world stock market, us stock market

Begin Part 2 of 4

Then there is the theory that the U.S. was just getting too far ahead of the rest of the world in the technology and the rest of the world wanted the gap to close a bit. The Fed was under a lot of pressure to slow the U.S. down from foreign sources. Again the Fed is not a U.S. agency, and the foreign central banks and the Fed all acted together to slow things down. Foolishly, they seemed to ignore what had happened since the Soviet Union fell and there was only one (though China is there) superpower and a world economy that was valued in U.S. dollars: as the U.S. went, the world went.

Any way you look at it, if the Fed just wanted to slow things down to a sustainable level, it missed, once again demonstrating its poor marksmanship when it comes to controlling the economy. It cannot and will not ever be able to fine tune the economy. It did nothing to create the prosperity overtly; it just kept its hands off. It did, however, play a huge role in killing the prosperity when it started to meddle once again, whatever the underlying reasons were for it doing so.

THE PLAYS: Several split announcements in the market this week (three Thursday alone) remind us that as the market starts to show signs of coming back, that excitement translates into splits! This is when it gets very exciting, as confidence grows and we can see more and more companies getting into position to split. We are continually conducting research on the best candidates, following those that are in potential split range and forming the best patterns.

Remember in this market that targets, although set at generally conservative levels, are 'loose' and we are watching for topping signs on moves that would point to our taking profits. We will continue to point out those topping signs as we see them, and let you know when we are contemplating taking profits. The stops are initial stops that we place within 7% of the buy point, typically below support. In this market we are moving up the stops to protect profits as we realize gains.

BONUS PLAYS: GNSS and CERN made great moves!

DF (Dean Foods--$45.99; +0.94; optionable): Dairy products.
http://biz.yahoo.com/p/d/df.html
STATUS: DF has made a pretty steady run up the last seven months, finishing up a two-year cup pattern. As it approached the former pattern highs (46.50) the stock reached up to 46.95 before pulling back into a handle consolidation. It has looked good, moving down gradually on mainly low volume, holding the range of the short-term MVA's (18 day at 45.11). Friday it finally made a solid move up, running up from the 18 day on sharply higher, strong volume of 369,700 (average 196,400). From here we are looking for the breakout. Target: 55.
BUY POINT: 47.07 on continued strong volume (minimum volume of 300,000). Stop: 44.50.
POSITION: Stock and/or February $45 calls to buy (DF BI).

STZ (Constellation Brands--$43.90; +0.68; optionable): Beverages.
http://biz.yahoo.com/p/s/stz.html
STATUS: STZ formed a common pattern of late, the 'v' bottom cup with a strong run back up in late-September and October. The last few weeks STZ has formed something of a pennant-handle using the support of its 10 day MVA (43.36; 50 day at 42.07), Friday moving back up off of support on volume that continued to be light (203,600; average 283,000). Looking for a breakout. Target: 54, watching the all-time high at 46.50 (from August).
BUY POINT: 45.12 on volume of 420,000. Stop: 42.50.
POSITION: Stock and/or January $40 calls to buy (STZ AH - under 100 open interest).

GWW (WW Grainger; 43.26; +0.19; optionable) Wholesale Electronics.
http://biz.yahoo.com/p/g/gww.html
STATUS: Was shaping up into a nice 12-week cup (with a shallow double bottom) before the tragedy and has made a solid comeback from the September lows (36.86). After making a decent breakout last week, the stock is pulling into a small pennant that is tightening up over the 10 day MVA (at 42.52), about where we would have looked for a handle in the prior cup. Volume was picking up in the pattern, but dropped off considerably Friday as the stock closed the week with a loose doji on decreased volume of 340,400 (average 369,000). Looking for a breakout over the recent high at 44. Remember, as the pennant tightens, we may see some shakeout selling that often precedes a pennant breakout, and in that instance we would look for the 10 day to provide support. Initial target: 50.
BUY POINT: Breakout: 44.12 on minimum volume of 553,500. Stop: 42.
POSITION: Stock and/or January $40 calls to buy (GWW AH - very low open interest).

PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: We are looking ahead to RE, KRON and AHC (wildcard) next week, and new plays SUI, NNS, FLIR and NOC.

