The Play Of The Day
April 12, 2000
08:10 AM EST.
Good Morning Stock Fans!
NASDAQ 3 DAY MARKET SUMMERY: "What looked like a Rally Friday..Leads to 2 big days of Losses"
(April 7, 2000- April 11, 2000)
After closing up business for Monday the NASDAQ ended the day more then 250 points in the red as the Techs were crushed giving up Friday's rather impressive looking rally of plus 170 points to close at 4,446.48 (I knew Friday's move was a fake on as we followed the Market Technicians and shorted the market all the way back to 4,400 plus) was completely erased as the NASDAQ closed on its day lows.
Yesterday the NASDAQ opened up down extending Friday's loss's in the Techs helped by the likes of BGEN and MOT both reporting problems with their latest earnings statements. The NASDAQ managed to after being down as low as 4,009 (amazingly enough exactly last Wednesday's Low on the NASDAQ) to pull it self up and almost go positive. However this move I have seen all to well in the past as the NASDAQ set up Key stocks such as YHOO, CSCO, ORCL taking them higher on extremely low volume. The move was all for not as the Market Makers again proved why the currently control the NASDAQ as they shorted the market higher only to crush it late in the day as sellers came in and were forced to bail. One last thing to remember the NASDAQ in the last 2 days where it has dropped almost 350 points still has not seen huge volume like it did in the massive range it had last Tuesday when it tested 3,649 only to close well over 4,000. What I will be looking for is CSCO the NASDAQ most valued cap to trade close to 100 million shares when a test of NASDAQ 3,649.00 or perhaps beyond comes.
NASDAQ MARKET OUTLOOK TODAY:
The Key area yesterday on the NASDAQ was indeed 4,148.49. This number is so important in that it was last Tuesday April 4, 2000, close after the NASDAQ had dipped to a 30 day and 200 day low back to under 3700 to go as low as 3,649 before it came back in the last to hours to finish amazing only down 180 points after being down almost 600 at its lows! Why is this number of 4,148.49 so key? Well, that close of 4,148.49 saved a huge number of traders margin calls. It is that range that shows the vast amount of traders that weren't involuntary liquidated as liquidation on margin takes place on the closing numbers not on the intraday lows. Looking closer at this number we examine yesterday's close of 4050.00 on the NASDAQ. We closed under 4,148.49 by almost 100 points so with that in mind traders will wake up today and no longer own certain NASDAQ tech issues.
What does this mean? Well, we can best find an answer to this by going back to Economics 101. Economics 101 will tell us that as NASDAQ closed more then almost 100 points lower the last Tuesday NASDAQ close now investors have 3 days to send in funds to cover their depleted margined NASDAQ stocks. If they don't send in those funds no matter if the stock rise or not in 3 days they will be involuntary liquidated. This Margin out option exists for many traders after yesterday's close. If they don't ante up and odds are they won't in the next 3 days then come Friday Morning regardless of the PPI or CPI reports will be liquidated resulting in much more supply going into stocks on the ahead of the open in turn resulting in indications of much lower prices. This cycle could start a drop as the NASDAQ could at this point lack buyers and then prices really drop as sellers want out in much greater size as they see indicating opening lows flash on their screens.
A MAJOR POINT TO FOCUS ON TODAY:
One thing to remember is many traders may sell out today as they don't intend to send in finds by Friday of this week to save their depressed Techs form being liquidated involuntarily, and with 3,649 now so much closer after yesterday's 100 plus point slide they may indeed sell out today resulting in more sellers then buyers taking NASDAQ Techs and in turn the NASDAQ much lower!
NASDAQ: 3,911.00 KEY NUMBER NOW! "Why is this number so KEY?"
As today as we look to break an unimaginable are of 4,000 just 50 points off it going off yesterday's close. It's a very good time to reflect and look back and see when the NASDAQ last traded under 4,000 and closed there. The NASDAQ last was under 4,000 on Feb 1, 2000. It was this day until March 10, 2000, that the NASDAQ was unstoppable as it cleared 4,000 never really looking back for much more then a a small gasp for air to go all the way firmly into 5,000 territory. This number of 3,911.00 is key as it is the number where many investors those jumping on the NASDAQ bandwagon as we blew away 4,000 and then 5,000 lose all those gains they accumulated between Feb 1, 2000 and March 10, 2000. It is here that investors will indeed think to eject as they are no longer up a substantial percentage on their NASDAQ popular tech issues, but they are instead at a break even point (rating NASDAQ tech stocks against its indicator the NASDAQ Composite) This area is where more then just a few, rather a vast mass could want out at any price to avoid that 3,649.00 are we tested intraday last Tuesday. Judging from VOLUME yesterday as it was still not overly high many still hang in their as they hope for the market to do what truly seems unrealistic as it rise of late on less volume. Go back up and not test that number that looms a lot closer today then it was just 3 days ago on Friday as the NASDAQ closed over 4400.00.
