Ralph Acampora: 04-29-2002 Daily Technical Outlook

» Kirk - 04-29-2002 Daily Technical Outlook

Daily Technical Outlook
04-29-2002 10:22 ET
Brought to you by Ralph Acampora.
http://home.prudential.com/investments/o...

This outlook is based on Ralph Acampora's technical analysis and constitutes opinions which are subject to change. Contact a Prudential Securities Financial Advisor with any questions you may have. Remember that past performance is no guarantee of future results and there is no assurance that his forecasts will be attained.

We Are Returning to the Good Old Days.

Near-Term

Our first objective this year was to identify a “quality rally”; and once we attained it, we could make several observations:
- The September 21, 2001 lows go from “a” bottom to “the” bottom.
- It would signal the end of the bear market
- It would set up new leadership
Unfortunately, we never witnessed a “quality rally” for the NASDAQ Composite and the S&P 500; therefore, we maintain the following:
- Their respective September 2001 lows are only considered “a” low and not “the final” lows.
- Their bear markets are still in force.
- And their recent leadership is under continued pressure.
The last stage of a classic bear market, we believe, is dominated by liquidation of the old leaders--“the prettiest stocks go down last.” And that is what we see unfolding right now. We feel that we are in the “beginning of the end” stage (capitulation) of our multi-year bear market in technology and select large-cap names.

The bad news is that we can expect further liquidation of these stocks, which in turn we see weighing heavily upon the leading market indices like the Nasdaq Composite, the S&P 500 and the Dow Industrials. The good news is that our long-standing positive breadth story is still very much intact in our view. We continue to see mundane companies as having been the backbone of the market’s improving undertone for the past two years. We call it a “stealth-bull market” because most people, we suspect, don’t take the time out to study breadth data. But they do see this positive phenomenon reflected in other ways: the great action of the small and mid-cap stocks, the great action of the large-cap consumer discretionary and staples stocks, and the improving action of some of the utilities.

A look at the diverse mix of components within the Dow Industrials tells the tale:

Stocks Within the DJIA That We Believe Have Experienced A “Quality Rally”:

American Express (AXP-42.05, rated ‘BUY’ by Prudential Securities Equity Research)
Coca Cola (KO-54.45, rated ‘HOLD’ by Prudential Securities Equity Research)
Disney, Walt (DIS-24.10, rated ‘BUY’ by Prudential Securities Equity Research)
Eastman Kodak (EK-32.60, not rated by Prudential Securities Equity Research)
General Motors (GM-64.52, rated ‘HOLD’ by Prudential Securities Equity Research)+
Johnson & Johnson (JNJ-63.61, not rated by Prudential Securities Equity Research)
McDonalds (MCD-28.23, not rated by Prudential Securities Equity Research)
3M Co. (MMM-124.40, rated ‘BUY’ by Prudential Securities Equity Research)
Philip Morris (MO-54.84, rated ‘BUY’ by Prudential Securities Equity Research)
Procter & Gamble (PG-89.80, rated ‘BUY’ by Prudential Securities Equity Research)

Stocks Within The DJIA That We Believe Have Not Experienced A “Quality Rally”:

AT & T (T-13.30, not rated by Prudential Securities Equity Research)+
Alcoa (AA-34.64, rated ‘HOLD’ by Prudential Securities Equity Research)
Citigroup (C-43.05, rated ‘HOLD’ by Prudential Securities Equity Research)+
General Electric (GE-31.50, rated ‘BUY’ by Prudential Securities Equity Research)+
Hewlett Packard (HWP-16.96, rated ‘HOLD’ by Prudential Securities Equity Research)
Int’l Bus. Mach. (IBM-84.71, rated ‘HOLD’ by Prudential Securities Equity Research)+
Merck (MRK-54.47, rated ‘HOLD’ by Prudential Securities Equity Research)
Microsoft (MSFT-51.50, rated ‘BUY’ by Prudential Securities Equity Research)*
SBC Comm. (SBC-31.40, not rated by Prudential Securities Equity Research)+

The following is a quote from the April edition of our monthly publication, Pru Charts: “Our observations leave us with an undeniable conclusion: the 'New Economy' large-cap growth leadership, which dominated the market’s activity in the late 1990s, is quickly being replaced by the growth leadership that dominated the markets when the 'Old Economy' reigned supreme. Remember, stocks like Avon Products, (AVP-55.52, rated ‘BUY’ by Prudential Securities Equity Research), Coca-Cola (KO-54.45, rated ‘HOLD’ by Prudential Securities Equity Research), Johnson & Johnson (JNJ-63.61, not rated by Prudential Securities Equity Research) and Procter & Gamble (PG-89.80, rated ‘BUY’ by Prudential Securities Equity Research) were once considered growth names. We are simply going back to the good old days”.

