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Begin Part 2 of 2
Dow/NYSE
Down all sessions last week, moving back down below the 200 day MVA (10,102.80). It has given up the 200 day MVA for now and is approaching a test of the 50 day MVA.
Stats: -80.33 points (-0.8%) to close at 9987.53.
NYSE Volume: 1.223 billion shares (-6.6%). Volume slid lower and back below average on Friday, about the only good news for the Dow. Other than Wednesday, however, volume has been very contained on this pullback.
Up volume: 353 million
Down volume: 830 million.
A/D and Hi/Lo: Decliners led 1.4 to 1 after a dead heat Thursday.
New highs: 77 (-13)
New lows: 23 (+4)
The Chart: http://www.investmenthouse.com/cd/$indu.html
As noted, the Dow gave up the 200 day MVA (10,102.80) late last week, but it did so on volume much lower than when it broke above it the prior week. In the bigger picture that is good as it shows less sellers on the turn back down than on the move higher. Nearer term it does not mean the Dow won't settle back down to the 50 day MVA (9907.39) the same as it did in December after a nice run at that point. From there (9750) it made the recent run up to 10,300 before the current pullback. Price and volume action remains very solid other than the Wednesday distribution session. As noted last week, the index has averaged one a week since the rally started. If it does hold, it can make another run at the 200 day MVA and then resistance from 10,200 to 10,500; there is a lot of overhead there from the June through August consolidation that could keep trading on the Dow choppy.
S&P 500: Similar to the action on the Dow, but the big caps never made it over the December highs with any authority. They did, however, break over the 200 day MVA over a week ago before last week's selling down below that level (1167.11). Volume was light on the selling other than the Wednesday reversal day. It broke below the 1150 level (again) and is now moving to test the 50 day MVA (1139.83) just as the Dow did in December. If it can hold there, it will have made yet another higher low. Not a rocket ride, but continued building higher.
Stats: +1.41 points (+0.1%) to close at 1156.55.
Volume: NYSE volume fell back sharply on the action, a good resumption of the consolidation. 1.276 billion shares (-13%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
THIS WEEK
Things start to get interesting this week (as if they were not last week with the Fed speeches, Enron, and the usual culprits) as earnings seriously get underway and some more serious economic reports hit the street (retail sales, CPI, inventories, housing starts, and Michigan sentiment). Companies continue to report better Q4 expectations, and as we noted last week, warnings have been way down from prior quarters and the same time last year. With the recent selling in the indexes, mostly on light volume, they are set up for some upside action if the earnings numbers do in fact come in stronger. We have been seeing upside surprises, and Friday showed more such upside guidance as software company AKLM raised its 2002 forecast, DELL is tracking to beat the street, RATL software is going to beat, Borders Q4 revenue will be above expectations as will Barnes & Noble. Some of the air was taken out of stocks and expectations of better earnings this past week with the indexes selling lower. That gives upside room to move when they start coming in.
With no scheduled news Monday, the main impetus will be analyst comments and the market's momentum. As noted above, it appears that the Dow and S&P are in for a test of their 50 day MVA as they did in December. Positive earnings reports may act as the trigger to get things moving back to the upside. Overall the price/volume action remains good even if there is some more uncertainty economically. The market sensed a bit of that last week, and we will know more this week when we see how the indexes handle their 50 day MVA and the associated volume. The economic forces discussed above are not immediate effects; yes Greenspan rekindled some fears that had died down. Perhaps they will wake us up to do the right thing for the economy, but in the short term we will not see the effects of any Japan-style problems other than the uncertainty regarding the recovery that has been reinjected. That may be a good thing if fear rises again; the market has been getting too complacent and bears getting too rampant.
Support and Resistance
Nasdaq: Closed at 2022.46.
Resistance: The index set some new bars for itself. The December intraday high remains unconquered (2065.69), but it now also has the January intraday high at 2098.88. The up trendline is at 2135. Then 2250 to 2300. Again, there is not a lot of specific resistance.
