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world stock market, us stock market
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Tech Traders 1/9/01 Market Summary
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Technical Traders Subscribers:
Continuing Plays:
XOXO (Xo Communications--$21.06; +0.56; optionable (QNF)): At support (50 day MVA) in the ascending wedge, as the telecom stock moved back over the 50 day MVA on stronger volume (7 million; avg. 5.8 million). Showing a tight doji; look for a move up from here in a rally. Great buying.
BUY POINT: Aggressive: On a move up from here, on continued rising volume. Breakout: 25.13, on volume of 7.8 million or better. Remains a buy on the breakout up to 26.39.
POSITION: Aggressive: Stock and/or April $20 calls to buy (QNJ DD). Breakout: Stock and/or April $25 calls to buy (QNF DE).
http://www.investmenthouse.com/ct/xoxo.html
(Click to view the chart)
LEH (Lehman Bros--$72.88; -0.37; optionable (LES)): Pulled back further in the handle of its cup pattern on below average volume (2.1 million; avg. 2.3 million). The low tested support at the 10 day MVA (71.53) the last two sessions. Can pull back to that level, but the low volume suggests the move up in a rally. Handle high is 81.
BUY POINT: Aggressive: On a move up after a possible pullback to 71, on rising volume. Breakout: 81.13, on volume of 3.4 million or better.
POSITION: Aggressive: Stock and/or February $70 calls to buy (LES BN). Breakout: Stock and/or April $77.50 or $80 calls to buy (LES DW or DP).
http://www.investmenthouse.com/ct/leh.html
(Click to view the chart)
MER (Merrill Lynch & Co--$70.25; -1.00; optionable (MER, JMR)): Another pullback in the handle, testing support again at the 10 day MVA (69.53). Volume was lower at 4 million (avg. 4.6 million). Look for a move back up from the support, or from this doji, on stronger volume, unless the stock halts at 71.13, a price the stock hit 5 times since August. Handle high is 75. High money flow and relative strength.
BUY POINT: Aggressive: A move up from the 70 range on increased volume. Breakout from cup with handle: 75.13, on volume of 6.5 million or better.
POSITION: Aggressive: Stock and/or February $70 calls to buy (MER BN). Breakout: Stock and/or April $75 calls to buy (JMR DO).
http://www.investmenthouse.com/ct/mer.html
(Click to view the chart)
JPM (J.P. Morgan & Co--$48.69; -0.56; optionable (JPM)): Volume continued to pull back, dropping the stock slightly lower (7.3 million; avg. 8.8 million) in the handle of its cup with handle base. Handle high is 54; look for a move up from support (200 day MVA at 48), tested on the lows in the previous two sessions.
BUY POINT: Aggressive: On a move up from the 48 level on stronger volume. Breakout: 54.13, on volume of 13 million or better.
POSITION: Aggressive: Stock and/or February or March $45 calls to buy (JPM BI or CI). Breakout: Stock and/or February or March $50 calls to buy (JPM BJ or CJ).
http://www.investmenthouse.com/ct/jpm.html
(Click to view the chart)
New Play to look at:
ASD (American Standard Cos--$51.94; -0.12; optionable (ASD)): A construction stock that is testing the breakout from its cup with handle pattern breakout (of last week). Volume has pulled back along with price, which is showing a tight doji. Volume remains above average (442,300; avg. 321,454) though declined, but the doji signals a move up from here after the strong breakout (was on excellent volume). Look for a move up; the stock hit a breakout high of 53.69. Buy point is 49.63, so the stock is holding well above that. High money flow and relative strength, and decent buying.
BUY POINT: On a move up from the doji on stronger volume.
POSITION: Stock and/or April $45 calls to buy (ASD DI). Delta for this strike is 1 as of Tuesday night.
http://www.investmenthouse.com/ct/asd.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:
- Nasdaq rises on higher volume, but is 175 points from bottom to top all it can muster on this move?
- Continued hand-wringing by the television analysts.
- Warnings and reaffirmations getting equal time of late.
- Does the Fed bail out the market?
- Subscriber Questions
- Team Trades
Nasdaq rallies on higher volume, but techs stocks don't look too great for a 'rally.'
