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Begin Part 2 of 2
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:
Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.
Stocks/Indexes from Wednesday's report:
WEDC (subscribers' choice): Slipped below the 18 day MVA in the handle to its cup. Volume remains well below average.
GDT: Still pulling back nicely in its new handle. Keep a close eye on this one this week.
QCOM: Still looks very good in the cup with handle. We outlined a potential covered call play Thursday night for when the stock makes a strong move up and breaks out.
DFXI: Made a nice move up Friday in its handle. Volume was higher but still well below average. See Thursday night's report.
KKD: Started its move up from the 50 day MVA.
Indexes: QQQ still looking solid, and the SOX pulled back in its wedge. Maintaining the same buy points.
Previous plays:
ARDI: Testing the early November run, and continues to climb up the 10 day MVA. Friday it tested the 18 day MVA on the low then moved up to close at some resistance. Aggressive positions on a move over 5.26 on above average volume; November high is at 5.75.
BEAS: Holding the 18 day MVA on decreasing (below average) volume. Looks good!
BLTI: Pulling back in a new handle with volume decreasing. New buy point is 6.44. Looks good as well.
EAT: Holding up well in the new handle.
HTLD: Volume is rising in the handle; the stock still needs to break the 10 day MVA to move up in the handle. Not a tough obstacle on strong volume.
JNPR: Holding at the 18 day MVA the last two days, on decreasing volume. Looks good!
NVLS: Hit the 50 day MVA and bounced back to close over the 18 day MVA. That is pretty good action after the negative earnings news that was out Thursday evening; may take a while to recover.
PENN: Forming another handle, since on the last breakout the stock remained in the cup base. Volume is dropping, and the pattern looks good.
TSCO: Moving up on rising volume off support at 28; the stock corrected off the November high 32.30 and tested the 50 day; now looks ready to head up again.
WMT: Still in a handle and holding the 18 day MVA for now. Breakout is over 56.24, but the stock still has the November high at 57.10.
Best Plays:
1) UTSI: Ready to break out of an ascending wedge.
2) ENTU: An ascending wedge also.
3) HDI: Broke out and still a buy if volume catches up.
4) IGT: Ready to break out of the cup with handle.
New:
UTSI (Utstarcom--$23.94; +1.39; optionable): Wireless Communications
http://biz.yahoo.com/p/u/utsi.html
STATUS: UTSI is deep in a long base (20 months) with highs near 90; highs in the flat base (larger base's bottom) formed since the first of the year are at 28. Since February it has formed a big double bottom, but more recently we are looking at the ascending wedge that is in the upper right side of the second half of the double bottom (a cup). Friday UTSI was up on big volume, and looks ready to break out of the nicely-formed wedge (2.34 million; avg. 1.1 million). This isn't the best kind of handle for a cup (volume has been below average for the most part, just like in a handle), but still can offer a good move, and this is a nice pattern showing promise. Excellent money flow and good buying. Looking at a target at 30.
BUY POINT: 24.58 on continued strong volume (minimum breakout volume is 1.5 million). Stop: 22.86 (7%). A buy on the breakout to 26.
POSITION: Stock and/or January or February $20 calls to buy (UON AD or BD).
http://www.investmenthouse.com/cd/utsi.html
ENTU (Entrust--$7.99; +0.50; optionable): Software
http://biz.yahoo.com/p/e/entu.html
STATUS: ENTU is coming off the bottom of a long base (21 months) with lows that are around 2.50-2.60. It crossed back over the 200 day MVA (5.82) earlier this month, a strong move on huge volume. Eventually the stock reached the November high at 8.30 and off that has bounced up and down and is now tightening into a wedge above the short term MVAs, showing good price/volume action in the pattern. Friday ENTU gapped higher on another big surge in volume (2.3 million; avg. 583,090); it pulled off its intraday high at 8.24, but we are looking for continued strong volume and a breakout over the November high. Showing excellent money flow and buying. Target: initial, 10
BUY POINT: 8.35 on continued strong volume. Stop: 7.77 (7%).
