January 5, 2005 8:33 am(CST)
A-Z Morning Report
The major U.S. equity market indices fell for the second straight session yesterday, igniting a firestorm of questions from market observers and pundits about whether or not 2005 will be a solid one for the markets. Two days does not a trend make, but it wasn't pretty - especially for the small caps. The Dow Jones Industrials shed almost 99 points to close at 10,630.78, while the Nasdaq Composite fell over 44 1/4 points to finish the day at 2,107.86. Still, it was the small cap Russell 2000 that once again saw some of the biggest losses, dropping nearly 12 points to end the session at 628.54. The good news caveat in the market's overall performance over the past couple of sessions is that it is correcting some overbought conditions in the major indexes. We'll probably see this trend continue over the short term, but the longer term uptrend for this market remains intact.
We think the next index to watch for a decent correction is the Dow Jones Transportation Index (DJ-20), which took a pretty good hit yesterday, falling over 2% by dropping over 82 points to end at 3,678 and change. Delta Airlines is cutting fairs up to 50% and a major price war is brewing, sending several airline stocks (some of which are listed in the DJ -20) significantly lower in early trading this morning. According to the Dow Theory, the DJ-20 is usually a leading indicator for the market, and if you look at this index's performance over the past couple of years, it bares that theory out well as the DJ-20 led the bull run by turning higher in early 2003 and continuing to rise significantly throughout 2004. In summation, we're not looking for a new bear market folks, just a correction in the current bull run, which we believe is needed to sustain a healthy market for the longer run, and the DJ-20 could be an indicator to monitor in that regard...
Stocks to watch:
VASO - here's a little biotech stock that we've not mentioned in a while, but whose near term technical picture looks very promising. Amidst the buyers heading for the exit signs in yesterday's market, shares of Vasomedical Inc (VASO) actually gained nearly 18%, closing near its high of the day at $1.13 on extremely heavy trading volume. There was no news out on the stock to account for such a move higher, so we'll have to assume that it technical in nature. While we're hesitant to call this a trend higher just yet, the move did mean that VASO broke out of a month long trading range roughly between the $0.90 and $1.00 area to the upside and broke out of nearly a three month trend between the $0.90 to $1.10 area. The move also confirmed other technical trends that had been developing over the past couple of weeks or so (which we'll talk about below). If this is a break out to the upside and buying momentum continues to gain strength, this stock could easily be back on its way to the $1.75 to $2.00 area with limited resistance coming in around the $1.25 and even less at the $1.50 area.
Vasomedical, Inc. is primarily engaged in designing, manufacturing, marketing and supporting external counterpulsation systems (EECP) based on its technology indicated for use in cases of stable or unstable angina (chest pain), cardiogenic shock, acute myocardial infarction (MI) and congestive heart failure (CHF). EECP is marketed worldwide to hospitals, clinics and other cardiac healthcare providers. The Company is also actively engaged in research to determine the potential benefits of EECP therapy in the setting of acute coronary syndromes, as well as in the management of other major vascular disease states, including congestive heart failure. The Company has the United States Food and Drug Administration (FDA) clearance to market the EECP therapy for use in the treatment of angina pectoris (angina), cardiogenic shock, acute myocardial infarction and CHF.
The snatching up of shares of VASO in yesterday's market action was done primarily in 10,000 share blocks, which tells us that at least some astute or institutional trading was taking place. This move from weak hands into strong hands helped send the stock's money flow picture to near its January 04 multi - year highs, a time when the stock was trading roughly between the $2.00 and $2.25 area. The close at $1.13 put the stock well above the high end of our set Bollinger Bands, which usually indicates further upside is probable over the next several sessions. Yesterday's move also confirmed an upward trend for the stock's near term relative strength indicators, which had been moving higher since the middle of last month. VASO's RS indicators are just above midpoint however, with plenty of upside left before reaching overbought status. Finally, the price move yesterday also confirmed the stock's shorter term stochastic trend, which had been moving up also since somewhere around the middle of last month. If you're cautious in the current market environment (which would probably be prudent at this point), you may want to wait and see if you can employ a 'buy on the dip' strategy, but overall, we think this one's headed higher over the next few weeks.
Spec Plays:
VASO - Buy Range - $1.00 to $1.25 (risk to a break below the $0.88 area). Sell Range - $1.75 to $2.25. Previous close - $1.13.
WOLV - Buy Range - $1.25 to $1.50 (risk to a break below the $0.95 area). Sell Range - $2.25 to $2.50. Previous close - $1.34.
MWAV - Buy Range - $1.50 to $1.75 (risk to a break below the $1.20 area). Sell Range - $2.50 to $3.00. Previous close - $1.68.
EVOL - Buy Range - $4.00 to $4.50 (risk to a break below the $3.50 area). Sell Range - $6.50 to $7.00. Previous close - $4.32.
