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us stock market, stock watch
Begin Part 2 of 4
THIS WEEK
Friday we had some selling as anticipated, but buyers came back in to stave off the downside action. Analysts are getting a bit nervous and after some downgrades Friday, we anticipate a few more Monday. That may give us a bit further downside action before it turns higher.
The market has not been as decidedly positive as it was on the rise off of the September bottom. It has run a long way and that has many analysts concerned, but many are also predicting better things. The action has reflected the split opinion with up and down closes and less than perfect price/volume action. The up trendlines have been broken as well. Nonetheless, we are seeing some solid breakouts hold up well, and the Dow and Nasdaq are holding above key support. Positive war news will be a boost, and a stimulus package surprise will be a major shot in the arm.
The S&P remains the weak link, and we will be watching how it reacts to the 50 day MVA. Will it pull the other indexes down or will they pull it up? Again, the reason for the rally is still intact, but the S&P could fall further, giving us more downside early this week. We don't know how long it will last to the downside, but we are not going to stay too long as we anticipate good news from the war front.
Of course the action of the Nasdaq at the 200 day MVA and the Dow at the 50 day MVA will also be very instructive this week. We have many solid upside plays for this week. That is one that worth noting: many breakouts continue to perform very well even as the overall market equivocates. If good stocks continue to perform we can continue to have confidence in the upside action.
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:
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 week.
BONUS PLAYS:
FILE (Filenet--$18.86; +0.57; optionable): Software.
http://biz.yahoo.com/p/f/file.html
STATUS: Moving up from deep in its base, in November FILE took out its May-August range and 200 day MVA (then 16, now 14). After a November consolidation FILE made another move early this month before pulling back into a nice, slightly descending pattern the past week, holding support at the 10 day MVA (18.17). It made a solid move from that support Friday, reaching over recent consolidation highs to 19.22 before pulling back to close, with volume spiking way up to 717,800 (average 400,000). Looking for a continuation of the move, targeting 23.
BUY POINT: 19.37 on continued strong volume. Stop: 18 (7%).
POSITION: Stock and/or January $17.50 calls to buy (ILQ AW).
DCOM (Dime Community Bancshare--$26.80; 0.00; no options): Banking.
http://biz.yahoo.com/p/d/dcom.html
STATUS: In a cup with handle dating back to August (high 30.64). DCOM made a pretty good move up from its 50 day MVA (25.39) early this month, and has now pulled into a nice-looking handle over its 10 day (26.56), gradually pulling back toward that level. Friday DCOM tapped that level at its low, closing with a perfect doji with volume picking up to 95,700 (average 87,400). With the good volume surge on the doji over support, DCOM could be ready to make a move toward the breakout (handle high 27.50). Target: The high at 30.64.
BUY POINT: 27.62 on volume of 120,000. Stop: 25.69.
POSITION: Stock.
NEW PRE-ANNOUNCEMENT PLAY:
BRL (Barr Laboratories--$76.84; -0.31; option): Researching a split date.
http://biz.yahoo.com/p/b/brl.html
BACKGROUND: Last announced a 3:2 split on 5-31-00 in conjunction with a board meeting, at a price of $52. The annual shareholder meeting was on 10-25-01 at which time no additional shares were authorized. There are sufficient shares for a 2:1 split.
STATUS: BRL made triple tops at 90 in July-October, but after retreating to 60 in November it has made a nice recovery. The run looks good, as BRL took out its 200 day MVA (70.11) in November and then consolidated, and then took out its 50 day (74.75) with a strong move last week before pulling laterally again over that support. Volume has dipped back in the pattern as it moves, which is good action (430,300 Friday; average 1.1 million). It has additional support here from pre-July highs, and we will look for a continued hold until it can break out again. Target: 90.
BUY POINT: 78.86 on volume of 1.5 million. Stop: 74.
POSITION: Stock and/or February $75 calls to buy (BRL BO).
PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: We are looking at both BBY and BBBY (not to be confusing).
