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8/20/01 Stock Split Report Market Summary
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PLAYS TO LOOK AT:

BONUS PLAYS:

DJX (1/100 Dj--$103.20; +0.79; optionable (DJV):
STATUS: Tapped support (102) on the low and on the day moved higher, but volume was lower at 891,600 (avg. 1.1 million). The index is setting up for another move back down if it cannot break resistance at 104 (the ever-present 18 day MVA). If it makes it that far, we can go back and look at playing the index aggressively back down to 102. Indeed, we are looking to play a more aggressive play tomorrow on the Fed news if it is 25 basis points. The next entry point is the move below 102 in market selling for the put down to 98-100.
BUY POINT: Aggressive: 103.90 (on a move down from 104) on, preferably, rising volume. Below 102: 101.80 on rising volume.
POSITION: From 104: October $106 puts to buy (DJV JB). Below 102: October $104 or $102 puts to buy (DJV JZ or JX). Deltas unavailable at the time of this writing. Please check with your broker in the morning.

OEX (Standard & Poors--$598.79; +4.92; optionable):
STATUS: Testing the 600 resistance as expected, after opening lower at 593.83. Volume was lower on the move up, at 891,600 (avg. 1.1 million), and we are looking for a move down from here for the put play if the index cannot break resistance. If it can, the OEX can move up to the 607 range intraday in anticipation of the FOMC announcement, but if that is on low volume, look for the likely turn back down from there (or the 606 level, at the 10 day MVA). Target: 568
BUY POINT: 598, on a move down on rising volume.
POSITION: October $600 puts to buy (OEY VT). Please check with your broker for
deltas.

SOX (Phili Semi--$561.11; +5.57; optionable):
STATUS: Found some support near 550, moving up slightly today. We are looking for the SOX to perhaps bounce on up to the 575 range (earlier August lows; 10 day MVA at 582.38) and then retreat back for a put play. However, we will also look at selling back upon the FOMC announcement tomorrow even if it has not reached up to that resistance. There is potential support in the 537 range (March and July prices), and we will see how it handles that. On a continued drop it could visit 500.
BUY POINT: A drop back after a move that fails in the 575 range. Also, after a bit of a move up tomorrow, selling back upon the FOMC announcement.
POSITION: October $580 puts to buy (SJX VP). On a move down from on the FOMC news from the 565 range, October $570 puts to buy (SJX VN). Deltas unavailable at the time of this writing. Please check with your broker.

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

BJ ($55.27; +0.80): Forecast to announce a split tomorrow before the open in conjunction with earnings. BJ pulled up slightly today and just hit our aggressive buy point, but did not have the strength to clear the 10 day MVA (55.31). Once again, a low volume move, down today to 337,700 (average 618,700). The stock is still holding the pennant pattern, an announcement could give it a much needed boost. On an announcement, a move up from here on above average volume. The breakout play is 57.37 on volume of 840,000 or more. Both positions: stock and/or October $55 calls to buy (BJ JK).

MI ($59.04; -0.01): We are researching a forecast date. MI continues to move in a flat, handle-type consolidation, today tapping down through the 18 day MVA (58.70) before pulling up to close with a loose doji at the 10 day. Volume was up on the move, and just above average at 205,300 (average 204,200). We are still looking support to hold, with a breakout over the handle high (59.93). Money flow and relative strength are solid. The breakout play is 60.06 on volume of 275,700, with stock/or October 55 calls to buy (MI JK).

THC ($55.27; +0.89): Still researching a date. THC regained some ground today, pulling back over the short-term MVA's (10 day at 55.01), on higher, above average volume of 2.17 million (average 1.76 million). The stock is still moving within the consolidation range (54-56). We are looking for the momentum to continue, and carry THC up over the pattern highs. Relative strength broke out ahead of price and remains solid. The aggressive play is still a move over 56 on increasing volume with stock and/or November $50 calls to buy (THC KJ). Breakout: 57.12 on volume of 2.38 million with stock and/or November $55 calls to buy (THC KK).

