Tuesday, October 31, 2006

Foreign markets fade on US GDP report, but US markets melt higher after weaker start

- Foreign markets fade on US GDP report, but US markets melt higher after weaker start.
- September PCE still not backing off much as consumers make more, spend less.
- October like September posts another gain, trying to set up for another move.

After Friday selling market overcomes a soft start, finishes mostly positive.

Stocks nursed a hangover from the Friday dump lower on the GDP and chip/PC story out of Taiwan, and futures were lower accordingly. Japan was down 2% and Europe was lower as well on the weak US report. WMT reported same store sales +0.5%, well off the 2% to 5% expected and the weakest showing in six years. Personal income was up more than expected, but spending was lower, barely scratching positive. Lacker was out after his last dissent stating consumer spending looks good. At least he is predictable, holding his line of reasoning regardless of what the data says.

Stocks took their lumps early with the indices fading below the Friday close, but the selling never got out of hand. Stocks bottomed within the first hour and began a drift higher pretty much into the close. Lower oil helped (58.38, -2.39) as always, giving stocks a reason to rise even when the buyers lacked any real strength. Volume was low and breadth was modest, but after the early pressure they drifted higher. It was basically a cessation of selling pressure that allowed stocks to revert to the trend, and that is still up.

Technically it was a better session of course, but as noted, it lacked much power. The low to high intraday action resumed once the sloppy early action abated and the sellers gave up. NASDAQ and SOX showed some renewed leadership with some individual solid moves, but they were hardly plowing new ground, still closing below the recent highs. There were some bounces in good, leadership quality stocks as noted, but mostly they are still setting up after NASDAQ tried the April high air and faded back. Indeed, NASDAQ remained below that April high it cracked last week, and it likely needs more work before it is ready to try again given it was pushed back rather quickly. Overall the bullish patterns remain in effect, though DJ30 and SP500, both still quite extended, struggled once more.

An interesting theme Monday was the rather bearish attitude expressed by most commentators. We heard 'overbought' quite a bit along with too many bulls and too long without a significant correction. Overbought is a relative term, but the latter two are both true. Bulls are getting higher, rising toward that 55% level considered bearish. The NYSE large caps have rallied since the July low and DJ30 is putting the moves on a 10% rise above the 200 day SMA. That suggests things are getting overdone.

At the same time all of that bearishness suddenly cropped up, and as we noted in the pre-market alert, even with the high bullishness among investment advisors, that sudden rush to the 'overbought' side of the ledger was in itself near term bullish. We note that it did not take much selling last week to jump the put/call ratio on CBOE over 1.0 on the close. While the overall view of the financial markets is getting more bullish with the average investor (at least 5 people last week started conversations with me with 'well, the market is up nicely, isn't it?'), there is still a hangover from the bear market. As soon as there is any hint of selling out come the comments that the run is over, time to clear out, etc. For now the market has not shown the kind of distribution that would suggest something serious is afoot; the market could easily consolidate more here, but again, at this juncture it is not broadcasting trouble.

The election might cause some bumps this week as investors try to figure out just how many seats the Dems win and how much to discount the changed rhetoric from Pelosi, Rangell and friends ('don't believe what I have done the past six years, believe what I am saying right now'), but as of yet the market is not showing the kind of choppy distribution that gets you on high alert for a decline. NASDAQ and its fight at the April high will remain the key battle point near term, and while techs were up Monday, they still look as if they have more work before they can really break higher regardless of the sentiment.


September incomes up, spending falls, but still solid when adjusted for inflation.

Incomes rose 0.5% (0.3% expected) while spending rose a less than expected 0.1% (0.3% anticipated). When combined with the WMT report of weak weekly same store sales that fueled the slowdown talk and indeed the general bearish attitude to start the week.

Funny thing about numbers, however, is that you can look at them from many different ways and as we often see, the headlines often don't tell the story, at least not the one worth telling. Spending was down in part because of lower prices for gasoline, and when adjusted for inflation spending rose 0.4%. Many economists commented after the numbers that the results showed healthy spending that was not shutting down as many hypothesized due to slowing housing price gains and even housing price losses.

PCE drops modestly from August, still 'discomforting' to Lacker.

There was no major continental shift in the second of the measures of prices the Fed watches, but it was lower. The core PCE for the month rose 0.2%, less than the 0.3% in August and up 2.4% year over year. That was also down, falling from the 2.5% reading in August.