Support: The 18 day MVA (2005.90) and 2000 represent the next level of potential support. The March 2000 down trendline is right at that level as well. the we look down to the 50 day MVA (1938.19) is right in the middle of a range of support from 1934 to 1941 (the tops of the November consolidation).
S&P 500: Closed at 1145.60.
Resistance: We would say 1150, but that has been broken so many times it is weak. After that the 200 day MVA remains the key resistance level at 1167.11. Then the December high at 1173.62 followed by the hump in the March double bottom at 1183.35.
Support: The 50 day MVA at 1139.83 is the next level. It is just above prior price consolidations at 1125 that acted as good support in prior tests.
Dow: Closed at 9987.53.
Resistance: The 200 day MVA is still the level to cross once again (10,102.80). then the early January highs at 10,300. 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 10,515.
Support: The 50 day MVA at 9907.39. After that, 9.750 is some support and then 9500 is solid support.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-15-02
Retail Sales, December (8:30): -1.1% versus -3.7% prior.
Retail Sales ex-auto, December (8:30): 0.0% versus -0.5% prior.
1-16-02
CPI, December (8:30): 0.1% versus 0.0% prior.
Core CPI, December (8:30): 0.2% versus 0.4% prior.
Business Inventories, November (8:30): -0.5% versus -1.6% prior.
Industrial Production, December (9:15): 0.0% versus -0.3% prior.
Capacity Utilization, December (9:15): 74.6% versus 74.7% prior
Fed's Beige Book (2:00)
1-17-02
Initial Claims, (8:30): 395K versus 395K prior.
Housing Starts, December (8:30): 1.610M versus 1.645M prior.
Building Permits, December (8:30): 1.570M versus 1.595M prior.
Philadelphia Fed, January (12:00): 0.0 versus -12.6 prior.
1-18-02
Trade Balance, November (8:30): -$28.5B versus -$29.4B prior.
Michigan Sentiment-Preliminary, January (9:45): 89.6 versus 88.8 prior.
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.
Stocks/Indexes from the Thursday report:
RESP: Tried to make its move with volume popping higher, but it pulled off the high of 36.40 in the handle of the cup base.
WEDC: Tried to top Thursday's intraday high but volume kept falling and the stock pulled back with a doji and dime loss in the double bottom.
NVDA: Made the expected move for the covered call sale play. Heading for the 50 day MVA at the 60 level, where we can buy back the calls if the stock holds. Showed up on the weekend financial shows that are touting the huge gains over last year. All the happy talk can mean a downturn is more severe.
IDPH: Moved back over the 50 day MVA on lower volume, still showing weakness but a surprise to break the resistance here especially on low volume. It pulled back from the 18 day MVA, so will see if it holds at the 50 day. Looking for a drop for a put play.
DGX: Performed nicely, breaking over the 18 day MVA on rising volume as it continued the 50 day MVA bounce. Looking for another move up and an eventual breakout from the cup with handle.
Continued Plays:
We are noticing homebuilder stocks (retail, too) hitting recent highs on lower volume, and starting to off on higher volume. There is the possibility of the start of a sector rollover. It may not just yet, but the technical signs are cropping up, and we are going to be taking money off the table if it plays out. Homebuilders that have been on the report are BZH, MDC, SPF, DHI, and TOL. Preserving our profits is the name of the game, and we are cutting and running.
RI: Broke out of the ascending wedge but has topped out with volume screaming up. The stock, while opening above 23 the last three days, has not been able to move above that level even with the high volume, so looks ready to sell back. The 18 day MVA is at 21.60, the 50 day MVA at 20.24.
SBUX: Rising volume and will likely fill the gap that it created on the breakout 6 days ago. That means a pullback to the range of the 18 day MVA (20.60)
SCH: Holding the 18 day MVA with a doji on low volume, in its test of the breakout. Looks much better after Thursday's battle with sellers.
SIB: Has been marching up over the last 4 days. The last time we covered a SIB run it just wouldn't stop; can't say it will do the same thing here, but who knows? Whatever it does, we are looking for a pullback since it is well beyond our 5% limit for buying on a breakout. Pullback can be to 18, highs at the start of the cup base from which it broke out.