Today was hailed as a 'rally that held' on the Nasdaq, and we heard and read phrases such as "investors flocked back to technology stocks." It looked that way early on as the Nasdaq continued the rally that began with an hour to go in session. The Nasdaq rose 100 points off the bottom on Monday and added another 75 points on its high today, but then gave most of that back before a labored move up in the afternoon gave the average a decent overall finish.
Volume was higher, but it was not above average. Moreover, most tech stocks shot higher in the first hour of the session only to close flat, well off their highs, or negative. This is not really bullish action as stocks had to fight hard to hold onto parts of their gains. This is yet the latest indication that sellers were once again jumping in on a rally. The fact that the stocks 'held on' may have indeed been something to mention, but the market needs more than just hanging on. It has been trying to hang on for months, but all you see are the scratch marks on the ledge where it slid off into the canyon. Looking at the patterns on the close, we see a lot of stocks showing doji's after trying to rally late Monday and early today. As one of our analysts noted, those are not charts screaming for moves higher, and it left us with the feeling that 175 points from bottom to top might be all it can muster.
Why no race upward?
The Fed cut rates, so why no immediate climb? As we noted last night, sometimes it takes two Fed cuts to get the market to start looking ahead, particularly when there is the threat of recession. Obviously the market is not totally convinced at this point that the Fed has a handle on the economy. As discussed Monday night, a lot of people are just now deciding the economy is not healthy (a group that includes some influential analysts and economists), and each day investors are bombarded with negative comments about the economy.
This is having an impact on the markets. Today's rally was set up beautifully, but once the Nasdaq was in spitting distance of a 100-point day, the sellers jumped in and used the rally as a chance to sell some shares. There is a large contingency out there that is not ready to trust history.
At the same time, we did not see a 180 turn and rout of techs. They did struggle back to close with a gain on increased volume. The tide is shifting, but slowly. That second rate cut could come tomorrow and that would not be too fast. As noted last night, four times in history it took the Fed two rate cuts before the markets started higher. In one situation, the 1929 crash and subsequent depression, the second cut worked for almost five months, but then the market tanked as the economy did not perform.
That is what we have been saying. The initial rate cuts will get things going to the upside whether it takes one or two cuts to do it. After that it is up to the economy to perform, and that is in large part up to the Congress. Will it do the right thing and pony up with the full tax cut and make it retroactive to January 1? That is what more and more economists (Barton Biggs for one said just that today) say is necessary for the longer term health of the economy and the market.
The market reflects expectations about the economy. For months it has been telling anyone who cared to look that things were going to be bad. It is not yet convinced the Fed is up to the game given the problems confronting the U.S. right now. For an economy that was supposedly in such good shape last summer and fall, it sure looks grim now. We are happy others have come to this conclusion finally because that may just put enough heat on the Congress to do what is necessary for the country's economic health over the next 10 years.
For us, we don't think we are in a situation that will lead to global depression as we saw in 1929. Certainly there is the possibility as we have pointed out since last spring and summer with the continued weakness in Asia and Japan. The Fed and a misguided policy of building useless surpluses has placed the U.S. and thus the world at risk, but we do not believe credit situations are that bad, and if the Fed keeps the pressure on to cut rates and Congress shows it will play ball, the serious drop will be avoided. That is why we continue to look for opportunities to take positions on great stocks for the long term and play those moves, up and down, that this market gives us.
Earnings affirmations are turning up along with the warnings.
NOK stated that handset sales did not hit that 140 million handsets projected, and that hammered the stock and those in its sector. The night before, GX and Verizon (VZ) stated their sales would exceed expectations. Today EMC reaffirmed it was going to hit its numbers, remarking that storage would continue to grow even in uncertain times. "When the lights are on, information is growing" said CEO Mike Reuttgers. As we have said over and over, we believe the leaders in the key sectors will continue to show good revenue and earnings growth. The pie is smaller, but not all who eat from the pie are taking smaller portions. There are some who are going to take a disproportionately large piece of the pie, and those are our focus.
THE MARKETS
We were looking for a move up and we got it. Problem is, it was a frustrating day as the markets shot up in the first hour, pulled back giving some decent entry points, and then scratched its way higher. We were ready to pull the trigger on some of our positions we had been averaging into, but they fell just shy of our sell points. The late move up did not do the trick for those positions.