POSITION: Stock and/or January $5 calls to buy (EXH AA).
http://www.investmenthouse.com/cd/entu.html
AMZN (Amazon.Com--$11.32; +0.17; optionable): Internet
http://biz.yahoo.com/p/a/amzn.html
STATUS: AMZN is off the bottom off its 2-year base, though is still very much off the highs that are over $100. More people are buying online this year, and will continue to do so after they try it. All that aside, the stock is showing improvement with last week's strong move back over the 200 day MVA (now at 11.63) on huge volume (breakout from a small cup with handle). Off of that high, volume has fallen back with price (forming another handle to a new 4-month cup base). AMZN slipped back below the 200 day (volume down to 8.9 million; avg. 9.3 million) where it remained the rest of the week after Monday's strong breakout move. However, it tapped on Thursday and Friday lows at 10.80 and Friday showed a very tight doji on the low volume. That can indicate the stock is ready to move back up in the handle. We will look for the move back over the 200 day and the highs at the beginning of August, since there is a clump of prices there that could pose added resistance. This is one we can also look at for covered call writing as it moves up and then starts to top and come back. AMZN is showing huge money flow and good buying at this point. Initial target: 16
BUY POINT: Breakout: 12.99 on volume of 14 million or better. Stop: 12.08 (7%).
POSITION: Stock and/or January $10 calls to buy (ZQN AB).
http://www.investmenthouse.com/cd/amzn.html
Updates:
CMNT (Computer Network Tech--$18.75; -0.09; optionable): Computer Hardware
http://biz.yahoo.com/p/c/cmnt.html
STATUS: Covered on the 11-10 report. In a 10-month cup with handle base within a larger 12-month base. After pulling back in the handle from the November (handle) high at 20.88 on overall below average volume (though rising and Friday breaking back over average), CMNT showed a doji. Volume was higher at 657,200 (avg. 439,227) and has been building on the pullback; not great price/volume action but we think it will settle out and hold the 18 day MVA (17.99) for a move back up. We like the tap at that support Thursday. Huge money flow and buying. Target: 25
BUY POINT: Aggressive: 19.30 on continued rising volume. Stop: 17.95 (7%).
POSITION: Stock and/or January $15 calls to buy (QDO AC).
http://www.investmenthouse.com/cd/cmnt.html
HDI (Harley-Davidson--$52.58; +1.57; optionable): Automotive
http://biz.yahoo.com/p/h/hdi.html
STATUS: Breaking out of a cup with handle the stock developed since early August (high at 54.35). Volume was higher at 1.7 million (avg. 1.9 million), but not what we wanted. Still, the stock did make the buy point at 52.38. It remains a buy on the breakout up to 5% over the buy point as long as volume meets the target (needs to break above average in strong numbers). The stock is showing strong money flow, and relative strength is breaking out. All-time closing high is at 53.02 from early August. Target: 63
BUY POINT: 53. A buy on the breakout up to 55 with volume reaching 3 million or better. Stop: 49.29 (7%).
POSITION: Stock and/or January $50 calls to buy (HDI AJ).
http://www.investmenthouse.com/cd/hdi.html
PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that look ready to pick up a few shares.
THE LEADERS: New Leaders (new list): ACS, NVDA, DGX, FRX, LLL, CACI, AJG, KRON, MIKE, BMET, APPB, LOW, IDPH, TARO, MYL, IGT, VRSN
IGT (Internat Game Tech--$61.99; +2.19; optionable): Leisure
http://biz.yahoo.com/p/i/igt.html
STATUS: We looked at a credit spread on a breakout for this stock (11-27) but have re-evaluated the move in the premiums in relation to the movement in the stock. Moving up in the handle, and volume was still strong though down at 1.64 million (avg. 1.3 million). IGT hit our aggressive buy point at 61.50 on today's move. This nice-looking pattern has been shaping up for a while, and now IGT looks ready to make its move. We will look for volume to surge back up again for the breakout. Showing strong money flow and solid buying, with relative strength breaking out. Target: 77
BUY POINT: Breakout: 63.75 on volume of 2 million or higher. Stop: 59.29 (7%). A buy on the breakout up to 66.94.
