Swing Trarading

Swing Report 12-18-04

Part 1

Figure 1. NWX (Networking Index), daily chart. Some may be wondering, “If this is supposed to be a bull market, why are we looking at a bearish chart?” Several reasons: it’s always good to “watch your back” because the bears love to stab you in the back. Second, watch the weak sectors that supposedly have “sell signals” (see Commentary in Part 2) and wait and see if support (buyers) comes in. Third, just an index looks weak doesn’t mean there aren’t strong components therein (case in point, BRCD – see Momentum List in Part 2). Yes, the Bollinger band is constricting and rolling over and looks very bearish, but watch for support, because sell signals do not work reliably in a bull market.

Figure 2. SOX (Semiconductor Index), daily chart. This is basically another “watch you back” chart, and we have some commentary about it in the Part 2, so please read that carefully. Note how the intermediate term trend line (red) is “intersecting” the price action over the past week and a half. As we been saying for the past month, price just doesn’t like staying above the 200 day (see chart annotation), and the last rally-back just totally “bumped its head” on the 200 day m.a., forming a nasty head and shoulders pattern.

Bullish Swing List Review

(Note: this is probably the MOST important section of the Swing Report, even if you do not own any positions from this list – because it shows you how to stop thinking like a loser, like 80-90% of traders and “investors.” Yes, most traders are losers, and think like losers). READ THIS SECTION SEVERAL TIMES EVERY WEEK IF YOU CAN. If you feel uncomfortable with “Gann frames” – you definitely need to read Nick Darvas’ book “How I made $2 Million in the Stock Market” – or at least read the excellent (and lengthy) reviews on Amazon.com, but support MindOverMarket.com by buying it there (if you want a copy).

Removals from the Bullish Swing List – INSP (hit the first target), DCAI 2.4%, ARS +10.5%, (see notes below), TSRA +15%, PLMO +20%,

(all shown with maximum end of week gains or losses, unless otherwise noted)..

12/11/04 – ADSK +8.43%, (second open position) last 72.05, weekly high 72.05 (doesn’t get any better than that!), basis 66.45, hit the third target of 69.20 on Wednesday, and hit the first two targets in the first day (Monday), and this one has been a good old fashioned continuation breakout; INSP remove (but could have more upside after hitting support on Quadruple Witching day), hit the first target of 49.30 on Tuesday, basis 48.60, the “hype stocks” tend is get dumped on market weakness, versus “solid” stocks like ADSK); FHRX +4%, last 24.36, weekly high 24.72, hit the first target of 24.70, forming a potential bull flag pattern (only becomes a bull flag if it makes a bullish move out of the pattern!); ERES -0.8%, last 14.18, weekly high 14.70, basis 14.30, first target 15.10, support level given was 13.65, and we would use this as a hard stop; LSCP +2%, last 31.90, weekly high 32.25, basis 31.40, came near to the first target of 2.80;

12/04/04 – DCAI remove, +2.4% last week, weekly high 18.40, look poised for a breakout, but in this tricky market anything could happen.

11/20/04 – ARS remove, this is the result of a merger, and what are the chances that out of all the stocks in the stock market, the two we had from this week merged, and although the result seemed promising, they took ARS down to close at the low of the week and below our breakeven stop (after a greater than 3% run) on remaining shares (ARS is approximately equal to what the price of IMR used to be); IMR (new symbol ARS, merger of IMR and CMIN) +6% last week, +10.5% 2 weeks ago, recent high 16.72, basis 14.90, hit the second target of 16.70, third target is 19.80; CMIN +4% last week, +9% 2 weeks ago, weekly high 13.55, basis 12.35, hit the first target of 13.20, second target is 14.60.

11/13/04 – TSRA remove, went thru the entry price (basis) after greater than 3% open position profit (see “trading plan” sample below) +15% last week (8:00 open for the entry, pre-market traders only), last 38.25, recent high 39.85, basis 33.35, hit the second target of 38.60 (this is a VERY volatile stock, and not for the faint of heart, but you should know that going into a position).

11/06/04 – PLMO remove,+20% last week, last 39.56 and it triggered on “Piker Monday” (the first week) and dipped back a bit on Tuesday, recent high 40.95, basis 32.90, hit the first target of 34.10, then the second target of 35.70, and then recently hit the third target of 40.10 (this is a VERY volatile stock, and not for the faint of heart, but you should know that going into a position); ELOS +13.3%, +14% last week, +57% 2 weeks ago, last 27.35, recent high 38.45, basis 24.15, hit the third target of 35.20, and the “bad news bandits” hit the stock on the FDA approval news.

10/30/04 – DIS +8.4%, +9.4% last week, last 27.37, recent high 27.99, basis 25.25, hit the first target of 25.90, and then 4 weeks ago hit the second target of 26.90, and for a very large cap stock this was an incredible one and then two week move, and if you had done the call option plays we suggested originally your gains would have been substantial; NTAP +39%, last 34.07, weekly high 34.99, basis 24.50, hit the first target of 25.15, and the second target of 26.20, and the third target of 28.50, and as we stated 3 weeks ago <<seems to be forming a bull flag>> - had an VERY impressive, explosive upside gap; ISSX +7%, +11% last week, +15.5% 2 weeks ago, last 23.37, recent high 25.76, basis 21.90, hit the first target of 22.70, and the second target of 24.00, and the third target is 27.75, and this was the stock we featured in the “Strategy $ession” section in Part 2 when we added this a candidate, forming a potential head and shoulders price pattern, support is at the neckline.

