us stock market, stock watch

Begin Part 2 of 4

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

12-3-01
Auto Sales, November (8:30): 6.8M versus 7.8M prior.
Truck Sales, November (8:30): 7.9M versus 9.8M prior.
Personal Income, October (8:30): 0.1% versus 0.0% prior.
Personal Spending, October (8:30): 1.9% versus -1.8% prior.
NAPM Index, November (10:00): 41.9% versus 39.8% prior.
Construction Spending, October (10:00): -0.5% versus -0.4% prior.

12-5-01
NAPM Service, November (10:00): 42.5 versus 40.6 prior.

12-6-01
Initial Claims, 12/01 (8:30): 488K versus 488K prior.
Productivity Rev., Q3 (8:30): 2.6% versus 2.7% prior.
Factory Orders, October (10:00): 1.0% versus -6.2% prior.

12-7-01
Nonfarm Payrolls, November (8:30): -210K versus -415K prior.
Unemployment Rate, November (8:30): 5.6% versus 5.4% prior.
Hourly Earnings, November (8:30): 0.2% versus 0.1% prior.
Average Workweek, November (8:30): 34.0 versus 34.0 prior.
Consumer Credit, October (3:00): $1.5B versus 3.2B prior.

SUBSCRIBER QUESTIONS

Q: Continuing our discussion of indicators, such as VIX and VXN, as well as what support and resistance are.

A: The VIX and VXN are measures of volatility of the market by looking at hypothetical at the money options on the S&P 100 and Nasdaq 100, respectively. Options have as one of their pricing components volatility. There are a few ways to calculate it, but in short it is nothing more than a measure of how much the underlying index the option covers is expected to move.

We look at the volatility indexes because one of the things volatility can show us is investor fear and investor complacency. High levels of volatility usually accompany fear in the market. When is there a lot of fear? When selling is strong. If the volatility measure gets high enough, historically it has been an indicator of bottoms in the market. On the other hand, when investors are not scared at all and volatility falls to levels that historically show a lack of fear, the marekt can be topping. Everyone is invested, everyone feel's the market will keep going up, and there is nothing else left to drive the market higher. We can also, however, see high volatility at tops as well, but that usually starts after some sharp selloffs; lots of up and down action ratchets volatility back up at the market top.

We discuss the levels of volatility that are important in the summary as comparisons for what we saw that day. We look for extremes once again because this is a sentiment indicator. Extremes either way can lead to opposite reactions in the market. This is another topic that we cover in our online seminar series that we will be airing again starting in January.

We will touch on support and resistance this coming week.

Q: Where on the web can one find information on futures both at night and in the morning before the market opens?

A: There are a few places to check it out, but CNNFN is not bad. Try this link:
Before hours: http://money.cnn.com/markets/morning_call/
After hours: http://money.cnn.com/markets/afterhours/

TEAM TRADES

Friday was not a day of flashy tech stocks necessarily with the NVLS news, so we were still looking at some other plays in other sectors that could give us the move we were looking for. Not all worked out, but we got some good positions going into next week.

KKD had sold back to its 50 day MVA on Thursday, showing a tight doji as it closed just above that level. The 50 day MVA should be a support level for strong stocks. Despite all of the criticism, KKD keeps on rising when it sells back (get it?). Friday it started again, and we wanted to catch it when it did. After a half hour or so it looked good in the pattern and had hit the pivot point. We decided it was a good time to enter and sent the alert. It was a stock buy (we were saving our option money for some index calls if by chance we got the breakout early), so we put the order in as it came back and tested the pivot and started up.

BORL was a tech stock we were looking at, and one we like to buy and write covered calls on because it has good premiums. It was off and moving well Friday, and hit our buy point about 45 minutes into the session. Volume was decent though not great at about 30% on the session. As we like this one for covereds, we wanted to get it before it hit 15 so we could write $15 strike covereds on it, so we decided to step right in. The stock ran up to 15 intraday and started to pullback; we thought about writing the calls right then, but the volume was solid on the move. So we decided to ride it for the day. Unfortunately, it sold back to close at 14.46, just below our pivot. Volume was very strong and the move was solid. We were not disappointed with the play even though it was not a roaring success the first session. We like to buy these at the pivot before the nearest strike price, let it run up, top, and then sell the covereds.

