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Begin Part 2 of 4
THIS WEEK
This weekend a 15 year old flew a Cessna single engine airplane into a Miami high rise. At this point it looks like a lone bandit much like the anthrax mailer. Another tragic, unexplained incident, most likely propagated by some confused individual and not part of a mastermind plot or the next terrorist assault on the U.S. There may be some more information between now and the open, but we do not see this amounting to much of a threat to the market.
So we need to look at the bigger picture still. Improving economic conditions, slowly and haltingly giving up some better numbers. That is often all it takes to get the market moving, and indeed, the market started anticipating these numbers in October after the hints of an upturn we were reporting back in June and August (July was a backsliding month). The market had already picked up on this and was ready to move that week of 9-11. That event set it back, but it did not stop the tide that was coming in.
The political rhetoric is already escalating again about what is best for the economy. While it is unpleasant and sometimes maddening to listen to is the name calling. On the positive side, however, the debate is joined in earnest with no holiday break to fall back on. Our leaders will have to decide if the good of the country is their real concern or not. That will help the market in a weird way: the lively debate keeps alive the potential of a stimulus package that could keep the recovery going and avoid that weak recovery or that double bottom recession.
What we expect Monday is a mild test of the recent move. The indexes jumped up to the December highs (Nasdaq and S&P) but could not take them out. A little pullback before actually taking them out would be normal. Nasdaq would look at 2000 on the bottom side. The S&P, the 200 day MVA. The Dow, the 200 day MVA as well or the recent December highs. The point: we do not expect much of a bad test unless some bad news erupts. We have had over a month of sideways movement where the indexes refused to give up their gains, and now there was good news to start another leg higher.
Many are still calling for a steeper correction, saying it has to be before the market can really cast of its bonds and move higher. Two weeks ago the market was looking weaker, then we had the holiday rally and then last week's strong upside move. Perhaps the indexes need to correct again, but they are not showing signs of doing that right now. They hit a low in April, rallied, hit another lower low in September, and are now rallying after sentiment indicators spiked to all-time highs. For now the market has shown and is showing it is heading higher. It will without a doubt suffer corrections again, but we cannot say it will happen in a week, a month, or longer. What we can say is that the market has shown all signs of a reversal and good stocks have been and are moving out of good patterns on strong volume. You cannot ask for a whole lot more.
Support and Resistance
Nasdaq: Closed at 2059.38.
Resistance: The December intraday highs still stands in the way (2065.69). After that the up trendline at 2090. Then 2250 to 2300.
Support: We are looking for 2000 to hold on any test, though the March 2000 down trendline (now at 2025) would be a very good place to hold. After that 1934 to 1941 (tops of prior consolidation) have been the best support since the early December gap higher. 1980 has tried to hold, but it has pretty much been pushed around and has lost its edge. The 200 day MVA is next at 1927.41.
S&P 500: Closed at 1172.51.
Resistance: Jumped over the 200 day MVA (1166.71) and now looking at the December high at 1173.62. Then the hump in the March double bottom at 1183.35.
Support: The 200 day MVA would be the level to hold (1166.71). After that, 1150 is a level of some support, but it has been broke back and forth may times. The 50 day MVA (1136.20) follows and held last week. It is backed up by price consolidations at 1125. After that, 1100 is next (top of the October consolidation range).
Dow: Closed at 10,259.74.
Resistance: Took out the 200 day and the December high. Now 10,200 to 10,500 is the trading range from June to August 2001. The down trendline from January 2000, the all-time high, is right at 10,500. The up trendline is at 10,400.
Support: The December high at 10,169.44 or 10,184.45 could hold. Still looking for the 200 day MVA (10,092.21) to hold this time given the higher volume move over that level. 9992 has acted before as support, but it is weaker. Below that is the 50 day MVA (9865.76).
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-8-02
Factory Orders, November (10:00): -2.6% versus 7.1% prior.
Consumer Credit, November (3:00): $4.7B versus $7.0B prior.
1-10-02
Export Prices ex-ag.; December (8:30): -0.4% versus -0.4% prior.
Import Prices ex-oil; December (8:30): -0.6% versus -0.6% prior.
Initial Claims; 1-5-02 (8:30): 447K versus 447K prior.
