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Begin Part 2 of 2
Support and Resistance
Nasdaq: Closed at 1922.38.
Resistance: The 200 and 50 day MVA (1943.01 and 1940.69, respectively) are directly ahead, and roughly coincide with the tops of the November consolidation (1934 to 1941). The March 2000 down trendline at 1942. Then 2000. After that, the December intraday high at 2065.69, followed by the January intraday high at 2098.88.
Support: The bottom of the November consolidation (1875) held. After that point, 1800 at best. As noted 1750 would be a 50% retracement. Support at that level looks to be anywhere from 1700 to 1750.
S&P 500: Closed at 1128.18.
Resistance: Trying to clear the March 2000 down trendline (1122) and the 1125 consolidation range; has not broken away yet. The 50 day MVA (1137.88) to 1150 are more formidable. After that the 200 day MVA looms at 1166.33. The December high (1173.62) and January high (1176.55) all line up as strong resistance.
Support: 1125 more or less held; the index has not really decided if it is going to break away just yet. After that is 1100, the tops of the November consolidation range. That is followed by a range of support from 1075 to 1050, the 1050 level holding twice in October. That is right at the 50% retracement.
Dow: Closed at 9730.96.
Resistance: Still the 50 day MVA (9879.80) has checked upward movement thus far. Then 9992 to 10,000. After that the 200 day MVA (10,103.87).
Support: 9750 to 9690 has held firm thus far. From here it gets dicey all the way down to 9500, a level of good support. After 9500 there is a very congested trading range from 9125 to 9500. A 50% retracement is 9181.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-22-02
Leading Indicators, December (10:00): +1.2% actual versus 0.7% expected and +0.8% prior (revsed from 0.5%).
Treasury Budget, December (14:00): $26.6B actual versus $24.0B expected and $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.
TEAM TRADES
Today was a mixed day, downside looked good early, and then a rally in tech, and pullback on the Dow late. It had something for everyone, and we took part in many different moves.
NTIQ was on the SSR as a put. It had the typical action of late: a rally, twin tops, a breakdown below the 50 day MVA, then a weak test. We were looking for the fall back down. That did not take long today. The stock did just what we wanted: it started the day higher, ran up to test resistance once again, and then turned lower. It broke below our entry point after about 15 minutes, but we held off issuing an alert to the SSR subscribers until it moves laterally for 10 minutes and then started to fall. That was the move we wanted and the cue to enter the put positions. This is one of our favorite put plays: the break of support, the rally back up to test it, and then the fall from there. This one worked out well today; most of the action was over after the first hour, but the stock was not able to make a strong move higher even as the market rallied later, that is a good sign that when the market weakens again, it will resume its fall.
DSTM: We had entered this smaller priced stock early in the month, watched it run to 8 and then pullback to 7. Still in the black, but not the move we wanted so fast. Also, we had seen some down sessions on above average volume. We decided to put a target in at $8, giving a 20% upside move from the first buy point. We decided that was a good point to take some money off the table; the move was back to 8, it ran over that level and started to pullback, and volume was not huge. In this market we decided to take some money off the table.
DJX: We were looking at add some more DJX puts when it tripped below the December low. It did that about a half hour into the session after an attempted move higher. We entered some more positions when it did that. We knew it could bounce higher, but we liked the fact it has rallied earlier and then pulled back. As it turned out the index rallied, pulled back to test 97, and then rallied sharply after lunch. It capped out with a double top and started to sell. That had us feeling better, and the index dropped close to the entry point before a little bump at the close. Overall we are please, but of course we always like to see our put positions just tank. UP and down, up and down, but right now the trend is still down.
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: INOV gave the move we wanted off the 10 day MVA after testing the recent breakout over the 200 day MVA
Stocks/Indexes from the Tuesday report:
TECD: Hit the buy point in the ascending wedge but pulled back down below the pattern's resistance level. Volume was lower, so we will look for another try as the stock holds above the 18 day MVA.
INOV: A nice move off the 10 day MVA after testing the recent breakout over the 200 day MVA. Closed one cent above the breakout closing high and while volume was lower, it was still strong and above average.
IXX: Up on stronger volume on a bounce from the 50 day MVA.