"CAPITULATION": "What does it mean?" "Why does it happen?" "What follows most often follows it?"
The term "Capitulation" as far as I can determine comes form the Latin word "exodus" meaning: "Mass Exit" It is a what the stocks would relate as the time sellers vastly out number buyers so much that the price of stocks drops. When they drop sellers "panic" and want out at any price. This causes "Mass Exit" With only one door way out that of buyers sellers are forced to sell stock at much less then what it will be worth even 2 mins later as a "BOUNCE" occurs: "Bounce stands for: "The area when buyers out number sellers and at this point following capitulation stocks RISE even faster then they fell.
The NASDAQ last experienced this type of movement on August 5, 1999. A day when the NASDAQ Internet related stocks were crushed to all to 200 day and some all time lows as fears of interest rate increases caused "Mass Exodus"
NASDAQ "Capitulation" "Will it happen today?" "What happens if it happens?" "When did it happen last?"
Well, that is a very good question to ask today. It very well could happen as investors if they want to keep those Techs will have to ante up in less then 3 days or sell out today and limit their losses. One thing to keep in mind is the NASDAQ has dropped now off of 4,446.45 on Friday back to more then 350 points back down to dangerously close to that sub 4,000 area as it currently sits after yesterday's close at 4050.00. Lets look at it like this that 350 point shedding if its added to yesterdays close takes the NASDAQ to under 3,600! Yes, remember last Tuesday where the NASDAQ found an intraday low of 3,649.00. With us piercing the 3,600 area I see the market then seeing capitulation taking us to about 3,500.00 where again buyers out number sellers we rise back to 3750 and close perhaps just off 3,800 but firmly under NASDAQ 4,000 resulting in even more margin calls. Does it happen today? Well, again it could however it is more likely to happen Friday of this week as Tuesday's margin liquidation's could be liquidated involuntarily off Yesterday's close of 4,050.00.
With all this in mind I will looks for Friday to be the day the NASDAQ empties out as stocks should open much lower as extra supply is added to their outstanding floats resulting in more supply hence dropping the price as stocks open for Friday's trading. Again it could happen today. I will finish this piece with 2 thoughts one the NASDAQ is now much closer to April 4, 2000, 3,649 its 200 day intraday low then its 200 day and all time high of 5,122.00 of March 10 , 2000. With it closer to the bottom of its 200 trading day range then the top of 3,649. We can almost deduct with fairly good accuracy today as history would also indicate. In the past the market has almost always tested "V" bottoms like Tuesday's intraday low. Putting all this data in perspective it looks like the NASDAQ is headed back to 3,649 and quite possibly perhaps under it.
The second point want to make is one is one I have made before and puts into perspective the entire notion of a "Market" The definition of a market as it relates to our stock market is? In order to exist in the economic cycle a market must have buyers seeing prices increasing in the future resulting in gains, as well as sellers seeing prices decreasing in the future resulting in them selling and taking their gains. The economic model of a "Market" is described as increasing by buyers out numbering sellers. Hence the demand is high the supply lessens the Market's prices in turn rise. The NASDAQ has not traded like this in an Up On More VOLUME. DOWN on Less VOLUME since March 21, 2000, the day before the FED raised interest rates 0.25%. March 21, 2000, was the last time the NASDAQ traded higher on more volume as it came off morning opening lows of sub 4,500 to go back to 5,000 less then 4 days later. This 4,500 number is key as the NASDAQ did indeed bring about a 0.25 rate increase. I see the market now shaved almost 500 points of that as setting up to shave another 500 points going to 3,500.00. It shouldn't close here but should find this area soon. Looking at the Option Market the best are placed for this by or ahead of April's Option Expiration Date of Thursday, April 20, 2000, (It's usually Friday but Good Friday is April 21, 2000, and the Markets will be closed) Then off AOL's numbers find its way back to 3,800 maybe 3,900 possibly 4,000 as other tech report. Then on May 12, 2000. The next time the FED meets to increase interest rates the NASDAQ will be firmly under 4,000. The FED then should increase one last time 0.25% and then say they will not raise anymore in the year of 2,000 this should stabilize stocks as we trade between NASDAQ 3,700.00 and NASDAQ 4,500.00 all summer long. Still firmly under 5,000.
Today's Play of The Day is: (SHORT) JDS Uniphase (NASDAQ:JDSU)
JDS Unipahse is a crowd favorite in the new economy of many fund managers as well as individual investors. With that in mind this high flyer, quality stock representing one of the NASDAQ best gainers in the last 2 years should be one to sell off quickly and then have buyers perhaps just as fast come back in looking for bargains as sellers leave resulting in massive ranges from top to bottom and if timed well can be substantial gains played up or down in those ranges.
