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8/13/01 Stock Split Report Market Summary
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PLAYS TO LOOK AT: Some solid moves on the report, with ADVP taking off and JNJ breaking out.

BONUS PLAYS:

ABS (Albertson's--$33.91; +1.22; optionable (ABS): Retail: Grocers
http://biz.yahoo.com/p/a/abs.html
STATUS: Quite low in a lengthy base, but off the lows near 20. The stock formed a short double bottom-type pattern then a brief handle, broke out, then pulled back to test the short term MVAs. It moved up from the 10 day MVA (33) on strong volume Monday (1.6 million; avg. 1.3 million),and just beat Thursday's high by a cent. We are looking for a breakout from this new handle. Looks ready to move on the momentum. Target: 41
BUY POINT: 34.03, on volume of 2 million or better. Stop: 31.65 A buy on the breakout up to 35.73
POSITION: Stock and/or December $30 calls to buy (ABS LF).

ZION (Zions Banc--$58.08; -0.43; optionable): Regional banks
http://biz.yahoo.com/p/z/zion.html
STATUS: In a pennant that is squeezed between a down trendline (connecting December, June, July and August highs) and the 50 day MVA (57.51) on low volume (418,100; avg. 812,000). Volume has been at or below average for weeks, and the pennant has formed as a handle to a 7-month base, which is part of a much longer base. The handle (and pattern) high is at 59.55, reached when ZION was added to the S&P500 in June. A good-looking pattern. Target: 72
BUY POINT: 59.68, on minimum breakout volume of 1.2 million. Stop: 55.50.
POSITION: Stock and/or October $55 calls to buy (ZNQ JK).

TMCS (Ticketmaster Online--$15.70; +0.66; optionable): Software
http://biz.yahoo.com/p/t/tmcs.html
STATUS: Breaking out of an ascending wedge that formed at the bottom of an 11-week base (prior high 17.62). Volume was strong on the move (10.6 million; avg. 463,000). We are looking for a continued breakout for a run up to the 18 range. Strong money flow and good buying.
BUY POINT: 15.85 (just above the intraday high) on continued strong volume. A buy on this move up to 16.20 (buy point was 15.43). Stop: 14.60 (18 day MVA, 14.53).
POSITION: Stock and/or October $15 calls to buy (QMF JC).

PRE-ANNOUNCEMENTS: No announcement from FRX, which is looking pretty good, and we are looking at NVDA Wednesday. Also looking pretty good are BJ, DSl and NDN.

NVDA ($88.19; +3.55): Forecast to announce a split tomorrow after the close with earnings. Hit our aggressive buy point today, and went on to make a solid move up on good volume (up to 6.31 million, average 4.41 million). Going into the Tuesday forecast, we are looking for the momentum to continue back up toward the recent high of 90.72. With continued strength we are looking at an aggressive play on a move over 89.15 on strong volume, stop: 82.90. The breakout play remains 90.85 on increased volume. With either move, we are looking at stock and/or September $85 calls to buy (RVU IQ). Because of the forecast we can also look at positions before the close if the stock is holding strong.

ADVP ($69.04; +4.16): We are working on a date for this one. Terrific move today! After announcing a new business agreement, ADVP took off, taking out the left-side closing high in its former descending wedge pattern (late-May: 67.36) and reaching an all-time high of 69.50 before pulling back just slightly to close. Volume was huge at 2.39 million, (average 660,700). On a breakout move, we normally like to see the move last for longer than one session before expecting some profit taking, but with a huge move like this, after four consecutive gains, we may see some profit taking tomorrow. On low volume profit taking, we are looking for the late-May highs to provide support for a strong bounce up. On that move we are looking at stock and/or September $65 calls to buy (QVD IM).

MI ($59.20; +0.05): We are researching a forecast date. We are still looking for the breakout as MI continues in the current consolidation along the 10 day MVA (59.02) (formed after breaking out of a 4-month cup-with-handle pattern dating back to early May). Once again, MI closed with a hammer doji, today on decreasing volume of 105,100 (average 201,800). On a move past 60.06 on volume of 270,000, we will consider stock and/or September 55 calls to buy (MI IK).

TTC ($48.66; -0.24): Forecast to announce a spit on 8-22-01 before the market opens in conjunction with earnings. Broke out of the cup with handle with a four-day move last week, hitting a high of 48.99 Friday. Today saw a low-volume (34,900; average 53,200) pullback, hitting back to 48.36 at its low before recovering a bit. We are looking for the stock to hold the 48 on the pullback, and then continue its move after the test. From here, we are looking for a move over 49 on above average volume, with stock. The more aggressive play is on a move back up on increased volume after holding the 48 on the pullback.

