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us stock market, trade stock
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Tech Traders 12/21/00 Market Summary
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Technical Traders Subscribers:
Continuing Plays:
GDW (Golden West Financial--$63.69; +0.69; optionable (GDW)): Making a strong move up on above average volume (858,300; avg. 751,000). Look for a continued move up; the stock just beat the former December high at 65.25. Strong money flow and buying.
BUY POINT: On further upward movement on continued rising volume.
POSITION: Stock and/or February $65 (GDW BK).
http://www.investmenthouse.com/ch/gdw.html
(Click to view the chart)
XL (XL Capital Ltd--$82.31; +4.18; optionable (XL)): Erupted from the 50 day MVA on strong, above average volume (645,900). Look for a continued move up on the momentum; the stock reached a previous high of 86.50 earlier this month. Recently broke out of an ascending wedge pattern.
BUY POINT: Aggressive: On further upward movement on continued strong volume.
POSITION: Aggressive: Stock. Options at the $80 strike had too few open interests for January through April.
http://www.investmenthouse.com/ch/xl.html
(Click to view the chart)
MMM (Minnesota Mining & Mfg--$112.69; -0.25; optionable (MMM)): Remains above support (10 day MVA at 112.41) on the pullback from the recent breakout. The stock looks ready to move up from here as volume builds, rising to just above average Thursday (2.4 million). The stock shows great money flow and buying.
BUY POINT: Aggressive: Up from here on continued rising volume.
POSITION: Aggressive: Stock and/or April $110 calls to buy (MMM DB).
http://www.investmenthouse.com/ch/mmm.html
(Click to view the chart)
CB (Chubb Corp--$85.31; +2.50; optionable (CB)): Leapt over the short term moving averages (83.47) on higher volume that remains just below average at 783,400. The stock has moved up two days on building volume; look for a continued move up as shares break over average, which can send the stock closer to the recent high of 90.25. The November top is at 87.56; watch for resistance there.
BUY POINT: On a continued move up on volume in the range of 1 million.
POSITION: Stock and/or February $85 calls to buy (CB BQ).
http://www.investmenthouse.com/ch/cb.html
(Click to view the chart)
BEC (Beckman Coulter Inc--$39.69; 0.00; optionable ( )): Pulling back to support on below average volume (172,700; avg. 208,000). The stock is in the handle of its cup base, and looks ready to move up in a tech rally. High in the volatile handle is 41.88.
BUY POINT: 42.01, on volume of 312,000 or better.
POSITION: Stock. February $40 options had insufficient open interests (too illiquid for this stock).
http://www.investmenthouse.com/ch/bec.html
(Click to view the chart)
New Play to look at:
UTX (United Technologies Corp--$75.00; +1.69; optionable ( )): A conglomerate stock that is testing the breakout from an ascending wedge pattern. The stock is consolidating above support of the 10 and 18 day MVA (73.36 and 72.63 respectively), and moved up from there Thursday on lower volume (1.8 million; avg. 2.3 million). Look for a continued move up but on stronger volume. Breakout high was 77.19.
BUY POINT: On a continued move up on volume of 2.4 million or better.
POSITION: Stock and/or February $75 calls to buy (TQ BO).
http://www.investmenthouse.com/ch/utx.html
(Click to view the chart)
Put plays for a falling market:
MERQ (Mercury Interactive Corp--$80.56; +5.93; optionable (RQB)): Moved up to close at the down trendline (connecting Sept/Oct highs) on lower volume (3.7 million). Look for the stock to turn back down from the trendline for a downside play to 73.
BUY POINT: On a turn down from here on (preferably) rising volume.
POSITION: April $80 puts to buy (RQB PP).
http://www.investmenthouse.com/ch/merq.html
(Click to view the chart)
BRCM (Broadcom Corp--$77.50; -12.75; optionable (RDZ)): Tapped the short term down trendline on the high of 90.50, then headed down on stronger volume (15.7 million; avg. 9.2 million). Doesn't have much close support below here; the stock can move down from here as volume remains strong.
BUY POINT: On a move down from here on continued strong volume.
POSITION: February $85 puts to buy (RDZ NQ).
http://www.investmenthouse.com/ch/brcm.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:
- The markets started to rally, and we expect some more tomorrow the last day before Santa arrives.