So with that I am going be looking very close at JDSU today. It went as low as $82.00 last Tuesday before it cam screaming back to over $100.00 again by the close. It may go lower that $82.00 soon but won't be there long as investors as well as fund managers know that JDSU on sale is a rarity.
KEY INDICATORS: SHORT
Sell Short: $101-98.00
Buy Stop: $107.00
Time Frame: today or by Friday
Type of Trade: daytrade into a short term swing trade.
KEY INDICATORS: JDSU LONG
Buy Area: $81.00-$84.00
Sell Stop: $77.00
Time Frame: 2-3 weeks
Type of Trade: Swing Trade
RUN THE OPTIONS: (Buy At the predicted bottom JDSU at $82.00-$83.00)
The JDSU MAY $100.00 Options Calls
BONUS PLAY #1: 3 COMS (NASDAQ:COMS) SHORT
3 COMS most featured area of business is still its Palm Pilot. It did spin off this area of its business into (NASDAQ:PALM). However COMS still has more then 90% of PALMS outstanding stock. With COMS rise as its IPO of PALM was much anticipated and hyped COMS rose all the way over $100.00. COMS took another wireless Palm maker that of the likes of Research in Motion- (NASDAQ:RIMM) This fairly unknown NASDAQ traded but Canadian based stock traded over 160.00 as recently as March of this year. Since those highs it has been hit with the rest of the NASDAQ after opening lower yesterday RIMM managed to come back and close at $82.00. However RIMM missed numbers by a good margin and in result the stock was creamed in after hours to go as low as $72.00.
COMS is in the same area of business for the most part so like Erickson was penalized off MOT's forecast of slowing yesterday. I look for COMS a stock that looked to hold up very well actually rising from Friday's close of under $50.00 to go as high as more $53.00 before it closed at about $50.00 even in a NASDAQ end of day sell off yesterday.
KEY INDICATORS: COMS SHORT
Sell Short Area:
Time Frame: Today or by Friday.
Type of Trade: Daytrade into a short swing trade.
KEY INDICATORS: COMS LONG
Buy Area: $37.00-$39.00
Sell Stop: $35.00
RUN THE OPTIONS: (COMS at $37-$39)
COMS MAY $40.00 Options Calls
BONUS PLAY #2: APPLE (NASDAQ:AAPL) LONG
Apple (NASDAQ:AAPL) Steve Jobs Masterpiece has numbers coming soon and has been crushed off all time highs of over 140 to drop under 120 yesterday. This stock at 110.00 should be a steal as it should hold up better then most in a test of 3649.00 a number on the NASDAQ index that could come as soon as perhaps today!
KEY INDICATORS AAPL
Buy Area: $110.00-$112.00
Sell Stop: $106.1250
Time Frame: 5 days
RUN THE OPTIONS!: AAPL
AAPL MAY 120 OPTION CALLS
STOCKS ON OUR SCREENS TODAY:
BGEN- Buy it under $50.00 today
AOL- it may lose $60.00 but not for long.
YHOO- More problems YHOO could see $120.00 soon
EBAY- It should see $144.00 again soon
VRIO- it was one of a few up yesterday on NO NEWS watch it today
BIDS- GE bought 1 million shares. CNBC parent company is GE. They may mention this Canadian based former 20 plus stock on its 1999 IPO of $5.00 now
CMGI- It may lose $70.00 but not for long
UBID- If it loses $20.00 buy it
DCLK- It could drop to under $70.00 soon
NITE- It was as low as 35.00 last Tuesday it may retest that soon
WEBT- Earnings soon. It looks great $48.00-$45.00
NTRO- It was one of a few up yesterday worth watching today
MACR- It solid and a steal under $60.00
FDX- looked good yesterday it should continue today
XRX- It looks like it may break out if volume can increase.
GWRX-It could see 16.50 then its a sceaming buy.
LPTHA- It could drop under $24.00 at $22.00 its a buy
PWAV- It moves fast under 95.00 buy it it could be over $100.00 again before you know it!
RIMM- under $60.00 It looks like a good risk.
IFCI- It looks like $18.50 might be where it goes.
ORCL- At $68.00-$69.00 it looks solid
DELL- Its low was $48.00 last Tuesday. it managed to go up on way less volume yesterday a bad sign ordinarly. It could see $48.00 again. $42.00 is solid for DELL
CSCO- Its 200 day moving average low is $59.00 CSCO should hold $60.00 there its a great one to buy and sit on long term.
Have a great day!
More to come...
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