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us stock market, understanding the stock market
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7/12/01 Stock Split Report
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Stock Split Report Subscribers:
The Alert service is up and running! Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
The market exploded on the MSFT news, a scenario we have been outlining for the past two months. The alerts were fast and furious and buys were coming up all session long. RHB, ACF, CECO, CEFT, ASFC, KG, FISV, CAKE and others exploded higher with solid moves. It was not just at the open as buy points were flashed all day long. The alerts help us jump on those plays that are making the move- -whether the market is going up or down. A great addition to your investment arsenal.
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TONIGHT:
- Another breakaway gap that did not fizzle.
- Stronger volume, but still somewhat light, summertime trade.
- Despite the warnings, earnings are coming in without any real nasty surprises.
- Economic news not as positive, but it will be up and down.
- Team Trades
An interesting thing happened today.
We have talked a lot about how the recovery in the economy and the market begins; it looks as if that is happening now with the improving economic numbers and companies now coming out and saying that they are going to do just fine and that the future does not look so bad after all. There will still be earnings misses and talk of no visibility for the future from some, and there will also be economic news that seems to take a couple of steps forward and a step back. That is how the market and the economy turns, however. Expectations about the future rise, and that pushes stock prices higher.
Today there was a real catalyst to that changing perception of the future, and it was not just MSFT. MOT is seeing some business improvement, GE continues to move forward in a trouble economy, and YHOO reaffirmed its earnings and revenue projections. That is a wide cross-section of the economy. On top of that FDC announced great earnings, and it was joined by a lot of other companies doing the same. After the close AMD beat the bottom line but said things would not improve until Q4 when it expected solid increases. JNPR beat the street and appears poised for the future as well (revenues rose 79%). The upshot: the bogeyman that was so feared over the past three weeks is not as nasty as everyone imagined.
There was something else as well. Back on April 18 the Nasdaq made a breakaway gap up to the 2000 level from the 1923 level. Wednesday the Nasdaq closed at 1972.04 after touching 1934.67 on the low. Today it gapped higher by 61.18 points to 2033.22 on above average volume (the first above average volume in 9 sessions). Very similar moves, and there is a LOT of significance to this.
A few reports back we stated how this was a good point to make the move up after the test of the March and April lows in the indexes. The reason: this is where some major buying started back in late April, and if institutions stepped back in at this point, that is a VERY GOOD confirmation that we have seen the lows and that the selling is effectively over and we can worry about accumulation. It does not mean the market runs straight back up; there is still a lot of work the economy has to do before the markets are ready to price in a lot of future upside. Nonetheless, this appears to be the turning point off of the test. We may get another test of this level to chase the last sellers out after maybe another session of gains tomorrow. Overall, if things continue the trend that has been developing for the past month, the market is going to trend higher.
This is NOT, however, a green light to go buying just anything in the market despite Abby Cohen coming out today and saying it was time to buy. She always seems to emerge after the big moves are being made. Any way, as we have discussed frequently of late, just buying the market or the old standbys is not the way we are looking to go. We are being specific as to sectors and companies. We don't mind tech, but we look at tech in software and other niche areas that are looking good combined with good patterns and good 'numbers' (sales and earnings). We also continue to look at building, education, healthcare, and even airlines with LUV taxiing into position.
THE MARKET
One day does not make a rally, but this had other things going for it as we note. We still want to see the institutions coming back in starting Monday (the reversal was on Wednesday) through Thursday. We want to see the indexes rise at least 1.5% on rising, above average volume on one of those days. That indicates another move up is really taking root.
Time to exit?
Tonight CNBC ran a spot on whether it was time to bail out of your mutual fund now that there has been many, many months of poor performance. Aside from the content in the segment, the point to note: the news media is just now starting to talk about dumping funds, etc. When the news media is covering a subject, it has become mainstream and the timeliness if over. To us it is another signal that the sentiment is ripe for the change of direction.
Overall market stats:
VIX: 24.52; -2.46. Was lower all day, something to be expected on such a strong move. It continues to be contrary to any rally, but it is a secondary indicator.
VXN: 54.02; -3.18. Nasdaq volatility dropped as well as the techs raced higher. About middle of the road.
