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8/15/01 Stock Split Report Market Summary
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Stock Split Report Subscribers:

PLAYS TO LOOK AT:

BONUS PLAYS:

CDX (Catellus Development--$18.62; -0.13; no options): Property Management.
http://biz.yahoo.com/p/c/cdx.html
STATUS: Has been making its way up in the right side of a 8-month base, and in recent weeks has pulled into an ascending wedge. It made a move on its pattern high Monday, but on the ensuing pullback it has held its 10 day MVA (18.55). Today it dropped slightly after hitting a high of 18.85, with volume dipping back sharply to 119,000 (average 246,000). Looking for a breakout. Target: 23.
BUY POINT: 19.03 on volume of 332,000. Stop: 18.25.
POSITION: Stock only.

CBSH (Commerce Bancshares--$40.14; +0.13): Regional Bank.
http://biz.yahoo.com/p/c/cbsh.html
STATUS: Has pulled into a handle to its six-month base (prior high 43.63). The stock is holding its 10 day MVA (39.69), today moving up from that support with a volume spike (160,900; average 153,400) and establishing a new handle high at 40.54. Looking for a breakout. Excellent money flow and buying is getting strong. Target: 46.
BUY POINT: 40.66 on volume of 230,000. Stop: 38.75
POSITION: Stock.

PRE-ANNOUNCEMENTS: Besides the plays listed below, we are also looking at BJ, AZO, CRY and FDC.

THC ($55.35; -0.17): Researching a date. Showed its third consecutive doji today as it continues to move in its flat consolidation. Volume continues to be low (761,100; average 1.77 million) as it moves laterally over its 10 day MVA (54.97). A nice pattern prone to nice breakouts, and we are looking for such a move for positions. The aggressive play is a move over 56 with above average volume, with stock and/or November $50 calls to buy (THC KJ). The breakout is a move to 57.12 on volume of 2.4 million, with stock and/or November $55 calls to buy (THC KK). Stop: 54.

TTC ($48.55; +0.75): Forecast to announce a spit on 8-22-01 before the market opens in conjunction with earnings. We were looking for TTC to hold support at its 10 day MVA (47.67) on its low-volume pullback, and that it did, bouncing back up today with a nice push of volume (up to 55,300; average 53,500). It is now just under its breakout high of 48.99. On a move to 49.11 on increased volume, stock. Stop: 46.50.

CPRT ($25.70; +0.95): Forecast to announce a split in August in conjunction with earnings. At this time the company cannot confirm a date. Made a decent bounce the last couple of days, but volume was weak, coming in very light today at 233,700 (average 580,300). It closed just under its 10 day MVA (26.02), and we are looking for the stock to drop back off. The recent lows are at 23.50-24, with the target on a downside move back at 22 (200 day MVA at 21.57). On a drop back through 25.50 on increased volume near the average, September $30 puts to buy (KQJ UF).

WHR ($68.58; +1.81): We are researching a forecast date. Held its 50 day MVA (65.79) and June high, and today made a nice move back up, taking out its short-term MVA's in the process (18 day at 68.07). Volume was sharply higher than what we have seen in recent sessions, at 645,800 (average 654,300). Looking for a continuation of the momentum on increased volume. On a move over 69 on above average volume, stock and/or September $60 calls to buy (WHR IL). Stop: 67.50.

MI ($59.16; +0.56): We are researching a forecast date. MI is in a handle consolidation, and bounced up from its 18 day MVA today (58.52), continuing the momentum from the latter part of Tuesday. Volume was pretty solid at 217,600 (average 204,000), and we will see if it can gather more strength to breakout. On a move to 60.06 on volume of 270,000, stock and/or September 55 calls to buy (MI IK).

PRE-SPLITS: ALLY, KMP and FRK are also looking solid.

ATK ($101.33; -0.67): Splits 3:2 effective September 8. Has come back to test its May and June highs after its big breakout move last week. Today its showed a bullish 'shooting star' doji at that support, and volume spiked back up to 166,500 (average 146,200). From here we are looking a solid bounce and run back up. The breakout high is 103.95. The aggressive move is over 103.15 on increased volume, with stock and/or November $100 calls to buy (ATK KT). Stop: 100.50. The breakout is a move to 104.07 on increased volume. Stop: 99.75.

FFIC ($25.40; +0.41): Splits 3:2 effective 8-31. Made a breakout move, but not the strongest. It gapped up before testing the 10 day MVA at its low of 25.14, then closed with a loose doji. Volume continued to be strong at 56,200 (average 30,600), and we will look for more of a move. Still a buy up to 26.60. Stock only.

