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us stock market, trend trading stock
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7/19/01 Investment House Daily
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Investment House Daily Subscribers:
The stocks we are watching keep on trucking higher with good breakouts and very nice returns. The alert service allows you to see the move when it happens. In this market, timing is important, and the alerts zero you in on those stocks making the right moves.
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertdaily.htm
TONIGHT:
- Let's see, this was Thursday, so it was rally day.
- Markets race ahead, give it back, and then recover some at the close.
- Volume was on the buy side today.
- Some earnings outlooks improving, some stagnant.
- Economic numbers still firming up.
- Team Trades
The market keeps its pattern.
To most this looks like the market is going nowhere. Up Thursday, down Monday, up Tuesday, down Wednesday, and back up today. Overall you can make a case for that. But the market is made up of stocks, and we are following stocks on all of the reports that are going up, not down. OPMR, MIKE, EDMC, TOL, LEN, BZH, COTT, TUTR, ACS, MNC, IVX, TARO are powering up. Others have shot up and are now taking their profits, but we are seeing most of these in the solid sectors hold at near term support and bounce higher afterwards. You cannot go wrong taking profits on the top of a run when you see those topping signs (doji on low or high volume after the run, gap higher then selling back after a strong run), and we have been doing both: holding some shares longer term, selling others when it looks as if the move is peaking after a nice 10%, 15%, or 20% run. That way we lock in some gains and also keep a stock that is leading the market for the next move higher. Even in this choppy market, that has been paying off well.
The strategy can vary about anyway you want. We also are selling calls on some of the stocks as they show us those topping signs. Instead of selling the stock or part of it, we sell the current month (now looking to August, however, as tomorrow is expiration), in the money options, let the stock fall to support at the 10 or 18 day MVA, and then buy them back, pocketing the net in cold hard cash into the account. We have done it twice on BORL's breakout, once in late June and once again on the doji top on Tuesday. We then can use that cash for buying more shares, going to dinner, funding the college fund, etc. Cash flow is a great thing, and selling covered calls on stock positions, long or short term ones, is a beautiful way to generate it. The trick is to learn when stocks are topping out and then acting. We cover this great strategy in our online seminars.
The point is, one of the things we have in this rally that we have not had in previous rallies are stocks that are in good patterns that are breaking out. Moreover, these are stocks that tend to lead in economic recoveries (builders, construction materials, retailers, etc.), and when coupled with the firming economic numbers, this builds a strong case for recovery in the economy and the stock market. Dovetailing with that is the rather somber mood that still hangs over the market and the economy. Those are classic, classic signs that the bottom has been hit in both. This means despite the up and down look of the market as seen by the casual observer, there are very positive signs out there. We are taking advantage of those stocks that are showing the ability to make us money as the market and the economy continue the bumpy road to recovery that started in late March and early April.
Market action today appeared bearish, but a closer looks reveals it was . . . not so bearish.
The market roared out of the gates even after some lackluster IBM earnings on Wednesday. The Dow was up triple digits and the Nasdaq was up over 60 points. Volume was really accelerating on the buying. Then mid-morning the market hit resistance on all indexes and rolled over. It started selling in a sadly familiar pattern all afternoon. Volume, however, dried up on the selling. We were watching the Nasdaq and S&P 500, and it was uncanny how each up leg was accompanied by higher volume while the down legs were accompanied by lower volume. Early it looked as if volume would be huge; it was still up significantly on the session, but it did not meet the early projections as volume just fell off the table when the market sold. It then surged again on the late buying in the last hour.
So, the action looked bearish, and indeed, it was to a certain extent with respect to the big caps. But the action was good for many stocks we are following that continued to move higher and breakout further. Moreover, the price/volume action was solid, and the late charge off the lows shows that buyers jumped back in when they saw a chance.
Earnings again.
Cannot escape earnings reports now, and what we are seeing is what we forecast: warnings were ugly, actual earnings seem sweet in comparison. Not taking chances, companies warned first and asked questions later. Better to get the word out than 'surprise' shareholders at earnings time. Earnings have been 'so what' to 'hey, not bad.' Almost all are down from last year's comps of course, but as noted last night, even the smaller and mid-sized techs are saying things are stabilizing (BRCM, PMCS, ELNT, RFMD). That is in addition to stocks such as BZH and other builders and economically sensitive stocks that are blowing away earnings. Heck, even NOK said it saw signs of a near term pickup after saying just a few weeks back that things looked very bleak. My how fast things change.
MSFT disappointed after hours even though it said what it said a week ago. The key factor we heard was disappointment that statements about the future were not as strong as wanted. That is okay; we see the turn happening and are encouraged by what we are hearing from even the tech stocks at this point. Remember, pessimism fosters exaggerated claims of when a recovery will occur. You know that; when you are depressed nothing looks good and you tend to see the worst side of everything. That is what we have been hearing over the past several weeks. Then, gee whiz, things turn out better than expected. Whether just emotion or shrewd management, the surprises that come out move stocks higher when 'all of the sudden' things improve. They are starting to improve now, and those stocks that lead economic recoveries are showing that to be the case. Listen to the market. It was speaking loudly in March and April 2000, but very few were listening. It is speaking now through the stocks that lead economic recoveries.
