The Option Investor Newsletter Tuesday 04-22-2003 Copyright 2003, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Surprise Earnings, Surprise Rally Futures Markets: You Can't Argue With the Buying Index Trader Wrap: Resolution came to the upside Market Sentiment: Short and Sweet Weekly Fund Screen: Recently Upgraded Funds Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 04-22-2003 High Low Volume Advance/Decline DJIA 8484.99 +156.10 8487.51 8263.98 2.00 bln 2403/ 865 NASDAQ 1451.36 + 27.00 1452.34 1414.40 1.55 bln 2143/1049 S&P 100 463.08 + 10.02 463.29 450.35 Totals 4546/1914 S&P 500 911.37 + 19.36 911.74 886.70 W5000 8633.17 +173.50 8636.52 8412.87 RUS 2000 391.16 + 5.86 391.53 383.42 DJ TRANS 2351.96 + 54.10 2352.65 2291.79 VIX 23.51 - 0.76 25.14 23.21 VXN 33.65 - 1.84 35.51 33.60 Total Volume 3,772M Total UpVol 3,103M Total DnVol 633M 52wk Highs 406 52wk Lows 69 TRIN 0.53 PUT/CALL 0.88 ************************************************************ Surprise Earnings, Surprise Rally The earnings continued to flow and to everyone's surprise there have been no disasters. There are no dire predictions and the majority of companies are beating the lowered estimates. On the surface it appears the worst is over and traders are celebrating with a bullish bias. The $64 question is "How far?" Dow Chart - Daily Nasdaq Chart - Daily The Chain Store Sales this morning started traders off on the right foot in the pre-market but then some conflicting earnings reports then produced a gap down open. Those Chain Store Sales were up +1.9% and is was the second consecutive weekly gain. The Easter shoppers came out in force and helped push most retailers back into their plan for the week. This does not mean the retail slump is over. This just means the seasonal Easter buying finally appeared but traders were ready to celebrate any good economic news. Helping with the dollar volume was the release of the second Harry Potter video on April 11th. Amazing what several million $20 videos can do weak numbers. Future retail sales are still expected to be weak. This was the only economic report out on Tuesday. The lack of negative economic news and the flood of earnings provided a strong boost to the markets. The morning started off with Everest RE, which beat estimates by a mile and raised guidance for 2003 and 2004. They reported $2.02 per share when analysts were only expecting $1.35. This monster win and strong guidance raise to $8.25 from $6.92 (2003) and up to $10.50 from $8.03 for 2004 caused analysts and traders to rethink their outlook. RE said they had not seen any new catastrophes and premium pricing in anticipation of problems had been strong. As a result the insurer was awash in cash and the sector benefited. Financials in general benefited from this news as evidence that the worst was over. Adding to the financial bliss was news from COF that earnings beat estimates and loan losses were less than expected. COF added to the positive results from C and JPM and this excitement was fueled by the RE news. The $NFX.X rose +13 to 541 and is nearing the strong resistance at 543. It is up over +50 points since April 1st. When financials rise the markets listen. Drug companies also added to the rally with strong showings by PFE, LLY and FRX among others. PFE reported 76 cents with net income soaring +138%. Without one time gains for sales of units the income fell to 45 cents but still beat the street by a penny. LLY posted income below the same period last year but still beat the street by +3 cents. FRX missed estimates by a penny but said earnings growth for the next year to be "at least +20%." These drug earnings added to the positive sentiment about the sector and the BTK rose +10 to 346. After the close AMGN beat the street by +3 cents and raised guidance for the year. The company said they were seeing significant strength in every product in every geography. Pretty strong words. After the bell EBAY reported 36 cents a share, which beat estimates but that is not the real number. There was a jump of +13% in shares during the quarter, which held down the earnings. EBAY actually reported revenue that was up +94% to $476 million. They posted record results and raised guidance for the quarter and the year. The stock jumped +$3 in after hours to $92. This news when added to the YHOO earnings have given the entire Internet sector to new gains. About the only weak earnings after the close came from PSFT which beat the street by a penny. The company said the recovery that began in Q4 was fragile and ended with additional economic concerns and geopolitical tensions. Revenue fell slightly with license fees down -39%. If you remember the warnings season there were more than 15 software companies warning for this quarter. This sector seems to be the weakest of the techs with even MSFT warning last week. A few other earnings highlights included GLW which beat by three cents and raised guidance. HTCH missed estimates slightly but raised guidance substantially going forward. AFCI beat the street by +3 cents. RFMD missed by a penny but showed a revenue gain of +37%. SIAL beat by 7 cents and raised guidance for the year. CYMI blew away estimates by +11 cents but revenue was light. They guided inline for the current quarter. STK beat by two cents and MXO by +4 cents. PIXL beat by +2 cents, INVN beat by +26 cents on revenues up +397%. Chip stocks LSCC and VTSS matched or missed slightly and said revenues would be flat. The earnings have been nothing short of amazing. Amazing of course if you remember that 57% of companies warned for this quarter. It appears the majority of companies "over warned" due to the impending war and now they are beating those lowered estimates. Of the 142 companies reporting so far this week 85 have beaten the estimates, 28 announced inline and only 29 missed estimates. In any normal market in any normal economic environment this would be an incredible showing. What it is showing us today is simply the result of being overly cautious heading into the war. It appears investors are ignoring the economics and the conditions that preceded this earnings cycle and are celebrating the earnings surprises by purchasing stocks. This rally appears to be fueled by cooling geopolitical tensions as well. The war in Iraq is over. Talks with North Korea begin tomorrow and world events are turning back to trade instead of the potential for some new war. Still the rumor that Saddam had been captured did result in a +100 point Dow bounce at 10:20 this morning. The consensus is the economy has been bumping along the bottom for six months as the potential for war grew and now that the war is over there is nothing to prevent the recovery. It is obviously only a sentiment change at this point but sentiment has to change before the economy can change. We will get to see that sentiment number again on Friday. The Fed meets on May 6th and the Fed head underwent an operation on his prostrate this morning. The results were said to have been successful and he is expected to be back at work next week. That work could be longer than previously thought. At age 77 Greenspan was given the nod by President Bush today for another term as the Fed head. It is unclear if Greenspan will accept it as there were rumors of a pending resignation soon. However, with Alan making repeated trips to the White House over the last several weeks I am sure Bush would not have given him the nod without knowing in advance if he would accept the assignment. Either way there is little chance (15%) the Fed will cut rates on the 6th. I expect another "risks balanced" statement until the Fed sees if the current expectations come to pass or dim with time. Today was a benchmark day in the markets. The Nasdaq closed WELL ABOVE strong resistance at 1425. This is a strong statement and very positive in terms of generating continued bullish sentiment. The S&P closed above 905 and set a new high for April of 911 at the close. This was the first time since March of 2002 that the S&P closed over the 200 EMA. This is very bullish. Finally the Dow closed over the 200 EMA for the first time since May 2002. Granted it was only ONE POINT but it was a close. The positive futures tonight and the potential for overseas trading to add to our gains could push us even higher at the open. The key will be holding these impressive gains. The Dow has only one more major resistance area