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10/24/01 Stock Split Report Market Summary
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Stock Split Report Subscribers:

PLAYS TO LOOK AT:

BONUS PLAYS:

CSCO (Cisco--$17.23; +0.82; optionable): Computer hardware.
http://biz.yahoo.com/p/c/csco.html
STATUS: CSCO recently broke back over its 50 day MVA (15.76) and has since pulled into an ascending wedge, moving up with the lows along the support of the 10 day MVA (16.34). CSCO sold back in the pattern fairly hard Tuesday, but held the 10 day and moved back up today, on lower, but still strong volume of 77.8 million (average 68.3 million). Looking for a break over the pattern high (17.45) for a trading play as the stock continues to move in the bottom of its base. Target: 20 (200 day MVA at 20.85).
BUY POINT: 17.58 on volume in the range of 93 million. Stop: 15.50 (below the 50 day MVA at 15.76. That is below 8%, but we can always push it up if the breakout holds.
POSITION: Stock and/or December $15 calls to buy (CYQ LC).

APA (Apache--$49.37; +1.07; optionable): Oil & Gas.
http://biz.yahoo.com/p/a/apa.html
STATUS: Has battled back over its 50 day MVA (47.36) to form a v-shaped cup, and the past two weeks has pulled into a lateral wedging handle. It has tapped up to 50 several times in that handle, today hitting up to 50.06 on solid, sharply higher volume of 2.02 million (average 1.61 million). Another stock that is well off of its levels from the beginning of the year (70's), but on a breakout could be a play up to its 200 day MVA at 55.31. That will be the initial target.
BUY POINT: 50.18 on volume of 2.4 million. Stop: 47.
POSITION: Stock and/or January $45 calls to buy (APA AI).

AH (Armor Holdings--$23.47; -0.75; optionable): Security services.
http://biz.yahoo.com/p/a/ah.html
STATUS: Broke out of a long lateral consolidation after the attacks and made a second surge in early October. Since then AH has gradually pulled back on low volume, holding its 18 day MVA (23.35). The stock reached up to 24.87 Tuesday, but that was well short of the pattern high at 26.35 and there was continued low volume on the move, leading to the drop today on even lower volume (76,400; average 224,300). A good low-volume consolidation, so we are looking for the stock to hold support and make a strong move up. On a breakout, we are targeting 31.
BUY POINT: Aggressive: 24.22 on above average volume. Stop: 23. Breakout: 26.47 on volume of 300,000. Stop: 25.
POSITION: Both buy points: Stock and/or December $22.50 calls to buy (AH LX).

TJX (Tjx Companies--$34.65; -0.08; optionable): Retail.
http://biz.yahoo.com/p/t/tjx.html
STATUS: TJX has been on a steady trend up for the past year, briefly losing its long-term trendline after the attacks but recovering. The stock has formed a steep cup in the process, and has pulled back into a handle over the past week. It is currently holding the 18 day MVA (34.45), which is comfortably over the 50 day (33.93, just above the long-term trendline), and showed a doji today as handle volume continued to be nice and low after its initial drop during last Wednesday's rough market. Looking for TJX to hold here on the doji and move back up to the breakout. The handle high is 36.25, and the high (from August) is 37. If it can get through that, we are targeting 43.
BUY POINT: Aggressive: A move to 35.50 on increased volume near the average (1.45 million; today down to 650,400). Stop: 33.75. Breakout: 36.37 on volume of 2.1 million. Stop: 34.50.
POSITION: Both buy points: Stock and/or January $30 calls to buy (TJX AF).

PRE-ANNOUNCEMENTS: No announcements from KRON, NOC or NNS today (not surprising given the news on NOC & NNS). XL and EDMC are shaping up into pennants, we are just looking for the price-volume action to even out.

FLIR (42.62; -0.65): Forecast to announce a split on 10-25-01 before the market opens in conjunction with earnings. Pulled back a bit today, but held support at the 10 day MVA (42.63). Volume fell considerably (down to 164,000, average 300,800) as FLIR tapped down to the recent support at the 18 day (41.66) today before pulling up to close with a small loss on the day. The stock had been consolidating over the 18 day before yesterday's stronger push up over the 10 day, so from here we are looking for support to continue to hold, and for the upward momentum to resume. We will look at a move over the Tuesday's high of 44.44 on above average volume, and an announcement could be a catalyst for that move. Stock and/or January $40 calls to buy (FFQ AH - very low open interest).