BRCD: Made a good bounce back over the 50 day and 200 day MVAs in regular trading, but pulled back a bit after hours on QLGC news; not much however.
DFXI: New all-time closing high on a breakout after a test. Strong move.
DJX: Hit the buy point at 97 but bounced slightly. An expected move, and may head up to the 50 day MVA before making the move down if it cannot take out the resistance.
FRX: Gapped higher and above the handle high, making the buy point, but showed a doji on high volume. Can test back to the 82 range now where we will look for it to hold support for another try, but on the higher volume we wanted a better breakout!
BBX: Hit the 18 day MVA in the handle and surged back up above 10, good support in the handle (well, the stock did fall below that on Tuesday). Volume was lower, so we will look for BBX to hold up in the handle here.
QQQ: Bounced as expected, turning up on lower volume. Just the scenario for a fall once it hits resistance (and looking for that at the 50 day MVA).
Continued Plays:
OLGC: Bouncing from the 50 day MVA on strong volume. Earnings are out before the open tomorrow, so the stock was running up to those numbers!
SBUX: A strong move up in the cup with handle; buy point is 23.10 on volume near 6.5 million!
SEBL: Profits were lower but beat expectations. The stock was up on strong volume but 35 held it tight. If it can break out, buy point is over 36.05 on higher volume. The stock is forming an ascending wedge, supported by the 18 day and 200 day MVAs and pressured by 35. Iffy though, in context of the Nasdaq's action the last 2 days (expecting a rollover once the index hits resistance at the 50 day MVA).
TER (put): Reversed on strong volume on an upgrade, but pulled off the high that tapped near the 50 day MVA resistance. On a move over that level, closing the put play. Target is down at 23.
TYC (put): Moved back down to 44, offering an exit point on existing positions. Still looks weak.
WMT: Looks super the last 2 days, buoyed by K-Mart's bankruptcy filing. Broke out to a new high.
Best Plays:
1) WERN: Ready to break out again after a test.
2) SBGI: Looks ready for a move up in the handle.
3) PSFT: Moving up to a possible "kiss good-bye."
4) IGT: Looking for a pop if earnings are good.
New: Some good patterns. Remember, on upside action we are looking for a 15-20% move up to targets and at that point taking our profits.
WERN (Werner Enterprises--$26.89; +1.48; optionable): Trucking
http://biz.yahoo.com/p/w/wern.html
STATUS: WERN broke out of a 5-month v-bottomed base early December, and tested back to the 50 day MVA a month later as it moved in a new 7-week consolidation as a test of the breakout. It again tapped the 50 day on Tuesday (the support is at 24.58) and Wednesday shot up in a solid move after a late Tuesday earnings report (higher earnings and revenues for the 4th quarter). Volume was up to 804,100 (avg. 234,000). As price approaches the December high at the start of this short base (27.30), look for the breakout. Strong money flow and buying. Target: 33
BUY POINT: Aggressive: 27 on continued strong volume. Stop: 25.11(7%)
POSITION: Stock and/or May $25 calls to buy (QEH EE). Deltas unavailable at the time of this writing. Please check with your broker.
http://www.investmenthouse.com/cd/wern.html
Two small ones in cup with handle patterns:
ANSR (Answerthink--$7.40; 0.00; optionable): Diversified Services: Business Srvcs
http://biz.yahoo.com/p/a/ansr.html
STATUS: ANSR is in a 19-week cup with handle base and currently holding support at the apparent base of the handle at the 18 day MVA (7.28). This base is part of a 15-month base (within a larger base as well). The stock bounced from the 18 day/200 day crossover (which in itself is bullish) just after mid-December and ran to the handle high at 8.34 this month. After this lower volume pullback (nicely below average in the handle, and at 173,600 Wednesday; average 326,000) and hold at support, we are looking for the move up and breakout. ANSR has good money flow. Target: 10
BUY POINT: Breakout: 8.47 on volume of 489,000 or better. Stop: 7.88 (7%)
POSITION: Stock and/or April $5 or $7.50 calls to buy (QRA DA or DU; $5s have low open interests but good delta).
