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Support and Resistance

Nasdaq: Closed at 1934.42.
Resistance: 1930 to 1940. The 200 day MVA is at 1984.08 and the upper channel is just below 2000 at 1995.
Support: The upper channel and the 18 day MVA are at 1823.29. Again, that is pretty solid support if the index decides to sell more.

S&P 500: Closed at 1151.06.
Resistance: 1150 was cleared today, but not definitively as volume was lower and below average on the move. The upper channel is at 1170. The 200 day MVA is at 1187.15.
Support: 1124 (prior consolidations). Then 1103 and the 50 day MVA at 1107.26. The up trendline is just below the 50 day at 1105.

Dow: Closed at 9976.46.
Resistance: The upper channel is at 9985, right below resistance from 9992 that acted as support and resistance in the past. After that, 10,200 (the 50 day MVA is at 10,199.03.
Support: Tested 9870 on the low today. This was potential resistance, and the fact that it held on the low makes it possible support. 9725 is possible, but not much is there. 9500 is the first real level of support. The 50 day MVA is at 9532.40 and the 18 day MVA is at 9604.08. There is a lot of support at the 9500 level. The up trendline is at 9400.

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

11-19-01
Housing Starts, October (8:30): 1.60 M actual versus 1.515M expected and 1.574M prior.
Building Permits, October (8:30): 1.473 actual versus 1.49M expected and 1.528M prior (revised from 1.524M).

11-20-01
Trade Balance, September (8:30): -$26.0B versus -$27.1B prior.
Leading Indicators, October (10:00): 0.0% versus -0.5% prior.

11-21-01
Initial Claims, 11/17 (8:30): 444K versus 444K prior.
Mich. Sentiment-Rev., November (9:45): 83.5 versus 83.5 prior.
Treasury Budget, October (14:00): -8.7B versus -11.3B prior.

SUBSCRIBER QUESTIONS

Q1: How do you see "tax-loss selling" impacting the market over the coming weeks?
Q2: Someone told me that the first 2 weeks in December the Mutual Funds dump a lot of their little companies and window dress for the last 2 weeks where they buy the GM's and other big companies to make their funds look good for their customers? They then sell a lot of the big companies and go into the little ones again in January? What about puts for the first 2 weeks in December and calls for the last 2 weeks?

A: There are several theories following stocks this time of the year. One maxim is to buy stocks in October and sell in May. Another is tax loss selling. Another is window dressing for year end reports. And then there is the January effect where small stocks tend to outperform the big caps. Last year there were a lot of factors working against the market, e.g., very contentious national election, a realization that the economy was really starting to tank, rapidly dropping corporate earnings. Tax selling took a lot of the blame because (1) no one wanted to say the election had anything to do with what was going on, (2) the economists would not give up on the rosy outlook for the future (remember some said there would need to be rate hikes in January), and (3) no one wanted to doubt the Fed. The selling had many faces and many underlying reasons behind it, but tax selling got the blame because most market followers were unwilling to admit the real problems underlying why institutions were dumping shares: they felt they were going to go even lower.

As for the January effect, on a whole smaller stocks do tend to do better early in the year, even starting in December. One can play these general trends, and we are aware of them when we look at investment opportunities. That is still the key: specific trades on specific stocks as opposed to general buying and shorting. The January effect is very general and subject to outside influences; last year it was the bear market, tanking earnings, elections. This year is the stimulus, recovery and the war. Thus we anticipate a better January effect than usual.

PLAYS TO LOOK AT: Some stocks are setting up very well, and some others that have made or are continuing good moves include Continuing Candidate BJ, which has given us a terrific put play, and Market Favorite BRCD, which made a great move to the upside today! We are also looking at Former Split TARO as it sets up for a put.

BONUS PLAYS: Bonus Play KOPN made the breakout today!

COST (Costco--$42.91; +0.78; optionable): Retail
http://biz.yahoo.com/p/c/cost.html
STATUS: In a cup with handle of 4 months and holding support at the 10 day MVA (42) in the handle since late last week. The stock made a small move up with volume shooting above average today to 6.1 million (avg. 4 million), so looks ready for a breakout here. Look for that move over the November (handle) high at 43.84; previous highs in the base are near 45. Showing huge money flow and decent buying. Target: 53
BUY POINT: 43.97, on volume of 6 million or higher. Stop: 40.89 (7%); 18 day MVA is at 41.30.
POSITION: Stock and/or January $40 calls to buy (PRQ AH).

SOX (Phili Semi--$524.76; -5.16; optionable):
STATUS: Pulled back again today, tapping down to 513.01 on the low, near the 18 day MVA (which is at 503.62). It has continued to deliver on the put play, though grudgingly, and we are ready to close it out with a test of the 18 day MVA or 500. Buyers keep coming back in each session and pushing it up off of its lows, indicating it will most likely give us an intraday test and then a rally higher based on the pattern unless the whole market decides to tank. The latter seems unlikely just at this moment. We will look for that as the chips rally. Target: 568 (200 day MVA). Watch the November high at 553.60 for potential resistance.
BUY POINT: Aggressive: Playing the bounce up off of the 18 day MVA (503.62) or 500.
POSITION: December $500 (SXX LT) or December $510 (SXX LB) calls to buy on the test and rebound.

