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Begin Part 2 of 2
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:
Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.
Good movers: CVH, OII, SIMG, LYTS, BBX, PPD, EMLX
Stocks/Indexes from Saturday's report:
CBUK: Lower volume and the stock retraced almost all Friday's move except for a bounce back up from the 10 day MVA that held it above most of its recent highs in the consolidation. That is a good sign even though it fell back today. Broke out Friday.
DLTR: After the bell Monday reported Q4 profits and plans to open new stores. The stock gapped up at today's open at 35.10 but filled the gap, closing back below the buy point in the cup with handle (34.06). Unchanged after hours.
CNB: Holding above the buy point (15.08) in the ascending wedge after breaking out Friday; volume was significantly lower but the action suggests CNB will resume once the market rallies (perhaps after Greenspan).
DJX: Holding steady in the flying plateau as volume fell back. Waiting for the breakout.
DGX: Hit the sell point for the covered call play, moving down $1.55 Monday.
Continued Plays: Still like ATK (3-10), NWK (3-09)
HNT: Has been on a good run; Monday showing a hanging man doji so could start a drop here for a test of 25.
MPS: Continues to hold in the lateral pattern (plateau) above support at 8. Volume continues to fall.
PRIA: Popped from the 18 day MVA after testing its 50 day MVA bounce run (early March). Volume is rising and at average levels, so the stock can be launching a run here.
SNS: Lunging from the 50 day MVA! A buy over 14.25 for stock.
Best Plays:
1) HKF: Getting ready to make a move.
2) ABTL: Ready to move up in the handle.
3) PRIA: Bouncing.
4) MIK: Covered call.
New play:
HKF (Hancock Fabrics--$17.84; -0.07; no options): Specialty Retail
http://biz.yahoo.com/p/h/hkf.html
STATUS: In a 2-week ascending wedge pattern that is testing the February run, in which HKF gained 3 points. Upper resistance is at 18, lower support the 10 day MVA (17.71). The stock is squeezing between those two levels, and volume is doing what is should in falling below average levels. Monday, however, volume rose to just above average to 114,800 (avg. 105,090). We are looking for a breakout; the good pattern is backed up by huge money flow and strong buying. Target: 22
BUY POINT: 18.10 on volume of 142,000 or higher. Stop Advisory (7%): 16.83
POSITION: Stock.
http://www.investmenthouse.com/cd/hkf.html
NSC (Norfolk Southern--$24.03; -0.05; optionable): Railroads
http://biz.yahoo.com/p/n/nsc.html
STATUS: NSC broke out of a 6-month reverse head and shoulders pattern in a huge move that cleared the stock of a bigger, 8-month base. It is now testing the move. Volume was strong on the breakout but has fallen back nicely in the test. Thursday NSC was hit with some selling, but it held the 18 day MVA through Friday, and on Monday closed just under that support level with a long-tailed hammer doji. After hitting a low at 23.01, price bounced back to close there. We would have preferred it above that level, but the doji is bullish on the strong volume (2.07 million; avg. 1.35 million). Looking for a move back up for NSC's second 18 day MVA bounce since February. Strong money flow. Target: 30
BUY POINT: Aggressive: 24.55 on continued rising volume. Stop Advisory (7%): 22.83
POSITION: Stock and/or June $20 calls to buy (NSC FD).
http://www.investmenthouse.com/cd/nsc.html
ABTL (Autobytel--$2.95; -0.05; no options): Internet Software
http://biz.yahoo.com/p/a/abtl.html
STATUS: ABTL is in a 7-week cup with handle, and the handle has completed a pullback to support at the 18 day MVA, just below the stock's closing price Monday. The pattern formed after a strong breakout move off of that support early in January, a run that completed the right side of ABTL's 14-month base (which is part of an even bigger base). After showing a bullish shooting star doji at the support on low volume (87,800; avg. 167,100), the stock looks ready for a move up. We are looking for a breakout over the March high (3.41). ABTL has strong money flow and buying. Target: 4.15
BUY POINT: Aggressive: 3.10 on volume of 170,000 or higher. Stop Advisory (7%): 2.88. Breakout: 3.45 on volume of 251,000 or higher. Stop Advisory (7%): 3.21
POSITION: Stock.
