over the economy is very high still, and that is a counter to this. We would like to see higher volatility, and its low rate means we have to watch closely for other signs of cracks. We do not, however, make it our primary indicator.

VXN: 43.97; -1.52. Falling even on a down close in the Nasdaq. This is considered low by many, but backdated data shows it has falling well into the 30's and still allowed massive runs ahead.

Put/Call ratio (CBOE): 0.62; +0.04. Not much change in action, but it remains above the 0.4 level that can show complacency.

NASDAQ: Tried to rally but then gave us the selling we though was coming. After 5 winning sessions it was due.

Stats: Down 11.82 (-0.5%) to close at 2148.72.
Volume: 1.517 billion (-26.7%). After Friday's wild ride, falling on lower, below average volume is good. 807 million to the downside versus 702 million to the upside.
A/D and Hi/Lo: Decliners took back over at 1.43 to 1 (advancers led 1.75 to 1 Friday. New highs fell to 97 (-180) as new lows rose to 61 (+21).

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

The Nasdaq was due to sell back a bit as we thought, but it was not severe. It gave back a nice gain and closing near the lows of the session. That is bearish, but the price/volume action was positive as volume dropped sharply on the selling. The candlestick pattern was a tight doji, and that usually means a move higher is topping out. The low (2140.65), however, tapped the simple 50 day MVA and the index finished off that level. There are two forces working here: profit taking urge after a nice move higher versus support at the 50 day MVA. It would be great if it held here, but we have the warnings after the close that just pummeled some techs, and we could see the index test down to 2100 to consolidate this move. Coming out of this bottom it is going to be up and down, but the trend is going to be up.

Dow/NYSE: After giving up on Friday, the Dow reversed its attitude with a nice gain even as MMM warned about Q2. The economic data won out today, but volume, though average, declined sharply.

Stats: Up 91.32 points (+0.9%) to close at 10,593.72.
NYSE Volume: 1.111 billion shares (-35.8%). Whopping drop on the gain, but the antics on Friday had things all mixed up. Volume was average; a mild positive. Up volume led 695 million to 400 million shares.
A/D and Hi/Lo: NYSE advancing issues maintained the lead, but it narrowed to 1.08 to 1 (1.7 to 1 Friday). New highs fell to 153 (-45) as new lows rose to 22 (+5).

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

The Dow plunged early, but then caught support above 10,400 and started to run higher. It hit 10,638.87 on the high, but then it once again fell to close below the 200 day MVA (10,597.28). It is still below the short term down trendline that started in May and below the long term down trendline at 10,725 (the 50 day MVA is at 10,715.29). It is still smothered by heavy resistance, but it is holding firm above 10,400. Again that is a key level as that is where the index tested the move up out of its double bottom in April. It also roughly represents the bottom of an earlier trading range. It is a battle right now, but we saw Dow stocks respond favorably to positive economic news. That makes us believe that overall the index is rising over the next several months, but it is news driven in the short term.

S&P 500: The S&P ran into its own overhead resistance today, but that was after putting in a nice show on average NYSE volume. On the high (1239.78) it ran right into the 50 day MVA and closed down about 3 points from there. Not bad, but that level coincides with its last top just 8 trading days ago (1240.24). 1240 to 1250 is resistance, and the S&P is having a hard time with it. Today's move did clear the short term down trendline from May, but the index has to get over 1250. Will it bound between 1200 and 1250 until earnings start coming out and some positive comments from some of the big caps about the future. We will continue to monitor the A/D line, however, to see how it performs. It was weaker today on an up day, and that is somewhat of a concern as advancing issues were leading on the down days. The smaller stocks seemed to take a breather today along with the Nasdaq. Coincidence? Probably.

Stats: Up 12.32 points (+1.0%) to close at 1236.72.
Volume: NYSE volume tanked to 1.111 billion shares (-35.8%). Still average, but a steep drop.

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

TOMORROW

The Nasdaq started to roll over a bit today and it got a push after hours with ISSX warning. Those web security firms were just pounded after hours. Then again, Nasdaq futures were 21 points above fair value about 2 hours after the news hit. Ah the after hours market. Factory orders are out 30 minutes into the session, and those might give some immediate direction, but on pre-holiday sessions, those early moves can give way to short term profit taking.

After some very good sessions, the Nasdaq and the small and mid-cap stocks took a bit of a pre-holiday vacation. That is normal action. The interesting part is that the Nasdaq bounced up off of the 50 day MVA today. Will that level hold? There has not been anything really magical about that level over the past two months, so we are not going to make a lot out of it. The index made a good move up, showed a doji on the candlestick chart, and it may head back down toward the 2100 level. That would be normal action. The Dow and S&P have a lot of overhead resistance, but they seem intent on a little upward action here. The holiday, however, puts it all into question to a certain degree as investors and managers will be heading out the door early for a mid-week holiday. Lighter volume can mean sharper swings either way.

