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us stock market, stock watch
Begin Part 2 of 3
TOMORROW
Initial jobless claims are out before the bell and then wholesale inventories a half hour into the session. They may help to mitigate some of the downside impetus tomorrow at the open as the indexes try to find a point they can hold and turn back up. As of the end of the session today the market is pretty much where it has been all the way up: surges higher, pullbacks, some distribution, more accumulation. Today added a reversal off of the high after crossing a resistance level and then selling on higher volume. That occurred in late November and the indexes pulled back the next session just to rally and then stage the big break higher in early December. Similar action again. We do not want to blow today's intraday reversal out of proportion. It was frustrating because of the nice early move over resistance that was subsequently tossed away. It could lead to more selling, or the market could contain itself as it has done on the past, and then resume the work higher. The latter is what we were talking about earlier when we stated it might take a bit longer to rally higher after today's action.
Today we took many positions. When the smoke cleared we were still up on many of the smaller issues on the reports that enjoyed nice gains, we were even on many of the big names we stepped in on when they cleared the pivot, and we were underwater in some such as the SOX. While we will watch closely where the indexes settle tomorrow and on what volume, we still like the overall position of the market even with today's action. Why? Because today's action was nothing the index has not seen on this rally higher, and nothing with respect to the earnings landscape or the recovery landscape changed today. Indeed, as noted above, earnings continue to improve (due to those low comps) and upside pre-announcements continue to roll in.
Thus we expect to see some weakness at the open. We may see the market close lower again tomorrow without much of any rally attempt as investors digest the reversal. Unless volume ramps up again on more selling, we expect the indexes to settle near the near term support levels (2000 on Nasdaq; 1150 or 1135 on the S&P; and 10,070 on the Dow on an intraday basis).
Support and Resistance
Nasdaq: Closed at 2044.89.
Resistance: The December intraday high remains unconquered (2065.69). The up trendline is at 2115. Then 2250 to 2300. There is not a lot of specific resistance. If the Nasdaq can get the trigger, it can run quite a ways.
Support: The 2040 level is a potential support area and once again it held on the close. The down trendline is now coincident with the 18 day MVA (1998.86). That bolsters support at 2000. After that 1934 to 1941 (tops of prior consolidation) have been the best support since the early December gap higher.
S&P 500: Closed at 1155.14.
Resistance: The 200 day MVA at 1166.79. The December high at 1173.62. Then the hump in the March double bottom at 1183.35.
Support: The 18 day MVA (1153.23) and 1150 are trying to hold, but 1150 is soft support. Then the 50 day MVA is at 1138.91, and is bolstered by some strong support at 1125.
Dow: Closed at 10,094.09.
Resistance: Again, 10,280 to 10,300 has acted as the tops recently for the index. The entire 10,200 to 10,500 is the trading range from June to August 2001 and represents resistance. The down trendline from January 2000, the all-time high, is moving right at 10,500. The up trendline is at 10,440.
Support: Looking at the 200 day MVA (10,096.90). Below that, 9992 has acted before as support, but it is weaker. The 50 day MVA is next at 9897.44.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-8-02
Factory Orders, November (10:00): -3.3% actual versus -2.6% expected and 7.0% prior (revised from 7.1%).
Consumer Credit, November (3:00): $19.9B actual versus $4.7B expected and $11.2B prior (revised from $7.0B).
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): 420K expected 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: Regarding stop losses, I have heard that they are visible to market makers and that they can manipulate stock prices to result in your stop loss being triggered and then the stock runs right back up. Are stop losses really good protection?
A: We use stop losses carefully, and we discuss their various types and uses in our online seminars. One main theme we teach is that stop losses are not perfect by any means, and they can fail you when you need them the most, e.g., when a stock has bad news and plunges. Your story is another one of the pitfalls most learn about personally when they start investing. Back in 1995 I recall I found a good little stock in the $10 range. It was a relatively new issue and it had a lot going for it. It made a strong move up to 12.50, tested the move, and started back up. I bought in with the intention to let it run as it was a newer issue and was looking as if it had some legs. I was using a new broker, and when the stock ran from right at $10 to $17.50, I received a feverish call about how I should protect my gains, etc. At times I used pre-set stop losses on very large stocks with a high average trading volume for this very reason: there was less likely to be manipulation of the price. This stock traded about 100,000 shares average per day; it was getting a following. Well, the broker convinced me that since I was not going to be able to watch the stock I should put in a stop loss instead of just using a mental stop loss and keeping up with the stock a couple of times a day. Well, it was on the Nasdaq, and sure enough after the loss was put in place, even though the stock was showing a nice gain on some good volume that session, the price just ran right down to my stop point, I was taken out, and it just rallied right back up. A red-faced broker called with the news.
