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us stock market, swing trading stock
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Tech Traders 7/03/01 Update
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Technical Traders Subscribers:
Happy Fourth of July!
THE PLAYS:
Continuing Plays: EBAY looks like it will hold support at the 10 day MVA (see Monday's report for details); GSOF moved up, but needs stronger volume. LH is in good position for a rally. Volume throughout was low today, so stocks tended to pull back, many closer to or at support levels. This is positioning many for moves back up when the market rallies.
SLC (Sun Life Fncl--$24.11; +0.81; optionable (SLC): Insurance
http://biz.yahoo.com/p/s/slc.html
STATUS: Got a jolt of above average volume on this day of overall low market volume (229,100; avg. 190,454), and the stock moved higher, approaching the buy point in the ascending wedge (that formed after the cup with handle breakout). We really like the combination of patterns, and the strong volume looks ready for a breakout. Initial target: $29-30.
BUY POINT: Breakout: 24.48, on minimum breakout volume of 265,000). Stop: 22.52 (below the 18 day MVA, 23.09). A buy on the breakout up to 25.70.
POSITION: Stock and/or August $22.50 calls to buy (SLC HX).
JKHY (Jack Henry--$31.37; +0.23; optionable (JKQ): Software
http://biz.yahoo.com/p/j/jkhy.html
STATUS: Volume was a little bit higher (362,400; avg. 494,000) as the stock inched up in its breakout. Remains a buy, but we are still looking for volume to explode over average. We will see if it can JKHY formed the ascending wedge in the upper right side of its 6-month cup base (prior high 33.13). Target: $38-40.
BUY POINT: A buy on the breakout up to 31.90, but on minimum breakout
volume of 667,000 or better. Stop: 28.52 (50 day MVA, 28.29).
POSITION: Stock and/or September $27.50 calls to buy (JKQ IY).
BVF (Biovail--$43.42; +0.03; optionable (BVF): Drug delivery
http://biz.yahoo.com/p/b/bvf.html
STATUS: Back at support and showing 2 consecutive dojis on low volume, in the "double" handle to the 4-month cup base. Volume kicked up in today's down-volume market, reaching 376,800 (avg. 653,000). The low tapped the 10 day MVA at 43.21 before closing higher and showing the very tight doji. Looking for the turn back up. Target: $52-54.
BUY POINT: Breakout: 45.23, on volume of 980,000 or better. Stop: 42.06 (7% below the buy point and just under 42.38, the 18 day MVA).
POSITION: Stock and/or October $35 of $40 calls to buy (BVF JG or JH).
New or revisited plays: ROOM gave us a strong breakout last week, and is now testing. Look for it to test 45 or its 10 day MVA (44.27 range), then head back up.
CERS (Cerus Corp--$75.35; +1.85; optionable (CEQ): Biotech
http://biz.yahoo.com/p/c/cers.html
STATUS: Covered recently on the short report. The stock has moved up in the handle to its 6-month cup with handle pattern, and is one of the few stocks that move up on higher volume Tuesday a feat (57,700; avg. 76,409). It is fast approaching the handle high (76), so we will be looking for the breakout. Huge money flow, and relative strength has moved out ahead of price. Target: $88-91.
BUY POINT: 76.13, on volume in the range of 115,000. Stop: 70.80 (10 day MVA, 71.23). A buy on the breakout up to 79.94.
POSITION: Stock and/or October $75 calls to buy (CEQ JN).
ADRX (Andrx--$76.30; +0.94; optionable (QAX): Drugs
http://biz.yahoo.com/p/a/adrx.html
STATUS: Another stock showing stronger volume today (861,400; avg. 862,000). ADRX broke out of a double handle to a cup base that formed at the bottom of its larger base, and looks like it will hold support at the 75 range (opening just above that today) on this test of the breakout. The high of 77.25 tapped near upper resistance at 77.39, so look for the move over that. Strong money flow and high relative strength. Target: $82-85.
BUY POINT: Over 77.39 on volume near 1 million. Stop: 71.97 (18 day MVA, 71.13).
POSITION: Stock and/or September $70 calls to buy (QAX IN).
HB (Hillenbrand Industries--$57.90; +1.90; optionable (HB): Diversified services
http://biz.yahoo.com/p/h/hb.html
STATUS: Broke out of its base mid-June and has tested back to the 18 day MVA (Monday, at 56), and headed up today on very good volume of 292,900 (avg. 129,045). That is great for a day like today, so we are looking for a move over the June high at 58.48 (today's high reached 58.45). Looking good! Target: $66.
BUY POINT: Over 58.48 on continued rising volume. 10 day MVA is at 56.72 for support there or higher should the stock pull back first.
POSITION: Stock and/or September $55 calls to buy (HB IK).
