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us stock market, understanding the stock market
Begin part 2 of 3
THIS WEEK
Monday is a market holiday. A market often shows its stripes ahead of a holiday weekend. If there is concern it will close off its highs or close negative as short term investors close out positions to limit exposure. If it rallies hard in the face of a long weekend, it is a sign of confidence to maintain positions and even add to them as the holiday approaches.
Friday was also an expiration Friday, and how a market closes on expiration is often taken back some the following session(s). The expiration magnifies the trend as positions opposite it are rolled over or closed. When the fuel from the expiration is over, the market tends to revert more to the norm and that means taking back some of the expiration induced action. That could also set up some pullbacks from the late week breakouts, choice buying opportunities.
What fuel is there from here? Little in the way of economic reports this week, but earnings will be kicking into high gear the next two weeks. We have discussed the past week how in an uptrend or recovery the first wave of solid earnings reports are met with buying, but then later reports fail to produce upside and the market even pulls back. This season started rough (e.g., INTC), but some other key names have come through big (IBM, GE, JNPR). That has sparked this new jump higher. Even if earnings continue to surpass expectations, however, that expectation will be built in quickly and the later results will most likely be met with some selling. That is the typical pattern, but we are quick to note that it is not a major selloff we are talking about. When the uptrend is solid the underpinnings for a continued move higher are there; the market needs to pullback to consolidate gains even as it moves higher.
NASDAQ started a good break higher after its first post-breakout consolidation. That opens the door for more upside as it continues its trend higher even as earnings barrage the market. That should help drive our current positions closer to their targets where we will continue to lock in gains in anticipation of the next pullback. We continue to also take partial gains and let the rest run higher; we have many positions where we have already taken some gain and are letting them work higher. After this new leg starts showing signs of peaking we can decide if we want to close out more (with options, for certain) or let them pullback and add to positions when they test support and start back up.
There are also many stocks still in excellent patterns that are or are ready to breakout. While we view a pullback coming in a couple of weeks to test the earnings run, many can still breakout and run well and give us a nice 'cushion' for a pullback where we can decide if we want to add to the positions.
Support and Resistance
NASDAQ: Closed at 2140.46
Resistance: First upper channel line at 2140. 2200 then 2300 represent tops from Q2 2001.
Support: 2115 acted as slight resistance as NASDAQ consolidated. The second peak in the December 2001/January 2002 double top (2100). The lower peak in the January 2002 double top (2044). The 10 day MVA and the 18 day MVA (2090, 2058). The March/August up trendline (2050).
S&P 500: Closed at 1139.83
Resistance: 1150 to 1175, the early 2002 double top.
Support: The 10 day MVA and the 18 day MVA (1122, 1113). 1106 is a May 2002 top. 1100 represents some early 2001 lows. The former upper channel line at 1089. The 50 day MVA (1085).
Dow: Closed at 10,600.51
Resistance: 10,580 (upper channel line) is still pulling on the index. 10,620 (March 2002 peak) starts the swath of overhead supply that runs up to 11,000.
Support: The 10 and 18 day MVA (10,507 and 10,431). 10,353 from May 2002 high. 10,285 the March 2003 up trendline. The exponential 50 day MVA (10,160).
Economic Calendar
1-21-04
Housing starts, December (8:30): 1.983M expected, 2.07M November
Building permits, December (8:30): 1.86M expected, 1.863M November
1-22-04
Initial jobless claims (8:30): 340K expected, 343K prior.
Leading economic indicators, December (10:00): 0.2% expected, 0.3% prior.
SUBSCRIBER QUESTIONS
Q: Thanks for the GREAT Alerts & Newsletter commentary. I am now much wiser and MUCH richer too. Keep up the great work. On many occasions, you include the comments "Doji may indicate a change in the pattern." Many times I have a hard time understanding whether you mean that the new direction will be up or down. The reason I am confused is that for example we are in a LONG play and the stock has come back (say 4%) to test the breakout and now a DOJI occurs on high volume. Now does that mean that the change in direction will be up or down?
