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8/30/01 Technical Traders Report Update
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THE PLAYS:
Continuing Plays: UCOR tested the 18 day MVA on even lower volume so is in good position for a move up. TARO is pulling back on low volume, forming a short cup with handle. Other stocks from last night's report that look good are BPRX (doji at support and on low volume) and KNDL. GOTO gave up a good downside move, and COF kept sliding. MSCC moved up to test resistance again, and on low volume, so will likely move back down, but so far support at the 26.25 range has been strong.
KLIC (Kulicke & Soffa--$14.30; -0.36; optionable): Semiconductor
http://biz.yahoo.com/p/k/klic.html
STATUS: We wanted to play this one up in its rolling pattern, but the 50 day MVA proved too sturdy on Monday's tap at that level. KLIC pulled back down to the 200 day MVA Thursday, tapping below it at 13.91 but then closing back over the moving average. Showing a tight doji, it can bounce back, perhaps for another start at that run up, especially if we get an oversold bounce. Other chip stocks showed the same action (AMAT, KLAC). Target: 18
BUY POINT: Aggressive: Up from 14.30 on continued rising volume (up to 622,900 Thursday; avg. 662,000). Stop: 13.90
POSITION: Stock and/or October $12.50 calls to buy (KQS JV).
CHRW (C.H.Robinson Worldwide--$31.02; +0.27; optionable): Transportation
http://biz.yahoo.com/p/c/chrw.html
STATUS: Made a good move up in the ascending wedge as volume rose back up to 439,600 (avg. 212,318). The high of 31.39 tapped near upper resistance in the pattern. Not great that it pulled off the high, but the stock is looking good as it tightens up in the wedge, and we are continuing to look for a breakout. Target: 36
BUY POINT: 31.72 on continued strong volume. Stop: 30.50 (18 day MVA).
POSITION: Stock and/or November $30 calls to buy (CJQ KF).
New or Revisited:
New:
CDIC (Cardiodynamics--$5.76; +0.46; no options): Health services
http://biz.yahoo.com/p/c/cdic.html
STATUS: Ready to break out of a flat base that has previous highs at 5.74. That price is upper resistance in the pattern, with the stock closing just above that on a high-volume breakout move. Our buy point is just above that at 5.87, just below the intraday high of 5.93. Even if the stock pulls back to form a handle to the shallow base (save for a dip back to 4 in July), we can look at taking positions after the pullback. Momentum for a breakout here looks strong, however. Volume: 587,400; avg. 165,000). CDIC shows great money flow and buying. Target: initial, 7
BUY POINT: 5.87, on continued strong volume. Stop: 5.46 A buy on the breakout up to 6.16.
POSITION: Stock only.
XRAY (Dentsply Intl--$45.05; 0.00; optionable): Health services
http://biz.yahoo.com/p/x/xray.html
STATUS: Pulling back in the handle to a short cup base of 11 weeks. The stock is showing the right kind of pullback as volume decreases steadily over the previous three days (down Thursday to 87,500; avg. 262,000); from a handle high of 45.70 XRAY has shown three dojis, the last 2 tight and lateral in this portion of the pattern. Looking for a breakout over that high. XRAY formed the cup after a breakout from a double bottom late May and early June. Relative strength is out ahead of price. Target: 53-55
BUY POINT: 45.83, on minimum breakout volume of 393,000. Stop: 44.50 A buy on the breakout up to 48.12.
POSITION: Stock and/or October $45 calls to buy (XEQ JI; delta is 0.54; $40 strike has a delta of 0.88 but 0 open interests; XEQ JH).
ENZN (Enzon--$64.55; +0.29; optionable): Biotech
http://biz.yahoo.com/p/e/enzn.html
STATUS: In a nice lateral pattern developed on overall below average volume (which remained low but was rising Thursday to 730,100; avg. 1.6 million). The stock formed the pattern in the mid-range of a 12-week cup base (part of a 10-month base) and has tightened up over the last 2 days above support of the 18 day MVA (50 day is at 62.69). Looking for a strong move up, and looking at an initial target at the highs at the start of the base (78-79). Showing good money flow and buying.
BUY POINT: 68.05 on minimum breakout volume of 2 million. Stop: 65 A buy up to 71.45 on a breakout.
POSITION: Stock and/or November $55 calls to buy (QYZ KK).