at 8520 before mounting an attack on 9000 again. The potential exist for a banner week! Not to dwell on the negatives but they do exist. The VIX closed at 23.51 and nearing its historical reversal lows around 20. The VXN closed at an all time low of 33.65. These two indicators are showing an almost total lack of fear in the markets. Yes, they can go lower but they are flashing a yellow alert which will soon turn red. When markets turn completely bullish they can run for days while these indicators go even deeper into warning territory but they will eventually come back to haunt us. Until then the other internals continue to build hope. The 52-week high/lows hit levels not seen in months with 406 new highs compared to only 69 new lows. The advance/decline ratio was better than 2:1 in favor of advancers. This is a broad based rally with buying pressure building. The closer we get to a breakout the more investors are lured back into stocks. Nasdaq moving over 1425 convincingly was the first key to the sentiment puzzle. The S&P closing over 905 was the second. If the Dow can close over 8520 on Wednesday the bulls could be turned loose to romp. If this happens you should keep an eye on the gate. If this turns out to be yet another bear trap there may not be much warning. There are many historical precedents that the bottom can fall out of an earnings rally just when things look the most bullish. You only need to look back as far as January 15th for an example. There was a two-week rally into earnings with a prolonged drop after the excitement waned. There were extenuating circumstances like the weak 4Q and the impending war but there is always something coming out of left field that traders use as an excuse to take profits. With SARS up to 4000 cases now and 230 deaths and still climbing rapidly that is something to keep on your radar. Will it take 10,000 cases, 20,000 or ?? before the global economy shuts down? I am not saying it will happen but keep your eyes open. There were two false alarms of envelopes with an unknown powder on Tuesday. The market handled it well which indicates a disconnect from negative news and that is very bullish. I said on Sunday to beware of 8500. That warning still exists. That could be the finish line for this leg of the race. If we pass it with a higher goal in sight then enjoy the view. If we stumble at that level then be prepared to watch from the sidelines. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor *************** FUTURES MARKETS *************** You Can't Argue With the Buying By Vlada Raicevic Daily Settlement Numbers 4:15pm ET > DOW Last: 8484.99 Net: +156.09 High: 8487.51 Low: 8263.98 > YM 03M Last: 8458 Net: +133 High: 8472 Low: 8239 > S&P 500 Last: 911.37 Net: +19.36 High: 911.74 Low: 886.70 > ES 03M Last: 910 Net: +17 High: 912 Low: 885 > Nas 100 Last: 1102.44 Net: +21.40 High: 1103.81 Low: 1072.13 > NQ 03M Last: 1105 Net: +20.50 High: 1106.50 Low: 1073.50 DAILY PIVOTS > YM 03M R2: 8640 R1: 8574 Pivot: 8406 S1: 8341 S2: 8174 > ES 03M R2: 931 R1: 924 Pivot: 904 S1: 897 S2: 877 > NQ 03M R2: 1131 R1: 1122 Pivot: 1098 S1: 1089 S2: 1065 Futures gapped down a few points, and spent half an hour trying to choose a direction, trying to move up but finding sellers. Not enough sellers nor buyers to move price either way until a rumor hit the markets and huge volume moved the ES to their first high of 900.75; once the rumor lost some of its luster, they sold off to 894, but then found buying again which first topped at 907, above strong resistance in the 905 area. From there the buying came in small wavelets which took ES to 911.25, then 911.75, and finally to a high of day at 912. The ES daily chart is now in full bullish mode, Macd is moving up and diverging, stochastics are crossing and turned up, and ADX is back above the trendline it poked below yesterday. Price pierced the upper wedge of the trendline and the upper blue regression channel, yet closed below them. So that daily resistance is still in play, and note that as bullish as the recent rise looks, both Macd and stochastics aren't nearly as high here as they were a month ago when price was lower. ES Daily Chart: A closer view of the daily chart shows that price broke above all the downtrend lines that were drawn along recent highs starting form the December highs. Price continues to move within the rising wedge channel. The ES also closed above the daily 200ema, something that it has tried to do twice recently and failed; this third time that key moving average was broken quite decisively. For many traders, this is a key verification that we have turned the tide and pushed the chart into bullish territory. If price continues to rise, the 915-916 area is next resistance, and a solid break of that could lead to 926-927. ES Daily Trendline Chart: Also, a quick peek at the weekly chart shows that if today's levels hold, we will have a bullish crossover of the Macd over the centerline. However, note that as the very bullish candle is formed, ADX shows D+ as staying nearly flat, and the fast stochastic in a near rollover. This is a little puzzling and we'll continue to watch those indicators if the week continues to see rising prices. ES Weekly Chart: In looking at the ES 135 minute chart, you can see that there are a few mixed signals here as well. On one hand Macd and RSI both broke above their descending trendlines, just like price has, and the ADX D+ is looking strong. On the other hand, price stopped at the upper channel of the 78 period regression channel (blue), and Macd histogram and fast stochastics continue to diverge with price (blue lines). Also, multi-stochastic is reaching the same area that it has rolled over the past 3 times it reached here. Price is at resistance, and there are bearish divergences, and these divergences can continue to build, which doesn't mean that price has to stop moving up, it merely points out that there seems to be an underlying weakness in the rise. ES 135 Minute Chart: The ES 60 minute chart shows that the price march upward stopped at the upper regression channel. Now it can do one of two things, either move sideways to burn off the overbought state, or pull back to the centerline near the 901 area. If selling becomes stronger, it can pull back to the 888-890 area and still remain in the rising channel. ES 60 Minute Chart: The NQ daily chart, like the ES, is very bullish. Price closed above the March highs, but are still below the January highs of 1108.50, and most indicators are positive. Even the fast stochastic has not topped out yet. However, just like on the ES, the fact that price is above March highs but indicators such as Macd, RSI and stochastic are all at lower levels than their March highs. The trendline chart shows price closing above the downtrend line from the December high, and the trendline from the January to March high (blue). Above the December high of 1108.50, there is additional resistance at 1110 but most likely the number to watch for further upside are 1125-1127 and then 1136. NQ Daily Trendline Chart: The NQ 135 minute charts shows price extended beyond the short term, upper regression channel, which coincides with stochastics getting somewhat overbought, and Macd running out of some steam over the past few bars. The bearish divergences that were evident on the ES are here as well, with ADX looking weaker then on the ES. This chart looks like it needs a pullback. NQ 135 Minute Chart: So we got our move, and it was up. Whether you are a bear or a bull, at least the market is doing something. The underlying strength of this move seems to be a little suspect, but that could be a lingering residue from all the sideways nothing we've been going through lately. Price is going up, and many indicators are bullish, but we did this 'jump' from a standstill, rather than a running start or from a reversal, and we are getting a somewhat overbought. Again, we are at a point where we could see a little more upside, but need to pull back a little bit to take a breather. At this point I could say that the pullback will test the bulls resolve, but from what we've been seeing, that test should not be difficult, especially with the ADX showing us that selling has nearly disappeared, all we may see is some brief profit taking. Looks like it could turn out to be an interesting week after all. ******************** INDEX TRADER SUMMARY ******************** Resolution