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us stock market, top stock pick
Begin part 2 of 3
Market Sentiment
VIX: 14.84; +0.13
VXN: 21.27; -0.47
VXO: 14.87; -0.14
Put/Call Ratio (CBOE): 0.77; -0.15. Still hanging in at higher levels after a short, quick dip near 0.5. On CNBC they were again talking about the put/call ratio and how it had moved up. From that they drew the conclusion that there were people hedging positions so everyone was safe. Remember it was just a few short days ago the same commentator raised the alarm that no one was hedged because the put/call ratio dropped near a complacent level for one session. That analysis totally ignored the high ratios up to that point even on upside days. The point: one day does not make a trend.
NASDAQ
Tapped just below the 10 day MVA and then rebounded, showing a nice tight doji, looking as if it is already prepared to bounce.
Stats: +4.86 points (+0.23%) to close at 2123.87
Volume: 2.268B (-4.2%). Fifth session of falling volume regardless of whether the index was up or down. The pullback on lighter volume is good, but NASDAQ is struggling to move higher.
Up Volume: 1.123B (+439M)
Down Volume: 1.101B (-517M)
A/D and Hi/Lo: Advancers led 1.33 to 1. Improved nicely at the end of the session.
Previous Session: Decliners led 1.69 to 1
New Highs: 250 (-51)
New Lows: 7 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After three taps at 21500 NASDAQ fell back, testing near the 10 day MVA (2112) on the low and then cutting the losses in the last half hour. A gain on the session but lower volume means no accumulation. As it spent most of the session in the red, that is really not that bad. What is concerning is how it tested the 10 day MVA on the low and rebounded nicely. We were wanting more of a pullback and then a bounce; buyers were moving on a simple 10 day MVA test. That is not all that bad, however. It broke out in late December, rallied to 2100, moved laterally for a week, then broke higher again. It has come back to fill that gap and test that short lateral consolidation. We might want a bigger pullback, but it is fighting it, and the Friday 10 day MVA test may be all we see. Nasdaq has that nice consolidation as a foundation, and there are still many NASDAQ stocks in good patterns.
S&P 500/NYSE
Tapped resistance again, fell to the 10 day MVA, then rebounded to cut its losses.
Stats: +0.09 points (0%) to close at 1141.55
NYSE Volume: 1.539B (-9.14%). Lower volume on the modest decline, precisely what you want to see as it indicates fewer sellers than buyers in the market.
Up Volume: 723M (+32M)
Down Volume: 767M (-223M)
A/D and Hi/Lo: Advancers led 1.1 to 1
Previous Session: Advancers led 1.09 to 1
New Highs: 431 (-86)
New Lows: 4 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Tested key resistance at 1150 then tested near support at the 10 day MVA (1135). As with NASDAQ it bounded up off the low, cutting the losses. No distribution as volume was lower though still above average. Quite extended with its 100 point run and that makes the 1150 resistance all that more potent. It is still holding the uptrend, but we will have to see how this fight at 1150 plays out. A brief pullback to the 18 day MVA would be great for its continued upside move, but institutions have a lot of new money to put to work, so we may not get it just yet. Again, we have to see how it plays out at this 1150 resistance.
DJ30
Stats: -54.89 points (-0.52%) to close at 10568.29
Volume: 234 Million versus 220 Million
The blue chips are playing a tennis match at the upper channel line (10,622), moving over it one day, selling back below it the next. Friday it was selling, and though it rallied and managed to cut its losses by 45 points, volume was much stronger. That indicates some distribution or churning at this key level as well as some price resistance at 10,620. As with SP500, DJ30 continues its uptrend, but it is flattening some as its rate of ascent slows. Typically indexes run out of gas at their upper channel lines and correct back to the up trendline that marks the bottom of the channel. This is particularly true after a long run as seen here, a 1000 point jaunt off the 50 day MVA (10,223).
The chart: http://www.investmenthouse.com/cd/^dji.html
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 Thursday: AOT; CORI; IVIL; NOVL; SNUS; SVVS; TSCO
Plays from the Thursday report:
ANPI: Took a breather and still looks ready to go.