A: Congratulations on your success. We strive to provide the best investment, trading, financial and economic data, but it is up to the investor to act and take advantage of the opportunity. Great job. Also, great question. When the market is in an overall uptrend, and particularly the stock we are playing, we like to let part of our position on stocks that are making a strong surge continue to run even after they've hit the initial target. Most stocks will follow the market, so if there is a strong uptrend we are more confident with that strategy. Once a stock makes the move we want and hits its target price, taking half of the position off the table and letting the rest run can make the most out of a strong move while already locking in some nice profit. We can then look for the next entry point for the stock if it remains strong and is proving to be in a longer term uptrend. That way we have protected some nice gain and are already ahead when a leader shows us it is ready for the next run. Why look elsewhere if it can make us more good money in a timely fashion (i.e., compared to other strong stocks it is a good place to have our money)?
We issue alerts on stocks that have reached target, and will note at that time if we are leaving part of the position, stock or options, to continue to work in the uptrend. We'll also let you know in the continuing watchlist. We really have to see how the stock is moving when it hits the buy point, e.g. the volume, whether it is a new breakout higher, etc. For your own decisions look at whether the move is peaking after a ballistic shot higher or if it hits the target after a consolidation and blasts higher on a new breakout. The former would indicate taking the position off the table if the stock could fall a long way to near support and give back much of the gain. In the latter we would let it run even more before taking some gain, but would look at taking a partial position when the run was slowing, letting the strong trend work for us.
Another consideration has to do with timing. If we are using options we always have to consider the time decay for options we have purchased. Can we let it drop again and make a test of the move and rally back without losing time value? If we are getting within 60 days of expiration we tend to close it out. If there is plenty of time and there looks to be plenty of upside ahead, we can take half the gain and let the rest work for us, but we still have to be careful not to let it fall too far back given the limited time we have on option positions.
THE PLAYS
In each report we prepare full write-ups for those that look ready to move. If the move has been made already we discuss the play in the summary table. The purpose is to focus on the next good movers. New pre-announcement plays are found in that section.
Good moves Friday: ATYT; CYBX; ERES; SPIL; SYK; TTMI; ZMH
NEW PLAYS: This section includes new plays from all sections other than pre-announcements.
New Pre-Split:
Play Date: 01/17/2004
WGO (Winnebago--$71.9; +2; optionable): Motor homes. Splits 2:1 on 3-8-04
http://biz.yahoo.com/p/w/wgo.html
STATUS: Flying plateau. WGO surged from the 50 day MVA (63.26) in mid-November to end the year at 70. The past three weeks it has moved laterally in a very tight range, consolidating that move. When a stock holds its gains in such a manner as it takes a breather, that is a sign of its strength. That strength shows up in the accumulation during that lateral move: 3 to 0 (3 up weeks on rising volume to 0 down weeks on rising volume). Wednesday after the close it announced its split, and in a delayed reaction it started higher Friday on much stronger, above average volume, starting the breakout from its pattern. Very strong and looking to move in on a continued move. We are playing options on this one given the price.
Volume: 398.6K Avg Volume: 270.405K
BUY POINT: $72.06 Volume=325K Target=$79 Stop=$69.72
POSITION: WGO DN - Apr. $70c (60 delta)
http://www.investmenthouse.com/cs/wgo.html
Leadership stocks: Maybe not ready for a split, but setting up well for an upside move.
Play Date: 01/17/2004
BRLI (Bio-Reference Labs--$18.01; +0.25; no options): Medical labs
http://biz.yahoo.com/p/b/brli.html
STATUS: Reverse head and shoulders. After a solid run from 6 to 18 and a new high, BRLI has formed the current 10 week base to consolidate that move. Solid 4 to 2 accumulation shows the stock is being bought even as it pulls back and consolidates. It is currently forming the right shoulder of the pattern, and on a strong volume break higher through the neckline we will look to enter.