Revisited:
THOR (Thorate Corp--$19.98; -0.02; optionable): Health services
http://biz.yahoo.com/p/t/thor.html
STATUS: Removed from the regular report recently when the stock stalled out as it tried to break out from an 11-month cup with handle base (prior highs at 25). Over the last 5 of 6 days THOR has hit resistance at the 20 range, but got a nice shot of volume today (621,100; avg. 531,000) on a move up from the 10 day MVA (19.26). We will see if THOR can make a strong breakout this time. Volume was decreasing nicely three days prior to today's rise. Target: 23-24
BUY POINT: 20.28, on minimum breakout volume of 797,000. Stop: 19.20 Buy on a breakout up to 21.29.
POSITION: Stock and/or October $20 calls to buy (TQU JD).
A trading play:
AMGN (Amgen--$64.57; +1.97; optionable): Biotech
http://biz.yahoo.com/p/a/amgn.html
STATUS: Made a strong move over its 200 day MVA (63.69) on volume of 12.2 million (avg. 7.4 million), in part moving along with Genentech on news of the discovery of a molecule that can give new insight into the process of blood vessel growth known as angiogenesis. In addition, Amgen may soon win clearance to sell another anemia treatment drug, and that helped move the stock. We are looking for a quick trade up to the June highs at 70 if AMGN makes it back over 65 (resistance over which the intraday high moved).
BUY POINT: 65.30 on continued rising volume. Stop: 63.50
POSITION: Stock and/or October $60 calls to buy (YAA JL).
PUTS:
New:
OSIP (Osi Pharmaceuticals--$42.06; -1.59; optionable): Health Services
http://biz.yahoo.com/p/o/osip.html
STATUS: Broke the 50 day MVA Wednesday, tested it Thursday, then fell same day (the "kiss good-bye"). On stronger volume, however, OSIP bounced back from a low of 41.07 to close above the 18 day MVA (41.86). We are going to watch it for a break of this lower support now, and on a move down from there after a test (another "kiss good-bye", will look at playing the stock down to the 32.50 range (March lows). Potential support at the July and August lows at 37, so that will be our initial target. Volume was up to 203,300 (avg. 371,000).
BUY POINT: 41: After a move below the 18 day MVA (41.86) and an attempt to move back up to test the breach; possible put positions on a move down from there (below 41).
POSITION: October $55 puts to buy (GHU VK).
Indexes: The Dow and OEX did just what we said they would this morning, hitting resistance on the highs and tanking. Care needs to be taken with these downside plays, however, as a relief bounce could occur anytime with market down heavily three days in a row.
SUMMARY:
- Selling intensifies as early bounce attempt fails miserably.
- Consumer is indeed starting to sag as dollar reverses recent positive course.
- Gloom is high, but fear is not yet high enough.
- Tuesday represents a whole new chapter.
- Do you hang onto any of the losers you have left?
- Team Trades
No one willing to test the upside waters just yet.
The market tanked early as anticipated, then made a brief attempt to rally. That was run over by a Mack truck heading south, and everyone piled on. Volume jumped above average on the Nasdaq and the NYSE as the sellers beat the post-Labor Day rush and sold hard before the holiday weekend. All indexes crashed even lower toward the March and April lows.
The brave went long on some defensive stocks: food, restaurants, biotechs, healthcare. Basically the stocks we have been looking at as the few long positions left in the market at this stage of testing the prior lows. As everything sells off, investors seek 'safety,' whatever that is. Believe it or not, several of these stocks still look good even after today, good enough for us to earnestly look at making some solid upside money with them even tomorrow heading into the weekend. Many stocks were selling on higher volume, but several of our stocks and our picks tonight were gaining on higher volume.
Consumer is in fact starting to sag in spending.
The total, all eggs in one basket gambit the Fed and the government have made on the consumer is very close to failing. "What?" say the pundits? "GDP showed consumer spending up 2.5%. How can you say the consumer is weakening?" Today's personal income and personal expenditure numbers tell the most recent chapter of the consumer saga.
Personal income was up 0.5%, better than expected and the highest in nine months. Man that looks good, and it is. But we also have to realize that this number is in part a result of many lower-income jobs being eliminated. That leaves more higher level jobs with higher pay. Fewer jobs at higher pay means income rises simply because lower paid employees have been put on waivers. What was heralded as good news is really in part just a function of math.