BPOP: Still in a very nice handle to its very nice pattern.
CHT: Alos still in the handle to a nice pattern.
MTEX: Gapped higher but volume was lower and it finished flat. Still looks good for the breakout move.
New Plays:
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 (6 up price weeks on rising volume to 1 down price week on rising volume). 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/ci/ccur.html
Play Date: 01/24/2004
CRA (Applera--$15.36; -0.03; optionable): Medial labs, research
http://biz.yahoo.com/p/c/cra.html
STATUS: Testing the breakout. CRA spent last week making a nice, orderly test of the breakout from the prior week, comign back to the 10 day MVA (15.27) on low volume and showing a nice tight doji on the candlestick chart. That signal over near support often signals that the test is over. The move comes after the breakout from a 6 week base that formed on the heels of a larger 6 month base. Excellent 3 to 0 accumulation (3 up price weeks on rising volume to 0 down price weeks on rising volume) shows strong net accumulation even as the stock moves through the consolidation. Money flow is very strong and relative strength broke out as well, an indication of the strength behind the stock. Looking for an above average volume rebound from here to show the test is successful; that is where we move in.
Volume: 387.8K Avg Volume: 559.375K
BUY POINT: $15.78 Volume=650K Target=$18.95 Stop=$15.15
POSITION: CRA FC - June $15c (60 delta) &/or Stock
http://www.investmenthouse.com/ci/cra.html
Play Date: 01/24/2004
OPSW (Opsware--$9.00; +0.45; no options): Internet software and services
http://biz.yahoo.com/p/o/opsw.html
STATUS: Reverse head and shoulders. OPSW is ready to make the breakout from an 11 week base sporting outstanding 6 to 1 accumulation. This base follows a solid breakout and run beginning March 2003 through mid-September. It moved laterally and then slipped into the curent base starting in November. Money flow is solid and moving up ahead of price as the stock bangs its head against resitance at 9. volume was up Friday as it started higher toward that breakout. It looks ready to make the breakout move this week.
Volume: 1.2M Avg Volume: 1.079M
BUY POINT: $9.18 Volume=1.2M Target=$11.12 Stop=$8.42
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/opsw.html
Play Date: 01/24/2004
PROX (Proxim--$2.52; +0.22; no options): Telecom equipment
http://biz.yahoo.com/p/p/prox.html
STATUS: Double bottom. PROX is moving in a big, 8 month base that formed over the key support at the 200 day MVA (1.51). Volume has surged this month as PROX pushes at the breakout point at 2.50. Friday volume surged as PROX tried the breakout on a huge volume spike, rallying to 2.65 on the high before fading back to that resistance at 2.50. Super money flow and excellent 10 to 1 accumulation in the right side of the base formed the past 5 months. With the surging volume and excellent money flow, it looks ready to make the breakout move.
Volume: 9.435M Avg Volume: 2.543M
BUY POINT: $2.64 Volume=3.5M Target=$3.48 Stop=$2.42
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/prox.html
Play Date: 01/24/2004
SEAC (Seachange Intl.--$18.2; 0; optionable): Telecom processing systems.
http://biz.yahoo.com/p/s/seac.html
STATUS: Breakout test. Yes, another breakout test. To start the month SEAC jumped out of a 10 week cup base, surging on a strong volume jump. Accumulation in the base is an outstanding 7 to 1. It rallied close to 20 and then backed off last week on lower and lower volume. Friday it surged on tremendous volume, bouncing off support at 17, the top of the prior base. That is often the level that sends a stock back up after a test, and Friday it was humming. Tremendous money flow is leading the way higher. Looking to pick it up as it rallies on continued solid trade.
Volume: 1.56M Avg Volume: 477.965K
BUY POINT: $18.54 Volume=600K Target=$22.25 Stop=$17.24
POSITION: UEG GW - July $17.50c (62 delta) &/or Stock
http://www.investmenthouse.com/ci/seac.html
End part 2 of 3
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us stock market
top stock pick
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