|
|
us stock market, trade stock
Begin Part 2 of 4
Support and Resistance
Nasdaq: Closed at 2021.26.
Resistance: The upper channel at 2112 and the closing price March 2000 down trendline at roughly 2140 are merging to form some stout resistance. That still gives the index plenty of room to run short term.
Support: The intraday high March 2000 down trendline is just below 2000 at 1990; it held as support on the low Friday. Below that we are looking at the gap up point at 1980, just above the 10 day MVA at 1972.28. The could proved to be good support. The up trendline is all the way down to 1930, just below support at 1940 and the 200 day MVA at 1942.71. That is some serious support.
S&P 500: Closed at 1158.31.
Resistance: The 200 day MVA at 1174.84 is still the point to beat. Then there is the middle of the March and April double bottom at 1183.85. The upper channel is now just over 1200 at 1205.
Support: Closed at the down trendline at 1152. 1150 is a point of prior consolidations that was pesky on the way back up; very decent support. Just below that is the up trendline at 1148. Lots of support at that level.
Dow: Closed at 10,049.46.
Resistance: The 200 day MVA at 10,135.34. After that, 10,200 to 10,300 is very congested. The upper channel is right at 10,290, and the September 2000 down trendline is almost right with it at roughly 10,305.
Support: 9992 (in fact, 10,000) held on Friday's low. The up trendline from the September bottom is now even with the 18 day MVA at 9859.48.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
12-11-01
Wholesale Inventories, October (10:00): -0.3% versus -0.1% prior.
FOMC Meeting (14:15)
12-12-01
Export Prices ex-ag., November (8:30): -0.7 versus -0.7 prior.
Import Prices ex-oil, November (8:30): -0.4% versus -0.4% prior.
Current Account, Q3 (10:00): -$94.2B versus -$106.5B prior.
12-13-01
Retail Sales ex-auto, November (8:30): 0.2% versus 1.0% prior.
Retail Sales, November (8:30): -2.8% versus 7.1% prior.
PPI, November (8:30): -0.3% versus -1.6% prior.
Core PPI, November (8:30): 0.0% versus -0.5% prior.
FOMC minutes, 11/6 (14:00)
12-14-01
Business Inventories, October (8:30): -0.4% versus -0.5% prior.
CPI, November (8:30): -0.1% versus -0.3% prior.
Core CPI, November (8:30): 0.2% versus 0.2% prior.
Industrial Production, November (9:15): -0.5% versus -1.2% prior.
Capacity Utilization (9:15): 74.2% versus 74.6% prior.
SUBSCRIBER QUESTIONS
Q: At what point do you pull the plug as a rule of thumb on stock and/or options? [Is it] a point drop or percentage drop? Also, (guess that's two questions) when you give a price target on a position is there a time frame attached to those targets? [For example] XYZ's target you proposed is 20.00, is that for today, the next trading session, long term? Thank you so much for your help
A: As a general rule of thumb we pull the trigger on stock purchases when they fall 7% to 8% below our buy price. Now that is assuming we got in on the buy within 5% or so of the buy point. Usually what we are doing is trying to buy as a stock breaks some resistance or bounces up off some support. The resistance should become support, and the support should remain support. That gives us a buffer or firewall between our buy point and a stop point at 7% below that level. That way the stock can test down intraday below that support and not take us out of our position. When we send out stop alerts on the alert system, because investors do not all buy at the same point it is more of an advisory that the stock has fallen 7% below the buy point at X or it has broken through some strong support.
As for options, we have to look at the performance of the underlying stock. Up until very late in the expiration cycle, the price movement is the predominant factor in determining option movement. If the stock breaks key support we will give it a day to recover, but if it cannot we can be assured the option is not going to recovery either. That would be our signal to exit the option trade. If the stock still looks good we will hold the position unless we are in the window where the option starts to lose value more rapidly even if the price starts to move higher a bit. This usually happens in the last 30 days of the expiration. Up to 60 days before expiration time has little impact on the option price. It starts to bleed inside 60 days if there is no upside price movement. Inside 30 days it really starts to fade on you. Thus, if the stock still looks good but is not moving during the 30 day window, we will bail out if the option loses 25% of its value from the time we bought it. As a point of last resort, we will sell an option that gets down to 50% of the value we bought it. It has a long, long way to recover, and the odds are against it. We would rather keep 50% of our money to go look for a good trade than risk losing the whole enchilada on a trade that is not performing. That is part of using your money wisely and getting it to work for you in the right plays.
