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Begin Part 2 of 2
THIS WEEK
The big economic stories this week will be retail sales and Michigan sentiment on Friday. That gives us a whole week to start hearing earnings and more warnings to get additional selling out of the system to prepare for another move higher when improving economic news continues to hit. Again, it won't be better with each report, but the trend for all economic reports will be improvement.
Based on a historical view of the market, we still feel that we are at the turning point in the economy and the market. We have been buying stock for longer term as they move up in good patterns. That does not relieve us from exercising stop loss rules, and we had to do some of that on Friday with some positions we purchased earlier. Still, we will continue to take positions on breakouts, but we are going to remain selective. We are also going to take profits on the first run of a breakout if it starts to falter, locking in the gain. If it successfully tests the breakout and starts up, we will buy in again for the post-test run.
Once we get a high-volume reversal and subsequent follow through, we will let the positions run more. One good thing we have going for us at this point: still a lot of stocks in good patterns that are just awaiting a move back up. Serious selling could wreck some of those patterns, but unless we get a full-fledged test of the prior lows, many of the patterns will hold up just fine on some further market selling. Friday was unusual as most sectors suffered; we don't think that will continue on a daily basis if there is more selling as some sectors will be singled out for selling while money rotates into other sectors.
After Friday we still see many good sectors to the upside, and there are plays to the downside. As for downside plays, we are focusing on those that are set up properly, i.e., have broken support, tested it with a low volume rise, and are now ready to fall again. Those have the best likelihood of continuing their fall and are less susceptible to the inevitable reflex bounce after serious selling. Remember that the Nasdaq is two days ahead of the Dow and S&P on the selling, and it may be ready to bounce sooner, perhaps from the 1970 level. We need to be careful of that on further selling early in the week.
Support and Resistance Levels
Nasdaq: Closed at 2080.11.
Resistance: 2160 to 2200. Then 2250.
Support: 2100 did not try to hold. That puts us looking at 1990 (1973 on the low side), roughly where the index gapped higher in April and where it most recently turned.
S&P 500: Closed at 1219.24.
Resistance: 1240 to 1250.
Support: 1200 is where we would like to see it hold. Head and shoulders bottom and the breakout support from the double bottom pattern is right at 1182.
Dow: Closed at 10,479.86.
Resistance: 10,600 (the 200 day MVA is at 10,593.85). Still resistance at 10,700 and again it is not really clear up to 10,800. 11,000 is possible resistance after that.
Support: 10,400. Then 10,200 to 10,250.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
7-9-01
Consumer Credit, May (15:00): $9.4B versus $13.9B prior.
7-10-01
Wholesale Inventories, May (10:00): 0.0% versus 0.3% prior.
7-12-01
Initial Claims, 7/7 (8:30): 391K versus 399K prior.
Export Prices ex-ag., June (8:30): -0.3% versus -0.3% prior.
Import Prices ex-oil, June (8:30): -0.2% versus -0.2% prior.
7-13-01
PPI, June (8:30): -0.1% versus 0.1% prior.
Core PPI, June (8:30): 0.1% versus 0.2% prior.
Retail Sales, June (8:30): 0.2% versus 0.1% prior.
Retail Sales ex-auto, June (8:30): 0.2% versus 0.3% prior.
Michigan Sentiment-Prel., July (9:45): 93.0 versus 92.6 prior.
SUBSCRIBER QUESTIONS
Q: I am a new subscriber and I see a great deal of information but no explanation of what are and how to use stop protection levels.
A: This is a frequent question, and we would refer anyone to the FAQ's on the Investment House home page. Basically, we have a 7% rule on new purchases where we will sell any new purchase if it drops below 7%. This is not an uncommon rule among many successful investors. That way you never let a play that is not working out turn into a big loss. We attempt to list a stop position on each play in each newsletter for that particular entry point that we are looking at. Many times we like to use a stop point just below a support level such as a breakout point, moving average, or trendline. That way if the support is broken, we know the character of the investment has changed, and we are moved to action. The protection of the support is gone, and that should get our attention. Again, we list stop points on each entry point.
After that, we use trailing stops as the position moves higher, particularly in a choppy market where we want to maintain profit that can evaporate on us if the market take a sudden, unwanted turn the other way. Setting these is much more difficult as it is more a question of individual investor comfort with where to place the trailing stop. Usually what we do is let a stock make its first run, and when it starts to show signs it is topping we will slide a stop loss in at a point that will protect the gain we have, willing to sell out at that point rather than ride it down. Also, as discussed on Thursday, we will also at times sell a call at that point if we feel good about the stock holding at support on a test of the breakout. We recently described that with BORL. Friday BORL sold down more, but then finished the day higher; if the Nasdaq catches itself at this level, BORL is primed (as are many stocks testing their breakouts) for another move higher. When the market gets choppy, we prefer to put in stops or just sell when a stock shows topping signs (doji after a good run, moving higher on lower volume, a close well off the high on lower or very high volume). Bank some profit and catch it on the move back up. Better to pick the fruit and put it in the basket than take the chance that it falls and rots.