NEW PRE-ANNOUNCEMENT PLAYS:

NOC (Northrup Grumman--$107.58; +3.58; optionable): Aerospace/Defense. Forecast to announce a split on 10-24-01 in conjunction with earnings. The company has not confirmed a time for the release.
http://biz.yahoo.com/p/n/noc.html
BACKGROUND: Based upon our research it does not appear that NOC has ever split its stock. The annual shareholder meeting 5-17-00 at which time no additional shares were authorized. We are working on the number of authorized shares.
STATUS: NOC was struggling under its 200 day MVA and trying to build the right side of its base, but this defense stock blasted up on the re-open of the market. The stock moved over prior resistance at 100, making a high of 110.56 before starting to pull back and rest the last two weeks. The drop was on decreasing volume, which is the action we like, and it turned back up (from just under the 18 day MVA, at 103.33) Thursday and Friday on big volume (down to 1.4 million Friday; average 881,600). Going toward the forecast this week, we are looking for the momentum to continue up to the breakout. Target: 125.
BUY POINT: Breakout: 110.68 on continued volume of 1.2 million or better. Stop: 104. Momentum: Over 108.50 on continued strong volume. Stop: 104.
POSITION: Both buy points: Stock and/or January $100 or $105 calls to buy (NOC AT or NOC AA - check deltas, open interest, etc. with your broker as not available at the time of writing).

NNS (Newport News Shipbuilding--$70.08; -0.34; optionable): Aerospace/Defense. Forecast to announce a split on 10-24-01 before the market opens in conjunction with earnings.
http://biz.yahoo.com/p/n/nns.html
BACKGROUND: Based upon our research it does not appear that NNS has ever split its stock. The annual shareholder meeting 5-18-01 at which time no additional shares were authorized. The company has sufficient shares for a 3:2 split.
STATUS: Another defense stock that has shown a big move since the attacks. Rather than taking an immediate move, however, the stock made a strong gapping move in early October, and hit a high of 73.85 before pulling back into a rather nice consolidation. It is holding the 18 day MVA (69.95, near the gap up point), squeezed from the upside the last three sessions by the 10 day MVA (70.59). Friday saw a huge spike in volume as the stock pulled down very slightly (1.99 million; average 564,200). We will see if that translates into buying this week on a move up from support as we go toward the forecast date. Target on a breakout: 90.
BUY POINT: From here: A move to 71.12 on continued strong volume. Stop: 67.50. Breakout: 74 on continued strong volume. Stop: 69.
POSITION: From here: Stock and/or February $65 calls to buy (NNS BM). Breakout: Stock and/or February $70 calls to buy (NNS BN).

FLIR (Flir Sys--$41.92; +0.19; optionable): Electronics. Forecast to announce a split on 10-25-01 before the market opens in conjunction with earnings.
http://biz.yahoo.com/p/f/flir.html
BACKGROUND: Based upon our research it does not appear that FLIR has ever split its stock. The annual shareholder meeting was on 7-24-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Broke out of a long cup with handle in June, and since has trended up steadily along its short-term MVA's (18 day currently at 41.29), testing its 50 day MVA (currently 35.88, then 27) for a couple of weeks in August-September. Since then it has resumed its move up along the short-term MVA's, but Wednesday's heavy market selling sent FLIR dropping back from its new all-time high at 47. Showing strength the stock held support at the 18 day, showing consecutive loose dojis at that level, tapping the 10 day (42.64) each day at its high. Looking toward a forecast Thursday morning, and we will see if it bounces back up from here to continue the trend. Target: 54.
BUY POINT: A move over 43 on volume of better than 300,000 (average 298,500; Friday 284,200). Stop: 40.50.
POSITION: Stock and/or January $40 calls to buy (FFQ AH - very low open interest).

SUI (Sun Communities--$37.20; -0.10; no options): REIT. Forecast to announce a split on 10-23-01 before the market opens in conjunction with earnings.
http://biz.yahoo.com/p/s/sui.html
BACKGROUND: Based upon our research it does not appear that SUI has ever split its stock. The annual shareholder meeting was on 5-22-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: SUI has been trending up along its short-term MVA's since February, breaking from a cup with handle in the process (in July). With the attacks the stock broke back through its 50 dasy MVA (currently 36.47), but held on strong just below it at 35 and came back strong. The stock topped on that move last Monday, hitting 38.05 before retreating on very low volume the rest of the weak (slightly down at 12,900 Friday; average 43,000). It is resting right on the 18 day MVA (37.22), so Monday we will see if we get a solid bounce going into the forecast. Target: 44.
BUY POINT: A move over 37.50 on above average volume. Stop: 36.25. Breakout: 38.15 on volume of 60,000. Stop: 36.25.
POSITION: Stock only.

BEST PLAYS: Besides the plays set forth below as best plays, there are some other stocks that also look good. These include Pre-Announcements MI, JEC and XL; Past Split APOL; Continuing Candidates STJ and MIKE; and Post-Split CECO.