- Timely trading thoughts.
- More warnings from stalwarts of the economy.
- As more information comes in, the economy shows more weakness.
- Team Trades
An anemic rally attempt leaves the market still looking decent for a final, one-day ho-ho rally.
The Nasdaq did pretty much what we wanted, testing 2285 and then starting a solid, 135-point move up just over an hour into trading a 6% move. That was great. Then the November FOMC meeting minutes came out where the Fed stated it did not want to shift to a neutral bias for fear it would further soften the markets. Whether that almost incomprehensible logic was the cause or not, the Nasdaq then started a slow topping pattern and then rolled over 12:45 CT when the 5 minute moving average crossed over the 15 minute moving average. A late rally move turned the Nasdaq positive once again at the close, but it was a bittersweet finish. The Dow and the S&P 500 both turned in much better days, but they also sold in the afternoon as sellers once again entered on a rally in order to dump shares.
Still, we were able to trade some plays as we described on Wednesday night on the big move up. Utilizing trailing stop losses, we were able to lock in some decent gains for the session. Not home runs, but nice singles. After the dust settled, there are still some good-looking bounce patterns out there, i.e., doji's at the bottom of a long spate of selling, that could give us another run up as we saw today. We note SEBL, NEWP and VRSN all closed on tight doji's today, an indication they could spring up tomorrow in a pre-holiday rise. Indeed, the Nasdaq itself shows us a doji on its candlestick chart, indicating it too is ready for a rise. Nasdaq futures are 60 points above fair value tonight.
Probably not a meteoric rise, but one, like today, can make us money as the big movers run up. We have to keep putting in stop losses as they move up, just as we did on the JNPR and MRCY trades we discussed last week. That way we are better assured of locking in that gain we do have in the event we get another one of those intraday reversals that peel off the nice gains made intraday. We are thus looking at the same type of plays we were looking at today: techs ready to bounce and run up, solid sectors breaking out, and downside on those stocks that run into resistance in their down trendlines and roll back over.
Investing in this market.
This brings us to some important points to consider in this type of market as we head for the new year. First, as we have stated repeatedly over the last couple of months, this market is not showing us this is a 'buy and hold' market right now. Stocks move up and then fall back. There are uptrends to play as we are seeing in the financials, drugs, healthcare, food, and beverages. There are downtrends we can play in the techs when they hit their down trendlines. None of these are going to last long-term. So, unless you are dollar-cost averaging at this point for the very long term, you are not thinking long term. Indeed, if you are dollar cost averaging, you are not expecting a rise anytime soon; no short-term gains.
What money do you use?
So, what money should you be using? Not your entire trading capital. Times are just too uncertain to risk the whole enchilada on any particular trade. We are using a fraction of our investment capital to make the trades we are making. Our reason is simple: we are not able to let trades run for days or weeks at a time due to the volatile market, so the risk is higher. We do not want to put all of our investment capital at risk on trades that are not going to make us rich. We will make trades that make us 20%, 30%, and 50%, but we are not putting up all of our trading money to do it. We try to make money all the time in the market, but the amount we put at risk depends upon the conditions. We don't want to take ourselves out of the game by losing all of our trading money and have to rebuild a trading account from scratch.
Stick to sell rules.
Many people have taken it on the chin this year. We have some missed sell orders that we had to take greater losses on than we would normally have done; when we did not get the trade we employed the most dangerous of all market tools: hope. Hope does not buy much, and we have paid the price on those trades. You have to keep strict sell rules, especially in this market. Don't hope a trade will turn around. Better to take a small loss than see a one-day drop turn into a 7-day, 500+ point drop as we just saw on the Nasdaq. Watch your positions and use pre-set or mental sell points.
Trust the market signals, not your emotions.