PRE-SPLITS: DCOM is also worth a look, with COBZ in a nice pattern even though it splits tomorrow.

ATK ($101.38; -1.97): Splits 3:2 effective September 8. After Friday's great move ATK pulled back a bit Monday. Not a bad move, however, looking more like healthy profit taking that we anticipated. Volume was down sharply on the day (196,700; average 146,500) and the stock is holding its June high. Looking for it to hold this level and continue its move back up on continued strong volume. The breakout high from Friday was 103.95. On a move back over 102, stock and/or November $100 calls to buy (ATK KT). Stop: 94.86.

POOL ($39.60; +0.04): Splits 3:2 effective September 7. Showed its fifth consecutive doji as it consolidates over its 10 day MVA (39.29), but today we saw a huge volume spike (284,300; average 129,700) as the stock hit a new high at intraday level of 40.05. On a move to 40.17 on continued strong volume, stock. Stop: 37.36.

FFIC ($25.10; -0.05): Splits 3:2 effective 8-31. Continues to move in a tightening consolidation over its 10 day MVA (25.01), today gapping down slightly to that level and then showing a loose doji as volume settled down significantly (21,500; average 29,900). Still looking for the breakout to 25.50 on volume of 40,500. On that move, positions with stock.

FRK ($54.05; +2.30): Splits 3:2 effective September 4. Has made a nice recovery up from its 50 day MVA (49.92), and with a solid move today it is back up in the range of its former pennant pattern (formed after its July breakout from a saucer pattern). The high is 56.40, and on a move over 54.20 on increased volume (up to 40,600 today; average 43,450), positions with stock. Stop: 50.41.

CONTINUING CANDIDATES: We are also looking at FRX, RMD, ACS and ACF.

FITB ($63.93; +1.03): FITB is again trying to move, today bouncing up from its recent support at the 18 day MVA (62.69) and closing just under the high of 64.11. Volume remained a bit light (1.35 million; average 1.58 million), and we will look for a spike in volume up to 2.3 million on a move to 64.23, with stock and/or November $60 calls to buy (FTQ KL).

ASW ($40.08; +2.27): After resting Friday, the stock made another big move today, breaking to a new high. Volume shot up as well to 198,900, giving the move a lot of strength (average 141,500). The prior high was the July high at 39.55, and we are still looking at ASW as a buy up to 41.53. On a continued strong move, stock.

POST-SPLITS: CAKE and ESRX are also worth a look.

JNJ ($55.70; +0.68): Continued the breakout move from a pennant/ascending wedge, with volume increasing (8.76 million; average 6.5 million). Looking solid, and is a buy up to 57.73. Today it pulled back slightly from its high of 55.98, which is the former up trendline that connects March-May closing lows. On a move over 56 with continued strong volume, stock and/or October $50 calls to buy (JNJ JJ).

* * THE SUMMARY * * *

- Indexes flat to up on very light volume.
- A new week brings a chip sector upgrade to counter last week's downgrades.
- Stocks on reports breaking higher on good volume: follow the winning sectors.
- Subscriber Questions

Techs lead, a bit.

After six days of selling, techs started out stronger, struggled for a few hours, and then moved decidedly higher. The Dow and S&P started weak, attempted to rally late in the session, but then fell in the last hour to finish more or less flat. The action on the Nasdaq was once again bullish after a week of selling, but the volume was so light (the second lightest full session of the year) that there was no punch to the session at all. Individual stocks moved higher on strong volume, but overall the move to the upside did not have a lot of buyers backing it. On the flip side, at least the slight selling on the Dow lacked punch as well. It was a very, very typical summer Monday.

Another week, another analyst upgrade/downgrade.

It was also typical with respect to the analyst upgrade/downgrade schedule. Two weeks ago semiconductors, the de facto leading sector in technology, received upgrades and positive comments. They and the indexes rallied on the news. Last week the sector received downgrades and negative comments and the indexes sold down.

A new Monday brought another round of analyst comments, and this time the pendulum swing the other way on a Goldman Sachs upgrade of the semiconductor sector as a whole. Basically the report said to 'buy chip stocks now.' INTC, ADI, MXIM, BRCM, CNXT, and QCOM were all on the specific list of stocks to buy. That had pre-market trading looking good and at least got things off on a positive note that the Nasdaq could build on.

