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stock watch, stock trading
Begin Part 2 of 4
Again we will be watching how the Dow and S&P respond to the break over resistance on Friday. If they cannot generate upside volume and reverse on stronger volume, unable to hold recent resistance as support, then they will most likely fall to the bottom of the recent trading range. The Nasdaq may be under pressure in that situation as well as it is close to some resistance now and has already made a solid run. That could present some quick downside opportunities on the indexes and other individual stocks, but we don't want to bet too much money against the recent rally as long as the price/volume action remains solid.
Still, after any pullback we anticipate another move higher unless there is a real change in the price/volume action. The market character has changed in the face of analysts that are still downgrading stocks and bad economic news. It always does this. We are seeing both new names breaking out of sound patterns that we can let run for big gains without getting all bent out of shape over pullbacks to support; let them work for you. We also see beaten down tech stocks such as JNPR, BRCM, QLGC, BRCD, ADBE, DELL, KLAC, AMAT that are rallying, pulling back a bit, and then powering higher. Regardless of the explanation, they are rallying on strong volume. We have been jumping on both types of moves, and we need to ride this move when the opportunity presents itself as it has been doing. Again, we may get a pullback earlier this week after the 150 point or so move on the Nasdaq; that would be its pattern. If it does not start selling on stronger and stronger volume, we look for the selling to hold at one of the support levels we have bird dogged, and then climb back on to the upside.
Support and Resistance
Nasdaq: Closed at 1768.96.
Resistance: 1800 to 1830 (former minor highs and lows). Then 1930 to 1940.
Support: 1750 is possible support. More likely: the 50 day MVA at 1720.40 where institutions were taking positions on this move higher. Then 1700.
S&P 500: Closed at 1104.61.
Resistance: It had not yet broken away from the former closing low at 1103.25 nor the 50 day MVA at 1099.52. After those levels there is 1124 (prior consolidation level) and 1150 (also price consolidations).
Support: We would like to see the 50 day MVA at 1099.52 hold, but as it did not clear that level with authority Thursday or Friday, it may not provide much support on the way down. After that is 1070 that has held intraday on a few occasions. Then 1050, a level that has proved to be better support.
Dow: Closed at 9545.17.
Resistance: Over the 50 day MVA (9481.26) and resistance at 9500, but it did not break those definitively on high volume. 9870 to 9992 are the next levels of resistance where the index moved right before the September plunge and where it found resistance in the middle of its March and April double bottom pattern.
Support: Again we would like the 50 day MVA (9481.26) to or 9500 to act as support as they were pesky resistance. After that we look all the way down to 9165 (the top of the first consolidation after the move off the bottom and one that has been successfully tested). Then 9000, and that looks solid.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
10-29-01
Treasury Budget, September (14:00): $29.0B versus $65.7B prior.
10-30-01
Consumer Confidence, October (10:00): 95.9 versus 97.6 prior.
10-31-01
GDP-Adv., Q3 (8:30): -1.0% versus 0.3% prior.
Chain Deflator-Adv., Q3 (8:30): 1.7% versus 2.1% prior.
Chicago PMI, October (10:00): 43.0% versus 46.6% prior..
11-01-01
Auto Sales, October (8:30): 6.0M versus 5.7M prior.
Truck Sales, October (8:30): 7.5M versus 7.1M prior.
Personal Income, September (8:30): 0.1% versus 0.0% prior.
PCE, September (8:30): -1.0% versus 0.2% prior.
Initial Claims, 10/27 (8:30): 503K versus 504K prior.
Construction Spending, September (10:00): -0.7% versus -1.1% prior.
NAPM Index, October (10:00): 44.0% versus 47.0% prior.
11-02-01
Average Workweek, October (8:30): 34.0 versus 34.1 prior.
Nonfarm Payrolls, October (8:30): -300K versus -199K prior.
Unemployment Rate, October (8:30): 5.2% versus 4.9% prior.
Hourly Earnings, October (8:30): 0.3% versus 0.2% prior.
Factory Orders, September (10:00): -5.0% versus 0.0% prior.