Because this has been a tough year, does that mean we walk away from the market? Of course not. We have to keep our skills sharp despite the carnage. Why? Because emotion is eating at you. That is how the market works. It sends you to incredible emotional highs, and then it just rips it all from you. We know some of you have lost large amounts of money this year; you are not alone. Just think, CSCO, one of the 'safest' stocks to own, the darling of mutual funds, has lost over $500 billion in market cap this year. Think all funds sold out of CSCO? Hardly. They are nursing losses as well. So, you feel as if the market has walked over you, turned around and then and gave you a couple of kicks to the stomach as you were lying there, right? REMEMBER THIS: when you feel ready to chuck it all and give up on the market forever, that is when things are usually ready to turn. That is the negative sentiment that clears out the last holders, the wannabe sellers. What YOU HAVE TO DO is keep looking at the market. DO NOT trust your emotions. Trust the market indicators. Keep watching for a reversal followed by a higher-volume gain of 1.5% or better 4-10 days later. Watch for strong stocks to start breaking out of sound patterns, something we are still a few weeks away from right now. When that happens, you will most likely say 'yeah, right,' and turn away; at least that is what your emotions will tell you to do. That, however, is the precise time you should shun emotion and trust what the market is showing.
Help is on the way.
We know there is going to be a Fed rate cut sometime in January. The Fed Funds Futures contract now as a 44% to 50% probability priced in that there will be a rate cut BEFORE the January 30 FOMC meeting. Very reliable; very accurate. A rate cut officially kicks off stock market recoveries as the market looks ahead, and rate cuts mean more money and investment in the economy, and that means growing earnings. The pundits estimate a 25% to 50% rise in the Nasdaq in 2001. With aggressive rate cuts (75 to 100 basis points in the first half), that is not out of the realm of reasonable reality. 25% is not bad. 50% is great. Who will be in to capture the lion's share of that move? Those who keep in tune with the market and are watching the signals. When the market says 'go,' you go and ask questions later. If you hesitate, ponder, procrastinate, instead of 25%, you may get 10%.
Keep your focus.
We have said it before. Michael Jordan took a year off and then came back to basketball for the playoffs. He was not Michael Jordan; the timing was not there. It is a tired clich , but it is true. You have to run the drills just as if you were playing so when the time comes, you can turn up the tap on the number of dollars you are investing because the risk is diminished when the market starts to rally for those who are watching and ready to take action. Those singles we are hitting now to help build up some cash and keep the money flow coming into the household will start turning into doubles, triples and home runs as the market takes off on the next bull leg. We will be looking at the best of the best that will return much more than 25% to 50% when they start moving. You have to be ready and know when to act. Keep sharp because the move up is not too far away. When the Fed gets the first quarter GDP numbers, we anticipate that will be the trigger for the rate cut.
THE ECONOMY
Warnings again. LU completed the grand slam today, making it 4 quarters of warnings in a row. Someone once told me LU was going to run CSCO out of business. Talk is cheap; so is Lucent's stock. Georgia Pacific warned of slowing earnings, but it rose on the news of layoffs and restructuring. IP did the same earlier in the year, but then it just warned yesterday again. It is hard to overcome a bad economy. The big one: after hours, Ford warned of a fourth quarter miss (10 cents off) and a 17% production cut in the first quarter. When the economy goes, the big ticket items are the first to go with it.
GDP actually revised lower. We did not think it possible, but the final GDP revision came in at 2.2%, down from the 2.4% revision of the 2.8% number first reported way back in October. Seems that September strength that McTeer was telling us to count on turned into a September swoon. We have a very bad feeling that we are in negative GDP growth right now, well ahead of schedule. Maybe the holiday sales will push us to flat for the quarter, but flat or negative, things are not pleasant. It is really sad to see these dire predictions we made months ago come true, but we have to live with them. Again, help is on the way from the Fed, though we are perplexed that the Fed was not as aggressive in preventing a downturn as it was in pursuing inflation that never really showed its face. Maybe not perplexed, more like saddened.
Jobless claims jumped to 254,000, topping expectations of 250,000. That pushed the four week average to a level not seen since 1988. Seems the Fed got its wish for Christmas, i.e., fewer people with jobs. This is a leading indicator as opposed to the unemployment number that gets all the headlines. It is similar to a boat captain looking in the boat's wake for an approaching reef. Utter foolishness.
Tomorrow is the Michigan sentiment indicator. Closely watched by all including the Fed. The preliminary number showed the fourth largest drop in the history of the survey. Two of the larger drops were during a recession, and the other was when Iraq invaded Kuwait. Let the good times roll.
End Part 1 of 2
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