http://www.investmenthouse.com/cd/ansr.html
SBGI (Sinclair Broadcast--$9.86; +0.11; optionable): Media: Broadcasting (TV)
http://biz.yahoo.com/p/s/sbgi.html
STATUS: Another cup with handle and holding at the 18 day MVA in a nicely formed handle that shows the nice, gradual pullback in price and volume we like to see. Volume was up a bit Wednesday to 211,100 (avg. 335,000) as the stock moved up slightly from the support, and this looks like it could be start of a move up to breakout. The stock has outstanding money flow and buying. This can be SBGI's third 18 day MVA bounce after the stock broke out over the 200 day MVA back in early December. Looking for the breakout over 10.19 (handle high). Target: 12. Looking to take our profits upon making the target.
BUY POINT: 10.32 on volume of 503,000 or more. Stop: 9.60 (7%)
POSITION: Stock and/or March $7.50 calls to buy (JQO CU; low open interests).
http://www.investmenthouse.com/cd/sbgi.html
Put:
PSFT (Peoplesoft--$36.45; +2.86; optionable): Application Software
http://biz.yahoo.com/p/p/psft.html
STATUS: Earnings are out after the close Thursday. The stock was trading up slightly after hours, but was still below the 50 day MVA (37.26), which it was at the close of regular trading. PSFT was up and over its 200 day MVA (35.67) on the move, but on the lower volume (11 million; avg. 7.6 million), we are looking for the stock to hold below the resistance. On a break back below the 200 day, looking at buying puts for a fall to an initial target at 30. Below that, 22. With the Nasdaq up on lower volume and below its own resistance, on a move back down in the index we are looking for the techs to follow suit, particularly these that are below strong resistance. PSFT has had the specter of accounting irregularities raised.
BUY POINT: 35 on rising volume.
POSITION: March $45 puts to buy (PQO OI).
http://www.investmenthouse.com/cd/psft.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
IGT (Internat Game Tech--$68.42; +0.42; optionable): Leisure
http://biz.yahoo.com/p/i/igt.html
STATUS: After tapping the 50 day MVA on the low over a week ago, IGT has consolidated laterally for 4 days in a tight pattern, with volume falling off and well below average (657,700 Wednesday; avg. 1.2 million). The stock opened at the 18 day MVA (support in the recent pattern at 67.33) and gave a small move up on a very slight rise in volume. Earnings are out before the open tomorrow, and that can give the stock a catalyst for a pop if the news is good. Has been riding the support very quietly ahead of the news. The tap at the 50 day MVA was on a lower volume pullback from the December high at 71.95, so overall IGT has shown good price/volume action. Will look for a pop up to the December for an initial target for the quick play. Above that, 83.
BUY POINT: Aggressive: 69 on volume of 1.3 million or higher. Stop: 64.17 (7%)
POSITION: Stock and/or April $60 calls to buy (IGT DL).
http://www.investmenthouse.com/cd/igt.html
ACS: Announced a 2 for 1 split but that could not stop the selling that was coming as it broke the 50 day MVA and dropped to 95, the up trendline. ACS bounced from there but is still under the moving average. It had set up the correction with the move over the upper channel. It may or may not recover. We closed some positions and sold calls on others as we wanted to keep some shares on the 2:1 split. Have to be careful here as rises above the channel are often met with hard selling as we have been saying.
BMET: After the seemingly wishy-washy action at the 18 day and 50 day MVAs, BMET popped clear of the mess Wednesday, but volume dropped back rather sharply and back below average. BMET has a down trendline at about 31.50 so needs to get over that before we are convinced there is something solid behind the move (another down trendline at the 32.50 range).
UP & COMERS PORTFOLIOS: BBBY, SRCL, EBAY, KG.
BBBY: Was back over the 50 day MVA on rising volume with retail stronger Wednesday.
KG: Another stock moving over the 50 day MVA; volume was up sharply and above average. KG has a down trendline at about 42.
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: Reported earnings with a penny loss, less than was expected, and loss in revenues. In regular trading closed above the 50 day MVA, but was down over 2.5 points after hours.
AMAT: Bounced up to the 50 day MVA as expected. Good point to exit positions if it cannot power higher tomorrow.
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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