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12/10/01 Stock Split Report
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Stock Split Report Subscribers:

MARKET ALERT SERVICE

Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm

PLAYS TO LOOK AT: Some nice pullbacks are setting up for the next round of moves higher.

BONUS PLAYS:

CTX (Centex Corp--$49.65; -0.39; optionable): Residential construction.
http://biz.yahoo.com/p/c/ctx.html
STATUS: Made an excellent move over the last week, breaking out from a consolidation over its 20 day MVA (41) and completing its cup (dating back to July), making a new high of 51.10 last week. Since its last big move up, on Wednesday, the stock has pulled laterally and lower on decreasing volume (488,300 today; average 766,000), looking nice as it forms a handle. A good sector right now, and we are looking for CTX to break out again. Initial target: 61.
BUY POINT: 51.22 on volume of 1.15 million. Stop: 47.63 (7%).
POSITION: Stock and/or January $45 calls to buy (CTX AI).

TARO (Taro Pharmaceuticals--$39.55; -0.80; optionable): Drugs.
http://biz.yahoo.com/p/t/taro.html
STATUS: Made a great move up last week, climbing from the 35 range to take out its 50 day MVA (39.03) and hitting a high of 42.20 last Thursday. The last two sessions have seen a pullback toward the 50 day, but it has been on the very low volume we like to see on a pullback to test a move. With the light selling it looks like it will hold the 50 day, and in a rally we can look to a play a move back off of that level, and add positions if it can take out the recent high. Targeting the highs at 49.
BUY POINT: Bounce: From here or after a test of the 50 day, over 40 in a market rally, looking for above average volume (772,000; today down to 268,000). Stop: 38. Break over recent high: 42.32 on above average volume. Stop: 39.36 (7%).
POSITION: Bounce: Stock and/or January $35 calls to buy (QTT AG). High: Stock and/or January $37.50 calls to buy (QTT AU).

SOX (Phili Semi--$559.37; -12.37; optionable):
STATUS: Back at the 200 day MVA off the recent highs (590.39, 590.34), pulling back for the third day and actually closing just below the support. If it can hang in the range of the 200 day, we will look for a strong move back up from there with a new (initial) target at the recent highs. If the index continues to slip below the 200 day MVA, next level of possible support is 550 (the 200 day is at 559.69).
BUY POINT: Aggressive: 560 on strong and rising volume in a rally.
POSITION: December $560 calls to buy (SJX LL).

MARKET FAVORITES: Setting up very nicely! Revisiting the weekend plays, and also taking a look at QLGC.

INFA ($14.43; -0.36): INFA initially tested up toward the recent breakout high (15.56) but then fell back to close with a loose "shooting star" doji over the 200 day MVA (14.19) as volume held steady and light at 742,200 (average 1.33 million). The stock has given us a nice, controlled test of the breakout, and with today's bullish doji it may be ready to head back up. We want to see support continue to hold and are looking for another strong move (increased volume near the average) over 15 in a market rally. Stock and/or January or March $12.50 calls to buy (UYF AS or UYF CS).

MERQ ($34.10; -0.01): Nice test of the move. Today MERQ reached up toward the recent breakout closing high (36.30, high today 35.31) and then fell back to close with a very loose 'shooting star" doji over the 10 day MVA (33.11) as volume increased slightly, but stayed light at 3.02 million (average 3.89 million). This is solid action and points to the end of the test, so from here we will are looking for a rally to support a strong move back up. With a rallying Nasdaq, on a move over 35 on above average volume we can look at stock and/or January $30 calls to buy (RQB AF).

CSCO ($20.74; -0.42): As expected, CSCO pulled back a bit more today, holding support nicely over the 10 day MVA (20.62) and prior handle high (20.72) as volume increased slightly, but remained below average at 61.02 million (average 76.64 million). A nice looking breakout test. From here we are simply looking CSCO to continue to hold support and make another move with the market. On a move back over 21.50 on above average volume we are looking at stock and/or January $17.50 calls to buy (CYQ AW).

AMAT ($43.57; -0.88): AMAT closed back under the 200 day MVA (44.26) today, but action still looks good as volume continued to fall (down to 15.55 million, average 17.98 million). AMAT caught and held support over its recent high (43.10) and the 10 day (42.66), and closed with a loose "shooting star" doji. Excellent price/volume action on this gentle pullback - and today's doji typically signals that a test has run its course and the stock is ready to move again. From here the aggressive can play a move back over 45 on above average volume in a market rally, while the move over the recent high remains 46.70. Stock and/or January $40 calls to buy (ANQ AH).

