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understanding the stock market, swing trading stock
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9/04/01 Technical Traders Report Update
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Technical Traders Report Subscribers:
ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
ONLINE SEMINARS:
Starts September 12 with Market Basics, covering the basics on reading the market, individual stocks, volatility, futures, options, and a lot more. Then we jump to Technical Analysis to get you in on the ground floor to understanding why the market and stocks move the way they do. This information will knock the scales from your eyes.
To sign up or learn more click on the following link:
https://w1407.securedweb.net/investmenthouse/wk/ordercrs.php
THE PLAYS:
Continuing (and recent) Plays: KR broke out and remains a buy up to 28.63, and ESCM is making its breakout move! THOR (on the update last week) continues its lateral consolidation on low volume. It is testing the 10 day MVA support on the lows; continue to look for a move over 20.35 on stronger volume. FEIC hit the buy point and moved down for the put play. It bounced from 32.50 but volume was stronger so we are continuing to look for a move down. TMPW was another put play from the weekend that did well, moving down over a point and a half on strong volume. Several continue to hold up well (some tried to move higher but dropped back, still holding patterns, like AMGN and AVP), such as UCOR, KNDL and BBI. SCTC hit our buy point but pulled back; volume is rising so that stock may be able to pull out another move up from here.
ATVI (Activision--$35.81; -1.24 optionable): Software
http://biz.yahoo.com/p/a/atvi.html
STATUS: Pulled back to the 10 day MVA to close in the handle to the double bottom. Volume remained below average for the second session in a row, so we are looking for a move back from here, with a hold at the current support (that is reinforced by the 50 day MVA, simple, at 35.58). The 18 day MVA is at 35.21 if it happens to slip back that low. Target: 44-46 Volume was 523,300 (avg. 1.1 million).
BUY POINT: 38.63, on volume of 1.5 million or higher. Stop: 37
POSITION: Stock and/or November $30 calls to buy (AQV KF).
ENZN (Enzon--$65.86; +2.02; optionable): Biotech
http://biz.yahoo.com/p/e/enzn.html
STATUS: Made a move up in its descending lateral pattern, off the 50 day MVA (62.85) on stronger volume of 1.45 million (avg. 1.53 million). Looking for the breakout over the August high at 67.92, the pattern high. Initial target: 78-79 (highs at the start of the 3-month base in which the pattern formed).
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).
New or Revisited:
New: STRC trades on low average daily volume (we usually look for average daily volume of greater than 100,000).
STRC (Sterile Recoveries--$41.30; +2.25; no options): Business Services
http://biz.yahoo.com/p/s/strc.html
STATUS: Breaking out from a cup with handle base of 6 weeks' length. The stock made the buy point of 40.19, but remains a buy on the move up to 42.20, and volume was huge at 181,700 (avg. 53,000). The July high is 41.91, but the stock looks ready to take that out on the momentum. Huge money flow and buying. Target: 46-48
BUY POINT: Remains a buy up to 42.20 on the breakout. Stop: 39.50.
POSITION: Stock.
TEVA (Teva Pharm--$70.43; -0.67; optionable): Drugs.
http://biz.yahoo.com/p/t/teva.html
STATUS: TEVA is in a cup dating back to late December (basing high 76.50), and has pulled into a handle that is in something of an ascending wedge. The past few sessions it has been holding its up trendline (connecting May-August closing lows, at its 18 day MVA, which is 70.37), today showing a doji on that level (and just below the 10 day MVA, at 70.81). Volume has fallen to very low levels of late, down to 361,000 today (average 1.17 million). Looking for it to hold here and make a move back up in the pattern and make a breakout. The closing high in the pattern is 73.55 (intraday high is 74.35). The stock shows good relative strength, money flow and buying. Target: 82.
BUY POINT: Breakout: 73.67 on volume of 1.7 million. Stop: 70. Aggressive: Over 72 on above average volume. Stop: 69.25.
POSITION: Both buy points: Stock and/or December $70 calls to buy (TVQ LN).
Revisited:
XRAY (Dentsply Intl--$45.05; 0.00; optionable): Health services
http://biz.yahoo.com/p/x/xray.html
STATUS: Covered recently in its cup with handle pattern. After testing support at the 18 day MVA (44.50) and lower support near 44, looks ready to make a move up as volume was rising Tuesday (208,000; avg. 258,318). Look for a breakout over the handle high of 45.70. 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 0.55).
BZH (Beazer Homes--$67.20; +2.30; no options): Materials & Construction
http://biz.yahoo.com/p/b/bzh.html
STATUS: Moved off of strong support (50 day and short term MVAs at 64.55) on rising volume of 191,500; avg. 221,000). The stock is headed for potential resistance at the May high of 70 (and some other price resistance at that level from July) but aggressive players can look at trading it from here on rising volume. Otherwise, look for the move over the resistance for a run up to 75-77, our initial target.
BUY POINT: Aggressive: 68, on continued rising volume. Break of resistance: Over 70 on average or better volume. Stop: 66.75
POSITION: Stock.
PUTS: OSIP, covered last Thursday, is making the move down to our initial target of 37, dropping over 2 points on strong volume today.
Indexes:
QQQ (Nasdaq 100-$35.47; -0.70; optionable):
STATUS: Broke below Thursday's low of 35.75 on strong volume (74 million; avg. 58 million), but not until the index tapped a high of 37.50 as it moved up. It could not break the resistance and closed near its low of 35.35 after opening higher (at 36.51); the momentum is downward. The April low is 33.60, our initial target on a break below today's low of 35.35 for potential put positions. That is tight, so this is an aggressive play.
BUY POINT: Aggressive: 35.30 on continued rising volume.