ELON (Echelon--$27.80; -0.24; optionable (EUL): Software
http://biz.yahoo.com/p/e/elon.html
STATUS: Testing the recent ascending wedge breakout (that came after the stock broke out of a cup with handle in May). The stock tapped the 10 day MVA on the low of 26.65 (buy point in the wedge pattern is 26.87) then moved up to close showing a tight doji above support at 27.50 (earlier price support from last fall, in the 16-month base). Volume dropped back to average levels (357,400) after being at strong levels on the breakout. Looking for a move back up. Target: $35 (initially). A great series of patterns thus far.
BUY POINT: Aggressive: Up from here on rising volume. Stop: 24.78.
POSITION: Stock and/or August $22.50 calls to buy (EUL HX).
THE SUMMARY
Happy Fourth of July!
TONIGHT:
- Half day of trading keeps things quiet.
- Indexes look ready.
- Factory orders much stronger. Surprise! Well, not really.
- Subscriber Questions
Sluggish short day of trading.
There was not a lot of interest in the session ahead of the nation's holiday. Earnings warnings continued, stronger economic reports continued, and the indexes continued their choppy performance. Light volume makes it hard to draw conclusions, but other than specific sectors there was not a lot of damage. Pretty much all you can expect from a shortened session when investors are overall still uncertain about the economic or market future.
Indexes poised.
Yes the indexes are poised to move. The key issue: up or down. After moving up on strong volume last week, the Nasdaq has floated gently down to its 50 day MVA, tapping that level on the low today and them recovering to show a nice doji pattern. As our seminar attendees know, we like to see doji's on support after a low volume pullback; that is a signal of a potential move up. It does not hurt that the stock is holding right above the 2085 level, a price where the index bounced up off of twice in May. It looks pretty decent for a move back up after testing its last move higher. Still, on a day such as today, it is hard to draw solid conclusions; we can say it is in position to rise.
The Dow and the S&P 500 are a bit different. The Dow has been banking its head at the 200 day MVA, and it did the same thing today and closed slightly lower on the session. The S&P is also banging its head against resistance at 1240 as it bounces between 1200 and 1240. Both the Dow and the S&P are poised to move back down in their ranges with their doji's right below resistance. Again, however, today does not provide a solid picture of investor metality
THE ECONOMY
Factory orders up greater than expected.
Economic activity continued to improve as Factory orders jumped higher than expected. Orders came in at 2.5%, well ahead of the 1.5% gain anticipated and much better than the 3.4% drop (revised down from 3%) in April. A 5.9% swing is huge. The gain was the largest since a 7.5% move in June 2000. Transportation (autos) was the strongest component, but when it is stripped out, the gain was still 2.3%, the best showing in a year! Very interesting: orders for computers and electronics increased 2.3% versus the 13.7% drop in April. We continue to be pleased and even somewhat surprised by how each report is coming in not only stronger than the prior month, but much stronger. Remember, we usually see the reports waffle back and forth a bit before they turn decidedly higher for good. Of late they have practically all been solidly higher, and that is an indication that the turn is stronger than most expect or suspect.
THE MARKET
Overall market stats:
VIX: 20.95; +0.66. Volatility edged higher on the mild selling, but it is still well in the low range that indicates apathy. It has been low for awhile and is certainly not acting as a catalyst. But, it has not really been a drag at this point.
VXN: 45.14; +1.17. About the same as the VIX: slight gain on slight selling. Again, this is not a catalyst but not a real drag thus far.
Put/Call ratio (CBOE): 0.64; +0.02. Basically flat as were all other indicators. Still in the mid to upper range.
NASDAQ: Really nothing happening today, but that was good. No damage, and a good position to rally from.
Stats: Down 7.92 points (-0.4%) to close at 2140.80.
Volume: 860 million (-57%). Predictably down with the shortened session. 322 million shares to the upside versus 521 million to the downside.
A/D and Hi/Lo: Decliners continued their 2-day lead at 1.15 to 1 (1.43 to 1 Monday). A mild day of selling. New highs fell to 55 (-42) as new lows fell to 49 (-12).
The Chart: http://www.investmenthouse.com/cd/$compq.html
As noted, the Nasdaq showed a doji on light volume, tapping the 50 day MVA on the low (2123.75). That is always good: a nice gain on higher volume followed by mild selling on light volume. The doji and the close above support add a lot to the upside potential. So, the stage is set, but we have earnings dead ahead. We remain positive and believe we are going to see the Nasdaq actually move higher during the confessions at earnings time.
Dow/NYSE: Stalled again at the 200 day MVA.
Stats: Down 22.61 points (-0.2%) to close at 10,571.11.
NYSE Volume: 623 million (-55%). Short day, low volume. 307 million upside, 305 million downside. Nothing virulent today.
