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Begin Part 2 of 2
Support and Resistance
Nasdaq: Closed at 1953.17.
Resistance: Down trendline at 1955. Up trendline at 1980, the same as the gap up point at 1980. A few price consolidations and psychological resistance at 2000; the December high is at 2065.69.
Support: The 200 day MVA at 1935.22 and the top of the late November consolidation at 1934 to 1941. If that folds the next real support is at 1875 (50 day MVA at 1869.32).
S&P 500: Closed at 1123.07.
Resistance: The 50 day MVA (1125.13) held the index back Friday. Price consolidations at the same level make for a double layer of ice. Then 1150 in the form of former price consolidations. The March 2000 down trendline is at 1150. The December high is at 1173.62. The 200 day MVA is at 1171.62. After that there is the middle of the March and April double bottom at 1183.85. Again, a lot of resistance.
Support: 1100 is next (top of the October consolidation range). We still think it could find support on this move down before that point. If not, anywhere from 1050 to 1075.
Dow: Closed at 9811.15.
Resistance: 9992 was resistance on the way up before, and it is there again. Up trendline at 10,005. The 200 day MVA is still there at 10,117.40. The December high is at 10,169.44.
Support: The 50 day MVA is at 9719.65. After that, 9500.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
12-18-01
Housing Starts, November (8:30): 1.525M versus 1.552M prior.
Building Permits, November (8:30): 1.470M versus 1.473M prior.
12-19-01
Trade Balance, October (8:30): -$27.5B versus -$18.7B prior.
Leading Indicators, November (10:00): 0.2% versus 0.3% prior.
12-20-01
Initial Claims, 12/15/01 (8:30): 394K versus 394K prior.
Philadelphia Fed, December (12.00): -17.5 versus -20.2 prior.
Treasury Budget, November (2:00): -$47.5B versus -$23.7B prior.
12-21-01
Personal Spending, November (8:29): -0.5% versus 2.9% prior.
Personal Income, November (8:30): 0.0% versus 0.0% prior.
GDP - Final, Q3 (8:30): -1.1% versus -1.1% prior.
Chain Deflator - Final (8:30): 2.1% versus 2.1% prior.
Mich Sentiment - Rev., December (9:45): 85.7 versus 85.8 prior.
SUBSCRIBER QUESTIONS
Q: Why are 'negative views by option players a positive for the market?'
A: That was a line taken from Wednesday's market summary. To be more precise, it should have read 'negative views by options players as a whole are a positive for the market.' The reason is that options players as a whole are speculators. In other words, they buy out of the money near term (current month) options hoping to hit the home run. These are the most heavily traded options and they are thus the most volatile. The majority of option players are not investing, just trying to make a big score. Because they are speculators, they tend to load up on more options when they feel the market is certain to head in a specific direction. Problem is, just as with most areas of the market, speculators tend to get in late on moves; historically, when the put/call ratio closes above 1.0 (fear and anxiety) or below 0.4 (complacency), the market has been either ready to turn back up or topping. Thus, when option players get pessimistic about the market, that is a signal that things are either ready to change for selling to buying or a rally still has some legs under it. It is just a signal, however, as the put/call ratio is a secondary indicator to price and volume.
TEAM TRADES
We were looking for some downside plays Friday, but with the late rally, they did not put a lot of money in the pocket. Still, plays such as the OEX and C still look to have some downside left.
C (TTR) was a stock that broke below its 50 and 200 day MVA Thursday, and we were looking for more downside action from this stock that had set up a head and shoulders/descending wedge pattern. It was on its way down early, so we did not waste any time getting in on it as our plan Friday was to take downside positions quick to catch a move down Friday and Monday. C was obliging, hitting our buy point in the first half hour. We were looking at the January 50 calls with their good volume; they were trading at 3.70 by 3.80 to 3.70 by 3.90 on different markets. We put in a limit order at 3.80. It sat there for a minute and with the stock still falling we thought we were missed. Turned out we were filled on 10 contracts out of 15 ordered, and that was the delay in getting confirmation. Well, C continued to fall down, hitting 46 on the low on that first drop. We were looking for a target of 44 as our first support point. C turned up and rallied to 46.40, but then started to fall again. Great; it did not make it back to where we bought in and was stalling again. It worked its way down to 46 again over the next three hours. Problem is, it found support there again and then rallied sharply back up to almost 47 before it fell off slightly at the close. The options closed at 3.90 by 4.00. Not a stellar gain for the session, and not as far ahead as we wanted to be on Friday when we wanted to sell on Monday. It still closed below the 50 and 200 day MVA, so we will watch for perhaps a test of those levels Monday, and then some more selling down to our target.