TPTH: Threatening to break the up trendline that supports the ascending wedge, but may hold the pattern.
WMT: On above average volume headed for the 50 day MVA. The higher volume could mean institutions were stepping in at the support. We need to see if it can bounce once again from the 50 day as it did in mid-December. If it breaks below, we look for a move right back over.
Best Plays:
1) TYC: Opportunity for some downside positions.
2) TTWO: Forming a handle.
3) EBAY: A potential put play.
New:
Put Play:
TYC (Tyco International--$50.25; -4.67; optionable): Conglomerates
http://biz.yahoo.com/p/t/tyc.html
STATUS: TYC sold hard Friday, falling out of a lateral consolidation developed just under the 50 day MVA (55.28). It had not been above to move back over due to a continued drop in volume, but Friday volume leapt up to 20.8 million (avg. 10 million) and TYC sank like a rock. It broke below the 200 day MVA (52.31) on news that the company was interested in buying Honeywell, but had bounced back up to 51.73 after hours upon denying the rumor. Showing a double top pattern on low volume followed by heavy selling just before it broke the 50 day MVA, TYC was weak before the rumors. Look for a continued bounce and move up to the 200 day MVA, resistance we expect to push the stock back down, the potential entry point on the "kiss good-bye." Earnings are out January 15 before the opening bell. Target: 41
BUY POINT: 50 on continued strong volume.
POSITION: February $55 to $50 puts to buy (TYC NK or NJ). Please check with your broker for deltas.
http://www.investmenthouse.com/ct/tyc.html
Update:
TTWO (Take-Two Intera--$18.76; +0.52; optionable): Multimedia & Graphics Software
http://biz.yahoo.com/p/t/ttwo.html
STATUS: TTWO is in a 7-month cup base, and after slicing down in September, gradually trended back up until it ran up the right side of the base. Currently it is testing that recent upside move by forming a handle to an 18-week cup that started with the late August/September slide, holding support just above 18 on low volume (up Friday to 1.4 million; avg. 2 million). TTWO bounced up slightly on the rise in volume, and though it may continue to consolidate another 2-3 days in the handle, we are looking for it to make a strong move over the January high of 19.50. The stock shows decent money flow and high relative strength. Target:
BUY POINT: 19.63 on volume of 3 million or higher. Stop: 18.26 (7%)
POSITION: Stock and/or March $15 calls to buy (TUO CC).
http://www.investmenthouse.com/cd/ttwo.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, KRON, MIK, BMET, APPB, LOW, MYL, IGT
Covered Call:
IGT (Internet Game Tech--$66.33; -0.57; optionable): Leisure
http://biz.yahoo.com/p/i/igt.html
STATUS: IGT fell through the 18 day MVA Friday (66.87) and while the selling was mild (volume was lower again and has been dropping since Wednesday) we are looking for a correction back to the 50 day MVA (63) after four runs up the 18 day. On that move, we will look at selling calls on our long-term stockholdings. At the close Friday the February $60 calls were selling for 7.80, and on a move down to the support they would fall in value to around $5.31, price at which we can buy them back. Look for a move below 66 to kick off the play.
BUY POINT: 66 on preferably rising volume. Friday was down to 626,800 (avg. 1.2 million).
POSITION: February $60 calls to sell (IGT BL).
http://www.investmenthouse.com/cd/igt.html
KRON: Showed a tight doji and just over a point loss. Looking for a move down to the 18 day MVA at 52 (closed at 57.15), but may slow down at the 55 range if this keeps up. It hit the buy point of 57 on Thursday on a move down to a low of 56.37.
FRX: Bounced from the 18 day MVA on Thursday and continued higher with rising volume Friday. The stock is in cup with handle base though the handle's pullback was steeper than preferred. Pulled off the high of 81.75 and the handle high is at 83.19.
CACI: Nice ascending wedge with a buy point over 43.50.