Stop losses are not perfect. This is one of the things that can happen on thinly traded stocks. There is no perfect safety net for stocks. I often use mental stop limits, pre-set levels I want to consider selling whether 7% from my buy point or under some support (moving average, trendline). When I do set stops, I usually use a stop limit where I am saying I want to sell at a specific price, not at any price once the stock moves past my stop order. Also, it helps to use them on very liquid stocks with large daily trading volume. Less chance of manipulation and less chance that your stop order will be bypassed on any downside move.
THE PLAYS:
Man, the plays have been hopping to the upside and downside. QCOM, TTN, and PCS continue to bomb to the downside. Today we had some good moves from the little ones: MFLO continued its breakout. PRSF, EGOV, and DSTM looked very good today! From the update Tuesday night, COST and IOM are holding their patterns well, MOSY holding the 18 day MVA in the ascending wedge, and KLAC looked good until the market sold back. It held for a point gain, though.
Best Plays:
1) CTX: Launching a bounce from the 18 day MVA.
2) EDSN: Ready to move up.
3) RECN: Tightening up in the ascending wedge.
4) RCOM: Stronger volume may help it break resistance.
5) PRSF: Trying to start that big move.
6) EGOV: Moving up on stronger volume, and held close to the high.
7) DSTM: Big breakout!
8) VAST: What a volume spike today!
9) QCOM: Slipping again.
New:
CTX (Centex--$56.51; +2.09; optionable): Materials & Construction
http://biz.yahoo.com/p/c/ctx.html
STATUS: Homebuilders continue to perform. Bouncing from the 18 day MVA for the first time since breaking out of a cup with handle base in December. The stock made 2 pullbacks to the 10 day MVA before testing the 18 day (at 54.62), then on a strong upsurge in volume Wednesday made a nice bounce. Looking for a continued move here, over the December high at 58.80, for a target at 68. CTX launched its breakout from the 50 day MVA, and we would look for 2-3 more bounces from the 18 day MVA after this one. Strong money flow, and relative strength is breaking higher.
BUY POINT: Aggressive: 57 on continued strong volume (up to 937,700; avg. 783,000). Stop: 53.01 (7%)
POSITION: Stock and/or February $50 (CTX BJ; 0 open interests) or April $55 (CTX DK) calls to buy.
http://www.investmenthouse.com/ct/ctx.html
Continued Plays:
EMLX (Emulex--$46.43; +0.43; optionable): Computer Hardware: Peripherals
http://biz.yahoo.com/p/e/emlx.html
STATUS: Covered call. EMLX gave us another move up, but showing a tombstone doji at the top of a little 5-day run may be ready to make the move back down to support. We were looking for a pullback to 40, but the 18 day MVA has moved up to 41.28. Still enough room for a decent move down, however, so as EMLX moves down we will look at selling the January $40 calls ($7 at the close Wednesday). Once at support, they should be around $2.65, the price at which we can buy them back.
BUY POINT: Aggressive: 46 on continued rising volume (9.3 million or higher). Previous buy point was 43.75 (aggressive). POSITION: Aggressive: January $40 calls to sell (UMQ AH).
http://www.investmenthouse.com/ct/emlx.html
ASIA (Asiainfo Holdings--$22.39; -0.63; optionable): Internet Software
http://biz.yahoo.com/p/a/asia.html
STATUS: Made the breakout Tuesday, stretched to hit the target with a high of 24.25, and then began a pullback. AT the target (20%) was a good time to take some money off the table. Volume was still high but dropping back to 1.45 million (avg. 287,045). Look for a test of the buy point of 20.23 and subsequent move back up. Strong money flow. Target: 24
BUY POINT: Aggressive: 21.50 on a move back up after a test of the buy point (over the December high at 21.25). Stop: 20 (7%)
POSITION: Stock and/or February $20 calls to buy (EUJ BD).
http://www.investmenthouse.com/ct/asia.html
Put:
PLCM (Polycom--$34.27; -0.89; optionable): Telecom
http://biz.yahoo.com/p/p/plcm.html
STATUS: Made a quick move back over the 50 day MVA Tuesday, but was back below that level Wednesday even if just by a few cents (the support is at 34.39). PLCM is in a rough-looking head and shoulders pattern. The 18 day MVA (35.41) is giving it a pain, but volume was lower on this move down (1.6 million; avg. 2.4 million). On Monday the company reported that fourth-quarter pro forma earnings are expected to be higher than estimates, news that didn't explain the selling that day, so we will see if PLCM can win the fight with the 18 day MVA. If not, look for a drop to an initial 30 target.