THE ECONOMY
Nothing stellar, but improvement nonetheless.
The trend continues to be improving even as we hear things are absolutely terrible with earnings and the economy. We love to hear how things are the worst they have been in decades when we see major steps to increase the money supply, tax cuts (albeit weak-kneed), and the early signs of economic recovery. We have said it before: robins are on the yard right now. No one is ready for spring because they feel as if the winter of profits recessions and other negatives is unending. As a long term investor, you have to love that talk.
Jobless claims fall.
After jumping last week on the annual summer auto retooling, jobless claims fell 35,000 this week. Still over 400,000 at 414,000. 430,000 was forecast. The past two weeks have been higher than the 379,000 number three weeks ago, and thus the 4-week average rose 2500 to 414,500. Continuing claims also rose as the unemployed are still having trouble finding jobs, but note that the number finding jobs is starting to pick up. A lagging indicator that is continuing to show signs of a change in the trend.
Leading Economic Indicators rise again.
This indicator looks 3 to 6 months down the road. Last month it rose 0.3%, 0.1% greater than expected (revised lower at the last minute to 0.2%) after rising 0.4% in May. That makes three consecutive months of gains, and that means that the improving economic numbers we have been seeing will continue barring any major calamity. We love to see LEADING indicators improving even as analysts focus on lagging indicators and wring their hands over them.
THE MARKET
Overall market stats:
VIX: 26.47; +0.16. Up and down action produced slightly higher volatility, but it is not telling us anything right now.
VXN: 54.59; -1.85. All over the map as the Nasdaq 100 was up, down and then up. Still closing in a tight range of not too scared, not too happy.
Put/Call ratio (CBOE): 0.76; -0.08. Not much of a drop on the Nasdaq gain as the index stays in the higher end of the range. This indicates continued skepticism and we like it.
NASDAQ:
Was roaring, but then gave half back. It could have been worse without the late rally. Price/volume action was positive, however.
Stats: Up 30.42 points (1.5%) to close at 2046.59.
Volume: 1.906 billion shares (+10%). Not bad action as noted above with volume really running on the gains and falling when the selling hit the market. Up volume was 1.147 billion shares to 741 million to the downside. Not outstanding action, but the buyers were out in more force than the sellers once again and with more volume.
A/D and Hi/Lo: Advancing issues moved back in front, but not decisively as the intraday action would indicate (1.41 to 1; decliners led 1.7 to 1 Wednesday). New highs rose to 174 (+24) as new lows fell to 96 (-15).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq did not break any downtrends today, and the intraday action was not stellar. The index tried to jump up to the 50 day MVA on the high (2079.33; 50 day at 2089.86). 2100 represents some resistance to the upside, and it sure turned the index back today. The pattern on the candlestick chart was a doji, and that indicates a pullback could be in the offing, but we don't think so, or at least not severe. The futures are way down tonight on the MSFT earnings, but as we have seen, these earnings scares are usually met with some buyers taking advantage of some selling. IBM did not crater below the after hours trading last night, and that was something of a positive. At this point we want the index to hold on against the onslaught of negative earnings and some wishy-washy guidance. Then it will be free to move up even if it won't be a race higher.
Dow/NYSE: Okay, back over the 200 day MVA, but then sold off and had to fight to make it back to the 50 day MVA where it closed. Looks as if it wants to move higher.
Stats: Up 40.17 (+0.4%), but well off the triple digit gain of the morning. Closed at 10,610.00
NYSE Volume: 1.346 billion (+2.2%). Another session of rising, above average volume on the NYSE, the third in a row. Two days of gains, one of selling. We keep seeing up volume come in higher and higher, indicating that even though sellers are increasing as shown Tuesday, buyers are still in the majority and increasing as well. Up volume was 851 million shares versus 484 million downside shares.
A/D and Hi/Lo: NYSE advancing issues moved into the lead 1.4 to 1 (decliners led 1.33 to 1 Wednesday). New highs climbed to 158 (+23) while new lows fell to 44 (-29).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Back over the 200 day MVA on an even stronger shot of volume. On the high it hit 10,679.12, getting close to resistance at 10,750. It struggled off the low in the last hour after selling back, and landed just below the 50 day MVA on the close (10,615.04). MSFT will not be any help at all in the morning. The key will be to see if the index can recover once again off of some support at 10,500 if there is selling that strong, but we really feel that the Dow is trying to turn the corner here. If it can break through 10,750 on some strong volume, 11,000 is not that hard a run.
S&P 500: The big caps ran into resistance at the 50 day MVA (1227.19) after hitting a high of 1225.04. It is trading in a tight range between 1200 and 1220. Volume is building on the attempt to move higher. Price/volume action has been good the past three weeks except for Wednesday. It has a major hurdle to clear at 1240, and it most likely won't make that move tomorrow as it will have to overcome early weakness based on the MSFT numbers. Still, it can find bottom again at 1200 and then start an intraday run back up to position it for a run at resistance next week.
Stats: Up 7.31 points (+0.6%) to close at 1215.02.
