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Begin Part 2 of 2
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:
Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.
Good Movers: RFMD (put, target 14), DFXI, SIB. EUNI still running!
Stocks/Indexes from the Tuesday report:
ORCH: Still holding at the 18 day MVA in the cup with handle.
SATH: Was up again today giving aggressive positions a buy and near the breakout point of 3.20 in the cup with handle.
SOX: Made a good move but pulled back with the market. Still not bad, showing a doji and holding above support as discussed.
OLGC: Moved even higher but peeled back a bit with the late selling. Volume still super.
KKD: Retraced Tuesday's nice bounce. Closed just under the 18 day MVA.
AMAT: Popped out of the small cup with handle, but pulled off the high of 48. Holding near recent highs.
VRTS: Retraced its move as well, and volume moved even higher. Still holding support, though, at the 10 day MVA. Looking for a strong move over 50.
Continuing plays:
AV: Slaughtered. Sold off on news that earnings would come in less than had been expected, and then was hit with a downgrade. Bounced back slightly from 10.20 (intraday low; has lower possible support at 10), but volume was huge. Is pretty far down on this move to be able to get back over the 50 day MVA tomorrow; be ready to exit positions if have not already.
CBR: Strong volume today but just a small move up (a spike) in a type of ascending wedge pattern. Buy point is over 11.22 if the stock breaks out.
DFXI: Yeah baby. Continued the breakout on massive volume. Sold back late on the market selling, but at a new high with no resistance.
ERJ: A nice pullback on lower volume, as support.
ITWO: Popped higher like lots of tech stocks today, but closed with a tombstone doji. Still above support on big volume. Could very well hold and continue the move.
TMWD: Looks ready to make its second bounce from the 18 day MVA after breaking out of a base in early December. Buy point for aggressive positions is 5.50.
Best Plays:
1) RSAS: Getting ready for a move up for a possible covered call play.
2) TPTH: A nice ascending wedge from a sector that may be heating up.
3) ASKJ: Ready for a breakout!
4) KRON: Another potential covered call on a pullback.
New:
A Covered Call Play:
RSAS (Rsa Security--$19.00; +60; optionable): Security Software
http://biz.yahoo.com/p/r/rsas.html
STATUS: In a 2-year base (highs near 60, lows near 7), RSAS recently made a nice run up from the 50 day MVA, pulling back Tuesday for a tap at its 10 day MVA in a test of the move. From there the stock headed up Wednesday on rising volume (1.7 million; avg. 2.2 million). We are looking for a run up to the range of the 200 day MVA (at 21.54 now) for buying stock for the purpose of selling calls once RSAS hits the resistance and looks ready to move back down. The February $17.50 calls are currently selling for $2.85, and on a move up to the resistance they would be around $4.45 or higher. On topping, we can sell them, and when it hits support, buy them back at a lower price, then let RSAS run back up again, repeating the play. A good money-maker, and a strategy that many of our subscribers have used over and over. RSAS now looks ready to move up from here, though if the pull off this intraday high (19.60) means the stock will take another day or so to make the move, it could pull back and offer a better entry point. Good money flow.
BUY POINT: Aggressive from here: 19.10 on continued rising volume. Stop: 17.76 (7%).
POSITION: Stock. Once RSAS hits resistance, sell February $17.50 calls (QSD BW), buying back upon hitting support.
http://www.investmenthouse.com/cd/rsas.html
TPTH (Tripath Imaging--$7.64; -0.36; optionable): Scientific & Technical Instruments
http://biz.yahoo.com/p/t/tpth.html
STATUS: This electronics stock has formed and ascending wedge in the right side of a double bottom pattern. The wedge is just under the middle hump at 10, so is a bit low for a handle (the high at the start of the base is at 13, lows near 3) with upper resistance at 8. It is a nice-looking pattern, though, and with this sector showing some interesting action (we have seen some good breakouts from stocks like NEWP and KEI), we are looking for a breakout. Volume has been quite low at points in the handle, and was lower today at 86,600 (avg. 248,000) with the stock moving back to support at the 18 day MVA (7.60). Looking for a bounce back up and breakout. The stock has excellent money flow and strong buying. Target:
10
BUY POINT: 8.34 on volume of 335,000 or higher. Stop: 7.76 (7%)
POSITION: Stock and/or April $7.50 calls to buy (TPU DU; 72 open interests).
http://www.investmenthouse.com/cd/tpth.html
Update:
SCH (Charles Schwab--$17.22; +0.18; optionable): Brokerage
http://biz.yahoo.com/p/s/sch.html
STATUS: Testing the recent breakout from its ascending wedge pattern. The stock shot up on great volume on that move just a week ago, and has pulled back on falling volume and price, holding at support (17). Volume was below average the last 2 days, up slightly Wednesday to 3.3 million (avg. 4.3 million), and while the stock did move up, it pulled off the intraday high of 17.68 as did many stocks in today's market. However, we like the hold of support combined with low volume in the test, and look for a move up and breakout over the January (breakout) high at 19. That is far out, so will consider aggressive positions if we get a good positive move up. Money flow and buying look good. Target: 22
BUY POINT: Aggressive: 17.75 on volume of 4.5 million or higher. Stop: 16.50 (7%)
POSITION: Stock and/or February or March $15 calls to buy (SCH BC or CC).
