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us stock market, stock watch
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Support and Resistance
Nasdaq: Closed at 1930.34.
Resistance: The March 2000 down trendline at 1955. Then 2000 and the 18 day MVA (1989.48). After that, the December intraday high at 2065.69, followed by the January intraday high at 2098.88.
Support: The 200 day MVA (1933.10) along with the November consolidation tops at 1934 to 194 have been undercut, but not completely broken. Then the bottom of that consolidation at 1875.
S&P 500: Closed at 1127.58.
Resistance: The 50 day MVA (1139.05) was broken and tested last week; that makes it the level to beat. Then 1150 and the 18 day MVA (1145.20). Then the 200 day MVA (1166.62) and the December high (1173.62) and January high (1176.55) all line up as strong resistance.
Dow: Closed at 9771.85.
Resistance: The 50 day MVA (9892.90), as with S&P, has been broken and tested. Then 9992 to 10,000. After that the 200 day MVA (10,104.93).
Support: Trying to hold at the 9,750 level (November low at 9691; December at 9736). After that there is not much to stop it from 9600 to 9500. 9500 has been good support prior in the rally.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-22-02
Leading Indicators, December (10:00): 0.7% versus 0.5% prior.
Treasury Budget, December (14:00): $24.0B versus $32.7B prior.
1-24-02
Initial Claims, 1/19 (8:30): 400K versus 384K prior.
1-25-02
Existing Home Sales, December (10:00): 5.16M versus 5.21M prior.
SUBSCRIBER QUESTSIONS
Q: Hello. I really enjoy your newsletter. It has been very helpful. It appears from your writings that "ascending wedges" are good chart patterns to go long on once they breakout. I attended a class [and was taught] that in any wedge, draw the two lines that form the wedge and watch that the "flat line usually wins". In many ascending wedges, this is often the top line (the lows are rising faster than the highs), and the pattern eventually breaks down, not up. Do you agree with this, disagree? What are your thoughts on ascending wedges?
A: We are glad that the newsletters are of help to you. Ascending wedges can lead to some explosive breakouts, and this is especially true when the market is making bullish moves. They can form over a short period (couple of weeks) or over months. Clearly, it is a more bullish pattern in an overall stronger market or strong run by a stock - we often see them form after a stock has broken from another pattern, like a cup with handle, and the pattern holds above the breakout point on the test. It forms the ascending wedge on top of the former pattern, and leads to a big move. Of course, it does not have to form in that manner. Some recent ones from the Technical Traders report include KANA and MROI (exploded out of the pattern Friday). The move can be explosive, but as KANA showed, can be short-lived in a tough market. We have had dozens break out over the past year. A descending wedge works in the opposite direction. The stock makes lower highs while hold a steady low, and pressure builds for the downside break. One we were following recently on the reports was FLR, and it just cratered.
We can look at wedges and certainly get an idea of the strength of it by looking at the various factors that affect the overall pattern. For example, in the best ascending wedges you will see volume build on the moves up but ease off as the stock falls back. We look for a volume surge as the stock moves over the highs of the pattern. Again, the results can be explosive, but if we are not in a strong up-trending market the breakout can be short-lived, but the few sessions of moves can be quite lucrative.
The discussion of which line is longer as ruling the move applies more to pennants than wedges or triangles. In a pennant, where we have a descending trendline from the top and an ascending line from below, the longer line will usually win the battle. This can be applied to ascending wedges where say the upper line defines a historic level that goes way back (i.e., strong resistance), and the ascending line has formed over a much shorter period, that can indicate that it could be harder to breakout. Overall, we have had a lot of success with the pattern and like to play it.
TEAM TRADES
We were looking upside and downside Friday, taking direction from the stock and index movements.
MROI: In that ascending wedge pattern with a good move Thursday, so we were watching for the breakout Friday. It gapped higher, over our buy point of 25.50. It ran almost to 27 on the opening run, but then pulled back to test the breakout, hitting just above 26. It rebounded and crossed the early high and we issued the alert. We put in a limit order at 26.78, but it ran by too fast. Peaked at 27.19, and started to come back. I modified the order to 27. It was hit on the way down to 26.70 or so before it bounced again. The stock made a great run all day, fighting the urge to sell mid-day and then rallying hard into the close on a lot of volume.
DJX: We were looking at starting some aggressive downside positions on the indexes, and the Dow had broken the 50 day MVA. It gapped lower and then plunged on the IBM and MSFT open, but we could not get any options early. We waited for a bounce, and it came at 97.55 and moved up to 97.90. At that point it started to roll over and we issued an alert on the play. We were able to enter some put options at $3.30, jumping in at the ask as the index started down. The index hit 97.60 and wouldn't you know it, bounced all the way back to the opening price. We knew it would not last, and it fell back again, but don't you know it held again at 97.60. That always gets us interested because it was showing some support there. Another rally hit a lower high over the next 2.5 hours and then the plunge we were looking for came. Hit a new low at 97.40, but rallied in the last half hour and closed at 97.70. We ended up where we started. Some days are like that, and this was an aggressive entry point where we were trying to get an edge on the move lower; not always our usual tactic. Anyway, we will look at taking more positions on a breakdown below 97.
