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us stock market, stock prices
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Tech Traders 1/11/01 Market Summary
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Technical Traders Subscribers:
Continuing Plays:
EMLX (Emulex Corp--$87.13; +9.58; optionable (UEL)): Stronger move up as the stock broke resistance at 80-81 on good volume (7.6 million; avg. 4 million). The high tapped resistance at 90; in a market pullback, that can force a breather on a pullback to the 84 range. The stock may run to 90 on the momentum before turning back down with the market. A pullback of a couple of days can help the stock form a possible handle to a ragged double-bottom pattern.
BUY POINT: On a move back up from the 84 range after a market pullback. Breakout: 92.25.
POSITION: Stock and/or April $77.50 or $80 calls to buy (UEL DW or DP).
http://www.investmenthouse.com/ct/emlx.html
(Click to view the chart)
MER (Merrill Lynch & Co--$73.75; +1.44; optionable (MER)): Trying to break out of the double-bottom handle on stronger volume (6 million; avg. 4.6 million), the high tapping near the handle high of 75. In a market pullback, the stock can retreat to the 10 day MVA (70.71) before the market rallies back next week. If it does, it will then have formed an ascending wedge pattern. The move was smaller than that of the previous session, on the stronger volume (pointing to a pullback).
BUY POINT: Breakout: 75.13, after a pullback to the 10 day MVA (71 range), on strong volume.
POSITION: Stock and/or February $70 or $75 calls to buy (MER BN or BO).
http://www.investmenthouse.com/ct/mer.html
(Click to view the chart)
LEH (Lehman Bros--$75.19; -2.12; optionable (LES)): Pulling back from the breakout move on slightly lower but still high volume (3.2 million; avg. 2.3 million). Look for the stock to continue down to the 10 day MVA (73.06) to regroup before moving back up with the market in the next week. Handle high is 81.
BUY POINT: Aggressive: On a move up after a possible pullback to 73, on rising volume. Breakout: 81.13, on volume of 3.4 million or better.
POSITION: Aggressive: Stock and/or April $70 calls to buy (LES DN). 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)
JPM (J.P. Morgan & Co--$54.13; +3.19; optionable (JPM)): At the breakout point in the cup with handle pattern (the handle is actually the breakout test of the stock's double-bottom breakout). Volume is much stronger and well above average at 16 million. Looking for the breakout. Relative has broken out ahead of price. On the move; as the market pulls back, we'd like the momentum here carry through the breakout.
BUY POINT: Breakout: 54.13, on volume of 14.9 million or better.
POSITION: Breakout: Stock and/or February $50 calls to buy (JPM BJ).
http://www.investmenthouse.com/ct/jpm.html
(Click to view the chart)
New Play to look at:
INTI (Inet Technologies--$43.94; +5.44; optionable (JTU)): A telecom stock that is breaking out of a short base (which is part of the larger base with a prior high at 65.25). Volume was very strong as the stock broke resistance (200 day MVA at 41.11). Remains a buy up to 46.34 on the breakout. Buy point is 44.13. Great buying and strong money flow.
BUY POINT: Up to 46.34 on this breakout.
POSITION: Stock. Options have insufficient open interests (too illiquid for this stock). Next month out for options is July.
http://www.investmenthouse.com/ct/inti.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:
- Three confirmation days in a row on the Nasdaq, each rising in power.
- Bulls were out today saying a bottom is in, but don't cheer yet; Nasdaq and key stocks rammed the down trendlines today and may need a rest.
- Stocks sold on HPW and GTW warnings after hours; even good news was not good enough tonight.
- Subscriber Questions
- Team Trades
Another, stronger confirmation of the reversal on the Fed's rate cut.
On the tube they were talking about the three positive finishes for the Nasdaq as huge news. Hey, that was great. The real news is the continued strength. The stronger rallies are foretold by stronger confirmations. The strongest occur on days 4-7 once the reversal started. On each of those days the Nasdaq gave a confirmation, each rising in strength. That is the big news to us. Past confirmations we have seen have been anemic, along the lines of the one we saw Tuesday. The past two sessions have given us strong volume and strong A/D ratios.
Very positive, but we still are not seeing huge breakouts from bullish patterns. The financial stocks in good patterns were up again, but they were unable to breakout just yet. On television, as it was another upside day, so the bulls were out in force. Indeed, we heard several, including Ralph Bloch, say that the Nasdaq has indeed bottomed. Others are still saying this is just a nice move up that will precede another test of the lows at Winter's end or early spring. That gets a bit far out there and is more like reading tea leaves than real analysis. So, let's go back to the basics to figure out what is going on.
Of trendlines and overhead supply.
Monday's reversal has lead to a very nice run on the Nasdaq and S&P 500. The Dow has waffled as its defensive stocks bleed off the gains they scored when investors were too burned to touch tech stocks. Is there more to come?
The price/volume action and breadth of this move would indicate that there is more out there. We all know, however, that these rides are not smooth. Even on a powerful day such as today, we saw on the intraday charts that stocks surged up, pulled back to the 5 minute MVA, then surged back up again. This showed up in the financial stocks as well such as LEH, MER and JPM that surged up and then pulled back to form handles for their patterns or test the previous breakouts. Then they surged up the past two sessions. Healthy indexes do the same thing intraday and interday: they surge up, get a bit winded, pull back on lower volume to near support, and then charge ahead again.