It was not all roses, however, as Lehman Brothers for the second straight week sounded negative comments about semiconductors, today specifically targeting the analog chip makers. So, there remains two camps of semiconductor analysts: those that believe the time to buy is now when things have looked their worst, and those who think there is no light at the end of the tunnel for some time to come. As far as we are concerned, the semiconductor patterns, while not fantastic, have shown some of the best improvement of the techs, and are more or less poised to rally if the techs do so. So, we remain in the posture of letting the chip stocks show us if they are going to make their moves. Indeed, we have purchased several chip stocks as indicated over the past couple of weeks, and we are looking for more when they show us the next good moves.

Still sticking with the leading sectors and stocks.

It was not a spectacular gain on the indexes, but we did enjoy some good moves that we were looking for in several stocks. Again, finding the stocks in good patterns and capturing them when they start their moves is the first part of making money in this market for the time being. Then we sell part or all of the position when it appears as if the stock has hit our target and started to stall, or just starts to stall after a strong move. Then we have some profits in hand and we still have a good position on stocks that we may want to hold for the longer term move higher as the market improves, as long as the stock holds its breakout. If it fades below its breakout, we sell the remaining position to preserve our gain.

As for the trading plays that we put in the reports, those are ones that we intend to sell when the stock hits our target or if it blows past it, when it starts to show topping signs (close well off the high, a new high on very low volume, a doji). Those plays we are riding for the short term gain, the cash flow. We are not kidding ourselves that these stocks could turn right back down on us after they hit our target, and thus we get out, pocket the money, and be happy that the play worked out just as we anticipated.

That brings us to another consideration that we need to discuss from time to time. Some subscribers are looking at P/E ratios on some of the plays and expressing concern that they are too high. As we have been saying for several weeks, we have to adapt to the market that we have. What we want to do is generate cash flow to pay the bills as well as buy stocks that we can sock away in our 401k's, IRA's, or any other account we are looking for longer term appreciation. That does not mean looking at stocks that are beaten down into the mud because they have 'good' P/E ratios. In this market, it has not meant a whole lot as to what a P/E ratio is; while most are shying away from high P/E's in the value oriented mode that has become the norm on the street, many of the stocks that are making good moves have the higher P/E's while many that have 'acceptable' P/E's continue to languish. When the market is providing the shorter term gains on moves out of signature patterns, we take what the market gives. The move may not turn into a 30% or better move; but if we can take 15% to 20% on the move, that is not bad at all in this market.

One of the complaints we hear from investors across the nation on the talk shows we are on is that stocks move up 15% to 30% and then give it all back. That seems to be the lament no matter what sector they are looking at. While we would disagree as to some sectors (e.g., regional banks), it has been true in many leading sectors such as home building and retail. That is a sign of the overall indecision and choppiness in the market.

That has led us to take profits, at least partial profits, when the stocks make the move we are looking for. That is why we have been putting TARGET prices in the reports. We just don't grab those out of the air, but look at how the stock moves, whether it is breaking over resistance, breaking to a new high, has significant overhead resistance, etc. What we are doing is recognizing what the market is doing right now and adjusting to fit that market. One of our copyrighted trademarks is 'take what the market gives you.' That is exactly what we are talking about here. It is moving laterally, giving gains and then taking them back in many, many cases. It happens to high and low P/E stocks. That is why we are looking at good patterns, catching them on the move up out of the pattern, and then locking in the gain when our target is hit at least on part of the position.

Sure some breakouts are holding and moving higher and we have sold out earlier than we should have. This has been particularly true in regional banks of late. On those, as they move a bit slower, we tend to sit with them and let them move for us longer term. We have also, however, kept partial positions we when we wished we would have sold out the whole position. Overall, by taking profits on at least half of our position when the target is hit or the stock starts to slow down, we have done much better in this market because the market is moving laterally and this is what the market is giving. There will be a time in the not too distant future when the majority of breakouts will start holding, and that will be when the overall market breaks its downtrend and starts moving higher on good buying volume. At that point we can pick off the stocks as the come out of their bases just as we do now, but also make the shift to holding longer term and letting the stock work for us by simply holding it and perhaps selling calls on it when it peaks and starts to sell back toward near term support. That has not happened for the majority of the market, however, so at this point we still stick with taking profits when our target has been hit.

End Part 1 of 2

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