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THE ECONOMY

Retail sales exploded higher, up 7.1% in October, the strongest rise since the numbers have been recorded. The leader: auto sales, up 28.5% in the month. Zero percent financing made the difference as consumers were ready to buy if the deal was right. Those focusing on the slow earnings auto companies will show because of zero financing miss the point: consumers will buy even now if they perceive a good deal. Core sales were up 1.0%, better than the +0.2% expected and the -2.2% in September (revised from -1.6%). This increase was anticipated given the continued increase in retail sales reported by Redbook and the same store sales. Maybe not dropping off a cliff as most seem to think.

OPEC a cartel? Not like the old days. OPEC was making a lot of noise about cutting production to bring oil prices back to a stable $22 to $28. Oil prices have been trending down, but were jumping back and forth the past several sessions on news that Russia, a non-OPEC country, may or may not go along with a production cut. As late as Tuesday, Russia indicated it was not an OPEC flunky, and prices fell again. Today OPEC said it would not cut production if non-OPEC countries would not also cut production. Huh? What kind of cartel is that? It is not much of a cartel, that is what it is. OPEC decided not to cut if Russia, Mexico and others would not cut. Why? Because if they don't cut, OPEC is just hurting itself as the U.S., Japan and others will buy from Russia et al instead of OPEC. With Russia close to daily production levels that exceed Saudi Arabia's daily production levels, OPEC has lost its grip on the world oil supply. Sure it can still impact it, but its ability to dictate is for the most part over. Our forging closer relations with Russia over the past six months is huge.

THE MARKET

Another solid gain, but the indexes hit close to support and turned back a bit as the internals worsened. Much depends on the news coming out based on the bombing of Al Qaeda leaders tonight, but if that turns out to be inconclusive, the market appears close to ending this move and turning back down to support for the next point to rise again.

VIX: 28.60; +0.02. Volatility is showing levels that may indicate the market is ready for a pullback at this point. Not much of a gain, but it did rise on an up day in the S&P (though a small rise). It is below 30, the 'high' end of the 'normal' range, and it is above the deathly quiet of the summer when it was around 22. This is the level it hit recently before the index started its last pullback. For perspective as to where it is now, volatility ranged from 20 to 22 during the summer (very low, very complacent), and then spiked over 55 when the market re-opened after September 11. Since then it has ranged from 28.19 to 38.

VXN: 56.38; +0.44. The Nasdaq logged a decent gain and volatility rose all the same. It too, however, is at levels that have of late have signaled a pullback coming. As the indexes approach support, this is something to heed. For perspective, in the summer it ranged from 43 to 47 on the lows. After the re-open it was up to 93 intraday, and has since ranged from 55 to 70.

Put/Call Ratio (CBOE): 0.72; +0.14. Surprising jump today on an up session. Option players are betting against the market whether they are buying protective puts to protect positions or just buying puts to take advantage of a move lower. Interesting move on an up day, and it counters the volatility readings.

Summary: Volatility is indicating that the present move may be ready to slow. Looking at the market action and the price patterns, the two are backing each other up.

Nasdaq

Another strong gain on above average volume, but volume was lower and the index and some key leading stocks are showing signs they are ready to pullback. Of course, this market defies pullback attempts, but a quick move down to support is at least the usual pattern.

Stats: +11.08 points (+0.6%) to close at 1903.19.
Volume: 2.176 billion shares (-0.4%). A fractional drop with volume still coming in above average on the day's gains. Up volume fell to 1.399 billion shares as down volume rose to 739 million shares. More accumulation, but not really strong.
A/D and Hi/Lo: Advancers continued to lead, but the margin fell to 1.33 to 1 (1.85 to 1 Tuesday). New highs rose again, to 93 (+25) as new lows rose to 50 (+19).