THE PLAYS: Some great new pre-announcement and bonus plays on the report!
BONUS PLAYS: QMDC continued its strong breakout, GMST dropped some more for us, and NTK is still set up in its pattern.
SLVN (Sylvan Learning--$25.21; -0.34; optionable): Education services.
http://biz.yahoo.com/p/s/syvn.html
STATUS: SLVN made a nice run in the first half of 2001, finally pulling back from 29 into its current cup with handle pattern. It touched up to 26.05 this week (at the October high) before pulling back into a handle, and the stock is holding support at the 10 day MVA (25.07). It looks ready to move, showing a doji Friday as volume spiked up to 1.06 million (average 464,700). Good price/volume action throughout the pattern (on a five-day chart, volume was up on up weeks more than volume was up on down weeks), and we are looking for a breakout. Good money flow. Target: 31.
BUY POINT: Breakout: 26.16 on minimum volume of 700,000. Stop: 24.33. Aggressive bounce: Over 25.53 on continued strong volume. Stop: 24.
POSITION: Stock and/or May $22.50 calls to buy (NQV EX).
SVM (Servicemaster--$13.94; +0.04; optionable): Business services. Earnings 1-29.
http://biz.yahoo.com/p/s/svm.html
STATUS: SVM has pulled into a nice lateral consolidation, tightening up along its short-term MVA's (18 day at 13.83) as volume has settled back (202,800; average 363,600). The consolidation is something of a handle to a lengthy cup (dating back to early 2000 with highs at 15, but within a much lengthier pattern from 1998 with highs at 25). In a solid December move SVM took out its July high (making an even smaller cup), with really good volume on that run. After the rest on this lateral move, we are looking for another strong breakout move. Good money flow. Target: 17.
BUY POINT: Breakout: 14.32 on volume of 500,000. Stop: 13.32 (7%).
POSITION: Stock and/or April $12.50 calls to buy (SVM DV).
MANH (Manhattan Associates--$24.71; -2.33; optionable): Software. Earnings 2-7.
http://biz.yahoo.com/p/m/manh.html
STATUS: Has pulled back steadily from mid-November after being unable to reach up to its prior highs, and the past two weeks has seen an accelerated drop, taking out its 200 day MVA (27.94). It has tapped up at that level repeatedly this week, but Friday selling volume kicked in and pushed it below its recent lows. It managed to close off of its low of 23.79 Friday, but we are looking for the weakness to continue and ride a put play down to a target of 20.
BUY POINT: A drop through 24 on continued strong volume (1.2 million Friday; average 583,400).
POSITION: February $30 puts to buy (MQR NF - check deltas, etc. as not available at the time of writing - March available Monday).
RNR (Renaissancere Holdings--$91.95; +1.55; optionable): Insurance. Earnings out after the close January 24.
http://biz.yahoo.com/p/r/rnr.html
STATUS: RNR has been trending down steadily since November, and formed a descending wedge that it took out in early January, hitting a low of 86.29. It battled back up into the range of the wedge lows at 90, but could not make it back over the 50 day MVA (92.66), under which it closed Friday after a low volume move back up (203,000; average 271,000). Looking for a drop back after this weak move, targeting the 200 day MVA (80.59) but watching the recent low.
BUY POINT: A move below 89.75 on volume of 300,000.
POSITION: February $95 puts to buy (RNR NS - check deltas, etc. as not available at the time of writing).
PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: No announcement from JCI Friday, but we are looking at PMI, TGIC, DHR and RYL.
NEW PRE-ANNOUNCEMENT PLAYS:
YUM (Tricon Global--$53.17; +0.11; optionable): Forecast to announce a split on 2-6-02 after the market closes in conjunction with earnings.
http://biz.yahoo.com/p/y/yum.html
BACKGROUND: Based upon our research it does not appear that YUM has ever split its stock. The annual shareholder meeting was on 5-17-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: YUM broke back over its June highs in October, and since has formed a double bottom with a couple of bounces along the 50 day MVA (currently 50.40). As it reached the midpoint of the pattern it has formed a handle, dipping back along the 10 day MVA (52.61). It tried a move out Wednesday but pulled back from 54.55, showing a doji Friday over support with decreased volume (730,300; average 852,600). Looking for YUM to breakout going toward the forecast. The stock is in a very large base dating back to early 1999 with highs at 70. Target: 64.
BUY POINT: 54.67 on volume of 1.3 million. Stop: 50.84.
POSITION: Stock and/or April $50 calls to buy (YUM DJ).
