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us stock market, stock watch
Begin Part 2 of 3
TOMORROW
Two big pieces of information come out tomorrow: the FOMC decision on interest rates and the book to bill numbers after the close. The first gives some certainty as to where the keeper of the punchbowl stands; the second gives a clearer picture of where the earnings recovery stands for an important part of the economy, i.e., the semiconductors.
There is the usual speculation about what the Fed will do. The only things people can agree on is that it won't raise rates and it won't lower rates. Thus, the game is between the lines. Greenspan has said the economy is recovering. The Fed will have to acknowledge that. Greenspan has said the recovery most likely will not be as robust as previous recession recoveries because the consumer was so strong; no pent up demand to be unleashed. The Fed will in some way have to acknowledge that. The Fed has also said not to take too much stock in its bias moves anymore; it is no longer trying to send a signal with those but just to let everyone know where it stands right then and there based on the economic data it has before it. That means if the economy slows down over the next month, what they say at this meeting does not mean a whole lot. Ultimately the Fed has to take the foot off of the gas. A Fed Funds rate of 1.75% is still stoking the economy. At the earliest that will be done in June, but probably not until the second half of the year. The Fed can raise rates and still have no fear of inflation at this point simply because the Fed Funds rate is so low. Just because it may raise rates does not mean it is breaking out in hives over inflation fears.
So, we anticipate the Fed to say the economy is improving and that it needs to stay vigilant to both signs of backsliding while being careful not to overstimulate the economy. We don't think that means a change to neutral bias and really cannot see a tightening bias. That would really shake up the market and the Fed cannot afford to do that. It has stepped on the gas hard, and it is going to say that is working and it needs to be ready to lighten up on the throttle. That certainty instead of all the speculation will help investors get off the fence that they were sitting on today.
If the Fed is received positively, we expect investors to anticipate more good news on the book to bill, and that will help push the indexes toward the breakout points. We feel the breakout will occur this week unless some really bad news rocks the market. Remember, the Dow and S&P are set up well; the Nasdaq is struggling and its biggest names are still subject to the most recent news story. When you have shareholders that are ready to jump out when bad news hits, it is hard to make sustained advances. The lack of accumulative patterns on the Nasdaq remains its biggest problem as there is not a lot of faith that the big tech names will make their earnings.
Support and Resistance
Nasdaq: Closed at 1877.06.
Resistance: 1875 is the bottom of the November consolidation, and it has not broke clear of that. The 200 day MVA (1894.10) stopped it in its tracks today and is the next level it has to beat. The top of the November consolidation at 1934 to 1941. After that is 1980 (the December gap up point) and some minor resistance at 2000. Then the January top at 2098.88.
Support: 1850 was able to hold as support last week. After that, it is pretty sparse down to 1800 to 1775.
S&P 500: Closed at 1165.55
Resistance: The December high (1173.62) and the January high (1176.97). That point also marks roughly the lows of summer 2001 consolidation that runs up to 1240. Before that point there is some resistance at 1183 from March 2000.
Support: 1150 and the 200 day MVA (1146.31). After that, 1125 is the hump in the double bottom, and the simple 50 day MVA (1128.52) and exponential 50 day MVA (1132.62) are converging. 1100 has acted as support as well.
Dow: Closed at 10,577.75
Resistance: The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high), is still holding it back. 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 held as support during this consolidation. That is followed by the January high at 10,300. Then the 200 day MVA (10,004.11) and 10,000 teaming up together.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-19-02
Trade Balance, January (8:30): -$26.9B versus -$25.3B%
FOMC Meeting (2:15): Results announced
3-20-02
Housing Starts, February (8:30): 1.63M versus 1.678M prior.
Building Permits, February (8:30): 1.65M versus 1.706M prior.
Treasury Budget, February (2:00): -61.0B versus -$48.2B prior.
3-21-02
Initial Claims, 3/16 (8:30): 377K versus 377K prior.
CPI, February (8:30): 0.2% versus 0.2% prior.
Core CPI, February (8:30): 0.2% versus 0.2% prior.
Leading Indicators, February (10:00): 0.3% versus 0.6% prior.
Philadelphia Fed, March (12:00): 17.8 versus 16.0 prior.
