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Begin Part 2 of 2
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.
PLAYS TO LOOK AT:
BONUS PLAYS:
OO (Oakley--$18.51; -0.39; optionable): Sporting goods.
http://biz.yahoo.com/p/o/oo.html
STATUS: Broke out of its December-March tightening lateral range last week, and hit 19.25 Monday before dipping back on lower volume the last couple of sessions. Wednesday saw OO test 18 at its low (10 day MVA at 17.86), pulling back up to close as volume was back over the average at 317,700 (average 306,000). Shaping up as a nice test of the breakout, and we will look for OO to hold 18 and give a strong move back up. Target: 22. Good money flow.
BUY POINT: Over 19 on increased volume. 17.76 (7%).
POSITION: Stock and/or August $15 calls to buy (OO HC).
FNM (Fannie Mae--$79.04; -0.96; optionable): Mortgage investment
http://biz.yahoo.com/p/f/fnm.html
STATUS: FNM has been roughly in a range from 75-85, recently battling its 200 day MVA (80.89) but unable to maintain a break through. It broke through again Friday, but immediately turned back, and has dropped the last three sessions on rising volume (4.13 million; average 4.01 million). FNM is now at early March lows, and we will look for a continued, stronger drop back for a put play. Targeting 75.
BUY POINT: A drop through 78.75 on increased volume.
POSITION: May $85 puts to buy (FNM QQ - only 1 open interest as yet).
CSC (Flextronics--$51.53; -1.28; optionable): Software
http://biz.yahoo.com/p/c/csc.html
STATUS: Broke out from a December-February reverse head and shoulders, gapping up on the move but pulling in a lower volume pattern since. It had inched its way back up toward the breakout high of 53.47, but today dipped back with the market, closing at its 10 day MVA on lower volume of 686,100 (average 1.05 million). Prior pattern highs are in the 50.50 range (18 day MVA at 50.72), and we will see if CSC can hold that support and make a run out of its consolidation. Target: 61.
BUY POINT: Over 53.47 on above average volume. Stop: 49.82 (7%). Aggressive: Over 52.80 on above average volume. Stop: 49.20 (7%).
POSITION: Stock and/or June $50 calls to buy (CSC FJ).
PRE-ANNOUNCEMENTS: MUR is still strong, SLM could make another bounce in its run, and RUS is holding up. ESI got some volume but could not move much, and CPS showed a 'tombstone' that could indicate a pullback.
MGA ($72.65; -0.11): Researching a date. Broke out from a double bottom to start this month, hitting a new high on the run at 74.50, and now has pulled into a pennant, using the 10 day MVA (72.19) as support. Today MGA showed a fifth consecutive doji, and we are ready for a move. The buy point is 74.18 on volume of 390,000, with stock and/or August $70 calls to buy (MGA HN).
ATK ($98.81; -0.19): Forecast to announce a split on 5-9-02 before the open with earnings. Tapped up again just over 100 at its high today, but pulled back to close. It is holding in a pennant with light volume after the breakout earlier this month, and we are looking for another move. The buy point is a move over 100.25 on volume of 375,000, with stock and/or May or August $95 calls to buy (ATK ES or ATK HS).
KRB ($38.41; -0.45): Forecast to announce a split on 4-11-02 in conjunction with earnings. The company will not release the date for earnings, but based upon our research this should be the date. Still in a little consolidation, holding the 10 day MVA (38.04) with a doji on light volume (2.42 million; average 3.12 million). Good price volume action since its breakout, and the new buy point is 39.55 on increased volume of 4 million, with stock and/or June $35 calls to buy (KRB FG).
IFIN ($76.92; +0.09): Looking at an announcement on 4-16 with earnings or with the 4-23 shareholder meeting. Another doji in its consolidation, tapping support at its 10 day MVA (75.71) today as volume remained below the average (165,900; average 197,100). Still eyeing a move move over 77.51 on volume of 240,000, with stock and/or July $70 calls to buy (FLQ GN - low open interest).
RNR ($99.70; -0.65): Forecast to announce a split on 4-22-02 with earnings (tentative date). Dipped down today through the put buy point but recovered from its low of 98.75. The momentum is still decidedly down, and we are still targeting 92 on current put positions. For new ones we can eye a move through 98.75 on continued strong volume (306,700; average 224,300), and May $110 puts to buy (RNR QB - no open interest as yet).
ACDO ($53.99; -0.56): Forecast to announce a split with earnings on 4-29-02. Has come back after being hit on some competitive product news, and is now back in the range of its prior pennant pattern. It tested back to the short-term MVA's (52.85) today before showing a doji on lower volume (603,100; average 684,700). Looking for it to hold and make a stronger move. The buy point is 55.10 on volume of 720,000. The new high is 56.60 on volume of 900,000. Stock and/or May $50 calls to buy (DZU EJ).
PRE-SPLITS:
ADSK (Autodesk--$45.82; +0.05; optionable): Software. Splits 2:1 effective 4-19-02.
http://biz.yahoo.com/p/a/adsk.html
STATUS: After a dip to 38 in February ADSK made a rapid recovery, touching 47.37 before pulling into the current pennant pattern. It was using the 18 day MVA (44.56) and the past few sessions has moved up and is using the 10 day (45.18) as support in the pattern, moving on volume that has lightened up considerably in the pattern. Today the stock tested the 10 day at its low before showing a doji, and ADSK could be ready to make another strong move. Good buying. Target: 53.
PLAY: 46.50 on volume of 1 million (average 788,000; today 650,400), with stock and/or July $45 calls to buy (ADQ GI).
WTNY ($49.77; -0.21): Splits 3:2 effective 4-10-02. Good breakout, and now is holding. It tested back intraday Wednesday toward the former high (49.10) at its low of 49.40, but could only manage a doji after reaching up to 50.50 intraday. Looking pretty good in holding the move, and we can still look for a move up to the target of 56 with existing positions, and can look at new positions on a solid move. With a run over 50.50, stock.
POST-SPLITS:
SMD ($18.65; +1.15): Split 3:2 effective 3-18-02. Still looking good on the breakout post-split. After pulling back a bit on lower volume Tuesday, today SMD pushed back up on strong, increased volume of 103,300 (average 47,300). Made a new high on the move, and on a move over 18.85 on continued strong volume, targeting 21.50, with stock.
Good Investing!
Jon L. Johnson and the Stock Split Report 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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