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TOMORROW

The employment report is issued before the open, and though the weekly jobless claims have been improving, the trend is too recent to really show much impact on the February payrolls. Typically, unemployment continues to rise even after the economy makes its turn as businesses are slow to rehire new workers until they are sure. Look at the CEO pessimism; look at the productivity gains. The workers out there are doing more for now until there is more certainty of the recovery.

The indexes have still not worked off enough of the recent strong move. They need a couple more days of lateral to lower prices on declining volume. Today's action indicated as much as more good economic news was unable to keep things going upside. Saturation point. Now the employment report gets a lot of attention, and if the numbers show an unexpected drop, that could ignite another round of buying. We are not expecting that, however, and would prefer to see the lazy, orderly pullback and then an eruption higher next week.

So, we will still look for upside positions as they appear; even in a pullback we continue to see strong stocks ready to move up and actually doing so. In addition we have some covered call plays we initiated that we anticipate hitting the buyback points Friday or Monday (some hit the buyback points today already). It is a time again to be patient and let things set up for the next moves.

Support and Resistance

Nasdaq: Closed at 1881.63
Resistance: The 200 day and simple 50 day MVA are standing in the way of a further move higher (1906.53 and 1896.53, respectively). That is just under the top of the November consolidation at 1934 to 1941.
Support: 1875 acted as support on the close today. That is where we would like to see it hold; it may again test below it intraday. After that, not a lot of room before 1800. After that 1775 is some support as well, followed by the November gap up point at 1745. 1700 has held loosely. After that, there is not much until 1626, the early October gap up point and the April 2000 intraday low at 1619.58.

S&P 500: Closed at 1157.54.
Resistance: Reached toward the twin tops at 1174 today; those are the December and January tops and will have to be cleared. That point also marks roughly the lows of summer 2001 consolidation that runs up to 1240.
Support: 1150 and the 200 day MVA (1151.43) held on the button today. After that, 1125 is the hump in the double bottom, and the simple 50 day MVA is also there at 1127.39. 1100 has acted as support as recently as two weeks ago. Then 1075 to 1080 continues to hold tough, right at the March 2001 intraday low. There is a jumble of prices in a range from 1075 to 1050. 1050 was tested twice in October, holding both times.

Dow: Closed at 10,525.37.
Resistance: The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high), and it is holding tough for now. 10,800 represents some resistance. That is followed by resistance at 11,000 on its way to the May 2001 high at 11,345.72.
Support: 10,400 has been providing support, followed by the January high at 10,300. Then the 200 day MVA (10,026.96) and 10,000. After that is 9730, the first January low and has provided some support. There is some support at 9691, the bottom of the November, December and January range.

Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.

3-5-02
ISM Services, February (10:00): 58.7 actual versus 51.0 expected and 49.6 prior.

3-6-02
Factory Orders, January (10:00): 1.6% actual versus 1.4% expected and 1.2% prior.
Fed Beige Book (2:00): Up in 9 of 12 districts.

3-7-02
Initial Claims, 3/2 (8:30): 376K actual versus 380K expected and 381K prior (revised from 378K).
Productivity-Rev., Q4 (8:30): +5.2% actual versus 4.7% expected and 3.5% prior.
Consumer Credit, January (3:00): $12.8B actual versus $3.7B expected and -$1.8B prior (revised from -$5.1B).

3-8-02
Nonfarm Payrolls, February (8:30): Unch. versus -89K prior.
Unemployment Rate, February (8:30): 5.8% versus 5.6% prior.
Average Workweek, February (8:30): 34.1 versus 34.0 prior.
Hourly Earnings, February (8:30): 0.3% versus 0.0% prior.

SUBSCRIBER QUESTIONS

Q: Can you explain the term "DELTA"? Thanks.

A: Delta is the measure of how much an option price changes for every move up or down in the underlying security. A delta of 1.0 means that for each $1 move in the underlying stock, the option moves $1 as well. A delta of 0.50 means for every $1 move, the option moves $0.50 in the same direction. Put options have negative deltas, e.g., -0.50. They work the same way: when you own a put option with a -0.50 delta, if the stock moves up $1, the put option falls $0.50; if the stock falls $1, the put option rises $0.50.

We use deltas on covered calls to determine where to put our buyback order on calls that we sold. We know that the stock has support at a certain level, say $3 below where the stock currently is. It is topping, so we want to sell some calls. If the calls we want to sell have a 0.7 delta, a $3 drop to support by the stock would drop the price of the option by 2.10 ($3 x 0.7=2.10). So, we subtract 2.10 from the ask price of the option at the time we sold it to determine the ask price (the price at which we would have to buy it back) of the option when the stock hits the support level. That way we can do it all automatically. We discuss this great way to use covered calls to our advantage to generate cash in cash accounts and in IRA's in our online seminars.

