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wise stock trade, us stock market
Begin Part 2 of 2
THE MARKETS
After Friday's big gain, today appeared to be a day of rest. Could have been worse, but the recovery showed us this thing is ready to move up again. Some stocks bounced down off of their down trendlines as we thought they would (BEAS, NTAP, VRTS) while the defensive sectors moved up (something we thought would happen after the techs moved up some more). The rotation between the two areas is almost uncanny. Very low volume into the defensive sectors today other than energy, and we are looking for money to flow back into techs starting some point tomorrow.
Overall market stats:
VIX: 32.54; +1.02. Volatility is holding up over 30 after spiking well over the 34 level that has triggered the recent rallies. The fact that it is holding up and moving higher on a day when the Dow and S&P 500 rose indicates to us there is more rallying ahead.
Put/Call ratio: 0.95; +0.34. Put buyers really spiked higher today without a lot of market selling, at least not to the extent we have seen in past selloffs. We like to see the ratio close over 1.0 for the best indication. With the other negative sentiment out there, this may be enough.
NASDAQ: Today was not what we were looking for from the weekend, but as we said above, the afternoon session was positive, stocks are moving up after hours, futures are well above fair value, and we do think the selling impetus will be over for the near term. This is not a breakout move or a confirmation or anything like that, but it is something that can make us money heading into the new year. That is the way to finish a tough 2000 and start a better 2001! That means we are going to be ready again.
Stats: Down 23.50 points (-0.9%) to close at 2493.52. That was up off low at 2436.19.
Volume: 1.56 billion shares (-30.4%). Well below average volume with down volume still leading up volume 939 million to 547 million shares.
A/D and Hi/Lo: Decliners took back over, 1.36 to 1. New highs rose to 101 (+10) while new lows rose as well to 374 (+34).
The Chart: http://www.investmenthouse.com/ch/nasdaq.html
The candlestick chart was a lose doji after two days of gains; not the most promising as the index ran into an old down trendline. Still, we do not believe that this will hold the index down. There may very well be some selling tomorrow, but we think the index is going to reverse and give us another run toward the new year. Indeed, we can also even start looking for a confirmation move of 1.5% or better and rising, above average volume. The latter may be difficult given the holiday week squeezed between Christmas and New Year. Still looking for a move up to 2750 as a first level.
Dow/NYSE: The Dow fought off the urge to sell mid-session and rallied all afternoon to end solidly positive as financials, drugs, and even basic products (MMM, UTX) posted nice gains. Volume was sharply lower on the NYSE, but it is a holiday week.
Stats: Up 56.88 points (+0.5%) to close at 10,692.44.
Volume: NYSE volume fell off the table to 806.5 million (-25.8%). Up volume edged down volume 467 million to 308 million shares.
A/D and Hi/Lo: NYSE advancing issues were still out in front, but by fewer stocks (1.51 to 1). New highs rose to 277 (+66) versus 105 new lows (+14).
The Chart: http://www.investmenthouse.com/ch/djia.html
The Dow logged another gain, but again on declining volume, something it has done on its last three days of gains. The Dow is in a tough position right now, riding up just under the down trendline connecting the September and November highs as well as its 200 day moving average at 10,722.53. It has run into resistance at 10,800, and down trendlines have been the end of most rallies this fall (will it continue into winter?). On the downside, it has the 50 day moving average at 10,624.17. It is being squeezed between the two; it needs to break over the down trendline, but the down leg is the longer right now. The Dow stocks may be in for some selling as the techs try to mount a year-end move; it has surprised us before, however.
S&P 500: The big caps continue to recover off of their year low set last Thursday, but as with the Dow, on lower and lower volume. Not the move that confirmations and strong rallies are usually made of, but this is the holiday season, and rallies often occur on low volume. The index has some resistance at the 1335 level and then its down trendline at 1365 after that. There is still uncertainty, and moves through resistance will be difficult but necessary. Until then we continue to play the rallies up and the turns down.
The Chart: http://www.investmenthouse.com/ch/sp500.html
THIS WEEK
We head toward the new year looking for a belated holiday rally (or, as we put above, the introduction to the January effect). Tomorrow is shaping up decently with Nasdaq futures looking solid (42 points above fair value at this writing), stocks rising after hours, and a favorable response by JDSU to bad news. Putting together the next session's movement requires us to draw upon various resources and piece them together. Then we have to look out over the next several days to determine where the market will trend. There will be another attempt to sell any rally; that is the major obstacle in front of the markets until they are once and for all flushed of those ready to sell. The JDSU reaction today was a positive; when stocks can recover from bad news and rise that tends to show the weaker holders are getting washed out. We saw some of that when INTC warned earlier in December. That did not hold, but we keep seeing signs that it is starting to take. With the end of tax selling there may not be enough momentum to push the markets to a sustained rally, but we do look for a tradable rally.
The big technical move coming up as far is we are concerned will be the time when we see a lot of stocks start breaking their down trendlines on heavy volume. Up to this point they have been shoved back at that level. We feel that we are getting close to the point where that move is made. The strongest move is a gap over the trendline on strong volume. We will have to see what they look like when it happens. As always, the market will show us when that happens. We can forget the oscillators and other technical indicators and look at the price patterns and the volume. Indeed, nearly all of those are based on price and volume themselves. When we see the move, there is plenty of time to get in on that move. The market will tell us when it is time. Right now we take what it is giving.