Put/Call ratio (CBOE): 0.51; -0.36. Big drop in put activity, but when the market is raging ahead, options buyers react.
NASDAQ: As noted, a breakaway gap once again from the same level of the last gap. Moreover, it was the only triple digit gain on the Nasdaq since that previous gap. This demonstrates that this level is pretty solid.
Stats: Up 103.70 (+5.3%) to close at 2075.74.
Volume: 1.89 billion (+7.4%). After down volume led on an up day Wednesday, buyers took control with 1.594 billion upside shares and 284 million downside shares. The ONLY above average volume days in the past three weeks has been on up days. There has been some distribution or selling of shares by institutions, but the big volume days have been buying days. This is another indication that this looks to be the bottom.
A/D and Hi/Lo: Advancing issues took solid command at 2.07 to 1 (decliners led 1.4 to 1 Wednesday). New highs rose to 101 (+41) while new lows fell to 59 (-84).
The Chart: http://www.investmenthouse.com/cd/$compq.html
After reversing yesterday (a quiet, almost unnoticed reversal), the Nasdaq poured it on today with the help of MSFT, MOT, YHOO, FDC, and company. It was another breakaway gap from the same range it gapped up back in April. While one day does not mean much taken out of context, this one does look like the end of the test. We will know more next week if we see institutions buying back in once again. For now we look ahead to 2100 and 2160 as possible levels of resistance. Again, if investors have their heads down and are looking down the road again, these near term resistance levels will fall.
Dow/NYSE: The Dow shot up off of 10,250 on the back of MSFT and GE. Two solid gains on rising, above average volume.
Stats: Up 237.97 points (+2.3%) to close at 10,478.99.
NYSE Volume: 1.387 billion (+1.6%). Not a massive volume gain, but the second gain on rising, above average volume. That is just what we like to see on reversals and gains. Up volume led 980 million to 394 million shares.
A/D and Hi/Lo: NYSE advancers led 1.66 to 1. New highs rose to 100 (+22) as new lows fell to 65 (-46).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow has blasted up off of the 10,200 level on a sharp increase in NYSE volume. That level was one that was a good one to hold at, and it could be that the test of the April to May advance is over and has been successful. As with the Nasdaq we will know more next week if we see the institutions again come in on heavy volume and accumulate stock. There is some immediate resistance at the 10,600 level (the 200 day MVA is at 10,581.60). There is a lot of congestion overhead, and the index will move up and bounce back from those levels as it trends higher (10,750, 11,000), but if the buyers are back in the market next week, it looks as if it will take on those levels and try for a new high this year.
S&P 500: After Wednesday's reversal session, the S&P managed its own gap higher today and rallied to the close on strong NYSE volume. It was able to clear the 1200 level on this move even though that level was possible resistance: when it is time to rally, those levels tend to fold. It still has to deal with the 50 day MVA at 1230.75 and then resistance at 1240. Those are minor roadblocks if the rally is for real. The interesting areas are higher, in the 1260 to 1280 range after the index has already made a good run.
Stats: Up 27.96 points (+2.4%) to close at 2108.14.
Volume: NYSE volume climbed to 1.387 billion (+1.6%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: Solid rally day, but lets not lose sight of what is happening. We have improving economic numbers and companies starting to announce that things will be getting better. That does not mean the economy is going to race ahead. It will be a slow grind higher through the end of the year. The market will advance, pullback, and then advance again. The trend will be up in our opinion, but that does not mean it is straight up. Resistance levels will push the indexes back for rest, and we need to be ready and recognize them for what they are. Use them to pci up stocks that have pulled back after breaking out.
TOMORROW
Retail sales, PPI (inflation gauge), and Michigan sentiment are out tomorrow. Chain store sales were out and they were a bit better than anticipated, but not great. Retail sales will still be hanging in there we think, but there is some consumer wavering. Overall we see nothing to change the prognosis of an improving economy as the year progresses.