SUBSCRIBER QUESTIONS
Q: I agree that the Nasdaq will need the S&P and Dow to clear resistance for any continued move to the upside. But consider this - Year to date the Nasdaq is down 28% while the S&P is down 17% and the Dow is only down 12%. So the Nasdaq has more ground to make up just to get back to ground zero. So could it be possible that we continue to see the Nasdaq outperform both the Dow and S&P until there is more equality in the indices?
A: The Nasdaq has been down year to date more than the other big two, but it started the the slide well ahead of the other two as well as far as percentage gains. Thus it could fall further on a percentage basis and still no 'ahead' of the other two. What the Nasdaq is doing right now is leading the market, and it is doing so in a very healthy two steps up, one step back fashion (150 points in gains, 70 points in selling). Right now it is right at a level where it could start seeing some selling pressure before the next move higher. It was good to see the other two clear resistance, but they need to show they mean business. In that respect you are right; we probably will see the Nasdaq continue to outperform as big money flows into the old leaders. They may get a nasty wakeup call at some point as overhead supply dumps on them, but looking at the volume flowing into these, who knows when that would happen? There is money being spent on tech stocks despite all of the admonitions by analysts to stay away. They are worried about a nasty correction that may come, and they want to say 'I told you so.' Well, what if these stocks run up another 100% first? Makes them look like the bears back in 1995 that said stay out or short the market. Eventually they were right, but as with almost everything in life, timing is everything.
THE PLAYS:
The excitement in the market continues, as does the increase in split announcements! We have several more this week, including KRON from our report!
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:
NPSP (Nps Pharmaceuticals--$36.30; +2.59; optionable): Biotechnology
http://biz.yahoo.com/p/n/npsp.html
STATUS: Breaking out of a trading range, one that we played as a rolling pattern not too long ago. On strong volume of 612,300 (avg. 346,318), NPSP closed right at resistance at the upper reaches of the pattern (36.30 is the high; stronger resistance was at 35.50). The momentum was certainly there Friday, so we are looking for a continued breakout. The pattern traced the bottom of the stock's 4-month cup, part of a larger base that started last fall. Target: 44
BUY POINT: 36.40 on continued strong volume. Stop: 33.50. A buy to 38.22 on the breakout.
POSITION: Stock and/or December or February $30 calls to buy (QKK LF, 0 open interests; or QKK BF, 50 open interests).
VIP (Vimpel Communication--$19.60; +0.85; optionable): Wireless
http://biz.yahoo.com/p/v/vip.html
STATUS: The stock looks ready to break out of a long trading range base that traces the bottom of a big 19-month base (prior highs at 53). At the end if that trading range, since the end of August, the stock formed a cup with handle, and Friday's strong move up was a breakout move over the handle high (19.45; buy point was 19.58). Volume was huge at 384,700 (avg. 112,090). High in the trading range base is 20.19; the stock hit 20 twice so that can offer stronger resistance as the stock makes the breakout from that pattern. High at the start of this recent cup is 19.75. Big money flow and good buying. Target: initial 24
BUY POINT: 19.65 on continued strong volume. Stop: 18.27 A buy on the breakout up to 20.56.
POSITION: Stock and/or January $17.50 calls to buy (VIP AW; 60 open interests).
BVF (Biovail--$50.60; +3.23; optionable): Drug Delivery
http://biz.yahoo.com/p/b/bvf.html
STATUS: A strong up-trender that made a big breakout move off its 18 day MVA (47.75) on Friday on some recent upgrades. Volume was huge at 2 million (avg. 747,000) and the stock looks ready to take out the October high at 51.10. BVF has
made 2 corrections below its 200 day MVA this year, the most recent mid-September, and just after the stock broke out of the ascending wedge-type base it had formed since the first of March. It is showing super money flow, and relative strength is breaking out.
Target: 59
BUY POINT: 50.70 on continued strong volume. Stop: 47.50
POSITION: Stock and/or December $45 calls to buy (BVF LI).
PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: This week we are looking for JEC to announce on Thursday.