TGH (Trigon Healthcare--$71.41; +0.56; optionable): Forecast to announce a split on 2-8-02 before the market opens in conjunction with earnings.
http://biz.yahoo.com/p/t/tgh.html
BACKGROUND: Based upon our research it does not appear that TGH has ever split its stock. The annual shareholder meeting was on 4-25-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Broke out of a saucer with handle last week, which pattern was within a larger pattern going back to late 2000 (highs at 80). On the breakout TGH hit a high of 72.70 before testing back Thursday. It held over the former pattern highs at 70, Friday pushing up from its 10 day MVA (70.77) as volume rose to 230,700 (average 191,300). Looking for a continued strong move off of this test. Target: 84, watching the highs at 80.
BUY POINT: Over 72 on increased volume. Stop: 67.07.
POSITION: Stock and/or April $70 calls to buy (TGH DN - under 100 open interest).
LSTR (Landstar System--$79.47; +1.30; optionable): Researching a date.
http://biz.yahoo.com/p/l/lstr.html
BACKGROUND: Based upon our research it does not appear that LSTR has ever split its stock. The annual shareholder meeting was on 5-16-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Formed a reverse head and shoulders since July, with the right shoulder forming an ascending wedge. It broke out of that wedge earlier this month, and after testing the breakout (76) LSTR has made a solid move back up the last two sessions. Friday it gapped down close to the 10 day MVA (76.75), but pushed back up on big volume of 204,500 (average 47,600), taking out the breakout high of 78.52. It is now facing the pattern high from July at 81.14 (made on an intraday spike). Looking for a continued move. Target: 95.
BUY POINT: A move over 80 on continued strong volume. Stop: 75.
POSITION: Stock only.
GTK (Gtech Holdings--$45.23; +1.12; optionable): Looking good again after earnings and back on the report. Working on a date.
http://biz.yahoo.com/p/g/gtk.html
BACKGROUND: Based upon our research it does not appear that GTK has ever split its stock. The annual shareholder meeting was on 7-9-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Since breaking out from a cup with handle in November, GTK has pulled into a pennant pattern. It has toyed with its 50 day MVA (43.34), finally making a move back over the resistance of its short-term MVA's (44.09) Friday on it earnings announcement. Volume spiked way up to 877,700 (average 422,300). The high is 47.50, but 46 has been a challenge for GTK (pulled back from its high Friday of 45.85), and we will look for it to take out that level for positions. Target: 55.
BUY POINT: 46.12 on continued strong volume. Stop: 43.
POSITION: Stock and/or March $40 calls to buy (GTK CH - low open interest, plenty at $45).
BEST PLAYS: Besides the plays set forth below as best plays, there are some other stocks that also look good. These include Pre-Announcements MRBK and STU; Pre-Split XRAY; Continuing Candidate EDS; and Post-Split CHBS.
MARKET FAVORITES BEST PLAYS:
1) DELL - Bullish doji over support
2) NTIQ - Crashing through the 50 day MVA
3) OAKT - A chip holding in a good pattern
DELL (Dell Computer--$28.10; -0.85; optionable): Personal computers. Earnings 2-14.
http://biz.yahoo.com/p/d/dell.html
STATUS: DELL is back on its 50 day MVA (27.61), the second visit since breaking from a reverse head and shoulders in December. The company announced Friday that its earnings outlook would be higher after strong holidays (despite the annoying dweeb on its commercials), and the stock saw heavy volume Friday with a 'shooting star' doji pattern (reaching 29.10 at its high). Following a pullback, this candlestick over support is a bullish indicator, so we will see if DELL is able to make a move, which would be helped with some strength in the Nasdaq. The recent high was 30.52, and the short-term MVA's are at 28.53. We will look for it to take out that level on a move, but will target 32 as an exit point for short-term positions.
BUY POINT: Cautious on this one. On continued strong volume (41 million Friday; average 23 million), a move over 28.53. Stop: 27.
POSITION: Stock and/or May $25 calls to buy (DLQ EE - March available Monday).
NTIQ (Netiq--$33.05; -2.43; optionable): Software
http://biz.yahoo.com/p/n/ntiq.html
STATUS: After a good run in November and December up the short-term MVA's, NTIQ tested its 50 day MVA (currently 33.79) and made a decent bounce. However, it made a double top when it could not take out the December high, falling back to the 50 day and not managing a strong bounce. Friday NTIQ gave up the support, and selling volume picked up to 1.99 million (average 1.35 million). With the increased selling volume, it looks like the stock is going down to test the 200 day MVA (30).
BUY POINT: A move below 32.65 on continued strong volume.
POSITION: February $40 puts to buy (CDJ NH).