came to the upside Whether you're a bull or a bear, or somewhere in between, anyone would be hard pressed to try and make sense of today's trade where both "fact" along with "good rumor" and "bad rumor" seemed to have little "sensical" impact on how today's trade panned out as a plethora of rather significant morning upside earnings reports found early selling, while a late morning rumor that Saddam Hussein had been captured sparked a rebound. Bears may have screamed "foul play" with the Saddam Rumor, and bulls may have countered with a similar accusation of foul play as reports surfaced that a white powder found at a Tacoma, WA mail distribution center had initial tests revealing it being some type of biotoxin. Suddenly those "tests" that were supposedly performed had traders further bidding stocks higher when the Tacoma fire department said that its tests of the powdery substance showed negative results for biotoxins. Two triangle patterns we had been monitoring in the major index point and figure charts both found upside resolution in today's trade with the S&P 500 Index (SPX.X) 911.37 +2.17% triggering a "bullish triangle" at the 900.00 level just before the 11:00 AM EST mark, while the Dow Industrials (INDU) 8,484.99 +1.87% triggered a "bullish triangle" at the 8,450 level with just 2- hours left in the trading session. While Treasury prices held gains for the bulk of their session, it took a report from the National Journal that President Bush would reappoint Alan Greenspan as Fed Chairman to get bond bulls to sell and have Treasuries finishing relatively unchanged on their session, after a strong round of buying at the open. As I was typing this morning's 09:00 Update, the pre-market action made little sense as earnings reports looked to have upside reports handily outnumbering downside reports (reported versus consensus). Other than SARS news, I can't, nor can I at this hour, figure out just what type of trade was underway in the first hours of today's session. While I felt SPX bulls should look to lock in some gains just prior to the SPX trading hitting its WEEKLY R1 of 904, the continued strength above that level had me and perhaps other bulls looking to play the upside found in the Dow as it triggered its bullish triangle pattern. To be honest. The only thing that seems to make any sense to me is that demand continues to build for stocks, and more and more supply/demand (point and figure) buy signals are being generated as market internals continue to improve. At some point it will run its course until risk levels become too great, but until that happens, I'm finding it difficult to hold a bearish thought for more than a day or two. Volumes reached their best levels of the month at the NYSE as shares traded rose to 1.62 billion. The big board ended the day with advancers outnumbering decliners by a 3 to 1 margin, while 202 stocks traded new 52-week highs (easily above yesterday's 136 level) compared to 20 stocks trading a new 52-week lows. Yes... Dow component AT&T (NYSE:T) $13.81 -0.71% traded a new 52-week low this morning with a trade at $13.48 and session low of $13.45. NASDAQ volumes weren't quite as heavy, but challenged Thursday's 1.58 billion with today's 1.55 billion shares traded. Advancers outnumbered decliners by a 2 to 1 margin, with 139 stocks trading new 52-week highs versus 30 stocks trading new 52-week lows. Call buyers, put sellers or both were out in droves again today as the Market Volatility Index (VIX.X) 23.51 -3.13% fell to an 11-month low, while the NASDAQ-100 Volatility Index (VXN.X) 33.65 -5.18%, which has been in existence for just over 2-years fell to an all-time low. I thought Jonathan Levinson made an interesting comment in today's market monitor at 01:25 PM EST when talking about the VIX.X and the VXN .... "I'm full of doubt currently on today's market action. The thing about oscillators, moving averages, and statistical models, is that the future is still the future. Nothing stops the VIX from breaking new ground, or the MacD from diverging to an unprecedented degree, or the NDX:VXN ratio from setting a new record......" S&P 500 Index (SPX) - Daily Chart Today's trade at 900 triggered the "bullish triangle" pattern while further bullishness at 905 gives the SPX another higher high. The apex of the now bullish triangle builds support at the apex of 875. Today's trade sends the SPX well above the upper Bollinger band, which is 903.93 on the bar chart. The 21-day SMA (Avg on the p/f chart) is rising at 876.22. In last night's wrap we noted that the S&P 500 Bullish % ($BPSPX) had edged higher to a cycle high of 49.8%, so today's action from the SPX itself confirms the internals and rules out any type of BEARISH divergence from this indicator. Bulls are happy with today's action, which finds an additional 2% gain, or net gain of 10 stocks to new point and figure buy signals as the bullish % grows to 51.8%. S&P SPDRS (AMEX:SPY) Chart - Daily Interval I thought I'd show a p/f chart of the S&P SPDRS (AMEX:SPY) $91.34 +1.88% as it allows us to look at some volume patterns. Today's trade has the SPY the 5th most actively traded security in the market. The QQQ was the most actively traded security. I've put green and red arrows on the cumulative demand (X) columns and supply (O) columns. The big move off the bottom from "oversold" levels of bullish % at 28% saw total volume of more that 5.2 billion shares, with a lighter volume pullback of roughly 1.7 billion shares. The recent pullback of just 896 million shares gives the impression that there just wasn't a lot of willing sellers from $89 to $86 and the recent upward reversal has seen equal volume of 1.759 billion shares. True, volume doesn't tell you EVERYTHING about price action, but bulls at least want to see the recent reversal higher find as much INTEREST as the reversal from $86 to $90. Dow Industrials ($INDU) Chart - 50-point box The Dow's p/f chart shows a more "symmetrical" triangle than the SPX chart, but the 5 columns needed with a pattern of higher lows and lower highs was still in play. If this were a stock, point and figure bulls would be all over it with a stop at 8,200. When comparing the SPX and INDU p/f charts, it's apparent that the Dow is lagging the SPX bullishness on a technical basis. The reason I say this is that the Dow shows two equivalent highs at 8,500, while the SPX has built three consecutive relative highs. As such, and SPX/OEX trader wants to see bullishness build in the Dow. Dow bulls want to see the SPX/OEX continue it pattern of higher highs and higher lows. Still, honor the index you trade, but play each of them "against" each other for signs that demand continues to build. It will also be noted later in this Index Wrap that the Dow is the only equity index that has yet to trade its MONTHLY R1. Similar to what we've seen in the S&P Banks Index (BIX.X) 288.06 +2.4% when it traded its MONTHLY R1 at 278.30 and managed to close that level on April 15th and find support there, the SPX, SPY, OEX, NDX, QQQ have done the same at today's close. While the Dow and the DIA don't HAVE to trade their MONTHLY R1s (8,537 : $85.35), I'm thinking there's a pretty good chance they will. Today's action saw a net gain of 1 stock to a point and figure buy signal in the very narrow Dow Industrials Bullish % ($BPINDU). This has the bullish % rising to a cycle high of 46.67%. Walt Disney (NYSE:DIS) $18.87 +2.27% was today's "new buy signal" when the stock traded a triple-top buy signal at $19.00. This may be a stock for traders to monitor near-term as the stock hasn't been able to trade $19.00 since late November. S&P 100 Index Chart - Daily Interval Did bulls pull a fast one and start the "Saddam rumor" right at the OEX's WEEKLY pivot of 450.10 to spark a rally? Boom! That's just about where the OEX had fallen to in its first 10-minutes of trade and sideway action for the next 40-minutes before the "rumors" began circulating. While fellow analyst Jonathan Levinson was making some interesting observations regarding the Oscillators, bears looked to be running for cover as the losses began to build. We've seen the indexes trade their WEEKLY R2s, only to find reversals back lower. Bulls should look to protect gains and look to reload (raise some cash) and get ready for pullback entry. Short of a nuclear type of disaster, I'd be a buyer back near the WEEKLY R1 of 444.60 (thick green) for 1/2 positions and 