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Begin Part 2 of 2
Support and Resistance
Nasdaq: Closed at 1937.70.
Resistance: The 50 day simple MVA (1963.97) is still acting as resistance. Before that, the index has still not broken free of the November consolidation range from 1934 to 1941. In addition the 50 day exponential MVA is at 1940.64; it has not broke that either. After that is 2000 and then the December intraday high at 2065.69, followed by the January intraday high at 2098.88.
Support: The bottom of the November consolidation (1875). 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 1133.28.
Resistance: The 50 day MVA (1137.48) held once again on the close. Then there is resistance on up to 1150. After that the 200 day MVA is at 1166.61. The December high (1173.62) and January high (1176.55) all line up as strong resistance.
Support: 1125 is still holding. 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 9840.08.
Resistance: The 50 day MVA (9875.09). Then 9992 to 10,000. After that the 200 day MVA (10,107.04).
Support: 9750 to 9690 continues to hold. 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.
1-28-02
New Home Sales, December (10:00): 923K versus 934K prior.
1-29-02
Durable Orders, December (8:30): 1.0% versus -4.8% prior.
Consumer Confidence, January (10:00): 95.0 versus 93.7 prior.
FOMC Meeting starts
1-30-02
GDP-Adv., Q4 (8:30): -1.1% versus -1.3% prior.
Chain Deflator-Adv., Q4 (8:30): 1.9% versus 2.3% prior.
FOMC Meeting (2:15).
1-31-02
Initial Claims, 1/26 (8:30): 376K versus 376K prior.
Employment Cost Index, Q4 (8:30): 1.0% versus 1.0% prior.
Personal Income, December (8:30): 0.2% versus -0.1% prior.
Personal Spending, December (8:30): -0.2% versus -0.7% prior.
Chicago PMI, January (10:00): 45.0 versus 41.5 prior.
Help-Wanted Index, December (10:00): 45 versus 45.
FOMC Minutes, 12/11
2-1-02
Nonfarm Payrolls, January (8:30): -60K versus -124K prior.
Unemployment Rate, January (8:30): 5.9% versus 5.8% prior.
Hourly Earnings, January (8:30): 0.2% versus 0.5% prior.
Average Workweek, January (8:30): 34.2 versus 34.2 prior.
Michigan Sentiment-Prel., January (9:45): 94.2 versus 94.2 prior.
Construction Spending, December (10:00): 0.2% versus 0.8% prior.
ISM Index, January (10:00): 49.5 versus 48.2 prior.
SUBSCRIBER QUESTIONS
Q: When you have a support level in mind for a stock, is this set in stone on executing a sell if it hits intraday or only if it closes at or beneath that level? Case in point: SYMC [Wednesday]. Hoping for a hold of 74 but it did fall below before recovering. I did not sell when hit intraday but had in mind to, if it closed below.
A: SYMC is a pre-split stock that has been on a nice run heading into its split this week, combining the momentum of a pre-split with a good 50 day MVA bounce for a $10 move. It showed some action Tuesday and Wednesday that often chases us out of pre-splits after they have made a good move: closed off of the intraday high Tuesday and then gapped a bit higher Wednesday and sold down below the Tuesday closing price. After a good pre-split move that often indicates more selling ahead and we will often take profits at that point.
More specific to your question, usually we look for the stop point we have set to hold on the close. Many times we see a stock test below the 50 day MVA or other support level (e.g., price consolidations) intraday and then recover and continue on up from there. What we usually look for is whether the stock closes below the support level we want to hold, and then cannot break back over that level on the close the next session.
We try to use support levels or resistance as buy points as much as possible. For example, when a stock breaks free and clear of resistance on strong volume, that is where we want to buy it. Then we can use that broken resistance as our support level. If we buy the stock within 5% of that support level (the former resistance), setting a 7% stop loss point allows the stock to test below the support level intraday and recover without having to worry about selling or not.
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: Volume was back up again Friday to push TECD up another point on its ascending wedge breakout. CBR hit our aggressive buy point on the bounce from the 18 day MVA, and volume was strong as the stock closed at the upper resistance (just over 11).
Stocks/Indexes from the Thursday report:
HELE: Testing the breakout and tested the 18 day MVA again, bouncing slightly on rising volume.
