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us stock market, top stock pick
Begin Part 2 of 2
THE MARKET
Besides some of the negative views on the market giving us that good contrary feeling, UBS Warburg joined some others in saying the semiconductor cycle had bottomed and that December would be the turn. Cisco stated it was still in line with its expectations and had picked up 'enormous' market share. President Bush indicated that a compromise was possible on the stimulus package as well, outlining what he felt was necessary.
The market was ready to move, and this 'news' was enough to get it making the move. Not a blowout, but volume can come in tomorrow and later as the momentum builds. The close over the 200 day MVA on the Nasdaq was key as that will call for even more short covering now that key level has been crossed for now.
VIX: 25.33; -0.67. A mild drop today on the rally; pessimism about its fortitude no doubt kept the drop from being larger. The VIX continues to hold above the summertime stagnation level, but it is close. It remains in the middle of the 'normal' range from 20 to 30. 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 dip lower.
VXN: 48.04; -1.70. The Nasdaq volatility indicator gave back all and more of Monday's gain on that selling, closing just above the top of the summer doldrums range. We would expect volatility to fall on the gain, and while we are keeping an eye on it, we let price and volume tell us what is going on. 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): 0.59 (-0.13). Gave it back today after jumping back above 0.70 Monday. No need to buy puts today as the market was in rally mode early on as it gapped higher. The ratio still tends to jump up on selling sessions, so it is indicative of continued readiness to bet against the market by option players, and that is a good contrary indicator for the market.
Nasdaq
The clear leader still, up over 3% on rising, above average volume. Cleared the 200 day MVA and is zeroing in on the major down trendlines. Some are saying 2000 is the target and the top; we shall see.
Stats: +58.20 points (+3.1%) to close at 1963.10.
Volume: 1.908 billion shares (+27.6%). Rising, above average volume on the move up through the 200 day MVA. It was not massive volume, but it was a solid gain showing that buyers were in the lead once again, accumulating stocks.
Up volume: 1.630 billion
Down volume: 264 million
A/D and Hi/Lo: Advancing issues took back the lead at 1.72 to 1, the exact amount by which decliners led Monday.
New highs: 102 (+29).
New lows: 51 (+4).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq broke out of the ascending wedge and cleared the 200 day MVA (1949.45) on its close. The index finished right at its session high as it rallied hard in the last two hours. After the lateral, 14 day consolidation, this was the move that was needed to start the break higher to attempt to clear this important resistance. It must still wrangle with the down trendlines from the March 2000 top. The trendline that runs from the intraday highs is just ahead at 2010, and the trendline from the closing prices is at 2165.
Dow/NYSE
The Dow rallied off of its trendline as well today, tapping that level on the low (9743.05) and rallying along with the Nasdaq in the last two hours. Volume was up and above average, but was even less powerful than the Nasdaq. It is coming along, but grudgingly.
Stats: +129.88 points (+1.3%) to close at 9893.84.
NYSE Volume: 1.292 billion shares (+6.5%). Volume back above average, but not a big volume session, lower than Wednesday through Friday of last week. Still, it did grow in power as the afternoon wore on and the index rallied.
Up volume: 1.015 billion shares.
Down volume: 281 million shares.
A/D and Hi/Lo: Advancers blew away decliners 2.3 to 1 (decliners led 1.47 to 1 Monday). This was a rout, and the NYSE A/D line in comparison to the Dow shows a much broader rally.
New highs: 108 (+27)
New lows: 38 (-9)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Bounced up off the up trendline that is now at 9770 (at today's close), forming an ascending wedge intraday with the breakout point at the two morning highs (9820). It made a powerful break with about 1.5 hours left, following the Nasdaq higher. It also rallied to the close, a good finish to the session as it avoided selling back. Now it is a bit different than the Nasdaq. The Dow did not clear any resistance today as it had sold off harder than the Nasdaq and had not formed that ascending wedge. It is still below resistance at 9992, the middle of the March and April double bottom. After that it has the 200 day MVA to contend with at 10146.45, and there are a lot of price points (former lows) at 10,200 to 10,300. Lots of resistance and still working on gathering the momentum to take it out. It is lagging behind the Nasdaq; thus far the Nasdaq has been able to drag it along. It will have to get strength of its own before too long. A good session today, but it too needs some more volume on the continued move higher.
S&P 500: The big caps opened below the up trendline, tested support at 1124 (1128.86 on today's low), and then rallied late with a breakout very similar to the Dow's move out of its wedge. NYSE volume was not huge, and it was not a breakout day, but a day to recover up off of the up trendline. It did that but must face the March 2000 down trendline at 1156 and the 200 day MVA at 1177.09. Today was a move it had to make, but it was less than inspired. It was as if it did not want to move, but it had to follow the Nasdaq. As with the Dow, we will be looking for it to ramp up on a move toward the down trendline and the 200 day MVA.
Stats: +14.90 points (1.3%) to close at 1144.80.