BUY POINT: Aggressive: 34 on continued strong volume.
POSITION: February $40 puts to buy (QHD NH)
http://www.investmenthouse.com/ct/plcm.html
New from the weekend:
Financials:
GS (Goldman Sachs--$93.75; +1.25; optionable): Investment Banking
http://biz.yahoo.com/p/g/gs.html
STATUS: Currently in a cup-type base (has the v-bottom from September) of 7 months, that is inside a bigger 16-month base. Broke out Friday from the ascending wedge/double handle but Tuesday tumbled back to the 18 day MVA, below the buy point (aggressive at 96.85) and the December high in the pattern (95.17). That is never good action on a test of the breakout, but we like that the stock is at least holding the 18 day MVA. Will look for a move back over the December high for aggressive buy point after a continued hold here (GS tried to hold 95 but failed). Volume was lower though still strong at 5.1 million (avg. 3 million). Money flow and relative strength high. Target: 113
BUY POINT: 96 on volume of 3 million or higher. Stop: 90.44 (7%).
POSITION: Stock and/or February $85 or $90 calls to buy (GS BQ or BR).
http://www.investmenthouse.com/ct/gs.html
BAC (Bank of America--$61.95; -0.15; optionable): Banks
http://biz.yahoo.com/p/b/bac.html
STATUS: In a volatile handle to an 18-week double bottom, which has held support at the 50 day MVA since the first of December. Wednesday BAC slipped just below that support (at 62.05) with lower volume of 4.2 million (avg. 5.2 million). Not catastrophic, but not shaping up like we wanted.
Target: 78
BUY POINT: A strong move back over the intraday high of 63, volume of 5.3 million or higher. Stop: 58.60 (7%). Breakout: 65.12 on volume of 8 million or higher. Stop: 60.56 (7%)
POSITION: Stock and/or February $55 calls to buy (BAC BK).
http://www.investmenthouse.com/ct/bac.html
SUPG (Supergen--$13.87; +0.02; optionable): Drugs
http://biz.yahoo.com/p/s/supg.html
STATUS: Holding the 18 day MVA in the handle to its 7-month cup, one cent above the 18 day MVA, which has supported the consolidation for over a week. Volume was low at 110,200 (avg. 171,000), and while the stock has held the support, the last 2 days its has tried to move over 14.52 (Monday's high) and failed. Continue to look for a strong bounce up toward a breakout. Continued strong money flow and buying. Target: 18
BUY POINT: Aggressive: 14.60 on average or higher volume. Breakout: 15.13 on volume of 260,000 or higher. Stop: 14.07 (7%)
POSITION: Stock and/or February or $12.50 (UOG BV; low open interests) or April $12.50 calls to buy (UOG DV).
http://www.investmenthouse.com/ct/supg.html
CVG (Convergys--$35.44; -0.41; optionable): Diversified Services
http://biz.yahoo.com/p/c/cvg.html
STATUS: Removed after losing the ascending wedge pattern. Failed to move back over the 18 day MVA below which it moved Monday.
http://www.investmenthouse.com/ct/cvg.html
EDSN (Edison Schools--$20.69; +0.53; optionable): Education services
http://biz.yahoo.com/p/e/edsn.html
STATUS: Testing Friday's breakout move from the flat base pattern, which took EDSN over its 200 day MVA. It held support at 20, level from which it moved up today on rising volume (749,000; avg. 727,000). The stock pulled off its intraday high of 21.20, but still looks good with the higher volume move off support. Continue to look for a move up and back over 21.68, Monday's high. Target: 25. Strong money flow.
BUY POINT: Aggressive: 21 on continued rising volume. Stop: 19.53 (7%)
POSITION: Stock and/or March $17.50 calls to buy (USD CW; low open interests).
http://www.investmenthouse.com/ct/edsn.html
End Part 2 of 3
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us stock market
stock watch
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