Intermediate-term levels to watch if selling gets out of hand:

-Dow Jones: 9,580
-The Nasdaq Composite: 1696 (vioalted 4/26/02)
-SOX Index : 499
-S&P 500 levels: 1074
-Sentiment: Bulls at 52.7%, Bears at 30.1%.

See below for our investment/trading ideas:

Cincinnati Financial Corp. (CINF-46.20, not rated by Prudential Securities Equity Research)*. Uptrend support at 43.00 (Print below=Trader’s sell-stop point). Initial objective-52.00+. (Added 04/12/02-45.75).
Office Max Inc. (OMX-6.51, not rated by Prudential Securities Equity Research). Uptrend support at 6.00 (Print below=Trader’s sell-stop point). Initial objective-8.40+. (Added 04/12/02-6.53).
Dial Corp. (DL-20.60, rated ‘BUY’ by Prudential Securities Equity Research). Uptrend support at 18.58 (Print below=Trader’s sell-stop point). Initial objective-24+. (Added 04/09/02-19.30).
Staples Inc. (SPLS-20.23, not rated by Prudential Securities Equity Research)*. Uptrend support at 19.20 (Print below=Trader’s sell-stop point). Initial objective-28+. (Added 04/08/02-21.11).
Bank One (ONE-41.02, rated ‘SELL’ by Prudential Securities Equity Research)+. Uptrend support at 39.81 (Print below=Trader’s sell-stop point). Initial objective-47+. (Added 03/15/02-42.20).
Mattel Inc. (MAT-20.69, not rated by Prudential Securities Equity Research). Uptrend support at 19.46 (Print below=Trader’s sell-stop point). Initial objective-25+. (Added 03/15/02-20.04).

Current Deletions:

None

Intermediate-Term stock market outlook:

We see many cross currents that are impacting the market these days; in our belief, they range from accounting procedures to war tensions. Thus, we believe, one must expect sudden swings in price. Yet we still remain sanguine on the underlying tone of the stock market. For us, there is a healthy rotation taking place; it appears investors continue moving away from the “new economy” stocks of the 1990s to the “old economy” stocks of the pre-1998/2000 bull phase. Our positive NYSE breadth story continues as more consumer related stocks move higher. Careful stock selection, we feel, is the way to invest; and we believe there are many attractive individual issues to be uncovered.

Major Averages-Primary and Secondary Parameters

Dow Jones Industrial Average Primary Support = 10,033.75 intra-week low (02/26/02)
Secondary Support = 9,529.46 intra-week low (01/30/02)
Primary Resistance = 10,679.12 intra-day high (07/19/01)
Secondary Resistance = 11,350.05 intra-day high (05/22/01)

Standard and Poor's 500 Primary Support = 1074.36 intra-week low (02/20/02)
Secondary Support = 1053.61 intra-week low (10/30/01)
Primary Resistance = 1,154.45 intra-day peak (03/28/02)
Secondary Resistance = 1,226.27 intra-day peak (08/02/01)

NASDAQ Composite
Primary Support = 1,696.55 intra-day low (02/22/02)
Secondary Support = 1,548.81 intra-day low (10/05/01)
Primary Resistance = 1,959.93 intra-day high (01/24/02)
Secondary Resistance = 2,081.09 intra-day high (01/07/02)

Russell 2000 Primary Support = 493.54 intra-day low (03/15/02)
Secondary Support = 457.05 intra-day low (02/22/02)
Primary Resistance = 545.71 intra-day high (07/17/00)
Secondary Resistance = 614.16 intra-day high (03/10/00)

Source: Prudential Securities

Long-Term stock market outlook:

The market’s strength in early March is seen as confirmation that last September’s low was the final bottom. The consolidation between November and February is now looked upon as a successful retest of that September low and, in our opinion, it now sets the stage for more meaningful upside progress. The real story is market breadth. We have been very encouraged by the progress of the NYSE Advance/Decline Line since March 2000. It suggests that the old economy names will continue to lead as the list broadens to incorporate more new sectors. Our original Fearless Forecast called for a slight new high in the Dow Industrials by year end. We still maintain this opinion.

Index Low Range High Range
Dow Jones Industrial 7600-8500 11,500-12,000
Standard & Poor's 500 950-1000 1350-1400
Nasdaq Composite 1600-1700 2800-2900

Source: Bridge Data Service.

Of course there is no assurance these targets will be attained.

+: Prudential Securities Incorporated and/or its affiliates have managed or co-managed a public offering of securities

*: Prudential Securities Incorporated makes a primary over-the-counter market.

#: Prudential Securities Incorporated acts as a specialist that makes a market in the security. At any given time, the specialist may have a position, either long or short, in the security, and, as a result of the associated specialist’s function as a market maker, such specialist may be on the opposite side of orders executed on the floor of the national securities exchange.

Prudential Securities Incorporated (or one of its affiliates) or their officers, directors, analysts, or employees may have positions in securities or commodities referred to herein, and may, as principal or agent, buy and sell such securities or commodities.

-- posted by Kirk