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Begin Part 2 of 3
Dow/NYSE
A quick test of resistance Tuesday and the Dow turned and ran. Slightly higher volume interrupted the good price/volume action, but it is still holding the range on lighter volume in general. Two poor developments in failing at resistance and selling on higher volume. If it breaks lower again on stronger volume, trouble for the whole market. Still, tech components make up a small portion of the index.
Stats: -133.68 (-1.3%) to close at 10,501.57.
NYSE Volume: 1.288 billion (+2.6%). Still below average volume, but rising on the selling action. That is the first true distribution session in the consolidation; the action on March 13 was attributable to LU's huge selloff that day. Again, one day of distribution (and mild at that) does not end a rally or consolidation attempt, but given the Nasdaq's break below support, it keeps us tuned in to the Dow's action.
Up volume: 353 million
Down volume: 928 million. Up volume fell by almost one-half while down volume rose almost twofold.
A/D and Hi/Lo: NYSE decliners exploded to a 2.11 to 1 lead (advancers led 1.20 to 1 Tuesday). This matches the huge advancers leads on the early March rise. One of the strengths of the rally has been its breadth.
New highs: 146 (-107)
New lows: 47 (+19)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Still in the trading range that runs from 10,400 to 10,679, though there is some modest support at 10,500. The promise of an imminent breakout that we were anticipating had to take a number today as the Dow plunged back to the middle of its trading range. The rising volume is not comforting either, and now we have to keep a close eye on the index and its volume as we see if it can hold above support, regroup, and try again. It is getting somewhat long in the tooth on this consolidation. Twelve days and two attempts to break over resistance without success; if another attempt fails, the consolidation will most likely fail. The economic picture still looks good, maybe even better. With that scenario one would expect the cyclicals, retailers, and financials in the index to keep a move on. Maybe they are just taking a breather, but we have to look at what the market is saying, not what expectations are. One day of selling is not overly significant; another day of the same is a concern.
S&P 500:
From the top of the range (1174) to the bottom (1150, maybe the 200 day MVA at 1145.19) in one session as the big caps dropped 1.6%. As noted NYSE volume rose on the selling, an indication that there was dumping of some large cap stocks (INTC?). The main question now is whether the S&P breaks down below the support level on even stronger volume. Two shots at the December and January tops (1173 and 1176, respectively) have failed. The immediate selloff on stronger volume after the second attempt is not good action; it leaves little room to maneuver above the 1150 and the 200 day MVA support levels. It could trade below those on more negative sentiment Thursday and then recover; again, the overall picture for the economy has not worsened but most indications are that it is improving (we really like the ECRI as a forecaster; it proved to be right in the downturn). We will have to watch the market, however, and let that be our guide.
Stats: -18.44 (-1.6%) to close at 1151.85.
Volume: NYSE volume rose on the selling, indicating some mild distribution (1.288 billion; +2.6%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Consumer Price Index, Leading Economic Indicators, and the Philly Fed report are out Thursday. Expectations are again for improvement, but we note that the expectations before today's housing starts numbers were lowered a bit after last week's grand expectations were left a bit unfulfilled. The CPI won't likely be able to excite the crowd on its own, but a good LEI a half hour in and a strong Philly Fed at noon could help.
That leaves the open still looking soft with the close at the lows and futures down after hours. We will watch for the S&P to test toward the 200 day MVA early in the session. The Nasdaq's failure was disappointing as we were looking for an upside breakout from the Dow and S&P, but its weakness is not a total surprise. The Dow and S&P have dragged it along thus far, and after Wednesday's selling bout we will see if they can recover on some good volume and set up for another try to the upside.
As noted above, many stocks on the reports are still very strong, holding up well today. We have noted some others breaking down as usual, and we will look at some of those to the downside as well. Today we spend a lot of time on the sidelines letting the action unfold. Tomorrow we are going to be watching again to see how the S&P hands on and if stocks start to recover or start to break down again, signaling a drop to lower levels.
Support and Resistance
Nasdaq: Closed at 1832.87.
Resistance: 1850 was support and after it was broken today, it turned the index back. Then there is 1875, the bottom of the November consolidation. The 200 day MVA (1890.54) is next and what stopped the recent rally attempt. 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: 1840, the early November gap up point may provide some support. After that, it is pretty sparse down to 1800 to 1775.
S&P 500: Closed at 1151.85
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 (1145.19). After that, 1125 is the hump in the double bottom, and the simple 50 day MVA (1128.22) and exponential 50 day MVA (1134.79) are converging. 1100 has acted as support as well.
