Monday’s Intermediate-Term Report

• October 6, 2003
• Chris Tyler

For our ETF
friends and their cash equivalents the past week was anything but a walk in the
park,
it was much more like the scaling of a very large wall.


Monday’s trade was a light volume attempt at
reversing off the corrective lows, but Tuesday’s action quickly negated any hope
on the part of investors. By the close, the other shoe looked ready to drop as
prices once again closed near our important price supports on a day marked by
institutional distribution…and then a funny thing happened; price held, and
Wednesday, although not registering as a ‘follow thru’ or accumulation day, saw
a significant rally on above-average volume. With a session of consolidation on
Thursday, the other shoe, in the form of Friday’s Employment report finally
appeared. Most investors it seems were caught off guard, as a sizable rally out
of a bullish volume gap triggered. This action was marked by accumulation in the
S&P cash, and an even stronger ‘Follow-Thru’ day in the Naz’. All said and done,
our index friends are now, once again in testing mode, but this time, to the
delight of bulls, right where we like to see them…’moooving higher.’

I’ll say it once again as ‘the shoe
fits’ heading into Monday’s trade. It’s time to take a deep
breathe and, as Charles Schwab said, ‘relax.’ The quick and brutal nature of
this move has left our ‘confirmed rally’, deep in overbought territory. Although
the most recent action is exciting and sets the stage for our bovine friend to
show off his legs, we’ve also gone full circle very quickly, and one should
expect some corrective action before a resumption of the market’s ‘confirmed
rally.’ The action now has the indices in ‘testing mode’ of prior highs after
essentially two strong sessions of above-average trade, leaving the market
short-term extended. Friday’s trade did notch a ‘Follow-Thru’ day in our ongoing
‘confirmed rally’, but in my humble opinion, we should be more concerned with a
constructive two to three day pullback. The percentage run up and the volume
statistics in the form of accumulation & distribution during the latest week (as
well as the ‘three-week count’)  are saying ‘look before jumping.’ The
‘official count’ for the Naz’ and S&P cash respectively are both at a favorable
4 to 2 count, as accumulation takes a decided lead over distribution. But, it’s
my ‘unofficial count’, coupled with a little bit of ‘common cents’ that deserves
more of my attention as a growth stock investor. When viewing above-average
volume days (not just the textbook stuff) in conjunction with how our index
friends ran up the past week, I’m personally looking for the
‘higher-probability’ entry out of a small percentage, lighter volume pullback
before entering into fresh positions. As The Stones once said, ‘you can’t always
get what you want.’ That might be right sometimes, but the real certainty is
that bulls and bears both make money. It’s the pigs that go to slaughter, and
consequently have the problem of not getting what they want out of the markets.
The moral here is that we can anticipate, but as traders we must also be willing
to constantly adjust if we are to survive the ebbs and flows within our
‘confirmed rally.’

The oversold did indeed become
slightly more oversold before thrusting higher and delivering a bullish sign in
the form of a ‘Follow-Thru’ day. As mentioned, the ‘FTD’ is a very constructive
sign by itself, but it also comes on top of price holding key technical levels
outlined in last week’s column. In the Spyders, the established lows in the
multi-session pullback came in at 99.25, the midpoint of our 98.83 – 99.55
support zone comprised of the 8/26 pivot and a 62% Fib. retracement off the
August lows. In the leading Q’s, the 32.35 low was .05 thru the key ’50/50 zone’
of 32.40 -32.64. So, with price not only holding, but also rallying
significantly, growth stock investors need to stay prepared to trade the quality
issues triggering out of classic weekly breakout patterns. Again, the one caveat
at this stage would be the short-term overbought nature of the broader market.
Ideally, a two to three session pullback will develop on lighter trade, but also
hold around either the 13 or 20-Day EMAs. For the Q’s the 33.40 level represents
(approx.) both these EMA supports, as well as a bullish gap fill, and a 50%
retracement in the one-week cycle. In the Spyders a pullback to 101.75 – 102
would signal a 50% pullback, and a test of these same moving averages. Tests of
these ‘awareness zones’ within the ‘confirmed rally’ also represent 2% to 3%
pullbacks within an existing overbought condition, which should result in 
a much stronger trade opportunity than  current levels, if the market gods
are kind enough to deliver ‘all the goods.’ Remember The Stones and stay
prepared to trade at current levels, if this is what the market decides to give
us. A lateral consolidation of one or two days might be enough ‘grazing’ for the
bull to charge ahead once more. I personally would like to see more, but
constructive activity along these lines might be all that we get, if
institutional investors are really serious about Friday’s FTD.

It is our own personal risk
tolerance levels within the market waves that ultimately dictate how well we
fare during both the great investing climates, as well as those that will be
considered less-than-perfect ‘sailing conditions.’ With the most recent action
‘the game’ is on again, as we prepare to launch our own little ‘skiffs’ into the
beautiful waters of the market, and take off on the next leg of a truly
wonderful journey.

New Category:

Swing Trade Setups: Potential
position plays that are expected to last 2 to 7 trading days, using key
technical levels for entry. These stocks do not necessarily meet all of our
stringent Intermediate Term requirements, but are demonstrating many of the same
strong criteria. Due diligence on the individual traders part is an absolute
requirement!!! Proper money management rules are emphasized in scaling out of
profitable positions, as is, the setting of prudent stop losses, on the
establishment of any positions taken. The list is not maintained on a weekly
basis as trades are considered, at time of entry, short term in nature.

None Today.

