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Tech Traders 12/19/00 Market Summary
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Technical Traders Subscribers:

Continuing Plays:

ACS (Affiliated Computer Svc--$60.19; -0.19; optionable (ACS)): Has formed the ascending wedge pattern, pulling back on continued below average volume (165,700; avg. 261,000) to support at the 10 day MVA. The software stock closed on a tight doji, signaling a turn back up from here. Look for the breakout over 62.13, pattern high. Excellent money flow and high relative strength.
BUY POINT: 62.26, on volume of 352,000 or better.
POSITION: Aggressive: Stock and/or April $60 calls to buy (ACS DL).

http://www.investmenthouse.com/ch/acsl.html
(Click to view the chart)

CB (Chubb Corp--$81.75; -0.50; optionable (CB)): Holding at support (50 day MVA) on lower volume. The insurance stock is consolidating at that level, further support by the up trendline, on below average volume (675,300; avg. 872,000). Look for a move up as the defensive stocks rally. Watch for resistance at the short term moving averages (83.16 at the level of the 18 day MVA). CB will try to run back up toward the December high of 90.25, much as it did starting in late November prior to reaching that price.
BUY POINT: On a move over the 18 day MVA (over 84) on a break up from here on above average volume.
POSITION: Stock and/or April $75 calls to buy (CB DO). April $80 options had insufficient open interests (too illiquid for this stock).

http://www.investmenthouse.com/ch/cb.html
(Click to view the chart)

MOND (Robert G. Mondavi--$49.94; -0.31; no options):
STATUS: Market got you down? Drown your sorrows. This winery stock moved up in the tight pennant, though volume pulled back slightly, remaining below average at 39,500 (avg. 55,363). On the breakout, look for a move over the pattern high of 52.50 but the stock will need strong volume to sustain this initial move up. The pattern is functioning as a test of the breakout from the recent ascending wedge pattern. Outstanding money flow and high relative strength (that has moved out ahead of price, a bullish sign).
BUY POINT: 52.63, on volume of 75,000 or better. Remains a buy on the breakout up to 55.26 or better.
POSITION: Stock.

http://www.investmenthouse.com/ch/mond.html
(Click to view the chart)

New Play to look at:

IVGN (Invitrogen Corporation--$81.25; +2.12; optionable (IUV)): Moving up in its ascending wedge pattern; in which the stock has been moving on below average volume (reaching 645,000 Tuesday; avg. 1.2 million). Look for a continued move up to the pattern's upper level at 85, but on stronger volume. High money flow and a relative strength that has broken out ahead of price (bullish sign).
BUY POINT: Aggressive: Up from here on stronger volume. Breakout: 85.76, on volume in the range of 1.6 million or better.
POSITION: Stock and/or February $80 calls to buy (IUV BP). February $85 options had insufficient open interests (too illiquid for this stock).

http://www.investmenthouse.com/ch/rky.html
(Click to view the chart)

HNZ (H.J. Heinz Co--$45.81; +1.25; optionable (HNZ)): A food and beverage stock that is moving up on good volume (1.1 million; avg. 957,000) as it attempts to break out of the handle of its 5-month base. Found support at the 18 day MVA (44.19) for the move up, beating resistance just under the 45.75 level. Breakout point is 46.07 on higher volume. The stock shows a relative strength that has broken out ahead of price, a bullish sign for a continued move up.
BUY POINT: 46.07 on volume in the range of 1.3 million or better.
POSITION: Stock and/or March $45 calls to buy (HNZ CI).

http://www.investmenthouse.com/ch/hnz.html
(Click to view the chart)

Put plays for a falling market:

MERQ (Mercury Interactive Corp--$87.06; -8.25; optionable (RQB)): Broke the 18 day MVA (90.98) on rising volume (2.5 million; avg. 2.6 million). The stock can travel down to the 80 level on continued selling; look for stronger, rising volume on the move.
BUY POINT: On a continued move down on above average and rising volume.
POSITION: April $90 puts to buy (RQB PR).

http://www.investmenthouse.com/ch/merq.html
(Click to view the chart)

JNPR (Juniper Networks--$113.75; -15.13; optionable (JUY)): Headed down after opening just on top of its long-term down trendline, breaking that support on stronger volume (15 million; avg. 13 million) for the downside play on the Fed news. Look for a continued move down as the techs sell; JNPR was trading at 102 in after-hours trading.
BUY POINT: On a a continued move down on continued rising volume.
POSITION: Down: April $115 puts to buy (JUY PC).

http://www.investmenthouse.com/ch/jnpr.html
(Click to view the chart)

CHKP (Check Point Software Tech--$129.31; -18.50; optionable (KGE)): Broke support at all the moving averages above the 200 day MVA (141.69) on stronger volume (5 million; avg. 3.7 million). On a continued move down to that moving average, we will look at positions with covered calls (on long term stockholdings) and/or puts. The stock moved up the previous two days before tanking back down today.
BUY POINT: On a move below 129 on continued rising volume.
POSITION: April $125 calls to sell (KGE DE), and/or April $130 puts to buy (KGE PF).

http://www.investmenthouse.com/ch/chkp.html
(Click to view the chart)