http://www.investmenthouse.com/cd/abtl.html
Update:
PRIA (Pri Automation--$25.92; +0.82; optionable): Chip Equip
http://biz.yahoo.com/p/p/pria.html
STATUS: After the nice 50 day MVA bounce run from early this month, PRIA tested the move by holding above its 18 day MVA (24.87). The stock showed a hammer doji just above that level on Friday, and on stronger, average volume Monday popped up for the gain. Looks ready to launch another run on this bounce. Buy point is above resistance at the 26 level, just below which PRIA closed Monday. Volume up to 351,900 (avg. 322,000). Outstanding money flow. Target: 30
BUY POINT: 26.50 on volume of 405,000 or higher. Stop Advisory (7%): 24.65
POSITION: Stock and/or August $22.50 calls to buy UXQ HX).
http://www.investmenthouse.com/cd/pria.html
PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that look ready to pick up a few shares.
THE LEADERS: DGX, FRX, LLL, MIK, IGT.
Covered Call:
MIK ($38.61; +0.11; optionable): Specialty Retail
http://biz.yahoo.com/p/m/mik.html
STATUS: Stretched a bit higher Monday but fell back on decreased volume, holding just above Friday's closing price. MIK has been on a tear since early this month, and is teetering on the edge of a pullback. We will look at selling covered calls on stock positions on a move below 38.50 on rising volume. The stock may find support at 36, or lower at the 18 day MVA (35.40) which can even rise to 36 if the drop takes its time. Then there is the January high at 35, but we will focus on 36 for now for first support. When MIK hits that and looks ready to hold for a move back up, the calls can be bought back; they will have lost value and the difference is the profit.
SELL POINT: 38.40 on rising volume.
POSITION: April $35 calls to sell. Selling for $4 at Monday's close; for a move of just over 2 points (delta 1.00), the calls can fall in value to around $1.60.
http://www.investmenthouse.com/cd/mik.html
IGT ($61.51; -1.24): The stock started selling off again and while it can hold at recent support (60), volume was higher and it has been a week below its 50 day MVA. Not interested in having it move down to the 200 day MVA (58.47), and will check back in when it gets over the 50 day (64.56).
LLL ($116.30; +1.58): After the correction below the 18 day MVA a week ago, the stock moved up and Monday tested on the opening price of 114 the 10 day MVA. Volume remained below average, but LLL looks ready to try for a move over the March highs at 117.15. If it does not make it and volume does not come into the stock, it would be a double top on low volume, and that sets up a move down to toward the 50 day MVA at 105.
UP & COMERS PORTFOLIOS: BBBY, SRCL
Covered Call:
SRCL (Stericycle--$63.80; -1.94; optionable): Tried to rally Wednesday but reversed on above average volume. Today it sliced below the 18 day MVA on rising volume (308,400; avg. 296,000). This is not good action as the stock tried to consolidate for a move higher. Indeed, it is the indication of a move even lower. It has some support from the December highs at 62 to 62.44. The stronger volume selling may not stop it there and it may head towards its 50 day MVA at 61.28. We can look at getting into a quick covered call play from here on continued selling, looking at a target at the 50 day MVA (61.28). That is a rather tight squeeze.
MEMBER PORTFOLIO: CSCO, SEBL, EMLX, BRCM, HDI, BRCD, BUD, AMGN, WMT, ORCL, HB, NOC
WMT (Wal-Mart--$63.55; -0.20): Looked promising for another bounce from the 18 day MVA, but with today's lackluster trading that was across the board, the stock couldn't continue the strength. Volume fell back below average and the stock did bounce back up from its 10 day MVA (62.70). No ballistic rise higher to be fearful of yet, so we will let it run as it will for now.
BRCD ($23.10; -2.44): Heavy selling today, with the stock nearing its February closing low (support) at 21.97. BRCD has been falling for three days after a break of its 18 day MVA.
EMLX ($26.54; -1.34): Still falling for the put play, and volume was rising Monday. Initial target on the play is 25; below that, 23.
Good Investing!
Jon L. Johnson and The Daily Staff
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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