Lower, but not low enough for the Fed's designated protagonist Lacker. He was speaking Monday again, and noted that inflation was still 'discomforting.' Lacker has dissented the Fed's pause the past three meetings, and remains opposed to the current policy given his view on how inflation runs its course. Many said after the Friday GDP report that Lacker was dead wrong, and while we think he is as well, it is not for the same reason. Inflation doesn't decline because output declines; as McTeer noted, increased output helps reduce inflation pressures.

Declining GDP does not mean inflation will automatically follow; that is the common misconception, just as a rising economy fosters inflation. As seen in the 1980's and 1990's and the early 1960's, that is just not the case. Indeed, while those were upside years with low inflation, the economy showed the flip as well, i.e. the back breaking high inflation of the 1970's when the economy was stagnant, when the US was supposedly past its prime and no longer a world economic power.

We have noted the past month that the Fed May talk the PCE and CPI as its primary indicators, but it does not appear to be walking that walk. Monday we noted a few economists suggesting the same thing, i.e. that the Fed may just not put as much weight on this as it indicates. Remember, those were Greenspan pets and in order to form a more perfect transition, Bernanke stated he would follow the Greenspan policies. As we have noted, the pause when the Greenspan indicators were on the rise is not something Greenspan would do, and thus we conclude that the Fed is really looking elsewhere, easing the markets into its view of the world of monetary policy. At some point it will have to start showing its hand; indeed, it may have started just that with Poole talking about the Fed needing to follow markets in its policy decisions. A small step, but the start is always a small step.



VIX: 11.2; +0.4
VXN: 17.99; +0.58
VXO: 10.65; -0.08

Put/Call Ratio (CBOE): 0.82; -0.21. Dropped back quickly, but again we note how easy it was for the ratio to jump back above 1.0 on the close at the first sign of any selling. Despite the bullishness that is now seeing the retail investor return, the ghosts of bursting bubbles and bear markets past are quick to rise in the investor psyche.

Bulls versus Bears:

Bulls: 52.7%, up modestly from 52.2% where it held for 2 weeks. Still advancing toward that 55% level considered bearish. Up from 49.5% and 47.4% before that. This has caught the April high and is moving closer to the January peak at just over 60%. 55% is considered a bearish indication.

Bears: 30.1%. Actually rose a bit from 30.0% as bears hold near 30% after dropping rather sharply from 35.4% before that and the 37.1% hit in July (the highest level in this entire cycle, easily clearing the 34.4% hit in late June back when bulls and bears kissed, just missing a crossover). It is still well above the 20% level considered bearish, and if it holds at a high level even as bulls move higher, it acts as a governor on the bullishness. Hit a new post-2002 high in that late June move, eclipsing the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005).


Stats: +13.15 points (+0.56%) to close at 2363.77
Volume: 1.761B (-22.6%). Volume fell off the map, coming in below average as NASDAQ opened lower and then rebounded for a modest gain. The lower volume on the selling is good, but the low trade as it rebounded shows no real buying interest, just a lack of sellers Monday. That indicates NASDAQ most likely still has some work to do before it can make a run at the April high stick.

Up Volume: 1.308B (+540.414M)
Down Volume: 429.096M (-1.064B)

A/D and Hi/Lo: Advancers led 1.22 to 1. Modest is about the only way to describe this action.
Previous Session: Decliners led 2.02 to 1

New Highs: 120 (-47)
New Lows: 38 (+2)

The Chart: http://www.investmenthouse.com/cd/^ixic.html

NASDAQ bounced right back after a lower open, posting a modest gain on below average volume. It did not charge back from the Friday dump lower that gave back Thursdays break above the April high (2376), but it did rebound above the near support at the 18 day EMA. About all you can say about that is that it stemmed that selling attempt. Not a bad thing obviously, but the lack of volume indicates NASDAQ may have some more work to do to clear that April high and make the move stick. As noted above, this is the next key battle for the market as NASDAQ tries to join DJ30 and SP500 with a new post-2002 high. It had it in its hands Thursday but could not generate any additional momentum in the face of the Taiwan report about motherboard sales. If it can break higher quickly on strong volume again, that would be a solid positive as it would affirm the same reasons NASDAQ is at this crossroads in the first place.