TTC ($49.20; +1.25): Forecast to announce a spit on 8-22-01 before the market opens in conjunction with earnings. TTC made a nice move up and out of its handle today, hitting our buy point, but volume was weaker than we like to see (down to 38,800, average 53,700). The stock has been moving back and forth in the handle consolidation (formed after another recent breakout), moving between support at the 48 level (10 day MVA at 48.10) and resistance around 49. We are still looking for solid volume to sustain a breakout move, and an announcement may give TTC the boost it needs. On a solid move over 49.50, with volume of 72,500, we will look at positions with stock only.

THQI ($51.22; -20.3): We are working on a date. The orderly retreat we saw developing late last week may be over. THQI fell through the 50 day MVA (51.58) on strong selling today, tapping the 50.26 level before pulling up to close. Volume was sharply higher at 1.02 million, (average 795,500), which is not a great sign for the upside. On further strong selling through 50, perhaps after a test back over the 50 day (which could fail after the interest rate announcement), we are looking at October $60 or December $65 puts to buy (QHI VL or QHI XM). Initial target: 45.

PRE-SPLITS: POOL is also looking solid.

CECO ($65.54; +3.88): Announced a 2:1 stock split, with the effective date TBA. Terrific move today! After hovering around the short-term MVA's late last week, (10 day 62.52), CECO took off today, breaking out of its pennant pattern, and taking out our buy point on sharply increased volume of 333,000 (average 213,700). We are looking for the momentum to continue, pushing CECO past the pattern highs at the 66 level (intraday spike and all time high: 67.09). From here, a move over 66 on continued strong volume with stock only. Stop: 64.

FRK ($54.45; +0.10): Announced a 3:2 stock split last week, effective September 4. Continuing in the lateral consolidation formed in the range of its former pennant pattern from late July. FRK is still holding above the recent lows (54), today showing a tight doji on decreasing, below average volume of 23,100 (average 40,900). We are looking for the stock to hold that level or maybe shake out a few more sellers down to the 10 day MVA (53.71). Then we look for the move up over 55 on above average volume with stock only.

FFIC ($25.26; +0.05): Splits 3:2 effective 8-31. FFIC recovered a bit from Friday's fall, pulling up to close just over the 10 day MVA (25.18) on sharply increased, above average volume of 42,300 (average 29,900). The stock is still well within the consolidation pattern, and buying, money flow and relative strength are all quite strong. After holding support here, we are still looking for the breakout move over 25.50 with stock only.

CONTINUING CANDIDATES: Watch ASW for a pullback.

FRX ($74.97; -3.52): Strong selling through support kicked in today. FRX sold back hard through the 50 day MVA (75.27), hitting 74.25 before pulling up just a bit to close. Volume was huge on the move, way up to 2.76 million (average 1.36 million). We may see an attempt at recovery before the selling continues, and will watch for possible support at the saucer lows (June-July: 70-72.50 range). After a failed move back up through the 50 day, on strong selling back down through 74.25 we will look at November $85 puts to buy (FHA WQ). Initial target: 70.

RMD ($56.99; +0.99): Today RMD tapped down through the 10 day MVA (55.89), before hitting our aggressive buy point and making a small gain on decreasing, below average volume of 75,500 (average 260,000). The pattern is looking good, developing a lower volume handle (off of a 10-week saucer) over support at the 56 level. From here, we are looking for a breakout move over 57.79 on volume 390,000 with stock and/or October $55 calls to buy (RMD JK).

ACF ($52.45; -0.15): Still may be shaping up for a put. After last week's strong selling resulting in an 8 point loss, ACF could only manage a loose doji today on a much shorter intraday range. Volume was down, but still strong at 2.5 million, (average 1.16 million). From here, we may see another attempt toward the 55 level, but we are still looking for strong selling down to trigger a put play. After a failed move up to the 55 level a drop back through 53 on continued strong selling volume, November $65 puts to buy (ACF WM).

POST-SPLITS:

WFMI ($33.36; +0.22): Little change Monday. The stock is still tightening in the pennant and still looking good, closing today with a small gain on low volume of 400,100 (average 593,200). We are looking for a move to 34 on average or better volume, with stock and/or October $30 calls to buy (FMQ JF).