BEST PLAYS: Besides the plays set forth below as best plays, there are some other stocks that also look good. These include Pre-Announcement NDN; Pre-Splits CBH and MOVI; and Continuing Candidates GTK, EASI, IGT, and JEC.
MARKET FAVORITES BEST PLAYS:
1) NTAP - Great pullback
2) SEBL - Small ascending wedge
3) INTC - Nice handle if it can hold
4) INKT - Testing the move
NTAP (Network Appliance--$21.04; -0.55; optionable): Computer Hardware
http://biz.yahoo.com/p/n/ntap.html
STATUS: NTAP broke over its 200 day MVA (now at 16.15) earlier this month and made a very nice run up on a breakout from a 7-month cup with handle. On the breakout high (23.79) it hit resistance at the 200 day MVA (EMA, at 24), and the stock appears to be forming another possible handle (highs at the start of the base are near 30). It pulled back for 2 days on decreasing volume (down to11.4 million by week's end; avg. 12 million). Showing a tight doji and an intraday low that tapped just above the 10 day MVA (20), it looks ready to head back up, but ahead of that move it can complete the pullback to the 10 day (look for support there as long as the market holds up). If it is going to form another handle, it needs to settle out another 2-3 days. High money flow. Target: 29
BUY POINT: Aggressive: 21.50, from here or on a bounce from the 10 day MVA, on rising volume. Stop: 20 (7%). Breakout: 23.92 on volume of 18 million or higher. Stop: 22.25 (7%).
POSITION: Stock and/or March $17.50 calls to buy (NUL CW)
SEBL (Siebel--$24.51; -0.90; optionable): Semiconductor
http://biz.yahoo.com/p/a/altr.html
STATUS: Has been moving somewhat laterally for several weeks, earlier this month moving up off of a test of the 50 day MVA (15.96) and now showing a small ascending wedge over its short-term MVA's (10 day at 24.46, 18 day at 24.01). Friday saw a pullback, but volume was much lower at 13.5 million (average 17.46 million). If it can hold here and make another higher low, looking for SEBL to take out its recent high in a better market. Target: 200 day MVA at 31.36.
BUY POINT: 26.40 on volume of 23 million. Stop: 24.55 (7%).
POSITION: Stock and/or February $22.50 calls to buy (SGQ BX).
INTC (Intel--$33.27; +0.70; optionable): Software.
http://biz.yahoo.com/p/i/infa.html
STATUS: Has made a nice, orderly pullback off of its big move in the rally last week. Volume has been below average and the stock is holding its 18 day MVA (32.32), which is at the level of its April-August highs in its rolling range. Friday INTC reached up to 33.78 before pulling back a bit to close, with volume down on the session at 46.2 million (average 53 million). Looking for a hold here, and in some market and sector strength looking for another solid move. Target: 40.
BUY POINT: Aggressive: In a rally, a move over 34 on above average volume. Stop: 32. Over recent high: 34.97 on above average volume. Stop: 32.52 (7%).
POSITION: Stock and/or April $30 calls to buy (INQ DF).
INKT (Inktomi--$6.69; -0.44; optionable): Internet software
http://biz.yahoo.com/p/i/infa.html
STATUS: INKT has made a solid series of runs from its September low of 2.20, this month launching from its 50 day MVA (5.49) and taking out its 200 day (6.25) before hitting a high Wednesday of 7.79. It pulled back the last two sessions, but volume was back down (Friday 5.86 million; average 4.24 million). We will see if it can hold its 10 day MVA (6.54, near the November high of 6.45) and give us another move up in a rally. On a move over the recent high, targeting 9.
BUY POINT: In a stronger market, a move over 7 on increased volume. Stop: 6.51 (7%).
POSITION: Stock and/or April $5 calls to buy (KFN DA).