10/16/04 – VRSN +50.4%, +51% last week, +54% 2 weeks ago, last 33.38, weekly high 36.09, basis 22.20, hit the second target of 26.00 8 weeks ago, did a “Turtle Soup” (breakout failure, google it for more info) type of move last week.

10/09/04 – FINL +13%, +17% last week, +21.2% 3 weeks ago, last 17.57, recent high 19.22, new basis of 15.55 (had a 2:1 stock split 4 weeks ago), hit the second target of 16.55 (split adjusted), and the third target of 18.375 (split adjusted) 5 weeks ago, and nobody every accused this one of being a fast mover, but there was an oscillator breakout (see RSI, etc) on the weekly chart, and amazingly, the 200 day is flat as a pancake, yet price is moving up nicely, so it “may” have a long way to go (much more upside), and the recent pullback has support at the 50 day m.a. so far; SBAC +32%, +43.5% 2 weeks ago, last 9.75, recent high 10.64, basis 7.40, hit the second target of 8.30, and also the third target of 9.50 5 weeks ago.

9/11/04 – SYMC remove (trailing stop) +23% last week, +31% 2 weeks ago, high two weeks ago 34.05, basis 25.52 (split adjusted, had a 2:1 two weeks ago), hit the second target 26.60 (split adjusted), traded 110.8 million shares on Thursday; ADSK +53%, last 72.05, weekly high 72.05, basis 47.05, hit the second target of 52.20, earnings related gap up on Friday (5 weeks ago), what a beaut; URBN (second open position, see below) +30.5%, +34.5% 3 weeks ago, +42% 4 weeks ago, last 43.28, recent high 47.19, basis 33.15, hit second target of 36.10, and the third target of 39.30 (see original position below), had a tombstone doji on Piker Monday 4 weeks ago (the pikers, or weekend warriors, buying from the professionals…ooops!)

9/04/04 – KMRT (second open position, see below) 21.6%, +26% last week, +30.2% 3 weeks ago, last 100.28, recent high 119.69, basis 82.45, hit the third target of 91.10, so we are talking about a hefty gain in a short time, which is on top of our original position with an entry near 50.00 (see below), had a nice “key reversal” day off “key support” on Tuesday 4 weeks ago, and the market doesn’t like public news (CNN, Fox News, you name it, CNBC is bad enough), but the squeeze action was nothing short of amazing on Wednesday 4 weeks ago, but it formed a red shooting star and they closed it at the whole number, probably where most of the options were at Quadruple Witching, so don’t count this one out even though it looks very bearish right now; ATPG +76.3%, last 17.36, weekly high 17.40, basis 9.85, hit the third target of 13.30.

8/14/04 – AEOS +41%, last 45.51, weekly high 45.76, basis 32.25, hit the third target of 35.30, nice going in a shabby rally-back market like we had back then! This one seems to be just “drifting” higher. [Only two long candidates this week due to pathetic market.]

8/7/04 – LFG +39%, last 56.01, weekly high 57.57 on Tuesday, basis 40.40, so hit the second target of 42.45. [Only two longs this week, due to pathetic market.]

7/24/04 – ENWV +58%, last 16.60, weekly high 17.19 on Wednesday, basis 10.50, hit the second target of 12.30, and suspicions of this stock’s demise were very premature it appears.

5/29/04 – Holiday, no new picks, and with KMRT (see 5/22/04 below) up so huge you didn’t need any! Remember, don’t complain about the slow movers when you’re not willing to get into the fast movers (and there are not many of them and they are rather hard to find), and you are informed of the speed of movement each week (float turnover rate).

5/22/04 – KMRT +103%, +117% 3 weeks ago, last 100.28, recent high 119.69, basis 49.50, first target 52.70, second target 56.00, and this stock went up about 3 points every day 17 weeks ago when the NASDAQ was getting whacked 30 to 40 points every day, and even 14 weeks ago it was up about 4 points when the Nasdog was down 40, and see comments about the second open position (above), three weeks of “shuffling” price action.

3/13/04 – SIE +63.3%, last 56.08, recent high 58.55, basis 34.35, hit third target of 36.30 many months ago, and this was an Eliot Spitzer “blitzer” guilt by association stock recently (health insurance stock), and as we said: <<so lets see if it can bounce or hold support after the market gets “sick of the news” (which usually takes about 4 days)>> and this is “pretty much” what happened.

-4/26/03 – URBN +507%, +525% 3 week ago, +560% 4 weeks ago, closed at 43.28, recent high of 48.47 (a new all time high) basis 7.14 after splits, a really steady Eddie, until 28 weeks ago when it exploded to the upside again, and as we kept writing in this report << look for support at that breakout area on huge volume at the 25.50 level >> and indeed, it had a double spike down to that exact area, and see our comment about the second position (above).

-3/01/03 – COH +212%, closing at 5489, weekly high (and all time high) of 56.26 on Tuesday (as opposed to Piker Monday), basis 17.60, and remains one of the fastest growing NYSE companies but certainly not the fastest stock out there in terms of price movement.

-February 03 – YHOO +288%, +301.5% two weeks ago, +312% 2 weeks ago, closing at 36.77, recent high 39.79, basis 9.47 always seems to recover.

-January ‘03 – EBAY +210%, +215% 2 weeks ago, closing at 114.75, hit another all time high of 118.18 last week, basis 37.00.

URBN, COH, YHOO, and EBAY are long-term capital gains stocks in the Swing List that we’re still tracking.

Bearish Swing List Review:

Removals from the Bearish Swing List: UTSI, AMHC, SCSS, DITC

(all shown with max end of week gains or losses unless otherwise noted).

