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us stock market, trade stock
Begin Part 2 of 3
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:
All prices are current as of the close of trading Friday.
Good movers: DIAN, the rolling pattern covered back in November, made it up to the targeted resistance at 52; it may be ready to head back down to the 44 range here, if it cannot break out.
Removed but watching as several still look good; we just need to make room for new plays: MRVL, CREE, CMOS, NETA, IGEN, CHEZ, GMST, PMCS, COST, MIL, FLEX, SLOT, WLP, BORL, BRCD. BORL looks ready to top out (we were looking to sell calls on it as it pulled back), but even with the lower volume in the stock Friday it held for a small gain.
Best Plays: Will be watching these plays in context of a possible market pullback.
1) POWI: In good position for a move back up.
2) MCRS: A tight pattern.
3) ASE: Ready for another move up in this ascending wedge.
4) RNBO: Looks ready to break out.
5) AUDC: Ditto.
6) IDTI: Ready for more downside.
7) LE: Back on as a put play.
8) JAKK: Ready to bounce from the 18 day MVA.
9) SERO: Stronger volume in the handle.
10) HD: In good shape as it tests the breakout.
NEW PLAYS:
Some techs that are testing the good move up last week:
POWI (Power Integrations--$25.85; -0.40; optionable): Semiconductor
http://biz.yahoo.com/p/p/powi.html
STATUS: POWI is in a long saucer base at the bottom of a larger 23-month base, off the December 2000 lows and currently, the most recent high in November (28.48). The pullback off that high on overall lower volume could be called a handle to the 17-month saucer, the bottom from which (at the 50 day MVA) POWI ran back up last week on strong volume. Unable to break out at that point, the stock pulled back on very low volume the last 2 days of the week, and showed a doji Friday. We like the more orderly pullback and bounce back up from support (October highs) and look for a breakout. Huge money flow, good buying. Target: 35
BUY POINT: Aggressive: 26.30 on rising volume in a rally. Breakout: 28.61 on volume of 758,000 (Friday's volume was 190,200; avg. 505,000). Stop: 26.61 (7%).
POSITION: Stock and/or January $22.50 calls to buy (QPW AX).
http://www.investmenthouse.com/ct/powi.html
XLNX (Xilinx--$41.00; -1.29; optionable): Semiconductor
http://biz.yahoo.com/p/x/xlnx.html
STATUS: Testing its strong breakout move that shot it over the 200 day MVA last week ( 200 day is at 38.61). Pulling back on lower and below average volume the next 2 days, XLNX tapped support at the November highs and bounced back up to close at higher support and was even trading higher after the bell Friday (on volume of 9.3 million; avg. 9 million). However, that isn't to say it won't re-test that low, but in any event we will look for the strong move back up once the test is complete and we get another rally in the chip sector. December high is 43.25. Money flow is strong. Target: 50
BUY POINT: Aggressive on a pullback to test the 40 range: 40.50 on above average volume. Stop: 37.67 (7%). Breakout: Over 43.25 on strong volume in a rally (12 million). Stop: 40.22 (7%)
POSITION: Stock and/or January $35 calls to buy (XLQ AG).
http://www.investmenthouse.com/ct/xlnx.html
Moving average bounce play:
MUSE (Micromuse-$17.35; -0.40; optionable): Software
http://biz.yahoo.com/p/m/muse.html
STATUS: MUSE has bounced twice from its 18 day MVA since the move back over the 50 day MVA and the October high in the early part of November. On the last bounce it ran to 19 (that was Wednesday), but with volume falling off quickly and in an orderly manner saw a price pullback as well. The low of 17.08 tapped at support, the November high (16.95), but we are looking for the pullback to the 18 day, currently at 15.44 but likely closer to 16 (at the level of some other prices that can add to support) at in a day or two. On a move back up from that level we will look at getting in on the next bounce (aggressive entry point). Buying looking good. Target: 25 (200 day MVA).
BUY POINT: Aggressive: 16.50 after a test of support at the 16 range. Stop: 15.34(7%)
Look for volume in the range of 3.8 million for the move.
POSITION: Stock and/or January $15 calls to buy (QUM AC).
http://www.investmenthouse.com/ct/muse.html
MCRS (Micros System--$25.05; +0.18; no options): Software
http://biz.yahoo.com/p/m/mcrs.html
STATUS: In an extended handle to a 13-week cup base; the handle has moved laterally except for a dip down at the first of this month when the stock almost hit its 50 day MVA; it recovered quickly and resumed the sideways move. Volume was decreasing nicely below average until that dip, and has shot higher the last three days of last week with the stock continuing to hold the pattern (by Friday still strong though decreased to 160.100; avg. 73,000). We will see if it can resolve things with an upside breakout. Strong money flow and buying. Target: 31
BUY POINT: 26.13 on volume of 110,000 or higher. Stop: 24.30 (7%)
POSITION: Stock.
