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us stock market, stock watch
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10/16/01 Technical Traders Report Update
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THE PLAYS:
Continuing Plays: MKT, after yesterday's stronger move back up in the handle to the double bottom, pulled back to support again on low volume. Still ready for a rally. BDAL had lower volume as well, but it bounced from support and can hold the range until it can rally to a breakout from the cup with handle. In their cup with handles, MRX and RHB look great in the handles. LMT moved up again on lower volume, but still looks ready to rally. HCP continues to squeeze down to support on lower volume in its test of the breakout. ENDO still looks good, crawling along support as its trading range pattern tightens on low volume. RCGI showed its second doji as volume dropped back below average; it looks good here in the wedging action above the 50 day MVA and its up trendline. Earnings out tomorrow: GD (before the bell) and IMNX (after).
ARXX (Aeroflex--$12.28; +0.23; optionable): Aerospace/Defense
http://biz.yahoo.com/p/a/arxx.html
STATUS: Continued the lateral consolidation that formed right after a cup with handle breakout. The stock gave a small move up on rising volume, so we are watching this one for a breakout. Target: 16
BUY POINT: 12.85 on volume of 1.5 million or more.
POSITION: Stock
Back on:
SZA (Suiza Foods--$58.60; +0.19; optionable): Food & Beverage
http://biz.yahoo.com/p/s/sza.html
STATUS: Back at the 50 day MVA after the stock pulled off the September high (64.73) on overall steadily decreasing volume. SZA hit the moving average support Friday and tested it again the last 2 days, and Tuesday showed a tight doji as volume shot above average to 455,500 (avg. 392,000). We are looking for a run back up to the range of the September high for an initial target. SZA has made regular bounces from the 50 day since mid-May. Great buying, high money flow.
BUY POINT: Aggressive: 58.70 (the stock hit 58.70 three times since August). Over the 18 day MVA (60.11): 60.15, on continued rising volume. Stop: 58 (under the 50 day MVA).
POSITION: Stock and/or December $60 calls to buy (SZA LJ).
SVU (Supervalu--$22.51; +0.24; optionable): Food Wholesale
http://biz.yahoo.com/p/s/svu.html
STATUS: Tried to break out of its 17-month base earlier this month but instead pulled back for 4 days on high volume. The stock didn't clear the highs at the start of the base (22.88) until 5 days ago, reaching a high of 23.98, then pulled back again in a test of the breakout. This time, however, volume has fallen back very nicely, steadily declining for 3 days to Tuesday's levels at 484,700 (avg. 750,000). SVU held the 10 day MVA for that time, showing a tight doji at the support. We are looking for a strong move back up from here and a break over the recent high. Target: 28
BUY POINT: 23.60 on volume of 1 million or higher. Stop: 21.64 (21.89, 18 day MVA).
POSITION: Stock and/or November $22.50 (SVU KX) or January $20 (SVU AD) calls to buy. Deltas unavailable at the time of this writing.
MO (Philip Morris--$50.69; +0.21; optionable): Tobacco
http://biz.yahoo.com/p/m/mo.html
STATUS: In a cup with handle pattern with the handle having found support for now at the 10 day MVA (50.34). The stock bounced from there slightly Tuesday as volume rose to 4.26 million (avg. 6 million). Looking for a breakout over the handle (October) high of 51.72 on strong volume. MO shows strong money flow. Target: 62
BUY POINT: 51.85 on volume of 9 million or better. Stop: 49.21 (just below the 18 day MVA, 49.71)
POSITION: Stock and/or December $47.50 calls to buy (MO LW).
Indexes:
SOX (Phili Semiconductor--$462.73; +11.00; optionable):
STATUS: Found support at 451 and bounced after some selling Monday. The index looks ready to rally from here, with lower support at 451. Below that, there is potential support at the intraday low (443) and the 18 day MVA at the lowest (436). The 50 day MVA is at 482.63, but the index can hit resistance at 474.60, hit twice over the last 4 days. Chip stocks were rallying after hours, but we will have to see a rally in the sector in regular trading after INTC's earnings (down but met estimates). On a gap up, look for a test of the opening price or today's closing price as the point to take positions. Target from here: 50 day MVA at 482 range. Initial target for move over 50 day MVA: 509
BUY POINT: Aggressive: 463 in a chips rally. Watch 474-475 for resistance. Over the 50 day MVA: 483 in a rally.
