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us stock market, trade stock
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11/27/01 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
THE PLAYS: BSYS broke out and remains a buy up to 58.89 on the move; we want to see volume rising above average, however (it was higher on the move). KLAC looked good, taking out resistance at the November high, just like we wanted. Volume was super on the move; look for continued upside if the market cooperates.
Continued Plays: ORLY still looks good in the cup with handle; volume still below average but continuing to rise. VRTS broke resistance, making the buy point (41.26) on strong volume, and INFA was a breakout as well. RDRT continued its strong breakout from the flag pattern. Other plays on the report that look good include MNC, MANU, CHKP, AVNT, COST, KOPN, and BRCD.
BORL (Borland Software--$13.78; -0.17; optionable): Software
http://biz.yahoo.com/p/b/borl.html
STATUS: BORL is in the handle to its 4.5-month base, and Monday was looking good with a move up on rising volume. That volume dropped back to even lower below average levels today, with the stock pulling back into a tight doji at the 10 day MVA. We continue to look for a breakout; BORL is showing good price/volume action the last 4 days despite the stall. Target: 17. Again, this is one we like to buy and write covered calls on when the move tops out.
BUY POINT: 14.48 on volume of 1.1 million or higher. Stop: 13.47 (7%)
POSITION: Stock and/or January $10 calls to buy (BLQ AB).
http://www.investmenthouse.com/ct/borl.html
New:
SLOT (Anchor Gaming--$60.38; -0.66; optionable): Leisure
http://biz.yahoo.com/p/s/slot.html
STATUS: In a cup with handle base of 6 months+. Are people heading back to Vegas? The stock has pulled back in the handle until hitting support at the 10 day MVA the last 4 days. Volume has not been perfect for a handle, ranging up and down above and below average, but the price pullback looks good. Volume was up and just above average Tuesday (371,600; avg. 289,000) yet the stock still held the support; we will look for that to maintain for a move up to breakout. SLOT has strong money flow and high relative strength. Target: 76, but with the handle if we get a 10% move (69 to 70) and its starts looking toppy, we will take it.
BUY POINT: Aggressive: 61.50 on continued rising volume. Stop: 57.20 (7%). Breakout: 63.17 on volume of 434,000 or higher. Stop: 58.75 (7%)
POSITION: Stock and/or January $55 calls to buy (QLT AK).
http://www.investmenthouse.com/ct/slot.html
FLEX (Flextronics--$25.55; +0.73; optionable): Electronics
http://biz.yahoo.com/p/f/flex.html
STATUS: We have been watching the one and with today's news that things are picking up, it started the move. Breaking out of a large ascending wedge-type pattern from since late August. The stock on strong volume took out the buy point in the pattern (25.28), and remains a buy on the move up to 26.54 on continued strong volume (was at 17.1 million Tuesday; avg. is 9.5 million and minimum breakout volume is 12.8 million). FLEX took out the 200 day MVA yesterday on a strong volume gap higher after moving off of support at its 18 day MVA and a down trendline (Jan/May/Aug/Oct highs). We are looking for a move up to the next down trendline (connects Sept/Oct 2000 and January highs), currently just over 30 (initial target). Strong money flow and improved buying.
BUY POINT: A buy up to 26.54 on the breakout. Stop loss (7% below a buy point at 26): 24.18
POSITION: Stock and/or January $22.50 calls to buy (QLF AT).
http://www.investmenthouse.com/ct/flex.html
A shorter term trade on a breakout:
ET (E*Trade Group--$8.40; 0.00; optionable): Internet
http://biz.yahoo.com/p/e/et.html
STATUS: A cup with handle base of just over 6 months, but deep in a larger selloff. The stock broke over its 200 day MVA (just under 8 at the time) earlier this month, ran to a high at 9, then pulled back over the course of eight days with volume declining nicely (it was higher for the second day at 1.4 million; avg. 2.5 million) in the handle. Showing two consecutive tight dojis right above the 10 day MVA (8.30) and with a test of the 18 day MVA on today's low of 8.13, we are looking for a move back up and breakout. ET is off the lows near 4 in its much larger base with highs at the 72 range. Shows super money flow and buying. Initial target: 11
BUY POINT: Aggressive: 8.60 on strong volume. Breakout: 9.13 on volume of 3.8 million or higher. Stop: 8.49 (7%)
POSITION: Stock and/or January $7.50 (ET AU).