VAR (Varian Medical--$71.41; +1.18; optionable): Scientific & Technical Instr
http://biz.yahoo.com/p/v/var.html
STATUS: Pulled back rather quickly and a bit steeply in a handle to its 6-month cup base, but found support at the 18 day MVA both Friday and today at the 70 range helped by a stock split announcement. With volume shooting above average to 385,900 (avg. 228,000), VAR moved back over the 10 day MVA (64.51), and if it can take out potential resistance at the 72 level, stands well to make a breakout over the November (handle) high at 74.10. Previous highs in the base are near 77, but our target is at 89. VAR is showing good money flow and buying, with relative strength high.
BUY POINT: Aggressive: Over 72 on continued rising volume. Stop: 67.05 (7% below a buy point of 72.10). Breakout: 74.23 on volume of 342,000 or higher. Stop: 69.03 (7%)
POSITION: Stock and/or January or February $65 calls to buy (VAR AM, 0 open interests; VAR BM, 21 open interests).

PRE-ANNOUNCEMENTS:

EASI ($40.32; +0.51): Forecast to announce a split on 12-10-01 in conjunction with earnings. Primed for a fall. We were watching to see if EASI would push up a bit more, and it did today, gapping up to open and then testing down through our by point before pulling up to close as volume dropped considerably to 320,800 (average 461,100). A weak move and from here we are just looking for the stronger selling to kick in. On a drop back through 39.50 on increased, above average volume we will look at January $50 puts to buy (UFE MJ).

PRE-SPLITS:

FLO ($42.15; +0.16): Announced a 3:2 stock split Friday, as forecast! The consolidation continues. Volume increased slightly today to 42,700 (average 66,800) as FLO traded in a tight range and closed with a small gain on the day, but did not move out of the current lateral consolidation over the 10 day MVA (41.72). The pattern looks solid and we are just looking for increased volume (near the average) to push the stock to 42.50. On that move we can look at stock and/or January $40 calls to buy (FLO AH).

MIKE ($60.00; +3.50): Splits 2:1 effective November 27.
Nice move today! MIKE took off from the 10 day MVA (56.31) today and sailed through our aggressive buy point on significantly increased volume of 1.16 million (average 505,900) on its way to a new all time and closing high. From here the stock is still an aggressive pre-split buy, with 62.82 the 5% level beyond the prior high. However, MIKE is beginning the fourth run since its breakout, so we are monitoring this carefully as fourth runs can be the last, and lead to a rapid drop. December $55 calls to buy (IKQ LK).

PSC ($29.24; +0.20): Splits 5:4 effective 12-3-01. Little change Monday. Once again PSC tested down to the 18 day MVA (28.78), and then pulled up to close with a small gain on the day as volume fell to 40,100 (average 79,700). This consolidation is drifting back slightly and holding nicely over the short-term MVA's. From here the safer buy point is 29.75 (over the consolidation high) on above average volume. The aggressive can still look at 29.50 on above average volume. Stock only.

CONTINUING CANDIDATES:

STJ ($68.24; -2.62): Set up for a put. STJ sold back hard from the 10 day MVA (70.42), plunging through the 50 day MVA (69.85) and the recent pattern lows (4-week descending wedge) as volume shot up to 1.23 million (average 621,600). With this strong breach of support we are now looking at a put play. From here, or after a weak relief bounce toward the 50 day fails, we will look at January $75 puts to buy (STJ MO) on a strong move down through 68 with continued strong volume. Target: the 200 day at 62.77, keeping an eye on intermittent support at 64.

POST-SPLITS: Also looking for continued momentum on stronger volume for JNC.

KRON ($41.90; +0.15): Still moving in its lateral pattern showing something of a small ascending wedge. Today KRON tested back through the 10 day MVA (41.28) before pulling up to close as volume increased to 156,600 (average 174,700). This low volume pattern can't get much tighter and is looking pretty good, although we have been on the watch for a possible post-split slump. Holding up well, however, and from here, the buy point is 43.43 on volume of 200,000. Stock and/or January $40 calls to buy (KUE AH).

PDLI ($38.56; +2.62): PDLI made a decent move today, although the volume was lighter than we wanted to see. The stock pushed up off the 10 day MVA (35.90) and took out our buy point on increased, above average volume of 2.34 million (average 2.24 million) as it broke out of the ascending wedge pattern. We were looking for volume in the range of 3 million, so we will see the upward momentum continues on increased strength or if we get a quick test. An aggressive buy from here on increased volume up to 39.50, with a low-volume test of the breakout at 37.50 presenting a better opportunity. On a move back up on stronger volume, stock and/or January (check delta, open interest, etc. as not available at the time of writing) or February $35 calls to buy (PQI KF or PQI BF).

MARKET FAVORITES: BRCD blasted off in the move we were looking for! VRTS started up as well.

QLGC ($47.08; +0.42): The consolidation over support continues. Volume increased slightly today to 8.87 million (average 10.58 million) as QLGC briefly tested down through the 10 day MVA (46.10) before pulling up to close with a tight doji. This small ascending wedge can't get much tighter, and from here we are looking for a strong breakout move with a buy point of 49.28 on volume of 14 million or higher. Stock and/or January $45 calls to buy (QLC AI).

SEBL ($25.85; +0.85): Little change today. SEBL closed with a small gain but did not move out of the current lateral consolidation over the 10 day MVA (23.87). Volume fell slightly to 11.77 million (average 16.26 million), and while we would have preferred a dip back toward the 10 day, which we could still get, we are still looking for a breakout move with a buy point of 26.53 on volume of 24 million. Stock and/or January $22.50 calls to buy (SGQ AX).

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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