THE PLAYS: AMHC continued its great breakout move! SUNW also broke out, and we are looking for more as the market sets up for another move.

Targets and Stops: 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:

EXLT (Exult--$16.28, +0.73; optionable): Internet Software & Services.
http://biz.yahoo.com/p/e/exlt.html
STATUS: Moving in a handle to a cup dating back to late-June (left side high: 19.85). The stock made a nice push up the right side in late October, followed by another run up in early November. Since then it has pulled into a handle over 15, interrupted with one weak attempt to breakout that pushed up to 16.68 before quickly falling back into the pattern. It has pulled back nicely again to support at the 18 day (currently 15.39), and closed the week with a very strong bounce up from that support, closing in the range of the recent high as volume shot up to 1.33 million (average 467,500). We are looking for the upward momentum to continue and on continued strength in a move over the recent high, we will set an initial target of 20 (watching the left side high).
BUY POINT: 16.80 on continued strong volume (minimum 700,000). Stop: 15.62 (7%).
POSITION: Stock and/or January $15 calls to buy (EQB AC).

RI (Ruby Tuesday--$19.50; -0.20; optionable): Restaurants.
http://biz.yahoo.com/p/r/ri.html
STATUS: RI fell out of a cup with handle in August-September, but has battled back to form a second cup/double bottom and is now battling the former highs. It made a solid move up recently, hitting an intraday high of 20.10, and since has pulled laterally into something of an ascending wedge handle over its 10 day MVA (19.26). Friday RI gapped up slightly but then pulled back on lower volume (262,400; average 229,300). Looks solid, and we will see if it can hold the 10 day on a bit more of a low volume dip, and then make a move to the breakout. Good money flow and buying. Target: 25.
BUY POINT: 20.22 on volume of 345,000. Stop: 18.80.
POSITION: Stock and/or January $17.50 calls to buy (RI AW).

ASIA (Asianinfo--$16.83; -0.12; optionable): Internet software.
http://biz.yahoo.com/p/a/asia.html
STATUS: Deep in its base, but ASIA is showing a nice cup pattern. The stock made a solid move off of its 10 day MVA (16.32) Monday, but has since pulled laterally as it forms a handle. Friday saw ASIA record its third consecutive doji on decreasing volume (91,500; average 184,500), this one after reaching over recent highs to high 17.44 before dropping back to close. We may see a bit more of a pullback, but we like the gentle easing on low volume. Waiting for the breakout, and targeting 21. Excellent money flow and buying. The left side high from late-June is 20.39.
BUY POINT: 17.56 on volume of 280,000. Stop: 16.33 (7%).
POSITION: Stock and/or January $15 calls to buy (EUJ AC).

NEW PRE-ANNOUNCEMENT PLAYS: A new stable of horses to add to the existing plays, and these guys are looking very good! Market leaders and in good position. More coming this week as well!

IGT (International Game Technology--$61.99; +2.19; optionable): Forecast to announce a split on 12-5-01 or 12-6-01 in conjunction with a board meeting. The company will not confirm this date, but based upon our research the board will meet on one of those days.
http://biz.yahoo.com/p/i/itg.html
BACKGROUND: Based upon our research it does not appear that IGT has ever split its stock. The annual shareholder meeting was on 3-5-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: IGT broke out of a rather jagged 4-month cup-with-handle (complete with the familiar sharp V) in early November, and after hitting a high of 63.62, pulled into a very nice handle consolidation that gently drifted back to the 18 day MVA (59.53) on falling volume. Thursday the stock tested through that level before pulling up to close with a high volume doji over that support - indicating that IGT was getting ready to move. It closed the week with a nice push up, closing in the range of the recent handle highs, as volume fell, but remained above average at 1.64 million (average 1.32 million). From here, we are looking for increased momentum to support a move over the high, and set up the next run. The initial target is 73, but we are carefully watching the left side (and all-time) highs a 65 for possible resistance.
BUY POINT: Breakout: 63.74 on minimum volume of 2 million. Stop: 59.28 (7%). Aggressive: A move over 62.50 on increased volume. Stop: (below the 18 day). 59.
POSITIONS: Both buy points: Stock and/or January $60 calls to buy (IGT AL).