POSITION: November $450 or $460 calls to buy (SXX KJ or KL). Over the 50 day: November $470 or $480 calls to buy (SXX KN or KP). Deltas unavailable.
DJX (1/100 Dj Indu--$93.84; +0.36; optionable):
STATUS: Stronger volume of 1.2 million (average levels) and a slight move up as the index continues to consolidate just off last Thursday's high of 94.32. We are looking for a move up and break of the 50 day MVA (95.34) in a rally. On the move up the index came closer to our aggressive buy point of 94.33 (just over Thursday's high), but that is still a point from the 50 day MVA, so aggressive traders can look at that play (we are upping the buy point a couple of cents). Otherwise, look for the move over the resistance. Target: 98
BUY POINT: Aggressive: 94.33 on strong and rising volume in a rally. Stop: 91. Over the 50 day MVA: 95.35 on 1.2M or higher volume.
POSITION: November $88 or $90 calls to buy (DJX KJ or KL). Deltas
unavailable.
OEX (S&P 100--$564.14; +3.71; optionable):
STATUS: A small gain as the index rose on higher volume at 1.2 million (avg. 1.26 million). It closed just under the 50 day MVA (566.28), resistance that held it back 4 days ago. The index has not reached our aggressive buy point, but at 565 it is almost right at the 50 day MVA, so we'll look for the break of that resistance for considering upside positions. Initial target: 574
BUY POINT: 567 (the intraday high of 566.83 is just above the 50 day) on rising volume in a rally.
POSITION: November $550 or $560 calls to buy (OEB KJ or KL). Deltas
unavailable.
SUMMARY:
SUMMARY:
- Indexes again swallow bad news and rally to the close.
- Volume higher on the gains, but still have to deal with the 50 day MVA.
- Earnings are the focus, and third quarter is bad as expected but there are a few positive outlooks.
- Subscriber Questions
- Team Trades
Indexes again overcome urge to sell as buyers look for bargains intraday.
In yet another verse of 'buy on the intraday weakness' hymn the market has taken to heart the past three weeks, the indexes sold into negative territory mid-morning. It did not take long, however, before buyers came back into the market and drove prices higher. We issues a few market alerts today, noting at one point that the early rally had turned, but that we were holding pat with our positions. We then saw what we were looking for: that intraday double bottom pattern that has marked many of these 'sell early, buy the selling' days. When we saw that form we issued another alert noting the pattern and how it was a day trader's dream. As per its pattern, investors then rallied stocks once again to the close.
Volume better, but not a massively powerful session.
Unlike Monday, all major indexes finished positive, and the Nasdaq led the way with the best percentage gain. Volumes were higher as well as they should be on a return to buying, but they were not overpowering. Indeed, NYSE volume was higher but below average. Nasdaq volume was again above average, something we love to see: above average on the buying, below average volume on the selling.
50 day MVA still lurks ahead.
We were watching for the indexes to pierce their 50 day MVA on the upside as a good buy point, but the Nasdaq stopped less than one point from its 50 day, and the S&P fell about three points shy. Close, but not quite there yet.
We had the QQQ, however, move over the 50 day MVA and closed there, even rising after hours on some earnings news. In addition the OEX gave us a more aggressive buy point today in anticipation of the breakout over near term resistance, but even with the rally into the close, the S&P and Nasdaq could not pierce that barrier. That is our next buy point for these, and we want to see that resumption of strong volume when it occurs. Indeed, it will probably take strong volume to make the break.
Earnings start to take center stage.