Then there is personal expenditures. That was up just 0.1%, in line with expectations, but well off the 0.4% rise last month. It is clear that all consumers, those with and those without jobs, are spending less. Higher incomes (just part of the rise is due to math) and lower spending means more consumers are saving. Specifically, the savings rate jumped to 2.5%, the biggest jump in over two years. Some put a positive spin on it: the consumer is 'keeping his powder dry for later consumption' one analyst said. Yes, that is true. But that is hardly a positive. This is EXACTLY how recessions really get underway: the consumer stops spending and starts saving for the rainy days to come. That has been on of the problems in Japan for years; Japanese consumers simply are not spending.
We have been saying for over a month that the consumer is slowing down, and this is a very serious and potentially ominous development for our economy, one whose hopes have been pinned by the powers that be on the consumer. The consumer IS NOT going to bail out the economy, especially if the dollar continues to weaken. The government caused this mess by again meddling with free markets; now the government needs to take the necessary action to get the business side of the economy going. The trickle down effect of consumer spending and a weak $600 tax 'rebate' is not going to do it. There is talk in Washington of additional tax cuts, but once again the time frame will not help a thing. This is an emergency, and we need immediate, retroactive action taken to jumpstart capital investment.
Dollar index takes a quick plunge.
After trying to firm up for two weeks, today the dollar turned back down hard today. It did not break below the bottom of its recent trading range, but this was the biggest move of the consolidation, and it was from the top of the range to the bottom. Not a good sign.
The ECB (European Central Bank) cut interest rates 25 basis points earlier today, but that had no impact on the U.S. markets or the dollar. As we noted last night, we would see more central banks cut their interest rates in response to the weakening dollar, but the ECB did not go far enough as reflected by the reaction in the world markets. The markets tell volumes about whether the policymakers are taking the necessary steps, and it is pretty clear that the market, the final arbitrator of all actions, thinks the actions are not nearly enough. Indeed, the Fed is still 50 basis points from even starting to get the Fed Funds rate where it needs to be in order for all of that money supply to be released in the form of loans. It is behind the curve despite 7 rate cuts; it simply is not getting the rate to where history tells us it needs to be for businesses to find it economically conducive to borrow for investment in their businesses. It drives you insane by the stubbornness, but the Fed is being ruled by the old school inflation fearing Phillips' curvers, something that has led us to this recession.
Chatter that 'capitulation' is here once again on every analyst's lips.
After a good old fashioned ass-kicking like the market has had this week, the gloom was high today on the financial stations. Again we started to hear the 'capitulation' word out there with many saying that today was capitulation or that the 'capitulation process' was happening.
If everyone says it is capitulation, you can bet it is not. First, just look at the sentiment indicators. The put/call ratio was 0.94 today; up, but not up enough. The volatility indexes have moved up this week, but they are grudgingly giving up ground. They are nowhere near where they need to be to signal a reversal to the upside. Bulls are somewhat diminished and bears are somewhat higher, but they too have not hit those extreme levels that lead to reversals. Despite the analysts' gloom, investors do not seem to be scared about what is going on just yet.
Why not? Well, as with the capitulation talk, there has been the consensus that the March and April lows set the bottom for the market, and it is now just testing those before it heads back higher. That is what we have heard from 90% of the analysts on the financial stations. We fall in that category (full disclosure). So, if you are an investor who has taken a shellacking in some stocks and are still holding them, the thought process is 'well, heck, I will just hold them until this thing turns up off of those March and April lows and just recoup my losses.' Simplistic, yes, but you get the idea: if you know there is a bottom and you know where it is, you are not going to get too scared if it is only another 10% lower. If the bottom could be 500 on the Nasdaq, then you would get some cold sweats going. 700 on the S&P would make investors queasy. 6,000 or 7.000 on the Dow . . . you get the picture.
Right now there is no fear because the prior lows are viewed as the bottom. Investors have to have their trees rattled, their faith shaken. As shocking as it may seem, investors still are not scared; they have been taught by Charles Schwab, Merrill Lynch, et al to 'stay the course' no matter what. With the bottom just 10% away, they figure they can just ride it out.
That is why it will most likely take an undercutting of the March and April lows (that is 9100 on the Dow, about another 8%; 1619 on the Nasdaq, another 10%, and another 5% on the S&P 500) to get investors scared. A classic double bottom occurs when the right leg undercuts the left leg; that scares those that hung on and rode back down to that previous low. When it does not hold, they finally figure there is no telling how low it will go, and then the last sellers get out and the market is free to rise. That is the psychology; they have to get scared. They have not been worn out; it now appears they have to, after all of this selling, be jolted out of the market. Unless the indexes just fly down to the lows in just a few more days, we don't feel the fear will get there until the lows are undercut.
End Part 1 of 2
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