Just found one answer for you in this newsletter, but you and Kavika called it first: HEALTHCARE/MEDICAL and SEMIS.
12/28/00 Investment House Daily
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TONIGHT:
- Another steady move up on rising volume on the Nasdaq. This does not
look like a typical holiday rally.
- The Nasdaq does it without the big names.
- Investors placing bets on the "B Team"? More like the "A" team.
- Small stocks already starting to run before January; as we said, the
January effect starts in late December.
- Medical stocks breaking out, and now some tech stocks.
- Economic news not worse than expected, but not great.
Another solid, building session.
No flash, no glitz. Just a solid session on excellent volume with key
stocks continuing strong moves. Once again the Nasdaq could have sold
off, but it refused to do so as real money came into the real leading
technology stocks. Even with pessimistic news about DELL and IBM, the
Nasdaq came back and finished positive. This is important to the healing
and base-building process, and we are very pleased to see it happen.
Still a ton of risks out there, but with investors looking at a Fed rate
cut, there is money being put to work across the board.
Another broad session.
Again the talk on the tube was about the year gone by and about how the
session today was okay but not great. The main reason? The big name blue
chip technology stocks were down for the most part; they really did
nothing on the day. Indeed, the Nasdaq moved up well given that the major
weighting on the index lies in these stocks (INTC, MSFT, ORCL, DELL,
CSCO). That means the lesser known, yet better performing, stocks were
the leaders once again.
Indeed, the real news was out of the headlines with stocks such as JNPR,
AMCC, BRCD, EMLX, NEWP, SEBL, and EXTR made solid gains that lifted the
index. On the television the Nasdaq face was talking about how the "B"
team stocks were taking the lead today, citing JNPR and AMCC. Hate to
break it to these guys, but the old line techs, with a few exceptions
(e.g., CSCO, SUNW), have been under-performing as far as revenues and
earnings growth is concerned (stock price as well). The network's "B"
team has been the "A" team as far as revenue and earnings growth, and that
is the way it will stay at least for the near future. Real money is being
put into these stocks by institutions ahead of the new year in nice, quiet
chunks. JNPR is up 46% in the last 5 sessions; EMLX up 33%; BRCD up 39%;
CIEN up 42%.
For more proof, look at the Russell 2000, the index of small cap stocks.
That index has been on the move of late, rising 3.1% just today. There is
money being put to work in the less-known stocks, i.e., not the
brand-names, as we move into January. One cause is the January effect
where new money is put to work. That starts the last week of December,
and this year is even more apparent given the amount of money that has
been sitting on the sidelines the last half of the year. On top of that
we have the anticipation of a Fed rate cut in the new year. As we have
been saying since last week, the market has wanted to rally, and the move
has started.
Stocks breaking out.
We still need to build bases in these stocks. But we continue to see
healthcare and related stocks breaking out, and we are seeing technology
stocks moving as well. As we noted last night, many semiconductors are
forming cup bases and just now appear to be moving up to form the right
side of the base. Another common pattern we are seeing form, mostly as a
result of the volatile market, is the double bottom. The double bottom
can be just as powerful as the cup with handle in launching long runs.
AMCC appears to have broken from a double bottom pattern we call a 'flying
w.' MERQ is trying to break from the same pattern right now. JNPR and
BRCD formed more traditional double bottoms where the right leg undercut
the left leg. The breakout of a double bottom occurs when the stock takes
out the 'hump,' i.e., the middle of the 'W.' As always, we want to see the
move on good volume.
THE ECONOMY
Consumer confidence dropped 5 points to 128.3 from a revised 132.6 in
November. That is the lowest reading in 2 years. Not as precipitous as
the Michigan sentiment reading, but quite a drop. While most pundits
played the number down as it met expectations, those expectations were for
a big dip. Just because you expect bad news does not make it good news.
Existing home sales actually rose 4.4% to 5.2 million units versus the 5.1
million units expected. Falling mortgage rates continue to help. That is
the conundrum. Interest rates show no inflation at all, and have not
forecast inflation all year. Yet the Fed kept raising rates. All the
while, mortgage rates peaked and then started to drop. That has kept the
economy alive almost by itself.
Jobless claims fell to 333,000 from a revised upward 356,000 for the prior
week. The number was expected to come in at 351,000. The four-week
average fell to 340,750 from 347,750. This is better news, but it still
shows a rapid slowdown in the job market.
THE MARKETS
Another good day for the building in the market. No huge gains, but broad
gains on solid volume. Still, the leading stocks, i.e., those with the
best revenue and earnings growth, are giving us impressive gains. There
is still a long way to go, but it is going about the healing in the right
way.
Overall market stats:
VIX: 30.17; -2.14. Volatility fell on today's rise as the market's moves
were fairly stable. This would be expected after volatility spiked last
week and again started another rally.