SOX (+1.13%) rebounded as well, leading the market in its percentage gain. That is often the case, up or down, given its higher beta. Nonetheless it too held where it had to (the 50 day EMA at 451) and bounced, showing some good individual moves as it did. As with NASDAQ it has to show more, but also, it is showing enough as it held the 50 day EMA in the selling from last week and continued working on its base. That is exactly what we want it to do for now.


Stats: +0.59 points (+0.04%) to close at 1377.93
NYSE Volume: 1.427B (-8.02%). Volume fell well below average as the large and small caps posted modest gains. No real volume to drive stocks higher but also no real interest in selling.

Up Volume: 669.318M (+281.873M)
Down Volume: 730.467M (-417.053M)

A/D and Hi/Lo: Advancers led 1.16 to 1. Basically flat on the session, matching the action.
Previous Session: Decliners led 1.82 to 1

New Highs: 163 (-92)
New Lows: 19 (+1)

The Chart: http://investmenthouse.com/cd/^gspc.html

SP500 was under pressure early along with the other indices, but held near the 10 day EMA (1374) on the low and bounced modestly. Not much of anything other than a test of the continuing uptrend and a hold at support. It remains extended but still in that strong uptrend as money continues to chase into large caps.

SP600 (+0.39%) struggled early, testing down toward the 18 day EMA (387) on the low and rebounding nicely to hold above the 10 day EMA (390) and post a modest gain along with the SP500 and SP400. The small caps broke higher on Thursday and then gave it back similarly to NASDAQ. Still solid, still looking for another break higher over that earlier October high (392.82).


The blue chips came back from a test below the 10 day EMA (12,062), posting a modest loss on very low, below average volume. No distribution, just another test of the 10 day EMA that has acted as support for the past 5 weeks; before that the 18 day EMA also acted as support. It may make the break below the 10 day EMA that has held the latter part of this run, and if it does that will be noteworthy. The 18 day EMA (11,986) would still likely try to hold the move higher. That certainly would not jeopardize the trend unless the 18 day fell into as well.

Stats: -3.76 points (-0.03%) to close at 12086.5
Volume: 206M shares Monday versus 277M shares Friday.

The chart: http://www.investmenthouse.com/cd/^dji.html


Employment cost index, Consumer confidence, Chicago PMI, and trick or treat. Monday stocks for the most part responded to the Friday worries about technology with a shoulder shrug and a drift higher. There was no conviction buying, but there was no selling with force either. Instead, stocks were shaking off the fog of a strong break higher Thursday followed by a quick fade Friday on growth worries mainly in tech. Even with that, NASDAQ remains perched near the April 2006 high, the post 2002 watermark (outside the Thursday close where it eclipsed that level for all of one day). That remains the key point for this most recent move as NASDAQ, after lagging the large cap NYSE stocks, is trying to join the fight, and the near term move for the market turns on whether it is successful.

As noted above, there may be some near term bumps from the election as the market really has to come to grips with a possible power change in Congress. To this point it has not only weathered that prospect, but it has prospered under it. The idea seems to be if the Dems take the House but the Reps can hold the Senate, some sort of standoff will ensue. There is this idea that gridlock is best for the market, but that is really a bogus analysis. They point to the 1990's under President Clinton as the example, but that was not gridlock. Gingrich on the republican side worked with Clinton and they cut spending, cut taxes on capital gains, and helped keep the prosperity rolling for a bit longer. The higher marginal tax rates ultimately played a role with the Fed draining money supply to choke off the economy, but the point is that it was not gridlock but actual compromise in order to move forward. If there is gridlock this time around what happens? The tax cuts expire and the Dems get what they wanted without taking affirmative action to look like tax hikers. As always, it is too easy to pigeon hole events, and often that analysis is wrong.

In any event, October is winding down and the market has escaped thus far with gains, just as it did in September. There was some last day selling in September and the first session of October, but that was just about it. That puts the market, as we heard all morning, overbought and overwrought. Somehow the market is not hearing it. This is all occurring because money keeps chasing stocks higher. At some point there will be a re-jiggering of this by on every pause mentality and a steeper correction will occur. If those chasing decide to wait for a pause, the pause will likely occur. The key is how far down they are willing to let stocks fall before they move back in.