Where do they stall? At resistance points. The Nasdaq ran smack into its down trendline connecting the September, November, and December tops. That is a substantial down trendline as it has stalled the index two previous times, each time sending the index to new lows. Several key stocks are approaching down trendlines as well. After a 14.8% run from Monday's low to the close today, the index is a bit winded. We have a close at the down trendline after a big run, individual stocks at resistance, a pullback at today's close, bad news after hours from GTW and HWP, and good news from ARBA initially given the cold shoulder. This down trendline could act as a natural resting point for another assault at breaking out of the downtrend after the index digests all of this action.
Also, even though there is big money moving into the market as indicated by the nice volumes on the indexes overall and individual stocks and sectors, there is still a lot of overhead supply in the tech stocks. They have yet to form those classic bases near highs that often power bull runs higher and higher. Some financials are doing that, and thought they moved up today, they did not breakout. This does appear to be a time for some rest, but that is not all bad; it can give stocks such as EMLX to form handles on their rather ragged double bottom bases, and that can lead to even more powerful moves up.
Maybe higher tomorrow before some profit taking before the long weekend.
Another three-day weekend, and that provides another reason for some profit taking after such a strong run. That does not mean the day will necessarily start lower or that it won't try to rally early on. Great. That is what we want to complete some positions we have for the short term. We sold some today and were just about to get out of others but did not get hit on all of them. Indexes and stocks can often move over resistance points intraday, but the key is whether they can hold over them on high volume. The Friday before a long weekend is a tougher day to deliver that move on high volume.
Maybe the news after hours will send it down early. The CSCO and YHOO bad news did not hold the market back today. CSCO was up. Rational Software beat the street but was downgraded; it was up over $6 anyway. That is a very positive sign. But after hours news from GTW and HWP, where both lowered already lowered expectations for the last quarter and the two quarters ahead (GTW laying off 10% of its staff), sent box makers and their suppliers tumbling. Even great news from ARBA for the past quarter and looking ahead was used to torch that stock. Its conference call helped it recover to where it closed in the regular session. The point: the market has absorbed some bad news and not blinked, but given the factors noted above, this is just one more reason for a rest, and the stocks were showing it after hours.
Futures were up, but falling, and the Nasdaq was 33 points below fair value at this writing. As we saw today, however, even futures in the minus 25 to 30 range before the open do not always translate into major selling. Nonetheless, there is reason to expect some weakness tomorrow either early or later. The long weekend after a nice move is just too tempting for many to pass up. We may be wrong (hope so), but we need to be ready on those positions we want to shut down.
Then what?
If we do get some selling, perhaps the folks on the television will not trot out the gloom and doomsayers again, but who knows? That makes it so hard for the average investor to see the big picture. Instead, he or she is tempted to run back and forth in the day-to-day swings in the market and get totally whipsawed.
Two to three days of sideways to slightly lower action on light volume would really be a good thing. That would give stocks a chance to catch up with the gains and form some handles or otherwise put more touches on patterns. That prepares for the next leg up. Indeed, the first few earnings shocks might just do that; everyone expects worse earnings, but there is expectation and then there is reality. The reality of the first numbers may set some investors back a bit, but we doubt that will kill any move at this point. Remember, the landscape has changed since the Fed stepped in; many on the television were looking at the sessions immediately following the Fed's actions saying "see, this is different than before." The selling was on lighter volume and then the markets shot right back up on very strong volume.
We do not want to see the large price losses we saw after the Fed cut, just mild profit taking on lighter volume. That sets up the plays for the next leg. That is why tonight we are looking at what resistance levels and support levels are for the plays so you can see when this move has tapped out in a higher move early tomorrow (maybe it will stick?) for the short term plays, and where support should emerge for the next leg up. Those who keyed in on our support points on JNPR, SUNW, EMLX and others this last round of selling are very pleased right now as they picked up these stocks as the bounced and have enjoyed excellent gains. That is what we are going to be looking for again.
One caveat. In October 1999 the Nasdaq confirmed the reversal and powered ahead on two very strong sessions. Then it showed a doji on the candlestick chart with a bit higher close; looked like some rest was needed. Then it jumped the next session a bit more and showed another doji; man, sure looked like a bit of a breather coming. Then it showed another, then another, and yet another. Then it sold lower but rallied for yet another gain before closing down 18.93 points the following session. Now, this is not 1999 with all of the inflows from the Fed, but the Fed is putting money in the economy as we speak and there is a lot of cash mutual funds had from selling out of techs. There is power for a continued move up. This market is in much worse shape, however, so we anticipate it acting a bit more according to historical norms for climbs: move up, pullback, move back up.
THE ECONOMY
Tomorrow the Fed will get two pieces of information that it will consider closely with respect to the next FOMC meeting and the next rate cut. The PPI and December retail sales will be released before the open, and expectations on retail sales were just revised lower to -0.5% from -0.2%. Continued mild producer prices and the weak retail sales don't give the Fed any reason not to further cut rates.
Speaking of rates, the Fed Funds futures contract still shows the move at 50 basis points. There are still serious concerns out there, namely poor liquidity in the market and potential credit problems ignited by the California power problems. Then there is Japan, Russia and the usual trouble spots around the world.
Money supply. This is an overlooked market feature these days, but it used to be the most closely watched. Given that the economy and thus the market need money to thrive it should not be overlooked as one subscriber noted. The Fed pumped some more money into the banking system today, adding $5.94 billion via overnight repos, and another $1.995 billion through 28-day repos.
Jobless claims fell to 345,000 versus expectations of 370,000 and 381,000 the previous week (revised upward from 35,000). The 4-week average, however, continued its rise, climbing to 363,000 from a revised 356,750 the prior week. The 4-week average gives a more accurate view of where the trend is, but it is painfully clear that workers are losing jobs faster and faster.
End Part 1 of 2
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