* * THE SUMMARY * * *
- Weak attempt at recovery, but volume is simply not there.
- Light rally ahead of the Fed. Just setting up for a further fall?
- Leading economic indicators improve for fourth straight month as economy tries to struggle to its feet in spite of dollar.
- Subscriber Questions

Indexes rebound after a week of selling.

After getting the air let out last week as the Nasdaq and S&P 500 closed below the July test levels, the major indexes gathered themselves today and rebounded. It was a typical trading session of late: up and down throughout the morning until the move found firmer footing late in the session and made the definitive move.

Problem is, investors forgot to show up. Volume was even lighter than on Friday on the Nasdaq and NYSE. The 'rally' had no punch whatsoever. It appears to be in the classic sense a reflex bounce after a lot of negative sentiment and selling. The lighter volume shows there was no real buying interest ahead of the FOMC meeting on Tuesday. Again the market has failed to return to accumulative ways. After steady accumulation during the test, investors went flat and then started to sell shares. That has not changed as of yet.

Setting up for a fall?

While summer Monday's are always light on the volume, until volume spikes higher on some buying, we cannot assume that the downtrends have been broken. Indeed, today's light volume buying was more or less going to happen some point early this week after the selling and extreme negative sentiment last week.

Without volume buying, however, any move up that runs into resistance most likely will not pack the punch to break through and hold the move. And if the market is disappointed by the Fed action, the combination of resistance and disappointment will most likely push the indexes back down. If the market can continue to drift up tomorrow ahead of the FOMC meeting, that would be a perfect set up for selling on the news when the Fed disappoints.

Will the Fed disappoint? As discussed over the weekend, the market is showing it needs something, and the nearest relief is the Fed. It has factored in 25 basis points and is still distributing; it is saying in plain language that it wants, yeah verily needs, more help than just 25 basis points. Problem is, the Fed is always behind the curve and with the continued improving economic numbers, the interest rate hawks will be very difficult to convince that the Fed should cut more than 25 basis points.

The fear is that too many cuts now will lead to overshooting the mark and will require tightening later. There is also the scuttlebutt that the Fed is just looking out for the financial markets. These two arguments are interrelated. If the Fed ignored any signals and just cut, cut, cut, there would be a problem. Why? Because the cutting is not stimulating the business side of the economy. Jacking up demand and the money supply without getting the production side of the economy going has inflationary potential with more demand and money chasing a stagnant pool of goods as none are being manufactured right now. Then there is the argument about the Fed just rescuing the financial markets as if that is bad in and of itself. Like it or not, the financial markets play a major role in our economy. They attract trillions of foreign investment dollars, and that gives companies the funds to invest in the research and development that made the U.S. the technological king. The Fed would like to preserve that, and keeping the financial markets healthy is a worthy goal. But, the goal is only attainable if the industries are healthy as well. No activity on the business side is not the picture of health.

In any event, the market again is our focus. It is showing that the rate cuts in the can and those anticipated (25 now, 25 later) are not enough to turn the economy back up. The market is discounting future growth. Its recent widening cracks are clear signals that what has happened and what is planned is not enough EVEN as the economic numbers continue their slow improvement. The market discounts months in advance. Even with the short term improvement in economic reports, the market is not building in better times down the road; in fact, it is distributing, indicating its lack of confidence in the path being taken. In our opinion, rate cuts may not be the best way to get the economy where it needs to be (tax incentives to stimulate the business side to match the consumer side stimulus - - hey, let's have a balanced plan for grins), but if those are not coming, rate cuts will do the trick, though the market is telling us it will take longer using them.

Thus, 25 basis points will be a disappointment. The Fed could shock us, and we hope it does, but that is not the reality of the situation or how the Fed operates now. A 50 basis point cut would signal the Fed is not finished doing whatever is necessary, i.e., that it has not adopted a "we have done our job, now sit back and watch" attitude that is attributed to it now. No, it has clearly reverted to a stodgy, Philip's Curve view of the world, a world that only existed for 7 years out of the entire history of economics. Unlike one analyst on the television tonight, we do ot believe that whatever the Fed does tomorrow will be positively received by the market. It has really one choice to generate a positive response, but it the odds of that size of cut are very, very long. Accordingly, we view a continued rally into the 2:15 p.m. ET announcement as a good set up for selling on the news.

End Part 1 of 2

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