Dow: Closed at 10,501.57
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 (9999.57) 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): No cahnge in Fed Funds rate (1.75%). Balance of risks shifted to neutral.
3-20-02
Housing Starts, February (8:30): +2.8% to 1.752M actual versus 1.63M expected and 1.721M prior (revised from 1.678M).
Building Permits, February (8:30): +1.8% to 1.752M actual versus 1.65M expected and 1.721M prior (from 1.706M).
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: You write that companies will be entering their "quiet time." What exactly is "quiet time"? Is it required by law, and if so, for what purpose?
A: Quiet time is roughly two weeks before a company announces its earnings. During that period the company is not supposed to make any material statements regarding the coming earnings that are to be released. It is designed to help avoid undue volatility before the earnings announcement. That is why we see earnings warnings coming out right before the quiet period starts. If the company sees things are going to miss the mark, it may want to do some front end damage control.
THE PLAYS:
Good movers: EMBT made its move for the put play, FCX hit the buy point in the ascending wedge (but volume was quite low), TUES made a solid bounce from the 18 day MVA in its breakout test.
Trailing Stop Advisories: FDX (56.25), ATVI (28)
Stop Advisories: GDW (62), MAS (26.69), WOR (14.23), IBC (24)
Removed over the weekend but looking good: ADSK, URS, PFG, BDK, SFD, JBHT
Best Plays:
1) AZR: Testing the breakout in a tight lateral pattern.
2) SCTC: Nice pattern.
3) SY: Potential 50 day MVA bounce.
4) CTX: Heading lower.
5) TUES: Hit our buy point but looking good for more entry points.
6) TMBR: Testing support on lower volume.
7) DRI: The drop is imminent.
8) EMBT: Heading lower.
9) NATI: Still tight in the handle.
10) SLVN: Trying for its breakout.
NEW PLAYS:
New:
AZR (Aztar--$21.45; +0.02; optionable): Leisure: Resorts & Casinos
http://biz.yahoo.com/p/a/azr.html
STATUS: Moving laterally along support at the 18 day MVA (21.15) in a test of the January and February ascending wedge consolidation. It was a strong breakout (wedges can do that, a reason we like them so much), and we are looking for another strong pop after this test completes. The stock showed its third consecutive very tight doji above support; volume was well below average Tuesday but surged higher today (150,400; avg. 145,363). Looking for a move soon. Strong money flow. Target: 26
BUY POINT: Aggressive: 22.05 (stock hit 21.95 three times recently) on volume in the range of 200,000. Stop Advisory (7%): 20.50
POSITION: Stock and/or August $20 calls to buy (AZR HD).
http://www.investmenthouse.com/ct/azr.html
SCTC (Systems & Cptr Tech--$12.20; +0.20; optionable): Software
http://biz.yahoo.com/p/s/sctc.html
STATUS: In a 6.5-month double bottom with handle, the handle holding support at the 18 day MVA (11.95) on overall low volume except for Wednesday when it shot up to 157,100 (avg. 156,000). With that the stock bounced, making a nice move up to 12.50 but sold back down to close above the 10 day MVA. The handle still looks good, and with the rising volume it appears SCTC is getting ready to head up for a breakout. A nice, gradual move down in the handle, classic. Strong money flow. Target: 16
BUY POINT: Breakout: 13.03 on volume of 234,000 or higher. Stop Advisory (7%): 12.12
POSITION: Stock and/or August $10 calls to buy (YQS HB).
http://www.investmenthouse.com/ct/sctc.html
SY (Sybase--$17.04; -0.39; optionable): Software
http://biz.yahoo.com/p/s/sy.html
STATUS: Making successive bounces from its 50 day MVA since it broke out over the 200 day MVA in early December. Currently back at the 50 day (17.30) on low volume, having made the pullback off the March high at 19.24 as volume was actually volatile, though on the days of lower volume it fell lower and lower (as it did Wednesday at 241,500 (avg. 501,000). Looking for a bounce and new run. Target is 21.
BUY POINT: Aggressive: 17.90 (over the 18 day MVA, 17.86) on rising volume (420,000 or higher).