The Chart: http://www.investmenthouse.com/cd/$compq.html

Once again gapped higher, but that lasted for about 20 minutes before it sold off. Once again it rebounded to close near the high (1922.45), peaking slightly below the upper channel at 1950 to 1960. The index has resistance at 1934 to 1940 as noted last night (prior highs and lows), and that stopped it today. The index showed a clear doji, and on the Nasdaq over the past two months, that has been a pretty clear indicator of a turning point after a run up or a run down. The index has approached resistance, and we think it might try to do so again tomorrow one more time; that tends to be the pattern: two runs at resistance before it turns back down. It has double ice with the 1934 to 1940 level and the upper channel, and it is showing some fatigue after three days of gains off the Monday low.

Scenarios for tomorrow. If the market gaps higher tomorrow on news of possibly crippling the Al Qaeda leadership with the bombing, we watch to see where it gaps to: at resistance, above resistance? If the news is not definitive and the index gaps to resistance, we anticipate the start of a pullback. If the news is good on that front and the indexes clear resistance, this market could fly further. If the news just turns out to be nothing more than what we have heard tonight, the market may start slower, try to rally back to Wednesday's high or higher toward resistance, and then fade.

Dow/NYSE

The best mover of the session, rising finally on above average volume. It too is approaching resistance at 9992 and the upper channel on this uptrend (roughly 9950).

Stats: +72.66 points (+0.7%) to close at 9823.61.
NYSE Volume: 1.414 billion shares (+3.2%). Finally above average volume on an up session, a definite sign of accumulation even as IBM and MSFT sold off today. Up volume led 902 million shares to 518 million downside shares. Tuesday up volume was over 1 billion shares.
A/D and Hi/Lo: Advancing issues continued to lead 1.54 to 1 (advancers led 2.4 to 1 Tuesday). New highs dropped 1 to 117 (-1) as new lows rose to 50 (+23), a sign that the move was not all that strong.

The Chart: http://www.investmenthouse.com/cd/$indu.html

A solid move up on solid volume, closing near the session high (9859.38). That put it close to resistance at 9992 (former support before the collapse) and the upper channel on this rally at about 9950. Again we may get a further move up to test those levels and then the start of a pullback; thus far, however, the Dow suddenly seems as if it wants to lead a bit. A breakout over 10,000 is key.

S&P 500: Action similar to the Nasdaq: moved higher, tested lower, rallied to tap toward resistance on the high (1148.28), and then close with a doji. Volume was up on the session back above average. That is a good sign, but the candlestick pattern is not as strong. There is resistance at 1150, a point of prior price consolidations. The upper channel is at 1160. Both of those are solid resistance when combined. The index may rally tomorrow to tap at those levels again, and then pullback.

Stats: +2.12 points (+0.2%) to close at 1141.21.
Volume: NYSE volume continued to climb, rising to above average levels at 1.414 billion shares (+3.2%).

The Chart: http://www.investmenthouse.com/cd/$spx.html

TOMORROW

The Philly Fed report comes out at noon eastern, and the timing of that report along with its significance with respect to a manufacturing recovery may be a catalyst for market direction. If the market tries to rally up to that point but cannot break resistance, a weaker than expected number could be the turning point for the next test lower. We may get another day out of this move, and much is dependent upon reports from Afghanistan right now that could send the market screaming higher. If no great news out of the war, we anticipate resistance levels to hold and the market to pullback toward near support.

Still, we have not seen the churning and distribution sessions of the past three weeks overtake the market. Indeed, the past two sessions have shown accumulation on higher volume. That does not totally wash away distribution, but it does show the market is trying to patch itself up again to continue its stair step move higher. Again, while we are looking at some downside trades on indexes and individual stocks, we are not betting the market is going to fail. We are accumulating positions, letting them rise, pull back to support, and rise again. If that patterns is broken to the downside, we close them out. We are trying to avoid short term trading the market, instead letting the momentum over the past money and more continue to work for us. In the interim we do trade the indexes and some stocks short term when they appear to have peaked and then bottomed.