There is a key mindset driving stocks higher right now as well, and that is the 'traditional' run to the year end. Of course that is often preceded by a September and October that show a bit of selling, something not seen in those months in 2006. Thus tradition can be upset by earlier success where there is usually some selling. It is a pickle, but as we have noted before, you don't want to buy DJX or OEX right now as they are indeed overextended. On the other hand, their pullback may be NASDAQ's breakout as money rotates around the market. Indeed, there has been no sign of vigorous selling that would indicate money leaving the market. Thus we anticipate that if money comes out of DJ30 and SP500 it will find its way into the techs and small caps until the big money buyers decide the large caps have pulled back enough to make the large cap industrials 'values' again.

Tuesday and the rest of this week we remain looking at NASDAQ and the SP600 and how they react around the recent highs. NASDAQ hardly looked ready to take on the April high Monday, rebounding yes, but not coming close to the April high or the kind of volume it will need to make the break stick. We saw some leaders move higher Monday, and we will continue watching those; as more start to make the break higher on volume, you can start to infer the indices will follow. That is why we typically are buying into the leaders as they break higher even though the market overall may be lagging that move initially. As long as the overall market continues showing healthy action we can step out ahead of things with some confidence. We were doing that some Monday and we will continue to do so Tuesday and then go have some tricks and treats.

Support and Resistance

NASDAQ: Closed at 2363.77
2368 is October handle high.
2376 is the April high, the post-2002 high. Just cracked through this level.
2384 is an interim peak from January 1999
2493 is an interim peak from February 1999

The 10 day EMA at 2351
The 18 day EMA at 2334
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
2316 from interim tops in January and March 2006 trading range
2273 is the recent September peak
The 50 day EMA at 2270
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
2232 is the August 2004/April 2005 up trendline
The 200 day SMA at 2229

S&P 500: Closed at 1377.93
1389 is a low from November 1999
1398 is a low from January 2000
1401 is a low from April 2000

1378 is a low from May 2000
The 10 day EMA at 1374
1371 to 1373 is the December 2000 peak and the January 2001 peak
The 18 day EMA at 1366
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
1339 is the late September closing high
The 50 day EMA at 1338
1334 is an October 1999 peak
1326.70 is the May 2006 high
1324 to 1329 from the October 2000 lows.

Dow: Closed at 12,086.50
Still climbing up the 10 day EMA but still struggling a bit. Back down to 7.5% above the 200 day SMA. It tends to begin struggling when it gets to the 10% level where it typically will start to falter.

The 10 day EMA at 12,062 has acted as support all the way up. When it breaks on the close that is noteworthy.
The 18 day EMA at 11,986. Likely to hold at least temporarily if the 10 day EMA breaks
11,750.28 is the prior all-time high
The 50 day EMA at 11,730
11,723 is the January 2000 closing high
11,670 is the May intraday high
11,642 is the May 2006 closing high
11,488 is the early September high.

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

October 30
Personal income, September (8:30): 0.5% actual versus 0.3% expected, 0.4% prior (revised from 0.3%)
Personal spending, September (8:30): 0.1% actual versus 0.3% expected, 0.2% prior (revised from 0.1%)

October 31
Employment cost index, Q3 (8:30): 0.9% expected, 0.9% prior
Chicago PMI, October (10:00): 58.0 expected, 62.1 prior
Consumer confidence, October (10:00): 107.8 expected, 104.5 prior
Trick or Treat (6:00 on)

November 1
Construction spending, September (10:00): 0.0% expected 0.3% prior
ISM, October (10:00): 53.0 expected, 52.9 prior
Crude oil inventories (10:30): -3.2M prior

November 2
Initial jobless claims (8:30): 310K expected, 308K prior
Productivity, Q3 preliminary (8:30): 1.1% expected, 1.6% prior
Factory Orders, September (10:00): 3.6% expected, 0.0% prior

November 3
Non-farm payrolls, October (8:30): 125K expected, 51K prior
Unemployment rate (8:30): 4.6% expected, 4.6% prior
Hourly earnings (8:30): 0.3% expected, 0.2% prior
Average workweek (8:30): 33.8 expected, 33.8 prior
ISM Services (10:00): 54.5 expected, 52.9 prior

End part 1 of 3 Begin part 2 of 3

New plays contained in part 3



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DATE: date play first appeared on report.

