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us stock market, trend trading stock
Begin Part 2 of 3
Dow/NYSE
The Dow was trying to hold above 9500, and it did so for now with a nice Friday rally. It has some immediate resistance ahead from the January down trendline, but it appears to have the momentum to clear it. The big test comes a bit higher up. The Dow is showing more life and resilience than the Nasdaq, but it still needs a high volume follow through starting sometime Wednesday.
Stats: +118.80 (+1.2%) to close at 9744.24.
NYSE Volume: 1.383 billion (-4.8%). Still above average but declining on the first gain in 6 sessions. The index suffered distribution throughout January, and it has yet to show positive price/volume action (higher on up sessions, lower on down sessions) that would indicate that stocks overall are being accumulated once again.
Up volume: 1.037 billion
Down volume: 320 million. As indicated on Thursday when up volume took back the lead, buyers were in the majority Friday. Unfortunately they were not out in greater numbers than the previous sellers.
A/D and Hi/Lo: NYSE advancing issues turned the tied, coming in at 1.99 to 1 (decliners led 1.2 to 1 Thursday). It was an impressive A/D showing, one that we would look for on a follow through session.
New highs: 80 (+2)
New lows: 56 (-18)
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow may look better than the Nasdaq overall, but it is still in the process of forming a base. It is still trending down since January, but unlike the Nasdaq, it is moving more laterally, testing support at 9500 and not yet giving it up. Another plus is that it did not undercut the January low (9529.46) on this last pullback. Now it has a quick test on the upside at the down trendline at 9800. It looks as if the Dow is going to take that down trend out as it heads toward the simple 50 day MVA at 9913.86 that stopped the Dow on its last two recent rally attempts. If volume does not increase significantly (above average, accelerating on the gains) as it rallies, it will then most likely run out of steam at the simple 50 day MVA or right in that range. Again, we are playing this move higher, and we will watch what the market is telling us about the strength of the move as to how long we maintain the upside positions.
S&P 500: As noted on Thursday, the S&P and Dow show similar patterns: a deep intraday test of support two Wednesdays ago and then pulling back after a brief rise to test that level once again. It was refusing to give up support at 1078 to 1080, and was able to mount a rally after holding that level again Friday on the low (1079.91). It too has some immediate resistance at the recent January down trendline and also the September 2000 down trendline right at 1110. The S&P has cleared the September 2000 down trendline before and we believe it will do the say now. There is more resistance at the 50 day MVA (1126.07) and price consolidations at 1125. It needs buying volume to give any break of these levels significance longer term. Big caps are still struggling but are going to rally over the next few sessions. What volume comes in will determine whether this is just a relief bounce or the end of a 42% retracement of the gains off of the September bottom.
Stats: +16.05 (+1.5%) to close at 1096.22.
Volume: NYSE volume slipped lower on the gain (1.383 billion; -4.8%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
THIS WEEK
A slow economic week for Monday and Tuesday, but then it picks up the last three days with the retail sales Wednesday and Michigan sentiment statement again and the PPI on Friday. Dell will come out with earnings as well. The first of the week will be rather quiet other than analyst comments on Monday; most likely those will be positive in most cases, but the new way to make a name is to raise accounting issues. On top of all of that, President Bush said this weekend that stimulus was not dead because it was needed and the U.S. public wanted it. Tell that to the Senate.
The market will more or less have the ability to move on its own then through the end of session Tuesday. That may just keep this rally alive until that time. That is why we have set our upside targets on the upside plays started Friday at the resistance levels ahead; we will need to see something more, i.e., impressive upside volume, to keep us in those plays longer.
The market is still in a downtrend from the January high, and we treat is as such with our plays. We have been playing the trend, but also playing upside when the relief rallies come. At the same time there have been leadership groups as we detailed in the summary that have been taking a rest the past few days; they are getting set up for their next moves.
Thus Monday we anticipate a continuation of the move that started Friday. We have conservative upside targets on existing and new upside plays as we are still in a market that will reward you for 15% to 30% upside, but then will take it away just as quickly. Until we see a change in character, we are keeping our trades even in dollar amounts, cutting losses when the stock drops 7% or below other support, taking profits when the stock gives us that 15% to 30% upside.
Support and Resistance
Nasdaq: Closed at 1818.88.
Resistance: The short term January down trendline and the March 2000 down trendline have merged with the bottom of the November consolidation at 1875. That is significant resistance, and it runs up to 1900. The 50 day MVA follows at 1915.65 followed by the 200 day MVA at 1935.08. The 1934 to 1941 range represents the top of the November consolidation. After that we look at the simple 50 day MVA (1956.74) that stopped the index in late December.
