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us stock market, trend trading stock
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Tech Traders 1/16/01 Market Summary
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Technical Traders Subscribers:
Continuing Plays:
JNPR (Juniper Networks--$128.00; -3.50; optionable (JUY)): Computer Hardware: Networking & Communication Devices
STATUS: Starting to form an ascending wedge pattern, though we would like to see lower volume; the stock pulled back slightly on higher volume (22.7 million; avg. 15.6 million). Nevertheless, the company reported great earnings so we are looking for a move up from here (or the 18 day MVA at 125.38 on an opening pullback). The stock was trading over $133 in after hours trading.
BUY POINT: On a move back up from here or 125 on continued rising volume.
POSITION: Stock and/or April $35 calls to buy (JUY DE).
http://www.investmenthouse.com/ct/jnpr.html
(Click to view the chart)
AMCC (Applied Micro Circuits--$70.38; -1.25; optionable (CMW)): Electronics: Semiconductor, Integrated Circuits
STATUS: Slipped back below the down trendline (connects October and January highs) on slightly higher volume (15 million; avg. 16.2 million). The low of 68.88 tested support at the 200 day MVA (68.95) before a move back up slightly to close. The stock reported solid earnings after the bell, and on the good news we look for a move back over the trendline (71) on better volume. Above that, look for resistance at 75, tapped on the intraday high. Up over $5 in after hours trading, at the time of this writing, and it may pullback after the morning gap higher.
BUY POINT: Aggressive: On a move back up from here on rising volume.
POSITION: Aggressive: Stock and/or April $70 calls to buy (CMW DN).
http://www.investmenthouse.com/ct/amcc.html
(Click to view the chart)
SWBT (Southwest Bancorp of Tx--$44.69; +0.69; optionable (ZRQ)): Looks ready to break out of the ascending wedge as volume shot above average (404,900; avg. 250,000) and the stock showed a doji on the small move up. Looking for a breakout over pattern high of 45.63 on continued strong volume. Strong money flow and high relative strength.
BUY POINT: 45.76 on continued strong volume. Remains a buy up to 48.05 on the breakout.
POSITION: Stock and/or May $45 calls to buy (ZRQ EI).
http://www.investmenthouse.com/ct/swbt.html
(Click to view the chart)
TGP (Georgia-Pacific Cp--$31.44; +0.56; no options): A materials and construction stock that is making a breakout move from its saucer with handle pattern. Made the breakout point of 31.32, but needs stronger volume to sustain the move up (volume rose to average levels, which we consider solid 185,600; average is 167,318). Strong money flow and high relative strength.
BUY POINT: Up to 32.89 on volume of 251,000 or better.
POSITION: Stock.
http://www.investmenthouse.com/ct/tgp.html
(Click to view the chart)
New Play to look at:
MCD (McDonald's Corp--$34.13; +0.50; optionable (MCD)): Moving up on strong volume (4.5 million; avg. 4 million) in its large ascending wedge pattern and approaching the pattern high of 34.69. Look for a breakout over that high on continued strong volume. A solid stock with strong money flow and high relative strength.
BUY POINT: 34.82, on volume of 5.4 million or better. Remains a buy on the breakout up to 36.56.
POSITION: Stock and/or March $30 calls to buy (MCD CF).
http://www.investmenthouse.com/ct/mcd.html
(Click to view the chart)
C (Citigroup--$54.69; +1.56; optionable (C)): Moving up in an ascending wedge pattern that has formed near the bottom of its base (previous high 59.13). The pattern high is 57.38, and on continued rising volume (14.7 million; avg. 13.7 million), look for the breakout. High relative strength and positive buying. Financial stocks stand to do well on further rate cuts.
BUY POINT: Aggressive: On further upward movement on continued rising volume. Breakout: 57.51, on volume of 18.5 million or better. Remains a buy on the breakout up to 60.39.