Revelation on CNBC tonight: a major brokerage house had looked back at recessions in the past and found that, get ready, the stock market actually performed well in the actual recession. The report noted that the market looks beyond the current situation toward the recovery. This was a 'surprising' result according to the CNBC anchor. Actually, there was nothing surprising. We know this is the case because we look at history and told you the same. Moreover, the fact that the television anchors did not know this is not surprising either.
What is surprising is the litany of analysts who continue to say that the market won't recover until earnings recover. They are afraid the market may roll over once again, and thus are not getting too excited about stocks. Sure it could roll over; it could also continue to rally and consolidate, rally and consolidate, just as it is doing now. They are refusing to look at what the market is telling them in favor of their gut feelings about when a recovery might come. In other words, they are guessing, betting on a downturn but not enough to commit, all the while ignoring what the market is saying now. If it does roll over, we will see it, and be out of positions and back in cash, having captured the move while others were too scared to commit. From what the market is saying now, however, this looks very solid. We are not going to try and outguess the market; we will let it tell us what it is doing.
Given the history of the market and how it responds to recessions, the attention to earnings seems a bit overdone. Everyone knows they will be bad and given 9-11 and the present uncertainty regarding the war, no one is giving Q4 much of a chance either. Still, anticipation of fact does not compare to actual fact: when the numbers come, it always prompts some selling no matter how much the numbers were anticipated. Thus, we may see weakness on some of these numbers; if the market continues its pattern, buyers will use this as an opportunity to buy stocks.
Actually, the response to earnings is not necessarily a bad thing for another reason. We have said many times that continued worry in the market is good as it keeps money coming in steadily over a period of time as bears one by one give up and join the move higher. The market does not run out of ammunition all at once, and can thus rally steadily.
After hours earnings: same story as we see during regular hours.
INTC and RFMD announced earnings after hours Tuesday, and both jumped for a few trades and then tanked. The bottom line numbers were not bad, but things just did not look good enough for the after hours traders. IBM announced as well, and it beat the street by a penny and said that it was seeing a nice turn in business and would return to double digit sales growth. It was held for an hour and then vaulted over $4 from the closing price. What did it note? That the semiconductor business was not bad. INTC also had some comments about chips that were not too bad.
Whatever the reason, investors jumped on the lower prices and drove the stocks higher. INTC rallied and carried a lot of chip stocks with it. Perhaps the chips will be ready to rally tomorrow again, and that could give the Nasdaq the impetus to clear resistance for the next leg higher. A bit sooner than we wanted, but the market does what the market does. We can read it and anticipate its moves, but it tells us when the time is right.
Finally, Citigroup announces a huge buyback ahead of earnings. That is bullish. It reminds us of what Michael Dell did with Dell shares just before the company reaffirmed its year earnings. C announces tomorrow; again, that is bullish. The SEC rules are making it easy for companies to make some good buys.
Stimulus package slowing down.
Bickering about what stimulus is best is slowing things down when it does not need to be slowed. There is a lot of infighting about what should be included. Consumers have been strong for the last decade; they were strong even as the economy slipped into recession. Not until they started losing jobs did the consumer back off. The consumer was not and is not the problem.
The consumer, however, won't get fired up again until jobs start coming back. What will do that? Giving out another $300 or $600 to a consumer won't bring the jobs back; a raging consumer did not keep the jobs going when the recession hit. To get the jobs back there needs to be investment incentives for businesses to buy those stockpiled goods and to create demand to get more businesses to buy computers, telephones systems, software packages, etc. If businesses sell their inventories and need to start making new products, they will hire workers back. The rehiring creates confidence in the consumer, and that gets consumer spending back online to go hand-in-hand with business spending. Instead of just one part of the economy revving up (and potentially creating inflationary pressures), there is equilibrium and the economy can grow without further tampering.
So, call AND email your representatives now and let them know they need to get cracking and they need to focus on what history shows works: tax credits, accelerated depreciation, reinstating business entertainment and travel write-offs (to help the travel industry), and lowering the payroll tax. We can leave the capital gains tax for now as long as we come back to it later.
End Part 1 of 2
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