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us stock market, stock watch
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Tech Traders 1/4/00 Market Summary
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Technical Traders Subscribers:
Continuing Plays:
ORCL (Oracle Corporation--$32.56; +0.56; optionable (ORQ)): Moved up slightly as volume pulled back to 57.5 million (avg. 45.2 million), the stock holding above the upper level in the former ascending wedge pattern (32). The support held well throughout the day's trading, so look for a move up from there on any pullback prior to a rally. The stock lunged back up to the upper level of the pattern Wednesday in the rally, after falling to a low of 25.63 the previous day.
BUY POINT: Breakout: 33.13, on volume of 61 million or better.
POSITION: Breakout: Stock and/or February or March $30 calls to buy (ORQ BF or CF).
http://www.investmenthouse.com/ct/orcl.html
(Click to view the chart)
CYTC (Cytyc Corporation--$62.94; -2.06; optionable (YQK)): Pulled back to likely support (62.88, hit four times recently) on lower, below average volume (536,500; avg. 670,000). The scientific and electronics stock is trying to break out of its cup base, and the low-volume pullback to support suggests that move.
BUY POINT: Aggressive: On a move up from here on above average volume. Breakout: 67.26, on volume in the range of 1 million. Remains a buy up to 70.62 on the breakout.
POSITION: Aggressive: Stock and/or February $60 calls to buy (YQK BL). Breakout: Stock and/or February $65 calls to buy (YQK BM).
http://www.investmenthouse.com/ct/cytc.html
(Click to view the chart)
AREM (Aremissoft Corporation--$42.38; -1.25; optionable (UKM)): The software stock had fallen out of a rolling pattern between 35 and 50 Tuesday, but blasted back up in Wednesday's rally on strong volume. Got a low-volume pullback to support, the stock testing the short term moving averages on the low of 42 (volume dropped below average to 346,200). Look for a move back up in a rally. Tapped 45.63 on the high.
BUY POINT: On a move up from 42 on stronger volume.
POSITION: Stock. Insufficient open interest on options listed for April and February.
http://www.investmenthouse.com/ct/arem.html
(Click to view the chart)
MEL (Mellon Financial Corp--$50.75; +0.37; optionable (MEL)): Moved up slightly on just stronger volume (2.7 million; avg. 1.8 million), pulling down from a high of 51.63. The buy point on the breakout from the ascending wedge pattern is 52.07; look for that as the financial sector rallies back with the Nasdaq. The stock has support at the 10 day MVA (50) should it pull back again in the pattern before heading back up, but look for support here as well--MEL closed at a price hit twice previously in December.
BUY POINT: Breakout: 52.07, on continued rising volume.
POSITION: Aggressive: Stock and/or March $50 calls to buy (MEL CJ).
http://www.investmenthouse.com/ct/mel.html
(Click to view the chart)
New Plays to look at:
TXN (Texas Instruments Inc--$52.06; +1.81; optionable (TNZ)): A chip stock that is in a type of wedging pattern and moving up the last two days on strong volume (19.3 million Thursday, avg. 11.3 million). The high tapped 54.69, which clears the stock of the pattern's high of 53.25. On a pullback look for support at 50, a price hit 5 times in the bottom half of the stock's base, though in a rally the stock can head up from here. The 200 day MVA is at 61.92.
BUY POINT: Aggressive: On a move up from here in a rally, on continued strong volume, or, on a move up from 50 on similar volume.
POSITION: Stock and/or February $50 calls to buy (TNZ BJ).
http://www.investmenthouse.com/ct/txn.html
(Click to view the chart)
MXT (Metris Companies Inc--$30.94; +2.94; optionable (MXT)): A financial stock that broke above its 200 day MVA (29.36) and its down trendline (connecting October and November highs) on outstanding volume (2 million; avg. 616,500), a bullish move up in its 3-month base. The stock tapped resistance on the high of 32.25. In a Nasdaq rally, the financials will run back up, but MXT looks ready to do so anyway on this momentum. Support looks firm at 30 on a pullback should that occur before a rally back up.
BUY POINT: Aggressive: On further upward movement on continued strong volume.