1/4 bullish at the WEEKLY pivot. When you look at tomorrow's pivot matrix, make note that the DAILY S2-R2 ranges are nearly identical in range as the WEEKLY S2-R2 ranges. Today's action saw the S&P 100 Bullish % ($BPOEX) see a net gain of 2 stocks to new point and figure buy signals. This has the bullish % growing to 50% and a new cycle high. NASDAQ-100 Tracking Stock (QQQ) - Daily Interval I'm not certain of what kind of short position there may be in the QQQ or overall NASDAQ stocks and while Stochastics are "overbought", MACD has kicked above its Signal and begins to trend higher from zero. Today's trade take the QQQ and NDX firmly above downward trend and I see little reason for a bear to try and "pick a top." The apex of the triangle in the bar chart points to the WEEKLY pivot. If I were to simply follow the progression of the QQQ during its advance from the $25.34-$25.50 "zone of support," each time the QQQ violated a level of WEEKLY retracement (blue) to the upside, it has NOT fallen back below the next level lower. As such, a trader playing that type of "level" observation can trade long $27.35 with a stop below 38.2% retracement of $26.78. Risk adverse bulls would follow with a tighter stop just under the $27.35 level. Today's trade saw the NASDAQ-100 Bullish % ($BPNDX) see a net gain of 1 stock to a new point and figure buy signal. This has the bullish % growing to 61%. As a benchmark, the NASDAQ-100 Bullish % reached 82% bullish in December, which is where our conventional "pink" retracement of $28.79 is anchored from. Pivot Analysis Matrix I'm running late on the Index Wrap, but traders should note that tomorrow's DAILY S2-R2 ranges are similar in range to this WEEKs. I would have to go back and see if this hints of more extreme volatility on an intra-day session. Since the QQQ and NDX look to be breaking above recent consolidation, I will make quick note that tomorrow's DAILY R2 and WEEKLY R2s are very correlative. Under a "short-squeeze" type of scenario that looks to be in play, these might be levels of "euphoric" short-covering that NASDAQ market makers might simply keep light offers in place, until these levels are traded. It sounds a little crazy, but considering today's action, who's to argue? Jeff Bailey ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************** MARKET SENTIMENT **************** Short and Sweet The sentiment game remains focused on earnings and with the steady stream of positive and not-so-bad announcements, the bears are running for cover while the bulls dream of a new market. In reality the bar for earnings has been set so low that any up-tick has companies beating expectations. Most of these earnings results have been powered by cost-cutting (a.k.a. lay-offs) and not new business. There are exceptions and those companies that are showing strength have seen their shares appreciate sharply. I'm seeing a number of strong breakouts across the board and it's hard to maintain a bearish state of mind with all these new 52-week highs and technical breakouts. What should remain a major flag for investors seeking to drop some money in the markets is the VIX. Now that it has slid past the 24 level, we can surmise that the more traditional level of 20 will be the "market top" signal that VIX watchers will be looking for. Today's internals were very positive with advancing issues beating decliners 21 to 7 on the NYSE and 20 to 9 on the NASDAQ. New highs beat new lows 304 to 45. Up volume was five times down volume on the NYSE and it was four times down volume on the NASDAQ. These are pretty good numbers folks. With the strong EBAY announcement tonight, I expect the rally to continue and those shorts who still have not covered will be seriously rethinking their strategy tomorrow. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10673 52-week Low : 7197 Current : 8485 Moving Averages: (Simple) 10-dma: 8308 50-dma: 8046 200-dma: 8321 S&P 500 ($SPX) 52-week High: 1176 52-week Low : 768 Current : 911 Moving Averages: (Simple) 10-dma: 884 50-dma: 854 200-dma: 880 Nasdaq-100 ($NDX) 52-week High: 1573 52-week Low : 795 Current : 1102 Moving Averages: (Simple) 10-dma: 1055 50-dma: 1025 200-dma: 991 ----------------------------------------------------------------- The volatility indices continue to sink, pushed lower by an increasingly bullish attitude with strong earnings reports beating analysts estimates. This continues to be a big warning flag for the bulls. CBOE Market Volatility Index (VIX) = 23.51 -0.76 Nasdaq-100 Volatility Index (VXN) = 33.65 -1.84 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.88 861,869 758,812 Equity Only 0.77 683,545 524,605 OEX 1.05 26,558 27,827 QQQ 4.41 58,266 256,748 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 48.4 + 2 Bull Confirmed NASDAQ-100 61.0 + 2 Bull Alert Dow Indust. 46.7 + 3 Bull Alert S&P 500 51.8 + 3 Bull Confirmed S&P 100 50.0 + 3 Bull Alert Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 0.93 10-Day Arms Index 1.06 21-Day Arms Index 1.31 55-Day Arms Index 1.31 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 2182 714 NASDAQ 2039 966 New Highs New Lows NYSE 163 22 NASDAQ 143 23 Volume (in millions) NYSE 1,984 NASDAQ 1,556 ----------------------------------------------------------------- Commitments Of Traders Report: 04/15/02 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 It would appear that the Commercials or the "smart money" has increased their long positions in the S&P 500 futures. This is the "most" bullish we've seen them yet in a very, very long time. Meanwhile the small traders, or the retail investor, has increased their bearish positions to the biggest extreme in a long time. The small trader remains "net" long but the increase in bearish positions is not a positive for the little guy. This is a bullish sign as the big money tends to be right. Commercials Long Short Net % Of OI 03/25/03 424,781 415,258 9,523 1.1% 04/01/03 417,637 409,332 8,305 1.0% 04/08/03 420,084 407,452 12,632 1.5% 04/15/03 424,219 409,853 14,366 1.7% Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: 14,366 - 4/15/03 Small Traders Long Short Net % of OI 03/25/03 143,402 123,178 20,224 7.6% 04/01/03 143,580 126,594 16,986 6.3% 04/08/03 136,173 122,006 14,167 5.5% 04/15/03 148,434 137,680 10,754 3.8% Most bearish reading of the year: 10,754 - 4/15/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Contrary to the full S&P contracts above, the data below suggests that the Commercials are strongly net-short the market with this report being the most bearish. Just as expected, the retail investor is on the wrong side with a strong net-long position. Commercials Long Short Net % Of OI 04/01/03 98,460 321,335 (222,875) (53.1%) 04/08/03 114,210 344,961 (230,751) (50.3%) 04/15/03 119,316 390,555 (271,239) (53.2%) Most bearish reading of the year: (271,239) - 04/15/03 Most bullish reading of the year: (222,875) - 04/15/03 Small Traders Long Short Net % of OI 04/01/03 2,296 1,146 1,150 33.4% 04/08/03 319,460 35,629 283,831 79.9% 04/15/03 365,876 44,137 321,739 78.5% Most bearish reading of the year: 1,150 - 04/01/03 Most bullish reading of the year: 321,739 - 04/15/03 NASDAQ-100 Hmmm.. there appears to be little change among positions in the NDX future between the commercials or the small traders. Commercials Long Short Net % of OI 03/25/03 44,403 36,436 7,967 9.9% 04/01/03 40,493 36,893 3,600 4.7% 04/08/03 44,257 36,711 7,546 9.3% 04/15/03 44,976 37,929 7,047 8.5% Most bearish reading of the year: (15,521) - 3/13/02 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 03/25/03 10,313 20,080 ( 9,767) (32.1%) 04/01/03 9,771 13,306 ( 3,535) (15.3%) 04/08/03 11,365 17,790 ( 6,425) (22.0%) 04/15/03 11,182 17,438 ( 6,256) (21.9%) Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Other than the drop in overall positions for the commercials the trend remains the same. Big money is net-long the Industrials and retail traders are net-short, although their long positions did jump significantly as of this report. Commercials Long Short Net % of OI 03/25/03 19,752 10,212 9,540 31.8% 04/01/03 19,068 12,672 6,396 20.2% 04/08/03 18,566 12,616 5,950 19.1% 04/15/03 17,881 13,124 4,757 15.3% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 03/25/03 5,076 7,721 (2,645) (20.7%) 04/03/01 5,142 7,459 (2,317) (18.4%) 04/08/03 5,886 7,964 (2,078) (15.0%) 04/15/03 7,748 8,704 ( 956) ( 5.8%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ****************** WEEKLY