MI ($58.89; +0.85): We are researching a forecast date. MI hit our buy point today, but volume fell a bit, and was lighter than we wanted to see (down to 218,000, average 203,700). Weak increases can quickly stall, so we may see something of a consolidation here, which would be fine as MI has some nice gains to digest (up from 52.66 earlier this month), but we will continue to watch for a volume surge to carry a breakout move. The stock is approaching the August consolidation range (that preceded the current flying W pattern), so from here we are looking for volume of 300,000 to carry a move over 60.10, perhaps after the formation of a handle. Stop: 55.90. Stock and/or December $55 calls to buy (MI LK).

PRE-SPLITS: ADVP has hit our target - from here we will watch for a possible bounce up to stop us out of current put positions.

FULL ($52.15; -0.55): Splits 2:1 effective 11-19-01. Continuing to pullback (testing Monday's breakout of a small pennant handle), and holding support over 52. After tapping up to an intraday high of 53.62, FULL fell back and showed a small loss on the day as volume fell sharply to 24,300 (average 60,700). Still looking for FULL to hold 52 on a successful test, and mount a stronger move up to 53.25 on volume of 82,000, with stock and/or November $50 calls to buy (FUQ KJ).

CONTINUING CANDIDATES: AZO is also shaping up and we are watching for a pullback on RMD.

CBH ($70.81; +0.06): The handle looks good. Last week, CBH pulled back from the recent high of 72.71, and is now moving in a nice handle-type consolidation over the 10 day MVA (70.71) that has turned completely flat. Volume fell a bit to 105,000 (average 144,500), as the stock closed with the fourth consecutive doji over support, and from here we are just looking for a bounce up toward the breakout. The aggressive can play a move back over 72 with increased, above average volume, while the breakout play is 72.82 on volume of 217,000. With either position, stock and/or December $70 calls to buy (CBH LN).

KRON ($58.41; +1.03): No announcement today, but earnings appear solid and the overall pattern looks good. KRON is moving in a handle consolidation that is easing back over the 10 day MVA (56.15). The stock continues to bounce up from the 10 day, but the moves up have lacked strength, and it has yet clear the recent high of 60.26 (breakout high 61). Today we saw another small push up from the 10 day as volume increased to 136,200 (average 188,200). Looking for support to continue to hold, and waiting for the breakout move to 61.12 on minimum volume of 225,000. Stock only.

MIKE ($49.96; +1.86): MIKE did not pull back and test the 10 day MVA (46.95) after closing well off of its intraday high Tuesday, instead moving out of its short handle to hit a new all-time high. We were looking for a pullback before this move because the handle had been drifting up a bit, which is not the best action, but we were ready if the move came anyway. However, although volume was sharply up at 461,800 (average 363,000), it was below the volume level we were looking for. Therefore, for positions we are already in we are carefully protecting ourselves with stops. Still technically a buy up to 51.72 on this move, but we need to see the breakout volume. Stock and/or December $40 calls to buy (IKQ LH).

NNS ($71.25; +2.14): Dipped back as the acquisition news unfolded (it appears a deal to be acquired by NOC is close), and NNS tested its 50 day MVA at its intraday low today of 68.15, but it surged back and took out our aggressive buy point. The stock charged back up through the short-term MVA's (10 day at 70.40), moving on huge volume of 4.28 million (average 608,000). We will watch current positions carefully as news on these deals can pop up at any time, but the aggressive can look at new positions on a continued move up toward the high (73.85, from earlier this month). On a move to 72 on continued strong volume, stock and/or February $65 calls to buy (NNS BM).

STJ ($73.36; -0.99): After its recent breakout from a double bottom with handle, STJ has survived some weak market action and is now making an orderly test back. Today it dipped again as volume continued to decrease, coming in at 488,100 (average 639,200). It is holding comfortably over its 10 day MVA (72.67) and its prior pivot at 72, and we will look for it to hold the 10 day and make a strong move back over 74 on above average volume, with stock and/or January $70 calls to buy (STJ AN).

