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Support and Resistance

Nasdaq: Closed at 1716.24.
Resistance: 1745, the November gap up, could be upside resistance. 1775 remains resistance from the October closing high. The January 2002 and the March 2000 down trendlines are roughly at 1815. The bottom of November consolidation at 1875. The 50 day MVA follows at 1890.71, still a long haul from Friday's close.
Support: 1700, then 1626, the early October gap up point.

S&P 500: Closed at 1080.95.
Resistance: The January down trendline is now at 1087. Then 1100, former prices and the September 2000 down trendline. The 50 day MVA (1119.38) and price consolidations at 1125 stopped the index cold (the middle of the potential double bottom).
Support: 1078 to 1080 is still holding. 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 9834.68.
Resistance: There is some resistance at those price consolidations at 9992 to 10,000. The 200 day MVA (10,056.16) is the real resistance, however, as that level has turned the index back twice in the past week. The January high at 10,300 level is last, but the resistance starts at 10,200 (June, July and August 2001 trading range).
Support: 9730 is the first January low and did provide might provide support. There is some support at 9691, the bottom of the November, December and January range, and the January 2002 down trendline is at 9670. 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.

2-19-02
Housing Starts, January (8:30): +6.3%. 1.678M actual versus 1.595M expected and 1.579M prior.
Building Permits, January (8:30): +3.1%. 1.706M actual versus 1.6M expected and 1.654M prior.

2-20-02
CPI, January (8:30): 0.2% actual versus +0.2% expected and -0.2% prior.
Core CPI, January (8:30): 0.2% actual versus +0.2% expected and 0.1% prior.

2-21-02
Initial Claims, 2/16 (8:30): 383K actual and 373K prior.
Trade Balance, December (8:30): -$25.3B actual versus -$28.5B expected and -$28.5B prior.
Leading Indicators, January (10:00): 0.6% actual versus +0.6% expected and +1.2% prior.
Philadelphia Fed, February (12:00): 16 actual versus 10.0 expected and 14.7 prior.
Treasury Budget, January (2:00): $52.0B versus $76.4B prior.

SUBSCRIBER QUESTIONS

Q: Like your service. What analysis did you perform to conclude the QQQ's target at 34?

A: That was our form of good old technical analysis. What we look at and what we teach in the online seminars is how to look at the elements that make up support and resistance and build a picture on you chart that puts all of those elements together so you can see the sequence of levels that will act as support and resistance and how strong those levels might be. When playing puts, we tend to play each leg down and not ride a leg back up to resistance simply because downside action tends to be steeper, but as we saw Wednesday, when it ends the rallies can be vicious as well.

With that in mind, when we picked out the entry point on the put play we simultaneously picked out our target. Two reasons for that. First, we always want to know what we are shooting for in the trade; we want to know our goal. That keeps us focused and helps us make the right decisions when we are in the play. Second, we want to know if the trade is going to give us enough of a move to make it easy to enter and exit without having to be a sharpshooter to do it. By using specific entry and exit points we focus on the trade and we stick to the plan; that gives us a much better 'win' percentage.

As for the specifics as to 34, we had drawn both the upper channel on the January downtrend and the lower channel that connected the January and early February lows. That set the lower range or the bounce point where the index would sell down to and then tend to bounce back up toward the upper channel. It is the exact opposite of stocks or indexes in an uptrend. Looking at that lower channel line and projecting it forward over a 3 to 4 day period, we saw it down at the 34 level.

In addition to that, we looked backwards in the chart looking for points of support. Back in early September the index bounced after crossing below 34 and found resistance there. On the way back up, it gapped up toward that level and then in late October held on the close just below 34 right before the Nasdaq started a big move up in November. Those past price points combined with the lower channel of the downtrend made what we call thicker ice. On top of that, the 50% Nasdaq retracement was right at that level, and if nothing else we felt the Nasdaq would bounce a bit there.

With that in mind we selected a target just inside of that support, and that was 34. As it turned out, that was dead on as the QQQ taped 33.93 intraday Wednesday and then ran up to close at 35.15. Thursday was another day, and it fell back below 34 on the close. Still, with puts we want to take the obvious move and not get too extended as the market can reverse near these support levels. We now wait for the next play to set up and then enter again when the percentages of an easy score are high. That is the key we teach in the seminars: look for those higher percentage plays, the plays you can hit again and again. Then when the market is better we can go for some longer balls on the upside.

TEAM TRADES

TGIC: Insurance has been looking good overall, and TGIC was in a nice lateral consolidation after a breakout. After lunch TGIC hit our buy point of 42.50 on its way to 43.20. It turned immediately and pulled back after that $1.20 run, testing 42 and bouncing up again. Twenty minutes before the close it gapped higher again and with volume decent we went ahead and entered a partial position right at the buy point. The stock proceeded to dump on us again in the last 5 minutes. This is a fairly thinly traded stock, but we like the sector and the pattern. We will see if it holds.