http://www.investmenthouse.com/ct/mcrs.html
ASE (American Science--$18.25; +0.64; no options): Health Services
http://biz.yahoo.com/p/a/ase.html
STATUS: Has settled into an ascending wedge after some volatility coming off the November high (20.65). Volume has been below average for most of the pattern save a spike up in late November on some selling that sent ASE down to the 50 day (near 16). It bounced back up nicely from that, and now is showing a tightening pattern as Thursday's move below the 18 day MVA held at the up trendline (October and November lows) and the stock moved back over the short term MVAs. Volume was down again at 36,900 (avg. 89,454) and looks pretty good here. Look for a breakout over the November highs. Strong money flow. Target: 25
BUY POINT: Aggressive: 20.13 on volume of 121,000 or higher. Stop: 18.72 (7%)
POSITION: Stock.
http://www.investmenthouse.com/ct/ase.html
Some small stocks to look at:
RNBO (Rainbow Tech--$6.35; +0.19; optionable): Software
http://biz.yahoo.com/p/r/rnbo.html
STATUS: Consolidating in a lateral manner after a strong breakout move that took RNBO over its 200 day MVA over a week ago. The stock was squeezed down between that resistance and support at 5, resulting in the breakout. We could call this a handle to the stock's 6+-month saucer base, but the price/volume action has not been characteristic of that pattern, with volume quite volatile and the stock price moving up. Regardless, RNBO is testing the strong move, and Friday was up on another sharp rise in volume (357,400; avg. 132,000). Look for a breakout over the December high at 6.50. Super money flow and buying. Target: 8
BUY POINT: Over 6.50 on continued rising volume. Stop: 6.09 (7%)
POSITION: Stock and/or January $5 calls to buy (BQO AA).
http://www.investmenthouse.com/ct/rnbo.html
Short-term trade:
AUDC (Audiocodes--$4.55; +0.69; optionable): Scientific & Technical
http://biz.yahoo.com/p/a/audc.html
STATUS: Deep in a 15-month base off the lows around a buck-fifty. AUDC crossed back over the 50 day MVA in November, reaching its most recent high at 4.84 then pulled back to the moving average with volume steadily decreasing and well below average most of the way down. The stock bounced and after a crawl up for three days, burst up Friday with volume exploding to 1.03 million (avg. 375,000), no news available other than a good shakeout on the pullback. Looks ready to take out that earlier high, for a shorter-term trade up to the 200 day MVA, currently at 6.49. The stock has good money flow and good buying.
BUY POINT: Aggressive: 4.60 on continued strong volume. Stop: 4.28 (7%)
POSITION: Stock and or January $5 calls (ZRD AA; delta unavailable); calls out of the money at this point.
http://www.investmenthouse.com/ct/audc.html
Back On:
MXIM (Maxim Integrated--$59.31; -1.44; optionable): Semiconductor
http://biz.yahoo.com/p/m/mxim.html
STATUS: MXIM broke out of the cup with handle last week, reaching a high at 62.67 before pulling back on decreasing volume (down Friday to 4.7 million; avg. 6 million) in a test of the strong move. The low of 58.28 tapped support at the May and June highs, and our buy point is just under that at 57.08. We will look for a hold at that lower price (or the November high of 56.95) if the stock moves back down that far. Strong money flow and good buying. This recent pattern is part of a larger, 15-month base with highs near 88. Target: 75
BUY POINT: Aggressive: 60 on rising volume in a rally. Stop: 55.80 (7%)
POSITION: Stock and/or January $55 calls to buy (XIQ AK).
http://www.investmenthouse.com/ct/mxim.html
Puts:
LE (Land's End--$46.25; -1.63; optionable): Retail
http://biz.yahoo.com/p/l/le.html
STATUS: On the report last week, but the rally pushed it back over resistance. LE is back down, breaking the 18 day MVA on strong volume Friday (489,600; avg. 270,000). News from Coldwater Creek that catalog sales will be sharply lower in the third quarter will not help this already struggling sector. Looking for a move down to the 50 day MVA at the 42 range.
BUY POINT: 46 on continued rising volume.
POSITION: January $55 puts to buy (LE MK).
http://www.investmenthouse.com/ct/le.html
IDTI (Integrated Device Tech--$25.75; -5.33; optionable): Semiconductor
http://biz.yahoo.com/p/i/idti.html
STATUS: Broke the 50 day MVA (29.53) on huge volume on news that third-quarter revenues would fall significantly below the previous quarter due to weak orders. On a move below 25, the stock can fall to the October lows near 17.50. Volume shot through the roof at 17.7 millon; average is 2.5 million).
BUY POINT: 25 on continued strong volume.
POSITION: January $32.50 puts to buy (ITQ MZ).
http://www.investmenthouse.com/ct/idti.html
End Part 2 of 3
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