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us stock market, top stock pick
Begin part 2 of 3
THIS WEEK
Economic news returns with important Q4 GPD and consumer sentiment being noteworthy. After the debate on just how much the economy slowed from the 8.2% Q3 level, this will be an important number. Earnings will steal a lot of the thunder, however, as the busiest week of the season churns by. The SP500 and DJ30 are still extended at the upper reaches of their channels, in need of a deeper pullback. NASDAQ is already trying to shake off a short pullback; if it does, the others will hang in there though money many continue to find its way into techs from the new accounts as well as rotating from the cyclical indexes.
Even with SP500 and DJ30 struggling with resistance, we continue to find many stocks in good patterns or that are making pullbacks with NASDAQ to near support. That tells you that the entire market is not extended, and as long as rotation continues you can buy into these stocks as they breakout or rebound from breakout tests. If investors turn cold on buying, these patterns will shrivel either without breaking out or attempt a breakout and fail. Thus far the new money has continued to dive the action as it is put to work and as money is shifted from sector to sector. We have seen nothing to indicate that is changing. The DJ30 struggle with its upper channel line and SP500 bumping into 1150 are not foretelling major selloffs, but more of a pullback to take a breather or consolidate a move.
With the patterns we see and NASDAQ's rebound off the lows late in the session we are going to continue to look for and pursue upside positions that are in nice patterns and show strong breakout moves. Money has not left the market, and with expectations of continued solid growth in Q1 and Q2, it is still pricing in that growth. That does not mean we don't' get that mid-earnings season pullback to test support. That is something it has done the last several seasons, and it would be the best thing for the market longer term. That possibility is why we are choosy with the stocks we pick as well as the moves they make. We want to see the volume to show sufficient support for the stock and give us more confidence it can make the breakout and then run for us.
It is always harder to enter positions after a strong run, but the run itself does not guarantee a pullback at a set time. The large cap indexes are showing their wear and that makes us cautious. It does not, however, keep us from participating in upside moves in trends that have yet to be seriously challenged.
Support and Resistance
NASDAQ: Closed at 2123.87
Resistance: First upper channel line at 2168. 2200 then 2300 represent tops from Q2 2001.
Support: 2115 acted as slight resistance as NASDAQ consolidated, but was not very solid support Friday. The 10 day MVA and the 18 day MVA (2112, 2084). The second peak in the December 2001/January 2002 double top (2100). The lower peak in the January 2002 double top (2044). The March/August up trendline (2068).
S&P 500: Closed at 1141.55
Resistance: 1150 to 1175, the late 2001, early 2002 double top.
Support: The 10 day MVA and the 18 day MVA (1135, 1125). 1106 is a May 2002 top. 1100 represents some early 2001 lows. The 50 day MVA (1095). The former upper channel line at 1092.
Dow: Closed at 10,568.29
Resistance: 10,622 (upper channel line) is keeping the index more or less in check. 10,620 (March 2002 peak) starts the swath of overhead supply that runs up to 11,000.
Support: The 10 and 18 day MVA (10,551 and 10,487). 10,353 from May 2002 high. 10,320 the March 2003 up trendline. The exponential 50 day MVA (10,223).
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
1-26-04
Existing home sales, December (10:00): 6.10M expected, 6.06M November.
1-27-04
Consumer confidence, January (10:00): 95.1 expected, 91.3 December
1-28-04
Durable goods orders, December (8:30): 2.0% expected, -2.5% November.
FOMC (2:15): NO change expected.
1-29-04
Employment cost index, Q4 (8:30): 0.95 expected, 1.0% Q3.
Initial jobless claims (8:30): 355K expected, 341K prior.
Help wanted index, December (10:00): 40 expected, 39 November.
1-30-04
GDP (1st), Q4 (8:30): 4.7% expected, 8.2% Q3
GDP chain deflator, Q4 (8:30): 1.3% expected, 1.6% Q3
Michigan sentiment (revised), January (9:45): 102.5 expected, 103.2
Chicago PMI, January (10:00): 61.7 expected, 59.2 December
SUBSCRIBER QUESTIONS
Q: Your reports are something I look forward to every night. Keep up the great work. Please describe how you determine the first and second upper channel lines. If possible could you provide an example chart. A picture tells a thousand words. Many thanks.
A: Upper channel lines tend to be very accurate predictors of pullbacks and bounces during solid uptrends and downtrends. They are plotted to help determine when a stock is ready to pull back after it's been in an uptrend for several weeks or months, making them an important technical analysis tool in designating target prices as well as when an uptrend has begun to run out of steam. We use them to measure whether the stock is climbing ahead of itself and setting up for a sell-off. When used in conjunction with short-term trendlines, we can see if a stock is in a blow-off top. This is when a stock rises 2-3% over the upper channel on extreme volume (usually the highest in the run or in the past year) and gains 50-100% in a short time. This results in a fast and usually deep sell-off. http://www.investmenthouse.com/1questions.htm (search 'blow-off top')
To plot the upper channel line, connect at least three highs as the stock trends upward. The more you connect the better; 2 points can make a line, but the more points, the stronger the line. The line then should slope upward, and run parallel to the up trendline, which connects the stock's lows as it moves higher. As your question suggests, and as we have stated in discussing NASDAQ's chart, there can be more than one upper channel. Sometimes a stock will rise above an established channel on occasion while still moving predominantly in the lower channel. That can create another, higher channel line that is almost a sure sign of a steeper pullback. NASDAQ created its primary (first) upper channel line coming out of the March dip. It formed the line with the May high. In June it jumped over that line, fell back, and then did so again in July. That set off a deeper correction to the up trendline. It again tested the first and second channel in September, but after that has been sticking to tests of the first channel.