THE PLAYS:
Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.
Good movers from the reports: TIER, formerly covered (11-27), hit a new closing high on rising volume.
Stocks/Indexes from the Thursday report:
ERJ: Tried to break out; it hit the buy point but then pulled back to a tight doji below that price. Volume strong.
IDXX: Began making its move, with volume rising and the stock moving up in the handle. We will see if it can keep the move going.
AXP: Fell but not by much, then closed higher with a doji. Volume still strong and if the stock cannot move over the 50 day MVA, can try the move down again.
SNUS: Made the move we wanted, but closed back below those 2 previous December highs.
SIB: Nice move out of the ascending wedge, but volume was even lower.
SOX: Refused to fall Friday. The index was back over the up trendline but could not take out the 200 day MVA, tapped on the high. Volume was low in the market, however.
DJX: From Thursday. Holding the 50 day MVA on lower volume.
Continuing plays:
CATT: At support with a tight doji in a new handle.
DELL: Closed at the 18 day MVA after hitting a low of 27.50. Volume higher.
EAT: Moved up nicely in the handle. Volume strong though just lighter (as it was in the overall market). Buy point in the handle is 28.89.
LUV: Forming a handle and up from the 18 day MVA on rising volume. New buy point is 201.3 for a breakout.
MCHP: Continued to look good in today's negative market, hitting our aggressive buy point at 40.84. It closed below that, but is holding at some support so are looking at holding those positions for now. Looks ready to move in a rally.
NOK: Still looks good in the ascending wedge.
RBK: The pattern looks good even though the stock pulled below the 200 day MVA the last 2 days. Volume was strong Friday with the stock closing near its high in the pullback. See the 12-12 report.
SYMC: Still looks good in the handle. Buy point 71.13 (stock and/or January $60 or $65 calls to buy (SYQ AL or AM).
TMWD: Testing the breakout with volume dropping back nicely. 10 day MVA holding thus far.
WMI: Held with a doji near Thursday's closing price with volume falling below average.
SUBSCRIBER'S CHOICE:
MCTR (Mercator Software--$8.00; +0.40; no options): Business Software
http://biz.yahoo.com/p/m/mctr.html
STATUS: Is in a large cup with handle (11 months) with previous highs at 10. That base is part of a much larger one with highs near 140. The stock had a super run up the right side of the base and is now trying to settle out in a handle, with volume pulling back and finally reaching below average levels Friday (514,700; avg. 529,363). Price is bouncing up and down, testing support at first the 18 day MVA and the 10 day MVA this last week. Showing a doji Friday, we look for the stock to settle down further in the handle since it needs a good correction after the nice run, looking ahead for a breakout. Money flow is high. Target: 11-12
BUY POINT: 9.57 on volume of 794,000 or higher. Stop: 8.90 (7%)
POSITION: Stock.
http://www.investmenthouse.com/cd/mctr.html
Best Plays:
1) KSWS: Ready to head higher.
2) MNTR: Ready to break out.
3) HDI: Moving up in an ascending wedge.
4) CPWR: Still a buy on this breakout.
A Put Play:
EXTR (Extreme Networks Inc--$13.72; -0.98; optionable): Internet Software
http://biz.yahoo.com/p/e/extr.html
STATUS: This was a subscriber's choice feature 11-24. The stock was holding above the 50 day MVA in a pullback but could not move over resistance at 20. It began pulling back again but fell below the 50 day (15.26) Thursday with volume rising and strong, continuing that move Friday (volume was up again to 9.45 million; avg. 7.8 million). The stock closed just under support at the 50 day MVA (SMA). We are looking for a move down to 10 for an initial target.