12/11/04 – ROXI remove at breakeven, after almost hitting the first target; IMAX remove, did not trigger; RI did not trigger, but looks like a better short now, try to get in next week with a new basis (trigger) of 24.70, use the same targets.

11/13/04 – IDSA +18%, +18.4% last week, last 8.24, weekly low 8.00, basis 10.04, hit the first target of 9.20, and second target of 8.10.

11/06/09 – SAM remove on a time-stop, +3.4% last week, +5% 3 weeks ago, recent low 21.03, basis 22.25, hit the first target 21.50.

1/03/04 – LENSE (de-listed LENS) +74.5%, +81% 8 weeks ago, +82.4% 9 weeks ago, broke “support” 16 weeks ago, after weeks of sideways action, as we’ve been saying for several weeks <<we’re waiting to see if it will go to zero>> and it’s almost as if we spoke it into being, perhaps we should send a note of appreciation to investor relations for running this company into the ground, and indeed it got cut in half a few weeks ago (almost), with a recent low of 1.51, basis 9.20. They were late filing their earnings report, so “there goes another one” due to get de-listed if they don’t do something soon, and predictably there is now a class action law suit: the complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that the Company's inventory levels were materially inflated; (2) the Company's financial results were materially impacted by the significant inventory provisions, ranging from $6 to $7 million; (3) the Company's net loss was artificially deflated through the application of manufacturing labor and overhead costs to inventory; and (4) that as a result, the Company's financial results were materially inflated at all relevant times.

This week’s swing plays in order of:

Note: traders are notoriously lazy about creating a written trading plan. In order to help you create the “proper” plan that fits our methodology, here is a “sample trading plan” for you: For new Bullish or Bearish Swing list stocks, sell half at the first target if there are two targets, and 1/3 at the first target if there are 3 targets (second third at the second target, third third at the third target); only have one or two shorts in the portfolio if the major indexes are above and have remained above the 200 day moving average; check open positions for earnings every day so as not to get caught in a position over earnings that does not have at least 7% profit, and then monitor it careful when they report if I decide to hold over earnings; I will sell at breakeven after a 3% open position profit, or at the support (or resistance) level (given in the Swing Report which are usually equivalent to a 2-4% stop loss) if open position profits have not exceeded 3%; if I intend to hold the position for longer than a month I will use a 7-8% stop loss; I will try to hold for as long as possible, especially if the account is for one of my [children, grandchildren, nieces, nephews], however, I will use a trailing stop [such as trend line break, Fib level retracement break, a lower low for longs/higher high for shorts]; time or length of hold time does not matter because profits are profits and profits are better than losses – in other words, if targets are hit in one day I’m out, but if they take longer than one month to be hit, I’m also out on a “time stop;” I will NEVER let a 3% (or greater) open position profit turn into a loser; if my confidence gets shattered (usually means breaking one of my rules), I will stop trading for a week, and if I make another stupid mistake within a month (usually means breaking one of my rules) I will stop trading for 2 weeks, and if I make 3 stupid mistakes within a month I will stop trading for a month; I will NEVER have more than 7 open positions in whichever portfolio I am managing; if I intend to hold a position for longer than a month, I will hold remaining shares beyond the second or third target (given in the Swing Report) as long as the intermediate or long term trend line is not broken, and as long as price remains above the 50 day moving average; I will be very cautious with stocks that “trigger and run” on “Piker Mondays” especially in the morning of Piker Mondays, and I will pay extra close attention to using breakeven stops so that I don’t get burned by the pikers running things up on Monday.

CAUTION: Earnings season now over, but almost every week sees at least one important company to release earnings, such as CSCO and DELL recently week, which report “late.” Dates are never to be assumed accurate unless the company posts a press release about the date of release, and EVEN then it could be inaccurate, delayed, or released early by mistake – so much for the information age. Even YHOO didn’t have their earnings date on their OWN website as recently as the Summer 2004! Whatever position you hold, check EVERY DAY for a press release about their earnings announcement date.

Market cap: GOOG - $49.2 Bil; IFIN – $3 Bil; MEE - $2.6 Bil; GCT - $800 Mil; FCEL - $458 Mil; IES – 189 Mil.

Float: GOOG – 127.7 mil; MEE – 75 mil; IFIN – 63.7 mil; FCEL – 45.1 mil; IES – 30.3 mil; GCT 28.5 mil.

Float Turnover Rate (FTR): IFIN – 60 days; MEE – 50 days, GCT – 50 days; IES – 30 days; FCEL – 30 days; GOOG – 10days.

Up vs. Down volume ratio: (over 1.0 means “accumulation” but a recent sell-off or retracement could lower it below 1.0): IES – 2.5; GOOG – 1.0; IFIN – 0.8; MEE – 0.8; GCT – 0.7; FCEL – 0.7.

Read the descriptions (“technical”) under each new candidate very carefully. They will give you an overall feel for the structure, price action, history, and also the amount of potential a stock may have. Traders have differing levels of risk tolerance. Use the fundamental and technical descriptions to help you decide which stock “fits” best.