THE PLAYS:
Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information.
Subscriber's Choice:
MNC (Monaco Coach--$28.95; -0.03; optionable (MNC): Automotive
http://biz.yahoo.com/p/m/mnc.html
STATUS: This stock has been uptrending since mid-2000, really gaining steam since May, powering up into a strong breakout that took the stock to a high of 33.20. Since that time, the stock pulled back on lower volume, testing just above the 18 day MVA (27.41) on the low of 27.82. Volume remains high despite the lower numbers (162,100; avg. 88,000), but the stock closed above the 10 day MVA (28.76) showing a tight doji as volume decreased. Look for a move back up after this test of the breakout; we'd like to see a hold at the 10 day MVA, but if volume continues to drop back, the stock may again test the 28 range (there is other price support from June at that level). Target on a move back over the high: $40. MNC shows good money flow and buying.
BUY POINT: Aggressive: 30, on rising volume. Stop: 27.90 (18 day MVA, 27.41).
POSITION: Stock and/or October $22.50 or $25 calls to buy (MNC JX or JE; low open interests).
http://www.investmenthouse.com/cd/mnc.html
Best Plays:
1) MNC: Looks ready to resume its move.
2) QTRN: Moving up after testing the breakout.
3) COO: Looks like a successful test.
4) HI: Still looks great in its pattern!
Updated:
QTRN (Quintiles Transnational--$24.60; +0.62; optionable (QRT): Diversified Services
http://biz.yahoo.com/p/q/qtrn.html
STATUS: After the great breakout a week ago, the stock pulled back and tested the 18 day MVA on Friday (tapping near that support on the low of 23.40 (the buy point was 23.58), then headed up on good volume (1.8 million; avg. 1.35 million). We are looking for a continued move up in this test of the breakout, for the stock to beat the breakout high of 26.05. Money flow and buying are very strong, and relative strength has broken out ahead of price. Target: $32.
BUY POINT: New high: 26.18 on continued rising volume. Stop: 24.35 (10 day MVA, 23.95).
POSITION: Stock and/or October $22.50 calls to buy (QRT JX).
http://www.investmenthouse.com/cd/qtrn.html
COO (Cooper Cos.--$49.40; +1.45; optionable): Medical Instruments
http://biz.yahoo.com/p/c/coo.html
STATUS: COO broke out 7 sessions ago and moved back on a lower volume test of the breakout. Thursday the stock closed right at the 18 day MVA, and Friday it jumped higher on a volume surge (286,600; average is 145,000), reaching 51 on the high before pulling back to close. Talk of a takeover candidate, but a strong pattern regardless. Relative strength is all ready to breakout again even at this price that is below the breakout high of 51.40.
BUY POINT: 49.75 on continued strong volume (200,000). Safer: 51.50 on 200,000 shares.
POSITION: Stock and/or November $45 calls to buy (COO KI).
http://www.investmenthouse.com/cd/coo.html
THE PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that are looking as if they are ready to pick up a few shares. We are "weeding" the portfolios this weekend.
THE LEADERS: We have revamped this portfolio, dropping for now CPN, SGR, NATI and BRKS. Those stocks have, for the most part, dropped off and need to form bases or do some more work in ones already existing. To the New Leader section we are adding DGX, EBAY, FRX, PSFT, ADVS, and BMET. In the Previous Leader section, VRSN, VRTS, ADBE and SEBL are retained. Ones dropped include AMCC, ARBA, BEAS, BRCD, CIEN, EMC, EXTR, GLW, JNPR, NEWP, NTAP, PMCS and SCMR. All of these stocks will be kept on watch in context with improvement in their sectors and the market.
New Leaders: ESRX, LLL, ACS, NVDA, DGX, EBAY, FRX, PSFT, ADVS, BMET. We were stopped out of NVDA last week, and LLL. We are being very careful with ACS as it tests its 50 day MVA from the bottom side and PSFT as it tests the same level from the top. BMET is on the bubble; if it cannot get back over the 50 day MVA early this week, we will have to exit. Still waiting for ADVS to give us an entry point.
Previous Leaders we are still interested in: ADBE, SEBL, VRSN, VRTS
No reports on stocks in this portfolio this weekend.
UP & COMERS PORTFOLIOS: We have revamped the Up & Comers portfolio, and are dropping EXDS, TQNT, BVSN, SANM, PKI and GMST for now, adding BBBY, IGT, RCII, CHS, KG and AEOS.
