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us stock market, trade stock
Begin Part 2 of 3
NASDAQ:
It waited a session to rally, but even when it did it smacked the recent low on the high and pulled back from there. Volume was lower. If it was the start of a rally, it was inauspicious. Selling can start that way, but not many upside moves.
Stats: +13.75 points (+0.8%) to close at 1805.43.
Volume: 1.232 billion shares (-29%). Volume fell back below average on the gains, but it was not bad for a summer Friday ahead of a holiday. Up volume led 745 million to 468 million downside shares. All in all, hard to take much from the action other than it was substantially lower volume when the index tried to move higher.
A/D and Hi/Lo: Advancing issues led for the first time in days at 1.27 to 1 (decliners led 1.89 to 1 Thursday). New highs rose to 48 (+3) as new lows fell to 115 (-78).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq bounced, but it hit the prior August intraday low on the session high (1817.72) and pulled back to the close. It was not much of a rally, and individual stock volumes back this up. We had a pre-holiday Friday session in all respects, and it did not do anything to change the downtrend. After such a hard selloff, however, indexes usually try to regain lost ground up to the down trendline. Right now that is near 1855. With the fund managers coming back on Tuesday, however, picking which way they will take the market is dicey. All of the sudden there are a lot more players on the field with their own agendas, and we have to see where they take it. One thing to keep in mind: we don't expect to hear a lot of good things from the upcoming warnings season. Some of these conferences next week could give us more SUNW news.
Dow/NYSE:
The Dow was up 100 points but then gave over two-thirds back on light volume. It too may try to trim some of the heavy losses early in the week, but unless the fund managers come back as buyers, we expect some further testing.
Stats: +30.17 points (+0.3%) to close at 9949.75.
NYSE Volume: 949 million shares (-23.4%). Back below average on the gains and a significant drop on buying. There was not a lot of force behind those attempting to sneak in before any buying rally started. Up volume led 525 million to 375 million shares.
A/D and Hi/Lo: NYSE advancing issues managed a small lead on the session (1.24 to 1; declining issues led Thursday 1.9 to 1), but on the week the NYSE A/D line was down for the first time in quite awhile. New highs rose to 114 (+1) as new lows rose to 57 (+11).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Tried to run over 10,000, hitting 10,036.94 on the high before folding back on the close. As with the Nasdaq, it has suffered heavy selling and may try to rebound further this week. Much depends on the fund managers, and volumes will tell us that fairly quickly. If it does attempt to rally from here before resuming its test, we would look at the 10,120 level, the July intraday low, to once again act as resistance if no volume comes into the picture.
S&P 500: The same action as the Dow, hitting 1141.83 on the high, but then unable to hold the majority of the gains. The S&P was bombed last week, and it looks as if it could try to rally to 1150, the closest lows, before resuming its test of the March and April lows (1081.19). Again we need to watch volume to see what the institutions are doing on any move higher or lower as that will key us in as to whether any move has backing.
Stats: +4.55 points (+0.4%) to close at 1133.58.
Volume: NYSE volume plunged to 949 million shares (-23.4%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: Tuesday marks the return of the fund managers to work and September, a historically bad month for stocks. There is not a lot of positive information flowing, and unless the economic news and company news is better than expected, pressure will remain on stocks. We will see volumes move higher because of more fund managers at work, and we have to take note of what they are doing. We anticipate perhaps a modest move higher and then a further plunge to the lows, hopefully all in one week. That would set the stage for a stronger move higher, but we have to be careful at what we pick to ride. We will continue to look for the strong stocks in good patterns as well as those that are in the position to give solid moves if not breakout and run 100% if the market really rallies. We are getting close to a time of change, but the indicators are only about 50% lined up; those are not good odds for a sustained move. A sharp selloff this week could rectify that situation and coincide with a full test of the lows as well. In our mind that would be the best scenario for sustained upside action.