Support: Turned at 1772 on Friday's low, right below some support at 1775. The November gap up point is 1745. 1743 would be a 50% retracement. Support at that level looks to be anywhere from 1700 to 1750.
S&P 500: Closed at 1096.22.
Resistance: 1100 could try to stop it on the way back up. Then there is the recent down trendline and the September 2000 down trendline merging right at 1110. Above that is the 50 day MVA (1126.07) and that combines with price consolidations at 1125.
Support: 1078 to 1080 continues to hold; it has been growing as a support level with each successful test. There is a jumble of prices in a range from 1075 to 1050, perhaps the reason this 1080 level has held well for now. 1050 was tested twice in October, holding both times. That is right at the 50% retracement (1060).
Dow: Closed at 9744.24.
Resistance: Clearing the range from 9691 to 9750, the bottom of the November, December and January range. The quick test is the January down trendline at 9800. That is followed by the simple 50 day MVA (9913.86) and price consolidations at 9992 to 10,000. Then the 200 day MVA (10,086.98). The January high at 10,300 level is last.
Support: 9500 was tested on the January intraday low, and it seems the level is continuing to act as 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.
2-13-02
Retail Sales, January (8:30): -0.2% versus -0.1% prior.
Retail Sales ex. Auto (8:30): 0.2% versus -0.1% prior.
2-14-02
Business Inventories, December (8:30): -0.5 versus -1.0% prior.
Initial Claims, 2/9 (8:30): 376K versus 376K prior.
Export Prices ex-ag., January (8:30): -0.4% versus -0.4% prior.
Import Prics, ex oil, January (8:30): -0.3% versus -0.3% prior.
2-15-02
PPI, January (8:30): 0.2% versus -0.7% prior.
Core PPI, January (8:30): 0.1% versus -0.1% prior.
Industrial Production, January (9:15): 0.0 versus -0.1% prior.
Capacity Utilization, January (9:15): 74.3% versus 74.4% prior.
Mich Sentiment-Prel., February (9:45): 94.3 versus 93.0 prior.
SUBSCRIBER QUESTIONS
Q: Everyone I know keeps saying that we will not go down to the September lows again (or lower). Why not? Seems almost a sure thing since no one believes it .........the perfect trap!!!
A: That is usually the case isn't it? It is often the case that when everyone decides something has to be, it never comes about. Now I can give you some reasons why id do not think it will head back down to the lows (at least not all of the indexes), but as investors, all we can really do is listen to what the market is telling us. The economy keeps improving, but as I have been saying, the quality of the recovery is in question, and as long as that is up in the air the indexes could just continue to slide on back to that level. Or, one or two of the major indexes could fully test the lows while the other holds up above that level.
The reason I don't think all of the indexes will fall all the way to the lows is that the economy is improving now while back in September it was still trying to bottom. Then the attack came and torpedoed what was looking to be the bottom; the day before the attack we wrote that we were looking for the market to start a rebound. The fact that the market was trying to turn at that point on some signs of improving economics is one reason I think the indexes could head toward the pre 9-11 lows (on the Nasdaq that was right at 1670 to 1700) and then rally from there. Before that is the 50% retracement at 1743; as we have said before, that is a rule of thumb and not a hard and fast level.
Again, however, despite all of the theory, we just have to look at what the market is showing; right now that is a downtrend from the January high after some pretty serious distribution. Until it changes its character with a follow through to a rally attempt and some leading stocks shooting higher, the bias is downside.
TEAM TRADES
DJX: We were looking for the Dow to rally in Thursday night's report and set up an aggressive upside play on the DJX. It did not take the index long to hit our buy point (96.50) after opening, falling back on the first test of the morning and then rallying higher. When it hit the buy point the March options were asking 5.60 with a 40 cent spread. We knew we had little chance of splitting the spread with the index moving, and as this was an aggressive play anyway we went ahead and entered a limit order at the ask. All went well and the index continued its rally up to the 97 level. It then proceeded to sell off, down to 95.80 over the next 3.5 hours where it found support above 95 once again. Now here is where we could have helped ourselves more. We were looking at the SOX hard, trying to decide if we wanted to short it. We decided it was not worth the risk to chase it down after it had already fallen 12 points from the session high and was only flirting with falling further. We believed an afternoon rally was coming and did not want to short at the wrong time. That was fine; we were right. But we did not then go back in and take more DJX positions as it and the S&P were holding above support once again and starting to rally. We are still in a decent position and the options closed at 6.20 by 6.60, but we could have improved our position by using simple support and the fact that the market was starting the bounce we were looking for.