LNCR, BJ, ANF, LOW, HI, THQI, BBBY, IGT, RCII, CHS, KG, AEOS. LOW knifed through the 50 and 200 day MVA Friday on higher volume; it has to recover fast or we sell. BBBY is testing its 50 day MVA once again; it is having trouble clearing and moving on away from that level. ANF fell hard to that level on Friday, but volume was still below average; watching closely. IGT was hit with the HET news; if it cannot jump back over the 50 day MVA, we are out. CHS rallied to test its breach of the 50 day MVA and then started to roll over three sessions ago; it was time to leave. AEOS is another that broke the 50 day MVA Friday; it too needs to recover fast, though it has support at 34.
HI (Household Internat--$66.54; -0.41; optionable (HI): Credit Services
http://biz.yahoo.com/p/h/hi.html
STATUS: Still looks good in the ascending wedge it formed at the bottom of the recent base (of 7 weeks; previous basing high is 69.98). The stock is using the 18 day MVA as support (66) as the pattern squeezes into the tail this last week, and Friday the low tested the moving average again. Volume was down again at 1.19 million (avg. 1.7 million). Upper resistance is at the June high of 67.45, and we are looking for a breakout that will allow the stock to complete this cup/saucer base. The stock is showing strong money flow and buying. Relative strength has broken out, too, and that is bullish. Target: $78.
BUY POINT: Breakout from the ascending wedge: Over 67.58, on volume in
the range of 2.3 million. Stop: 62.73. New high: Over 70 (69.98 is the May high) on similar volume. Stop: 65.10 (65.03, 50 day MVA).
POSITION: Ascending wedge breakout: Stock and/or October $60 calls to buy (HI JL). New high: Stock and/or October $60 or $65 calls to buy (HI JL or JM). Delta is 0.627 currently on the $65 strike, but that can improve to 0.75 or better as the stock approaches the high near 70.
BBBY (Bed Bath & Beyond--$29.40; optionable (BHQ): Retail
http://biz.yahoo.com/p/b/bbby.html
STATUS: Fell back to the 50 day MVA to close the week, but volume was still well below average (1.79 million; avg. 3.37 million) as it was all week. The stock is in a flat base, bouncing between 29 and 32 (the June high is at 32.61). Looking for a bounce back from here on strong volume for a short term trade to 32 level. Volume was a hair higher Friday, and the stock closed one cent above the 50 day MVA, so it is hanging on by a thread here. As noted above, BBBY is hanging around the 50 day MVA too much here, and that is why we are looking at this as a move to 32, take some profits, and see what happens. If we then get the breakout, we will move back in with more positions. The current pattern formed after BBBY broke out from another wedging-type pattern mid-May. Initial target: $37.
BUY POINT: Bounce: 29.75 on rising volume. Breakout: 32.74, on volume in the range of 4 million. Stop: 30.45
POSITION: Stock and/or August $27.50 calls to buy (BHQ HY).
http://www.investmenthouse.com/cd/bbby.html
MEMBER PORTFOLIO: BRCM, CHKP, CSCO, EMLX, IDTI, INTC, JDSU, MVSN, NT, PWER, SUNW, VTSS
Still tabulating the survey, so if you have any further stocks you want covered, send them in! Let us know with an email, and we will compile the stocks with the most suggestions! Thanks to those who have already sent in picks we really appreciate it! We will begin tallying the returns next week.
BRCM dropped back to the 50 day MVA as expected, and on slightly strong volume just cut through it, though only slightly. That showed more strength than many techs Friday.
http://www.investmenthouse.com/cd/brcm.html
MVSN (Macrovision--$66.00; -2.75; optionable (MVU): Media
http://biz.yahoo.com/p/m/mvsn.html
STATUS: The stock has made a fine recovery, and we have been waiting for an entry point. MVSN is now pulling back in the handle of a 6-month cup base it carved out, the pullback coming after a sturdy breakout from an ranging pattern set up over the last 2 months. Friday the stock dropped back on lower volume (still strong at 694,200; avg. 644,090), heading for the 10 day MVA (65.27). We will watch for it to hold there; price support from early in the base (and last fall) at the 65 range will reinforce the 10 day MVA. This cup with handle base is part of a 10-month base off the September 2000 highs at 108. Shows huge money flow.
BUY POINT: Aggressive (off a bounce from the 10 day MVA or 65): 66.13, on rising volume. Stop: 61.50 (200 day MVA, 59.62). Breakout: 71.62, on volume of 966,000 or better. Stop: 66.61.
POSITION: Aggressive: Stock and/or October $60 calls to buy (MVU JL). Breakout: Stock and/or October $70 calls to buy (MVU JN).
http://www.investmenthouse.com/cd/mvsn.html
Good Investing!
Jon L. Johnson and The Daily 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.
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yahoo stock
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