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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:
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:
RBOT: Holding steady in the test of the breakout. Volume was higher so may pullback closer to the 10 day MVA (4.83).
ARBA: Held the 18 day MVA on a lower volume pullback in the ascending wedge-type pattern that formed after a cup with handle breakout.
NETP: Dropped to a low of 1.90 but recovered back over the 10 day MVA with volume falling back though still strongly above average. Looking for a bounce from the 10 day but may just wait for a test of the 18 day MVA.
DJX: Slight loss but still above the buy point for the put play. Did not move up to the 50 day MVA, resistance.
Continued Plays:
IPIC: Not good. Dropped through the 18 day MVA on rising volume after engaging in a rather rocky test of the breakout consolidation. Getting out for now to preserve what we have in the play.
KSWS: No news but the stock was up on a solid move off the 18 day MVA with volume strong. Looks like it can try for a move over the December high at 35.89 for a breakout from the cup base.
MEDQ: Still holding in the handle right on the 18 day MVA inside its cup base.
RSAS: Looks ready to try another bounce off the 50 day MVA. Doji just above that support on low volume.
SEBL: Looked ready to move above the 35 resistance, but that was wishful thinking and the stock behaved as the market indicated it would: turned back down, but on lower volume, so it was a healthy pullback.
SGI: Great move given back on lower volume. Still above the November high at 2.47 (closed 2 cents higher), but if it cannot hold here we are out. Should have taken the gain.
SPCT: Held with a small gain after the earnings pop, volume dropping back sharply. Looks like it wants to move up after holding above the buy point (broke out from a lateral pullback to the 200 day MVA).
TER (put): Held above 26 (looking for a move down to 23 but may not make it on this dip). Just holding it here.
TPTH: Tried a move up to resistance (near 8) in the ascending wedge but closed back down. Still a nice pattern.
TSCO: Covered in November and continues to march upward. Hit a new all-time closing high Friday and just may add to it; nice move.
SUBSCRIBER CHOICE:
ACTU (Actuate Corp--$6.47; +0.72; optionable): Application Software
http://biz.yahoo.com/p/a/actu.html
STATUS: ACTU is trying to move up the right side of a 5.5-month base that is part of the stock's much larger base of nearly 2 years' length. The stock looks ready to clear resistance at the November and December highs (6.52 and 6.64 respectively) on the nice spike in volume it got Friday (2.18 million; avg. 758,000) due to an upgrade. It will still have the October high at 7 and the 200 day MVA at 7.64, so it is not appropriate to call it a breakout at this point. Upon clearing this resistance, it can head up to the 200 day MVA and at that point may pull back to form a handle to the 5-month cup, though it really should clear the 200 day MVA first in order to form a good handle that can help break it out over the prior basing high at 10.65. Definitely looks like it has the strength to take Friday's move higher. Good money flow and buying! Earnings Thursday after the close. Target: 10
BUY POINT: Aggressive: Over 6.70 on continued strong volume. Stop: 6.23 (7%)
Over the 200 day MVA: 7.77 on continued strong volume. Stop: 7.23 (7%)
POSITION: Stock and/or May $5 calls to buy, aggressive, (UHQ EA) or May $7.50 calls to buy, over the 200 day (UHQ EU).
http://www.investmenthouse.com/cd/actu.html
Best Plays:
1) BBX: At support in the handle.
2) RBK: Ready to break out!
3) CBR: An 18 day MVA bounce play.
New:
UNTD (United Online--$5.29; +0.04; no options): Internet Software
http://biz.yahoo.com/p/u/untd.html
STATUS: Making its move off the bottom of a huge 2-year base. Broke out over its 200 day MVA in early December in a super strong move, then pulled back to the 18 day MVA from where it bounced early this month. After marching higher on that move (to the current January high near 6, UNTD is back near the 18 day MVA again (4.96). Judging from the nicely low volume and the hold at the support, the stock looks ready to try for another bounce. After breakouts over major resistance (such as the 200 day, or from a good base), stock can bounce 3-4 times from support before making a more major correction to regroup. Volume was low all week, down Friday to 89,100 (avg. 230,000). Will take aggressive positions (as usual on bounces) on a strong move up. Target: 7. Huge money flow and buying.
