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12/17/01 Stock Split Report Market Summary
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MARKET ALERT SERVICE

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PLAYS TO LOOK AT: Some great moves, including SEBL and FMBI!

BONUS PLAYS:

ADP (Automatic Data Processing--$58.91; +1.27; optionable): Software.
http://biz.yahoo.com/p/a/adp.html
STATUS: Testing the recent breakout from its cup with handle (dating back to November, highs near 70), forming a second handle. Today it moved back up from the support of its 18 day MVA (57.42), with volume dipping back to 1.3 million (average 1.75 million). Nice pattern, and we are looking for a breakout, with the handle high at 59.89. Target: 69.
BUY POINT: 60.01 on volume of 2.6 million. Stop: 55.81.
POSITION: Stock and/or February $55 calls to buy (ADP BK).

ARM (Arvinmeritor--$19.60; +0.41; optionable): Auto Parts.
http://biz.yahoo.com/p/a/arm.html
STATUS: In the handle of a four-month cup with handle. ARM recently tried a breakout, hitting 19.99 before pulling back to the support of its 10 day MVA (18.88). After holding that level last week, it bounced up today on increased, very strong volume of 289,400 (average 189,500). Looking for a breakout on continued strong volume. Relative strength has broken out ahead of price. Target: 24, keeping an eye on the high at 21.87.
BUY POINT: 20.11 on minimum volume of 285,000. Stop: 18.70 (7%).
POSITION: Stock and/or February $17.50 calls to buy (ARM BW).

MARKET FAVORITES:

SEBL ($27.20; +2.69): Solid breakout today, running up from its 18 day MVA (24.35) and taking out its November high (26.40) on excellent volume, which spiked up to 24.1 million (average 17.7 million). Still a buy on continued strength up to 27.72 with stock and/or February $22.50 calls to buy (SGQ BX), targeting the 200 day MVA (31.29).

CREE (Cree--$26.19; +0.27; optionable): Semiconductor equipment.
http://biz.yahoo.com/p/c/cree.html
STATUS: Tested back into the range of its late-November handle after its recent breakout. CREE held its 18 day MVA (25.07)on the low-volume dip, but after a high-volume 'shooting star' doji last Thursday its has made a bit of a move back up. Today it hit a high of 26.85 (handle high 27.49) before pulling back to close, with volume below average at 1.04 million (average 1.5 million). Target: 33.
BUY POINT: 27.61 on volume of 2.2 million. Stop: 25.68.
POSITION: Stock and/or March $25 calls to buy (CQR CE)

PRE-ANNOUNCEMENTS: Still looking at DHR for a possible put, and MI made another solid move.

BRL ($77.08; +0.24): Researching a split date. Continues in its consolidation over the support of its 50 day and 10 day MVA's (74.84 and 75.92). Today we saw another loose doji on low volume, and with this good-looking consolidation we are looking for a breakout, with the buy point 78.86 on volume of 1.5 million. Stock and/or February $75 calls to buy (BRL BO).

BBY ($69.00; +2.05): Forecast to announce a split on 12-18-01 before the open with earnings. Gapped back up today, holding over its short-term MVA's (18 day at 68.09). Volume was up and solid on the session, at 3.9 million (average 3.84 million). With earnings and the forecast in the morning, we will see how it reacts, looking for a move over 70 with good news, watching the recent high of 74.23. Stock and/or January or March $65 calls to buy (BBY AM or BBY CM).

BBBY (Bed, Bath & Beyond--$31.99; -1.02): Forecast to announce a split during the market hours on 12-20-01 in conjunction with earnings. Was greeted this morning with a downgrade, but it held on pretty well after gapping down, reaching up to 32.90 at its intraday high on increased volume (5.62 million; average 4.4 million). It is now below its short-term MVA's (10 day at 32.57) and one of its long-term trendlines (33.75), and we will see if it can hold on going toward its announcement, but with an announcement we will need to see it clear resistance. The recent high is 35.70. Aggressive: With an announcement, a move over 33 on continued strong volume, with stock and/or February $30 calls to buy (BHQ BF).

FDC ($76.65; +1.60): Working on a forecast date. Nice move back up off of the 18 day MVA (74.66), tapping 77.50 intraday (near its high from earlier this month, at 77.93). Volume was much stronger at 2.34 million (average 2.12 million). The breakout play is on a move to 78.05 on volume of 3 million, with stock and/or February $70 calls to buy (FDC BN).

PAST-SPLITS: FIC is still trying.

PRE-SPLITS: CPRT and XRAY worth a look.

SASR ($45.90; +0.69): Splits 3:2 on 12-21-01. Hit the buy point today, breaking over the high (45.68) with a nice surge in volume (18,400; average 18,200). Looking for a continued move as we go toward the split, protecting positions carefully as the stock just popped over an upper-channel line drawn from March (at 45.70). Stock only.

CONTINUING CANDIDATES: Still watching RMD as a possible put, and keeping an eye on APPB for a potential pullback. ACS made a great move, breaking through its upper channel.