We are not going to guess. We have said we like what we see in the market and the economy overall, so we are picking our shots with good stocks for both the short term and longer term. There are some good pre-split plays developing that I am really interested. There are also breakouts of course. One of the things we did when we developed our method of investing was to allow ourselves to see the move first and then invest. That way we are not guessing about particular direction each day when the market is choppy.

Tomorrow we will look for the momentum moves such as pre-splits and then also breakouts that are based on overcoming resistance on big volume. On days before holidays these can be very nice, but we have to watch volume on breakouts; we want it strong or we have to be very diligent with the position to see if volume does come in on a further move higher. On momentum plays, we can ride them and then get out when it stalls. We will also keep looking at selling some covered calls on our stock holdings that appear to be topping short term, taking some money in while they do their routine pullback to near term support.

Support and Resistance Levels

Nasdaq: Closed at 2148.72.
Resistance: 2160 to 2200. Then 2250.
Support: Looking for 2100 to hold. If selling starts anew, 1990.

S&P 500: Closed at 1236.72.
Resistance: 1240 to 1250 where the down trendline and 50 day MVA (1240.39) 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 10,593.72.
Resistance: The 200 day MVA stopped the index again (10,597.28). Still resistance at 10,700 and again 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): 0.2% actual versus 0.3% expected and 0.3% prior.
PCE, May (8:30): 0.5% actual versus 0.4% expected and 0.4% prior.
Construction Spending, May (10:00): 0.1% versus 0.3% prior.
NAPM Index, June (10:00): 44.7% actual versus 42.5% expected and 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: I notice that when you recommend options to be bought on a stock you usually by in the money options. Is there a reason for this? I haven't had a lot of luck with options, they usually didn't get up to my price and either ran out or I paid too much and time wore them down. Doesn't the same happen to in the money options?

A: When you buy out of the money options, you are paying for time value and volatility; there is no intrinsic value, i.e., the part that is in the money. It is all speculative. In the money options have intrinsic (or 'book value') as part of their price. If you buy out of the money and the stock goes nowhere, on expiration your option is worth zero. If you buy in the money and the stock goes nowhere, at expiration your option is worth the in the money portion. That is one reason we like in the money options. There are many more and we discuss them in detail in the Options You Can Use Seminar. Seminars are starting up again on August 1 and we will have a link to sign up available soon.

TEAM TRADES

BORL: We bought BORL in early June when it broke out of its cup with handle pattern. After a nice run and lateral consolidation, it jumped again. It showed a doji Friday and started to sell today. We want to keep the stock, so we sold some July $12.50 calls today for $2.70 with the intent to let the stock fall to 13.50 or so and then buy them back if the stock starts back up. We bank some money and keep the stock. That is what we mean by selling calls on stocks we want to hold.

TTIL: TTIL was covered on the weekend report (Daily). The stock broke out of a cup with handle in May, and today broke out of an ascending wedge that formed after the test. This morning it set off an alert at 9:10 (CT); after closing Friday at 19.44, the stock was moving up early, hitting 19.99. Volume was still quite low, however, coming in at 22,800. Average daily volume is low anyway at 62,000, and we were looking for stronger numbers than Friday (58,600). However, it was still early, and this stock was ready to make a breakout. 20.23 was the buy point.

It made it to 19.99 (the early intraday high) and began a sideways movement. Volume continued to pick up though, so we kept an eye on that. At about 10:30 volume started to pick up, so we looked at the bid and ask on the stock: it was trading at 19.98 by 19.99. A clothesline chart revealed an ascending wedge pattern intraday, and on the building volume it looked like the thing would move. We put in a bid at 20 and got the fill at 10:34. Volume surged and the stock ripped up in the next minute what timing hit 20.75, pulled back to test 20.50, then tore up again, hitting the day's high of 21.56 (took out the December highs on that move). It pulled back again and by 2:14 was at 20.85, with volume at 112,000. That was the closing price for the day, but volume did move up to 131,000 by market close. That's good breakout volume for the stock, since the minimum requirement is about 84,000. The stock didn't quite make our target of $22, which is at the level of some resistance, though it did pull off that high. It just might pull back from here, but 20 looks like good support, so if it stays above that, we'll ride it for a bit.

Good Investing!
Jon L. 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.

us stock market
trend trading stock