PLAY: Denotes the type of pattern or play.
Upside play types: Asc Tri=Ascending triangle; BO=Breakout; Cup=Cup base; Cup hdl=Cup w/handle; DB hdl=Double bottom w/handle; Dbl btm=Double bottom; Flat=Flat base; FlyPlat=Flying Plateau; Pennant=Pennant; Rv H&S=Reverse head & shoulders; Saucer=Saucer base; Test 18=Testing 18 day MVA; Test 50=Testing 50 day MVA; Test BO=Testing the breakout (could be 10 day MVA test, etc.) Downside play types: CCall=Covered Call; Dsc Tri=Descending triangle; Dbl Top=Double top; H&S=Head & shoulders; Put (generic downside);

PIVOT=Buy point

Tgt=Target stock price for the play. Applies to stock and options.

Vol=Volume for the most recent session.

TgtV=Target volume to enter the play.

Stop=Stop advisory point. This is advisory and we may or may not exit a play if it hits this level depending upon Market conditions.

PLAY STATUS: Buy not hit (stock has not hit buy point); Buy not issued (stock has hit buy point but did not enter due to weak volume, poor intraday action, poor Market action); Current (ongoing play already entered); Entered today (entered the play that session); Exited (closed the position); Target hit (play hit initial target; will note if took all or partial gain or let run further); Trailing stop (exited using a trailing stop loss).

Upside Plays
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
AAPL 10/12 DB hdl 80.42 +0.01 75.55 88.00 18M 32M 79.08

AAPL 08/21 Cup hdl 80.42 +0.01 68.12 78.00 18M 40M 78.35
Current. Bounced off the 10 day MVA on low volume. Moving up after routine pullback.

AKAM 10/21 Test 50 45.81 -0.64 47.20 55.95 5.9M 7M 47.45
Current. Gapped down showing a doji on the 50 day MVA on slightly above average volume. Should be ready to bounce from here

AOB 10/24 FlyPlat 7.20 +0.20 7.29 8.94 1.1M 700K 6.88
Current. Solid volume as AOB bounced off the 10 day EMA after the Friday test.

BEAV 10/24 DB hdl 26.11 +1.05 25.77 29.65 3.3M 1.4M 24.95
Entered today. Big gap up for a nice gain showing a doji on very strong volume surge. Filled the gap intraday. Came off the day's high of 26.94.

BONT 10/03 Cup hdl 35.56 -0.59 32.20 38.45 393K 370K 35.95
Current. Fell to the 18 day EMA on rising trade. This is where it has to hold the pickles.

BRCM 09/25 Test 50 29.94 +0.75 30.96 35.68 14M 17M 29.32
Current. Tested the 18 day MVA intraday and rallied back for a great move on lower below average volume. Moving up after testing support at 27.

BWS 09/21 Cup 39.32 +0.54 35.56 40.88 104K 296K 38.55
Current. Bounced off the 10 day MVA for a nice gain on low volume. Continue with the uptrend.

CHIC 10/14 FlyPlat 28.76 +0.22 28.94 33.95 134K 700K 27.48
Buy Not Issued. Tested the 18 day MVA intraday and rallied back on low volume. Meeting some resistance at 29.

CMG 10/23 Cup hdl 59.05 +0.63 57.12 66.98 720K 1M 56.98
Current. Tested the 10 day MVA intraday and rallied back on low volume. Continue with the uptrend.

CMRG 09/06 FlyPlat 14.92 +0.31 11.83 14.00 369K 460K 14.32
Current. Came back from the high volume Friday drop, rebounding and holding the high. Still solid.

COH 10/21 Cup hdl 40.00 +0.99 36.11 41.95 4.7M 4.5M 38.45
Current. Great move up the 10 day MVA on much stronger above average volume.

CRM 10/18 Test BO 39.78 -0.33 41.44 49.45 1.5M 2.2M 39.35

CRM 09/12 Cup hdl 39.78 -0.33 36.61 42.95 1.5M 3M 39.48
Trailing Stop. Rebounded to hold the 18 day EMA on the close after undercutting that level early.

CWTR 09/16 Cup hdl 30.52 +0.31 29.16 35.35 664K 1.6M 29.52
Current. Continue to trend higher on low volume.

DIOD 10/23 Test BO 43.02 +0.26 44.55 52.95 351K 699K 42.38
Buy Not Hit. Tested support at 42 and rebounded though volume remained low.

FORR 10/11 Cup hdl 31.82 +0.40 29.94 34.78 108K 189K 30.39
Current. Continued higher though volume fell way off after the strong trade Thursday and Friday.

FTEK 10/14 Test BO 19.85 -0.81 18.35 21.98 489K 245K 19.32
Current. Faded from the Friday doji after gapping higher. Volume was lower though still well above average. Coming back to test the 10 day EMA.