RNBO: A small move up, still on low volume in the handle to its cup.
DGX: Continued to pull back in the handle as we thought it might, but threw a big volume spike with a shooting star doji. Still looks good!
NVDA: After crossing back over the 18 day MVA in a stronger move, held the support as volume fell back below average. Positive action as we wait for the move up to 72.
MSFT: A put play still below the 200 day MVA and looking weak.
Continued Plays:
ANSR: Disappointed with a drop out of the handle to its cup, breaking the 18 day MVA.
JPM: Wrote a put play on this stock back in December when the stock was in a descending wedge. It took some time but after a move back over and again below the 50 day MVA the stock hit our buy point Friday (35), moving down on strong volume. Target is 29. Could have some trouble; the company was much involved with helping Enron develop its off-shore partnerships.
PSFT: Back below the 50 day Friday after opening below the lower 200 day MVA. It moved back over that but only tapped at the 50 day MVA despite huge volume. Still looking for a move down, through the 200 day MVA again (35.82). See the 1-23 report.
SUBSCRIBER'S CHOICE:
VVUS (Vivus Ic--$7.09; +0.19; optionable): Health Services
http://biz.yahoo.com/p/v/vvus.html
STATUS: VVUS broke out of a saucer with handle mid-December on huge volume (on an upgrade and from the tight, lateral handle), tested the 18 day MVA with 2 bounces then ran back up in the test of the breakout on solid volume. It has pulled back from the breakout high (8.35) on steadily decreasing volume and now is again at the 18 day MVA support (6.58). From there the stock bounced, volume was lower at 447,200 but still just above average (341,000). It now looks ready to hold the 18 day MVA, and if volume keeps falling can consolidate there for another day or two before bouncing back up again. That is the move we are looking for. The stock has strong money flow. Target: 10
BUY POINT: Aggressive: 7.15 on volume of 350,000 or higher. Stop: 6.65 (7%)
POSITION: Stock.
http://www.investmenthouse.com/cd/vvus.html
Best Plays:
1) CNMD: Such a tight ascending wedge.
2) IMAX: Testing the breakout.
3) SMTC: Fighting the 200 day MVA (put).
New: Some good patterns. Remember, in this market on upside action we are looking for a 15-20% move up to targets on the stock and at that point taking our profits.
CNMD (Conmed--$20.48; +0.13; optionable): Health Services
http://biz.yahoo.com/p/c/cnmd.html
STATUS: A nice ascending wedge pattern where there should be a handle to CNMD's 22-week cup base. This is not where we necessarily like to see ascending wedges, but if the pattern is good and the sector is doing well, we can look at riding a breakout for the shorter term; once the move looks ready to top out, we can get out. This wedge is holding solidly above the 18 day MVA over the last week, and volume is very low save on attempt at a spike on Tuesday (by Friday was at 52,700; avg. 83,000). Have to like the tightening action in the tail of this pattern, so look for a breakout and can look at aggressive entry points for partial positions on a strong move over 20.68. The stock has outstanding money flow, and high relative strength. Target: 26
BUY POINT: Aggressive: 20.70 on above average volume. Stop: 19.25 (7%). Breakout: 21.55 on volume of 112,000 or higher. Stop: 20.04 (7%)
POSITION: Stock and/or May $17.50 calls to buy (KQD EW).
http://www.investmenthouse.com/cd/cnmd.html
A financial stock in a cup with handle base:
HIB (Hibernia--$17.85; +0.08; optionable): Regional Banks: Southeast
http://biz.yahoo.com/p/h/hib.html
STATUS: HIB is in a 21-week cup with handle base. Prices in the handle tightened up very nicely Tuesday through Thursday, holding above the 18 day MVA (17.74). Friday the stock gapped lower to open, then recovered back up to close at the previous levels; volume was high (but lower than Thursday's sharply higher volume) at 1.07 million; average is 465,000. Look for a continued hold at the support for a move up to breakout; HIB has strong money flow, and in the climate of lower interests rates, is in good position to perform well, particularly out of a decent pattern. Target: 22
BUY POINT: Breakout: 18.43 on continued rising and strong volume (minimum breakout volume is 698,000). Stop: 17.14 (7%)
POSITION: Stock and/or April $15 calls to buy (HIB DC).