FOMC Minutes, 1/30 (2:00)
SUBSCRIBER QUESTIONS
Q: When you buy puts on a stock that is breaking down can you sell short as well, using the buy point for puts as the point to sell short?
A: What we do in buying and selling options is based on the movement of the underlying stock. We always look for stocks in a good pattern that shows either accumulation (upside plays) or distribution (for downside plays); if the stock makes the move, buying or selling the right options will allow us to benefit from that move using the leverage of options. As we base the option play on the actual movement of the stock, we can buy or sell the stock at those points as well. Now with selling short, you cannot sell when the stock breaks down. There is a rule in short selling that you have to sell on an uptick; that helps keep sellers from just piling onto a stock and driving it into the dust. It does not always save the stock, but it makes things more orderly. So, if selling short, it is good to watch for the breakdown and then the test of that level that it broke through. That means watching it move up and hit the level and fail. Then put in your order to sell it short. It may take another session or two to get the test if it was just a 'normal' breakdown, i.e., not prompted by some accounting worries or other kiss of death news the market is focusing on at that time. Buying into a move after a test is always the less aggressive of the buy points: you see the breakdown, then the fight to recover. If that recovery fails, then the drop is pretty fast to support.
TEAM TRADES
ACF: A credit services company, a sector that has done well lately. ACF had formed a double bottom and broke over its 200 day MVA last week, tested it, and looked ready to move higher. Today it started higher and we were looking to get in. The Dow had started the day stronger and had pulled back to near the point where it gapped open and looked as if it was trying to hold around 9:05 CT. ACF had shot up to 38.75 but it too had pulled back. It started higher and took out the early high with a solid surge. It was moving very fast with a 6 to 10 cent spread. The bid and ask were 38.78 by 38.85 when we were hit at the ask. The stock continued to 39.33 on that move. So far so good. Then it came tumbling back down on us as the rest of the market fell, holding above the gap up point on the low and rallying 80 cents in the last hour to close at 37.99. Volume was lower on the session, and it looks as if ACF is continuing to form more of a handle as is the rest of the market. It remains above the October interim high and the 200 day MVA on low, consolidation volume. We still like the looks of it, but we won't let it fade below that 200 day MVA on the close. We will also look for the breakout over 40 on a volume surge to complete our buy.
THE PLAYS:
Good movers: SXT
Removed over the weekend but looking good: MYG, FMKT, EXPE (broke to a new high), ADSK, URS,
TUES ($20.93; +0.92): Moving up from the 18 day MVA on big volume (512,100; avg. 157,000) after testing the breakout from its cup with handle. Was over the 10 day MVA (20.64) and looks headed up from here. Aggressive buys at 21 on continued strong volume for positions with stock and/or June $17.50 calls to buy (UUG FW). Stop Advisory (7%): 19.53. Target 25.
http://www.investmenthouse.com/ct/tues.html
Best Plays:
1) TUES: Heading up after testing the breakout.
2) IT: A nice pullback.
3) DPMI: Big move ahead of book to bill.
4) SXT: A continued buy on the breakout.
5) IBM: Still poised for a move up.
6) GPC: Moving up; just needs volume.
7) NATI: Still looks good.
8) SLVN: Ditto.
NEW PLAYS:
IT (Gartner Group--$12.93; -0.02; optionable): Business Services
http://biz.yahoo.com/p/i/it.html
STATUS: Making a neat pullback to support at its 10 day MVA (12.78) after the stock broke out of a 7-week double bottom with handle early this month. After reaching a high at 13.12 the price pullback has been classic in its steadily, orderly and gradual pullback. Volume has been low as well, but started rising Monday (156,300; avg. 235,400) with the stock showing yet another doji. Looking for a good bounce up from here as volume keeps climbing. Strong money flow and buying! Target: 15
BUY POINT: 13.05 on volume of 240,000 or higher. Stop Advisory (7%): 12.14
POSITION: Stock and/or July $10 calls to buy (IT GB).