Wholesale Inventories; November (10:00): -0.3% versus -1.0% prior.
1-11-02
PPI; December (8:30): -0.2% versus -0.6% prior.
Core PPI; December (8:30): 0.1% versus 0.2% prior.
SUBSCRIBER QUESTIONS
Q: Wondering if you could shed some light on managing positions, especially during this time of market acceleration. I'm finding that I constantly am holding more positions than I can truly effectively manage. So many good stocks are breaking with good patterns that I find I want to take advantage of way too many of these... then I end up with two or three times the number of positions I can really keep my eye on. How do you keep this under control and manage a portfolio. I feel that holding 5 or 6 positions should be plenty and my intentions are fine, then I keep ending up with 15 positions! Any rules for behavior management?
A: Ah the problems of an improving market. I fully agree that most investors should avoid investing in a lot of positions; you get to where you are having to compute too many variables at once and you end up making bad decisions because you miss something. What happens is you are like a small mutual fund and you start getting those mutual fund returns - - mediocre. You start missing sell points or covered call sales on your positions because you have too much to monitor.
There are two ways to approach this. Fist, keep your short list short. Pick the plays that you like the best and then invest in those when they make their moves. As long as they perform as you want or do not turn on you, keep them open and working for you. The problem with that as you have noticed is there are a lot of other plays out there that look good as well, and when one makes a move, you want to run with it. It is very similar to my early days of fishing. I would get in some good-looking water and start to work it; then I would see a fish hit the surface 100 yards away. The impulse is to leave that water you chose as the best and run over to that other area and chase that fish. Problem is, the fish is either long gone or was a carp. Always looking for that greener pasture or better water can take your eye off of what you actually have. That can hurt you just as too many can hurt you.
Focus is the key. Here is what I often do. You recall from many of the Team Trades that we discuss that I often take only partial positions on what I want to own. I don't dump 100% of my allocated funds for an investment right in unless I plan on this being a short trade all along and want to capture a specific move. What I do is take a third or so of a position, maybe half, and then see how it performs. If I have a few that look good, I can get in to all three of them, but spreading my money between them and not using up all of my funds. Then if one outperforms the others, showing good appreciation on good volume, etc., I can close the others and then put more money into that position at the next logical buy point, e.g., a pullback to near term support on lower volume, the break over the next resistance point on strong volume, etc. That way I end up FOCUSING my assets on winners. You cannot pick the one stock that will appreciate the most each time you invest. Cast a bit wider net over some very solid stocks, and then let them run the race for you. Let them show you which is the one stock you want to focus on. That way you concentrate on a winner and you improve your success percentages.
Now many will say this is lunacy, that you are not properly diversified. Well, you picked a handful of promising stocks, and you let them show you which had the bloodline you wanted. You then bought more of that. Averaging up into a stock is how smart mutual funds buy and how nearly ALL of the successful investors I know have made their fortunes. That does not mean you hang onto it forever. You learn when a stock is topping, when it is flashing danger signals: the blow-off top, the double top on low volume, the broken trendline you are investing in. We teach these in the online seminars that are coming up again soon, and when you see them, start taking money off the table. Sometimes it might be all of it, other times you might want to start lightening up on the position just as you were buying into it as it moved higher and hit new buy points. This way it does not matter if you have your assets concentrated in one, two, three or five stocks. If you have them in two stocks and one shows signs of topping, take the gain off the table and slap yourself on the back for a job well done. If it was a false alarm and you still like the stock, you can always start over, taking partial positions at the right time, putting your money in piecemeal when it hits the buy points. It is your money, and it deserves this kind of attention. You give it this kind of attention, and you will do very, very well in this bull market.
THE PLAYS: Great moves by DRI, APPB and CBH Friday, and our market favorites have been moving great all week! Splits may be in a lull right now, but more will be coming as this market continues to get better and better, and the split momentum will build with it. Right now we have a lot of great money-making investments that fit many investment styles.
