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7/9/01 Stock Split Report Market Summary
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PLAYS TO LOOK AT: BMET announced its split, as forecast!!

BONUS PLAYS:

FNM (Fannie Mae--$85.51; +0.51; optionable): Mortgage Investment.
http://biz.yahoo.com/p/f/fnm.html
STATUS: The stock has formed a cup with handle since the beginning of the year, and is currently moving in the handle, holding support over its 18 day MVA (84.51). Today the stock made a move up from that level, moving on sharply higher volume of 3.08 million (average 3.16 million). Handle high is 87.87. Strong relative strength and money flow. Target on breakout: 100.
BUY POINT: Aggressive: Over 86.29 on increased volume. Breakout: 88 on volume of 4.6 million.
POSITION: Aggressive: Stock and/or September $80 calls to buy (FNM IP). Breakout: September $85 calls to buy (FNM IQ). Stop: 81.84 (50 day MVA at 82.40).
mktss|Pivot=88 cup with handle Tgt Vol=4.6M Tgt $=100 Stop=81.84

SLVN (Sylvan Learning--$25.12; +1.72; optionable): Education services.
http://biz.yahoo.com/p/s/slvn.html
STATUS: Broke from a cup in late June, and after hitting a high of 25.58 the stock has pulled back to test the former highs in that cup pattern. It held its short-term MVA's (18 day at 22.77), making a strong move back up today (volume up to 484,100; average 367,500). Looking for a continued strong move over the breakout high. Relative strength has broken out. Target: 28.
BUY POINT: A move over 25.58 on increased volume. Stop: Just under the 10 day MVA (23.65).
POSITION: Stock and/or November $22.50 calls to buy (NQV KX).
mktss Pivot=25.58 breakout high Tgt Vol=484,000+ Tgt $=28 Stop=23.50

PRE-ANNOUNCEMENTS: Also looking at FITB and THQI.

BMET ($44.20; +0.56): Announced a 3:2 stock split today, as forecast! The announcement came before the open, and after gapping down the stock made a $2 pop back up. It closed with a doji just under its 50 day MVA (44.60) with strong volume, so we will be wary of a drop back from here. However, with a stock that has been as strong as BMET, and given its pullback going into the announcement, we could get a delayed reaction move. The stock, as strong stocks often do, has come back to test its 50 day, and we will see if it can hold this range and make a strong move on the strength of the announcement. On a move over the 10 day MVA (45.86) on continued strong volume (up to 2.1 million; average 1.56 million), stock and/or October $40 calls to buy (BIQ JI).

BRO ($42.70; +0.80): Forecast to announce a split on 7-12-01 in conjunction with earnings or on 7-25-01 in conjunction with a board meeting. At this time the company has not confirmed a time for the release of earnings and has not confirmed the date of the board meeting. Moved back up off of its 10 day MVA (41.83), running on sharply higher volume of 47,600 (average 37,000). We will look for the stock to continue upward, forming its saucer pattern, but will watch potential resistance at the May high of 43.29. On a continued strong move over 42.89 (recent high), stock only.

PDII ($83.20; -0.99): Business Services. Wildcard Forecast to announce a split on 7-11-01 with its annual shareholder meeting. After pulling back the stock dropped a bit more today but closed with a doji over the support of its 50 and 200 day MVA's (82.52). Volume dipped to 132,900 (average 177,200), but we will look for a bounce going into the forecast. If we get a solid move up, we can take positions right up to the time of the meeting. On a move over the 10 day MVA (85.77) on increased volume, stock and/or October $80 calls to buy (PKU JQ).

BJ ($54.18; +0.63): Forecast to announce a split on 8-21-01 in conjunction with earnings. At this time the company cannot confirm this date. BJ held its 10 day MVA (53.51), pushing back up from that level as it moves in a small ascending wedge. Looking for a breakout with volume behind it (down to 266,700 today). On a move to 55 on volume of 900,000 (average 667,000), stock and/or September $50 calls to buy (BJ IJ).

KRB ($32.60; +0.12): Forecast to announce a split on 7-10-01 or 7-11-01 in conjunction with earnings; however, the company will not confirm the date and they do not make it public. Looking weak and we have been playing it as a put, looking for a possible move up into earnings. We have not gotten it, and today the stock could only manage a doji on increased volume of 2.64 million (average 2.33 million). It could bounce off of this pattern, but even with an announcement (and it is off of its split range) the stock has substantial resistance to overcome, with the 10 and 18 day MVA's serving as strong recent resistance (at 33.31 and 33.81, respectively). A play only for the very aggressive; on a move up with an announcement, stock and/or September $30 calls to buy (KRB IF).