Support and Resistance

Nasdaq: Closed at 1903.19.
Resistance: 1930 to 1940 (high 1922.45 today). Upper channel at 1960, but it could trade up to the 200 day MVA at 2000.
Support: 1800 has been holding on the close. The up trendline is now at 1795. The 50 day MVA is 1747.89. 1700 to 1680 has been acting as some support.

S&P 500: Closed at 1141.21.
Resistance: 1150 is the next level (price consolidations). The upper channel is at 1160. The 200 day MVA is at 1190.45.
Support: 1124 (prior consolidations). Then 1103 and the 50 day MVA at 1102.56. The up trendline is now at 1095. Below that 1050 has been very solid.

Dow: Closed at 9823.61.
Resistance: 9870 (9859.38 on the high today). The upper channel is about 9950. The real resistance is 9992 to 10,000.
Support: 9500 is the first real level of support. The 50 day MVA is at 9484.67. The up trendline is now at 9380, quite a ways down. 9000 has held very well, and if this move fails it could see that level again.

Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.

11-14-01
Retail Sales, October (8:30): +7.1% actual versus 2.0% expected and -2.2% prior (revised from -2.4%).
Retail Sales ex-auto, October (8:30): +1.0 actual versus 0.2% expected and -1.6% prior.

11-15-01
Business Inventories, September (8:30): -0.3% versus -0.1% prior.
Initial Claims, 11/10 (8:30): 475K versus 450K prior.
Philadelphia Fed, November (12:00): -25.0 versus -27.4 prior.

11-16-01
CPI, October (8:30): -0.1% versus 0.4% prior.
Core CPI, October (8:30): 0.1% verus 0.2% prior.
Industrial Production, October (9:15): -0.9% versus -1.0% prior.
Capacity Utilization, October (9:15): 74.7% versus 75.5% prior.

TEAM TRADES

Monday and Tuesday we were taking positions in tech stocks. After a good run in those stocks we were not going to chase some that we missed on those days, but were looking outside tech to some basics: trucking, food, and drink.

KNGT on the Daily got things rolling early, gapping higher, rallying more, and then testing the move. We stepped in right after 9:00 when it pulled back from its first half hour run. The stock did manage to rise further, but it was in a trading range for the rest of the session, running between 27.20 and 27.45, closing between the two. Volume was above average, but well off the recent pace. We wanted the breakout point and got in, now we will let it test if it needs to, and look for a few more positions when it does.

After getting the trucks, we felt like some doughnuts. Actually, KKD was in a nice cup with handle, and it broke out today over the pivot at 38.38. It made the buy point in the first 10 minutes, but we were going to let it test the move and then move in. It pulled back over the next 1.5 hours, testing down to 38.50, almost a perfect test. It rallied back up to just below the morning high and moved in a very, very tight range for the next 1.5 hours. We liked it so much (low, low volume on the consolidation, but still strong for the session) that we issued the alert and moved in. About an hour later it exploded higher to over $40 and then traded sideways for the last hour. A great breakout on great volume.

Then we needed to wash it down. PEP is a Stock Split Report play, and it has been trending higher in a cup, trying to breakout in September on heavy volume, but it turned down and then formed an ascending wedge after that breakout. We were watching for the breakout of that pattern. The pivot was 50.12, and the stock rallied in the first three hours to just below that level where it moved laterally in a tight pattern for over two hours. Unlike KKD, volume was not really strong, so we wanted to see the move. Well it came right after 1:30 in a huge move out of the consolidation. We issued the alert and jumped in with a limit order. The stock rallied to 50.40 but pulled back to 50.30 on the close. Volume did not run up as much as we wanted; we saw a big volume spike on the breakout, and moved in. Volume was up, but still not above average. We will have to watch this one closely.

Good Investing!
Jon L. Johnson and the Stock Split Report Staff.

All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.

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