PRE-ANNOUNCEMENT BEST PLAYS
1) RE - Forecast for Monday
2) KRON - Forecast for Wednesday and trying to hold on
3) AHC - Wildcard for Tuesday and has been weak, weak

RE (Everest Re Group--$72.98; -1.07; optionable): Insurance. Forecast to announce a split on 10-22-01 after the market closes in conjunction with earnings.
http://biz.yahoo.com/p/r/re.html
BACKGROUND: Based upon our research it does not appear that RE has ever split its stock. The annual shareholder meeting was on 5-23-01 at which time no authorized shares were increased. The company has sufficient shares for a 2:1 split.
STATUS: Broke out Tuesday over its prior highs (most recent June 75.50), launching from a small pennant pattern. However, it has pulled back since, giving up the former highs in the pennant (75). The selling had been on lower volume but it spiked up Friday (719,600; average 608,700), but RE managed to hold its 10 day MVA to close, which is right in the range of its up trendline connecting January-May lows (we have seen a lot of stocks come back to their patterns and trendlines after the drop caused by the attacks). The drop on higher volume is a concern, but it did come back from its low, and we are looking for RE to hold and give us a rebound move on Monday going into the forecast. Target: 90.
BUY POINT: A move over 75 on increased volume. Stop: 72. If it holds the 10 day Monday we can also look at aggressive positions before the close.
POSITION: Stock and/or January $70 calls to buy (RE AN).

KRON (Kronos--$55.40; +0.81; no options): Business equipment. Forecast to announce a split on 10-24-01 after the market closes in conjunction with earnings.
http://biz.yahoo.com/p/k/kron.html
BACKGROUND: Last announced a 3 for 2 split on 2-8-99 at a stock price of $43. The annual shareholder meeting was on 2-8-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: KRON is in a 2-year cup pattern, moving now in a handle consolidation after a massive move up the right side in early October. The handle is a bit of a concern as it has made a small double top, with the last move up coming on decreasing volume. However, the drop back has been on even lower volume, and Friday it tried to make a move back up but could not hold it, pulling back from 57.35 as volume increased to 156,300 (average 185,200). We will see if it can get some more volume on a move up going toward the split. We want to see strength as it heads back toward the recent tops (61). Target: 70.
BUY POINT: Breakout: 61.12 on minimum volume of 225,000. Stop: 57. Aggressive: A move over 57.50 on increased volume near the average. Stop: 54. Given the weak volume on the last move, we will be watching carefully for weakness on those aggressive positions.
POSITION: Stock only.

AHC (Amereda Hess--$64.02; +0.22; optionable): Wildcard forecast to announce a split on 10-23-01 during the market in conjunction with earnings.
http://biz.yahoo.com/p/a/ahc.html
BACKGROUND: Last announced a split on 7-21-80. The annual shareholder meeting was on 5-2-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: The stock has been weak, taking a rapid and intense fall in September and then making a rather low volume, gradual recovery that could not hold over its short-term MVA's. AHC dropped back from the high on that recovery run (69) this week, falling through its 10 day MVA (65.77) Thursday. Going toward the forecast (and it looks like a long-shot now), we were looking at a possible aggressive put play. The stock tapped down through the buy point of 63 Friday, but managed to reverse and finish with a loose doji on much higher volume (1.23 million; average 611,300). The high volume doji could signal that there is some more upside here, so for any existing puts we are watching to see if it will make a move back up. For an upside play on the forecast, a move through the 18 day MVA (66.40) would be the minimum we would look for, and even that is aggressive (the 50 day MVA is at 70.14).
BUY POINT: Downside: Still targeting 59 if selling resumes, but watching for the possible bounce. Upside: The aggressive play is a move over the 18 day MVA on continued strong volume.
POSITION: Upside: Stock and/or January $60 calls to buy (AHC AL).

PRE-SPLITS BEST PLAYS: Remember, we try to grab these as they break out of good patterns or as they start a run right before the split. Not looking for home runs, but looking for those $3 to $4 moves running into the split, watching for topping signs and potential resistance. Not huge money, but it can be very steady. We set our initial stops at the 7-8% range below the purchase price (or just below obvious support), and move them up on a move to preserve our profits.
1) FULL - Good looking handle
2) PCL - Forming a handle to its double bottom

FULL (H.B. Fuller--$50.55; +0.41; optionable): Chemicals. Splits 2:1 effective 11-19-01.
http://biz.yahoo.com/p/f/full.html
STATUS: Fell hard with the market in September, but has climbed back, taking out its 50 day MVA (48.68) last week with a very solid move. Since then it has eased into a nice pennant pattern on lower volume, holding support and looking good. Friday it showed a small gain after reaching up to 51.50 at its high, moving on decreased, continued low volume of 30,200 (average 61,200). Looking for a breakout. The recent high before the drop was 55.25.
PLAY: 52 on volume of 83,000, with stock and/or November $50 calls to buy (FUQ KJ). Stop: 48.50.