New Swing Alerts for 12/18/05

Symbol Entry Target(s) Rationale

GOOG 180.70 182.80; 193.60; 198.60 http://www.autodesk.com/ - Autodesk, Inc. is a design software and digital content company with two operating segments, Design Solutions and Discreet. The principal products sold by the Design Solutions segment include AutoCAD and AutoCAD LT products. In addition to software products, the segment offers a range of services, including consulting, support and training. The Discreet segment develops, integrates, markets, sells and supports film and television compositing systems, High-Definition and Standard-Definition broadcast editorial and finishing systems, Digital Cinema production systems for color grading and film finishing and animation, visualization and streaming media products. In addition to the customers served by the two operating segments, the Company's Location Services division offers a technology platform designed to deliver location-based applications to wired, mobile and wireless users. For the nine months ended 10/31/04, net revenues rose 34% to $877.6 million. Net income totalled $155.7 million, up from $62.7 million. Results reflect strong new seat, upgrade and subscription sales, positive effects of changes in foreign currencies and improved gross margins. Technical: GOOG had a “spate” of bad news which didn’t affect it at all last week, as it “coiled” and consolidated with support near the opening gap (on 10/22/04) at 164.00 level and over the past 6 weeks it has formed an inverse head and shoulders with lowest part of the head 161.31 on 11/22/04 (exactly a month after the gap); there is a large-scale symmetrical wedge forming, during which time the 50 day m.a. has “caught up” with price; we are pleased to see that Google won out over Geico, which set an interesting precedent.(word of advise, 15 minutes could lose you money, because even State Farm is cheaper on car insurance if you have a good record, so we’re happy that Geico lost to Google); the trailing to forward P/E is 216 to 53 respectively; you just don’t find that kind of growth very much, except with stocks like RIMM, which is embroiled in a patent lawsuit, so RIMM is very dangerous to play (but we had VERY good gains when we had it in the Bullish Swing List). Support (near term) at 177.50 or use an 8% stop

IFIN 46.15 47.40; 49.10; 53.20 http://www.investorsbnk.com/ Investors Financial Services Corp. provides asset administration services for the financial services industry through its wholly owned subsidiary, Investors Bank & Trust Company. It provides core services and value-added services to a variety of financial asset managers, including mutual fund complexes, investment advisors, family offices, banks and insurance companies. Core services include global custody, multicurrency accounting and mutual fund administration. Value-added services include securities lending, foreign exchange, cash management, performance measurement, institutional transfer agency, investment advisory services, lines of credit, middle-office outsourcing and brokerage and transition management services. Investors Financial has offices located in the United States, Ireland, Canada and the Cayman Islands, with a sub-custodian global network established to accommodate the international needs of its clients. For the nine months ended 9/30/04, total revenues increased 27% to $540.3M. Net income increased 74% to $106.7 million. Revenues reflect an increase in asset administration fees received. Net income also reflects higher margins. Technical: This is a bit of a wild one, and it makes even GOOG look rather “stable.” There was somewhat of an island reversal pattern from when price gapped down through the 200 day m.a., but it is now above it and the 50 day m.a. after filling the last gap.. Support (near term) at 44.60 or use an 8% stop.

MEE 35.40 36.60; 38.70; 40.50 http://www.masseyenergyco.com/ - Massey Energy Company produces, processes and sells bituminous, low sulfur coal of steam and metallurgical grades through its 19 processing and shipping centers, called resource groups, many of which receive coal from multiple coal mines. The Company's resource groups or mining complexes blend, process and ship coal that is produced from one or more mines, with a single complex handling the coal production of as many as eight distinct underground or surface mines. These mines have been developed at strategic locations in close proximity to the Massey preparation plants and rail shipping facilities. Coal is transported from its mining complexes to customers by means of railroad cars or trucks. Massey operates 30 underground mines and 13 surface mines in West Virginia, Kentucky and Virginia. The Company's steam coal is primarily purchased by utilities and industrial clients as fuel for power plants. For the nine months ended 9/30/04, revenue rose 12% to $1.3 billion. Net income before accounting change totaled $12.4 million vs. net loss of $15.6 million. Results reflect increased pricing and higher proportion of metallurgical and industrial tons sold. Technical: After a 61.8% Fib retracement (profit taking) of the recent run-up, which also coincided with a bounce off the 50 day m.a with a “long-legged” dragonfly doji indicating strong support (in the 31 to 32 range), there was a continued move back up toward the recent high; fundamentally, there seems to be a trend toward “clean coal” energy sources (which are also, generally, cheaper than oil), which could benefit this company in the long term. Support (near term) at 34.30 or use an 8% stop

GCT 13.60 14.30; 15.30 http://www.gmhcommunities.com GMH Communities Trust is a self-advised, self-managed, specialty housing company that will focus on providing housing to college and university students residing off-campus and to members of the United States Military and their families. Through its operating partnership, the Company will own and operate student housing properties, provide property management services to certain other owners of student housing properties, including colleges, universities and other private owners, and own minority interests in joint ventures that own the Company's military housing privatization projects. In addition, through its taxable real estate investment trust (REIT) subsidiaries, GMH Communities will provide development, construction, renovation and management services for its military housing privatization projects and property management services to certain other owners of student housing properties, as well as certain non-customary services for its student housing properties. For the six months ended 6/30/04, revenues totalled $18.6 million, up from $7 million. Net income totalled $141 thousand vs a loss of $3M. Revenues reflect increased income from fees income and expenses reimbursements. Net income reflects the inclusion of $46 thousand in equity of joint venture. Technical: There is not a whole lot of data to go on, but what we have looks to be a good pattern of an up-thrust to 14.00 and a 50% Fib retracement (profit-taking) toward 13.00; REIT’s (GCT is at least partially a REIT) look to be the strongest industry group in the market right now, and while HMO type stocks are also very strong they tend to move too slowly and thus do not make it into our system, but we have “warned” you for weeks about this, especially stocks like UNH, which has had a very nice run, and we have had SEI in the Swing List for months now; . Support (near term) at 13.15 or use an 8% stop.