http://www.investmenthouse.com/cd/hib.html
Some small stocks:
IXX (Ivex Packaging--$20.85; +0.73; no options): Packaging and containers
http://biz.yahoo.com/p/i/ixx.html
STATUS: IXX was moving in a flat $2 trading range prior to 9-11 where it tanked but then recovered in 1.5 months to again range in that $2 range between 18 and 20. It has bounced up the 50 day MVA since October, and since January it has shifted the trading range 19.50 to 20.50. It has shown very favorable price/volume action this month, spiking volume on up sessions and backing way off on down sessions. Friday it moved up over the top of the trading range on a volume surge (199,200; average is 52,636). In an improving economy certain sectors perform well. Packaging and transportation (e.g., trucking) are picking up. Excellent money flow, relative strength is breaking out as it should on this move, and price/volume action is good as noted. Target: 25.50
BUY POINT: 21.25 on continued above average volume. Stop: 19.25 (50 day MVA at 19.50).
POSITION: Stock
http://www.investmenthouse.com/cd/ixx.html
ELON (Echelon Corp--$19.50; +1.55; optionable): Business Software
http://biz.yahoo.com/p/e/elon.html
STATUS: ELON broke above its 200 day MVA on Friday with volume strong and rising (1.25 million; avg. 423,000). The stock blasted back above the 50 day MVA on the 18th after an earnings announcement in which the company reported meeting expectations, following up with this clear breakout from the bottom of the stock's 7-month base (within a 2-year base with highs at 105). Money flow has lunged to high levels, and buying is strong, too. Look for a continued move up from here, for a general uptrend into the right side of the smaller base. ELON can pull back to test the 200 day MVA (or the November high at 18.49) for new or add-to entry points. Initial target: 26
BUY POINT: Aggressive: From here on continued strong volume. Pullback to test the 200 day MVA (18.17): 18.50 on above average and rising volume.
POSITION: Stock and/or May $17.50 calls to buy (EUL EW).
http://www.investmenthouse.com/cd/elon.html
Put:
SMTC (Semtech--$33.61; +0.11; optionable): Semiconductor
http://biz.yahoo.com/p/s/smtc.html
STATUS: Has sold back since early this month, but has been trending down since December. Now SMTC is just under its 200 day MVA (33.73) after selling below the support on Tuesday with strong volume. Volume remains high and pumped back up Friday to 2.37 million (avg. 1.3 million) as the stock tried to get back over the resistance, the company reporting expectations of net sales in the fourth quarter to be at the high end of previous estimates. SMTC tried on Wednesday to break the resistance on similar volume but failed, so we are looking for it to let go and drop to an initial target at 28. The September and October lows are near 25.
BUY POINT: Aggressive on the "kiss good-bye": 33 on continued strong volume.
POSITION: March $42.50 puts to buy (QTU OV).
http://www.investmenthouse.com/cd/smtc.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, IGT
FRX: Testing the 18 day MVA on low volume after the failed breakout.
IGT: Holding just above the 50 day MVA after Thursday's heavy selling.
ACS: Bounced from 91 as the selling abated, moving up and almost tapping the up trendline it broke Thursday. A strong breakdown, though could hold 91 on continued decreasing volume.
MIK: Has been running up for three days on low volume, and is at the level of the December highs. Likely to pullback to the 18 day MVA here.
UP & COMERS PORTFOLIOS: BBBY, SRCL, EBAY, KG.
SRCL: After bouncing from the 50 day MVA on low volume Thursday, the stock sold back and barely breached the support Friday. The low tapped the up trendline (connecting the May, August and January lows) but the stronger volume means it might break the support.
MEMBER PORTFOLIO: BRCM, AMAT, JNJ, MSFT, BUD.
JNJ: Moved down to sit on the up trendline noted in Thursday's report. Volume was lower so we look for a hold and move back over the 50 day MVA.
BUD: Recovered back above the up trendline in the ascending wedge, and also the 10 and 18 day MVAs. Volume was below average, down from the high levels on Thursday's selling, that messed up the pattern. That move definitely weakened the pattern, but the quick recovery is interesting.
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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