As for a time frame on targets, as long as the stock is holding the pattern that we are attempting to trade and as long as it is acting 'properly,' we will hold it. What do we mean by properly? Again, holding the pattern or the breakout and moving on good price and volume action. That means moving up on rising volume, and when it pulls back, doing so on lower volume. It also means holding support levels whether breakout points, moving averages, trendlines, or other price consolidations. Now if the market is roaring and this one trade goes nowhere, something may be wrong. We may be able to put our money into another trade and get the return as opposed to waiting around. Avoid getting happy feet, however. If everything looks right, if you would still buy into the position today, you should most likely follow your analysis and let the play work.
TEAM TRADES
One of my favorite trades is a pre-split play, i.e., where a stock has announced a split and is close to its acutal split date. We often see stocks make a move to the upside as the split date approaches, particularly in a market with good upside momentum. Thursday night we put SASR on the report as it was in a very nice ascending wedge with the rising lows riding up the 50 day MVA. It made a high volume move Wednesday that did not break it out, so we were looking for it Friday. We watched, and about 45 minutes into the session it made the breakout. It is a thinly traded stock, but we have had a lot of good trades on thin stocks in pre-split moves. It made the move we were looking for and since there was no option chain the play was stock. It ran well on good volume (for this stock), adding $2 over the breakout; we are looking for another $2 or so for this play. With pre-splits we get the move, and when it looks to be stalling, we take profits.
THE PLAYS: Great moves by SASR and FIC, adding to the list of for this week! Many others setting up after controlled pullback with the market. Note that on many of the plays that made solid moves this week, we are looking for continued pullbacks to support and then bounces. With bounce plays we are looking for a move back off of support with the next rally, and the buy point is not always clear before the stock has actually caught support. For this weekend's report we are pointing out likely support, and while we indicate a buy point on some, it is still a function of where the moves starts and the overall strength of the move and the market.
Note: We have moved the "Market Favorites" section to the front of the "Best Plays" section due to their great popularity. We have a large dose of market favorites this weekend.
BONUS PLAYS:
NYFX (Nyfix Inc.--$22.46; -0.52; optionable): Computer hardware.
http://biz.yahoo.com/p/n/nyfx.html
STATUS: In late October, NYFX made a strong move up from its lows at 12 and, after losing a battle with its 200 day MVA, pulled into a lateral consolidation over the 10 day MVA (then 20, now 21.48) that lasted more than two weeks. Wednesday NYFX broke out of the pattern, clearing the 200 day (21.10), but although volume increased on the move, it was a bit light for a breakout (slightly above average). Since then, it has shown a very healthy test of the move, gently pulling back toward the prior handle highs (22) and closing Friday with a doji over that support as volume dropped off to 82,900 (average 345,000). Nice action on the test, and from here we are looking for the upward momentum to resume, looking for more volume this time. Target: 26.
PLAY: After holding 22 if we get a bit more pullback with the market, a move over 22.50 on volume of 400,000. Stop: 21.
POSITIONS: Stock and/or January or March $20 calls to buy (NYF AD or NYF CD).
AWRE (Aware--$5.89; +0.25; optionable): Software.
http://biz.yahoo.com/p/a/awre.html
STATUS: Deep in its base, but a good run this week put it back at the left side (October) highs in a saucer. AWRE had been in an extended lateral consolidation under the 50 day MVA (5.27) for the past month, and after a weak move over its Tuesday, AWRE followed up with some strong action later in the week (volume on Friday's move up to 214,500; average 137,500). It tapped over the left side high (5.95) Friday at 5.98, and we are looking for a continued move to the breakout. If we get a bit of a lower volume rest with the market on Monday, that is fine. Outstanding money flow. Target: 7.20 (200 day MVA currently at 7.42).