Volume: 356.495K Avg Volume: 371.819K
BUY POINT: $19.32 Volume=558K Target=$23 Stop=$17.97
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/cs/brli.html
Play Date: 01/17/2004
BRNC (Braun Consulting--$3.15; +0.16; no options): Sales, marketing, customer service, etc. business solutions
http://biz.yahoo.com/p/b/brnc.html
STATUS: Ascending triangle. BRNC broke sharply higher in early June and rallied up the 50 day MVA (2.74) to 3. After that solid move it turned into the current 9 week base holding above the 18 day MVA (2.94) and a constant top at 3.15. Volume has been surging the past two weeks with some big volume spikes. Accumulation is is excellent at 4 to 0 and money flow is surging ahead of price. A good move Friday toward a breakout, and we are looking for continued strong volume on the next move. Breakouts from these patterns can be explosive, and we want to be ready.
Volume: 156.634K Avg Volume: 58.936K
BUY POINT: $3.24 Volume=112K Target=$4.21 Stop=$2.97
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/cs/brnc.html
Continuing Leader Plays:
Play Date: 01/02/2004
CHU (China Unicom--$11.23; +0.06; optionable): Chinese wireless communications
http://biz.yahoo.com/p/c/chu.html
STATUS: Testing the breakout. After a big breakout and gap higher that we were able to participate in on our earlier positions, CHU is ocming back to test the breakout from the 10 week double bottom with handle base. It is not giving much back, holding the gap and above the 10 day MVA (10.95). It has tapped at that level on the intraday lows the past two sessions and rebounded on stronger, above average volume. That rising volume over support and the dojis indicate that the pullback may be over. We want to be ready for the next move to add positions; new positions can be taken on that move as well.
Volume: 1.013M Avg Volume: 975.137K
BUY POINT: New: $11.38 (orig. $10.02) Volume=880K Target=New positions: $13.65 (orig. positions: $12.25) Stop=$10.94
POSITION: CHU DB - Apr. $10c (59 delta) &/or Stock
http://www.investmenthouse.com/cs/chu.html
Play Date: 01/15/2004
DFIB (Cardiac Science--$4.42; -0.03; no options): Medical appliances
http://biz.yahoo.com/p/d/dfib.html
STATUS: Cup w/handle. Still in the handle of the 15 week base showing solid 4 to 2 accumulation (4 up price weeks on rising volume to 2 down price weeks on rising volume), showing a doji just over the 10 day MVA (10.40). That along with the strong volume Thursday on another doji with tail puts us on alert for the breakout move. Money flow is excellent, still running up even as the stock pulls back to form the handle. Looks ready.
Volume: 735.649K Avg Volume: 860.879K
BUY POINT: $4.83 Volume=1.2M Target=$5.85 Stop=$4.49
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/cs/dfib.html
Play Date: 01/15/2004
PWAV (Powerwave Technologies--$10.26; +0.53; optionable): Telecom equipment
http://biz.yahoo.com/p/p/pwav.html
STATUS: Cup w/handle. PWAV was on the move Friday on some pretty decent trade. It hit the buy point but was peeling back late. It was one of those moves that was good enough but then faded at the close. With the holiday and the fact it was expiration Friday, we decided to wait. Still solid in the 18 week base sporting solid 5 to 3 accumulation and money flow that is surging ahead of price. Looks ready. Earnings January 22.
Volume: 4.62M Avg Volume: 3.358M
BUY POINT: $10.42 Volume=4.9M Target=$12.54 Stop=$9.69
POSITION: VFQ EB - May $10c (51 delta) &/or Stock
http://www.investmenthouse.com/cs/pwav.html
Play Date: 01/14/2004
SYKE (Sykes Enterprises--$9.72; +0.13; optionable): Information technology software
http://biz.yahoo.com/p/s/syke.html
STATUS: Cup w/handle. Well, almost. SYKE looks to be forming a handle to its 10 week base, moving laterally Thursday and Friday on very low, below average volume. Positive 2 to 1 accumulation in the base along with surging money flow that is still running sharply higher than price. This 10 week base is actually the handle to a much larger 21 month cup with handle base. The current base formed at the 50 day MVA (8.75), a good sign of institutional support. Now we are patient, waiting for it to move laterally and then break higher on strong volume.
