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Begin Part 2 of 3
Support and Resistance
Nasdaq: Closed at 1904.90.
Resistance: 1930 to 1940. 1940 is the breakout of the ascending wedge, but it needs to clear the 200 day MVA at 1951.77as well. The March 2000 down trendline is at 2020 (intraday prices), and the closing price trendline is at 2175.
Support: The up trendline is 1900. 1875 is still the bottom of the recent trading range. The 18 day MVA is right there at 1880.40. Below that is 1800 and the 50 day MVA at 1814.03.
S&P 500: Closed at 1129.90.
Resistance: 1150. The March 2000 down trendline is at 1160. The 200 day MVA is at 1177.96.
Support: The up trendline is at 1134. The 18 day MVA is right there at 1131.70. Then there is 1125, a level of prior consolidations. The 50 day MVA is next at 1117.54. Then 1103, the old closing low in the double bottom from March and April.
Dow: Closed at 9763.96.
Resistance: 9992 (former top and bottom). The 200 day MVA is at 10.151.50. The upper channel is at 10,200, coincident with some prior price resistance at that level.
Support: The up trendline is at 9750. The 50 day MVA is 9628.97. 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): 0.0% actual versus +0.1% expected and 0.0% prior.
Personal Spending, October (8:30): 2.8% actual versus 1.9% expected and -1.6% prior (revised from -1.8%).
NAPM Index, November (10:00): 48.8 actual versus 41.9% expected and 39.8% prior.
Construction Spending, October (10:00): +1.8% actual versus -0.5% expected and -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.
TEAM TRADES
As mentioned in the weekend report, we bought BORL stock on its breakout from a cup with handle Friday. The stock hit a high of $15, but like so many stocks that day, pulled back and closed just over its breakout point.
What we have been seeing in our Time & Sales chart is instructive. On Friday, there were many block trades made by institutions. A bunch of these came in before the close, and the trades were made as much as $0.12 below the current bid. While we would normally look at the ask side to see buy-side trades, the block trades at the lower price still represented accumulation because the bid and ask were adjusted to reflect those trades on the buy side. A couple of things were most likely going on.
First, market makers sometimes bundle many orders at the end of a session into a few, larger trades. Thus we could be looking at some orders that were put in earlier and are being filled later in the session in a bundle at the earlier price. It does not really impact the bid and ask once the trades are completed as you will see the bid and ask bounce right back up to where they were before the trades took place.
Second, there are times that large buyers are able to broker a better price when buying or selling stocks in large blocks. It is the market maker taking on the risk in buying the shares and having to turn them while still keeping an orderly market. Thus the buyer can sometimes get a 'negotiated' price that does not disrupt the market and gives a better deal. Today, when the stock showed a doji on much lower volume, we saw some more of that action, with a few large trades executed a couple of cents below the bid. We also saw some block trades made in a manner so they would not appear as block trades; that is, a series of consecutive trades made in 4600 and 400 increments adding up to in excess of 40,000 shares. That is another sign of an institution buying the stock.
With the solid pattern and accumulation, BORL looks good for a move back up from here with the market. We are targeting 17 initially for the next move, and at the 16-17 level we have some alternatives beyond just taking our profits. Premiums for January $15 calls should rise well over $2 if the stock makes 17 (it will be $2 in the money so they will more likely be 2.50 or better, and on topping signs at that level we can look at making a covered call play, selling the calls as the stock starts to pull back. Of course, we bought the stock below the $15 strike price, so if we end up getting called out we realize another $0.50 per share premium, for a return in the neighborhood of 20%. If we are not called out or we buy the calls back at a cheaper price as it tests its breakout, we can pocket the profit on our calls and continue to ride the stock on the next move up.
THE PLAYS:
All prices are current as of the close of trading Monday
Best Plays:
1) MIL: Looks ready to move out of this handle.
2) FLEX: A nice move up today.
3) CREE: Back to support on lower volume in the ascending wedge.