FUND SCREEN ****************** Recently Upgraded Funds This week, we screen a universe of equity funds that in the last month have been upgraded to the top Morningstar return rating in their category, and now receive 5 stars, Morningstar's best risk- adjusted performance rating. To identify the funds with ratings upgrades in the last month, we used MSN Money's Deluxe Screener tool (moneycentral.msn.com). It lets you screen for funds that have recently been upgraded to top Morningstar return rating and have recently had their star rating upgraded or downgraded. Our objective here is to identify funds that have improved their relative performance in the last month, and may be worth further consideration now. Screening/Evaluation Process We used the Custom Search feature of the MSN Deluxe Screener and entered the following fund criteria to obtain a list of potential best-fit matches. Field Name/Operator/Value: Upgraded To Top Return Rating = Since = In Last Month Morningstar Rating Upgraded = Since = In Last Month Morningstar Rating = 5 Stars (Highest) Closed To New Investors = False Institutional = False Percent Stocks > 20% Minimum Initial Purchase < $5,000 Our simple screen yielded 16 results, including three funds with more than one share class represented on the list. Below is the list of the 11 individual fund strategies, sorted alphabetically. Screen Results: BlackRock International Opportunities (BRECX & BRESX) Eaton Vance Utilities B (EMTMX) Federated Kaufmann K (KAUFX) Hartford Capital Appreciation HLS IB (HIBCX) Hennessy Total Return (HDOGX) Lord Abbett All Value B (GILBX) Lord Abbett Mid-Cap Value (LMCBX & LMCCX) Merrill Lynch Global SmallCap (MAGCX, MBGCX, MCGCX & MDGCX) Nations Marsico Focused Equity Inv A (NFEAX) Papp America-Pacific Rim (PAPRX) SunAmerica Focused Dividend Strategy B (SDWBX) From there, we took the 16 symbols and loaded them into the Fund Compare tool on the Morningstar.com website. Once we had the 16 symbols entered, we viewed the Comparison Results, starting with the Snapshot View. These funds land in one of eight Morningstar categories: world stock, foreign stock, large-value, large-blend, large-growth, mid-value, mid-growth, and specialty-utilities. Merrill Lynch Global SmallCap Fund seeks capital appreciation in the long-term by investing primarily in equity securities issued in at least three countries by small-cap companies, which may be in the early stages of business development. The balance of net assets may be invested in larger enterprises, or debt securities. Morningstar has the fund in its world stock category. BlackRock International Opportunities Portfolio seeks capital appreciation by investing primarily in stocks of companies with market values of $1 billion or less from at least three foreign countries. It may invest up to 20% of net assets in emerging-market securities and is classified as a foreign stock fund by Morningstar. The remainder of funds are diversified U.S. equity funds, except for Eaton Vance Utilities Fund, which seeks high total return by concentrating investments in dividend-paying stocks of utilities that have potential to increase dividends in the future. Equity holdings may include preferred stock and foreign securities, and the fund may also invest up to 20% of net assets in fixed income securities. Its trailing 12-month yield of 2.6% was the highest on the list of screen results. Lord Abbett All Value Fund has a large-cap value style according to Morningstar, while its sibling, the Lord Abbett Mid-Cap Value Fund, has a mid-cap value style overall. The former fund favors undervalued stocks of large, multinational companies; the latter fund emphasizes undervalued stocks of companies with market caps ranging from $500 million to $5 billion. The SunAmerica Focused Dividend Strategy Portfolio and Hennessy Total Return Fund seek total return by investing a sizeable portion of assets in the 10 highest yielding stocks in the Dow Jones Industrial Average. Hartford Capital Appreciation HLS Fund seeks capital growth and is the only fund on the list to have a "blend" management style. In other words, the fund uses a blend of value and growth stock screens in analyzing prospective investments. The fund invests primarily in common stocks of small, medium and large companies, and may invest up to 20% of assets in stocks of foreign issuers. Morningstar puts the Hartford fund in its large-cap blend group. Three of the funds on the list have "growth-oriented" investment styles. The Nations Marsico Focused Equities Fund seeks growth of capital over the long-term by investing principally in large capitalization common stocks but it may also invest in warrants, preferred stocks, convertible securities, and debt securities of various credit qualities. Tom Marsico, formerly with Janus, has managed the large-cap growth portfolio for five years. Because of the negative ramifications on regional growth due to the SARS virus, the Papp America-Pacific Rim Fund is a potential red flag (we'll avoid it for now). Federated Kaufmann Fund seeks long-term capital appreciation by investing primarily in common stocks of small- and medium-size companies selected for their growth prospects and other factors. Morningstar classifies the fund as mid-cap growth but it invests in both the small-cap and mid-cap sectors of the market. It has one of the best long-term records of performance in the business with long manager tenures to boot. In the next section, we tell you which funds we like now and why. Our Favorite Funds Among U.S. large-cap funds, we like Hartford Capital Appreciation HLS Fund (HIBCX) but it is offered to qualified investors only so it is not a viable option for most retail investors. Eaton Vance Utilities B Fund (EMTMX) has become more conservative (more value oriented) in recent years since telecom and growth utility stocks fell out of favor. While it focuses more on dividend yields and relative valuations today, the fund may still be too concentrated in utility stocks for some people's liking. So, we won't discuss it further. If you believe the economy is bottoming out and growth stocks may return to favor with investors, you may like the prospects of the Nations Marsico Focused Equities Fund, Investor Shares (MFEAX), a no-load NTF fund that invests in classic growth stocks as well as in beaten-down growth names and non-traditional growth areas, per Morningstar. Marsico, a former star manager for the Janus Funds, is known for his concentrated growth style of investing. Despite the limited number of holdings (typically, 25-30 issues), Marsico has kept volatility on par with other large-cap growth funds over time, while generating above average to high relative returns for investors. If you have a long-term horizon and can stomach large fluctuations in share price, Marsico's large-cap growth portfolio offers significant long-term growth potential. While the fund's portfolio can be volatile in the short term as evidenced by the chart above, Marsico has produced strong total returns in the long run relative to his large-growth fund peers. For the trailing 5-year period ended April 21, 2003, the Nations Marsico Focused Equities Fund had a positive 1.1% average annual total return, per Morningstar, ranking in the top 5% of the fund category. For comparison purposes, the S&P 500 index fell by an annual-equivalent rate of 3.2% over the same time period. In 1998 and 1999, Marsico returned 50.1% and 52.9%, respectively, so he's already shown that he can keep up in growth-led advances. But, Marsico has also done a good job of avoiding excessive risk, receiving a top Morningstar rating of 5 stars. Morningstar gives the fund its top return rating and an average risk rating (within the large-growth category). The Nations Marsico Focused Equities Fund is up 3.5% on a YTD basis through April 21, 2003. Risk-tolerant investors that are comfortable with the additional risks of small/mid-cap investing may like the long-run prospects of the Federated Kaufmann K Fund (KAUFX). Fund co-managers Hans Utsch and Lawrence Auriana have managed the fund's portfolio for more than 17 years, delivering high total return with lower than average risk relative to other small/mid-cap growth equity funds. Because of its success and asset growth, the fund's approach has evolved from a racy, small-cap growth fund to a more established, mid-cap growth