THE PLAYS:

Good movers: We noted SCS in last night's report and the stock blasted up again today with volume rising in a stronger move - great breakout! BLC shot back over Wednesday's high, continuing its breakout from the flying plateau, showing a sharply stronger volume on the move.

Targets hit Thursday: GRTS (29)
Stop Advisories: MIMS (16.50, put), UOPX (35.90)

Continued Plays: Those looking good today are COTT, CEY (ready to make the fall for the covered call), ACDO, SFD, PZB, SXT, HET, ROH, LOGI. See last night's report for buy points and other details. Others are continuing to consolidate, such as FDX, which is testing the breakout from its ascending wedge and needs to pull back another day or two.

COHU (Cohu Inc--$29.30; +0.68; optionable): Semiconductor
http://biz.yahoo.com/p/c/cohu.html
STATUS: Buy point is 28 for the covered call sell, but COHU stretched higher today as volume remained quite high, though slightly lower at 391,700 (avg. 98,227). We can move the sell point up to 28.50 to give some more room for the anticipated drop to the 10 day MVA range (26.16); it could even test down to the 18 day MVA at 24.53. Showed a hanging man doji on Wednesday, but while this screaming volume is buoying the stock for now; COHU is churning, however, so expect the fall.
SELL POINT: Aggressive: 28.50, for a fall to the 26-25 range.
POSITION: April $25 calls to sell (QCH DE).

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

New:

Covered Call:

CYMI (Cymer--$46.49; +0.76; optionable): Semiconductor
http://biz.yahoo.com/p/c/cymi.html
STATUS: Had a nice run up from the 18 day MVA and appears to be topping out, showing smaller moves up over the last three days even on strong volume, which, however, fell back Thursday to 1.15 million (avg. 909,000). Looking for a fall to the range of the February high (41.37), selling covered calls for the drop, buying them back upon a hold at support.
SELL POINT: 46 on preferably rising volume. Target: 43
POSITION: April $40 calls to sell (CQG DH). Selling for $7.90; can drop in value to about $4.35 on a fall to the support.

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

Upside:

FRED (Fred's Inc--$34.20; +2.80; optionable): Retail
http://biz.yahoo.com/p/f/fred.html
STATUS: FRED made a strong bounce from the 18 day MVA Thursday; volume shot up to 793,400 with the average at 287,000) after the company reported strong sales for February. It just took out the February closing high (34). This is FRED's second bounce from the 18 day; it tested the 50 day MVA in January beforehand, and we can look at jumping in here for a continued bounce, taking partial positions, then adding to after the stock pulls back and is ready to go again. Excellent money flow and buying. Target: 40
BUY POINT: Over 34.50 on continued rising volume. Might try a test back to 34 range early, buy point on that action would be over today's closing price. Stop Advisory (7%): 32.13
POSITION: Stock and/or May $30 calls to buy (FMU EF).

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

Previously covered stocks that look ready for a play:

ABC (Amerisourcebergen--$67.87; +1.61; optionable):
http://biz.yahoo.com/p/a/abc.html
STATUS: Covered recently in February's ascending wedge pattern from which the stock broke out, and how is testing, forming a steep handle to the 18-week cup (highs at 72). The stock started to bounce from the 18 day MVA on Wednesday on lower volume, but that pumped up, breaking above average today and the stock rallied (1.3 million; avg. 1 million). It looks ready to move over resistance in the handle on this move (68) for the breakout. Target: 82
BUY POINT: Aggressive: 68.21 (still has the March high at 68.85) on volume of 1.5 million or higher. Stop Advisory (7%): 63.44
POSITION: Stock and/or May $60 calls to buy (ABC EL).

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

AZR (Aztar--$21.34; +0.03; optionable): Resorts
http://biz.yahoo.com/p/a/azr.html
STATUS: We covered AZR's ascending wedge, from which the stock broke out nicely at the end of February. Now it is testing the move, having pulled back near the 18 day MVA on decreasing volume (165,900; avg. 139,000). The stock closed on top of the 10 day MVA (21.40). We like the decreasing volume on the pullback; it is still high but is relatively lower than that on the breakout. Looks good, as does money flow, and we expect a bounce back up. Target: 26
BUY POINT: Aggressive: 21.60 on rising volume (170,000 or better). Stop Advisory (7%): 20.09
POSITION: Stock and/or May $17.50 or $20 calls to buy (AZR EW or ED).

http://www.investmenthouse.com/ct/azr.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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