POSITION: Stock and/or January $55 calls to buy (IGT AK). Credit Spread: December $65 puts to sell (IGT XM) and December $60 puts to buy (IGT XL), for a net credit of $1.84 or better.
http://www.investmenthouse.com/cd/igt.html
ACS: Moved below the 18 day MVA on rising volume. Can move back over quickly if it catches support at 92.50-93 range.
MIKE: Looking good on this bounce back from the 18 day MVA. The move put MIKE near the November high at 30.56 (closed at 30.05) but volume was back down below average. Can pull back down unless volume rolls in. The stock is testing a strong October/November run.
NVDA: Hit the 10 day MVA then bounced back to the upper ranges of the recent consolidation (at the 55 range). Volume was back to below average levels.
IDPH: Looks ready to break out of the ascending wedge. Buy point is 70.95 on volume around 5 million.
LOW: Got a boost on some good news from Home Depot. LOW broke to a new high on strong volume.
MYL: Still consolidating on low volume at the short term and 50 day MVAs. Buy point for aggressive plays is over 35.08.
KRON: Retraced Thursday's nice breakout move.
AJG: Tested back to the 50 day MVA several days ago and has moved back up and over the short term moving averages. Buy point for aggressive positions from here is over 36.70.
UP & COMERS PORTFOLIOS: Here is the new portfolio list: BBBY, EPIQ, KKD, MMS, NDN, SRCL, CPRT, BJ, EBAY, THQI, KG.
THQI: Moved higher on the breakout move but pulled off the high of 59.46 with volume decreasing slightly (still strong and above average). Resistance at the 60 range (base highs).
EBAY: Has been a good play since breaking out of the little cup with handle we covered just before Thanksgiving. It was up again on strong volume Friday, and is now approaching the previous basing highs near 71 (closed at 68.07). Volume is still below average. The stock may form another handle before breaking out of the base; we are not looking at getting in here, but it can run up near those highs before pulling back.
BBBY: Another tight doji Friday that formed after BBBY tried to move over the November high on rising volume, but could not. It will use another day or two to try again.
NDN: Another strong move up as the stock breaks tries to break free of a flat base/ascending wedge-type pattern. The October high is still left to take out (39.50).
MEMBER PORTFOLIO: New portfolio as selected by the subscribers. Some of these stocks are still struggling to move higher in their bases, and will likely continue to trade in close ranges just like the market. We'll be ready to catch them when they are ready to move. The new list: BRCM, CHKP, AMAT, JNJ, MSFT, AOL, HGSI, BUD, PXLW.
Old members: BRCM, CHKP, CSCO, EMLX, IDTI, INTC, JDSU, MVSN, NT, PWER, SUNW, VTSS
MSFT: Holding at the short terms now, on low volume. In good position to move up.
AMAT: Holding at the 10 day MVA, after tapping the 18 day on the low. Showing a doji there with below average volume, so look for a hold here if the chips hold on until a rally. The 200 day MVA is at 44.33 (closed at 39.74).
AOL: A doji below the short terms and 50 day MVAs.
BRCM: Back down to the 18 day MVA, below which it slipped just a bit to find support at the 20 day MVA. It has moved back a bit far in the test of the breakout, but we are looking for a move back up from this winner. It apparently needed a stronger correction after the recent strong run, and of course, outside news (NVLS) didn't help much throughout the chip sectors. Volume was lower on the move down.
CHKP: Holding the 18 day MVA on lower volume (below average). Keeping the buy point for a breakout at 43.13, with aggressive positions possible at a buy point of 41.
BUD: Keeps turning down from a very short term down trendline, but the pattern is squeezing between that and the 10 and 18 day MVAs (and a longer term down trendline connecting March and September highs). Volume is low, so this could result in a breakout despite the volatility of the handle. We don't like that as it is not proper price/volume action, but are watching. Buy point is 44.10, over the November high at 43.97.
Good Investing!
Jon L. Johnson and The Daily 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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