offering. The Kaufmann co-managers have one of the best long-term records of performance, returning an average of 10.4% per year over the last 10 years (through March 31, 2003). That was strong enough to place the fund in the top 9% of the mid-growth category, per Morningstar. It beat the S&P 500 large-cap index by an average of 1.9% a year and Russell Midcap Growth Index by 3.8% per year over the same time period. Like Marsico, Utsch and Auriana have proven that they can build wealth in good times and control volatility in bad times versus other growth managers. In years 2000, 2001, and 2002, the fund ranked in the top quartile of the mid-cap growth stock category, producing positive annual total returns in 2000 and 2001, while other growth managers were falling fast. The Federated Kaufmann Fund is up 0.9% since December 31, 2002. Conclusion The BlackRock and Merrill Lynch international funds on the list may be suitable for long-term investors that seek the potential higher returns that global/international small-cap stocks offer, and who can tolerate significant risk in pursuit of that growth objective. Risk-tolerant investors may want to consider the two funds for a portion of their equity portfolio. For more information or to download a fund prospectus go to the respective fund family website. Steve Wagner Editor, Mutual Investor firstname.lastname@example.org ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 04-22-2003 Copyright 2003, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: NOC Daily Results Call Play Updates: AZO, BBBY, ERTS, IMDC, MXIM, OMC, WFMI New Calls Plays: BBOX Put Play Updates: None New Put Plays: None **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** Northrop Grumman - NOC - close: 86.60 change: +1.90 stop: 85.26 Saw it coming! That's what bears are thinking after the strong moves in the defense sector this week. We've been paying special attention to the DFI and DFX indices and both have rebounded strongly. Our OptionInvestor.com put play in NOC was stopped out early Monday morning when shares of NOC traded up through our stop at 85.26. This was a $2.00 loss from our picked price. Fortunately, in our Sunday update we cautioned readers not to open any new short positions based on our expectation that the stock could follow through on last week's rally. The strong earnings numbers coming from the likes of LMT, LLL and RTN have reversed the declining defense sector and the general market bullishness doesn't hurt either. NOC shareholders are not out of the woods yet. The stock still has plenty of resistance at $88 both on its daily chart and its point-and-figure chart. Picked on April 6th at $83.26 Change since picked: -2.00 Earnings Date 04/29/03 (unconfirmed) Average Daily Volume = 1.57 mil *********************************************************** DAILY RESULTS *********************************************************** Please view this in COURIER 10 font for alignment ************************************************* CALLS Mon Tue Wed Thu Week AZO 78.50 -1.20 2.71 Approaching Target BBBY 39.12 -0.33 -0.20 Uh-oh, no rally. ERTS 61.62 0.33 1.11 Triggered, nice close. IMDC 35.40 -0.62 1.02 Slow but sure. MEDI 33.99 0.07 0.57 Long-term, no update MXIM 41.11 -0.07 1.36 Triggered, looks strong. OMC 62.42 -0.85 1.72 Big move. WFMI 57.48 -0.74 0.22 Looking Ripe! PUTS NOC 86.60 0.89 1.90 DROP, stopped out on Monday. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************** PLAY UPDATES - CALLS ******************** AutoZone, Inc. - AZO - close: 78.50 change: +2.71 stop: 74.75*new* The triple-digit gain in the Industrials didn't hurt our play-of- the-day in AZO on Tuesday. The stock was strong almost all day long and at $78.50 it's the highest close since early December 2002. OptionInvestor.com's short-term upside target is $80 and AZO is getting close. Active traders need to be preparing their exit strategy, whether that is to close the whole position at $80, or only take partial profits. It looks like AZO is trading in a channel (from early March onward). If the channel holds, then it might give patient traders a run to the $85 level, but we feel the $80 mark could be a tough barrier to break. We're going to raise our stop to $74.75 but more conservative traders can certainly tighten their stops to whatever makes them comfortable. We did notice that AZO put out a press release on Sunday, April 20th. In the release the company gave a sort of "profit warning" with raised guidance for their third quarter ending May 10th. Thomson First Call had estimates of $1.19 and AZO is saying earnings will come in between $1.24 and $1.31 a share. The same press release said same store sales rose 3% for the first eight weeks of the quarter. AZO is expected to make an appearance at the Lehman Brothers Sixth Annual Retail Seminar on Monday, April 28th, 2003 at 10:40 a.m. ET. Due to the stock's strong performance this is not the best position for new entries on call options. A pullback to $76.00-76.50 might be the best bet for new positions. We are strongly considering an exit price to close the play at $80 and will follow up on the play in the MarketMonitor. Picked on April 13th at $75.24 Change since picked: +3.26 Earnings Date 06/03/03 (unconfirmed) Average Daily Volume = 1.32 mln --- Bed Bath & Beyond - BBBY cls: 39.12 change: -0.20 stop: 37.00 Uh-oh! Shares of BBBY did not reciprocate a big up move in the markets today. While the stock has been out-pacing the markets with great relative strength we're a bit surprised by the consolidation on Tuesday. The dreary March weather coupled with 24-hour war coverage really hampered retails sales. Everyone was hoping for strong numbers last week ahead of Easter and the U.S. consumer did not let them down. However, hopes were a bit higher than reality and the cool weather had an impact on "warm, weather items". Not that I think of BBBY when looking for warm, weather items, but where the Retail sector goes does affect the stock price. They daily chart for BBBY might be concerning but the 30- minute or the 60-minute interval allows one to see the ascending channel that BBBY is climbing. Conservative traders seeking to reduce risk could try and up their stop to just under $38 but we're going to leave ours at $37.00 for the moment. The $40 remains strong psychological resistance but a breakout could have even more shorts running for cover. Another dip to $38 might be a decent entry on new positions. Picked on April 8th at $37.18 Change since picked: +1.94 Earnings Date 07/02/03 (unconfirmed) Average Daily Volume = 3.22 mln --- Electronic Arts - ERTS - cls: 61.62 chg: +1.11 stop: 58.00*new* There's been a lot of talk about video games lately, especially now that the war is over and how corporate America is going to try and market some of the terms and ideas from the war. Whether or not you believe this is a kosher way to do business, if anyone can make money on it the video game industry would be the best bet. We are not saying that ERTS is trying to market anything related to Operation Iraqi Freedom but when investors do think video games the first stock that comes to mind is ERTS. They are the big dog in the industry. No one is even close to them. The powerful move in the markets and the software sector today helped boost shares of ERTS above their resistance at $61 and OptionInvestor.com was triggered when ERTS traded at $61.25. Our short-term target is $65.00 and we're raising our stop to $58.00. Should the markets or the sector see a pull back a dip to $60.00 might be a good bet on new bullish entries. Picked on April 22nd at $61.25 Change since picked: +0.37 Earnings Date 05/08/03 (unconfirmed) Average Daily Volume = 3.36 mln --- Inamed Corp - IMDC - close: 35.40 change: +1.02 stop: 32.86 Well, we don't have a lot of news for IMDC to follow up on and shares have essentially done what we expected. The pull back to $34.13 yesterday was an entry point for anyone brave enough to take it. We really like the engulfing bullish candlestick created on Tuesday and think the close over $35 is also encouraging. Keep in mind that given the rate of ascent for this stock we still suggesting options with a thee to six month time horizon. Picked on April 17th at $35.00 Change since picked: +0.40 Earnings Date 02/25/03 (confirmed) Average Daily Volume = 215 K --- Maxim Integrated - MXIM - cls: 41.11 chg: +1.36 stop: 38.00*new* There you have it! Monday