THE PLAYS:
Trailing Stop Advisories: DKWD, CAKE, PLXT
The following are removed from last week's report to a watchlist. We will continue to check them this week for any good moves:
PSUN ($21.30; +0.27): Consolidating below the 18 day MVA (but above its 50 day), level from where we expected an aggressive bounce play. Did not hit buy point (22.15).
VRST ($18.34; -0.86): Fell through the 18 day MVA in the ascending wedge without hitting the buy point, and tapping at the 50 day MVA simple on the low of 17.71. Volume was lower and well under average; looking for a quick move back over the broken support.
SYK ($59.14; +0.75): Broke out of the rolling range but has pulled back below the buy point (59.95). Lower volume and a hold at the 18 day MVA will keep us watching this week.
SCS ($15.00; +0.29): Fell out of the flying plateau early last week but is holding the 50 day MVA and getting some buying at that level.
MONE ($14.63; +1.13): Did not bounce from the 18 day MVA as we wanted but instead pulled back to the 200 day MVA. Bounced from there Friday and was back over the 18 day, but volume was very low. Looking for some consolidation then a move up.
EGOV ($4.12; -0.03): Not in bad shape as it holds the 18 day MVA in the test of the breakout, forming an ascending wedge type pattern. Keeping the buy point at 4.40.
ACDO ($53.19; -1.08): Pulling back after its last jump off the 18 day MVA. Tapped at support on the low Friday but not done quite yet with the pullback. May snug up to the 10 day MVA at 51.60.
AZPN ($17.15; -0.35): Holding the 50 day MVA but that is well below the early January high, where we were expecting AZPN to hold for a move back up. It fell below the 18 and 200 day MVAs as well.
TRI ($32.24; +0.36): Tried to move up in the handle to its cup this week but volume isn't there yet. Holding above the short term moving averages as we continue to look for the strong move and breakout.
CTAS ($49.71; +0.55): Still looks good in the flat base (we have been covering the stock since 1/24, previously a cup with handle). We are keeping our buy point of 50.75 for the breakout; the stock tapped the 50 day MVA on the intraday low Friday, then was back over the 18 day MVA on rising volume.
IFF ($32.18; -0.12): Testing the breakout from the 5-month ascending wedge, a breakout that was cut short when IFF could not hold 33 on the move. It has shown 2 consecutive dojsi on falling volume the remainder of the week, so we continue to look for a move back up. Buy point for new positions (holding those taken at 32.20 on the breakout) is 32.50 for aggressive positions, stock and/or March $30 or May $25 calls.
GRTS (24.25; +0.03): Still testing the breakout (which was not a strong one from the ascending wedge) and showing a doji at potential support (24) on steadily decreasing volume. Looking at a new aggressive buy point at 25 for positions with stock.
Puts:
MMM ($111.21; +1.70): Hit the 110 buy point Wednesday but didn't move below 108 and on Friday strong volume pumped the stock up to the 200 day MVA. If MMM breaks above that resistance (joined by the 50 day MVA at 111.88), we will close positions.
ITMN ($42.16; +3.48): Finally hit the buy point of 39.50 three days after we wrote the play and hit 36.54 on the low but bounced back up, and by Friday the stock was over the 200 day MVA (40.55) even with lower, below average volume. Will close out the positions if it moves over the 18 day MVA (43).
PPG ($46.85; +0.32): Right at the up trendline and below resistance at the 10 day MVA. The trendline turned PPG back down late January, and we can get a similar move here. Looking for the move down (buy point is 45.80) for a drop to the January low (42.62).
MRCY ($32.81; +0.08): Hit the buy point of 32.45 for a move down to 30.65 before bouncing back up (30 level was noted Thursday for potential support). Volume was strong with the stock closing below Thursday's closing price of 32.73. Target is 25.
EMLX ($42.27; +0.72): Hit close to our target of 39 on Friday's low (39.60), bouncing from the 50 day MVA to close with a doji. Strong volume. Will see how it handles the support and resistance for potential plays in the coming week, but we got what we wanted from the play for now.
CCMP ($63.53; +1.57): Still weak below the 200 day MVA, moving up on rising volume Friday but checked by the 10 day MVA on the high. Hit the initial target at 60; on continued weakness looking at the lower target at 55 (new buy point is 59.80 as noted on Thursday update).
SMTC ($31.16; +1.14): Hit our initial target at 30 earlier in the week and held for a bounce on slightly higher volume Friday. Will look for a fight at resistance at 32 or the down trendline at 32.75 and will consider new positions if it looks ready to move lower.
VIA ($41.33; +1.95): Strong move up Friday to break the stock over its 50 day MVA and short term down trendline on above average volume. Looks ready for upside from here so is our cue for closing out positions taken at 38.
End Part 2 of 3
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us stock market
trend trading stock
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