BUY POINT: 6.10 on continued strong volume (minimum 205,000). Stop: 5.67 (7%).
POSITION: Stock and/or January $5 calls (WUQ AA).
PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: EASI is forecast for Monday, and we are still watching TRDO for a possible announcement as well. Thursday we are looking at GTK.
NEW PRE-ANNOUNCEMENT PLAYS:
GNSS (Genesis Microchip--$59.72; +0.70; optionable): Working on a date.
http://biz.yahoo.com/p/g/gnss.html
BACKGROUND: Based upon our research it does not appear that GNSS has ever split its stock. The annual shareholder meeting was on 9-20-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: GNSS was trading at 10 at the beginning of 2001, but has made (and is making) a solid run. Since testing its 200 day MVA (then 20, now 29) after the attacks, it has broken from a small cup with handle at 38, and after a test near its 50 day MVA in November (then 40, now 46.23), it blasted up to a new high this week at 65.63. Volume has been solid on the recent moves up, but now we are looking for it to settle down a bit after a high volume gap-up and reversal on Thursday. That pattern usually suggests more of a pullback, but Friday saw some decent action as it tested near its 10 day MVA (57.13) before closing slightly down on much lower volume (2.26 million; average 2.3 million). Looking for a controlled, low volume test of the 10 day (maybe a bit more toward thee 18 day, at 54) to set up another solid move. Looks good for an announcement, and we are trying to pin down a time. Initial target: 70.
BUY POINT: After a low-volume test of the 57-58 range, a move back over 59 with increased volume in a market rally. Stop: 54.
POSITION: Stock and/or March $55 calls to buy (QFE CK).
JCI (Johnson Controls--$80.92; -1.10; optionable): Auto parts. Forecast to announce a split on 1-18-02 in conjunction with earnings. At this time, the company cannot confirm this date.
http://biz.yahoo.com/p/j/jci.html
BACKGROUND: Based upon our research it does not appear that JCI has ever split its stock. The annual shareholder meeting was 0n 1-24-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: JCI made a the familiar V-shaped cup after dropping back in August-September, but has made a strong recovery back to level of its former highs. JCI pulled into a handle the last few weeks, testing the 77.50 level (below the 18 day MVA, currently at 79.35). This week it surged back up, taking out the handle high and left-side high (81.77 and 81.70, respectively). A decent move with excellent volume (over 700,000 each day of the breakout; average 427,000), but it topped at 82.70 Thursday before pulling back Friday. Good action on the pullback, with volume way down at 379,700, and holding the range of the handle highs and its 10 day MVA (80.10). Looking for a test that holds here and resumes the breakout. A sector that has had some real movers. Target: 90.
BUY POINT: After holding 80-81 on low volume, 82.82 on volume of 700,000. Stop: 77.50.
POSITION: Stock and/or January $75 calls to buy (JCI AO - low open interest).
BBBY (Bed, Bath & Beyond--$34.02; -0.92; optionable): Forecast to announce a split during the market hours on 12-20-01 in conjunction with earnings.
http://biz.yahoo.com/p/b/bbby.html
BACKGROUND: Last announced a 2:1 split on 7-13-00 with a board meeting. The stock price of $39. The shareholder meeting was on 6-28-01 at which time authorized shares were increased. The company has sufficient shares for a 2:1 split.
STATUS: Has recovered from September, breaking from a "flying W" pattern in November and now trending up the 10 day MVA (33.25). A bounce from that support this week took it over its long-term up trendline (from February 2000, at the 10 day) and to a new all-time high at its intraday peak Thursday at 35.70. Friday BBBY pulled back, but on lower volume (3.33 million; average 4.18 million), tapping the trendline at its low. We are looking for this low-volume test of the 10 day to hold and produce one or two more runs, taking us to the forecast, which could send the stock on a further move up or, as can often be the case with announcements occurring after a strong run, set up in a consolidation for another powerful run on the strength of the news. Target: 41.
BUY POINT: After testing the 10 day on low volume, a bounce back over 34 on above average volume. Stop: 32.55 (7%).