GES 10/28 FlyPlat 56.15 +1.06 56.78 65.45 401K 850K 53.92
Buy Not Hit. Still low volume as it moves laterally in the plateau.

GME 10/21 Test BO 50.89 -0.75 52.21 60.45 1.3M 1.7M 50.22
Buy Not Issued. Pullback tapping 50.46 at the intraday low and rallied back holding the 10 day MVA on rising, but average volume. Meeting some resistance at 52. Still in the pattern.

GME 10/11 Cup hdl 50.89 -0.75 49.84 58.95 1.3M 2.1M 49.65
Current. Continues working laterally over the 10 day EMA as volume moved up to average.

GYMB 10/18 Test BO 46.65 -0.56 46.35 52.95 782K 1.6M 46.24
Current. Pullback holding the 10 day MVA on low volume. Typical pullback.

GYMB 09/19 Cup hdl 46.65 -0.56 37.52 44.68 782K 1.4M 44.22

HMSY 10/21 Cup hdl 13.53 -0.15 14.41 17.38 141K 331K 13.39
Buy Not Hit. Pullback holding the 10 day MVA on lower below average volume. Still forming the handle.

HOC 10/10 Dbl btm 47.73 -0.41 46.82 54.50 530K 1.2M 47.11
Current. Pullback tapping 47.16 at the intraday low and rallied back holding the 10 day MVA on low volume. Looking for a rebound from here.

HPOL 09/14 Test BO 6.68 -0.13 6.15 7.44 1.4M 330K 6.38
Current. Huge volume as it turned back some of the gains from Thursday and Friday. Not a breakdown by any stretch, but watching the trade as it comes back from that high.

IAAC 10/28 Test BO 29.80 +1.63 29.72 35.75 408K 358K 27.41
Entered today. Gapped higher on solid volume though closed off the high, unable to hold over 30. Would like to see it over there quickly.

ICE 10/18 Test 18 82.14 -2.32 83.64 94.95 1.5M 2.4M 80.32
Current. Pullback holding the 18 day MVA on rising volume. Should hold here and rebound.

IDCC 10/16 Cup hdl 35.99 -0.30 35.76 42.49 631K 1.4M 35.88
Current. Faded back to the 10 day EMA on the low but very low trade.

IM 10/25 DB hdl 20.64 +0.13 20.84 24.95 849K 1.5M 19.98
Current. Started lower but held the 10 day EMA on the low and rebounded for a gain albeit on lower, average trade. Par for the session.

INTC 09/26 Test 50 21.26 +0.16 20.51 24.75 39M 60M 20.89
Current. Low volume relief bounce from Friday. Critical time for INTC after failing to take out the early October high last week.

IO 10/05 Cup hdl 11.17 -0.01 10.77 13.00 416K 750K 11.18
Current. Nice doji that held the 10 day EMA on the close. Good low volume test and shakeout.

ISE 10/14 Cup hdl 51.96 +0.41 51.44 58.95 571K 833K 52.45
Current. Bounced off the 10 day MVA on low volume. Moving up after filling the gap.

IWM 10/24 Cup hdl 76.47 +0.33 76.20 79.25 50M 55M 75.77
Current. Gapped down at the open and rallied back on above average volume. Continue with the uptrend.

JCG 10/25 Test 18 30.90 -0.68 31.85 37.95 446K 400K 31.85

JCG 09/30 Test BO 30.90 -0.68 29.94 35.55 446K 500K 31.95
Trailing Stop. Thought about hanging in with it but a bit too volatile even though a young stock and it was closing well off the 18 day EMA.

JCP 09/26 Asc Tri 77.06 +0.81 70.05 79.95 1.7M 4M 75.38
Current. Continue to trend higher on low volume.

LQDT 10/26 Test BO 17.62 -0.26 18.24 21.95 132K 200K 16.96
Buy Not Issued. Pullback on rising, but average volume. Typical pullback. Still in the pattern.

LTD 10/03 Cup hdl 29.45 +0.22 28.40 32.95 1.2M 3.1M 28.85
Current. Nice modest continued climb up the 10 day EMA. Volume still well below average.

MA 10/28 Flat 72.54 -0.10 73.11 8775.0 1.7M 2.3M 69.94
Buy Not Issued. Pullback testing the 10 day MVA intraday and rallied back showing a tight doji on low volume. Still in the pattern.