BONUS PLAYS:
CAMZ (Caminus--$23.88; +0.21; optionable): Business services.
http://biz.yahoo.com/p/c/camz.html
STATUS: CAMZ made a huge move up before Christmas in the right side of its cup pattern, taking out its 200 day MVA (21.75). It has held on nicely since, consolidating the gain in a lateral pattern over its 10 day MVA (22.98). It made a recovery from a test of the 200 day on huge volume Wednesday, but its move up toward the handle highs has been on much weaker volume following that move. Friday saw a 'hanging man' doji on volume of 76,900 (average 159,000), and although we could see another test of the 10 day, we are looking for a breakout. Good money flow and buying. Target: 28.
BUY POINT: 24.52 on volume of 240,000. Stop: 22.80 (7%).
POSITION: Stock and/or February $22.50 calls to buy (CGQ BX - under 100 open interest.
LAB (Labranche & Co--$36.11; +2.03; optionable): Brokerage.
http://biz.yahoo.com/p/l/lab.html
STATUS: Looking at the financials for some strength. LAB is showing some, breaking from its cup with handle (dating back to its may high at 45) Friday. There was good breakout volume, coming in at 394,000 (average 248,000), and this one is still a buy up to 37. Targeting 40.
BUY POINT: Still a buy up to 37, looking for continued strong volume. Stop: 33.75-34.41.
POSITION: Stock and/or February $30 or $35 calls to buy (LAB BF or LAB BG).
ELBO (Electronics Boutique--$37.00; -2.30; optionable): Electronics
http://biz.yahoo.com/p/e/elbo.html
STATUS: ELBO broke below its 50 day MVA (at 38.27) Friday, a move that came after the stock had dropped quickly over the last couple of weeks from the December high of 44.54. Volume was high at 845,400 (average is 545,000). On continued selling, we look for it to fall to the 200 day MVA at 32.
BUY POINT: Aggressive: 36.20 on continued rising volume.
POSITION: February $45 puts to buy (LQB NI).
PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: None this week.
NEW PRE-ANNOUNCEMENT PLAYS:
EXPD (Expeditors International--$59.82; +2.67; optionable): Air delivery & freight. Working on a date.
http://biz.yahoo.com/p/e/expd.html
BACKGROUND: Last announced a 2:1 split on 5-6-99 at a stock price of $62.50. The company has sufficient shares for a 2:1 split.
STATUS: After a solid move up in a December, EXPD formed a pennant handle to its cup (dating back to June, all-time of 65.92), and Friday made a breakout. Volume was down, but still came in at 582,200 (average 427,200). A strong move, and this breakout puts EXPD back in its split range. Still a buy up to 61.95, but at that point it has some resistance from July highs (62.26), so we will evaluate it at that point for a strong move up or the formation of another consolidation before the next strong run. Initially targeting the high. Good buying.
BUY POINT: Still a buy up to 61.95 on increased volume. Stop: 55.80-57.61.
POSITION: Stock and/or February $55 calls to buy (URP BK - under 100 open interest. Next month out is May, with very low open interest).
RYL (Ryland Group--$70.92; -0.63; optionable): Forecast to announce a split on 1-24-02 in conjunction with earnings. At this time the company has not confirmed a time for the release.
http://biz.yahoo.com/r/ryl.html
BACKGROUND: Based upon our research it does not appear that RYL has ever split its stock. The annual shareholder meeting was on 4-25-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: RYL broke from a cup with handle in early December, and after testing the move (breakout point 62) proceeded to make a nice run up to a new high of 75.85. It has pulled back the last week to the support of its 18 day MVA (70.26), holding that level the last two sessions, Friday showing another high volume doji (558,500; average 346,000). Looking good to hold here and produce another run, starting with a solid bounce. Target on move past the high: 85.
BUY POINT: 72.67 on continued strong volume. Stop: 67.58 (7%).
POSITION: Stock and/or February $70 calls to buy (RYL DN).
PII (Polaris Industries--$57.90; +0.44; optionable): Forecast to announce a split on 1-29-02 before the market opens in conjunction with earnings.
http://biz.yahoo.com/p/pii.html
BACKGROUND: Based upon our research it does not appear that PII has ever split its stock. The annual shareholder meeting was on 5-3-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: In an ascending wedge off an 18 day MVA bounce. PII broke out of a double bottom in November, and the bounce was the stock's second after that move. Volume has been falling off the last 2 days, and within the current pattern has been below average, which is good (down Friday to 57,900; average 128,000). Looking for another breakout Strong money flow and high relative strength. Target: 70.
