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us stock market, stock trading seminar
Begin Part 2 of 3
THIS WEEK
Another week, another load of economic data: auto sales, NAPM, construction spending, productivity, factory orders, and the unemployment numbers. All heavy hitters and some are more important to the vision of economic recovery than others (e.g., the employment index is widely followed, but it is more of a pain index and history lesson when looking for signs of economic recovery).
With the pattern in the Nasdaq and the SOX, we would like to see a day or two more of lateral motion and then a powerful move up out of the patterns. It may not wait if there is a very positive NAPM number Monday, or it may be a delayed reaction. For now the market is showing us building action, not declining action. There are always those predicting a correction or test is necessary, and indeed there usually is a test in of the low when you look back at history. The indexes will either make a strong breakout over resistance and not look back, or they will weakly make the move (or fail at the threshold) and then fall back for a test. Again, right now we see building action when looking at the nuts and bolts of the market, i.e., price patterns and action versus volume.
That keeps us ready for that breakout, but patiently waiting. We continue to take positions when they present themselves before the indexes breakout, but that is just part of our philosophy: see the proper move and then act. We don't like guessing or speculating. I have had many personal friends who know better after learning proper investment techniques from our analysts and me come up and ask if Enron is a good buy right now. They are speculating, thinking they will get a bounce from the 30 cent price up to $3 or so and 'make a killing.' When I ask what they would do if ENE files for bankruptcy, cannot put together a plan, and then is sold off piecemeal, the response is 'it is worth the small amount of money you put into it.' Perhaps. I have invested in bankrupt companies before, but there was reason to do so: a plan was coming, and when the plan or contract is announced, you get a spike in price and can take shares bought at pennies and sell them for 10 times as much. The majority of the time, however, I prefer to catch companies going the other way: companies that are leading, not gasping for air, praying for a takeover. Leave the speculation to the speculators. Invest, don't speculate.
That is a long way around to say we are waiting to see the moves, and are waiting for that breakout by the Nasdaq and the SOX to lead the way higher.
Support and Resistance
Nasdaq: Closed at 1930.58.
Resistance: 1930 to 1940. 1940 is the breakout of the ascending wedge, but it needs to clear the 200 day MVA at 1954.70 as well. The March 2000 down trendline is right at 2105.
Support: The up trendline is 1900. 1875 is still the bottom of the recent trading range. The 18 day MVA is right there at 1877.23. Below that is 1800 and the 50 day MVA at 1810.32.
S&P 500: Closed at 1139.45.
Resistance: 1150. The March 2000 down trendline is at 1155. The 200 day MVA is at 1178.96.
Support: The up trendline is at 1132. The 18 day MVA is right there at 1131.92. Then there is 1125, a level of prior consolidations. The 50 day MVA is next at 1117.03. Then 1103, the old closing low in the double bottom from March and April.
Dow: Closed at 9851.56.
Resistance: 9992 (former top and bottom). The 200 day MVA is at 10,157.41. The upper channel rides just over the 200 day MVA at 10,185. Other resistance at 10,200.
Support: The up trendline is at 9750. The 50 day MVA is 9623.46. 9500 also acts as support independently.
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:
All prices are current as of the close of trading Friday.
Removed but watching: BSYS (has had a super run and was up Friday on strong volume; it will pull back before completing its cup (highs are at 64). Also, BAC, MTON, MANU, INFA, COST, KOPN, AVNT, AMCC, MXIM, RFMD and MNC. Some of these still have decent-looking patterns that may need a few days to settle down.
Best Plays:
1) CREE: Nice pattern on low volume (at support, too).
2) PHM: Remains a buy on this beginning breakout.
3) DRXR: Heading lower.
4) NETA: A nice tight pattern.
5) MRVL: Looks ready to move on Friday's strong volume.
6) GMST: May break out from the wedge here.
7) PMCS: You have to like this pattern.
8) SLOT: Up on strong volume in the handle.
9) ORLY: Up in its handle as well.
10) CHKP: Still like this pattern.
11) BRCD: Broke major resistance Friday.
Indexes: Keeping the same buy points from Thursday's reports as they need to clear resistance.
NEW PLAYS:
IBM ($115.59; +1.16; optionable): Computer Hardware
http://biz.yahoo.com/p/i/ibm.html
STATUS: IBM is in a cup with handle base that is 6.5 months long. Volume has been pulling back below average in the handle that formed earlier in November at the high of 117. Volume Friday was down to 5.6 million (avg. 8.6 million) as the stock bounced moved up on its second day bouncing from the 18 day MVA (113.53). We are looking for a breakout over the high, and on that move, a target at 140. Also looking at writing a credit spread for the breakout.
BUY POINT: 117.13 on volume of 13 million or higher. Stop: 108.93 (7%).
POSITION: Stock and/or January $110 calls to buy (IBM AB). Credit Spread: December $115 puts to sell (IBM XC) and December $110 puts to buy (IBM XB) for a net credit of $1.60 or better.
http://www.investmenthouse.com/ct/ibm.html
CREE (Cree Inc--$24.86; +0.29; optionable): Semiconductor
http://biz.yahoo.com/p/c/cree.html
STATUS: After moving back over its 200 day MVA (21.76) over 2 weeks ago, CREE fell into an ascending wedge that is holding support at the 10 day MVA (24.06). Volume has been below average overall in the pattern, but was up Friday as the stock once again bounced from the 10 day (volume was up to 860,900; avg. 1.47 million). We are looking for a breakout from this pattern; CREE is off the lows of its large 21-month base and has a way to go, so for now we are looking for a nearer-term target at the highs in the current cup (at 36, May this year). Shows strong money flow.