After such a huge move in the market and since it is a Friday, we may see some profit taking later in the session if we get a move higher early on (futures are up after the close). We saw some selling before the close today as some investors were wanting to exit before more earnings hit that could wipe out some of the gains. That is very much how many investors are right now: quick to take profits. That drives some of the bigger names higher, and then back down when the momentum dries up. Meanwhile, the stocks in good patterns continue to form there bases, breakout, move up, test, then move further up.
Again we are going to be looking at the stocks in good patterns that are making the good moves. That can be pre-announcement, pre-split, breakouts, you name it. Today the alerts were flying and so were the stocks. We had breakouts all session long, and that is what we like to see: it was not a surge and then purge. It was a surge that kept adding to the moves all session. That means we continue to be patient and play the stocks that move up in and out of the patterns we like. That is the best way to take advantage of the rallies higher.
Support and Resistance Levels
Nasdaq: Closed at 2075.74.
Resistance: 2160 to 2200. Then 2250.
Support: 1970, roughly. The low is 1619.58.
S&P 500: Closed at 1208.14.
Resistance: 1230.75 is the 50 day MVA. Then 1240 to 1250.
Support: 1200 may try to hold. 1150 after that. The low is 1081.19.
Dow: Closed at 10,478.99.
Resistance: 10,581.60 is the 200 day MVA. 10,750 is next, then 11,000.
Support: 10,200. Then 10,000 to 9992, the middle of its double bottom pattern. After that is a jumble. The low is 9106.54.
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): +0.2% actual versus 0.0% expected and 0.3% prior.
7-12-01
Initial Claims, 7/7 (8:30): 445,000 actual versus 391K expected.
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.
TEAM TRADES
The alerts were flying fast today, but they were not all at the start of the session. We like that; stocks were breaking out all session, giving us a better idea of how sustainable the moves were. Often when a stock makes the move early, we will take a partial position and then see how the move pans out. If it is solid, great; we can add to it. If it does not work out, we can wait and see if it does continue the move we want (and we can add to the position then); if it does not, we are out without putting all of our capital at risk. If it happens later in the day and we are satisfied with the move, we can take the whole position at that time.
ALTR: Rocketed out of its trading range as it gapped over its 200 day MVA on the open. It hit the buy point just before 9:00 CT and we did not get on it right away. It hit 31 and then pulled back to 30.50. It started back up and we put a buy order at 31.05 and the fill was made around 11:20. Caught a good move on good volume as it broke out of that range.
A busy day. Others included SDS, ACF, GMST, RHB. These were pretty straightforward: the buy point was hit, a Market Alert was sent, and positions were taken. This was mostly pure breakout stuff today as everything was popping. The important thing is to know that there could be some pullback after such a strong move, but the breakouts on strong volume are ones we want to stick with.
THE PLAYS: Lots of breakouts on the report! FDC had a huge breakout move, as did RHB, as well as CBH and FIC. They join BRO, BJ, CEFT, ASFC and ACF as stocks breaking out in the last few days.
BONUS PLAYS:
TUTR (Plato Learning--$30.46; +1.86; no options): Business Services.
http://biz.yahoo.com/p/t/tutr.html
STATUS: Broke from an eight-month cup with handle in late June, and after coming back to test the breakout (at 28), the stock made a good move back up today. Volume was solid (up to 409,300; average 212,800) as the stock moved back over its 10 day MVA (29.52). The closing high on the breakout is just ahead at 31.26 (there was an intraday spike up to 34.93 on the breakout move). Very good relative strength, money flow and buying. Target: 38.
BUY POINT: Aggressive: A move over 30.55 on continued strong volume. Stop: 28.41. Breakout: Over 31.26 on continued strong volume. Stop: 29.07.
POSITION: Stock only.
LUV (Southwest Airlines--$19.81; +0.76; optionable):
http://biz.yahoo.com/p/l/luv.html
STATUS: An old friend of the report, a frequent splitter, returns as it has made a strong move up the past few weeks. The stock pulled back post-split and was trying to form the right side of its base but fell back out of it in early June, but after hitting back below 17 it has made a steady comeback, closing back over its 200 day MVA (18.97) yesterday and making a strong move today, which began with a gap up. Volume was just above average at 2.35 million, and the recent high from late-May is 20.03. Relative strength has broken out, and money flow is solid. Target: High of 23.34.
