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us stock market, understanding the stock market
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9/06/01 Technical Traders Report Update
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Technical Traders Report Subscribers:
ALERT SERVICE
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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.
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THE PLAYS:
Continuing (and recent) Plays:
URBN made a strong move today in its breakout from the cup with handle! We are looking for a pullback.
XRAY made the buy point of 45.83 in the cup with handle, and remains a buy up to 48.12. Volume shot above average today though the stock shortened the gain and pulled off its high. One to watch tomorrow.
FEIC: Hit our target on the put play. The move down was on strong volume, and if it breaks the 200 day MVA, can fall to 25-22.50. If it does break it, watch for a move up to test the breach before it falls.
AMGN: Trying to break out.
KNDL: Stopped out as it sold hard (to 17) but closed back up near the 50 day MVA.
BPRX: A lower volume pullback to support. It may bounce if it does not hit the 18 day MVA at 8.50.
IDPH: Hit support as it broke through the 10 day MVA (the 50 day MVA at 56.12); it may bounce as volume was lower.
TEVA: Tapped the 50 day MVA on the low and may be ready to run back up to the 73 range.
ESCM (Esc Medical Systems--$29.18; +0.67; optionable):
http://biz.yahoo.com/p/s/escm.html
STATUS: In a cup base, and made a move up from support of the 10 day MVA at 28.20. Volume was higher at 979,500 (avg. 639,000), so we are looking for a move up from here for a breakout over the Tuesday high of 30.59. Great money flow and strong buying. Target on a breakout: 35-37.
BUY POINT: 30.72 on minimum breakout volume of 1 million or better. Stop: 28.50.
POSITION: Stock and/or October $25 calls to buy (QFC JE).
BGEN (Biogen--$61.76; +1.10; optionable): Drugs
http://biz.yahoo.com/p/b/bgen.html
STATUS: Closer to our buy point as BGEN opened at the level of Wednesday's closing price and moved up on rising, strong volume of 5.67 million (avg. 3 million). The high tapped 62.35 and the stock closed just above the earlier high in the ranging pattern (61.70). BGEN has been bouncing above its 200 day MVA for several days, and this is its first decided move up in the pattern. Target: 67.50, then 71.
BUY POINT: 61.83 on continued rising volume. Stop: 60 (just below the 200 day MVA).
POSITION: Stock and/or (BGQ JK).
Flipping to a put play:
ENZN (Enzon--$60.60; -4.03; optionable): Biotechnology
http://biz.yahoo.com/p/e/enzn.html
STATUS: The stock fell out of the lateral pattern and broke support of the 50 day MVA (62.83). The 200 day MVA is at 59.58, and if it breaks that support on continued selling, it can fall to 55 or lower, to the July low at 50. Volume was up and stronger at 1.54 million (avg. 1.5 million).
BUY POINT: 59, on continued rising volume. Stop: 63.
POSITION: October $65 puts to buy (QYZ VM).
New or Revisited:
A short:
WGOV (Woodward Governor--$72.26; -0.16; no options):
http://biz.yahoo.com/p/w/wgov.html
STATUS: This stock has been trying to get over its 18 day MVA for weeks, but keeps bumping off it and heading lower in a descending wedge. It has been holding support at the 70 level (just a hair above it) and on low volume, but as this descending wedge pattern continues to squeeze down, the breakout can be to the downside. On that move, we can see a move down to the 200 day MVA at 61.77. Currently WGOV is stuck to the underside of the 18 day MVA (72.85), showing 4 consecutive dojis on below average volume (down to 21,200 Thursday; avg. 82,300).
BUY POINT: 70, on rising volume. Sell stock short, then buy back once it hits support at the 62 range. Stop: 73.
POSITION: Stock.
PUTS:
Indexes:
DJX (1/100 Dj Indu--$98.41; -1.92; optionable (DJV):
STATUS: Couldn't muster a move over its 10 day MVA (100.64) in today's action, for the upside play to 102. Instead, the index opened at its intraday high and headed down from there, garnering nearly 2 points on the move. Volume was slightly down but still strong at 1.34 million (avg. 1.1 million). We are looking for a continued move down after today's move below the August low (98.69). Once below 98, it can fall to 94. The index may move up early to test the August low or today's closing price if it opens lower, but we can look at entry points on a move back down from there.
BUY POINT: 98 on rising volume in continued market selling. May give an early move up to test the 98.50 range before heading back down ("the kiss good-bye").
POSITION: October or November $102 puts to buy (DJV VX or WX). Deltas unavailable at the time of this writing. Please check with your broker for deltas of 0.70 or higher.
OEX (Standard & Poors--$565.51; -13.38; optionable):
STATUS: Sold down as it opened just lower today then fell as volume dropped back just lightly while still remaining strong and above average at 1.34 million (avg. 1 million). We are looking for a continued fall, though the index may first try a test of the 572 range or Wednesday's low of 568.92, which had undercut the August low. On the move down we can look at taking aggressive positions for a move down to the March lows at 548.
BUY POINT: From here, 564 on rising volume in continued market selling. That is close enough to Wednesday's low to let the index test that, then fall, still looking at the entry point below 564.
POSITION: September $580 puts to buy (OEB UP). September options are getting risky, but we are looking for a quick drop. Deltas unavailable at the time of this writing, so please check with your broker (look for 0.70 or higher).