Volume: 129.071K Avg Volume: 196.825K
BUY POINT: $9.88 Volume=285K Target=$11.85 Stop=$9.19
POSITION: YKQ CB - Mar. $10c (47 delta) &/or Stock
http://www.investmenthouse.com/cs/syke.html
PRE-ANNOUNCEMENT PLAYS
Current Pre-Announcement Plays: We will to look at the stocks in the best patterns for entry points moving into the potential split announcements. We are researching the next date on those that did not announce but are still very strong. Some companies are still gun-shy about announcing splits, but one of the things we love about split plays is that they involve market leaders that make us good money even if they do not announce.
ACV: January 1-22-04 before the open. The annual shareholder meeting is on the same date.
APOL: Forecast 3-24-04 or with the 2-27-04 board meeting. Neither confirmed yet.
BCR: Forecast 1-27-04. Surging still on volume.
DE: Forecast 2-14-04.
DCOM: 1-22-04 after the close. Testing the 18 day MVA.
DNA: Forecast 1-14-04. No split but still moving higher.
GGG: Forecast 1-22-04.
LEA: Forecast 1-26-04
LXK: Forecast 1-26-04 before the open.
MBG: Researching new date.
MBT: Researching date.
MGAM: Forecast 1-28-04 before the open.
NSIT: Forecast 1-30-04.
OSI: Forecast 2-11-04. Forming a new base with the bottom at the 50 day MVA.
RESP: Forecast 1-22-04 before the open. Imploded Friday.
SHFL: Forecast 2-19-04 with earnings. Still testing the breakout, still over the 18 day MVA.
SONC: Forecast 1-24-04 in conjunction with its shareholder meeting.
SOV: Forecast 1-20-04 with earnings.
UOPX: Forecast 3-24-03 with earnings.
VAR: Forecast 1-28-04 after the close or 2-19 in conjunction with its shareholder meeting.
VIP: Forecast 3-26-04.
VRTS: Forecast 1-28-04 after the close.
WFMI: Forecast 2-11-04.
XTO: Forecast 2-18-04 in conjunction with earnings.
We are putting full write-ups of those pre-announcement stocks that are ready to make moves. As the other pre-announcement candidates reach new buy points we will put them on as well. We want to keep the report focused on those stocks ready to make moves.
New Pre-Announcement Plays:
Play Date: 01/17/2004
GILD (Gilead Sciences--$63.39; +1.44; optionable): Forecast to announce a split on 1-29-04 in conjunction with earnings.
BACKGROUND: Last announced a 2 for 1 split on 1-30-02 in conjunction with a board meeting. The stock price was $65.42. The annual shareholder meeting was on 5-21-03 at which time no additional shares were authorized. The company has sufficient shares for a 2 for 1 split.
http://biz.yahoo.com/p/g/gild.html
STATUS: Reverse head and shoulder. GILD is trying to make the breakout from its 15 week pattern that is part of a larger 6 month cup base. The reverse head and shoulders pattern is an accumulation pattern, and it held over the 200 day MVA (56.75) on the lows in the base, a sign of big money support. Looking for a strong breakout over 64 to break it out of this part of the pattern to start positions.
Volume: 3.433M Avg Volume: 3.858M
BUY POINT: $64.12 Volume=5M Target=$73.75 Stop=$63
POSITION: GDQ EM - May $65c (47 delta) &/or Stock
http://www.investmenthouse.com/cs/gild.html
Play Date: 01/17/2004
IRM (Iron Mountain--$41.4; +0.1; optionable): Document storage. Forecast to announce a split on 2-27-04 in conjunction with earnings. This date has not been confirmed, but based upon our research this is the date for the release.