Put/Call ratio: 0.60; -0.12. The ratio is falling as the market makes a
steady advance. It gave us a big spike on Tuesday, and things have been
looking good in the market.
NASDAQ: Did not close on its high (2571.52), but a solid gain on
excellent volume. You could say the smaller moves up on rising volume
indicate churning (high turnover in shares), but the buying was broad; it
just did not include the heaviest weighted stocks in the index. We like
the fact that the index is moving up on good volume while leading stocks
continue to build positive bases. We still have to watch for the
resistance levels on the horizon in the form of down trendlines mainly as
they have stopped the recent rally attempts. The market is still weak,
but it is improving.
Stats: Up 18.41 points (+0.7%) to close at 2557.76.
Volume: 2.194 billion shares (+9.6%). Back above average again. 1.188
billion shares to the upside versus 889 million to the downside. Not a
blowout, but it was not a blowout session.
A/D and Hi/Lo: Advancing issues jumped out to a 1.75 to 1 lead. Better,
but needs to get 2 to 1 or better. New highs rose to 166 (+37) while new
lows fell to 294 (-90).
Not much change from Wednesday. It is holding above the gap down point
from last week and has next real resistance at 2750. There could be some
resistance at the previous low in November at 2597, but if this rally has
any legs, it should overtake that level.
Dow/NYSE: The Dow ran right up to 10,900 on its high at 3:00 ET, but then
pulled back in the last hour. Volume was lower. At this point we cannot
be certain if that was the resistance or just some late profit taking.
Indexes often test resistance and pull back before taking it out. The
move pushes it over its down trendline connecting the September and
December highs, but it has to take out 10,900 once and for all. That has
held the index back ever since September.
Stats: Up 65.60 points (+0.6%) to close at 10,868.76.
Volume: NYSE volume fell to 1.022 billion shares (-3.9%). Still below
average volume. Up volume came in at 640 million shares versus 318
million shares to the downside.
A/D and Hi/Lo: NYSE advancing issues maintained their 2.5 to 1 lead. New
highs rose to 383 (+65) versus 53 new lows (-33).
As noted, the Dow moved over the next down trendline, but it is bumping
again into the formidable resistance at 10,900. Again, it has to take
that level out for any serious rise in the new year. Still, an index will
often test a resistance level and then pullback. If the rally is for
real, it will come back and take it out.
S&P 500: The 500 big caps moved up again, but today on lighter volume.
The index is still struggling with resistance at 1335, a key level it
needs to beat on solid volume. This is a holiday week, and the volume is
still impressive, so this move may be stronger than we give it credit for.
Nonetheless, it has to take out this level and then the 1360 level before
we can really start getting excited.
TOMORROW
The last trading day of the year is always a tough one to take on. We
have had a decent move up the past five sessions, and there may be the
urge to take some profits before the long weekend. With the market
showing us better action, that may provide us an opportunity to take some
positions on the stocks that have made a good run to this point and we
think are going to continue up next year with continued buying. One way
to do this is to start averaging in on positions, not buying all of the
position at once. Lets say you want to buy 10 contracts of calls on JNPR,
but don't want to jump in after a 46% move. Well, if it starts to
pullback, we can let it hit where we think bottom might be (maybe if there
is some afternoon selling) and pick up 2 or 3 contracts. If the stock
continues down a bit more on Monday, when we feel it has hit bottom again
, we can pick up 2 to 3 more contracts. If that is bottom and the stock
is starting up, we can pick up a few more. That reduces our basis in the
calls, and many times the stock does not even have to reach the point
where we first started buying to be profitable in the position. Then if
JNPR makes another one of its classic runs, we are sitting pretty.
Don't be surprised to see the market move up in the morning early on and
then suffer some selling. We can use that to take some short term
positions for the day or do some of that short-term cost averaging
discussed above in anticipation of an afternoon rise. Still, there may be
some profit taking before the long weekend. We think, however, that
buying will start in earnest next week. We will be looking at afternoon
selling as a chance once again to take some positions for what may be a
solid, gap up at the open on Tuesday. That is what we are looking for at
the start of the year. Yes there is still a lot of concern out there, but
the buying we have seen the last few days indicates to us that
institutions are working on positions in those stocks that are leading in
earnings and revenues, the JNPR's of the market. The list is long, but it
includes stocks such as AMCC, ARBA, BEAS, BRCD, CIEN, EMC, EXTR, GLW,
GMST, JNPR, NEWP, NTAP, PMCS, SCMR, SEBL, VRSN, and VRTS. The first
trading day this year the Nasdaq gapped open 116 points higher. It
finished the day up just 61.83 points, but the gains were great. This is
not the same market as last year, but with all of the leading stocks
beaten down there is a lot of incentive for institutions to get into
heavier buying. We have seen the signs this past week of accumulation,
and we want to be in on the move we think is coming. |