Technically we could call today a confirmation move on the Nasdaq following last Wednesday's rally on the rate cut. Volume was higher, but it was below average volume. The gain was greater than 1%, but the index closed well off of its session high. Key stocks were unable to hold onto good moves. The A/D line improved, but it was not 2 to1 or better. As with most confirmation attempts in the summer and fall, this one did not exhibit the strength you want to see. Thus, we cannot put much faith in it and have to continue to look at individual plays for our returns.
Overall market stats:
VIX: 30.79; -2.56. The VIX gave us the move over 34 that we were looking for to start another leg up. We got it, but the Nasdaq already looks tired.
Put/Call ratio: 0.89; +0.25. Interestingly, the put/call ratio spiked higher today in what was a really lackluster session. There was no heavy selling on the Dow, and the other two indexes were positive all day (the S&P dipped just a fraction to the downside). That always makes us question the data as there have been misreported numbers in the fall. Something to keep an eye on tomorrow, however, if we do get more selling in the indexes.
NASDAQ: A solid morning gave way to a so-so afternoon. The index held onto half of its gain for the session after almost losing it all. A credit to it that if fought back, but sellers were out there ready to jump in once again on any solid move in the index.
Stats: Up 45.38 points (+1.9%) to close at 2441.30.
Volume: 1.976 billion (+6.9%). Up volume was 1.27 billion versus 652 million to the downside. That is the right price/volume action, but volume on this rise was less than the volume on Thursday and Friday's selling.
A/D and Hi/Lo: Advancing issues beat decliners 1.43 to 1. That is not the 2 to 1 or better level we like to see on a reversal confirmation. New highs rose to 61 (+7) while new lows fell to 80 (-65).
The Chart: http://www.investmenthouse.com/cd/$ndx.html
Gapped higher and ran up to the 10 day moving average at 2474.16 on its high. The index showed a loose doji after Monday's tight doji on the candlestick chart. The move looks somewhat tired after just two half days of gains. It could make a lower high without even testing the move up on Wednesday to 2618.
Dow/NYSE: The Dow lost on the day, breaking below 10,600 that marks one level of support for the index. On its high it retested the 50 day moving average (10,680.72) before it rolled over and sold off on the session. Volume was up on the move as the Dow again displays the wrong price/volume action.
Stats: Down 48.80 points (-0.5%) to close at 10,572.55.
Volume: NYSE volume climbed to 1.197 billion shares (+7.2%). Up volume shaved down volume 596 million to 568 million shares.
A/D and Hi/Lo: Advancing issues remained ahead of decliners on the NYSE, 1.26 to 1, about flat with Monday. New highs fell to 165 (-44), and new lows fell to 14 (-5).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow broke 10,600, tapping 10,531.55 on its low. That is just above Monday's low (10,516.02). This is well above the next support level at 10,300 as the Dow continues to churn up and down from 10,300 to 11,000.
S&P 500: The big caps moved up on rising, above average volume, but they too tapped at the 10 day moving average on the high (1311.72) and fell well off that level toward the close. The candlestick pattern showed a loose doji as well as many of the big caps ran higher only to give back the gains as the session wore on. It too recovered from turning slightly negative, but it was not a move that instilled confidence for a further strong run.
Stats: Up 4.94 points (+0.4%) to close at 1300.80.
Volume: NYSE volume rose above average to 1.197 billion shares (+7.2%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Another light news day tomorrow, though Motorola announces earnings after the close. With Nokia's handsets down, many are not expecting much from MOT, but MOT is not demonstrating a leading pattern (a problem with most techs).
Without much to push the indexes higher, will they continue the rise? Today's action was nice if you are keeping track of up and down days, but we need sessions that we can build positions on or that hit our sell points. Today was not a great day for that. Still, we saw stocks make moves we had anticipated, and others continued to set up for plays tomorrow. These include JPM, MER, GX, MANU, EXTR, CTXS, ADVS, SAPE.
What we may just get tomorrow is another push downward followed by a bounce off of support points in the key stocks. There was a rise on stronger volume, and it did ward off efforts to turn the index negative. This has the roots of a tradable rally. The sellers are still out there, however, and mild as this rise has been it may have already ended for the moment. If we do get early selling we will keep our eyes open for support levels and whether stocks break them or start to bounce again. If the selling is on light volume and we see solid bounces, we will venture forth again.