POSITION: Aggressive: Stock and/or March $50 (C CJ). Breakout: Stock and/or March $55 calls to buy (C CK).
http://www.investmenthouse.com/ct/c.html
(Click to view the chart)
TXN (Texas Instruments Inc--$47.69; -0.19; optionable (TNZ)): The chip stock is in a pennant pattern, consolidating since Friday on below average volume (7.5 million; avg. 11.6 million). The stock closed on a doji right at support (18 day MVA at 47.52) on lower and below average volume (7.5 million; avg. 11.6 million). Look for a move up in a rally. The chips were rallying after hours.
BUY POINT: Aggressive: On a move up from here on rising volume. Breakout: 54.82, on volume of 15.5 million or better. A buy on the breakout up to 57.56.
POSITION: Aggressive: Stock and/or April $45 calls to buy (TNZ DI). Breakout: Stock. April $50 options were not listed at the time of this writing. Please check with your broker in the morning. (TNZ DJ).
http://www.investmenthouse.com/ct/txn.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:
- A day of rest on the Nasdaq waiting on earnings.
- Dow surges, but again on lower volume.
- Earnings after hours are the story for the market.
- Economic news is still glum as inventories rise.
- Subscriber Questions
- Team Trades
Today was just what was needed: take it easy into earnings and then solid earnings.
Lot's of nervous analysts and investors leading into earnings season. There is no doubt that the economy has been struggling and is still trying to ride through rough waters. Yet, as we have been stating, the leading companies in leading sectors are going to perform even now because their businesses are leading the economy still. That is what we are seeing after hours today.
First we take a look at the session. It was quiet on the Nasdaq with most investors preferring to see how the leaders were going to come across the tape after hours. Volume was lighter as it should be on some weakness, but still a very solid A/D line on the session. Internals continue to look very promising. We saw a lot of stocks pulling back to support levels on lower volume, starting or continuing some consolidation after last week's gains. That is very positive action when the internals stand strong while stocks consolidate.
Indeed, such action is how good rallies continue onward and upward. The timing is not just as we would want it, but it is not bad. We would have preferred another session or two of lighter consolidation before all of these earnings started to pour out. That would have allowed stocks to consolidate a bit more before moving up. After hours tonight we see many stocks racing higher on word from tech companies that earnings were better than expectations and that the future still looks solid. Leaders keep selling their products because they are the leaders; as William O'Neil puts it, they are selling the red dresses and everyone wants those red dresses. These earnings and forward statements are providing a catalyst for the after hours trading, and this could act as the trigger for the next leg up.
The Dow was getting all of the 'oohs' and 'aaahs' on the television, but once again the index sported a nice price gain on lower volume. That shows us that the buying is not strong on these stocks. They are being purchased when the techs rest, but there are not a huge number of buyers. We do see certain stocks moving up on good volume in the index (e.g., MCD) and good patterns (e.g., C), but there just was not a lot of madcap buying going on in the index even as it posted a nice price gain. That leaves us careful of these stocks overall (with the few exceptions that look solid), and some buying when the techs rest does not mean to us that these are going to race forward again.
Earnings, baby.
Earnings had investors sitting and looking more than they have in the past few sessions as volume was lower across the board. The banks showed some steady earnings early in the session, and Southwest Airlines (LUV) also posted another impressive year of gains (but no stock split as it remains uncertain about the first quarter). Overall good news, but that did not keep the nervous earnings traders in the stocks as the close approached.
This is a phenomenon we see over and over: sellers on earnings head for the exits when it is 'show me' time. We saw it before the close in stocks such as JNPR and AMCC. We are big believers in these companies, and that just gave us a chance to take some good positions for some short term trades (even longer if it pans out) on these stocks. We were even looking for shares of stock after hours. Why? Because there is a pattern to earnings announcements over the past two quarters: companies report earnings that beat expectations, but they are sold off on the news. Then about thirty minutes to an hour later we have the part of the conference call that gives the guidance moving forward. The leaders have stated that while they cannot control the future, they don't see any problems moving forward as far as their bookings are looking. That propels the stocks higher once again. That is why, as we stated in the SSR, we were looking for positions in JNPR today. The leaders shake out the nervous ones on the news, and then the really good news comes out later.