IGT ($66.70; +1.85): Merger with SLOT approved last Friday, and IGT made a nice move Monday on good volume. It hit the breakout buy point and hit a high of 67.87 before pulling back to close. It held to close over the former handle highs (66.63). Looking for more, and a buy up to 69.96 with continued strong volume (2.1 million; average 1.3 million). Stock and/or April $60 calls to buy (IGT DL).

AZO ($73.50; 0.00): Continues to hold in a nice consolidation of dojis over its 10 day MVA (72.87). Volume dipped again Monday to 784,600 (average 1.6 million), and we are still looking for a move over 75 on above average volume, with stock and/or March $70 calls to buy (AZO AN).

POST-SPLITS: AMHC still looking like it could make a move.

LYTS ($17.15; +0.40): Got a huge infusion of volume today (up to 136,800; average 23,800) as LYTS continued up toward the highs in its handle to a three-month cup. Looking for more strength on a breakout move, with a buy point of 17.32 on continued strong volume. Stock only.

SUMMARY:
- Indexes bounce where they needed to after a week of selling.
- Holiday rally on light volume looks to be here.
- Light volume is always cause for caution, but holiday rallies are a seasonal gift.
- Full economic news schedule, oh whence is the stimulus package, and where in the world is Osama Ben Laden highlight outside market influences this week.
- Team Trades

A bounce when needed.

After a week of selling and continued mixed signals from the indexes, all bounced where they needed and the S&P 500 and SOX actually broke back above the 50 day MVA and 200 day MVA, respectively, key points in their continued recoveries off of the September bottom. From a slightly lower open, good things sprang. It was not powerful, but it was a good response to the selling that put the indexes at or slightly below key support levels.

Holiday rally at hand?

As noted over the weekend, there were upside and downside signals, but the overall market attitude remained positive. Moreover, as Christmas comes early next week, a holiday rally may be in order after Santa overlooked investors last holiday. Combine that with the selloff last week, and the market bounced. A soft open turned into solid price gains, some on strong volume, many on so-so volume. The key: with an overall healthy market (despite the warts, it is overall healthy), stocks tend to rally near Christmas. The fact that the indexes sold off for a week after a good rally ahead of the holiday week adds to the upside momentum.

Asinine comparison of the week. Now compare that with the latest general prognostication for this week. Today one analyst said this week would most likely trade lower because it was an options expiration week and five of the last six such weeks have ended lower. Four of those 5 down weeks all occurred during the downtrend before 9-11, the last when the market re-opened. The other one was in October after the Nasdaq made two big rallies and was due for a rest. The most recent was in November, and the November week was up. Maybe this week will end lower, but in our opinion it is not because of any correlation to the last five 6 option expiration weeks.

Light volume is a concern, but not a reason for abstention.

We would have preferred to see stronger volume of course, particularly on the S&P's and SOX' breaks back over key moving averages. That always shows more conviction on the moves and they thus tend to stick better.

Still, there were excellent volume moves on some breakout stocks and stocks that bounced higher as we anticipated in last week's reports. Great moves from stocks on all reports, e.g., SZA, SEBL, NBIX, DF, YUM, ALOY, ORLY, CPRT, EAT, etc. Many of these were on above average volume despite the lower overall market volumes. That indicates buying is still ongoing in many sectors (food was a real winner again today).

While low volume makes us cautious, particularly with breakouts where we really do want to see the big volume regardless of the session volume (and we did see that volume on many breakouts today), we won't be so critical of it that we do not partake in a good bounce play or other solid move. We do not totally suspend the rules when near holidays, but we bend them some.

Economic news, Bin Laden, economic stimulus are still undecided.

Actually, the economic news is getting better and better and there is a more universal acknowledgement of that. As noted last week, the bond market is heavily discounting an economic recovery.

The other two are more problematic. Bin Laden did not turn up in the Afghan alliance's victory in Tora Bora over the weekend. He is rumored to still be in the area. He is rumored to have left the area. The only thing for sure is that he has not been found. There will still be a good move on the news when it comes. As the time drags on, however, it becomes less and less of an issue, captured or not. To be sure there will be disappointment reflected in stocks a bit if the defense department comes out and says he got away, but it will not be a calamity. There is widespread belief, and most likely true, that Al Qaeda has taken a huge hit in this war; many of UBL's most loyal defenders were with him, and for now their ability to coordinate major strikes is limited.

As for the stimulus package, this is the week it will happen or it won't. Reports today were that the sides were back to step 1 with neither willing to give up certain parts of their plan. Just so happens, those are the parts the other side will not (for now) allow into the final plan. Sometimes it is best to go back to the start and re-evaluate what is really important; we hope it works this time. If they do not pull it off this week, Congress will not be back in session until late January.

No question the stimulus package has an impact on the market. As we have been saying, it is one of the factors for earnings growth (the driver of stock prices) that is being discounted into stock prices. Remove the possibility of the package and you hurt stock prices a certain amount (what amount is hard to say). You could argue that last week was part of the factoring in process, and that would probably be right. Still, as the deadline for a chance at a package approaches with no package, stocks can come under pressure, particularly those that have performed well and needed the stimulus to get capital spending up, e.g., technology.

End Part 1 of 2

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