POSITION: Focusing on options for the greatest gain on the move: June $15 calls to buy (SY FC).
http://www.investmenthouse.com/ct/sy.html
ROH (Rohm & Haas--$41.35; +1.35; optionable): Chemicals
http://biz.yahoo.com/p/r/roh.html
STATUS: Broke out of a flat base early this month, tested back to the 18 day MVA and broke out again Wednesday, over the resistance at the breakout high (40.68). The stock was up to 42.24 on the intraday high, selling back to the close, but continues to hold above that previous high. The company came out and reaffirmed that first quarter estimates will beat the street, and that sent the stock up. Volume was huge at 2.07 million (avg. 904,400). Look for a continued move up; if the stock does pull back it can test the 40.70 range, offering another good entry point. Excellent money flow. Target: 47
BUY POINT: Aggressive: 41.45 on continued strong volume. Stop Advisory (7%): 38.55. Pullback (aggressive): 40.80 on continued strong volume.
POSITION: Stock and/or July $35 calls to buy (ROH GG).
http://www.investmenthouse.com/ct/roh.html
Puts:
NVDA (Nvidia--$46.52; -5.13; optionable): Semiconductor
http://biz.yahoo.com/p/n/nvda.html
STATUS: Hit our first target at 50 for the previous put play, and now NVDA has broken through that support, the 200 day MVA (now at 49.26). Volume was strong on the move, up to 19 million (avg. 9.6 million), but we will look for the stock to test the 200 day before it heads lower. On that move, buy point will be on the 'kiss good-bye' as the stock heads back down from the resistance. Target is 40.
BUY POINT: After a test of the 200 day MVA: 48.80 on rising volume.
POSITION: May $60 or June $65 puts to buy (RVU QL or RVU RM).
http://www.investmenthouse.com/ct/nvda.html
CTX (Centex--$53.76; -3.35; optionable) Materials & Construction
STATUS: Covered the stock 3-04 when it was trying to break out of a 2-month rolling pattern, but with the sector turning the stock went the other way this month and Wednesday broke the 50 day MVA on big volume (2 million; avg. 956,000). Looking for a continued drop, but it may attempt to test the 50 day MVA (56.25) one more time before it resumes the fall. Target is 47.50.
BUY POINT: After a test of the 50 day MVA, a move back down through 54.50 on rising volume.
POSITION: July $65 puts to buy (CTX SM).
http://www.investmenthouse.com/ct/ctx.html
Continued Plays:
From Monday:
TUES ($22.10; +1.62; optionable): Discount Retail
http://biz.yahoo.com/p/t/tues.html
STATUS: Tested the cup with handle breakout and the 18 day MVA (20.39) and Wednesday shot up on higher volume (392,600; avg. 162,363) in a nice bounce. Took out our new aggressive buy point at 21 on the move, so remains a hold for those positions. Super money flow and buying. Target: 25
BUY POINT: A hold. Stop Advisory (7%): 19.53. New buy point: 22.25 on continued rising volume.
POSITION: Stock and/or June $17.50 calls to buy (UUG FW).
http://www.investmenthouse.com/ct/tues.html
IT (Gartner Group--$13.28; +0.18; optionable): Business Services
http://biz.yahoo.com/p/i/it.html
STATUS: After the good-looking pullback to its 10 day MVA in a test of the double bottom breakout, IT moved up Tuesday and then gapped higher Wednesday, but lower volume caused the stock to close near the opening price resulting in a doji. It is a hanging man, so IT can test back to the 13 range. With the lower volume (151,700; avg. 229,227), we expect a hold there before the stock heads back up again. Excellent money flow and buying. Target: 15
BUY POINT: A hold for buys at 13.05.
POSITION: Stock and/or July $10 calls to buy (IT GB).
http://www.investmenthouse.com/ct/it.html
TMBR (Tom Brown--$27.10; -0.35; optionable): Oil & Gas
http://biz.yahoo.com/p/t/tmbr.html
STATUS: Pulling back again in the 7-month ascending wedge pattern after Monday's tap near upper resistance at 28. Volume fell the last 2 days, as the stock price dropped back, and is now holding up at the short term MVAs (closed at the 10 day MVA). Will look for a bounce back up and breakout. Strong money flow and good buying. Target: 34. Volume was lower at 167,400 (avg. 158,000); still above average so the stock may make it down to the 18 day MVA (26.91).
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--$51.25; -2.45; optionable): Chip Equip
http://biz.yahoo.com/p/d/dpmi.html
STATUS: Looked on its way to a breakout from a 9-week cup with handle on Monday, showing a strong move on good volume in the handle, but the stock just quit, first showing a hanging man doji on Tuesday that signaled Wednesday's fall back. The stock closed at the 10 day MVA on much lower volume (132,900; avg. 248,000). Will see if it can hold here or the 18 day MVA at 50 for a bounce back up and breakout over the March high at 53.79. Strong money flow. 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
End Part 2 of 3
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