BUY POINT: Aggressive: 5.45 on volume in the range of 200,000 or higher. Stop: 5.07 (7%)
POSITION: Stock.
http://www.investmenthouse.com/cd/untd.html
BBX (BankAtlantic--$10.00; -0.04; optionable): Savings & Loan
http://biz.yahoo.com/p/b/bbx.html
STATUS: In a 15-week cup with handle inside a larger base (19 weeks) and pulling back in the handle on decreasing volume (172,000 by Friday; avg. 221,000). Can pull back to the 10 day MVA, currently at 9.85, but may not do so - the stock closed at 10, a price hit 6 times in the handle. That is pretty good support. Looking for a breakout over the January high at 10.19. Good money flow. Earnings out the 29th. Initial target: 12
BUY POINT: Breakout: 10.32 on volume of 332,000 or better. Stop: 9.60 (7%)
POSITION: Stock and/or May $7.50 or $10 calls to buy (BBX EU or EB). Deltas unavailable.
http://www.investmenthouse.com/cd/bbx.html
Update: We consider retail stocks that have made big runs to be the riskier plays now in these sectors, having priced in the good news from December. We are, however, looking to others that look ready to start or are making a first breakout within the context of the improving consumer sentiment buzz.
RBK (Reebok--$27.31; +1.51; optionable): Apparel Footwear
http://biz.yahoo.com/p/r/rbk.html
STATUS: Have been following since December when the stock first pulled back above support of its 200 day MVA after the nice breakout over that resistance. RBK at that time hit our aggressive buy point but immediately checked the move. It has taken a while, but finally made the breakout move Friday (after completing a test to the 50 day MVA after making just one bounce from the 18 day MVA post-breakout). That's okay, because this looks like a strong move with volume up to 1.04 million (avg. 710,000). No news in the morning to account for the move (sentiment?). The stock has good money flow, and relative strength is breaking out just ahead of price. RBK is in a 25-week base but the recent pullback cannot be termed a handle (at least a good one) as it is too low in the right side of the base. Target: 34
BUY POINT: 27.72 (needs to clear the January high of 27.59) on continued strong volume. Stop: 25.78(7%)
POSITION: Stock and/or April $25 calls to buy (RBK DE). Please check with your broker for deltas.
http://www.investmenthouse.com/cd/rbk.html
CBR (Ciber--$10.58; -0.11; optionable): Information Technology Software
http://biz.yahoo.com/p/c/cbr.html
STATUS: We notified subscribers of CBR's impending breakout from the cup with handle, and after doing so, it fully tested it, rallied, and has now pulled back to the 18 day MVA (10.37) with a doji on lower volume (272,100; avg. 218,000). Volume is still above average by Friday, but relatively speaking is much lower than on the breakout and recent attempts to move over the resistance. After the cup with handle breakout this will be CBR's second bounce from the 18 day MVA, good action. The stock has excellent money flow and buying, high relative strength. New target (upped from 11): 13
BUY POINT: Aggressive: 10.80 on volume of 294,000 or higher. Stop: 10.04 (7%)
POSITION: Stock and/or May $7.50 or $10 calls to buy (CBR EU or EB). Deltas unavailable.
http://www.investmenthouse.com/cd/cbr.html
Index:
QQQ (Nasdaq 100--$38.59; -1.06; optionable):
STATUS: The index gapped down for more than a point loss Friday, giving the aggressive entry point but not tumbling. Still looking weak and opening up another potential opportunity to get in or add to positions. Volume was higher at 82 million (avg. 73 million) on the move down, and the QQQ closed below the closing low in the November trading range at 38.79, a price that can now pose resistance. It tapped the 50 day MVA at 39.45, the intraday high. The index also beat out this month's previous low at 38.78. On a move below Friday's low at 38.22, continue to look for a move down; target is 35.
BUY POINT: 38 on continued rising volume.