THIS WEEK
Again, a busy economic and company news week. That will keep the market on edge along with the fact that fund managers are back and ready for business. We need to be ready to go where the fund managers take the market. As noted, an early rise in the week will be viewed as suspect; we would prefer to see serious selling down to the lows first.
What we are doing right now is watching those stocks that are holding up better in the recent selling. These will be the best movers when the market finds bottom and makes its next move. As noted, the biotechs are true leadership caliber stocks, and they have shown some better patterns these past couple of weeks. We all know that biotechs can run well, and they do not have the inventory problems that technology stocks have.
In addition, we are going to continue to look at the indexes as a source of shorter term gains. They served us well on this recent plunge, and we may get a short upside play this week before resuming the downside action. We have written up some index plays for you along those lines.
Right now the market has not shown us that it is ready to move higher. We would prefer to see a resumption of selling out of the gates Tuesday to get us down to the prior lows and then see the dollar continue to firm and then some better economic news (and we have many chances to do so). That would complete the big double bottom pattern we talked about back in April and give the entire market a firm foundation to really move higher with improving economic numbers. Remember, the market discounts better times in the future, and improving economic numbers this week (even if the consumer has been weakening) can be the trigger. If we get the good foundation and the right reports, then we can have a sustained move higher. Until then, we will play the downside to the lows to give us cash flow and money to invest on the upside when it comes.
Of course, what we want may not be what we get. So, we will also watch for a weak move up to the near term resistance levels as a continuation of Friday's bounce attempt. When the indexes ram into resistance and turn over, that is when we will reload the downside positions for the test of the lows.
Support and Resistance Levels
Nasdaq: Closed at 1805.43.
Resistance: 1817 (mid-August low). 1935 to 1940 stopped the last move higher. Much higher in the range, 1985 to 2013 is pretty congested.
Support: 1750 is next in line, but there is not a lot of support there. The low is 1619.58.
S&P 500: Closed at 1133.58.
Resistance: 1150. Then 1165 to 1170. 1183 is next, then 1200.
Support: The low is 1081.19.
Dow: Closed at 9949.75
Resistance: 10,000 may act as resistance. Then 10,120 and 10,200. After that, 10,400. 10,600 is strong resistance.
Support: 9775 to 9800 is potential support. The low is at 9106.54.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
9-4-01
Auto Sales, August (8:30): 6.1M versus 6.1M prior.
Truck Sales, August (8:30): 7.1M versus 7.3M prior.
Construction Spending, July (10:00): 0.0% versus -0.7% prior.
NAPM Index, August (10:00): 43.2% versus 43.6% prior.
9-5-01
Productivity-Revised, Q2 (8:30): 2.0% versus 2.5% prior.
9-6-01
Initial Claims, 9/1 (8:30): 395K versus 399K prior.
NAPM Services, August (10:00): 49.1% versus 48.9% prior.
9-7-01
Nonfarm Payrolls, August (8:30): -50K versus -42K prior.
Unemployment Rate, August (8:30): 4.6% versus 4.5% prior.
Hourly Earnings, August (8:30): 0.3% versus 0.3% prior.
Average Workweek, August (8:30): 34.2 versus 34.2 prior.
Wholesale Inventories, July (10:00): -0.2% versus -0.2% prior.
SUBSCRIBER QUESTIONS
Q: [With respect to the ARMS index] the day count range that you wrote about [4 days to 20 days on a close above 1.5 and 1 to 7 days on back-to-back readings above 2.0], is that calendar days or market (trade) days? The NASDAQ Composite Index data and many NASDAQ companies did not exist for us to chart back to 1974. Should this be applied only to Dow Jones Industrial-30 stocks?
A: The day count refers to market days. The ARMS index analyzes data with respect to the Dow and not the S&P 500 or the Nasdaq. The technology components of these two indexes can thus lead to different results than the Dow based on the ARMS index, especially in a situation such as this where there is a massive capital investment bust and chronic excess inventory. The index has only been around since 1966, and it cannot be back tested much further back as the data needed to calculate the index was not calculated.