Several good examples were evident tonight. JNPR sold down close to 122 briefly in the half hour after earnings came out. After it started discussing its earnings (24 cents versus 18 cents, revenues of $143 million, up a mere 550% year over year), it started to move up. Then when guidance came out, it recovered sharply, and the last trade we saw was over 137 after hours. AMCC dropped to 66.50 after hours on the initial news and reports from CNBC of 'light revenues' (16 cents versus 14 cents, revenues up 312% year over year, gross margins up to 76%), but it recovered and the last trade we saw was over 75.75, a mere 13.9% move after hours. Both of these stocks really started to move when the conference call was underway and when the forward guidance came out.
INTC received a lot of attention. It slightly eclipsed reduced expectations (38 cents versus 37 cents, flat revenues, margins at 63 cents, in-line), and after trading down to 30.38, it rallied to 32.38. This is even in the face of a first quarter that was supposed to show a 15% drop in revenue. As many said, expectations were for something worse, and this was 'good' news. Wow. That would seem to be the market reacting favorably to negative news. Indeed, INTC was a catalyst for several chip equipment stocks when it said it saw no slackening in this area of the chip market as it was not cutting its spending in this area. Indeed, INTC stated that it believed that the PC market would show renewed demand this year, perhaps the second half, and that the PC would return as the cornerstone of the desktop. Stocks such as AMAT, KLAC, KLIC, BRCM, and PMCS were flying on the INTC, AMCC, and JNPR news. This could very well be the catalyst for the next leg up. Indeed, we have been salivating over BRCM on a pullback, but we did not get filled on our positions today. No problem, we thought, as tomorrow we would get a chance. BRCM hit 115 on the low after hours and traded up to 127 last we saw. Wow. Have to wait for the morning euphoria to wear off first.
THE ECONOMY
Not great news today, but the markets are looking at weaker (but not devastating) economic news as good news. Continued news of a slowing economy means a Fed rate cut for sure on 1-31. At the same time, news that is not devastating to the talk of a 1 to 2-quarter recovery is viewed as positive. The market finds it easier to look over a couple of slower quarters if it knows the Fed is in a loosening cycle.
Inventories up. The big story today was inventories were up 0.5% in November while business sales were down 0.3%). In October, inventories were up 0.7% while sales were down 0.5%. The last time sales fell two month in a row was August 1998, right as the Russian crisis was unfolding. Indeed, the inventory to sales ratio was 1.36 months, the highest since 4-99. What higher inventories mean is that it takes longer to clear them out with any recovery so that companies can start manufacturing new items. No point in turning on the assembly line if there is still a lot of product sitting on the shelves. That hinders a recovery. Right now, if things remained as they are it would take 1.36 months to deplete the inventory. Send everyone home for a month-long vacation. Investors viewed this as another sign the Fed would have to continue to cut rates.
NAPM revised higher. The 43.7 reading for December was revised up to 44.3. That was interesting, but did not alter the fact that this was the steepest drop since the last recession. Nor did it change the 5-month trend of lower NAPM numbers, demonstrating a contracting manufacturing sector. Indeed, 180,000 jobs were cut from the manufacturing sector in 2000. FOMC member Broaddus got what he so cavalierly said he wanted back in the summer of 2000.
Fed Fund Futures contract.
The contract for February still shows 100% for a 25 basis point cut on or before 1-31, and a 50-50 chance for a 50 basis point cut during that time.
After today's economic numbers the futures contracts lowered the expectations of a rate cut before 1-31 and lowered expectations of the magnitude of the cut. The likelihood of a cut before 1-31 has dropped below the 50% level, meaning it now has priced in a 20% chance of such a move. As far as the magnitude of the move, a 25 basis point cut is still fully priced in, while a 50 basis point cut on 1-31 is at a 20% probability right now.
Money supply. The Fed added $6.745 billion to the banking system.
End Part 1 of 2
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