THE PLAYS:

Good movers: ITT flew up today on big volume after taking a breather on lower volume Wednesday. It broke out three days ago after testing the breakout. HD (buy point 52.06 for the bounce from support). A note on the alert that went out on HD: The target should be 61, stop advisory 48.42). The puts have done well: CA (put) headed another 2 points plus after the big gap down on Wednesday. NVDA headed lower for a $3.85 drop; volume was lower but the stock made a new closing low for the month. It didn't hit our new buy point at 56, however, gapping just under it on the open. LLTC, which made the buy point of 38.50 in the descending wedge on Wednesday, dropped below the February low on stronger volume in the breakdown ($2.34 loss).

Stop Advisories: BRKS (44.50), STK (21), PPG (50.25, put),

Continued Plays that look good today and/or are holding up in their patterns:
ATH: Bounced from the up trendline that connects November and February lows. Volume broke just above average on the move; buy point for the bounce is 56.75 (2-16 report).
RTN: Still holding the pennant and showing a tight doji after trying to hold a rise to upper resistance in the pattern. Volume was stronger, breaking above average.
KROL: Still tight in the ascending wedge/lateral pattern (in the tail), showing a tight star doji on rising volume. Now or never? Very similar to the December/January consolidation.

New upside:

HCA (Hca Inc--$43.75; +1.29; optionable): Hospitals
http://biz.yahoo.com/p/h/hca.html
STATUS: Broke out of an ascending wedge on strong volume (4.8 million; avg. 2 million) that formed after the stock moved over its 200 day MVA back in January (off the 38 level near the November and December lows). HCA is in a 6-month cup base, with the wedge just about at mid-point in the right side (highs at the 47 range). Remains a buy on this move as price is still within 5% of the buy point of 43.04. Volume was up to 4.8 million (avg. 2.1 million). Money flow turning higher as did relative strength. Target: 53
BUY POINT: 44.20 on continued strong volume. A buy up to 45.19 (min. breakout volume was met at 2.8 million). Stop advisory (7%): 40.78.
POSITION: Stock and/or May $40 calls to buy (HCA EH).

http://www.investmenthouse.com/ct/hca.html

PH (Parker Hamilton--$49.10; +0.28; optionable): Manufacturing
http://biz.yahoo.com/p/p/ph.html
STATUS: Industrial equipment sectors doing well lately. PH is in a nine-month cup base and has formed an ascending wedge at the upper right side, supported on the higher closing lows in the pattern by the 50 day MVA (at 46.23). Volume was huge Thursday as the stock moved up from its most recent support, the 18 day MVA (47.86) on news of a deal with Animatics Corporation (1 million; avg. 537,500). On the move PH closed just above its last closing high in the pattern (49.04), so we are looking for a breakout on this strong volume surge. Money flow is strong and relative strength high. Target: 59
BUY POINT: 49.50 on continued strong volume. Stop advisory (7%): 46.04
POSITION: Stock and/or May $45 calls to buy (PH EI).

http://www.investmenthouse.com/ct/ph.html

New Puts:

FEIC (Fei Company--$27.10; -1.92; optionable): Electronics
http://biz.yahoo.com/p/f/feic.html
STATUS: FEIC broke down from a head and shoulders pattern earlier this month and now after moving back up on decreasing volume to test resistance (10 and 18 day MVAs, the latter joined by a down trendline at the January and February highs), is heading back down. Volume surged above average Wednesday (657,100; avg. 410,000) on the drop. It fell through some support at 28 and is headed for the February low at 25.12, but we will look at taking aggressive positions from here on continued selling. Target is 22, initially, at a later October low.
BUY POINT: Aggressive: 27 on continued strong volume.
POSITION: June $40 puts to buy (FQE RH).

http://www.investmenthouse.com/ct/feic.html

AMD (Advanced Micro--$13.14; -1.58; optionable): Semiconductor
http://biz.yahoo.com/p/a/amd.html
STATUS: Has been in a downtrend since the summer of 200, but more recently since making it back up to the January high at 20.60, off of the run from the September and October lows. AMD broke below its 50 day MVA in late January and hasn't been able to cross back over, most recently turning down from that resistance 5 days ago. Now it is the 10 day MVA (14.50) that pushed it back down after a Wednesday move up to that resistance. AMD fell to a new closing low today on that move, with volume surging to 10.9 million (avg. 6.7 million), dragged down by Intel. Looking for a continued breakdown, initial target at 10.
BUY POINT: 13 on continued strong volume.
POSITION: July $20 puts to buy (AMD SD).

http://www.investmenthouse.com/ct/amd.html

For a review of frequently asked questions, please use the link below:

http://www.investmenthouse.com/1questions.htm

Good Investing!
Jon L. Johnson and the Technical Traders Team

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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