TEAM TRADES
BJCT: Medical instruments and biotechs are two areas we are looking at in earnest as the market approaches the former lows. While the patterns may not be stellar, some are downright great and others are consolidating when most sectors have been selling. BJCT is in the medical instruments and it had formed a very solid pattern, a double bottom with handle. We had been watching some impressive volume spikes the past week, with another large spike on Thursday catching our eye as the stock traded flat in its handle. That shows us that buyers were snatching up shares as fast as sellers were selling them; in other words, after some quiet volume, the last sellers were getting out on Thursday's heavier volume selling in the major indexes, but unlike most stocks, BJCT was not selling off.
Friday it made its move around 12:25 CT when it cleared the handle high of 12.30. We issued an alert stating the buy point was at 12.43, and then went about getting in on some positions. A few minutes later, the stock was trading 12.40 by 12.49 to 12.50, so we put in a limit order at 12.50, wanting to get in on the move. That worked out easily for a change (of late we have had some trouble getting limit orders at the ask taken), and then the stock ran up to 12.90. As usual on a breakout, it pulled back to test the move, dropping to 12.60 for a trade or two, and then rebounding. That was the second chance to buy in. After that, the stock stair stepped higher the rest of the session. It ran over 13 and then suffered some strange trades around 12.80 late before it rebounded to close at 13. Could have been some market orders being filled as the stock jumped right back up. Good sector, good breakout, good volume. We will see if it can build on it.
THE PLAYS:
Note for reading plays: A "prior high" refers to the high at the start of a base.
All prices are current as of the close of trading Friday.
BEST PLAYS: CDIC from the Thursday update, added to its breakout move, but pulled well off the high; it is likely topping out. That's a good example of taking the quick profit on breakouts occurring in this choppy market. Removing but still showing decent patterns: XRAY, PII, HOTT, OMG, and CPC, the last of which broke out of its pennant and remains a buy on the breakout up to 21.29 (closed at 20.40 Friday on 167,000 volume, above the minimum required). It may just be getting going here; when it tops out we will look at it after a test of the breakout. Also removed are AOC, CHRW, and STE (which on Friday made a good move back over all its short term MVAs after selling off earlier in the week). We are keeping an eye on it for a breakout from the ascending wedge (buy point is 22.88). ATR sold back after trying a breakout; it may consolidate and try another move up soon.
Best Plays:
1) URBN: Breaking out and still a buy.
2) SMTL: Making a breakout move.
3) DSPG: Tight pattern on low volume.
4) ILUM: Another breakout move from a smaller cap stock.
5) GNSS: Put.
6) AMGN: Tight doji on a lower volume pullback.
7) BPRX: A nice shakeout in the handle.
8) TARO: Just looks good.
NEW PLAYS:
ESCM (Esc Medical--$28.95; +0.36; optionable (QFC): Medical Equipment Wholesale
http://biz.yahoo.com/p/e/escm.html
STATUS: Is in a 10-week cup base, and after a pullback Thursday on low volume, moved higher Friday on volume that rose to average levels (678,700). Previous high in the base is at 32.14 (June high), but on a breakout from this base we are looking at a target of 35-36. The stock looks ready to make a move higher from here, and aggressive positions can be taken on a move over the July high. For a breakout, look for a strong move over the May high of 30.35. The stock shows great money flow and strong buying.
BUY POINT: Breakout: 30.40 on minimum breakout volume of 1 million or better. Stop: 28.50.
POSITION: Stock and/or October $25 calls to buy (QFC JE).
KR (Kroger--$26.62; +0.16; optionable): Grocery store.
http://biz.yahoo.com/p/k/kr.html
STATUS: As it approaches the left-side highs in a cup dating back to the beginning of the year (27.95 on an intraday spike), KR has formed an ascending wedge. With highs at 27, it used its 50 day MVA (25.69) for two bounces this month but held the range of the 18 day (26.24) on its last move down. KR made a solid move Thursday up from 26 on good volume, slowing a bit today, pulling back from a high of 26.90 to close while moving on much lower volume of 2.11 million (average 2.55 million). Looking for a breakout. Target: 31.