SUMMARY:
- Other than a Microsoft hiccup, the market does not even try to bounce.
- INTC causes a stir after hours by simply saying things are not going to be worse than expected in Q3. Now that is sad.
- Despite today's drop, the market is still not there yet.
- NAPM services hit a low for the index as jobless claims move back over 400,000.
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Not even an attempt at a bounce.
Wednesday night we carefully analyzed the candlestick patterns, the intraday reversal, the higher (though not really heavy) volume, and concluded that the indexes could give us a bounce up to near term resistance. Well, unless near term resistance was lower than Wednesday's close, the indexes did not come close. They were down at the open and then really tanked later. What a bounce.
There was a mid-morning jump when the Department of Justice stated it would not pursue a Microsoft breakup. The indexes popped higher on the news, but the DOJ is still going to try to limit MSFT's business activity, and the move higher flared out fast and the selling resumed. MSFT moved positive on the news for a few minutes, but then finished the day well in the red.
As MSFT faded, the indexes followed. The OEX and SOX puts initiated with Wednesday's alerts raced back into the money and piled up some nice gains (+$5 on the OEX puts and +$9 on the SOX puts). It is tempting to chase put plays to the downside, but the risk is the same as chasing plays to the upside: they get extended, and just as you buy in they turn back on you. The Dow just closed below its recent lows and the support of the middle of its double bottom pattern. It is ready for downside action from here as it just moved up three sessions and has now broken down. Even the OEX could give us some more down to the lows, as it too has broken back down after trying to rise for a few sessions prior to today.
Intel affirms lowered Q3 guidance.
After hours INTC affirmed its Q3 estimates, saying that business looks as if it will continue to follow seasonal patterns. Gross margins were going to be a bit lower, but earnings and revenues would be just below the midpoint of the expected range.
With that lukewarm statement, INTC, the QQQ, and other big cap tech stocks rose after hours. Everything was higher, but not racing to the upside. When it is boiled down, Intel basically said "yes things still stink, they just stink the same and not more as some thought." Nonetheless, after hours traders were buying, apparently on the belief that a steady stench was a sign that the stench was abating.
This looks to be another in a line of semi-positive stories from companies: MSFT, INTC, CSCO, MSFT (again), and INTC (again). They have led to minor bumps higher, but then the selling takes over as the market does not see any further evidence of real recovery.
As always, the market has to be the final judge. It is very efficient at handicapping the future as we saw in March and April of 2000. It saw the coming economic slump even as most economists and our beloved Fed feared a 'white hot' economy. We will see how it responds here, but we think it will be a minor bump before the lows are fully tested.
Not quite there yet.
Why? Well, because the market just is not ready to turn yet on this kind of news, at least not a lasting turn. The sentiment indicators are not there, the volume is not there. We feel things are getting close to coming to a head, but when you see the VIX at just 32 (it needs to be near 60) with the S&P just points away from its low, you realize there is some more selling to do.
Indeed, we are disappointed that the indexes rallied off the lows on Wednesday. It would have been better to just sell straight down and get investors squirming a bit. While they may intellectually believe that the bottom will hold, if you are approaching a brick wall at 100 mph, you are still very concerned as to whether the brakes will work. It is very similar to playing chicken; who will flinch first.
That leads us to believe there is more downside on the S&P and thus the OEX puts. The Dow also has some room to fall as it has been holding up the best. With today's move, it may be ready to really make a run toward the lows. It may take a 300+ point one-day loss on the Dow to make some headway. 400 would be better. Of course, if you go 400, why not 500? There is precedent, and on a percentage basis, that would be a much smaller loss than it was back in October 1987.
In our view the market is not done selling yet, and if we get a rally tomorrow on the INTC news, we will look for the opportunity to short it once again.
THE ECONOMY
Disappointing NAPM services and jobless claims.
The services NAPM did not rise to an expansion as it did in June nor did it even match the NAPM's gain. Instead it tanked 3.4 points to 45.5, much worse than anticipated (49+) and indicating the slowdown is still spreading. This is the lowest reading since the index has been calculated.
Jobless claims rose to 402,000, 'down' from the prior week's 405,000 (revised upward from 399,000). What we have seen each week is an upward revision to jobs lost. They are rising again, but probably lagging the turn in the economy. The 4-week average rose but was still below 400,000. Six one way, half a dozen the other. They are very close and not showing a lot of improvement, but they are not showing a lot of deterioration either.
Retail sales mixed. The discounters were up 6% overall while the department stores were down 4% overall. Consumers are trying to save money, going to the discount stores. That is another sign of what we have been seeing in a retrenching consumer of late. They are not gone, just pulling back, worried about the future.
THE MARKET
No detour on the way to the bottom today. The selling continued, but volume was disappointing in that it was lower. We want to see rising selling volume as that is another indication that sellers are running toward the exits. The S&P is close to its lows, the Nasdaq is taking aim, but the Dow is still 700 points off. Again, it looks as if the lows will be undercut before fear spikes high enough for a meaningful turn. If we get a rally off of the INTC earnings affirmation, we will watch for the opportunity to sell it.
End Part 1 of 2
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us stock market
understanding the stock market
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