A/D and Hi/Lo: NYSE advancing issues still led even on a down day, 1.18 to 1 (1.08 to 1 Monday). New highs fell to 95 (-58) as new lows dropped to 20 (-2).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow plunged early (DuPont's warning), but it staged a nice 40 point recovery to the close. It was still down for the session, but a good recovery. It still sits just below the 200 day MVA (10,595.50), a level it has been unable to close over in the last four sessions. 10,600 is acting as pretty tough interim resistance as the Dow trades from 10,400 up to 10,600 to 10,700. It has not reversed its downtrend started in May, and until it can break over 10,750, it is still in some jeopardy. 10,400 continues to try and act as pretty solid support, and we are looking for that level to hold on any test.
S&P 500: The S&P is very similar to the Dow (or is it vice versa?), as it too tries to clear resistance (in the form of the 50 day MVA at 1240.16, the level of the June interim high as well). Thus far, no dice, and it showed a doji just under resistance. That often foretells some selling ahead. The index is establishing a trading range from 1200 to 1240; very tight, and that usually means there will be a sharp breakout, up or down, when it comes. As for now, we continue to see improving economic news, and that is good for the long term. Looming before that, however, are earnings, and though we feel investors are getting that worry out of the system, but as we saw with ISSX, that is not totally the case. Overall, even if the index trades back down toward 1200, we like the bigger picture as the economy continues to improve.
Stats: Down 2.27 points (-0.2%) to close at 1234.45.
Volume: NYSE volume fell to 623 million (-55%). Shortened day.
The Chart: http://www.investmenthouse.com/cd/$spx.html
THURSDAY
Jobless claims and auto sales are the big numbers Thursday. Friday is the economic report, but that is about as rearview mirror as you can get. Jobs lag so far behind the economy when it turns back up, it is hardly worth following. Indeed, the numbers will most likely worsen as employment plays catch up to the rest of the economy.
What to expect? We are not looking for explosive moves given the mid-week hiatus and the proximity to earnings. There is no real reason for traders or institutions to get too active as they wait for earnings announcements to start as opposed to earnings warnings. Still, that does not mean that the individual stocks in good patterns won't have good days. As we have seen in the past, quiet days are frequently accumulation days for institutions as they buy stocks when most investors are not around. That can mean our breakout plays do just that. It also means that momentum plays can continue on with good momentum (lighter volume exaggerates moves that are underway). Basically, we stick to the same gameplan, looking for opportunities to take positions on stocks that are performing as expected.
Our focus at this point is on a few levels: taking positions on good stocks that are in good patterns that will benefit us down the road, stocks where we anticipate good news (splits), momentum plays (pre-splits), and bounces up from support and breakouts above resistance. In other words, longer term in anticipation of the economic recovery increasing stock values as well as shorter term as we take advantage of the market and stocks as they bounce higher in their ranges. At the same time we are taking advantage of the pullbacks as we are seeing to sell some calls on stock positions in anticipation of buying them back at a lower cost and pocketing the net gain. BORL is doing that as is ROOM and QTRN, other stocks we have had on the reports: big moves up on the breakout, then the profit taking on light volume that gives us the call sale opportunity. Making money on the pullbacks. That puts your money to work harder for you.
Support and Resistance Levels
Nasdaq: Closed at 2140.80.
Resistance: 2160 to 2200. Then 2250.
Support: Looking for 2100 to hold, though 2140 (the 50 day MVA) provided some support Tuesday. If selling starts anew, 1990.
S&P 500: Closed at 1234.45.
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 10,571.11.
Resistance: The 200 day MVA stopped the index yet again (10,595.50). Still resistance at 10,700 and again it is not really clear up to 10,800. 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
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): +2.5% actual versus 1.5% expected and -3.4% prior (revised from -3.0%).
7-5-01
Initial Claims, 6/30 (8:30): 393K versus 388K prior.
Auto Sales, June (0:00): 6.4M versus 6.4M prior.
Truck Sales, June (0:00): 7.1M versus 7.2M 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: A recent comment you made really got my attention. You said, "We see lots of stocks starting to form up patterns that were not doing much until recently. Would you mind sharing with us what some of these stocks are and what improvement you see in their patterns? You make more clear sense than anyone else I read. Keep up the good work!
A: Thanks for the compliment. We are seeing some of the stocks that are still coming across with decent sales and revenues (though down in the economic slump), leading the pack. And some of these former leaders are showing signs of life. Some are still deep in the bases, others are moving higher. What are these stocks? BRCD, SEBL, CTXS, AOL, and ADBE. Those are still low, but showing life. Then there are those that are making real moves off of the lows: PDLI, NVLS, and KLAC. Then look at the stocks in ranges: ALTR, AMAT, QCOM. These are easily recognizable names, and they have been hammered. There is signs of life there, but are they the best bets right now? They are riskier because they have so much overhead; they could get dumped on at any time when things turn even temporarily sour. You have to know the range on these stocks, know resistance points, and be ready to take gains and wait for the next opportunity until that pattern really forms up.
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
Good Investing!
Jon L. 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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