FCEL 9.85 10.80; 12.10; 14.10 http://www.ercc.com/ - FuelCell Energy, Inc. is engaged in the development and commercialization of carbonate fuel cell technology for stationary power generation. The Company is in the process of commercializing its core carbonate fuel cell products, called Direct Fuel Cell (DFC) Power Plants, and is beginning the development process of solid oxide fuel cell (SOFC) technology. Its DFC products, the DFC300A, DFC1500 and DFC3000, are rated in capacity at 250 kilowatts, one megawatt (MW) and two MW, respectively, and are scalable for distributed applications up to 50 MW. These products are designed to meet the base load power requirements of a range of commercial and industrial customers including wastewater treatment plants, data centers, manufacturing and industrial facilities, office buildings, hospitals, universities and hotels, as well as in grid support applications for utility customers. FuelCell is operating 23 DFC power plants at customer sites throughout the United States, Europe and Japan. For the nine months ended 7/31/04, revenues fell 15% to $22.5 million. Net loss from continuing operations increased 28% to $66.5 million. Results reflect reduced fuel cell product sales and a $12.2 million purchased R&D charge. Technical: This one had an oversold bounce, but it has held it’s gains, even after filling the last gap; the first target approximately coincides with the 50 day m.a. (although that is not how we derived our target) and the second target is close to where the 200 day m.a. is; some may deem this to be a “speculative piker stock” but profits are profits (we are talking “trading profots” because this company is losing money “hand over fist” – hence not for Grandma’s portfolio); the weekly chart shows a “key reversal” candlestick pattern. Support (near term) at 9.30 or use an 8% stop

IES 5.15 6.50; 7.75; 11.20 http://www.ielectric.com/ Integrated Electrical Services, Inc. (IES) is a provider of electrical contracting services, including designing, building, maintaining and servicing electrical, data communications and utilities systems for commercial, industrial and residential customers in the United States. The Company's electrical contracting services include design of the electrical distribution systems within a building or complex, procurement and installation of wiring and connection to power sources, end use equipment and fixtures, as well as long-term contract maintenance. IES services commercial, industrial and residential markets and have a diverse customer base, including general contractors, property managers and developers; corporations; government agencies and municipalities, and homeowners. For the six months ended 3/31/04, revenues rose 2% to $703.7 million. Net income increased 64% to $11.8 million. Revenues reflect higher income from the residential segment. Net income also reflects cost cutting initiatives. Technical: They really tried to drive this one down to oblivion but it bounced right back to the old levels; there seems to be a “bullish news divergence” in this stock: despite a decline in 4^th quarter sales announced on Wednesday, the stock has gone up, and on increasing volume each day, having traded 3.5 mil. On Friday; they have recent paid down debt from the sale of one of their units; . Support (near term) at 4.30 or use an 8% stop.

Swing List (new candidates) Earnings announcements in the next month: N/A. Some traders like to play “earnings” runs, but this can be a “double-edged sword” because the volatility can “kill ya” if you get on the wrong side of things, and if the company has a negative pre-announcement, you’re “dead in the water.” The better long-term stocks show strength without news, or a bunch of silly hype. While we saw big runs in INVN (Invision Technologies, since bought out by GE) a couple of years ago, it was relatively short lived, with essentially a huge retrace and what amounted to a 2 year basing period (it’s rally was mostly due to hype and short-covering, in that it was the most heavily shorted stock in the entire stock market at the time). Most investors wouldn’t be too happy with two years of dead money and no trend and no dividend. Some stocks are “one day wonders” and others are one or two quarter wonders (like INVN). You have no hope of long-term capital gains (one year) with that kind of nonsense. And you probably wouldn’t enjoy a “core holding” that went sideways for a couple of years or more.

Short setups for next week, with the following triggers, listed in order of FTR (float turnover rate, or speed), fastest to slowest:

QLGC @ 35.70; targets of 34.80; 33.50; resistance of 35.95; FTR=30 days; technical: this really has a “primo” short setup and pattern, but please don’t let that cloud your judgment if it goes against you, because as you’ve noticed, short aren’t working too well right now; we have a sell signal in the SOX (Semiconductor Index) working in our favor right now also, but that could change in a heart beat; remember also that bearish signals are “unreliable” at best in bull market; the recent rally-back in QLGC formed a lower high; momentum oscillators have been waning over the past 3 months even as price “drifted up,” and the 200 day m.a. is still in a powerful down trend; the weekly candlestick chart has a shooting star pattern with a high of 38.39.

GGC @ 48.20, targets of 46.20; 44.25; 43.20 resistance of 50.60; FTR=40 days; technical: here again, like QLGC above, the rally-back on the daily chart formed a lower high, and on the weekly candlestick chart there is also a shooting star pattern, topping out at 58.75; there are no new P&F patterns, but there will be if it breaks 47.00 and closes below that level; price has already bounced off the up-sloping 50 day m.a. but has now closed below it on big volume on Friday, after a key-reversal on Thursday at the top of the rally-back.

MindOverMarket.com SATURDAY
WEEKLY SWING REPORT 12/18/05

Technically Speaking

Part 2

Market Commentary and Trading Notes

General Comments: All the talk was about M&A (Mergers and Acquisitions). There had formerly been a terrible environment for M&A due to low business confidence, recession, and two wars. So M&A can be a good confirming indicator of what is going on in the economy, the kind of things that can affect the stock market. The focus on Monday and Tuesday was not even on the one day FOMC meeting and rate decision. But traders liked the “removal of uncertainty” that came with the FOMC day and rate decision, the results being a “foregone conclusion.”

The Fed raises ¼ point on Tuesday, and language remains the same. The reaction in the stock and bond market was summarily “underwhealming.” They didn’t seem to be paying much attention to a rise in oil prices either. Traders seemed to be looking for something else to focus on.