Volume: NYSE volume climbed again, this time on buying, to 1.346 billion shares (+2.2%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday is here and not much economic news tomorrow, and not as many earnings as well. The week has been back and forth, but we still see better price/volume action and signs that the indexes are trying to move higher. Things remain choppy because there is no consensus, but again, several sectors are moving well, breaking out, and continuing their breakouts. As long as we see that action and the improving economic numbers, we can turn a deaf ear to all of the naysayers who say everything is different this time.
Anyway, we are going to watch the early selling that looks as if it will happen on the MSFT earnings (third quarter softer, but the whole year strong based on a strong Q4) and then see if we can find some entry points on tests of breakouts. Of course, that would most likely apply to tests by the rather few tech stocks we have been following and buying as the other non-tech stocks have been pretty much ignoring the tech earnings and the hoopla swirling around them.
There are some plays that we continue to watch and will continue to take positions on when they make the moves. That has been the key; keep focused on what is working and take advantage of the moves. We are starting again to see some techs forming up short term bullish patterns that could provide very nice upside, but we have to emphasize that they are short term; these stocks are still way down in their bases after the major selling, and thus are subject to overhead resistance and the daily news. They are indicating that some accumulation is ongoing, but it is easily upset on bad news in the sector.
In sum, we continue to see improvement amidst all of the widely divergent ideas on the market and the economy. At this point we actually like those who are adamant that things are going to really tumble again. That keeps enough uncertainty out there to let the market build until it has cleared some resistance and then all of the sudden the undecideds and some bears say 'I have got to get in' More fuel for the move. What do we do when that happens? What we have been doing all along: jump on those stocks that are the new crop to breakout whether it is on no news, stock split news, a pre-split run, or whatever. This gives us a BIG edge over the market as trade after trade has shown us of late.
Support and Resistance Levels
Nasdaq: Closed at 2046.59.
Resistance: 2100 is mild resistance. Then 2160 to 2200. Then 2250.
Support: Still trying to hold at 2000. After that, 1970, roughly. The low is 1619.58.
S&P 500: Closed at 1215.02.
Resistance: 1227.19 is the 50 day MVA. Then 1240 to 1250.
Support: 1200. 1150 after that. The low is 1081.19.
Dow: Closed at 10,610.00.
Resistance: The 50 day MVA10,615.04. After that the next real test is 10,750. After that, 11,000.
Support: 10,400, then 10,200, and then 10,000 to 9992, the middle of its double bottom pattern.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
7-16-01
Business Inventories, May (8:30): 0.00% actual versus -0.1% expected and 0.0% prior.
7-17-01
Industrial Production, June (9:15): -0.7% actual versus -0.5% expected and -0.5% prior (revised down from -0.8%).
Capacity Utilization, June (9:15): 77% actual versus 76.9% expected and 77.6% prior (revised up from 77.4%).
7-18-01
CPI, June (8:30): 0.2% actual versus 0.1% expected and 0.4% prior.
Core CPI, June (8:30): ).3% actual versus 0.2% expected 0.1% prior.
Housing Starts, June (8:30): +3%.
Building Permits, June (8:30): -3.3%.
7-19-01
Initial Claims, 7/14 (8:30): 414k actual versus 430K expected and 445K prior.
Trade Balance, May (8:30): -$32.0B versus -32.2B prior.
Leading Indicators, June (10:00): 0.3% actual versus 0.2% expected and 0.4% prior (revised from 0.5%).
Philadelphia Fed, July (12:00): -12.2 actual versus -1.0 expected and -3.7 prior.
7-20-01
Treasury Budget, June (14:00): $34.0B versus $55.9B prior.
SUBSCRIBER QUESTIONS
Q: You mentioned 'delta' the other day re buying a call. What's a delta?
A: Delta is related to options. It is a measure of how much an option's price will move based on how much the underlying stock moves. For instance, if an option's delta is 50, if the stock moves up $1, the option will move up 50 cents ($1 x 0.50). Thus, we prefer higher deltas as they give us more movement in our option based on the stocks' movement. It can cost us more for higher deltas (usually deeper in the money) and thus we have to balance the return versus the relative safety of buying in the money options. Still, we prefer to buy in the money options with stronger deltas than out of the money options that are all time value and volatility and no intrinsic value.
TEAM TRADES
EDMC: A cup with handle breakout a month back, EDMC has been consolidating and rallying on high volume. Wednesday we saw the move up off of the 10 day MVA and thought it was a good time to take some positions. Today it continued the move and we thought the same thing. We like to add to stocks when they make the moves we are looking for. The stock started hard, continuing Wednesday's momentum. We jumped in again at 43.25 with the expectation of seeing if it could run to a new high. It did, but then started to sell back, we decided to take some profits on our earlier purchase and let the rest run. The stock found support at 43.80, just above the prior session's high, and started back up. that was what we wanted it to do, and we even toyed with the idea of further positions. We were, however, having trouble with trading over the net today as there was a nationwide problem. We decided to pass as we already had a pretty decent position. Of course the stock ran up and closed just off of its high. No complaints; should have gone with our instincts.
End Part 1 of 2
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us stock market
trend trading stock
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