We can continue to trade techs on the rallies and the pullbacks, and we can jump into the defensive sectors when the tech moves fade. Today we saw that, but we were not necessarily ready to jump into them; when stocks are uptrending and ready to breakout, we want to see the breakouts on good volume. They are acting bullish so they should make strong moves. The techs are moving on momentum when the upside rallies come. Volume, if it is there, is nice as it shows a stronger move. It is not really necessary, however, when catching a momentum move on these reflex rallies. If we start to see real volume coming into the stocks that is a plus. Indeed, many semiconductors are in positions to start building the right sides of their bases, and a January rally would help that process.
Right now we are still in the split market that we have been in with money rotating back and forth as the techs get beat back and then rally. If sentiment keeps its current increasing levels, at some point in the near future we are going to see a reversal in this market. We are not anticipating a huge run for the year. The economy is slower than most anticipate, and that always acts as a drag on stocks. While investors anticipate earnings growth, they do have to see it taking place faster than they anticipated to really ramp up stocks. It will take some work to get the economy to that point, but stocks will anticipate this move. A 25% to 50% move in the Nasdaq will make us a lot of money because we know the stocks we are going to be following are the leaders that will have much better gains than the overall averages. Plus, we buy at the right times to capture the biggest moves; that takes more than just buying and hanging on.
Thus, while we still have to maintain high alert in all positions, we do see an end to this coming with the Fed action. Earnings season will be trying as there will be disappointments. But, as we will see, there will be continued strength for the leaders such as those listed in the summary. With continued strength in those stocks and the prospects of an improving economy with looser monetary policy and the prospects of a tax cut the market has tangible evidence to attach to its expectations for something even better when the economy starts to pick up again. That will be a powerful force behind these leader stocks in leading economic sectors. Thus, even if the overall market rises 25%, we can get better returns with these stocks. We have to stay focused and on top of the game. Invest smart using stop losses or other sell methods. When everyone has had enough we will start to see the gains coming in. We are looking for some tomorrow for the rest of the week; again, this may not be time yet for the move that reverses the trend, but it can make us money as we look for that move.
Support and Resistance Levels
Nasdaq:
Resistance: 2750 represents some resistance. The down trendline is just above at 2800 at this point.
Support: If 2500 does not hold, 2200 down to 2000.
S&P 500:
Resistance: 1325 to 1335, then 1350 to 1360. The down trendline is at 1370.
Support: 1270 is possible support. 1254.07 is the year low hit last Thursday.
Dow:
Resistance: 10,800 to 10,900.
Support: 10,300. After that, 10,000.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
12-26-00
The existing home sales and consumer confidence reports were delayed due to the holiday.
12-27-00
Existing home sales for November (10:00; delayed due to holiday): 5.10 million versus 4.96 million prior.
Consumer confidence for December (10:00; delayed due to holiday): 128.0 versus 133.5 prior.
Leading economic indicators for November (10:00): -0.2% loss versus -0.2% loss prior.
12-28-00
Initial jobless claims for prior week (8:30): Not available yet.
Help wanted index for November (10:00): 79 prior. Not available yet.
12-29-00
Chicago PMI for December (10:00): 43.5% versus 41.7% prior.
SUBSCRIBER QUESTIONS
Q: You noted there were only 70 open interests on JNPR February 120 calls; thus, it might be harder to trade the options. Can you explain this?
A: We like to have at least 100 open interests on options that we trade. The reason is better liquidity, i.e., more trades, and thus the better chance that we may be executed on stop orders that we have in place. Let's say we have an option trading at $18 and want to place a stop loss at $15. We put a stop limit order in a $15. If the option is not traded heavily, the option could drop right past the $15 bid we have and be missed. Indeed, the bid could actually drop in price to our $15 bid, but if there are no trades at that point the stop order would not be 'activated' by some systems. On this, the key is to check with your broker and ask about how the ECN that is being used handles stop orders of all types. Things are getting much better, but as recently as a month ago we had some stop orders missed on options that were not very liquid, i.e., less than 100 open interests.
Q: Is there such a thing as SDS (same day substitution) on an option? It seem that in one of my classes we were told that we can get out of having a stock that we have sold a put on, being put to us using the SDS. I told my broker that I wanted to buy back the put so it was not put to me but he said it could not be done.
A: Basically what happens when a stock is put to you is that you are assigned that stock. If you do nothing, you have three days to put up the money to take delivery. That means either the right margin cash (not wise in this market) or enough cash to pay for the stock. If you do not want the stock you can tell your broker you want an SDS which is basically turning and selling the stock that same day so you do not have to buy the stock. If you satisfy the margin requirements for the put sale to begin with, by selling the stock the same day you won't incur any further margin requirements (this varies from broker to broker) as the assignment to you and the sale of the stock will both clear on the same day. If you wait a day to get rid of the shares, then the assignment will occur a day before the sale, and if your broker requires more margin cash for the positions or if the stock moves against you further in that interval, you could be required to put up more margin cash.
Good Investing!
Jon Johnson and the Tech Traders Report 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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wise stock trade
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