the markets just stalled and MXIM with them. Today's broad-based rally and strength in the tech sectors was not ignored by chip stocks and MXIM traded through our trigger to go long at $40.51. Our stop is now $38.00 and should MXIM follow through on this upside breakout we'll raise it as soon as is prudent. Our profit "target" is between $44 and $45. Given our short-term perspective on this rally, which appears to be fueled by sentiment alone, we'd opt for the exit price at $44. Keep an eye on the SOX. It has climbed to 345, which is great news as it represents a new relative high. It also means the sector is approaching tough resistance at 350. If you're the type of trader who prefers to enter on a pull back look for MXIM to dip to the $40 level. Picked on April 22nd at $40.51 Change since picked: +0.60 Earnings Date 04/29/03 (confirmed) Average Daily Volume = 8.30 mil --- Omnicom Group - OMC - close: 62.42 change: +1.72 stop: 58.00*new* The rally for advertising stocks continues and OMC hits a new relative high. We were encouraged last week with the stock's close over the $60 level and Monday's consolidation in the markets did not bring any new selling pressure to OMC. The move today provided a nice bounce off the $60 mark again and volume is improving. Shares appear to be channeling higher and if this channel holds then OMC could run up to $64 before pull back to consolidate gains. Patient traders might get another chance to go long on a dip to the $60-61 level. We still expect potential resistance at $65, but our longer-term target is $68. The point- and-figure chart is showing a spread triple-top breakout for this stock. We're raising our stop to $58.00 to reduce risk. Picked on April 15th at $61.30 Change since picked: +1.12 Earnings Date 04/29/03 (confirmed) Average Daily Volume = 2.18 mil --- Whole Foods - WFMI - close: 57.48 change: +0.22 stop: 56.00 It looks like WFMI is starting to get a little ripe. Like the bananas in my kitchen right now, if I let them hang there too long they turn brown and soft. That's happening now to WFMI's technical indicators. They're all looking soft. Shares of the high-end organic food market have been holding up and the trading range between $56 and $58 isn't necessarily bad. Many stocks need time to digest big gains like WFMI saw from $50 to $58 in such a short time. However, we don't want to be around if investors decide to take some money off the table. Currently our stop is at $56 and that's a good spot for it. However, given the lack of true participation by WFMI in today's broad-market rally we're not suggesting any new plays until the stock can close above $58 again. If we're still stuck in this range on Thursday we might drop the play before it starts to stink. Picked on April 1st at $56.42 Change since picked: +1.06 Earnings Date 05/08/03 (unconfirmed) Average Daily Volume = 907 K ************** NEW CALL PLAYS ************** Black Box Corp - BBOX - close: 32.39 change: +0.99 stop: 30.90 Company Description: Black Box is the world's largest technical services company dedicated to designing, building and maintaining today's complicated network infrastructure systems. Black Box services 150,000 clients in 132 countries with 117 offices throughout the world. (source: company press release) Why We Like It: It's back. BBOX is back on the play list but this time as a call play. The stock was hammered on March 12th for a 31% hair cut when the company warned that its March quarter would be soft and below estimates. The usual culprit was to blame - soft IT spending by corporate America. While the corporate spending situation has not changed the perception that a second half recovery might actually show up is driving tech stocks higher. Investors might be drawn to BBOX believing that all of the risk has already been taken out of the stock. We like how shares have finally broken out of its month-long consolidation pattern between $29 and $32. We expect BBOX to attempt a "fill the gap" with a couple of caveats. First, the descending 50-dma (currently at 34.30) could cause trouble and the $35 level might be a hurdle as well. Aggressive traders can target entries now while more conservative traders might want to look for a possible pull back to the 31.50-32.00 range before evaluating a long position. We are not going to give BBOX a lot of room with our stop. If it rolls over we want out and we're going to initiate the play with a stop at 30.90. Maybe, just maybe, BBOX can pull an Intel. Six weeks prior to their earnings announcement Intel guided lower, which caused analysts to lower their estimates. When Intel actually came out with their results suddenly they magically surprised to the upside (of these lowered earnings estimates). BBOX has earnings coming up in about three weeks and we'll see how far it can climb before the announcement. Besides, rival network equipment company, Foundry (FDRY), actually surprised by a penny recently and maybe investor's short memory can play to the bulls favor. Suggested Options: Given that this is a short-term play with a three week time table (since earnings are coming up on May 7th) we're leaning towards the front month options as the best bet. However, those traders who prefer more time may be better served with the Septembers. BUY CALL May 30 QBX-EF at $3.30 OI=297 SL=1.50 premium=0.91 BUY CALL May 35 QBX-EG at $0.75 OI= 85 SL=0.00 BUY CALL JUN 35 QBX-FG at $1.50 OI=234 SL=0.75 BUY CALL SEP 35 QBX-IG at $2.85 OI= 73 SL=1.25 Annotated Chart for BBOX: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-22/BBOX042203.gif Picked on April 22nd at $32.39 Change since picked: +0.00 Earnings Date 05/07/03 (confirmed) Average Daily Volume = 2.8 million ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************* PLAY UPDATES - PUTS ******************* None ************* NEW PUT PLAYS ************* None ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 04-22-2003 Copyright 2003, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: CALL - BBOX Readers Write: It might be a whole new ball game! ********************** PLAY OF THE DAY - CALL ********************** Black Box Corp - BBOX - close: 32.39 change: +0.99 stop: 30.90 Company Description: Black Box is the world's largest technical services company dedicated to designing, building and maintaining today's complicated network infrastructure systems. Black Box services 150,000 clients in 132 countries with 117 offices throughout the world. (source: company press release) Why We Like It: It's back. BBOX is back on the play list but this time as a call play. The stock was hammered on March 12th for a 31% hair cut when the company warned that its March quarter would be soft and below estimates. The usual culprit was to blame - soft IT spending by corporate America. While the corporate spending situation has not changed the perception that a second half recovery might actually show up is driving tech stocks higher. Investors might be drawn to BBOX believing that all of the risk has already been taken out of the stock. We like how shares have finally broken out of its month-long consolidation pattern between $29 and $32. We expect BBOX to attempt a "fill the gap" with a couple of caveats. First, the descending 50-dma (currently at 34.30) could cause trouble and the $35 level might be a hurdle as well. Aggressive traders can target entries now while more conservative traders might want to look for a possible pull back to the 31.50-32.00 range before evaluating a long position. We are not going to give BBOX a lot of room with our stop. If it rolls over we want out and we're going to initiate the play with a stop at 30.90. Maybe, just maybe, BBOX can pull an Intel. Six weeks prior to their earnings announcement Intel guided lower, which caused analysts to lower their estimates. When Intel actually came out with their results suddenly they magically surprised to the upside (of these lowered earnings estimates). BBOX has earnings coming up in about three weeks and we'll see how far it can climb before the announcement. Besides, rival network equipment company, Foundry (FDRY), actually surprised by a penny recently and maybe investor's short memory can play to the bulls favor. Suggested Options: Given that this is a short-term play with a three week time table (since earnings are coming up on May 7th) we're leaning towards the front month options as the best bet. However, those traders