http://www.investmenthouse.com/ct/et.html
Updates:
QLGC (Qlogic--$48.99; +2.75; optionable): Semiconductor
http://biz.yahoo.com/p/q/qlgc.html
STATUS: A strong move today after the pullback off November's high (49.16), the handle to a 5-month cup base. QLGC had a super, strong run up the whole of October, extending the move into this month, and looks like the pullback to the 18 day MVA (44.74) was all the stock needed; it moved up from that support Monday with volume rising. Volume exploded today, heading up and over average to 16.4 million (avg. 10.6 million), pushing the stock up to a new closing high for the month, but it still has to take out the high (in the handle). Looking for that move on continued rising volume. Target: 59
BUY POINT: 49.29 on volume of 16 million or higher. Stop: 45.84 (7%)
POSITION: Stock and/or January $40 or $45 calls to buy (QLC AH or AI).
http://www.investmenthouse.com/ct/qlgc.html
SUMMARY:
- 200 day MVA, down trendlines stop the assent today.
- Nasdaq, SOX and S&P churn on higher volume. The Dow simply tanks.
- Retail sales up, existing home sales higher, but confidence is lower.
- Fed done? A hawk says don't make that assumption.
- Nasdaq getting close to a definitive point.
- Team Trades
Indexes turn back at resistance.
Slow start then rally. That is what you like to see. Problem is, that overhead resistance was just a small rally away. Both the Nasdaq and S&P hit their 200 day MVA while the S&P hit its major down trendline from March 2000. None were able to make a dent in them. A quick double top over an hour trading, and then they were ready to fall in the last hour. That is just what they did. Round 1 goes to resistance.
Higher volume churn.
The Nasdaq and SOX showed doji's on higher volume. Nasdaq volume moved back above average for the first time in a week and the highest volume in two weeks. That is not what you want to have when an index cannot make headway at resistance. That is churning, i.e., when shares change hands on high volume (buyers and sellers were matched based on the doji candlestick pattern) but the index goes nowhere. When at resistance, that means potential trouble as there are many sellers preventing the many buyers from pushing the index above that resistance. Look at the up/down volume: 1.074 billion downside, 1.011 upside. That is about as tight as you can get.
The good news was the indexes did not tank on the consumer confidence drop that was more than expected. Indeed, they rallied back positive. That is bullish action. But they then ran into resistance and recoiled like snails hitting a salt trail. The only good news was that the Nasdaq and SOX stemmed the tide at the early morning highs. The Dow and S&P were not so resilient; they finished closer to their lows with the Dow barely dragging up off the bottom in the last half hour.
'It cannot continue.'
That was voiced once again with frequent repetition. It was voiced as it sold down after the confidence numbers. Then the indexes rallied back and that had them scratching their heads. When it sold again late after hitting resistance and on hearing some Fed words that the economy is still weakening, they were back out.
The market has come a long way without a real correction, but it has not just run up day after day, stringing gain upon gain. The move has been very deliberate: up for a few strong sessions, then sideways to down as it consolidates those gains, and then right back up. It never really gets way ahead of itself with a hundred point Nasdaq move in one session. That was one of the problems every time it tried to rally before: violent moves upward were immediately sold into. These slower moves up are not the lightning rod for selling that they were; that is more of a function of time and improving economic numbers, but it just goes to show how the market has changed. There is building going on with lower intraday volatility in terms of point swings. That is characteristic of a stable, building environment.
Our concern is obviously the volume. It was higher on the NYSE as the Dow tanked and the S&P followed it down. It spiked well above average on the Nasdaq as it churned below resistance. At most during this rally that has meant the indexes were selling back toward near term support. If volume ramps up on further selling that is subject to change. For now, we intend to use any pullback for some covered call sales, not wanting to short the market with new put positions given its resilience.
THE ECONOMY
Retail sales up again. Mitsubishi and Redbook weekly sales were out, and while Mitsubishi showed just a 2.2% year over year rise (lower than the gain at this time last year), Redbook was up 4% year over year, its third gain in a row. Retail sales are not bad even as we continue to hear words about how this holiday season will be the worst in years. Once a mentality takes hold, it is hard to shake.
Existing home sales were up a strong 5.5% in October. That was 5.17 million annual units versus the expected 5 million and the 4.90 million prior. Low interest rates are a boon for the economy. The long bond rallied a bit today, but it has still made a run up and is not showing a lot of weakness. We anticipate some more deterioration, but not much.