http://www.investmenthouse.com/cd/sch.html
ASKJ (Ask Jeeves--$3.81; +0.66; no options): Business Software
http://biz.yahoo.com/p/a/askj.html
STATUS: We said to look out for it last night, and ASKJ exploded today for an aggressive entry point. It is now getting ready to break out of an 11-month saucer with handle base (at the bottom of a bigger 2-year base), and Wednesday was up from the 18 day MVA in the handle, on very strong, sharply higher, volume (1.22 million; avg. 409,000). Looking super on the move, and also has excellent money flow and buying. Target: 5
BUY POINT: 3.94 on continued strong volume (minimum for the breakout is 614,000).
Stop: 3.66 (7%). A buy on breakout up to 4.20.
POSITION: Stock.
http://www.investmenthouse.com/cd/askj.html
PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that look ready to pick up a few shares.
THE LEADERS: ACS, NVDA, DGX, FRX, LLL, CACI, AJG, KRON, MIK, BMET, APPB, LOW, MYL, IGT, VRSN
Another potential covered call sale play:
KRON (Kronos--$57.46; +0.19; optionable): Consumer Non-durables
http://biz.yahoo.com/p/k/kron.html
STATUS: Has been a powerhouse of late, KRON broke out of its 2-year base on Monday, and kept going to Wednesday's intraday high at 59.75. It could not hold the high, pulling back to close with a doji on the small gain. Volume remained strong at 681,300 (avg. 276,000). Showing the tombstone doji, the stock may be ready to pull back for a test of the buy point (53.18) or the 18 day MVA, currently at 50.76. If so, we will look at selling calls on our long-term holdings, for a move down to the support. When KRON hits support either at the 53 or 51 levels, that is when the calls are bought back at a lower price. On the move down to support, the February $55 calls (which are selling at today's close at $5.30) should be selling for about $2.30 (with an estimated delta of .50; delta is unavailable at the time of this writing).
BUY POINT: 57, on decreasing volume in the pullback.
POSITION: February $55 calls to sell (KU BK).
http://www.investmenthouse.com/cd/kron.html
NVDA: Could have made its last gasp run up the trendline before it comes back to test the 50 day MVA. If it does, that could tell us where the market may be heading, since NVDA is a leader. We can also sell calls on this stock as it breaks below the 18 day MVA (66.50), perhaps the February 65 calls and then buy them back when the stock rebounds somewhere above 60.
BMET: Broke the 50 day MVA on strong volume and threatening at the 200 day. If it does not make it back over the 50 day tomorrow, we are out.
AJG: Showed a doji and a close at 31.37. We are still looking for a move down to 30 to complete the put, but if it heads up from here, we will close the put play and remove the stock from our portfolio, since it is well below the 50 day MVA.
IGT: Stronger volume and looking ready to move up from the 18 day MVA.
ACS: May be getting ready for a climax run. That could be a super run, but afterward the stock will need a good correction. We'll see, and we will be watching for the turn to take some profits off the table or at least sell some calls.
MIK: Held with a doji (shooting star) after selling back for 6 days; that can be an indicator the stock is ready to move back up. We were looking for it to head to the lower 50 day MVA to buy back calls, so will watch carefully to see how strong any move up is. Can hit the 18 day MVA and fall back down again if it does move up.
LOW: Sold down to the 50 day MVA on strong volume; want to see it hold here for a bounce back up, but volume was stronger and just above average so there is a chance it could break the support. We will want to see a quick move back over that level if it does that; if not, do not let a nice profit in this stock disappear.
UP & COMERS PORTFOLIOS: BBBY, EPIQ, KKD, MMS, NDN, SRCL, CPRT, EBAY, THQI, KG.
Out: THQI (has not been able to move back over the 50 day MVA since mid-December), CPRT (was unable to hold the move back over the 50 day MVA today, so sold), MMS (tried to move back over the 50 day MVA a week ago but began selling heavily today).
KG: Broke below the 50 day MVA but volume was still quite low. It may hold support here (closed at 39.91), but if it does not move back over the 50 day tomorrow, it will be time to sell.
EPIQ: Thudded back to the 50 day MVA; volume was higher but still below average. If it can hold here, a sign of some strength. If not, don't want to ride back down to the 200 day MVA.
MEMBER PORTFOLIO: BRCM, CHKP, AMAT, JNJ, MSFT, AOL, BUD, PXLW.
CHKP: Tried to move up but didn't hold the high of 49.47. Good volume but suffered the late selling. May try to test lower again, and can hold at 45 if it does.
BRCM: Similar to CHKP. Popped higher and out of the little cup-type pattern but pulled off the high. Holding over the recent highs at 50, however, on strong, strong volume. That is a key level. How we would love to see BRCM lead the market higher.
Good Investing!
Jon L. Johnson and The Daily Staff
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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yahoo stock
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