OAKT (Oak Technology--$14.96; -0.26; no options): Semiconductor. Earnings 1-22 after the close.
http://biz.yahoo.com/p/o/oakt.html
STATUS: A semiconductor that is holding up remarkably well. It is trying to build the right side of a long cup pattern, and has made some solid, steady moves. After breaking from a handle-type consolidation at the beginning of the month, OAKT has pulled back into another such pattern, holding its 18 day MVA (14.65). Friday it showed a doji on continued low volume (305,200; average 864,400), right at the high of the prior handle. We will see if it can hold, and look at a strong move going into the announcement. The recent high is 16.24. Target: 19, but with a solid move we will consider exiting before earnings.
BUY POINT: Aggressive: In a better market, a move over 15.50 on above average volume. Stop: 14.53.
POSITION: Stock and/or April $12.50 calls to buy (KAU DV).
PRE-ANNOUNCEMENT BEST PLAYS
1) DRI - Wants to breakout
2) STU - Trying to move out of the pennant
3) TGIC - Could pull back to set up the handle
4) NDN - Still waiting for that drop through support
5) PMI - Looks to settle back in its handle
DRI (Darden Restaurants--$38.03; -0.11; optionable): We are working on a date.
http://biz.yahoo.com/p/d/dri.html
BACKGROUND: Based upon our research it does not appear that DRI has ever split its stock. The annual shareholder meeting was on 9-20-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: After the nice move up in the consolidation, DRI gapped back down with the market Friday but held its support at the 10 day MVA (37.38, just above its upper channel trendline) and pushed back up, moving on even stronger volume (1.1 million; average 668,500). Showing some resiliency and continued strength, DRI has made impressive moves up since its December breakout from a cup with handle, making surges and then forming nice lateral consolidations. It is trying to move out of such a consolidation now, and although it is above the upper channel, DRI looks like it could continue with a solid move along the steeper trend established the last month. We will carefully protect profits, targeting 43.
BUY POINT: 38.60 on continued strong volume. Stop: 35.90 (7%).
POSITION: Stock and/or April $35 calls to buy (DRI DG).
STU (Student Loan--$82.60; +0.80; no options): Researching a date, as due for a split.
http://biz.yahoo.com/p/s/stu.html
BACKGROUND: Based upon our research it does not appear that STU has ever split its stock. The annual shareholder meeting was on 5-16-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Broke out in a big way in late December (over its April and August tops at 80), and since has meandered into a pennant pattern over the support of its 18 day MVA (81.34). Friday it tried to break out of that pattern, launching up to a new high at 84.40 intraday before peeling back into the pattern. Volume was up but not terribly strong to support the move, coming in at 13,500 (average). We will look for the stock to hold over its 18 day and make another run with some more significant volume. On a break over the high, targeting 90.
BUY POINT: Aggressive: Over 83 on volume of 20,000 or better. Stop: 79. Over December breakout high: 83.80 on volume of 20,000 or better. Stop: 79.
POSITION: Stock.
TGIC (Triad Guaranty--$38.95; -0.08; no options): Surety & Title Insurance. Forecast to announce a split on 1-23-02 before the market opens in conjunction with earnings.
http://biz.yahoo.com/p/t/tgic.html
BACKGROUND: Last announced a 2:1 split on 9-18-97 at a stock price of $28. The annual shareholder meeting was on 5-10-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Looks like it will dip back in the handle. TGIC made an excellent move in 2000 and the first half of 2001, but after hitting up again 40 three times the stock pulled back in August to form a cup with handle. It made a nice move to start January, running up toward the 40 level, hitting 39.70 before pulling back to the 10 day MVA (38.35). It bounced this week, but could not take out the prior high as volume has been below average (Friday 38,400; average 41,000). It gapped up slightly but pulled back Friday, and it could come back and test the 10 day as it continues to form a handle to the cup. The overall pattern looks good (we like the nice run up going into the cup with handle - we like at least 30%, and the move was a bit more than that), and a test back would not be bad for the handle shape. Target on a breakout: 47.
BUY POINT: Breakout: 40.26 on volume of 62,000. Stop: 37.44 (7%).
POSITION: Stock.
NDN (99 Cents Only Stores--$34.41; -0.60): Researching a date.
http://biz.yahoo.com/p/n/ndn.html
STATUS: Got the big move down Monday, triggering put plays on the breach of the up trendline, which it took out after having dropped through the 50 day MVA (36.25, currently right with the trendline). The selling was on strong volume, but NDN is trying to hold at 34, and Friday pulled back slightly toward that level as volume continued to be light at 163,200 (average 337,400). Not really looking like it wants to bounce, and we are watching for the stock to sell hard again through the support at 34 (in the range of a November consolidation), and down to the target at the 200 day MVA (31.98).
BUY POINT: A drop back through 34 on above average volume.
POSITION: February or March $40 puts to buy (NDN NH or NDN OH - check deltas, open interest, etc. with your broker as unavailable at the time of writing).
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