PRE-ANNOUNCEMENT BEST PLAYS
1) BBY - Forecast for Tuesday
2) BBBY - Nice bounce and forecast for Thursday
3) FDC - 18 day MVA bounce in the making
4) DHR - A put
BBY ($66.95; +0.90): Forecast to announce a split on 12-18-01 in conjunction with earnings. The company has not confirmed a time for the release.
http://biz.yahoo.com/p/b/bby.html
BACKGROUND: Last announced a 2:1 split on 2-22-99 with a board meeting. The stock price was $95. Prior to that announced a 2:1 split on 4-24-98 with a board meeting. The stock price was $71. The annual shareholder meeting was 6-26-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Has bled back this week as we go toward the announcement, giving up its 18 day MVA (67.98) Wednesday but holding on with a couple of dojis since. It is holding some recent price support at 65 (50 day MVA below at 63.53), hitting near that point at its lows the last two sessions as volume remains above the average (3.68 million Friday; average 3.78 million). We will see if these dojis signal the end of the recent drop and if we can get a move to play going toward the forecast. The recent high is 74.23.
BUY POINT: Aggressive: After holding here, back over the 10 day MVA (currently 68.42) on increased volume. Stop: 63.94.
POSITION: Stock and/or January or March $65 calls to buy (BBY AM or BBY CM).
BBBY (Bed, Bath & Beyond--$33.01; +0.68; 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: BBBY is trying to fight back after its abrupt drop back from a breakout from a 'flying w' with handle, and it is doing it on solid volume. It reached near its 50 day MVA (30.52) but took a nice bounce Thursday on good volume, continued up Friday. It tapped up to its long-term trendline (from March 2000 to May 2001 lows) at its intraday high of 33.73 before pulling back to close. It tried the trendline on Thursday as well before pulling back, so for positions going toward the forecast we will need to see a strong move over that resistance. The breakout high was 35.70.
BUY POINT: A bounce back over 34 on continued strong volume (4.85 million Friday; average 4.34 million). Stop: 32.55 (7%).
POSITION: Stock and/or February $30 calls to buy (BHQ BF).
FDC (First Data--$75.05; +0.65; optionable): Working on a forecast date.
http://biz.yahoo.com/p/f/fdc.html
BACKGROUND: Last split was a 2:1 on 11-18-96 at a stock price of $80. The annual shareholder meeting was on 1-11-01 at which time authorized shares were increased. The company has sufficient shares for a 2:1 split.
STATUS: Has again tested back to its 18 day MVA (74.43), holding Friday with a loose doji on reduced volume (1.14 million; average 2.1 million). There is some additional support here from its November high, over which it broke on a good move last week (high on the move 77.93). On its second test of the 18 day MVA after its breakout, this can give us another 2 or 3 bounced up off of this level.
BUY POINT: Aggressive: Over 75.50 Stop: 72. The recent high is 77.93.
POSITION: Stock and/or February $70 calls to buy (FDC BN).
DHR (Danaher--$56.20; -3.13; optionable): Forecast to announce a split in late January in conjunction with earnings. At this time, the company cannot confirm a date for earnings release.
http://biz.yahoo.com/p/d/dhr.html
BACKGROUND: Last announced a 2:1 split on 3-6-98 with a board meeting. The stock price was $70. The annual shareholder meeting was on 5-1-01 at which time authorized shares were increased. The company has enough shares for a 2:1 split.
STATUS: Lowered its outlook Thursday evening and was downgraded, and the drop got even more severe. Friday DHR gapped below its 50 day MVA (58.12) and then dropped through its 200 day (57.40), with volume taking off on the selling (3.9 million; average 1.43 million). Often, when you see a drop this severe you will get a quick relief bounce to test broken support. The bounce will typically be on lighter volume than we see on the selling, and sets up one of the best entry points for a put play when the stock falls back after the failed test of the former support. It has some price support at 56, so after a failed test we are looking for a drop through that level for downside positions. There is some possible support at 54 from the former left shoulder of its reverse head and shoulders pattern (July), but we are initially targeting the March-April lows at 52, although it could go lower.
BUY POINT: After a relief bounce fails at 57-58, a drop through 56 on continued strong volume.
POSITION: January $60 puts to buy (DHR ML).
End Part 2 of 4
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