Company Name	Symbol	12 Month RS	Price	Pivot +.10	Technical Perspective
Citrix	( CTXS | Quote | Chart | News | PowerRating)	88	23.98	24.87	13-week C & H
Hutchinson Technology	( HTCH | Quote | Chart | News | PowerRating)	66	33.98	37.29 – 37.55	12-week High level base w/pivot entries
E*trade	( ET | Quote | Chart | News | PowerRating)	83	9.85	10.74	12-week C & H
Quest Software	( QSFT | Quote | Chart | News | PowerRating)	64	13.39	13.66 – 13.75	14-month Slim Jim
American Power Conversion	( APCC | Quote | Chart | News | PowerRating)	52	17.27	18.83 – 18.96	7 week high level base with triple pivots
Lowes	( LOW | Quote | Chart | News | PowerRating)	65	55.49	56	7 week High level double bottom consolidation
eBay	( EBAY | Quote | Chart | News | PowerRating)	70	57.35	59.03	3.5-month High level base
Kyphon	( KYPH | Quote | Chart | News | PowerRating)	89	23.09	27.10	10-week Double bottom base
Digital River	( DRIV | Quote | Chart | News | PowerRating)	92	30.10	31.60	5-week double bottom base
Websense	( WBSN | Quote | Chart | News | PowerRating)	75	22.18	25.46	10-month C & H w/ weekly trigger
Foundry	( FDRY | Quote | Chart | News | PowerRating)	95	23.82	24.32	5-week high level consolidation

Watch List Action:

As always, the search goes on for top stocks meeting our fundamental and
technical criteria. Stocks forming bases or handles are monitored, and put on
our watchlist, and then moved to our position list of recent breakouts, on price
triggers above resistance pivots.

Stocks Building A Base

Company Name	Symbol	12 Month RS	Price	Technical condition	Average Volume in 000’s	Pivot
Zebra Technology	( ZBRA | Quote | Chart | News | PowerRating)	59	54.85	13-week High Level base	412	56.18
Sharper Image	( SHRP | Quote | Chart | News | PowerRating)	49	25.16	17-Week High Level base	255	31.25
Marvel Entertainment	( MVL | Quote | Chart | News | PowerRating)	89	23.06	18-Week Cup&Handle base w/ handle and cup pivots	1,200	25 or 25.35
Aeropostale	( ARO | Quote | Chart | News | PowerRating)	92	29.15	10-Week High Level Double bottom base w/ handle	960	30.52
Axcan Pharma	( AXCA | Quote | Chart | News | PowerRating)	59	14.23	4-Month high level base	145	14.86
Guitar Center	( GTRC | Quote | Chart | News | PowerRating)	79	34	10-week high level base	458	36

*Axcan Pharmaceutical
ROE at 8% is lower than typical 15% to 17% threshold that many IT investors
accept.

Stocks Forming A Handle

Company Name	Symbol	12 Month RS	Price	Technical condition	Average Volume in 000’s	Pivot
Fresh DelMonte	( FDP | Quote | Chart | News | PowerRating)	48	26	10.5-Month Cup and Handle	368	29.10 or 29.80
Constellation Brands	( STZ | Quote | Chart | News | PowerRating)	46	30.03	Double Cup & Handle: Weekly one year and 3-Month version	863	31.90 to 32.10
Garmin	( GRMN | Quote | Chart | News | PowerRating)	71	43.34	18-Week High Level base w/ 5-week handle trigger	581	46.85

Recent Breakouts

We monitor the action of Recent Breakouts as an
indicator of the market health for IT traders. When breakouts are acting well,
this is a good sign for the likelihood of further sustainable breakouts. When
breakouts are failing, IT traders should be even more cautious.

Company Name	Symbol	12 Month RS	Price	Average Volume-50 Day in 000’s	Pivot	52-Week High
Apollo Group	( APOL | Quote | Chart | News | PowerRating)	59	67.51	1,776	46.89 & 67.38	69.42
Career Education	( CECO | Quote | Chart | News | PowerRating)	85	48.25	1,500	27.20	50.46
Coach Inc.	( COH | Quote | Chart | News | PowerRating)	78	29.30	1,628	14.18	29.83
Boston Scientific	( BSX | Quote | Chart | News | PowerRating)	70	66.32	4,050	47.65	68.74
International Game Technology	( IGT | Quote | Chart | News | PowerRating)	66	28.75	2,300	18.71	29.50
UCBH Holdings	( UCBH | Quote | Chart | News | PowerRating)	65	32.13	300	22.60	33.55
Corinthian Colleges	( COCO | Quote | Chart | News | PowerRating)	69	59.12	705	43.09	60.70
Nextel	( NXTL | Quote | Chart | News | PowerRating)	81	20.62	17,800	15.85	20.84
Gtech Holdings	( GTK | Quote | Chart | News | PowerRating)	71	44.46	586	37.05 or 40.80	44.77
Centex	( CTX | Quote | Chart | News | PowerRating)	73	83.71	1,395	59.80 & 79.52	87.50
Endo Pharmaceuticals	( ENDP | Quote | Chart | News | PowerRating)	89	23.29	640	14.98	24
American Healthways	( AMHC | Quote | Chart | News | PowerRating)	90	44.30	300	40.95 or 42.10	45
Resmed	( RMD | Quote | Chart | News | PowerRating)	66	46	151	44.63	46.35
Countrywide Financial	( CFC | Quote | Chart | News | PowerRating)	69	80.84	2,200	78..84	82.99
Whole Foods Market	( WFMI | Quote | Chart | News | PowerRating)	44	56.82	685	56.34	61.46

Breakouts that may
require extra diligence. Those issues that are near pivot entries or 15%
or more, from established highs.

This list accounts for those issues that have performed strongly, but may
require position management due to deteriorating technical condition before
pivot price is reached. If an issue pull backs 36% or more from highs, the stock
will be removed from our lT lists, so we can make room for more compelling trade
candidates.

Company Name	Symbol	12 Month RS	Price	Average Volume-50 Day	Pivot	52-Week High
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