POSITION: Stock and/or February $30 calls to buy (BHQ BF).
BEST PLAYS: Besides the plays set forth below as best plays, there are some other stocks that also look good. These include Pre-Announcements MI and WLP.
MARKET FAVORITES BEST PLAYS:
1) INFA - Very nice
2) MERQ - Low volume test of the breakout
3) CSCO - Also a nice, controlled test
4) GMST - Making solid, steady moves
5) AMAT - Good-looking hold of support
6) ERTS - Great breakout and setting up again
INFA (Informatica--$14.79; -0.13; optionable): Software.
http://biz.yahoo.com/p/i/infa.html
STATUS: Moving up in the right side of its deep base, making steady headway by consolidating into handles and breaking out. Wednesday INFA made a very nice move on big volume, taking out its 200 day MVA (14.28). Since then it has rested with a couple of dojis on much lower volume (down to 653,400 Friday; average 1.34 million), testing the 200 day at its lows each day. Really nice action after the breakout, and we are looking for INFA to hold the 200 day and give us another move up in a rally. Target: 17.50 (initial).
BUY POINT: After holding the 200 day, a move over 15 in a rally on increased volume near the average. Stop: 14.
POSITION: Stock and/or January or March $12.50 calls to buy (UYF AS or UYF CS).
MERQ (Mercury Interactive--$34.11; -0.89; optionable): Software.
http://biz.yahoo.com/p/m/merq.html
STATUS: After the high-volume breakout last week (starting from the 50 day MVA, at 30.06), MERQ has made an orderly retreat on decreasing volume. We like the low volume selling after the high volume breakout (down to 2.87 million Friday; average 3.94 million), and MERQ held its prior pattern highs to close (10 & 18 day MVA's are below at 32.90 and 31.87, respectively). Trying to steadily build up the right side, deep in its base, showing some good action. Looking for MERQ to hold and then give us another good run in a renewed rally. Very good money flow. Target: 41.
BUY POINT: After holding support here, a move back over 34.50 on above average volume in a rally. Stop: 32.55 (7%). If we get a bit more of a drop back toward the 10 day, we can look at playing the move over 34. Stop: 31.62 (7%).
POSITION: Stock and/or January $30 calls to buy (RQB AF).
CSCO (Cisco--$21.16; -0.63; optionable): Computer hardware.
http://biz.yahoo.com/p/c/csco.html
STATUS: Broke out of its cup with handle Wednesday, showing a strong move. Thursday's loose doji foretold a possible pullback (as did the likely pullback in the market). Friday we saw CSCO make the dip, holding 21 at its low (former handle high at 20.77, 10 & 18 day MVA's at 20.60 and 20.05) as volume continued to draw back well below the average (54.9 million; average 77 million). Looking good, and watching for CSCO to hold support and make another move with the market. Target: 24.
BUY POINT: Looking for a bit more of a pullback to support, and then on a move back over 21 on above average volume in a Nasdaq rally. Stop: 20.10 (7%).
POSITION: Stock and/or January $20 calls to buy (CYQ AD).
GMST (Gemstar--$29.67; -0.60; optionable): Electronic equipment.
http://biz.yahoo.com/p/g/gmst.html
STATUS: Has made a steady push up from 20 since early November, breaking over its 50 day MVA (48.70) in the middle of the month. It has followed with a steady set of surges and light pullbacks, which is solid action we like. This week GMST broke over its November highs with some good volume, and has managed to hold up well on the pullback, showing consecutive loose dojis as volume has fallen well back (2.2 million Friday; average 4.67 million). The stock tested the 10 day MVA (28.56) at its low, and the doji over support indicates that GMST could be ready to move again in a rally. On another surge we are looking for GMST to move on its 200 day MVA at 33.51, which will be our target.
BUY POINT: Bounce: A move up in a rally after a test of the 10 day (if reaches the 10 day, looking at move over 29.50), looking for increased volume near the average. Stop: 27.50. Over the high: 31.12 on above average volume. Stop: 29.
POSITION: Stock and/or February $25 calls to buy (QLF AE).
End Part 2 of 4
|
us stock market
trade stock
|