WLP (Wellpoint Health Networks--$117.90; -0.10; optionable): Working on a date, but a pattern you can't refuse.
http://biz.yahoo.com/p/w/wlp.html
BACKGROUND: Based upon our research it does not appear that WLP has ever split its stock. The annual shareholder meeting was on 5-8-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: WLP is in a large cup dating back to late December 2000 (left side high: 120), having pulled into a series of rather jagged runs that first used the 200 day, then the 50 day, and now the short-term MVA's as support as it progressed. The stock broke out again last week, pushing up to close just under the left side highs before it began drifting back in a classic handle consolidation to the 10 day MVA (117.49) on below average volume. WLP closed Friday with a higher volume doji (685,500, average 719,100) over that support - indicating that it may be ready for another run. We are using Wednesday's intraday high as the breakout here, but will watch last week's intraday breakout spike that hit 122.90 as resistance. Target: 132.
BUY POINT: Breakout: 120.51 on volume of 1.1 million. Stop: 115 (18 day MVA at 116.04).
POSITIONS: Stock and/or January $115 calls to buy (WLP AC).

BMS (Bemis--$50.27; -0.02; optionable): We are researching a date in January.
http://biz.yahoo.com/p/b/bms.html
BACKGROUND: Based upon our research it does not appear that BMS has ever split its stock. The annual shareholder meeting was on 5-3-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: BMS broke from a reverse head-and-shoulders pattern early in November (at 45.50), and made a nice climb to a high of 51.50 before pulling off into a flying plateau. The stock held its price through earnings, but on a downgrade Tuesday it gapped back to the 18 day MVA (49.23). However, it held and bounced back up, holding the 10 day (50.04) the last three sessions with dojis. Friday it reached up to 50.91 but pulled back to close, moving on reduced volume of 231,600 (average 210,100). Looking for the breakout, and targeting 60.
BUY POINT: 51.62 on volume of 285,000. Stop: 48.50.
POSITION: Stock and/or January $45 calls to buy (BMS AI).

BEST PLAYS: Besides the plays set forth below as best plays, there are some other stocks that also look good. These include Pre-Announcements THQI and BBY; Pre-Splits KIM and PSC; Continuing Candidate APPB; and Post-Split MIKE and AMHC.

PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: AZO is forecast for Tuesday, TJX for Wednesday, and we are looking at TRDO for early in December!

PRE-ANNOUNCEMENT BEST PLAYS
1) AZO - Could break out going into the Tuesday forecast!
2) TJX - Forecast for next week
3) NDN - Very strong

AZO (Autozone--$67.30; +0.73; optionable): NEW INFORMATION Forecast to announce a split on Tuesday after the close, with earnings.
BACKGROUND: Last announced a 2:1 split in March of 1994 at $60.
http://biz.yahoo.com/p/a/azo.html
STATUS: Still holding the lateral pattern that has turned into a tight ascending wedge. AZO broke out in September and has made a couple of very strong moves followed by consolidations over the short-term MVA's. After hitting a high of 68 AZO has pulled laterally over its 10 day MVA (66.24). The last two sessions it has moved back up from the 10 day, but it has not been a strong move, as volume remains low (630,800 Friday; average 1.3 million). As the pattern extends it can go either way, but note that before each of its recent big runs AZO dipped down for a session, shook out the last sellers, and then raced ahead. The moral: don't give up on a leader. Moreover, with a possible announcement this week we could have a catalyst for a strong breakout. We want it to hold at the 10 day (but the 18 day is just below at 65.07) for a stronger attempt to move up as it goes into the forecast. Targeting 80.
BUY POINT: 68.12 on volume of 1.9 million. Stop: 63.75.
POSITION: Stock and/or March $65 calls to buy (AZO CM).