POSITION: Aggressive: Stock. February and March options had insufficient open interests (too illiquid for this stock).
http://www.investmenthouse.com/ct/mxt.html
(Click to view the chart)
THE SUMMARY:
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
TONIGHT:
- Some rest after the big surge, but watch those volumes.
- Again, not straight up from here with earnings just around the corner.
- Money was flying out of the market before the Fed cut.
- Experts change their tune 180 degrees, but they are still on the tube spouting forth.
- Earnings that are out are good, but warnings are still coming.
- Team Trades
Indexes try to rally, but give in to profit taking in the afternoon.
The day was working out pretty much as we wanted with a softer open and rally attempt after the first half hour. At that point it sold off and could not conquer the session highs when it tried again later; that brought in the rest of the profit takers and closed the indexes down.
Not really bad after such a huge move up, but the volumes were extremely high. The NYSE set another volume record while the Nasdaq plunked down 2.6 billion shares. Higher volume selling is never a good sign, but much of the higher volume selling was in those defensive sectors that have been riding high as the bear market grew: utility, energy, healthcare, food, beverage, smokes. Selling in technology was on lighter volume, and there was some heavier volume buying in selective technology stocks while telecom stocks surged on very heavy volume. Thus, it was a mixed bag as far as volume goes, but we do note that money is rotating between sectors versus leaving the market.
Rotation out of defensive sectors continues.
Many of the stocks that we have been following to the upside gave sell signals today as they crashed through the 50 day moving average on high volume. This is a follow through to the rotation out of these stocks we noted Tuesday night. Stocks that are receiving institutional support will jump back up off of that level or will quickly recover if they breach it. That represents institutions stepping in to hold the stock up. If a stock can move back over its 50 day moving average the next session, that is okay. Indeed, stocks often turn back up after breaking such an important level to test it as some buyers come in to try and support it. If enough buyers are not there, it will fail and lead to further losses.
Look at the following chart of CHCS (Chico's Fashions). It broke its 50 day moving average in September and October, but was able to recover. This was still flashing up a warning sign, but to that point institutions continued to steop in. Then it broke that level intraday in November, but jumped right back over it. It moved back up on much, much lower volume than the previous moves. That showed there were not many institutions coming in to buy the stock once again. Later in the month it broke the level again, but it could not recover the next session. Volume started to climb on the selling days. The next session it gapped over the 50 day, but closed below it. It tried one more time, but then the dogs were on it and if collapsed to the 200 day MVA. It tested below its 200 day MVA twice before it closed below it. Then it moved up and tested the 200 day, but it failed to take it out and collapsed further. Two tests of important levels after they were breached, and two failed tests.
http://www.investmenthouse.com/cd/chcs.html
The defensive stocks may recover when tech earnings start coming out next week, but that is conjecture (and maybe wishful thinking) by those we see on television who run funds that invest in these stocks. They are trying to calm investors and keep their fund values higher. Problem is, the volume of selling indicates that the big money is moving elsewhere for now. It may or may not come back. Warning lights all over the place on these stocks for now.
No big rally today, but do we sit it out?
It tried, but could not make it two sessions in a row. Huge moves followed by some digestion of gains is acceptable as long as volumes remain steady. As noted, that was mixed today. Still, sectors that have been hammered continue to improve, e.g., telecoms and semiconductors. That money that was too afraid to venture into beaten down areas is all of the sudden pouring into them.
This is just part of what we noted last night: this won't be a smooth sail from here. Technicians on the tube were saying that the market has to go test the lows just hit in December and early in the week. That definitely has been the pattern this past year, and each time the test ultimately failed. But that was with a hawkish Fed and no change in outlook for the economy. There is a big difference this time as the Fed has now switched to protecting and promoting the economy versus actively trying to slow it down. Perhaps there will be a test; the indexes are anything but clear at this point after being roughed up so hard. When we see moves that are bullish in plays that we want, however, we pull the trigger. It requires us to be diligent with sell points, but if we wait and hold off on bullish moves, we are not trusting what we are seeing and potentially let good gains slip by. It is like always waiting for that new high-speed chip to come out before buying that computer; the wait goes on and on as faster and faster machines come to the market.