VSTR ((Voicestream Wireless--$110.81; -1.25; optionable (UVT)): The stock closed just below its longterm down trendline, as volume rose to average levels (2 million). VSTR had moved down from its opening price at resistance, the 18 day MVA (114.64). Look for a move down from on a retreat from the down trendline.
BUY POINT: On a move down from here on above average or better volume.
POSITION: February $115 puts to buy (UVT NC).

http://www.investmenthouse.com/ch/vstr.html
(Click to view the chart)

TLGD (Tollgrade Commun Inc--$38.00; -13.94; optionable (THF)): Broke support at the 40 level (November low) on strong volume (1 million; avg. 560,000). Look for a continued move down as money flow turned down. The stock opened at its down trendline and headed down from there.
BUY POINT: On a continued move down on strong volume.
POSITION: February $40 puts to buy (THF NH).

http://www.investmenthouse.com/ch/tlgd.html
(Click to view the chart)

THE SUMMARY:

For a review of frequently asked questions, please use the link below:

http://www.investmenthouse.com/1questions.htm

TONIGHT:
- We were wrong: the Fed let the economy down.
- Markets were not confused about the decision: they tanked on the news of no rate cut.
- New Nasdaq low for the year and more to come.
- We need to keep on with the same: defensive sectors to the upside and techs to the downside off the down trendlines and up for the reflex bounces.
- Subscriber Questions
- Team Trades

We read Greenspan wrong this time.

There were rate cut proponents and rate cut antagonists on the FOMC today. Greenspan had his choice to do what he wanted. Did he take a bold and necessary step to ensure that the economy does not slide into a recession as it always does when the Fed raises rates? No, he took out his crumpled Phillips' Curve model, muttered 'bah, humbug' and waddled home.

Commentators said the market was 'confused' and that they were 'perplexed' as to why investors started to sell stocks. The market is not confused; it knows it needs a rate cut and it was not delivered. A shift in bias, i.e., mere words, does not put desperately needed money into the system. Mere words do not head off the torpedo loaded with the last 75 basis points of rate hikes that is seeking the broadside of an already hobbled (if not already negative) economy this spring. There is nothing tangible to stimulate the stock market or the economy. You cannot talk the market up the way you can talk it down. Again, talk does not put money into the system to generate demand that drives up earnings. Bear markets do not end on the hope of a rate cut, but only when one is delivered.

Greenspan knows this; it is obvious he still wants to wring the last vestige of life out of the market and the entrepreneurial spirit in the new investing class that looks to use the once-in-a-lifetime demographics in the U.S. to their advantage in the stock market. We said in 1999 the only way the market would not reflect the baby boomer investment cycle would be for the Fed to attack the stock market and to artificially hinder the economy. It has done just that, and it refuses to let the markets breath for now. History will judge the Fed's action over the past year and one-half; we are very concerned that there could be statements such as 'if only the Fed had acted to cut rates' or 'if only the Fed had let a strong economy with no signs of inflation just keep growing.' Today's move makes no sense given the forgone conclusion the Fed is going to cut rates; why not head off trouble now? Regardless of logic, the Fed is stuck in its Phillips' Curve paradigm and is willing to look at lagging indicators as its guideposts versus the red flags waving all around the economy. That means we have to deal with what we have: a stock market that is still rolling backwards downhill.

What does the market say?

The disappointment was high. Even Lyle Gramley, former FOMC member and semi-hawk, said before the announcement that the Fed should cut, and voiced his disappointment when it did not reduce rates. The market showed its disappointment as the Nasdaq dropped to a new low for the year and the Dow reversed over 170 points itself. Volume was heavy on the selling as you could feel the air being let out of the indexes. The bond market and the stock market continued their separate paths. That in and of itself is a recession pattern: bonds prosper, stocks suffer. Defensive stocks moved up, but they did not fly up. 70% more earnings warnings this quarter than fourth quarter 1999. The economics are bad and the stock market has been anticipating this and building it in. The stock market is now building in worse times ahead. Those betting that the market is wrong in its analysis of the situation will be wrong themselves; the market has been on point thus far.

The Nasdaq knifed to a new low after the announcement. Then after hours earnings warnings were again the main story with JBL missing its number by 2 cents, Vishay warning, MERX warning (circuit boards), and Foundry warning as well. Foundry really hurt as it claimed the slowdown was in the entire networking sector. Stocks are getting slaughtered after hours on the news and Nasdaq futures at one point were 170 points below fair value. That has relented as the evening has worn on, and at this time the futures are down about 30 points. Not quite the carnage that it looked like we would have, but it is still going to be a down open if things stay the same.

The Fed states it is concerned about the economic future but not enough to act. If the stock market worries it with respect to consumption, it is going to have more to worry about. More and more economists are saying that with the pathetic retail sales this holiday season, more than likely GDP is already negative for the quarter. That would be the first quarter in the two that are required for an official 'recession' label. If the Fed waits until the late January FOMC meeting to act, the recession could be already entrenched. If the Nasdaq sells down to 2,000, that means less investment and economic activity, compounding the problem.

End Part 1 of 2

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