BUY POINT: Aggressive: 13.20 on continued rising volume.
POSITION: January $20 puts to buy (EUT MD).
http://www.investmenthouse.com/ct/extr.html
New:
KSWS (K-Swiss--$35.08; -0.36; optionable): Apparel Footwear
http://biz.yahoo.com/p/k/ksws.html
STATUS: The stock broke out of a cup with short handle Thursday. The handle was comprised of 2 days of very low, below average volume and 2 dojis that moved laterally. Breakout high is 35.89 and KSWS pulled back on lower volume Friday, but after tapping support at 34 was up and closing near the high of 35.14. Volume was still high at 98,600 (avg. 92,363). We are looking for the stock to continue up on rising volume. Money flow very strong, as is relative strength. Target: 41
BUY POINT: Aggressive: 35.20 on 140,000 shares or more. Stop: 32.74 (7%).
POSITION: Stock and/or April $30 calls to buy (SWU DF).
http://www.investmenthouse.com/cd/ksws.html
Previously covered:
MNTR (Mentor Corp--$30.20; +1.20; optionable): Health Services
http://biz.yahoo.com/p/m/mntr.html
STATUS: MNTR finally broke out of the cup with handle (buy point 29.30) on December 6, then began an immediate pullback as volume started falling (and had never broken above average on the breakout). The stock tried to move Tuesday but ended up testing the 18 day MVA (28.90), which apparently was what the stock needed. It found good support there and shot up Friday on stronger volume (197,200; avg. 229,000). We can call the recent new pullback another handle, though volume has been erratic though below average for the most part as we like in handles. Aggressive positions can be taken here, but the breakout is over the December high at 30.67. Strong money flow and relative strength breaking out ahead of price. Target: 37
BUY POINT: Breakout: 30.80 on volume of 344,000 or higher. Stop: 28.64 (7%)
POSITION: Stock and/or January $30 (aggressive, MNQ AF) or April $30 calls to buy (MNQ DF).
http://www.investmenthouse.com/cd/mntr.html
HDI (Harley-Davidson--$52.74; +1.05; optionable): Automotive
http://biz.yahoo.com/p/h/hdi.html
STATUS: In a v-bottomed base. We looked at HDI December 1 when it was breaking out of a cup with handle. The move failed at that point and HDI pulled back to test the 18 day MVA throughout the last 2 weeks, forming an ascending wedge. Volume is falling off and remains below average in this handle-type portion of the pattern, though was up Friday to 1.4 million (avg. 2 million). The rising volume was accompanied by a bounce from the 18 day and move up nearly to the resistance in the pattern (53.25). Not the best position for a wedge within such a base, but the pattern is close to the previous highs (54 range) and a breakout could take the stock out of the base. HDI has strong money flow, and relative strength is breaking out ahead of price. Target: 64
BUY POINT: 53.38 on volume of 3 million or higher. Stop: 49.62 (7%)
POSITION: Stock and/or January $50 (aggressive) or February $45 calls to buy (HDI AJ or BI).
http://www.investmenthouse.com/cd/hdi.html
CPWR (Compuware--$13.50; +0.75; optionable): Application Software
http://biz.yahoo.com/p/c/cpwr.html
STATUS: Breaking out of cup base that really didn't have much of a handle. The stock had made a super run after reversing out of a descending wedge pattern and did not pause until early last week, when even then it continued to inch higher for a couple of days. The pullback came Thursday when CPWR fell to a test of the 10 day MVA (12.60) then broke out on strong volume Friday (5.3 million; avg. 3.4 million). The stock remains a buy on this move, and can be a good entry point for taking partial positions as it can pull back to form another handle ahead of a breakout from the cup (highs at 14.50). At that point positions can be added. Shows strong money flow, good buying, and relative strength breaking out ahead of price. Target: initial, 16
BUY POINT: 13.55 on continued strong volume. Remains a technical buy up to 14 on the breakout. Stop: 12.60 (7%)
POSITION: Stock and/or February $10 calls to buy (CWQ BB).
http://www.investmenthouse.com/cd/cpwr.html
PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that look ready to pick up a few shares.