JNJ had a 400% increase in volume (see mention in the “Stocks” section below) on Thursday. The credit rating agency Standard & Poor's affirmed Thursday its top notch investment-grade ratings on Johnson & Johnson (JNJ), after the pharmaceutical and health care giant agreed to buy Guidant Corp. (GDT) for around $25 billion in cash and stock. In affirming Johnson & Johnson's triple-A long-term and A-1+ commercial paper ratings, S&P said it expects no long-term increase in debt despite the little over $10 billion cash component of the purchase.

There was a lot of interesting M&A activity last week, but there is considerable debate as to whether this is bullish or bearish for the stock market. On the one hand it shows confidence in the future, and the commitment of large amounts of capital (about $100 billion of capital last week). On the other hand, it shows excessive speculation that sometimes marks market tops. Johnson & Johnson bought Guidant for US$25 billion. Symantec acquired Veritas Software for US$13.5 billion. And United Technologies Corp bought British-based Kidde PLC for US$2.8 billion.

It was not only the M&A activity, but the IPO activity last week that was a stunner. If you combine the two, it makes the M&A activity look bullish rather than “speculation at the top of a market” as some market commentators and analysts have observed. Last week was the busiest (21 IPO’s) since August 2000. What is strange about this market is that some sectors that normally lead, are showing major signs of bearishness, such as the SOX and NWX (enter symbols as is in BigCharts.com to see charts). But it is important to remember all the crosscurrents we had last week, like oil bouncing up and over 46 (after tumbling from near 55 to near 40). Another “crosscurrent” was Quadruple Witching (see last week’s Swing Report) which can in itself give false buy and sell signals. Also, unless you forget, this is a bull market, and sell signals do not work (reliably) in a bull market. The NWX and SOX may look like they “want to” breakdown real bad, then all of a sudden buyers step in, so don’t try to “get cute” with your so-called “sell signals.” You may wonder how we can be in a bull market if the SOX is not really in bullish mode (long term) yet. Well, look at it the other way: if and when it does start to get bullish, think of how much more upside we could have. Normally, all the speculators just “gun up” the SOX (in a supposed “bullish reversal”) and all the “casino” stocks in the NASDAQ but this time has been very different

Stocks: As we have been warning you about for the past two weeks, the SOX (Semiconductor Index) has been holding back the NASDAQ, and it kept stalling and sputtering again last week. The NASDAQ made a slightly higher high, but with multiple bearish oscillator divergences. The powerful Summation Index (of the McClellan Oscillator) made another downturn, and formed a head and shoulders pattern. The NASDAQ McClellan Oscillator itself made two lower lows during the time the NASDAQ Composite made three higher highs, indicating that this market is severely running out of steam. Also, the BPI (Bullish Percent Index, google it for more into) of the NASDAQ was the worst performing of the week, albeit extremely subtle. Contrast all this with a very bullish week for commodities in general (see the CRB index) and oil and natural gas in particular. We already alerted you to bearishness in the CRB a few weeks ago, and since then it “crashed” down to the up-sloping 200 day m.a. (and the price of oil from near 55 to near 40), but last week had a huge bounce to go up through the 50 day m.a.

The HWI (Hardware Index) was down 4% for the week, and the IIX (Internet Index) was down 2.5% for the week after making a double top (with a small shooting star candle on Wednesday) accompanied by multiple bearish oscillator divergences (such as RSI, MACD, etc). Last week we featured the Dow BPI chart and sure enough it made the break above the all-important 10,625 Gann frame level on Monday afternoon, and this was alerted in real time in the Paltalk room. The best performing Dow stock for the week ironically was MRK and the worst, which should be no surprise, was PFE. The second best performing stock was JNJ. So despite all the “bad news bandits” and all the hoopla about drug stocks, the best performing stocks were healthcare/pharmaceutical stocks. Not only that, but PFE is such a low priced stock that it doesn’t affect the Dow index (price weighted) that much. JNJ is in an uptrend, and much higher priced, so fortunately the strong stocks are affecting the Dow more than the weak stocks. They love to focus on things that aren’t really important. It just depends on how busy a news day it is. If drug news was such a “shocker” why was MRK the best performing stock last week.

It might be wise to re-read this a few thousand times, and even make a “banner” for your office: << This is the art of trading: managing your losses so that the winners can take care of themselves.>> The methodology we have been using and presenting to the public for the past 2 years in this Swing Report has allowed you to take VERY small losses, but participate in the big winners without the scary “drawdowns” that all too many traders are familiar with.

Strategy $ession: Last week we featured MATK as a prime stock that was in the Bullish Momemtum List, and it had very good follow through in the early part of the week. One of the MindOverMarket.com admins played the 45 call options form 30 cents, and sold them for over $5.00, and the 40 call options from $1.50 to over $10.00. Yes, we actually use the priceless information contained in this report. This week we will focus on GOOG. Unlike MATK, it is a new Bullish Swing List candidate, versus “just” a Momentum List stock. But ultimately, money is money. Doesn’t really matter which list it’s in. The Swing List we actually track, and it is largely dependent on end of week signals and MANY other factors. Some additions (new candidates that actually follow-through and stay above the entry price or the “support price” given in the Swing Report) are follow-though plays, but we prefer “fresh” signals if possible. Ours is a system that depends on many different factors. Some people have a so-called system that seems to “live in a void” as if the people generating the signals have never traded in their lives, or perhaps they gave up trading a long time ago, and depend on giving trading “signals” to make a living.