BUY POINT: 27.27 on volume of 3.4 million. Stop: 26.
POSITION: Stock and/or October $25 calls to buy (KR JE).
Revisited:
ATVI (Activision--$37.05; -0.60; optionable): Software
http://biz.yahoo.com/p/a/atvi.html
STATUS: This stock was on the report in July. After selling back below the 50 day MVA in early August (6 weeks into the 11-week base), a double bottom formed from which ATVI tried to break out, but could not take out the previous highs in the base at the 38.40 range. After reaching an intraday high of 38.50 on that move the stock pulled back and formed a handle, 2 consecutive dojis, with volume by Friday that finally dropped back to appropriate levels (524,300; avg. 1.1 million). ATVI can test the 36 level (support just above the 10 day MVA at 35.77), but we still look for a strong move back up in the handle. Strong money flow, and relative strength is ahead of price (bullish). Target: 44-46
BUY POINT: 38.63, on volume of 1 million or higher. Stop: 37
POSITION: Stock and/or November $30 calls to buy (AQV KF).
IDPH (Idec Pharmaceuticals--$59.27; -1.15; optionable): Biotechnology
http://biz.yahoo.com/p/i/idph.html
STATUS: Pulling back in a test of the recent strong breakout move that broke IDPH back over its 50 day and 200 day MVAs (56 range). That move was on high volume, which dropped back below average almost as soon as the pullback began and reaching by Friday 2.3 million (avg. 3.75 million). The stock may still have some pullback left in it; the 10 day MVA is at 57.64. However, the low of 58.58 tapped just above a July high at 58.25 right above the 200 day MVA. We will see if IDPH can make a quick job of the pullback and break out again over 62.33 (Monday's high). Target: 75. Good buying.
BUY POINT: Over 62.33 on 4 million or higher. Stop: 58.50
POSITION: Stock and/or October $55 calls to buy (IDK JK).
Trading Plays:
Thinly traded:
URBN (Urban Outfitters--$15.99; +0.91; optionable): Apparel Stores
http://biz.yahoo.com/p/u/urbn.html
STATUS: Breaking out of a cup with handle, and remains a buy on the move (buy point was 15.63). Volume was lower on the breakout move, coming in at average, but that is still considered strong volume and with the lower market volume Friday, we could see a change Tuesday (62,000). Previous highs in the 3-month base are at 16.20, so look for a move over that price and the stronger volume for taking potential positions. Looking for a trade up to the 20 range; URBN formed this pattern off the lows (8) in a big 20-month base. Shows strong money flow and good buying, with relative strength breaking out.
BUY POINT: A buy on this move up to 16.41. After a pullback, new or add-to positions can be taken on a move back over the breakout high. Stop: 15.25
POSITION: Stock and/or December $15 calls to buy (URQ LC).
SMTL (Semitool--$14.29; +0.53; optionable): Chip Equipment
http://biz.yahoo.com/p/s/smtl.html
STATUS: This stock is in an 18-month base (prior high near 27), but more recently one begun in January at 15. Currently SMTL is making a breakout move in an ascending wedge pattern formed above support at its 50 day MVA (12.76). The move Friday was strong, with volume continuing Thursday's trend, rising to 108,400 (avg. 53,000). The high in the pattern is 14.50 (July's top), a price hit several times in the base. We are looking for a breakout from this 7+-month base, and at a target of 17 to 18. Money flow looks good, with relative strength breaking out.
BUY POINT: 14.63, on continued rising volume (minimum BO volume is 72,000). Stop: 13.50. A buy on a breakout up to 15.36.
POSITION: Stock only.
End Part 2 of 3
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