TECD ($45.00; +1.40): Forming a new handle to its cup (dating back to September 2000, with highs at 55). TECD moved back up today toward the handle high at 45.25, but volume was weak (down to 634,000; average 795,600) so we are watching for a possible dip back again, which we would look to hold the 10 day MVA (42.95). From here we could still get a breakout move, but we will need to see breakout volume at 1.2 million. On the breakout move to 45.37, stock and/or December $40 calls to buy (TDQ LH).

POST-SPLITS: WFMI may be ready to pull into a handle, and ATK has earnings tomorrow.

JNC ($46.55; -0.29): Just continues to move in its lateral consolidation, today dipping just below the recent support of its 10 day MVA (46.63), but still well within the boundaries of the pattern. Volume dropped back on the move down, at 39,300 (average 59,700). Has been a solid, steady performer as it has trended up over many months, and we are waiting for a breakout. On a move to 47.50 on increased volume in the 90,000 range, stock.

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SUMMARY:
- A quiet, no news day, and the buyers move right back in.
- Nasdaq leads again, clearing the 50 day MVA rising volume as the Dow and S&P churn again. Can the move hold?
- Big tech names clear resistance on strong volume.
- Subscriber Questions

It's Wednesday, so it must be time to buy.

Role reversal. Remember during the long months of the bear market when every rally session was promptly met with an even stronger selling session that sparked another round of selling. After hitting the lows in September, however, the market has turned higher on very solid price/volume action. This past week things started to stumble with two clear distribution days and weak price/volume action in between. Tuesday was the second clear distribution day as sellers came back into the market after a weak rise to resistance once again.

This time things were a bit different. The day after a sharp selling session, buyers came in with strength. Not overpowering strength, but on more volume than Tuesday's selling. The Nasdaq again led the way while the Dow and S&P managed late runs into positive territory but on an ever so slight decrease in volume.

That is what we want, but will it last?

You have to like the action a day after a pretty negative distribution day. We were not pleased with Tuesday, but felt it was mostly attributable to another anthrax scare. Still, we were not anticipating an immediate recovery without further testing. After a quick second rebuff at resistance, it looked as if more selling was in store. Not the case. After Tuesday's news was absorbed and there was no more negative news, the market did what it has been doing when left alone: rising. President Bush did not hurt with his late afternoon address in support of the House stimulus package, and the Nasdaq held on to close above the 50 day MVA (1716.09) on rising volume. That close over resistance puts pressure on remaining short sellers: each time an index can close above resistance, short sellers start to close more positions. That tends to give more life to rallies.

A sharp response to the selling is the best scenario you could ask for given Tuesday's action. The close on the Nasdaq above the 50 day MVA on rising volume (but not blowout) was also very good. It also helps that the recent market leader is still leading. Will it hold? As we have seen in the past recent history, a move over resistance does not automatically guarantee success. Until the next strong, high volume move up off of this level, it is in jeopardy, particularly as there had been distribution right before this move. Moreover, the Dow and S&P 500, while up today on slightly lower volume, have really been churning the last two sessions, a sign of potential topping. They are a drag on the techs. Again, we really like what we saw today on the Nasdaq, but with the Dow and S&P 500 still below resistance and struggling, the Nasdaq must continue to lead them higher. Very hard for one index to do it alone.

This is part of the dilemma we were wrestling with last night: indicators were showing institutional selling, but it was also pretty clear that the selling was being driven by anthrax news. Again, without those external negatives today, the market showed its natural tendency the last four weeks, i.e., rising.

Who were those guys?

Where did the leadership appear? Names such as QLGC, SMTC, JNPR, ADBE, EMLX, BRCD, and BRCM were a few that powered higher over resistance levels on very strong volume. QLGC was the inspirational leader with its solid earnings report and 15%+ gain on the session. These names include several of the stocks we saw in the 'building' patterns we discussed on Monday. SMTC, JNPR, QLGC, BRCD and BRCM have all been featured on the reports recently, and they have been sporting impressive gains. More importantly, they have been forming lateral consolidations and then making strong moves out of that pattern and over resistance (usually the 50 day MVA) on strong volume. They may not lead the market to new heights, but this core of survivors with strong earnings and the best positions in their sectors are going to be survivors and are showing it now. Leadership from a different part of the market.

End Part 1 of 2

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