That brings up the Fed. Today Fed member Moskow was out talking about how the economy was sluggish and that the labor markets could effect confidence down the road (poor job market equals low confidence). Well, we are there now, and thus it appears Moskow is saying it will get worse until the job loss ends. It appears so simple yet so elusive: jobs get workers back to work and that gets confidence up and that drives demand. Moskow said it today in pretty simple terms. We had it, but our economic leaders gave it away. Incredible.
FOMC member Meyer, a hawk that is usually very conservative when it comes to interest rate cuts, came out and said that the economy was still contracting in this fourth quarter. The market seemed to sell on this statement in the afternoon, ignoring that he said that just because the fed funds rate was down to 2% did not mean no more rate cuts were coming. If they were needed, they would come. Pretty straight talk from an interest rate conservative.
Interest rates a problem.
What was the Fed doing today? It was trying to blunt the rise in long term rates. After yields tanked following the announced elimination of the 30 year bond, they staged a massive rally on the belief that the economy was recovering. The Fed knows that low interest rates are important to any recovery and higher productivity, yet it is unable to assert much control over them. Thus, the old standby, jawing the market, is coming back to the forefront of Fed policy. Based on past Fed actions, that may mean it does not cut rates the next meeting, but that would really be hard on interest rates and out of Fed character. It tends to continue its current direction until it sees change in the economy. It is once again in a catch 22 of its own making. It is wrestling with the hydra, and we are not sure if Greenspan has the ingenuity of Heracles to overcome the problem.
Stimulus package needs to get passed.
Promises, promises. All going by the wayside. Now we hear that corporations (and there are many, many family corporations in this country) should not get tax relief of any kind because they are laying off workers. As if they are laying off workers because they like not having work for them to do. Perhaps, just perhaps, they are laying off workers because business is bad; the profit picture sure reflects that (as do stock prices if our leaders have not noticed). With pumpkin stimulus and bison burger stimulus in the bill, let's get crazy and put a little consumer and business stimulus in there. Maybe a little more tax relief for everyone in the U.S. with payroll tax reductions, marginal tax rate reductions, and/or investment credits (that can be for your house, your business - - let's get creative).
Why is this important? One, it is still needed. Two, it is being factored in by the market and those calling for an economic recovery. Three, consumers and businesses are basing buying decisions right now on getting some tax relief. If it does not come, we have a domino effect. That scenario is totally avoidable, yet we are dancing on the edge once again with some ludicrous forms of 'stimulus.' Let's get back down to earth and back down to business to get something passed before Christmas. We said it was pure fantasy a stimulus bill would be passed for us by the end of November. Sad that is coming true.
THE MARKET
Resistance took round one. The Nasdaq and SOX were able to basically sidestep just as we anticipated last night, but volume was significantly higher. They may have not been ready to make the move just yet. That is why the now famous lateral trading range may continue. The Dow was weak, but it was not totally dead. It rallied 140 points off of its low to turn positive before it gave it all up and more in the last two hours. We don't like the volume and could be seeing more consolidation before a real move begins.
Even with the selling and the higher volume, however, note how the stocks that made strong moves of late held onto those gains. They did not turn tail and tank. We have very few stop advisory alerts today. We really like it when the market is stingy with its gains.
VIX: 25.21; -0.03. The S&P was down, but volatility fell anyway. That is a signal of continued complacency. It did hit 26.35 on the high, but that is hardly a spike and well within its range of late. Complacency is setting in and that is not a good sign for the rally, particularly with volume starting to move higher on some selling. 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 before this recent dip lower.
VXN: 49.27; +1.05. Hit 51.30 on the high today, but backed off as the Nasdaq rallied. It is trying to hold above the summer doldrums levels of 43 to 47, but it is knocking at the door. Complacency has re-entered the Nasdaq 100 after a strong rise; today's higher volume churn is not welcome. 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 after that ranged from 55 to 70. Another thing to consider; volatility levels back in January through March 2000 traded in a range from 55 to 60 before the Nasdaq's dive.
Put/Call Ratio (CBOE): 0.74; +0.06. Not much of a gain, but there was not much selling either on the leading Nasdaq and SOX. Still, we saw the ratio climb back up into a high level even without massive selling. Contrary to the VIX (how do you like that, a contrary contrary indicator), the put/call ratio is showing that option traders are still nervous as a group about the market's prospects. That nervousness is good; the inability to crack important resistance sent more into put positions.
End Part 1 of 2
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