BUY POINT: Over 20.15 on increased volume. Stop: 18.74.
POSITION: Stock and/or September $18.38 calls to buy (LUP IS).
PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: BMET made a nice rebound after its forecast announcement. No announcements from BRO, PDII or KRB. Next week we look at FITB, DFXI, ADVS, ELN and THQI.
BEST PLAYS: Besides the plays set forth below as best plays, there are some other stocks that also look good. These include Pre-Announcements ACS, CEFT, ADVP and ADVS; Pre-Splits BMET and KG; Continuing Candidates CECO and ACF; and Post-Splits DGX and ESRX.
PRE-ANNOUNCEMENT BEST PLAYS
1) FDC - What a breakout!
2) RHB - Another breakout
3) FITB - A move up in the handle and forecast for Monday
4) FISV - Continues a solid move
5) DFXI - Good bounce from the 50 day
6) MNC - Ready to move
FDC (First Data--$69.50; +4.50; optionable): Working on a forecast date.
http://biz.yahoo.com/p/f/fdc.html
BACKGROUND: Last split was a 2:1 on 11-18-96 at a stock price of $80. The annual shareholder meeting was on 1-11-01 at which time authorized shares were increased. The company has sufficient shares for a 2:1 split.
STATUS: Made a great breakout move today! FDC announced strong earnings before the open, causing the stock to gap over the 50 day MVA (65.36) and climb over 7% on sharply increased volume (2.97 million, average 1.45 million). Recently, FDC had fallen out of a decent pennant pattern and retreated back through its 50 day to move laterally beneath it. After today's move, we are looking for a further move up on continued strong volume. Target: $79
BUY POINT: Still a buy up to $72.30 on continued strong volume. Stop: $64.64.
POSITION: Stock or November $65 calls to buy (FDC KM).
RHB (Rehabcare--$50.00; +3.20; no options): Hospitals. Forecast to announce a split on 8-7-01 in conjunction with earnings. At this time the company cannot confirm this date, but based upon our research this should be the date.
http://biz.yahoo.com/p/r/rhb.html
BACKGROUND: Last announced a 2:1 split on 5-15-00 at a stock price of $41. The annual shareholder meeting was on 5-3-01 at which time additional shares were authorized.
STATUS: Made a big move, breaking out of its cup with handle (with the handle in something of an ascending wedge configuration). The move continues what started Wednesday, but although the move was big, we did not get the type of breakout volume we look for (1.5 times the average). Volume came in a bit down at 128,200 (average 129,800), so on a move from here we will look to get a volume spike. We could get a bit of a pullback first, but if the breakout is going to have strength we will look for it to hold support at the breakout point of 49. Target: 54-55.
BUY POINT: A move over 50.25 on volume of 195,000 (a buy up to 51.45). Stop: 46.73. Pullback: On a lower volume move that holds 49, a move back over 50 on volume of 195,000. Stop: 46.50.
POSITION: Stock only.
FITB (Fifth Third Bancorp--$61.35; +1.74; optionable): Looking for an announcement with earnings on 7-16-01 before the market open.
http://biz.yahoo.com/p/f/fitb.html
BACKGROUND: Last announced a 3:1 split on 6-20-00 at a stock price of $61. The annual shareholder meeting was on 3-20-01 at which time authorized shares were increased.
STATUS: Made a decent bounce up from its 50 day MVA (58.88) at the bottom of its handle, the second recent handle to its cup pattern dating back to the beginning of the year. Volume was not great, down today at 1.23 million (average 1.6 million), but this is a good start to a move back up toward the handle high of 63. With the forecast for Monday morning, we will look at a continued, stronger move Friday as a good opportunity to take positions in anticipation. Relative strength has broken out. Target on breakout: 70.
BUY POINT: Aggressive: A move over 62 on increased volume. Stop: 57.66. Breakout: 63.13 on volume of 1.8 million. Stop: 58.71.
POSITION: Both buy points: Stock and/or October $60 calls to buy (FTQ JK).
End Part 1 of 3
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us stock market
understanding the stock market
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