POSITION: February $47 puts to buy (QQQ NU). Deltas unavailable.
http://www.investmenthouse.com/cd/$ndx.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, KRON, MIK, BMET, APPB, MYL, IGT
Recently dropped:
LOW: As soon as LOW looked in trouble it reversed back over the 50 day MVA Friday with volume strong though just lower. Merrill made some positive comments (a bit late) and with consumer sentiment up, the correction back to the 40 level support (near the June July and August highs) may have been all the stock needed for now. Still, it made us a ton, and we will look at getting back in on a move over the 18 day MVA, stock and/or April $37.50 or $40 calls to buy.
NVDA: Is below the 18 day MVA still (60.59) but showing good price/volume action. With volume sinking lower, NVDA may test the 50 day MVA (60), but that will be just fine until it is ready to rally back. For the last 4 days is holding support at the 62.50 level and may continue to do so, since the stock tested the 50 day Monday then bounced back up.
FRX: The handle to the 5.5-month cup is trying to level out price-wise (holding the 18 day MVA with a week of consecutive dojis) but volume is rising (high and above average for most of the week). Interesting.
IGT: Tapped the 50 day MVA last week and bounced (to end up the covered call sale play) and now is moving sideways along the 18 day MVA on low volume. That is interesting action, because it means the stock can pop up. If it does, can get a move up to the previous resistance near 72 (closed at 68). That is a quick 3-4 points for a quick trader, and who knows but IGT may break out over that high after the test of the 50 day. Buy point for aggressive is over 68, price hit three times since mid-December. Stock and/or April $65 calls to buy (check for deltas).
BMET: Trying to firm up as it tries to hold the 50 day MVA. Stronger volume Friday but still having a hard time budging upward, though it did make a small gain.
KRON: After the 2-day move on decreasing volume the stock had to pullback as volume as even lower. Showed a doji above the 10 day MVA, support it may test again here, if not the 18 day MVA at 54.15. A test of either level from here would keep the stock in what looks like a developing ascending wedge. KRON recently broke out from a long cup with handle base, and we closed out a covered call sale play on this week's pullback to the 18 day MVA. New buy point over 59.75 on strong volume.
APPB: Tried to put in a strong move but pulled off the high of 35.39 even on stronger volume. The stock closed above its 18 day MVA, however, so we will see if this bounce off the 50 day MVA can head up from there.
UP & COMERS PORTFOLIOS: BBBY, SRCL, EBAY, KG.
BBBY: Back below the 50 day MVA Friday, though volume was low which suggests is may try to hold at the level of some November prices (some from December) at the 31.60 range (closed at 31.82). Has the 18 day MVA at 32.87.
SRCL: Still has not been above to break above the 18 day MVA (58.67) after we wrote a 50 day MVA bounce play the previous week. Volume is shaking out well and the stock showed 2 consecutive dojis at week's end.
KG: Working through the base, closing below 40, but at this point it is close to the 200 day MVA (39) so we are just going to wait it out a bit more.
MEMBER PORTFOLIO: BRCM, AMAT, JNJ, MSFT, AOL, BUD. Removing AOL. Thought it might make a recovery back over the 50 day MVA, but continues to look weaker and weaker.
BRCM: Held the 18 day MVA for a small move up on rising volume. Looks ready to hold here though has good support should the market sag some more; at 45 and the 50 day MVA (44.06)
MSFT: Gapped down and closed below key support at the 50 day MVA. The 200 day MVA is at 64.67 and can find potential support there on a move down (if not at 65). Tends to be conservative on earnings; note that 8 cents went to legal bills. Too close to play for a covered call, and the gap down was not offering good entry points anyway. Needs to get back over the 50 day MVA very quickly.
AMAT: Holding 40 on low volume, but below the 50 day MVA. Hanging on by a hair, but weak. May hold here (volume was low and the stock bounced slightly). It also showed a shooting star doji, which suggests a possible move back up.
BUD: Still in the wedge. Tried to move up Friday on a nice rise in volume (still below average) but pulled back once it hit resistance at 46.80 level. As long as it holds above the rising 18 day MVA, currently at 45.65 (and the pattern is supported by a short term up trendline at 45.85 connecting this month's closing lows in the consolidation), still good. Stock and/or March $40 calls (as per 1-12 report); check for current deltas.
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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