BUY POINT: Breakout: 26.43 on volume in the range of 2 million. Stop: 24.58 (7%).
POSITION: Stock and/or January $20 calls to buy (CVO AD).
http://www.investmenthouse.com/ct/cree.html
PHM (Pulte Homes--$39.25; +1.87; optionable): Materials & Construction
http://biz.yahoo.com/p/p/phm.html
STATUS: Breaking out of an ascending wedge that formed at the bottom of the stock's correction from the April high (50.24). Now in a cup, this break can help PHM move into the upper reaches of the right side of that bigger pattern; it is currently at the mid-point. Volume shot up to 1 million Friday (avg. 534,000), far above the 721,000 needed for the breakout. With price inside our 5% limit for buying on breakouts (buy point was 39.28), there are still good entry points here. Money flow looks good and relative strength is breaking out. Target: 47
BUY POINT: Remains a buy up to 41.24 on continued strong volume. Stop: 38.35 (7%).
POSITION: Stock and/or January $35 calls to buy (PHM AG).
http://www.investmenthouse.com/ct/phm.html
Put Plays: Keep an eye on a few of these.
LE (Lands End--$45.95; -4.23; optionable): Retail: Catalog
http://biz.yahoo.com/p/l/le.html
STATUS: Has fallen for 2 days on strong volume, and Friday broke support of the 18 day MVA (46.57). With news of a couple of recent downgrades and general scuttle about lackluster online apparel sales, the stock is tumbling, and looks ready for more downside. From here it can fall to the 50 day MVA (currently at 40.69) for a potential put play. Volume continued climbing; it was up to 1.09 million; avg. 235,181.
BUY POINT: Below 45.95 on continued strong volume.
POSITION: January $55 puts to buy (LE MK).
http://www.investmenthouse.com/ct/le.html
DRXR (Drexler Tech--$17.25; -1.65; optionable): Computer Hardware
http://biz.yahoo.com/p/d/drxr.html
STATUS: Broke the 50 day MVA on huge volume (462,100; avg. 113,272); no news available at the time of this writing. The stock was consolidating more or less laterally below resistance at the short term moving averages until making this solid downside move Friday. Looking for a drop to the 200 day MVA (just under 14) or lower, to 12.
BUY POINT: 17 on continued strong volume.
POSITION: January $20 puts to buy (RXQ MD).
http://www.investmenthouse.com/ct/drxr.html
Back On:
CMOS (Credence Systems--$16.59; -0.70; optionable): Semiconductor
http://biz.yahoo.com/p/c/cmos.html
STATUS: Off the November high at 18, CMOS pulled back to the 50 day MVA several days ago as it started forming an ascending wedge-type pattern with immediate support at the 18 day MVA (16.34), tapped on Friday's low. Volume was lower at 771,800 (avg. 7.8 million). We are looking for the stock to move up from here, or from another test of the 18 day (it closed just under the 10 day MVA at 16.67) for a breakout. Breakout would be over 18, but the 200 day MVA is at 19.65, so this is an aggressive play on a bounce from the 18 day MVA. CMOS shows good money flow. Target: 22
BUY POINT: Aggressive: 16.75 on rising volume, in a rally. Stop: 15.58 (7%).
POSITION: Stock and/or January or February $15 calls to buy (CQS AC or BC).
http://www.investmenthouse.com/ct/cmos.html
NETA (Networks Associates--$22.95; -0.03; optionable): Security Software
http://biz.yahoo.com/p/n/neta.html
STATUS: Had a good run up through October, eventually hitting the November high at 24, which is the high in a pennant the stock formed at the top of the run, and above its 18 day MVA (22.15). Volume has dropped back to below average over the last 8 days in the pattern (it began forming about 2 weeks ago), and as the stock closed with a tighter doji Friday, volume was down to 2.46 million (avg. 3.5 million). Look for a breakout over upper resistance in the pattern at 23.50. Money flow is excellent and money flow very strong. Target: 28
BUY POINT: 23.63 on volume of 4.7 million or higher. Stop: 21.98 (7%).
POSITION: Stock and/or January $20 calls to buy (CQM AD).
http://www.investmenthouse.com/ct/neta.html
MRVL (Marvell Tech--$31.54; +1.38; optionable): Semiconductor
http://biz.yahoo.com/p/m/mrvl.html
STATUS: The stock is in 10-month cup with handle base (high at 42), forming the handle over the last 7 days and moving up Friday with volume shooting sky-high (4.77 million; avg. 1.8 million). MRVL tapped resistance at the 32 range then pulled back down, but we are looking for today's strong volume to propel the stock back up and over the intraday high (32.20). Handle high is at 34.45, but aggressive players can look at taking positions on a move over 32.20 as volume remains strong. MRVL has high money flow and relative strength. Target: 41
BUY POINT: Aggressive: 32.80 on continued strong volume. Stop: 30.50 (7%). Breakout: 34.58 on continued strong volume (min. breakout volume is 2.7 million). Stop: 32.16 (7%).
POSITION: Stock and/or January (0 open interests) or February (91 open interests) $27.50 calls to buy (UVM AY or BY).
http://www.investmenthouse.com/ct/mrvl.html
End Part 2 of 3
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us stock market
stock trading seminar
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