ERTS ($62.48; -0.46): Pulled back a bit more today, closing with a tight doji over the 10 day MVA (61.03) and left shoulder highs as volume continued to fall to 2.80 million (average 3.53 million). Yet another classic pullback that could set up something good. We want to see support continue to hold, and are looking for a rally to support the next run. From here, on a move over 63 on above average volume we can look at stock and/or January or March $60 calls to buy (RQB AL or RQB CL).

QLGC ($53.66; +0.69): Made a nice breakout last week, hitting a high of 56.99 before pulling back (Friday on slightly stronger volume) and catching support at the 10 day MVA today (51.70). QLGC gapped back to that level to open, but was able to push back up from there, with volume lighter on the move up (8.25 million, average 11.37 million). QLGC can really move, so we are looking for support to continue to hold, watching for a market rally to give it a boost up over the recent high. On a move over 54.50 on increased volume in a rally, stock and/or January $50 calls to buy.

PRE-ANNOUNCEMENTS: GTK jumped the gun and announced earnings, which resulted in a substantial drop. We could still get an announcement, but it is not looking good at the moment. We are keeping our eyes on MI, GNSS and FDC.

DHR ($62.55; -0.23): Forecast to announce a split in late January in conjunction with earnings. Holding in a lateral pattern after a big move up, over the down trendline from December 2000 (at 62). Today it made a third consecutive attempt to clear the recent high (64.10), but volume fell to 901,800 (average 1.36 million) and once again, DHR fell back to close with a doji over that support. Still riding existing positions toward the target (69.70), and on a move over the recent intraday highs of 64.22 on increased, above average volume we will look at additional positions with stock and/or March $60 calls to buy (DHR CL).

EASI ($43.15; +0.19): Forecast to announce a split on 12-11-01 before the open in conjunction with earnings. Little change in the pattern today as EASI closed with another doji at the short-term MVA's (18 day at 43.14) on sharply lower volume of 81,100 (average 457,300). As we've noted before, EASI is certainly in split range, but this consolidation pattern under the 50 day isn't promising. Looking for announcement to give it a boost over the 50 day on volume of 500,000 or better. Stock and/or February $40 calls to buy (UFE BH - low open interest).

SONC ($33.55; -0.17): We are working on a date. Still moving laterally. Today SONC again gapped back to the 10 day MVA at (33.14) to open, pushed up to an intraday high of 33.90, but then fell back to close as volume increased sharply to 150,100 (average 254,500). We could see another test of the 10 day, but are still targeting a buy point on a move over the recent high of 34.04 with volume of 500,000, with stock and/or March $30 calls to buy (ZSQ CF).

PRE-SPLITS: Keeping an eye on LYTS for showing good strength on today's recovery.

KIM ($50.50; -0.06): Splits 3:2 effective 12-24-01. The test continued today as KIM briefly tapped back to the 10 day MVA (50.24, former pattern high at 50.20) but then recovered to close with just a small loss on the day as volume increased slightly, but remained light at 94,700 (average 168,100). We like the low volume test, the hold of support and today's recovery at the close. Looking for support to continue to hold and waiting for another pre-split run to carry a move back over the recent high of 51.10 on increased, above average volume. Stock only.

CBH ($77.88; -0.42): Splits 2:1 effective 12-19-01. Holding in a nice, low volume lateral pattern after the breakout. Volume was down again today to 68,000 (average 147,100). Still watching out for a possible test lower, (which may trigger profit taking on current positions), looking for support at the 10 day MVA (76.75) to hold. However, we are looking for a move from here over 78.64 on above average volume, still carefully protecting profits with stops. Stock and/or January (very low open interest currently) or March (under 100 open interest) $70 calls to buy (CBH AN or CBH CN).

CONTINUING CANDIDATES: AZO has made a nice pullback and we are still watching APPB.

IGT ($63.52; -1.93): IGT broke out of its cup with handle on decent volume last week, but volume, although decent, was not great and IGT has now come back to test the move. Today it sold back on lower volume (1.3 million; average 1.22 million), closing over its 10 day MVA (63.21) and just below its former handle high of 63.62. Still looking for a hold here, and the aggressive can play a move over 65 on increased volume. The move over the breakout high is a buy point of 66.32 on volume in the 1.6 million range. Stock and/or January $60 calls to buy (IGT AL).

POST-SPLITS: AMHC continued its run with the announcement of a deal.