BACKGROUND: Last announced a 3 for 2 split on 12-6-01 at a stock price of $45.58. The annual shareholder meeting was on 5-22-03 at which time no additional shares were authorized, but company has sufficient shares for a 3 for 2 split.
http://biz.yahoo.com/p/i/irm.html
STATUS: Testing the breakout. IRM exploded out of an 8 month base to start the year, and is making a very nice test of that move, tapping toward the 18 day MVA (40.92) on very low, below average volume. The accumulation in base is a solid 8 to 4, setting up a good breakout and foundation for a good run. This first test of strong breakout from a solid base, an excellent time to move into a position. We want to see volume jump back up as it does.
Volume: 171.3K Avg Volume: 327.98K
BUY POINT: $42.22 Volume=492K Target=$50.72 Stop=$41.25
POSITION: IRM GH - July $40c (65 delta) &/or Stock
http://www.investmenthouse.com/cs/irm.html
Continuing Pre-Announcement Plays:
Play Date: 12/20/2003
GGG (Graco--$39.96; +0.06; optionable): Fluid control for a wide range of products including toys. Forecast to announce a split on 1-22-04 after the close in conjunction with earnings.
BACKGROUND: Last announced a 3 for 2 split on 5/6/03 at a stock price of $43.20
http://biz.yahoo.com/p/g/ggg.html
STATUS: Flat base. GGG jumped higher in mid-December, gapping to 40. It has basically moved laterally the past 4 weeks at 40 on mostly below average volume. It has been a long lateral consolidation ahead of earnings next Thursday. If it makes the move ahead of time that is okay; if it makes the move after earnings, that is okay as well.
Volume: 61.3K Avg Volume: 127.796K
BUY POINT: $40.55 Volume=200K Target=$48.75 Stop=$39.42
POSITION: GGG EH - May $40c (56 delta) &/or Stock
http://www.investmenthouse.com/cs/ggg.html
Play Date: 01/03/2004
MBT (Mobile Telesys--$87.10; +0.60; optionable): Russian wireless communications
BACKGROUND: No splits in its past, and a foreign stock as well. That does not mean it won't split, but it is harder to predict. What we do like is the pattern and its leadership status; it can make us nice gains without announcing a split, and when it comes, all the better.
http://biz.yahoo.com/p/m/mbt.html
STATUS: Testing the breakout. MBT continues the breakout test, basically forming a handle the past two weeks to its 12 week flat base. It has come back to test the 18 day MVA (84.67) on the intraday low last week, a good place to hold. Excellent 4 to 1 accmulation in the base. Just waiting for another strong volume move higher.
Volume: 170.3K Avg Volume: 261.77K
BUY POINT: Aggressive: 87.42 (orig. $88.39) Volume=412K Target=$99.95 Stop=$84.55
POSITION: MBT FQ - June $85c (54 delta) &/or Stock
http://www.investmenthouse.com/cs/mbt.html
Play Date: 01/10/2004
SONC (Sonic Corp.--$33.56; -0.16; optionable): Forecast to announce a split January 24 in conjunction with its annual shareholder meeting at 1:30 p.m. CT.
BACKGROUND: SONC last announced a 3:2 split 1-17-02 at its annual shareholder meeting with a stock price of $36.30. A frequent splitter announce roughly every 2 years.
http://biz.yahoo.com/p/s/sonc.html
STATUS: Testing the breakout. Heading into the shareholder meeting this week SONC is looking solid. It broke out to start the year and has spent the past week testing the move, pulling back to the 10 day MVA (33.27) on much lower, below average volume. An excellent test from the breakout from its 7 month cup with handle. Looks ready to start the move.
Volume: 178.781K Avg Volume: 350.896K
BUY POINT: $34.22. Volume=562K Target=$39.15 Stop=$32.68
POSITION: ZSQ FF - June $30c (80 delta) &/or Stock
http://www.investmenthouse.com/cs/sonc.html
End part 2 of 3
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us stock market
understanding the stock market
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