NEW PRE-ANNOUNCEMENT PLAYS:
EPIQ (Epiq Systems--$30.07; -0.57; optionable): Forecast to announce a split in the beginning of December in conjunction with a board meeting. The company will not confirm the board meeting but based upon our research the board meeting should take place at this time.
http://biz.yahoo.com/p/e/epiq.html
BACKGROUND: Last announced a 3:2 split on 1-24-01 with a board meeting. The stock price was $24. The annual shareholder meeting was on 6-6-01 at which time authorized shares were increased. The company has sufficient shares for a 2:1 split.
STATUS: EPIQ is moving in a cup with handle pattern (prior high 37.39 in June). The handle dipped back rather hard to test the 50 day MVA (26.09) but bounced back up over the short-term MVA's. Volume was settling down until Friday, when EPIQ dropped, testing down to the 18 day MVA (28.82) at its low but recovering to close over the 10 day (29.69). Volume was sharply up, coming in at 186,600 (average 105,700). We are looking for a breakout, but the stock may need to settle down a bit first, holding the 18 day. Target: 40.
BUY POINT: Breakout: 33.07 on minimum volume of 160,000. Stop: 31. Aggressive: 32 on volume of 160,000. Stop: 30.
POSITION: Stock and/or January $30 calls to buy (FQU AF - low open interest).
GTK (Gtech Holdings--$40.25; +1.08; optionable): Forecast to announce a split on 12-13-01 in conjunction with earnings. At this time the company has not confirmed a time for the release.
http://biz.yahoo.com/p/g/gtk.html
BACKGROUND: Based upon our research it does not appear that GTK has ever split its stock. The annual shareholder meeting was on 7-9-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Broke out from a cup with handle (making a new high), rambling up Friday on huge volume (1.2 million; average 223,300). GTK formed the cup starting in June, following an 8-month uptrend from the 15 range. A pretty pattern that could lead to some serious gains, it is still a buy up to 41.21. After the initial run we will look for another chance on a test of the breakout (handle high was 39.25), but this is a strong initial move. Target: 48.
BUY POINT: A buy up to 41.21 on continued strong volume. Stop: 39.
POSITION: Stock and/or December $35 calls to buy (GTK LG).
PEP (Pepsico--$48.70; +0.30; optionable): Forecast to announce a split on 11-15-01 in conjunction with a board meeting. The company will not confirm this date, but based upon our research this is the date for the meeting.
http://biz.yahoo.com/p/p/pep.html
BACKGROUND: Last announced a 2:1 split in April 1996 at a stock price of $60. 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: Looking at PEP to announce a split, joining Pepsi Bottling (PBG), which announced with a board meeting this month in this price range, and joins the report as a pre-split today. PEP has been moving in a ragged cup dating back to late December, and has had a couple of handle breakout attempts that have stalled at the stock's high at 50 (in September and October). After the fall back from the last move, PEP held support at September lows (at 47, just below the 50 day MVA at 47.65), from where it has now made a move back up. The stock is now over the short-term MVA's (48.21), tapping the 50 day at its low three of the last four sessions. However, volume has been low on this ascent (3.24 million Friday; average 6.24 million), and it might need to consolidate some more before it makes at try at its recent double tops. We are treating that level as the breakout point. Target if it can make that move: 60.
BUY POINT: Breakout: 50.12 on volume of 9.4 million. Stop: 47.50.
POSITION: Stock and/or January $45 calls to buy (PEP AI).
BEST PLAYS: Besides the plays set forth below as best plays, there are some other stocks that also look good. These include Pre-Announcement XL; Past Split SCHL; our new Pre-Split plays; Continuing Candidates CBH and MIKE; and Post-Split PDLI.
PRE-ANNOUNCEMENT BEST PLAYS
1) MI - Could form a handle here
2) NDN - Tested Thursday's move
MI (Marshall & Ilsley--$59.98; -0.40; optionable): Banking: Regional. We are researching a forecast date.
http://biz.yahoo.com/p/m/mi.html
BACKGROUND: Based upon our research it does not appear that MI has ever split its stock. The annual shareholder meeting was on 4-24-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: MI has made a strong push up to the left side high in its large 'flying W' pattern (59.98), stopping just short of that level the past two sessions. The stock could not continue the move up Friday, making a bit of a pullback, which we were expecting after such the steady move up from in the right side of the pattern (recent low was below 53). Volume kicked up a bit Friday on the slight pullback (273,700; average 207,000), which saw the stock test 58.98 at its intraday low, so we will watch for higher volume selling that could signal a stronger drop. An orderly pullback into a handle should hold the 10 day MVA (57.83), which is right in the range of the pattern center. On a breakout, our target is 70.