PCL (Plum Creek Timber Reit--$27.90; +0.44; optionable): Lumber. Splits 5:4 effective 12-3-01.
http://biz.yahoo.com/p/p/pcl.html
STATUS: PCL was trending up nicely but dropped heavily with the market in September, but since has developed a double bottom pattern. It has surged back over the center of that pattern (27.20) and its 200 and 50 day MVA's (26.63 and 27.15, respectively), and is trying to form a handle. It hit a high of 28.55 Wednesday before dropping back, but bounced a little Friday on slightly higher, below average volume (557,800; average 578,400). Looking for the handle to form, and we will watch for it to hold the 50 day. The recent high is 30.
PLAY: Breakout: 28.67 on volume of 865,000. Stop: 27. Stock and/or November $25 calls to buy (PCL KE).

CONTINUING CANDIDATE BEST PLAYS:
1) CBH - The handle is shaping up
2) FRX - Still set up for a put
3) GD - Weak bounce toward resistance sets up a put
4) THC - Could make another bounce

CBH (Commerce Bancorp--$70.75; +0.05; optionable): Banking
http://biz.yahoo.com/p/c/cbh.html
BACKGROUND: Last announced a 5:4 split on 6-29-98. The stock price was $54.63. The annual shareholder meeting was on 6-20-00 at which time no additional shares were authorized. The company has insufficient shares for a 2:1 split.
STATUS: Since July, CBH has formed a 'v'-shaped cup (the extreme 'v' courtesy of the attacks), and since the market re-open has experienced a rather steady climb back up. It has taken out its 50 day MVA (69.85), but after hitting up to 72.71 the stock has peeled back a bit. A pretty nice pullback, coming on decreasing volume, and Friday CBH tapped back near its 50 day but recovered for a doji just over the 10 day (70.66). Volume continued to decrease Friday, coming in at 105,200 (average 144,100). Looking for the stock to hold support here, forming a handle, and make a move toward the breakout. The former pattern high is at 77.90, made on a break from a cup with handle in July. That is the initial target.
BUY POINT: Aggressive: A move back over 72 with increased, above average volume. Stop: 69. Breakout: After forming a handle, 72.82 on volume of 225,000. Stop: 69.
POSITION: December $70 calls to buy (CBH LN).

FRX (Forest Labs--$74.00; +1.61; optionable): Drugs.
http://biz.yahoo.com/p/f/frx.html
BACKGROUND: Last announced a 2:1 split on 12-18-00 with a board meeting. The stock price was $135. Prior to that announced a 2:1 split on 2-23-98 in conjunction with a board meeting. The stock price of $62. The company has sufficient shares for a 2:1 split.
STATUS: FRX has continued down after Tuesday's strong drop and is now struggling with resistance at the 50 day MVA (74.13). The stock edged back up toward that resistance again Friday, but could not make it all the way up, and volume again weakened at 965,000 (average 1.39 million). This is the third attempt at the 50 day, and after three strikes a stock is often out, so we will continue to look for FRX to drop on stronger volume, especially if we get more market weakness. The initial target is the 200 day at 68.17, but we will carefully watch June lows at 70.
BUY POINT: From here, a move through 72 on volume in the 2 million range.
POSITION: November $85 puts to buy (FHA WQ - December available Monday).

GD (General Dynamics--$82.86; +2.50; optionable): Forecast to announce a split on 10-17-01 before the open with earnings.
http://biz.yahoo.com/p/g/gd.html
BACKGROUND: Last announced a 2:1 split on 3-4-98 at a stock price of $89. The company has just enough authorized shares for a 3:2 split, but can certainly announce contingent on an increase in the number of authorized shares.
STATUS: GD crashed hard Wednesday with earnings. It had shown some weakness in the preceding week, but the drops Wednesday and Thursday were on very high volume and took out the 50 day MVA (84.46). After the intensity of the drops we were looking for a relief bounce toward the 50 day to set up another drop and put play, and Friday we got such a move. The stock reached up to an intraday high of 83.80 but volume much lower than the selling volume of the preceding sessions, coming in at 2.31 million (average 1.38 million). GD could again try for the 50 day, but on a drop back down we will look at a put play down to the 200 day MVA at 75.91.
BUY POINT: A move back down through 81 on increased volume.
POSITION: November $90 puts to buy (GD WR - December available Monday).

End Part 2 of 4

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