TJX (TJX Companies--$37.69; -0.05; optionable): Retail. Forecast to announce a split on 12-5-01 in conjunction with a board meeting. The company will not confirm this date, but based upon our research this is the date for the board meeting.
http://biz.yahoo.com/p/t/tjx.html
BACKGROUND: Last announced a 2:1 split on 4-8-98 with a board meeting. The stock price was $43. The annual shareholder meeting was on 6-5-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Looking toward a forecast date next week, and TJX is trying to break to a new high on the breakout test. TJX bounced from the 50 day MVA (then 34.50, just above its long-term trendline) earlier this month and broke to a new high, hitting 38.51 before dipping back to make the test. It was moving back up on pretty solid volume earlier in the week, but pulled back Thursday as it approached the high, moving on lighter volume, and then showed a 'hammer' doji Friday after dipping through the 10 day MVA (37.38) at its low. Volume again dipped, coming in at 826,000 (average 1.3 million). We are looking for TJX to hold the 10 day and make a move off of the doji, giving us a breakout as we go into the forecast. The 18 day MVA is below at 36.86. Target on a breakout: 45.
BUY POINT: A move over 38.51 on volume of 1.5 million. Stop: 36.
POSITION: Stock and/or January $35 calls to buy (TJX AG).

NDN ($38.50; +1.44): Retail. Researching a date.
http://biz.yahoo.com/p/n/ndn.html
BACKGROUND: Last announced a 4:3 split on 1-19-00 at $24.25, and 5:4 splits on 10-26-98 at $30.30 and 10-30-97 at $25.25.
STATUS: Wow, what a move! NDN has come back strong from its 50 day MVA (34), making a strong move Thursday and hitting our buy point, and an even stronger one on Friday. Volume shot up Friday to 863,100 (average 365,700) as NDN took out our momentum buy point at 38. It reached up to a high of 39, pulling back just short of the all-time high 39.50, made on an intraday spike in early October (before an abrupt pullback). Riding current positions and watching that resistance, and we are also eyeing positions on a break to a new high with continued strong volume. However, we also could get a big of a rest here, and perhaps the formation of a handle (to the cup formed since the October high). On a strong move to a new high we are targeting 45.
BUY POINT: New High: 39.62 on continued strong volume. Stop: 36.85 (7%; 10 day MVA back at 35.76).
POSITION: Stock and/or March $35 calls to buy (NDN CG).

PAST SPLITS BEST PLAYS: These are former splitters that look ready again.
1) FIC - Trying to make a move in the consolidation
2) LUV - Looking good in its own consolidation above support

FIC (Fair Isaac & Co--$59.14; +1.43; optionable): Business services.
http://biz.yahoo.com/p/f/fic.html
STATUS: Hit the buy point in its cup with handle, but volume was not there. The handle is now of three weeks' duration (high is back in July at 70), moving over the support of its short-term MVA's (10 day & 18 day at 57.39 and 56.15). It is still below the high in the handle, an intraday spike from last week that hit 59.98. FIC has a good pattern here, and is capable of some very solid moves, so we will continue to eye it and look for a breakout over 60. FIC is showing excellent money flow and good buying. Target: 70.
BUY POINT: 60.10 on volume of 270,000 (average 178,400; today up to 139,600). Stop: 55.
POSITION: Stock and/or January $55 calls to buy (FIC AK - low open interest).

LUV (Southwest Airlines--18.75; +0.16; optionable):
http://biz.yahoo.com/p/l/luv.html
STATUS: LUV continues to pull laterally over the 200 day and 10 day MVA's (17.80 and 18.45), using the 10 day for intraday support. The pattern is something of a cup with handle, with the handle making a small, tight ascending wedge. Friday LUV inched up, tapping at 18.92 at its high (handle high is 18.97), with volume pushing up again but still remaining below average (2.94 million; average 4.18 million). Looking solid, and a strong move will give us another buy point for long-term positions.
BUY POINT: 19.09 on volume of 6 million. Stop: 17.57 (7%).
POSITION: Stock.

End Part 2 of 4

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