Caution is the rule, but when we see the financial services stocks break downtrends on huge volume, telecoms breaking downtrends on huge volume, and key stocks making solid, high volume moves, we get in. We also continue to average into positions on great stocks we know will be back (e.g., SUNW, CSCO, GLW, etc.) with stock positions and option positions. The reason: technology does well after the Fed eases rates. According to Prudential, the first month is the best, and the first three months are better than the next three months. Indeed, the last three Fed rate cutting cycles saw tech stocks rise 65% in the following year. That is why we continue to average into great stocks and make plays on those stocks that are showing heavy buying interest. We will have down days when bad earnings come out, but the landscape changes when the Fed starts easing. What was a series of deep canyons we had to climb down and out of all of the sudden has a suspension ladder spanning it; rickety and sometimes scary, but it gets the job done for those who venture across it.
More information on why the Fed acted so fast.
The NAPM was a big factor, but another report circulating the brokerage houses showed that $13 billion flowed out of the market on Tuesday. That is a ton of money. The Fed saw these figures, and the word is that it feared a complete meltdown of the market. Things were not looking too good for them Tuesday and Wednesday as the Nasdaq had hit a new 52-week (and more) low each day. Moreover, we understand that big institutions were directly communicating to the Fed that there was no liquidity in the market to sell many issues. This was similar to the credit crunch in 1998 when spreads were so wide no one would trade.
Fed cuts discount rate another 25 basis points.
After the close today the Fed cut the discount rate another 25 basis points at the request of the 12 Federal Reserve Banks. The Fed said Wednesday it would do so if requested, and it was. This is the rate charged to commercial banks when they need to borrow money from the Fed, but it is rarely used as banks lend each other money. Stocks jumped on the news as some investors were confused about what was being done, but they then settled right back down.
Are you sick and tired of these guys or what?
Today Stephen Roach, economist from Morgan Stanley, was back on the tube delivering his expert opinion on what the Fed did and what was going to happen. He is a former Fed member back in the glorious early and mid 1970's. He stated that 'when the dust settled' we would be in a recession. He stated that the Fed would cut another 100 basis points "at a minimum" this year. Just three and four months ago Mr. Roach was saying the Fed had to RAISE interest rates another 100 basis points to quell the runaway economy. Indeed one of the statements came after the Fed left rates alone and Roach was grousing about that. He was complaining about how the Fed got in trouble back in the seventies when energy prices were rising. The Fed screwed things up then and they may have done so again even as he urged them on. Yet, today he was pontificating in his usual superior tone as if he had predicted this. And of course, no one on the tube was putting him to the task, asking him about how wrong he had been before and what the heck made him think he was right now. Gee, wish he was an opposing expert on the witness stand in one of my trials; that kind of cross examination is dreamed of.
And then there are the Wall Street Journal columnists on CNBC where the anchors treat them as if they were economists and knew all the answers. Tonight one was stirring the pot about valuations on tech stocks saying that with Wednesday's rally they were once again overvalued. By their standard, tech stocks would have to go nowhere for five years and grow earnings 40% per year in order to be 'properly' valued. Yes there are stocks that have no earnings now, have had no earnings in the past, and are not going to have earnings in the future. These are stocks to avoid. We don't mess with them. But these reporters act as if ALL tech stocks are ridiculously priced and investors are just going to get slaughtered if they buy tech stocks. Only at the end of the interview when Ron Insana questions whether all tech stocks are overvalued is it mumbled that of course certain stocks do have earnings that are great and still surging ahead.
The point: these guys are looking for news, and what gets an investor's attention most? Some contrarian story that says 'this time it is different' with respect to whatever happened that day. Today it was the Fed rate cut and how tech stocks and markets do better when rate cut cycles start. This is just like the 'analysts' who make controversial calls to get a name for themselves. These tend to come when things are less than stable, and thus they tend to be self-fulfilling prophecies. The chip downgrades were a classic example. The call was for a slowdown, and while some did slow down, it was blown way out of proportion.
Earnings better than expected in brokerages.
LEH and MWD topped earnings estimates in a weak stock market. That was a surprise, and it helped the smaller brokers more than the big boys today. Rate cuts should only help these stocks. SMTC also said it would meet fourth quarter expectations. Others are coming in as well, but the news is all focused on the warnings. That is the sentiment, and to us, that is still good. We don't need too much bullishness. We want to keep that wall of worry so the markets can climb higher and higher.
End Part 1 of 2
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