As a rule of thumb, as a run gets older the moves higher peak out lower (in this case at the first channel line) because the buying is typically not as intense as it is when the run kicks off. Then, when the run is peaking, you may see another spike of volatility where the stock or index jumps up to the higher channel and sells off rather abruptly. When we see that the odds of a longer correction or consolidation as opposed to just a test of the trendline and a sharp bounce from there. Indeed, if we saw NASDAQ race higher from here and fail at the upper channel, that would be a signal to take some money off the table as a precaution. At a minimum you would most likely get some better entry points on stocks after a quick pullback. More than likely you preserve some good gain, particularly with option plays, as the index tests and then consolidates for a more extended time period.
THE PLAYS
Good movers Friday: IVIL; MANU; SNIC; TSCO
Thursday night play results:
BPOB: Still in an excellent pattern.
MTEX: Gapped higher but closed flat. Still could test 14 and then make its move from there.
SNIC: Nice volume gap higher that tested the move intraday and rebounded.
New Plays for Monday: A lot of good stocks are testing their earlier breakouts.
Play Date: 01/24/2004
ADAT (Authentidate--$16.8; -0.24; optionable): Software for security and imaging
http://biz.yahoo.com/p/a/adat.html
STATUS: Testing the breakout. A nice, orderly test of the breakout 7 sessions back that jumped it out of a 9 week base showing solid 3 to 1 accumulation (3 up price weeks on rising volume to 1 down week on rising volume). That shows buying of the stock even as it consolidated, as well as the fact it held over the 50 day MVA (13.08) as it formed. Excellent money flow is leading it higher, and a relative strength breakout as well indicates its strength.
Volume: 776.869K Avg Volume: 1.048M
BUY POINT: $17.45 Volume=1.2M Target=$21 Stop=$16.18
POSITION: HAU FW - June $17.50c (55 delta) &/or Stock
http://www.investmenthouse.com/cd/adat.html
Play Date: 01/24/2004
BRCM (Broadcom--$39.02; +0.2; optionable): Semiconductor integrated circuits
http://biz.yahoo.com/p/b/brcm.html
STATUS: Testing the breakout. A nice breakout test as BRCM eases back to the 18 day MVA (38.39) on mostly lower volume after a stellar breakout two weeks back. That volume jump blasted BRCM out of a 7 week base sporting excellent 4 to 1 accumulation. Friday the stock tapped the 18 day on the low and rebounded for a modest gain as volume jumped back above average. It has been a picture of strength, and we are watching for a volume rebound over 40 to move in.
Volume: 10.11M Avg Volume: 8.364M
BUY POINT: $40.12 Volume=11M Target=$46.15 Stop=$38.05
POSITION: RCQ EH - May $40c (48 delta) &/or Stock
http://www.investmenthouse.com/cd/brcm.html
Play Date: 01/24/2004
CCUR (Concurrent Computer--$5.61; +0.61; optionable): Video on demand
http://biz.yahoo.com/p/c/ccur.html
STATUS: Cup w/handle. CCUR is moving toward the breakout from an 11 week base, spurred Friday by news of SFA's solid earnings. The move did not quite break it out of the base, but got it well on the way with some tremendous volume. Accumulation is outstanding at 6 to 1. Looking to move in on the breakout.
Volume: 3.904M Avg Volume: 1.034M
BUY POINT: $5.83 Volume=1.3M Target=$7 Stop=$5.42
POSITION: URC EA - May $5c (70 delta) &/or Stock
http://www.investmenthouse.com/cd/ccur.html
Revisited: Dropped this one but has checked up and looks ready.
Play Date: 01/24/2004
NTOP (Net2phone--$7.07; -0.01; optionable): Internet telecom
http://biz.yahoo.com/p/n/ntop.html
STATUS: Testing the breakout. NTOP did not hold the 18 day MVA (7.33) , but did find support at 7 after falling intraday Friday to test the 50 day MVA (6.73) and then rallying back sharply to close flat. The candlestick pattern showed a doji with tail, meaning that it sold off intraday but rallies back as the buyers moved in. We are looking for NTOP to rebound over the short term MVA (10 and 18 day MVA at 7.33 and 7.44) on volume and move in there.
Volume: 1.584M Avg Volume: 1.55M
BUY POINT: $7.58 Volume=2M Target=$9.49 Stop=$7.28
POSITION: QEN GU - July $7.50c (50 delta) &.or Stock
http://www.investmenthouse.com/cd/ntop.html
SUBSCRIBER PORTFOLIO: These are stocks subscribers suggest by vote that we put in a portfolio to track and move into the stocks if they set up well.
AVID, COH, DIS, GTRC, KKD, LPNT, OCR, TGT, UTSI, XMSR
DIS: Sold on hard volume Friday, slicing through the 18 day MVA, but managing to hold some support at 24. Needs to hang on here.
SUBSCRIBER WATCHLIST
We continually receive ideas for potential plays from our subscribers. Many times they are already on our watchlists, other times not. We always take a look at them and sometimes find a few pearls. We are including subscriber choices that could develop into plays. We are not necessarily endorsing these, but want to provide a forum for subscribers with ideas that may appeal to their portfolio. Typically we will put these on without commentary, but if we see something we really like or dislike we will point it out. That way we can maybe come up with some new plays, find some plays that may fit your style, and have another great educational tool to discuss problems or good aspects about stocks our subscribers are looking at.
NOVL: Still moving in a solid uptrend along the 10 day MVA. After moving laterally last week it gapped to test the 10 day MVA Friday and then rallied to post a gain. Could get 2, mayb 3, more bounces up off the 10 day MVA.
SBC: Forming a handle to a 8 month base showing solid 8 to 3 accumulation. It is one that we have been watching as well. Needs to clear 27 with strong volume.
End part 2 of 3
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us stock market
top stock pick
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