MDRX 10/14 Test BO 23.62 -0.52 24.20 28.38 770K 1M 23.62
Current. Gapped down and continued to move down below the 18 day MVA holding at some support on much lower, but average volume. Should rebound from here.

MDRX 09/19 FlyPlat 23.62 -0.52 22.31 26.55 770K 1.1M 23.62
Current. Gapped down and continued to move down below the 18 day MVA holding at some support on much lower, but average volume. Should rebound from here.

NICE 10/26 Test BO 30.82 +1.09 30.68 35.95 221K 300K 29.62
Entered today. Tested the 18 day MVA intraday and rallied back for a great move on rising volume.

NTLI 10/25 Cup 27.07 -0.16 27.62 31.95 1.7M 3.5M 26.38
Current. Volatile session tapping 28.48 at the intraday high, but gave it back on low volume. Still in good shape.

NVDA 10/03 Test 50 32.77 +0.39 28.26 32.50 7.9M 17M 32.32
Current. Bounced showing a doji on the 10 day MVA on low volume.

NVEC 10/14 Test 50 44.49 +4.44 33.75 40.00 1.9M 580K 42.45
Current. Great move up the 10 day MVA on excellent volume surge making a 52 week high.

OPSW 09/30 Cup hdl 9.14 -0.08 9.13 10.97 560K 950K 9.18
Current. Pullback holding the 18 day MVA on low volume. Looking for stock to rebound from here.

PLCE 10/11 Cup hdl 70.28 +0.76 66.56 76.75 729K 922K 68.31
Current. Continue to trend higher on strong volume surge.

PLCE 09/14 Test 20 70.28 +0.76 59.85 68.00 729K 800K 67.45

PRFT 10/19 Test BO 17.00 +0.05 17.31 20.74 482K 500K 16.35
Buy Not Issued. Pullback holding the 10 day MVA on stronger above average volume. Still in the pattern.

QSII 10/19 Cup hdl 42.42 +0.77 42.65 49.95 308K 426K 40.98
Current. Up but on low volume as it continues moving laterally over the 18 day EMA.

RNWK 10/05 Asc Tri 10.74 -0.17 11.67 13.98 1.4M 2.2M 11.11
Current. Managed to recover to hold the 50 day SMA on the close after a gap lower. This is its second test of this level with similar action. Needs to show the bounce here.

RVI 10/10 Cup hdl 17.22 +0.31 17.35 20.95 120K 500K 16.48
Buy Not Issued. Still working on the handle. Still.

SIGM 10/09 Cup hdl 20.42 +1.20 16.09 19.39 1.1M 928K 18.62
Current. Explosive move off the 10 day MVA on excellent volume surge making a new high.

SMSC 10/03 Cup hdl 31.25 +0.48 29.21 34.75 170K 504K 31.22
Current. Tested the 18 day MVA intraday and rallied back on low volume. Moving up after testing the 50 day MVA.

SMSI 10/18 Test BO 18.52 +1.63 17.77 21.38 2.7M 1.1M 16.75
Entered today. Tested the 10 day MVA intraday and rallied back for a great move on excellent volume surge.

SMSI 10/04 Rev HS 18.52 +1.63 15.23 17.98 2.7M 1.5M 17.77
Target Hit.

SPTN 10/24 Test BO 21.25 -0.02 20.85 25.38 150K 265K 19.98
Doji on the second day of the test of h lat week's break higher.

STLD 10/28 Cup hdl 60.05 -1.13 62.22 72.45 1M 2.1M 59.95
Buy Not Hit. Announced a split but had no traction on the session,
fading to test the 10 day EMA on continued below avg

SUPX 10/28 Test BO 44.70 +0.10 44.88 52.95 248K 250K 42.55
Buy Not Hit. Showing a doji on rising volume. Looking good.

TWGP 10/03 Test BO 35.70 +0.35 33.65 39.95 140K 250K 34.48
Current. Tapped 35.07 and rallied back on low volume. Moving up after testing the 18 day MVA.

UARM 10/19 Test BO 46.74 +0.12 45.85 54.95 600K 1M 45.95
Current. Showing a doji on the 10 day MVA on below average volume. Should continue to rebound from here.

ULTI 10/21 Test BO 24.89 +1.02 25.12 29.95 433K 287K 23.89
Buy Not Hit. Nice bounce on volume. Looks ready to make the breakout move.