FISV ($59.94; +1.41): After an abrupt drop from its breakout (from an ascending wedge over a cup with handle) high of 64.63, the stock tested its 50 day MVA (56.94; below the prior breakout point of 59.25). However, after that drop it has been able to put together consecutive strong moves up in a lackluster market, moving today on lower but still strong volume of 1.53 million (average 1.04 million). It is now just under its 10 day MVA (60.09), and on a continued move is a momentum play. On a run back over today's high of 60.30 on increased volume, stock and/or September $55 calls to buy (FTQ IK).

ADVS ($51.12; -3.78): Forecast to announce a split on 7-17-01 after the close in conjunction with earnings. Has suffered quite a drop recently, and today dropped through its 200 day MVA (53.56), from which it bounced last week. Volume on the selling was up at 686,400 (average 562,000), though lower than what we have seen the last couple of weeks. We will see if ADVS tests the 200 day, looking for a bounce back up but then a retreat on increased volume selling, with August $60 puts to buy (UIV TL). Looking at a short-term play, with an initial target of 45 (looking at the forecast next week, but the stock is well below split range).

PRE-SPLITS: Waiting for KG to make a move.

HRB ($67.00; +0.31): Splits 2:1 August 1. Has pulled back into a little consolidation over its 10 day MVA (65.84), testing its breakout from a flat consolidation last week. Looking solid, holding well over support on decreasing, but solid volume (down to 665,200 today; average 547,000). On a move over 67.65 on increased volume, stock and/or October $65 calls to buy (HRB JM).

ING ($66.20; +0.55): Splits 2:1 effective July 13. Bounced back up from support of the 50 day MVA (65.40). We will see if the pre-split momentum can continue, watching the high on the previous run, at 68.13. On a move over 66.65, with stock and/or August $60 calls to buy (but very low open interest).

CONTINUING CANDIDATES: CECO is still moving, and CHBS is still a possible put.

ACF ($54.14; -0.26): ACF is in a small cup with handle, and after a solid move Friday the stock showed a doji today on slightly lower volume (1.06 million, about average). It could be resting before a breakout thrust, or we could see another test of the 10 day MVA (52.71). In either scenario, we are looking for a breakout, so on a move to 55.08 on volume of 1.5 million, stock and/or August $50 calls to buy (ACF HJ).

CBH ($70.00; -0.27): Has formed a small saucer with handle, and has pulled back in the handle to a doji today on its 10 day MVA (70.07). Volume spiked up to 203,200 (average 148,000), so we could see a bounce here. That is the aggressive play, with stock and/or September $65 calls to buy (CBH IM). For a breakout we are looking at a move to 71.83 on volume of 225,000, with stock and/or September $65 calls to buy (CBH IM).
mktss Pivot=71.83 saucer with handle Tgt Vol=225,000 Tgt $=82 Stop=66.80

POST SPLITS: LH and WFMI could be making a move soon, and BAX is still a potential downside play.

GENZ ($58.35; +1.22): Has pulled back to test its recent breakout move, holding the 18 day MVA (56.50) and bouncing back up today on increased volume of 2.92 million (average 2.97 million). Looking for a continued move over 59 on increased volume, with stock and/or October $55 calls to buy.

CAKE ($26.88; -0.02): Is testing its breakout from a double bottom, showing its second consecutive doji over the prior breakout point (26.68) and its 10 day MVA (26.66). Today was a 'star' doji with increased volume (421,000; average 408,000), so we will look for a strong move up from here with increased volume, and stock and/or October $25 calls to buy (CFQ JE).

JNJ ($52.12; +1.71): The stock managed to hold support at its 50 day MVA (50.16) on its recent drop and today managed a strong bounce up from that level. Volume was up at 8.8 million (average 5.3 million), and JNJ closed just below its up trendline connecting March and May-June lows). We will look for a continued strong move, watching for a run over last week's high of 52.59, with increased volume, and stock and/or October $50 calls to buy (JNJ JJ).

* * THE SUMMARY * * *

TONIGHT:
- Selling subsides with an oversold bounce.
- Almost no one seems to think the economy has a chance
- Telecoms keep warning and getting all the press while others affirm and raise targets and get ignored.
- Patience and a cool head go a long way.
- Team Trades

Light volume Monday bounce gives little guidance.