CONTINUING CANDIDATES: We are also looking at FRX and ASW.

RMD ($57.60; +0.17): After its solid move yesterday, RMD tested back to 56.20 today at its low (recent highs at 56.35-56.50), but pulled back up to close with a loose doji. We will see if the stock, after the test back down, can muster a breakout run from its saucer. On a move to 58.33 on volume of 400,000 (average 267,300; today 168,600), stock and/or October $55 calls to buy (RMD JK).

ACS ($83.81; +2.17): ACS has made a solid run the last few days, blasting up today on volume that again was sharply higher (684,300; average 520,000). Still has the momentum, and broke over its July high today, and is looking forward to its recent high of 86. On a continued move we will carefully watch the 86 level for resistance, as we are wary of extended moves in this market. However, it is looking strong. On a move to 84.25 on increased volume, stock and/or October $80 calls to buy (ACS JO).

POST-SPLITS: WFMI is still hanging in.

ESRX ($58.21; +2.37): Split 2:1 June 25. Made a very solid move up today in its pennant pattern. It moved out of its recent range and off of its 18 day MVA (55.35) to close just under the recent (late July) high in the pattern, at 58.69. We will look for a break over that level, and keep an eye on the pattern high at 61.45 as it move up. On a move to 58.81 on increased volume (up to 1.23 million today; average 837,500), stock and/or November $55 calls to buy (XTQ KK). Stop: 57.

COBZ ($15.20; +0.20): After breaking out Tuesday, the stock made a slight move up today, holding to close over the all-time closing high (15.16) after holding over the recent high in the pattern (14.91) at its low of 14.95. Volume was very large at 37,900 (average 10,300), and we will see if the stock can hold support in the 15 range and continue its move. The all-time high is at 16.53. Still a buy up to 15.91 on this move, with stock. Stop: 13.90.

* * THE SUMMARY * * *
SUMMARY:
- Another distribution day on the indexes as Nasdaq closes at a new low since April.
- June and July continue to show they were economically weak.
- Market is not buying Treasure Secretary soothsaying on dollar and economy.
- A stalled economy, crashed stock market, and weakening dollar, a.k.a., not learning anything from past mistakes.
- Subscriber Questions
- Team Trades

Selling continues to intensify, but it is still not what you would call heavy.

The Nasdaq suffered its fourth distribution day in the last seven sessions, i.e., where selling occurred on rising volume. That means there are more sellers out in the market than buyers. Comparing the selling volume with the buying volume of three weeks ago, it is light. But that was then and this is now. Since the accumulation days of three weeks ago, the indexes started to drift, and then the sellers came in and have now pushed the indexes, well really the Nasdaq, back to the brink.

What do four distribution days in quick succession mean for the Nasdaq? Well, it means that investors are lightening up on them and that much distribution usually precedes a steeper fall. With the Nasdaq closing below its July test of the April low, we could very easily see it make a quick run down here to really scare the socks off of investors. Again, the selling has not been out and out panic selling, just a lack of buyers and an uptick in the number of sellers. With the Nasdaq closing below the 1923 level from which it gapped higher in April, there is really no support to bounce it back up if buyers are not inclined to enter.

Will it be a dramatic plunge? It has not been so far. Despite all of the bad news and warnings about a still sluggish future re earnings, the market has not tanked. It has, however, been bleeding from dozens of small wounds. It might just continue to bleed lower and lower though the action on breaks below support usually is a pretty sharp drop, a test, and then a falloff again. There has been no sharp buying or selling volume, so the slow bleed is more likely unless there is something that spooks the market; it would have to be something pretty bad, because as we said, the indexes have been trying to hold the line without a major selloff despite continued future warnings from most companies issuing earnings.

June and July economically weak.

When an economy turns the economic news will be up and down. In April, May, and part of June we saw improving economic numbers. Then they started to wane a bit, but we have still been getting mixed numbers. Today inventories were reported down 0.4% and industrial production fell just 0.1% versus 0.9% in May. Signs that the slowdown is at least stabilizing.

On the flip side, however, sales dropped 1.4%, the largest drop since August 1992 and following at 0.9% climb in May. Thus, inventories may be dropping, but sales are falling faster. That means the stock to sales ratio rose to 1.43 months from 1.42 months, another monthly rise even though inventories fell. Sadly, it is NOT going to improve much until businesses start buying, not consumers. As we have noted previously, consumers continue to spend but businesses are not; it is the BUSINESS products that are piled up in warehouses, not consumer products. Look at capacity utilization; it fell again, down to 77% from 77.2%.