4) GMST: Broke out!
5) CHEZ: Still good in the ascending wedge.
6) PMCS: Like this pennant.
7) WLP: Moving up in the handle, but needs stronger volume.
8) CHKP: At lower support on lower volume.
9) KLAC: We like the tight doji/low volume at support combo.
10) BRCD: Ditto.
NEW PLAYS:
MIL (Millipore--$59.51; -0.19; optionable): Scientific & Technical Instruments
http://biz.yahoo.com/p/m/mil.html
STATUS: Is in a double bottom pattern and forming a handle just off the middle hump peak price (60.70). The pattern developed at the bottom of a 4-month cup with highs near 67. For a week MIL has formed the handle, pulling back on low volume that has been building up slightly and was up to 210,100 Monday (avg. 311,000). The stock showed a tight doji at the top of its range (hammer), and on the rising volume may be ready to make its move out of the handle. Money flow looks good. Target: 73
BUY POINT: Breakout: 60.63 on volume of 466,500 or higher. Stop: 56.39 (7%).
POSITION: Stock and/or January $55 calls to buy (MIL AK).
http://www.investmenthouse.com/ct/mil.html
IBI (Intimate Brands--$14.10; -0.25; optionable): Apparel
http://biz.yahoo.com/p/i/ibi.html
STATUS: A cup with handle of sorts, 3.5 months long. It did not jump up before the correction, so it is a bit different. There is a down trendline at 14.50 from the July and August highs, and it is also fighting the 200 day MVA at 14.28. The handle is squeezing between the the 10 day and 18 day MVAs (14.05 and 13.80). Volume slid lower (1.02 million; avg. 1.2 million). IBI shows excellent money flow. Target: 18
BUY POINT: Breakout: 14.91 on volume of 1.6 million or higher. Stop: 13.87 (7%).
POSITION: Stock and/or January $10 calls to buy (IBI AD).
http://www.investmenthouse.com/ct/ibi.html
FLEX (Flextronics--$25.81; +0.81; optionable): Electronics: Circuit boards
http://biz.yahoo.com/p/f/flex.html
STATUS: In a cup with handle with most of the pattern below the 200 day MVA (23.58), and part of a larger base with highs near 45. FLEX broke over a down trendline (connecting Jan/May/Aug/Oct highs) in late November, at the same time clearing its 200 day MVA before hitting the most recent high at 27.11. It has tested the move and Monday made a move up on rising volume after that 2-day low volume pullback. Looking for a breakout over the recent high at 27.11 for positions. FLEX shows great money flow. Target: 33
BUY POINT: 27.24 on volume of 15 million or higher. Stop: 25.33 (7%). (Monday's volume was 10.8 million; avg. 10.1 million).
POSITION: Stock and/or January $22.50 calls to buy (QFL AT).
http://www.investmenthouse.com/cd/flex.html
From the weekend:
IBM ($114.13; -1.46; optionable): Computer Hardware
http://biz.yahoo.com/p/i/ibm.html
STATUS: Tapped below the 18 day MVA, lower support in the handle of its 6.5 month cup base, but recovered back over it and closed with a loose doji. The closing price was just under the 10 day MVA (114.42; 18 day is at 113.59), and volume remained well below average though slightly up at 5.78 million (avg. 8.6 million). We continue to look for the breakout over the handle high (November) at 117 for potential positions, including the credit spread covered in the weekend report.