http://www.investmenthouse.com/ct/it.html
TMBR (Tom Brown--$27.68; optionable): Oil & Gas
http://biz.yahoo.com/p/t/tmbr.html
STATUS: Making a 2-day move up in a 7-month ascending wedge pattern and approaching upper resistance at the 28 level. Volume remained high Monday at 313,300 (avg. 156,100), slightly down from Friday's numbers. The market was taking it slow today, however, so if it likes what the Fed says tomorrow, we can get a breakout. Money flow is strong, and buying looks good. Target: 34
BUY POINT: Breakout: 27.91 on continued strong and rising volume. Stop Advisory (7%): 25.96
POSITION: Stock and/or June $25 calls to buy (TQF FE).
http://www.investmenthouse.com/ct/tmbr.html
DPMI (Dupont Photomasks--$53.60; +3.20; optionable): Chip Equip
http://biz.yahoo.com/p/d/dpmi.html
STATUS: Ready to break out of a 9-week cup with handle after the handle pulled back to the 10 day MVA (50.67). After two dojis above that support the previous 2 days, DPMI popped higher as this sector had a good day, volume shooting up to 430,200 (avg. 244,000). Looking for a breakout over the March (handle) high at 53.79). Strong money flow, relative strength breaking out. Target: 65
BUY POINT: Breakout: 53.89 on continued strong volume. Stop Advisory (7%): 50.12
POSITION: Stock and/or June $45 (DUD FI; low open interests).
http://www.investmenthouse.com/ct/dpmi.html
Plays from the weekend: Had several buy points hit today but lower volume and a bland market pulled most stocks back to close below them.
Indexes: The OEX held above the 200 day MVA (587.32) for a $1.50 loss as volume sank below average. Keeping buy point at 592 for the aggressive bounce. The SOX hit our aggressive buy point (602) for its bounce but sold back to a doji. It held for a gain of almost $6; a hold for a move back up from here.
Breakouts:
NYT (New York Times--$48.07; -0.02; optionable): Media
http://biz.yahoo.com/p/n/nyt.html
STATUS: Broke out of the 7.5-month cup with handle Friday but did not get over that day's intraday high, 48.50, tapping that high again in Monday's trading. As in the general market, volume dropped back below average in a sharp decline, but the stock held for just the small loss, showing a doji. It can fall back to test the buy point at 47.59 if the market doesn't surge back tomorrow to resume Friday's breakout. A buy up to 50 on the breakout. Target: 57. Volume down to 506,300 (avg. 520,200).
BUY POINT: Hit our buy point at 48.15 and is a hold for positions. New buy point from here: on a test of 47.59 and bounce on higher volume or a break over 48.60 on above average volume. Stop Advisory (7%): 45.20
POSITION: Stock and/or July $45 calls to buy (NYT GI).
http://www.investmenthouse.com/ct/nyt.html
MAT (Mattel--$20.04; 0.00; optionable): Toys
http://biz.yahoo.com/p/m/mat.html
STATUS: Gave a strong move on the breakout from the 4-month cup with handle base on Friday, but with volume lower Monday MAT did not get much higher; it hit 20.25 before closing down with a tight doji right at Friday's closing price. The buy point was 19.56, and the stock tested that on the intraday low of 19.65 before bouncing back up, a move we noted on the weekend report for potential safer entry points. We will see if MAT can resume the move if the market reacts favorably to Fed news tomorrow. Money flow excellent and buying still looks good. Target: 24
BUY POINT: Hit our buy point at 20.15. A hold. Stop Advisory (7%): 18.74. A buy to 20.60 on breakout. Volume 4.7 million; avg. 2 million.
POSITION: Stock and/or July $17.50 calls to buy (MAT GW).
http://www.investmenthouse.com/ct/mat.html
CMA (Comerica--$63.74; -0.39; optionable): Regional Banks
http://biz.yahoo.com/p/c/cma.html
STATUS: Strong gapping move Friday answered by sharply lower volume (808,700; avg. 720,400) and a tight doji on the slight loss. CMA broke out Friday from a 7-month cup with handle, and looked ready to blast off with the huge volume on the move. Such was today's market; the stock held above the buy point at 63.70, so we will look for a resumption of the nice move. Target: 77
BUY POINT: 64.25 on volume in the range of 1.1 million. Stop Advisory (7%): 59.75
A buy on the breakout up to 67.
POSITION: Stock and/or July $55 calls to buy (CMA GK).
http://www.investmenthouse.com/ct/cma.html
End Part 2 of 3
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us stock market
stock watch
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