Even though this seems self evident, we are continually amazed by the reporting we hear and read. Today a column stated "A year-long economic slowdown has curbed Americans' appetite for goods, causing an inventory pileup". What? Sales just came in for July, and even though July was not a great month, retail sales were up 2.2% over July 2000. Increased buying is indicative of a 'curbed . . . appetite"? Of course not, but this is the kind of misinformation that is keeping those that want to do something to help the economy handcuffed.

Treasury Secretary sanguine, but nothing else is.

CNBC interviewed the Treasury Secretary today, and while the conclusion on CNBC was that the current administration supports a strong dollar, the answer when the question asked was not a clear statement to that effect. It was a "we are not going to dignify that with an answer, let's move onto something else" response. That was no help. The dollar fell again. More on this later.

O'Neill said the economy was "on the threshold of improvement." He said we were going to get back to growing at our potential (nothing specific, of course) in the Q4 2001 and Q1 2002. Let's hear it for the home team!

The market is not buying it. Sure it is not selling off wholesale, but that is more a factor of the magnitude of the loss of wealth that has already occurred over the past year. Lot's of money (what is left) is on the sidelines, still smoldering from the fires of 2000. It is not getting involved. Even though there is not a lot of heavy selling, there is more selling than buying and the Nasdaq has nosed below support.

What does the market know? Well, looking back to March and April 2000, we can see it knows a lot. While economists were still saying the Fed had to continue to raise rates to reign in the 'white hot' economy, the market started distributing and selling off. It took until the fall of 2000 before most economists started to wonder if the Fed had overdone it. The market, however, knew well in advance.

That is what we were talking about last night re the dollar and the bond. Back in April through June the bond market was looking for an economic recovery. As more economic data has come in, however, the bond market is looking further out for that recovery. The stock market was starting to price in better economic times during that same period, but if it breaks down here as the Nasdaq is starting to do, it is a clear signal that the idea of a technology recovery this year is history. Fighting the collective view of millions of investors is a tough thing to do.

Whether it is just that buyers are on vacation this month or whatever, the Nasdaq is indicating that recovery may be farther off than anticipated. It has not made a definitive break yet, but as noted above, the action has been slow bleeding. The index has now retraced 58% of the move up off of the April lows. That is still acceptable as a test in historical terms, so the index is not necessarily going back to the lows. There can be no question, however, that the accumulation that was readily apparent three weeks ago has gone dormant. It has been replaced by some distribution. The selling is not as strong as the previous buying and that can mean the index holds right at this level, but the sellers are in the majority right now.

Not learning from history.

The soon to be dollar fiasco is the most recent example of failing to learn from the past. The most recent: the Fed's snipe hunt after inflation. The Fed followed the lead of the 1920 central bank and chased nonexistent inflation. The 1920 bank crashed the stock market and helped usher in the Great Depression. We discussed the similarities back in 1999 and early 2000 between that bank and the current Fed. We said the Fed was going to go too far and then not do enough to prevent the crash, and unfortunately that is what happened. It is now desperately trying to court the consumer to continue spending after trying to stop the consumer from spending before. The poor marksman that it is, it completely missed the consumer and instead fatally wounded the manufacturing sector and the technology sector. The economy is in a de facto recession, having fallen from 6%+ growth to at best flat in Q2. The stock market was what the shrimping industry calls 'by-catch', a euphemism that describes all of the other sea creatures that are caught with the shrimp and killed in the nets. They are dumped overboard without too much concern. History sadly repeated itself.

The current administration is in the process of doing the same thing that the Reagan industry did in 1983 when James Baker tried to engineer a 'controlled fall' in the dollar to, you guessed it, help the U.S. manufacturers. A form of protectionism cloaked in different robes. That snake-bit the dollar for 9 years. If not for the massive economic investment in the U.S. by the U.S. brought about by the 1981 tax cuts, the economy would have been in major trouble. This time around we have a weak tax cut that no one is going to feel but for the $300 pocket cash that they are supposed to go out and burn anyway, and that is not going to ignite the desperately needed business investment. We have discussed the problems confronting a dollar slide, and if they snowball, they are about the worst-case scenario for the stock market you can dream up right now as foreign investors pull money from the U.S. The 'no change' in the dollar policy statement was just not emphatic enough as evidenced by the response the rest of the session. Speculation was that the policy, while strong, was 'flexible'. That is exactly what happened in the 1980's, and the dollar just could not overcome the speculation about just what the U.S. was going to do. Hopefully history won't repeat itself with the dollar, because without the incentive to invest in the U.S., an already gasping economy cannot give us the recovery we want.

End Part 1 of 2

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