POSITION: Aggressive: September $44 puts to buy (QQQ UR). Deltas unavailable at the time of this writing. Please check with your broker.
OEX (Standard & Poors--$578.04; +0.64; optionable):
STATUS: Showed another closing doji Tuesday after last week's 3-day slide and Friday's doji. The index surged earlier in the day and made it back over the 10 day MVA (588.29) for the upside play just as we anticipated, but sold back down late as volume rose to 1.17 million (avg. 1 million). From here we are looking for a put play on a move below 572.41 (Thursday's low) on continued selling. The initial target is the April low at 554.47.
BUY POINT: 572, on continued rising volume. The index may try to move up and test 572.41 before heading back down in earnest ("kiss good-bye").
POSITION: September $580 puts to buy (OEB UP). Deltas unavailable at the time of this writing; please check with your broker for those.
SOX (Phili Semi--$543.66; -19.06; optionable):
STATUS: Sold back down to close right on the up trendline (connecting the April and August lows). It the index breaks that support and recent lows at 537.03 (or the July low at 530.86), we will be considering put positions down 450-460.
BUY POINT: Aggressive: 536 on market selling. Below the July low: 530 on market selling.
POSITION: September $550 puts to buy (SJX UJ). Deltas unavailable at the time of this writing. Please check with your broker.
SUMMARY:
- Indexes jump on NAPM and some short covering only to fold at resistance.
- Lack of punch on attempted rally looks like more downside ahead.
- Dollar strengthens on potentially stronger economic outlook.
- Subscriber Questions
Rally fails hard late in the session.
The market was milling around until the NAPM hit. The indexes turned sharply positive afterwards, and a number of short sellers decided to cover their shorts with the much improved economic news. That drove the Dow to a 200+ point gain, and the S&P 500 to a 23 point gain. The Nasdaq tagged along, up about 30 points on the high.
The indexes ran well, at least until they hit the next level of resistance. With two hours to go, the buying and covering was over, and the sellers stepped in and sold the Nasdaq and the S&P into negative territory, and the Dow held onto a meager half percent gain. Volume grew on the afternoon selling, another indication that the market is just not ready yet to buy into the prospect of a recovering economy.
The inability to hang onto a substantial rally coupled with the close at the lows for the Nasdaq and the S&P 500 is just another step in the recent bearish action we have seen. The indexes seem bound and determined to test the lows once again. What could put a stop to it? More and better economic news that continues to strengthen the dollar.
THE ECONOMY
Compaq and HWP made headlines, but it did not make much difference to the market. The real news today as it has been the past week was the economy.
The Chicago PMI Friday was better than expected. It is considered a truer forecaster of the national number, and it did just that. The national PMI (NAPM, the measure of how the manufacturing sector is performing) rose to 47.9 for August (43.9 expected and 43.6% prior), the largest gain in 5 years and a 9-month high. It is still showing contraction, though a contraction at a slower rate. It has fallen for a year; it has a lot of territory to recoup.
Still, there are very positive signs that could be starting that recovery. New orders rose to 53.1% from 43.6% in July. New orders are very important. If orders are growing, at some point that will pull the manufacturing sector higher as it has to gear up to meet continued growth in orders. Indeed, in response we saw the production portion of the NAPM also turn the corner to expansion, coming in at 52.2%, up from 46.4% in July. This was the first increase in this number in 8 months. Two key components of the report have started expanding again.
True it is just one month's data and it can be subject to revision and it may be an aberration. Still, but for July's pathetic showing, one we anticipated to be poor, the numbers were improving (i.e., not falling as fast). August looks as if it may be a resumption of that firming in the manufacturing sector, a sector that has been in recession for 12 months. Thursday the NAPM services number is released; it was over 50 in June but then fell to 48 and change in July's weakness. We expect to see it back over 50 again for August given the strength in the manufacturing number.
Dollar bounces higher on the economic news.
The dollar jumped 1.75 cents on the NAPM number; that is a huge, huge move. The dollar index vaulted 1.96 out of its two-week consolidation to close above its 200 day MVA. Although the stock market did not follow through the entire session on the dollar's strength, we feel the stronger dollar will act to calm the market if the dollar can hold up and stop its slide. A stronger dollar keeps foreign investors interested in the U.S. as the best game in town (actually, in the world), and that keeps dollars in demand and avoids a flood of them coming home via the dumping of U.S. assets and helps prevent inflation that would result.
Construction down slightly, but better than June.
Construction spending fell 0.1% in July versus expectations of holding flat. June was revised down to -1.0% versus an initially stated -0.7% loss. Construction spending is having a bit of a problem right now after such a strong preceding year. Building permits are down for 2 months straight, and that has to have an impact on construction. Now we will see if permits come back a bit to help continue the construction boom in the country. It is not equal from region to region of course, but overall it has remained strong until now.
THE MARKET
Overall market stats:
VIX: 28.66; +0.81. A bit higher after falling 2 points intraday. Again, still a long way from giving a signal of a serious reversal. 30 is the minimum, but it usually takes readings in excess of 50 or 60 for a serious turn.
VXN: 57.15; +4.29. Getting there on today's reversal in the Nasdaq 100. Still a good 10 points or more away from a real signal, but the anxiety is ratcheting higher.
Put/Call ratio (CBOE): 0.83. In the high end of the range, but today's action was not what we want to see. An intraday swing is harder to see a spike; if we get more selling tomorrow we might see the ratio hit another 1.0 level. That would be two in a week, and that is really getting there. If the volatility components continue to jump higher, this is a good one-two punch.
Sentiment indicators are secondary. They can show signals of what to expect when they reach extremes. They do not replace primary indicators such as price and volume, especially when the sentiment indicators are mixed as they are now.
End Part 1 of 2
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understanding the stock market
swing trading stock
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