GOOG is a good example of why price doesn’t really matter in terms of “position sizing.” Many traders are afraid of high priced stocks, but if you use “equal dollar weighting” it doesn’t make any difference. So if you are used to buying 200 to 400 shares of lower priced stocks, just buy 50 to 100 shares of higher priced stocks. Yes, it’s definitely easier to get a greater percentage return on the lower priced stocks, but speed of movement can compensate for that. GOOG has the potential to move 5 points in any given day, although the smaller daily ranges recently do bode well for an increased probability of a 5 point range in the near future. Use 180.60 as a confirmation number. If it clears that and holds above it, you may have your self a winner. Use the same rules you would normally use from your written trading plan (see “sample trading plan” in Part 1).

Last week’s momentum list (see below, in this section) had two breakout stocks that did very well early in the week, APPX and FARO. In fact, FARO looks to be a continuation play next week, overbought or not overbought. For next week, we have a couple of bounce candidates and these two stocks got hit pretty hard.

This bears repeating from last week: <<This is basically a “shell game” market. Or perhaps “hit and run” market would be more appropriate. The strong stocks get dumped, and now they seem to be buying the “bottom feeders.” The strong stocks are being bought, but in frequent cases they wait for a disaster before buying again. A textbook case is FFIV. It gapped down hard and they immediately bought it up (and took profits on their shorts), and it even had follow-through the next day. Many of you have probably noticed that as soon as your portfolios are up (usually after just a day or two) then the profits evaporate immediately (by the next day) if you don’t take profits. Just because the market is supposedly “bullish” doesn’t mean it is not incredibly frustrating. >>

Repeated from last week, by popular request: <<Welcome to “Pikerland” – a wonderful world of self delusion. If you don’t cut and run at breakeven (that’s why we have profit targets, re-read the sample trading plan), you’ll let a “trade turn into an investment.” Nothing wrong with being profitable and deciding to stay in for the “long term.” Or being profitable or close to breakeven and deciding to cut and run on a “time stop” (for example the stock you’re in goes nowhere for a month and other stocks are running up like banshees). But sitting in a position that is basically a mistake, YOUR mistake, and then “hoping and praying” for a reversal (whether you’re long or short) is part of the insanity that takes hold of otherwise sane people. You broke a rule, or several rules, or worse yet you don’t even have any rules written down, but now you’re willing to turn your life into misery and live a delusional existence of “hope and pray” mode. DO NOT mix religion with investing. Even people who aren’t religious will all of a sudden “find religion” when they get caught in a stupid, stinking mistake position, and then fool themselves into thinking it’s an investment. Remember, it’s not an investment, it’s a rationalization. And you’re not trading on margin, you’re just marginalizing your entire existence. >>

Remember, we mix up stocks on the Swing List by float, speed, market cap, price, and industry group. Or it might be more accurate to say that the system we use does this for us automatically.

Momentum Stocks. The two lists below are for day trading and/or position trading, but remember basic rules like “never go to bed with a loser” (losing position that is). Keep in mind that sentiment can change “in a heart beat” in these types of stocks, so they can be played both ways, long and short. These are often the type of stocks that the more aggressive (and idiotic usually) hedge funds are playing, so caution is warranted.

Momentum stocks with a bullish bias (SHORT TERM): SINA, BMET & SYMC (three bounce candidates), AVID (breaking and holding 60), BRCD (low price momo), FISV (normally a strange stock, but with unusual activity on Friday related to news), AZO (above 90), ABT (perhaps after a pullback), GRMN (strange price action at best of times, but holding the up trend), SEIC (one day pullback reversal pattern), TZOO, FARO (continuation candidate from last week), ATYT (holding above 20, but be careful of earnings on Tuesday).

Momentum stocks with a bearish bias (SHORT TERM): BBBY, PGR, LF, VIP, BLI, STM

See the Q&A at the www.MindOverMarket.com website, under “Swing Trading” regarding our market methodology as it relates to both the short and longer term trader, and how we try to cater to several time frames. If anyone has any additional questions, please submit them in writing by email and we may add these to the Q&A. If you don’t ask questions, we will assume you understand everything! Results in any endeavor often result from the quality of questions you ask.

Next Week

Earnings reports

This is a deliberately abbreviated list of scheduled earnings reports, because we try to limit the list to the more liquid names (average trading volume) and/or stocks that can affect the overall market or their respective sector. Most of these are “confirmed” but by no means “guaranteed” so do your own due diligence to double check, because holding over earnings without a plan (or at least some “pre-existing” profits) an be devastating to your portfolio. The underlined stocks are tech stocks and/or stocks that may be good momentum stocks after-hours (usually with enough volume to make them “less” dangerous) and also stocks that have the potential to move afterhours. Note: playing stocks that report earnings after hours can be extremely dangerous; you have to be an experienced scalper with a very good platform like CyberTrader, or don’t even bother try it.

Monday: (AM) SMSC (PM) JBL,.

Tuesday: (AM) ATYT, GTK, PRGS. (PM) COGN, INTV, MANU, MERX, RIMM, SLR

Wednesday: (AM) N/A (PM) ESIO, MU, RHAT, TIBX

Thursday: (AM) N/A. (PM) N/A

Friday: (AM) N/A (PM) N/A

Economic Reports and Events

After the huge amount of “market moving events” last week, we have a relatively slow week coming up, starting off with the “Leading Indicators” report on Monday, then the all-important GDP on Wednesday morning.