BMET: Back under the 50 day MVA, just barely, and on lower volume. It is struggling to hold here, and if it cannot, we will be out of the stock.
LOW: Broke the 50 day MVA on strong volume. Time to sell. May get a test as the last chance. Can look a buying puts for a move down to 39 (closed at 42.03) for an initial target as the stock may find support there from the June, July and August highs. We are seeing homebuilders sell, and LOW seems to be in sympathy.
Other retailers to watch for possible problems: BBBY, MIK, FRED, WMT.
ACS: Lower volume again and started to pull back; we have been waiting for a climax run (when a stock races up at the end of an uptrending move and then crashes). The stock was down over a point and a half and could slip down to the 18 day MVA (at 104).
MIK: Did just what we thought it would, moving up to the 18 day MVA then tumbling down to the 50 day MVA from where it bounced slightly Friday. Volume was up at a pop and still below average, so the stock might bounce, but we will be watching carefully for it to head back down for a possible break of support. Behaving much like LOW, though it hasn't broken support yet. Probably will Monday.
UP & COMERS PORTFOLIOS: BBBY, KKD, NDN, SRCL, EBAY, KG.
EBAY ($63.87; -2.12; optionable): Internet Software
http://biz.yahoo.com/p/e/ebay.html
STATUS: After moving below the 18 day MVA Thursday, EBAY breached the 50 day MVA Friday on a pop up in volume to just above average levels (6.8 million). If the selling remains strong, it can slice through potential support at 60 for a fall to the 200 day MVA at the 58 range. No news to explain the drop. EBAY is a strong stock and may be able to make a quick move back up, but we want to catch it if it does not.
BUY POINT: 63.25 on continued rising volume.
POSITION: February $75 (QXB NO) puts to buy.
http://www.investmenthouse.com/cd/ebay.html
BBBY: Slipped just under the 18 day MVA in the ascending wedge, support that is reinforced by the up trendline supporting the pattern. That is a short-term trendline, but the move below the 18 day MVA is enough to bode ill for the pattern. We are watching the retailers carefully, since like the homebuilders they have seen some great moves up, but recently on lower volume. We will be ready to exit positions if we see a rollover.
SRCL: Made the move we were looking for, closing three cents above the 18 day MVA with volume rising. We are looking for a run up to around 63 for an initial target.
NDN: Broke the 50 day MVA Friday, on rising volume. Closed right at an up trendline (connects October and November lows), but if it breaks can fall to potential support at 34, below that, 32 (200 day MVA). Another retailer rolling over. It may test the 50 day MVA before turning back down for more selling. That is the last get off point.
MEMBER PORTFOLIO: BRCM, CHKP, AMAT, JNJ, MSFT, AOL, BUD, PXLW.
BUD (Anheuser-Busch--$45.82; +0.30; optionable): Food & Beverage
STATUS: Forming the pennant pattern above the 10 day MVA (45.60), support that has held the pattern up since late December. Volume has traded off between high and low volume in the pattern, but was back below average Friday to 1.65 million (avg. 2 million) and falling overall. The stock made a small move up from the 10 day even as volume fell, so look for a hold at the current support in this test of the breakout, until BUD makes a new breakout over the December (pattern) high at 46.72. The stock may turn back down and test the support again as the pattern tightens further, and we can look at taking aggressive positions on a move up from there. Solid money flow and buying. Target: 56
BUY POINT: Breakout: 46.85 on volume of 2.7 million or higher. Stop: 43.57 (7%)
POSITION: Stock and/or March $40 calls to buy (BUD CH).
http://www.investmenthouse.com/cd/bud.html
MSFT: Price/volume action has gone sour the last few sessions; volume rising on moves down, and falling as the stock moves up. Does not bode well for a continued hold at the 18 day MVA (68.13), and if it drops can test the 50 day MVA at 66. Covered calls on a move below 68.
CHKP: Looking for a test of 45.
PXLW: Selling below the 50 day MVA and can drop to 10; selling was on strong volume. If it cannot recover over the 50 day MVA, out.
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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