To check intraday volumes versus average volume, check out:
www.investors.com
This is the Investor's Business Daily site. If you get a quote on a stock from the site it will give you the current volume for the day and also the average daily volume. Very nice feature, but it sometimes gets bogged down with the traffic.
Support and Resistance Levels
Nasdaq:
Resistance: Some at 2600. The big point ahead is the down trendline at 2745.
Support: 2200 down to 2000.
S&P 500:
Resistance: The down trendline at 1345 and previous resistance at 1360.
Support: 1270 is possible support. 1254.07 is the 2000 low.
Dow:
Resistance: 11,020. After that, 11,400.
Support: 10,600 and then 10,300. After that, 10,000.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-8-00
Consumer Credit for November (3:00): $8.0B versus $16.7 B prior.
1-10-00
Wholesale Inventories for November for 1/6/01 (10:00): 0.3% versus 0.3% prior.
1-11-00
Initial jobless claims for December (8:30): 370,000 versus 375,000 prior.
Export Prices (ex. Ag.) for December(8:30): -0.1% versus -0.1% prior.
Import Prices (ex. Oil) for December (8:30): -0.1% versus -0.1% prior.
1-12-00
PPI for December (8:30): 0.1% versus 0.1% prior.
Core PPI for December (8:30): 0.1% versus 0.0% prior.
Retail Sales for December (8:30): -0.2% versus -0.4% prior.
Retail Sales (ex. Auto) for December (8:30): 0.2% versus 0.2% prior.
SUBSCRIBER QUESTIONS
Q: You write often about "averaging" stocks. What does it mean?
A: Last night we talked about how we average in, and did not explain what we meant. Averaging in means taking positions when it is believed a stock is near its bottom, but the precise price of that bottom is unknown. A whole position is not taken at once. Instead, positions are taken piecemeal when the stock pulls back on selling and appears to have hit support. That way we do not risk all of our capital on the position at once, and if the stock has further to fall, our cost basis is lowered.
As discussed last night, we do not want the stock to tank on us and just ride it down. If the Nasdaq rolls over and sells on high volume, breaking support, we would not remain in positions but would cut losses and wait for the next bottom to begin to form. We are inclined to start averaging in on great stocks that are beaten down (e.g., SUNW, EMC) because of the Fed rate cut that usually marks the bottom of a bear market.
TEAM TRADES
Today was a tough day to take positions as we had done most of our positioning the previous two sessions in anticipation of this move. As noted in the market summary, we were almost taken out of some positions with sell orders, but the market's ascent stopped short of our orders. That is why we buy time on our short term option positions.
CTXS is in a short cup base (as noted in the Monday report), and looked ready to move up from its second consecutive doji on a pullback from 28.19, the handle high. Volume had pulled back as well, so the pattern was classic while the market looked ready to rise. We planned to buy options on the stock on a move up; even if it didn't break out today, we felt the move would come soon and wanted to get the most out of a it. And, support looks good at the short term moving averages and the 50 day MVA around 25, so as long as it holds above there, things look pretty good.
The stock opened at 26.69 (closed the previous session at 26.38), and by 8:35 CT the stock was at 27.13, so we got ready to get in on the move. As we stated earlier, we wanted to get in on a move up, and weren't too worried about the stock dropping back to $25. The March $22.50 options looked best, with a delta of 0.772. They were trading at 7.13 by 6.63. The order was put in at 7.00; the stock wasn't just ripping up, so we thought we could get hit at that price (we did). Volume was good, though, in the next hour really picking up, pushing the stock to a high of 28.38.
CTXS pulled back from there, and until 12:30 CT hung at the 27.50 level until volume picked up and pushed the stock to a new high of 28.50. In the last hour of trading volume surged, reaching a total of 4.35 million as the market pushed up to almost +50. Options at this point were trading at 7.88 by 7.38, and the stock closed at 28. Not much of a move by this time (end of the day), since the market gave only a smaller move up on lower volume, but CTXS was up on stronger, average volume. So it looks ready to continue the move toward a breakout if the market continues to move up. We will watch the stock and exit the position, however, if the stock breaks back below the moving average support level. Not in a bull market yet.
Good Investing!
Jon Johnson and the Tech Traders Report 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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