BUY POINT: After holding the 58 range on a pullback into a handle, a move to 60.10 on volume of 300,000 or better. Stop: 57.40.
POSITION: Stock and/or December $55 calls to buy (MI LK).
NDN (99 Cents Only Stores--$35.90; -0.80; optionable): Retail. Researching a date.
http://biz.yahoo.com/p/n/ndn.html
STATUS: NDN broke from its short lateral consolidation Thursday, moving on good volume, but could not maintain the move Friday. The stock pulled back, but the good news is that the selling was on much lower volume (263,200; average 307,000), and the drop held the high in the preceding consolidation. NDN has been a wild one of late, screaming out of its cup pattern (without a handle, as many stocks do as money comes back into what has been a weak market), and making a new high of 39.50 in early October, but then crashing back to the 50 day MVA (32.47). The short consolidation from which it broke could be considered something of a handle but for the wild movement earlier this month, NDN would be showing a very nice cup pattern. We will treat it that way, looking for a resumption of the move up toward the recent high, but knowing we could get the formation of another handle along the way, perhaps even here. Target: 43, watching 39.50.
BUY POINT: A move over 37 on above average volume. Stop: 35.
POSITION: Stock and/or December $35 calls to buy (NDN LG).
FORMER SPLITS BEST PLAYS:
1) TARO - Returns to the report!
TARO (Taro Pharmaceuticals--$43.71; -1.62; optionable): Drugs.
http://biz.yahoo.com/p/t/taro.html
STATUS: In a choppy cup dating back to mid-July, thanks to an August move up followed by crashing back with the market the next month. Not an unusual pattern these days, and TARO came back nicely and broke out of a handle on Thursday. Friday it pulled back on lower volume (757,700; average 701,400), holding over its prior consolidation highs (42) and in the range of its late-August consolidation. Looking for TARO to hold support here on the test, and continue its move back up toward the high of 49.38. Solid money flow. Target: 55.
BUY POINT: 45.72 on increased volume. Stop: 43.
POSITION: Stock and/or January $40 calls to buy (QTT AH).
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) KRON - "Hammer" doji
2) FULL - Another nice consolidation
3) PCL - Forming a nice handle
4) PSC - Strong move
KRON (Kronos--$58.15; -0.34; no options): Business equipment. Announced a 3:2 stock split Thursday after hours! It is effective on or about November 15.
http://biz.yahoo.com/p/k/kron.html
STATUS: KRON waited a day after the forecast with earnings to announce its stock split, but with that announcement we are looking for good things. It tried a breakout intraday Thursday but pulled back to close, and then tapped back to its 18 day MVA at Friday's low of 55.10, but rallied back up to close, showing a 'hammer' doji with increased, strong volume of 258,000 (average 189,400). The pattern with high volume over support indicates a possible strong move back up, and we will look for that to propel a breakout. Target: 70.
BUY POINT: Bounce: Over 59 on continued strong volume. Stop: 55. Breakout: 62.07 on continued strong volume (minimum of 225,000). Stop: 57.
POSITION: Stock only.
FULL (H.B. Fuller--$52.75; +0.76; optionable): Chemicals. Splits 2:1 effective 11-19-01.
http://biz.yahoo.com/p/f/full.html
STATUS: Made a good move out of its pennant pattern Monday, although volume was not as strong as we would have liked. Since then it has tested that move, but has held the former pennant high (51.86) and 10 day MVA (51.34), and is in another nice-looking consolidation. Friday saw the stock make a small move up as volume dipped back again to 37,900 (average 59,600). Still looks good, and we will see if we can get some stronger volume on a move back up. The breakout high was 53.62, and he recent high before the drop was 55.25. Target: 60.
PLAY: 53.74 on better than average volume, with stock and/or November $50 calls to buy (FUQ KJ). Stop: 50.25.
End Part 2 of 4
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