The selling could not hold over the weekend and really drive investors crazy as we wanted. Instead it gave them a reprieve, a chance to catch their breath. When things are selling and are just starting to make investors squeamish, we like to see it go ahead and really put the fear into them with a strong drop. We did not get that today. It was a light volume, oversold bounce that really did not do much of anything except ease up on the fear that was building. In that sense, today was not really good for the market overall; if investors are in a selling mode, lets get it out of the system fast.

Today is exactly what we were talking about over the weekend, and something that did not give us much comfort. We saw a lot of stocks that were roughed up last week move higher, but the moves were mostly on tepid volume and did nothing to break them out of trouble. On the other hand, the stocks that were continuing to hold in good patterns did what they do on days when the market rises after selling off: they moved higher in their patterns, some breaking out, some getting ready to do so.

We will discuss the moves on each index in the 'Market' section, but today's moves higher did not tell much of a story other than the markets were short term sold out and needed to bounce higher. The reflex move was rather timid, unless volume pours in on the buy side, there is not a lot of hope in a sustained move just yet.

Sold out on the bad news and gloom?

Last week the selling was increasing in intensity, but it never came close to the volume hit on the moves up the prior week. Thus, even though it appeared bad from what all the commentators were saying, the volume indicated no heavy institutional dumping of the stocks they just bought a week prior. The indexes continued to get roughed up, but the broader market of stocks tended to hold up decently.

One of the theories we have been arguing back and forth here is whether the market was getting sold out ahead of earnings, i.e., pricing in all of the potential bad news ahead of the event. That would allow for a move higher into the actual earnings when those earnings come in a bit better than the anticipation based on the AMD and EMC warnings. Indeed that could lead to a nice pop upside when the worst fears were not realized. How long it lasts? Remains to be seen if there is some good guidance going forward. If some companies can corroborate what the recent economic numbers are showing us, that could start the next phase of the rally.

Problem with today: it did not tell us a thing other than the action was a weak bounce. As we note later, patience is the key for now.

Economy bad-mouthed again.

About the only one talking up the economy at all is the Secretary of the Treasury, Paul O'Neil. He believes the U.S. will escape a technical definition of a recession and show good growth in the second half; not great growth, but 3% to 4% in Q4. But for Mr. O'Neil, that about does it for those with good things to say. On the tube it was more negative views from the 'reporters' and the analysts. Seems that all of the recent improving and actually good economic news is being discounted as an aberration as the focus is on telecoms and networkers and tech. It is as if those are the only aspects of the economy and that anything outside those areas is doomed by a slowing Europe.

This is not surprising. In 1992 all the media could report was how that recession was the worst one since the Great Depression. That was absolute nonsense; it was not even close. Even as the Secretary of the Treasury at that point was saying that there were 'robins on the lawn,' no one was listening: business leaders, the media, those running for office, and even the kids selling lemonade on the street were moaning about how bad things were and how the U.S. was going down even harder. Of course, in the fourth quarter of 1992 the U.S. enjoyed 4% economic growth, i.e., it was growing even as the major newspapers, magazines, and analysts were saying things were only going to get worse.

As we have pointed out over the last three weeks, the parallels are amazing between then and now. All we needed was the economic downturn to have occurred last spring and summer and we would have had the national elections coincide with the script once again. That is about the only difference. The entire country seems negative on the economy even as there are solid, tangible signs that it is turning back up.

The trick: don't get sucked in by the negative news so much so that you discount solid patterns in solid stocks in solid sectors when they are in front of you. Sure the negative sentiment can drive things down as we saw with the irrational selling ahead of actual earnings just after investors got the good economic news and started pricing in better times ahead. That is why we cannot just buy into the old names and think we are going to be okay. Those stocks get jerked back down when the sentiment turns.

We MUST realize that the negative climate leads to short term ups and downs in the beaten up stocks as they are jerked back and forth by news and sentiment. We HAVE to look at the good patterns further out. We HAVE to employ loss cutting rules if a play does not work out. We HAVE to keep our investment capital intact so we can take advantage of those stocks breaking out of good patterns and giving us good news; that way we can take advantage of the opportunities to maximize our gains WHEN they arise. We have to be able to buy when the time comes. That is why it is critical to stick with good stocks in good patterns and keep realistic stop rules in place. Know the real story so we can be ready, and also know what stocks to buy and what to avoid. That is our goal right now. That takes patience, but the rewards even in a choppy market are there.

End Part 1 of 2

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