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 $1.65 or better.
http://www.investmenthouse.com/ct/ibm.html
CREE (Cree Inc--$23.97; -0.89; optionable): Semiconductor
http://biz.yahoo.com/p/c/cree.html
STATUS: Remained in the ascending wedge after today's action as the stock fell back near support on lower volume (800,400; avg.1.46 million). CREE actually closed just under the current support in the pattern, the 10 day MVA (24.04), but is still above the up trendline supporting the wedging lows (at about 23.70). As volume continues to fall we look for CREE to hold that up trendline, bouncing up for the eventual breakout. 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--$39.17; -0.08; optionable): Materials & Construction
http://biz.yahoo.com/p/p/phm.html
STATUS: Was making a breakout move from the ascending wedge (at the bottom of a cup base), but the move was arrested today as volume dropped back below average (509,900; avg. 539,000). The company today reported that they expect new home orders for November to come in higher than those of same month last year, but that news did not move the stock. However, it held for just the small loss on the lower volume, closing with a tight doji. We will see if the upside action can pick back up again from here to continue the breakout. Buy point was 39.28. 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:
LE (Lands End--$45.30; -0.65; optionable): Retail: Catalog
http://biz.yahoo.com/p/l/le.html
STATUS: Inched lower, making the buy point of 45.95 for the put play. Volume fell but was still strong at 507,300, well above the average of 250,000. This loose doji suggests a slowing of the selling, but the stock is now below the 18 day MVA and if it cannot move back over that level, can give it up and fall the rest of the way to the 50 day MVA, our target at 40.87. LE is off the November high at 53.38, selling the last 2 days of the previous week on strong volume.
BUY POINT: Riding positions taken at the buy point 45.95, on preferably rising volume.
POSITION: January $55 puts to buy (LE MK).
http://www.investmenthouse.com/ct/le.html
DRXR (Drexler Tech--$18.42; +1.17; optionable): Computer Hardware
http://biz.yahoo.com/p/d/drxr.html
STATUS: Moved back over the 50 day MVA (18.18) with volume dropping back below average to 129,400 (avg. 120,454). We will have to watch this one for a move back below this support level; such a move after Friday's strong selling is a show of strength in the stock. News was out today that the company expects a higher number of shipments for next year for its optical memory cards and smart cards. We will see if it can hold the 50 day MVA here. Target on the put play: 12-14.
BUY POINT: 17 on rising volume.
POSITION: January $20 puts to buy (RXQ MD).
http://www.investmenthouse.com/ct/drxr.html
Back On:
CMOS (Credence Systems--$16.08; -0.51; optionable): Semiconductor
http://biz.yahoo.com/p/c/cmos.html
STATUS: CMOS did not hold the 18 day MVA (16.31) even as volume slid lower Monday, down to 429,400 (avg. 1 million). If the stock cannot hold at 16, which is the level of several November prices, look for the 50 day MVA to send it back up again. That support is at 15.68. The stock was in a small ascending wedge-type pattern, but on this move down shows less characteristics of the type. It can give a bounce back up from here or the 50 day MVA, however. Target: 22.
BUY POINT: Aggressive: 16.75 (over the 10 day MVA at 16.56, and the intraday high at 16.73) 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--$22.08; -0.87; optionable): Security Software
http://biz.yahoo.com/p/n/neta.html
STATUS: Was holding above the 10 day MVA (22.58) in the pennant the stock formed at the top of the October and partial November run, but dropped down Monday, closing a few cents below the 18 day MVA (22.14). Volume was still well below average though slightly higher at 2.46 million (avg. 3.5 million). May be shaking out the last sellers here with the market. We want to see NETA back up and over the 10 day, and if it holds that up trendline tapped on the intraday low (21.90), we may get a bounce back up to that level. The trendline connects the July and August lows. 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--$31.34; -0.20; optionable): Semiconductor
http://biz.yahoo.com/p/m/mrvl.html
STATUS: MRVL was up in the handle of its 10-month cup base Friday with volume very strong; that volume was still strong but back down at 3.7 million (avg. 2 million). The stock moved over last week's highs as it reached its intraday peak at 32.60 (yet below our aggressive buy point at 32.80), but then pulled back down to a loose doji and the small loss. It held the 10 day MVA so we will look for support there (or even at the lower 18 day MVA, 30), for a bounce back up toward a strong breakout. Money flow and relative strength at high levels. 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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