End part 2 of 3 Begin part 3 of 3


Weekend play results:
GES: No volume
IAAC: Nice break higher
MA: Trying but not quite there
STLD: Announced a split, fell to the 10 day EMA
SUPX: Nice test still underway.

New Plays:


Play Date: 10/30/2006
COL (Rockwell-Collins--$58.27; +0.37; optionable): Aerospace/defense
EARNINGS: 11-1-06 before the open
STATUS: Cup w/handle. Low, below average volume as COL continues to work laterally the past two weeks over the 10 day EMA (57.90). Nicely formed 6 month base that used the 200 day SMA (54.00) on the lows as support. Solid 6 to 4 accumulation in the base shows solid buying (6 up price weeks on rising volume to 4 down price weeks on rising volume). Money flow continues to move higher and we look for COL to make the breakout from this excellent pattern.
Volume: 568.6K Avg Volume: 693.755K
BUY POINT: $58.88 Volume=1M Target=$67.75 Stop=$57.24
POSITION: COL DL - Apr. $60c (52 delta) &/or Stock

Play Date: 10/30/2006
FCFS (First Cash Financial--$21.88; -0.29; no options): Credit services
EARNINGS: Reported earnings 10-18-06
STATUS: Reverse head and shoulders. FCFS is bumping up against the breakout and a new all-time high, making what looks to be a higher low Monday with a tap toward the 18 day EMA (21.52) and a recovery to close above the 10 day. Nice, patient 6.5 month base from this stock that sports some of the top earnings growth rates in the market. Solid 6 to 4 accumulation in the base (6 up price weeks on rising volume to 4 down price weeks on rising volume) shows solid buying complemented by strong money flow rising ahead of price. Just waiting for the volume to jump as it makes the breakout move.
Volume: 196.079K Avg Volume: 306.548K
BUY POINT: $22.48 Volume=450K Target=$26.95 Stop=$21.35
POSITION: - Stock (no option chain)

Play Date: 10/30/2006
JSDA (Jones Soda--$9.91; -0.28; no options): Soft drinks
STATUS: Cup w/handle. Working on a two week handle to its 22 week base, setting up nicely for the breakout toward a new all-time high. A new issue in November 2005, this is JSDA's first big base. Very nice action showing positive accumulation. Monday it reached down to the 18 day EMA on the low (9.55) and snapped back to close above the 10 day EMA. Good shakeout that you want to see during the handle formation. Now we just wait for the breakout move.
Volume: 320.524K Avg Volume: 223.854K
BUY POINT: $10.41 Volume=336K Target=$12.49 Stop=$9.68
POSITION: - Stock (no option chain)

Play Date: 10/30/2006
VTAL (Vital Images--$31.50; +0.86; optionable): Software
EARNINGS: 10-31-06 before the open
STATUS: Cup w/handle. Earnings are out before the open and volume was up Monday as VTAL moved off the 50 day EMA (30.15), setting up for the breakout from its 7 month base. Excellent action setting it up for a new all-time high. Looking for earnings to give it a boost higher and give us a buy point.
Volume: 215.8K Avg Volume: 130.291K
BUY POINT: $32.12 Volume=200K Target=$38.58 Stop=$30.05
POSITION: HXQ DF - Apr. $30c (65 delta) &/or Stock

Continuing plays ready to move:

Play Date: 10/21/2006
ULTI (Ultimate Software--$24.89; +1.02; no options): Internet software
EARNINGS: Reported 10-24-06
STATUS: Breakout test. ULTI surged out of a 5 month base in early October and then came back to test for two weeks, tapping at the 50 day EMA (23.36) on the low last week and bouncing. Volume rose Monday as it continued higher again. Excellent action that is ready to take it to a new all-time high.
Volume: 433.311K Avg Volume: 187.894K
BUY POINT: $25.12 Volume=287K Target=$29.95 Stop=$23.89
POSITION: - Stock (no option chain)

SUBSCRIBER PORTFOLIO: These are stocks subscribers suggest by vote that we put in a portfolio to track and move into the stocks if they perform well. If you have any suggestions for additions or deletions, email us. We don't cover them all each report, just when something interesting is developing.


AAPL: Testing the 10 day EMA, holding that level for now.

CELG: Up after hours after a good session

ISE: Holding the 10 day EMA, looking ready to resume its move.

MA: Still looks ready

WEBX: Trying to hold the line at the 90 day MA.

By: Jon Johnson, Editor

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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