Volume: NYSE volume moved back above average, but was not powerful at 1.292 billion shares (+6.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: Today was the breakout we were looking for from the Nasdaq, but all indexes need more volume on the further move higher, particularly the Dow and S&P as they buck major resistance. The Nasdaq continues to lead, and the other two need to get a bit more interest in order to clear this resistance. Looking good, but needs to pick up the intensity.
TOMORROW
Economic news starts back up with the NAPM services index. It is expected to tick higher to 42.5 from around 40; with the NAPM looking better, we would expect services to ramp as well. Remember, services moved over 50 before the September 11 attack. We could see it back at that level tomorrow, and that would be a big boost for the market a half hour into trading.
The indexes finished with a furry today, and volume was rising as the buying continued in the afternoon. That is positive momentum for tomorrow, but the key will continue to be whether we get buyers coming in after this start of the Nasdaq breakout to push the index further past the 200 day MVA and get those shorts covering. The down trendlines are also key, but one step at a time is how this market has build the rally off the low, and that is what we anticipate it to continue to do if it continues.
The key to resistance is buying volume. Will it come in stronger as the indexes move up to take on the resistance? Buyers move the market higher. After the consolidation we have seen and the break higher by the Nasdaq, the blocks are in place for a move higher. With things in place and the market making the move, we step up to the table when the moves are made. Today there were plenty of stocks that started the moves we were looking for. After being patient it was time to buy, and if the market continues higher and takes out those resistance levels there will be more buying opportunities.
Tomorrow we anticipate the upward momentum, but we will be watching the resistance levels on all three major indexes. The indexes had a good run today, and could run up to the next resistance point tomorrow and then stall a bit. It may take a sidestep after that and then power ahead. They may run to the downside like a stuck pig at that point. We doubt the latter given the consolidation preceding today's move.
That puts us ready to continue buying the stocks making the moves we want during this spurt higher before the next consolidation range. It is important to jump on option plays when the moves are made. That way we capture the move and then can take profits without having to sit in them and let the time eat away the value. Stocks are more forgiving; we can sell calls on them when they hit their next peak and need to consolidate. Keep in mind the type of play and where you are in the rally when taking positions.
Support and Resistance
Nasdaq: Closed at 1963.10.
Resistance: Cleared 1940, breaking out of the ascending wedge and clearing the 200 day MVA (now at 1949.45). It now must deal with the down trendlines at 2010 and 2165.
Support: 1940, the breakout point, should now act as some support on down to 1930. The 200 day MVA at 1949.45 should also help prop things up. Then there is the up trendline at 1902.
S&P 500: Closed at 1144.80.
Resistance: 1150. The March 2000 down trendline is at 1156 - 1158. The 200 day MVA is now at 1177.09.
Support: The up trendline is at 1137. The 18 day MVA is at 1133.08. After that is 1125, a level of prior consolidations. The 50 day MVA is next at 1118.60. Then 1103, the old closing low in the double bottom from March and April.
Dow: Closed at 9893.84.
Resistance: 9992 (former top and bottom). The 200 day MVA is at 10,146.45. The upper channel is at 10,225, just above some prior price resistance at 10,200.
Support: The up trendline is at 9770. The 50 day MVA is 9639.36. 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
Today was one of those days. We waited for the consolidation to run its course, looking at many stocks set up for their moves higher. We were also looking at index option plays to take full advantage of the start of the move higher. There were many, many to choose from.
We had our eye on NVDA as it has been a clear leader in the market for months, and while it had race ahead out of the September bottom, it had pulled back and was ready for a new high. New highs tend to lead to more new highs. We were not going to wait long on it once it cleared that level. It did that right after 9:00 CT, and we issued an alert and stepped in right at that point with stock. Nothing fancy here. We saw volume surge as it up to and over the breakout, and that was what we wanted. It moved laterally for four hours as they tend to do after breaking resistance, testing the move, but then it took off. Volume on the session was above averge, not huge, but a strong increase.
We also liked QLGC, and after it ran sideways it made the break around 1:15 CT. Volume was decent, but we anticipated it would build in the afternoon as stocks were starting to race higher. We issued the alert and stepped in on this one with a stock purchase as well.
All the while we were watching the indexes. About 35 minutes later the SOX hit our aggressive buy point as it moved up over some resistance at 535. We like to catch the option moves when they start, this was the first level of resistance. We moved in with January 530 options; the spread was varying between $3 and $4. It ran to 540 before we could really get our order together, and it fell back to 538 to test the move; beautiful. We were able to catch the spread when it was $3 on the pullback.
We also picked up some PMCS when the Nasdaq broke its 200 day MVA and when it moved higher late in the session. On top of that we had some BRCD as well. There were other breakouts we picked up on as well. It was one of those days.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Investment House subscribers are offered a special from eSignal for those interested in a realtime service. Contact:
Ray Fitzgerald
Account Executive
800-322-0940
Office hours 6:30-3:30 PST
rfitzgerald@esignal.com
Good Investing!
Jon L. Johnson and the Technical Traders Team
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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us stock market
top stock pick
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