SUMMARY:
- More talk of the market being overbought as it settles back again on even lighter volume.
- Waiting on the Fed and bad news (JDSU warning for next quarter, HWP/CPQ deal in trouble, CPN could be next) sat on the market but did not kill stocks.
- S&P struggles at its up trendline, but you have to follow the lead of the leader: Nasdaq.
- Subscriber Questions

More talk of a 'needed' correction.

There was a lot of talk again today about the market being priced to perfection and in need of a correction. Another brokerage today said that a 10% to 15% correction was due, but that it would be short-lived and the market would snap right back up. In general, the talk was of a needed correction as the primary reason for the selling.

In all of the history of the market, we doubt that markets rise or fall based on specific beliefs by investors that the market needs a correction or needs to rally right now. Investors just don't say 'the market needs to correct now' and then sell stocks unemotionally based on that belief. 99.5% of investors act emotionally and are behind the curve.

Market settles back further on lighter volume despite gloomy news.

To us the action was pretty much as expected over the weekend: a further consolidation of last week's sharp upside move, and the market was weighted down by the likes of JDSU warning about next quarter, the Compaq deal getting panned, and the worries about the 'next Enron' in the energy field.

Those stories gave it further reason to consolidate, but note that the market did not get overrun by sellers with even some bad news out today and the bias being negative. Indeed, it pulled back on lighter volume once again after Friday's lighter volume selling, indicating that there were even fewer sellers involved in the action than before. This is precisely what you want to see on selling after gains: lighter volume and no major point drops.

It is even better than that. The Nasdaq delivered what is called a shooting star doji on the candlestick pattern. That occurs when a stock or index has been selling lower as on this recent pullback, and then shows a day where it runs higher intraday, but then closes near where it opened. After selling the previous sessions, the buyers stepped in and where able to run the index higher on the session. They did not win out, however, and it sold back, closing near where it opened. The momentum is shifting; the buyers are getting more active again, and are ready to move the market higher. The doji was not the tightest (15 points between open and close price), so it was not the best signal, but it is showing signs that the recent light selling could be ready to end.

A market is made up of stocks, and looking at individual stock patterns we see very similar action with shooting star doji's or low volume pullbacks to support popping up all over the place. NVDA, MXIM, AMAT, KLIC, KLAC, MUSE, PWER, INFA, MERQ, DELL, etc. show this type of action. After such a strong move last week, this is the type of action you would want to see after a slight pullback or consolidation. When you see this type of action repeated over and over, it catches your eye. It caught ours, and we sent out an alert before the close describing this action and how, despite the commentary on the financial stations, the day was not bad at all.

S&P closes below its up trendline while Nasdaq and Dow coast well above theirs.

The S&P was the biggest loser today with the energy trading companies taking a pounding along with the oil sector. That was a big drag on the big cap index. Meanwhile the Nasdaq held well above its up trendline on that low volume doji, and the Dow, though closing near its session low, traded lower on much lower volume.

The S&P's failure to hold its up trendline definitely makes us take note as well as the Dow's failure to hold 9992. The big cap index is struggling, and it could be a precursor to trouble on the Dow then the Nasdaq. Could be. It has not been the leader, however. The clear leader has been the Nasdaq, and it is still in good shape. While we want the Dow and S&P to start performing better, they have been lagging the whole move up; not stagnant by any means, just lagging. That is one reason we are not too alarmed at today's close below the up trendline as it can run back up over it tomorrow and be just fine. Moreover, the Nasdaq continues to perform very well. We do need to keep an eye on accelerating selling action, but that has not happened over the past three sessions. Again, it has been a very orderly pullback to this point.

Waiting on the Fed.

At 2:15 ET the FOMC will announce its decision on interest rates. A 25 basis point cut is baked into the cake and there is a 27% chance of an additional 25 basis points. That pretty much means there will be a 25 basis point cut tomorrow. That is in line with expectations and with a smaller cut the market will rationally be thinking that the Fed will have some better things to say about the economy. If not, that will puzzle investors; if things are still as bad as last meeting, why not 50 basis points?

Thus we expect 25 basis points with some 'things are still slow but look to be getting better here and there' words on the economy. The market tends to act in two ways before the Fed announcements: do nothing or rally slightly into the announcement. Not much help, right? Well, the patterns today indicate there may be a pop upwards after some more early selling tomorrow. Then when the Fed news comes out, if it is just 25 basis points and a 'status quo' statement, that hurts. If it is 25 and a 'things are looking better,' that could help the equities and hurt the bonds. It would indicate the economy is coming back and that there may be no further interest rate cuts. That would hammer bonds after they were up across the board today.

End Part 1 of 2

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