THE LEADERS: New Leaders (new list): ACS, NVDA, DGX, FRX, LLL, CACI, AJG, KRON, MIKE, BMET, APPB, LOW, IDPH, TARO, MYL, IGT, VRSN
IGT: Still testing the breakout from its cup with handle. Announced after the close Friday it is buying SLOT. May come under pressure, but it should be a good move for the company.
CACI: Back at the 18 day MVA on low volume and looks ready to try for a bounce. December high is 43.20.
LOW: Continues the pullback and is currently holding support at the 10 day MVA with volume falling below average for the last several days.
MYL: Was up again Friday but volume remains low. However, it may kick in this week and MYL can head toward that November high (37.90).
APPB: Tested the breakout and was up Friday to a new all-time closing high with volume rising nicely.
DGX: Moved over a short term down trendline 4 days ago and is heading for the next one at 68. Volume remains low.
UP & COMERS PORTFOLIOS: Here is the new portfolio list: BBBY, EPIQ, KKD, MMS, NDN, SRCL, CPRT, BJ, EBAY, THQI, KG.
BJ: Is at the previous lows (September). Can hold here for a move back up in a double bottom pattern.
EBAY: Still at the 18 day MVA in the handle, with volume falling further below average.
KKD: Has been moving up from the 18 day MVA as expected; Friday the stock showed good volume and almost a point in gains.
CPRT: Continued to test the breakout by pulling back completely to the 18 day MVA. The stock was up nicely Friday (+1.28) on a slight rise in volume. Our buy point is 35.80 (see the 12-11 report).
NDN: Making a move off the 18 day MVA.
KG: Showed strength Friday, breaking over the 50 day MVA on strong volume. Potential resistance at the 41 range (November high 41.22).
MMS: In a kind of ragged double bottom with handle. Now at the 50 day MVA, good support that is reinforced with the 18 day MVA. Can move up from here. Buy point for a breakout is 43.75; aggressive 42.35.
MEMBER PORTFOLIO: New portfolio as selected by the subscribers. Some of these stocks are still struggling to move higher in their bases, and will likely continue to trade in close ranges just like the market. We'll be ready to catch them when they are ready to move. The new list: BRCM, CHKP, AMAT, JNJ, MSFT, AOL, HGSI, BUD, PXLW.
Old members: BRCM, CHKP, CSCO, EMLX, IDTI, INTC, JDSU, MVSN, NT, PWER, SUNW, VTSS
MSFT (Microsoft--$67.44; +1.17; optionable): Application Software
http://biz.yahoo.com/p/m/msft.html
STATUS: MSFT has formed an ascending wedge at the top of the run from 47.50, the September low. The pattern is squeezing between the up trendline that supports it from below (connecting the October and November closing lows) and the down trendline (connects June, July and December highs). Friday MSFT opened at the up trendline then bounced though volume was lower at 21.5 million (avg. 35.6 million) for a slight move up in the pattern. We look for a breakout in a market rally. Money flow is strong, and relative strength is breaking out ahead of price, which is bullish. Target: 83
BUY POINT: 69.13 on volume of 48.06 million or higher. Stop: 64.29 (7%)
POSITION: Stock and/or April $65 calls to buy (MSQ DM).
http://www.investmenthouse.com/cd/msft.html
CHKP: Tapped the 18 day MVA bouncing slightly from there in the type of ascending wedge pattern. Not the best kind of handle, but volume continues to fall.
BRCM: Held the 50 day MVA and moved off that support with volume rising and strong. Resistance ahead at the 45 level. Somewhat of a handle, but very volatile.
BUD: Managing to hold above the 50 day MVA; showed a hammer doji on rising volume today.
PXLW: A hammer doji and rising volume at the base of its handle. The pattern is below the 200 day MVA so not a great one, but that doesn't mean PXLW can't break out of it. Buy point is 19.49.
Good Investing!
Jon L. Johnson and The Daily Staff
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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