Monday, December 20, 2004

10:00 EST Leading Indicators. A composite index of ten economic indicators that typically lead overall economic activity. These include: the factory workweek, new orders for consumer goods, new orders for nondefense capital goods, stock prices, initial jobless claims, vendor performance, building permits, money supply, consumer expectations and the spread between the 10-year note and the federal funds rate. Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the index of leading indicators, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly-and causing potential inflationary pressures. The index of leading indicators is designed to predict turning points in the economy -- such as recessions and recoveries. Incidentally, stock prices are one of the leading indicators in this index. However, it is important to remember that all the components of the index have been reported earlier in the month so that the composite index doesn't hold the same fascination for market players as it does for the non-financial media which tend to give it more press than it deserves.

Tuesday, December 21, 2004

No significant economic reports today.

Wednesday, December 22, 2004

8:30 EST Gross Domestic Profit (GDP). Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. GDP is the consummate measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market doesn't mind growth but is extremely sensitive to whether the economy is growing too quickly and paving the road to inflation. By tracking economic data like GDP, investors will know what the economic backdrop is for these markets and their portfolios. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components like consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

8:30 EST Corporate Profits. Corporate profits, as reported by the Bureau of Economic Analysis (BEA), are summarized briefly as the income of organizations treated as corporations in the national income and product accounts. The BEA reports several measures of profits. Profits from current production (corporate profits with inventory valuation and capital consumption adjustment), are also known as operating or "economic" profits. Capital consumption adjustment deals with the differences in depreciation allowances used for accounting and income tax purposes. Inventory valuation adjustment (IVA) deals with the difference in measuring the cost of inventory replacement. Book profits amount to operating profits subtracting out inventory valuation and capital consumption adjustments. After tax profits are book profits after taxes are subtracted. The Econoday reports will focus on after tax profits reported by the BEA, since these are the most relevant. The corporate profit figures that are derived from the national income and product accounts (NIPA) depend on GDP growth. They don't always move in the same direction or the same magnitude as the profit data reported directly by individual companies or even the S&P 500. Corporate profits are the lifeblood of investment spending. Profits are the income of a corporation. When profits are strong, then companies will be able to increase their capital spending. This could allow better growth prospects for a company and is likely to increase its underlying value. When corporate profits decline, then capital spending tends to decline. Without the potential for growth, a company could be at a disadvantage, particularly in our global economic environment. Corporate profits also reveal the health of an organization. When a company's profits are anemic during economic expansion, it suggests that the company is not performing efficiently. The value of an inefficient company is determined by its stock price. Thus weak profits signal lower stock prices. When a company's profits are relatively strong, even during an economic downturn, it usually means that the organization is well-managed. The higher value for this type of company is reflected in a higher stock price.

10:30 EST EIA Petroleum Status Report (petroleum inventories). The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S., whether produced here or abroad. The level of inventories helps determine prices for petroleum products. Petroleum product prices are determined by supply and demand - just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in crude oil prices - or price increases for a wide variety of petroleum products such as gasoline or heating oil. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for crude oil may not be as strong. If inventories are rising, this may push down oil prices. Crude oil is an important commodity in the global market. Prices fluctuate depending on supply and demand conditions in the world. Since oil is such an important part of the economy, it can also help determine the direction of inflation. In the U.S. consumer prices have moderated whenever oil prices have fallen, but have accelerated when oil prices have risen.

Thursday, December 23, 2004

8:30 EST Jobless Claims. This is a weekly compilation of the number of individuals who filed for unemployment insurance for the first time. This indicator, and more importantly, its four-week moving average, portends trends in the labor market. Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy. There's a downside to it, though. Unemployment claims, and therefore the number of job seekers, can fall to such a low level that businesses have a tough time finding new workers. They might have to pay overtime wages to current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because of a shortage of workers. This leads to wage inflation, which is bad news for the stock and bond markets. Federal Reserve officials are always on the look out for inflationary pressures. By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events. Just remember, the lower the number of unemployment claims, the stronger the job market, and vice versa. Typically retail sales will move in tandem with consumer optimism - although not necessarily each and every month.

8:30 EST Durable Goods Orders. This is a market moving event. Durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hardgoods. Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market doesn't mind growth but is extremely sensitive to whether the economy is growing too quickly and paving the road for inflation. By tracking economic data like durable goods orders, investors will know what the economic backdrop is for these markets and their portfolios. Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provide insight to demand for things like refrigerators and cars, but also business investment going forward. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods sets the stage for greater productive capacity in the country and reduces the prospects for inflation. That tells investors what to expect from the manufacturing sector, a major component of the economy and therefore a major influence on their investments.

8:30 EST Personal Income and Outlays. This is a market moving event. Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services. The income and outlays data are another handy way to gauge the strength of the economy and where it is headed. Income gives households the power to spend and/or save. Spending greases the wheels of the economy and keeps it growing. Savings are often invested in the financial markets and can drive up the prices of stocks and bonds. Even if savings simply go into a bank account, part of those funds are typically used by the bank for lending and therefore contribute to economic activity. In the past ten years, personal savings have diminished rapidly as consumers have spent a greater and greater share of their income. The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Investors can see how consumers are directing their spending, whether they are buying durable goods, nondurable goods or services. Needless to say, that's a big advantage for investors who determine which companies' shares they will buy.

9:45 EST Consumer Sentiment. A survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions conducted by the University of Michigan. Five hundred consumers are surveyed each month. A preliminary survey is usually reported about the second Friday of the month while a more complete survey is reported two weeks later. The level of consumer sentiment is directly related to the strength of consumer spending. The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer sentiment did shift down in tandem with the equity market between 2000 and 2002. Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer sentiment and retail sales don't move in tandem month by month.

10:00 EST New Home Sales. New home sales measure the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends and, in turn, economic momentum and consumer purchases of furniture and appliances. This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

Friday, December 24, 2004

All financial markets closed for the Christmas weekend. Banks open.