BUY POINT: 58.83 on volume of 173,000 or higher. Stop: 54.71 (7%).
POSITION: Stock and/or March $55 calls to buy (PII CK).
BEST PLAYS: Besides the plays set forth below as best plays, there are some other stocks that also look good. These include Pre-Announcement FDC; Pre-Split LIZ; and Continuing Candidates TJX, BBBY and GTK.
MARKET FAVORITES BEST PLAYS: Great moves this week!
1) AMAT - Looking strong
2) CHKP - Broke major resistance
3) TER - A good move and we will look for a quick test
4) WIND - Broke support and now looking to break the pattern
AMAT (Applied Materials--$45.22; -0.27; optionable): Semiconductor equipment.
http://biz.yahoo.com/p/a/amat.html
STATUS: AMAT trended up nicely from September to early December, and after a visit to its 50 day MVA (40.62) that held, the stock took off Thursday, surging back over its 200 day MVA (43.84) with big volume. Friday it rested, reaching up to 46.24 (below the December high of 46.58), as volume cooled to 14.7 million (average 16.3 million). We could get a test of the 200 day, but if a low volume move holds that level, we can look at playing AMAT on a move back up. There is initial resistance at 50 that we will watch, with intermittent resistance from there up to 60.
BUY POINT: Test: After a test of the 200 day that holds, a move back over 45 on above average volume in a strong Nasdaq. Stop: 41.85 (7%). Over the December high: 46.70 on volume of 20 million. Stop: 43.43 (7%).
POSITION: Stock and/or April $40 calls to buy (ANQ DH).
CHKP (Checkpoint Software--$45.37; +2.20; optionable):
http://biz.yahoo.com/p/c/chkp.html
STATUS: CHKP has formed a cup deep in its base, and after consolidating after a great November move it could not clear the 200 day MVA (43.49) on a mid-December attempt. After regrouping at 40, CHKP started a move Thursday and then gapped over the 200 day on Friday. Volume was sharply up and solid at 9.87 million (average 8.9 million), and on the move CHKP closed over its December high as well (44.95). We are looking for more strength, watching for it to hold the 200 day if the market rests a bit. Target: 50.
BUY POINT: From here: Over 46 on increased volume. Stop: 42.89 (7%). Test of 200 day: After holding, a move back over 45 on continued strong volume. Stop: 41.96 (7%).
POSITION: Stock and/or April $40 calls to buy (KEQ DH).
TER (Teradyne--$33.78; +0.30; optionable): Semiconductor equipment.
http://biz.yahoo.com/p/t/ter.html
STATUS: After failing on a move over the 200 day MVA (31.75) in early December, TER eased back in a handle to its cup (formed deep in its base). It held the 50 day (then 28) and started back up, and Thursday made a very strong move over the 200 day and December high (33), blasting up with big volume (4.13 million). Friday it tested back toward the 200 day (low of 32.40), but managed to come back and close with a doji on lower volume (3.02 million; average 2.82 million). A strong move, and if we get a test back in a market rest we will look for TER to hold the 32.50 range, and watch for a strong move back up. Initial target: 37.50.
BUY POINT: After a test of 32.50, a move back over 33 in a strong Nasdaq, with increased volume. Stop: 30.69 (7%).
POSITION: Stock and/or March $30 calls to buy (TER DF).
WIND (Wind River--$18.89; +0.89; optionable): Business software.
http://biz.yahoo.com/p/w/wind.html
STATUS: Deep in its base and trying to form the right side. After a strong, steady move off of its September lows, WIND has pulled laterally into a pennant since mid-November. The stock has tightened between its 50 and 200 day MVA's (17.21 and 18.25, respectively), Friday finally made a big move, running over its 200 day with a spike in volume (1.31 million; average 674,500). A very solid move, and we are looking for a continued run over the pennant high, at 19.37. Target: 23.
BUY POINT: 19.49 on continued strong volume. Stop: 18.13 (7%).
POSITION: Stock and/or February $17.50 calls to buy (QWV BW).
End Part 2 of 4
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