who prefer more time may be better served with the Septembers. BUY CALL May 30 QBX-EF at $3.30 OI=297 SL=1.50 premium=0.91 BUY CALL May 35 QBX-EG at $0.75 OI= 85 SL=0.00 BUY CALL JUN 35 QBX-FG at $1.50 OI=234 SL=0.75 BUY CALL SEP 35 QBX-IG at $2.85 OI= 73 SL=1.25 Annotated Chart for BBOX: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-22/BBOX042203.gif Picked on April 22nd at $32.39 Change since picked: +0.00 Earnings Date 05/07/03 (confirmed) Average Daily Volume = 2.8 million ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************* READERS WRITE ************* It might be a whole new ball game! By Rick Utt I wrote this over the weekend so the averages on the historical charts are taken from the end of last week. The daily chart of the NASDAQ is current. I felt last week the market was turning and wanted to share this with OptionInvestor readers. The NASDAQ's failure to drop and it's persistent resistance test, of which it broke through today, is leading us to believe its trying to form an upward channel. Coincidentally the top of the channel will run into December's high at which point it will most likely be repelled The problem with the market is it's built on news but doesn't pay any attention to it. It actually uses it as a diversion to what's really happening. Kind of like the corner drug dealer who says, "Hey look over there, it's the police" and then runs off with your money. Not that that's ever happened to me but I watch "Cops" enough to know that it happens. Of course to keep on top of things we read as much as we can get our hands on. Unfortunately it creates a hidden bias that I preach against all the time yet find it seeping into my perception. The stock market is deaf but as long as the participants aren't, there is always going to be a conflict and that's why it's said, "the crowd is usually right in the middle but wrong on both ends." In listening to the news there is no reason to buy stocks with high unemployment, no business visibility, consumer confidence at record lows, even the Hirsch Corporation, editors of The Traders Almanac issued a sell signal based on market internals and history. The news is the pits! What people forget is, when the bull market was ending you couldn't find a reason from anybody against putting money in the market. There was nothing but good news and great possibilities. Everybody was making it! Now there's nothing but bad news and everybody has lost money. Is there a correlation here? In 1982 the Dow was at 1,000. Today it sits at just under 8,500. They say the stock market over it's lifetime has achieved in an annual return of 11%. If you compound that for 20 years from 1982's 1,000, you'll get 7263. In 2002, which was 20 years from 1982, we hit a low of 7197. Only NASA gets closer to it's target than that. The industry standard is to use linear charts in tracking the market. A linear chart of the Dow would look like this. Dow Jones Industrial Average monthly bar chart (linear) If you look at it this way we are still WAY over valued and it looks like the Dow would have to drop to about 4000 to become reasonable again. Now lets look at it through a semi-log chart. Semi-Log scaling produces a y-axis weighted according to percent change. For example, a price move from 40 to 50 (25% increase) is given more space on the scale than a move from 100 to 110 (10% increase). Dow Jones Industrial Average monthly bar chart (semi-log) This semi-log chart shows the roaring 20's to be just that. It was right around the peak of the market that Alan Greenspan was born and his first words were "irrational exuberance". You can see what happened after that. You can also see why investors were jumping out of windows. They were emulating the stock market's decline. It was radical to say the least and this was a TRUE capitulation event. If we draw the line from the first pullback to the second pullback and then continue to the end, you can see it takes a final bounce off the trendline, makes it's highest high but just barely, comes back down on the trendline, holds for a few months and then falls through. A semi-log trendline seems to work perfectly right up to and including the fall. You can see in the middle 50's the market starts to get ahead of itself and slows down in the early 60's where it starts to move sideways. It takes the final bounce off the trendline, peaks in 1973, then hangs and falls through in 1974 Dow Jones Industrial Average monthly bar chart (semi-log) As you can see, after consolidating, we start after the first pullback and follow the trend again until the last bounce in September of 2001. You can also see where the market got away from itself in the mid 80's ending in the sharp decline, which was the 1987 crash. It's ironic how there was so much pandemonium and people claimed they were wiped out, some even committing suicide, yet if they would just read the chart they'd know that prices got too lofty and the end of the world was only at the top of the trendline. That again was a true capitulation event. The problem we're having now is you'll notice the sideways market of the 60's contained tradable trends for the most part, some lasting two or three years in the same direction. Compare that with the "noise" we've seen in the last three years. You can also see we have not had a sharp, solid bounce to signify the end of this particular decline. It looks like it will probably have to go up before that can happen because as it stands we've lost momentum to the downside. NASDAQ Composite monthly bar chart (linear) The NASDAQ got quite carried away in the 90's and still has quite a ways to fall before it hits the trendline and this is the thinking of most technical analysts. Now, are you ready for the shocker??? NASDAQ Composite monthly bar chart (semi-log) Sometimes we look for support and resistance levels through a microscope when we ought to back up and look at them through a telescope. The problem we have is the industry and every technician I know using linear charts. It seems a little more than coincidental that it all comes together on a semi-log chart. The trend line followed perfectly until it broke in the early 90's, but once the market headed up we used that new low for our reference and it was that low that gave us our most recent bounce. Is this a coincidence or are we ready to buy? Finally, lets take a look the Volatility index everyone, including me, keeps touting. If you look at intraday charts the VIX looks like its hitting levels unknown to man and in a recent time frame that's true, but lets back up and look through the telescope again. We'll use a standard linear chart for this because the VIX only stays within a certain range. Dow Industrials and Volatility Index weekly bar chart. Dow at the top VIX at the bottom. We needed to cram a lot of information in here so its not easy to see, but when we back up with our telescope the volatility doesn't look that threatening at all. While we've seen lows not seen since a year ago and lows, that when reached twice recently have formed to market tops, we've got a long way to go before we actually hit low levels. Also notice that in the past few years we've hit market bottoms when the VIX hits 60 or so. However in the 1987 crash the VIX hit an astronomical 172. So in the scheme of things and historically speaking we're more neutral than anything. I've been as guilty as anyone of trying to dissect this market with a microscope. We've been in a bear market so long we're looking for any signs we can as to when we'll emerge, or if we'll emerge. It may be that we've been staring at the ground so long checking the moisture level to see when it will quit raining that we may be failing to notice the blue sky opening right above our head. The economy is lousy and unemployment is growing and there's unrest in the middle east and nuclear threats in North Korea and CEO's are afraid to comment on what the future may hold and so on and so on and so on. The crowd says "stay away" but remember the crowd in 2000 said, "come on in, the water is perfect!" The crowd is wrong on both ends. While the NASDAQ and DOW charts don't agree as far as trend lines go, one has made a perfect bounce and the other has said, "Hey, you were looking for 11% per year. We're here now!". In spite of the fact everybody is saying beware of the volatility index, the volatility index is nowhere near the lows it was for years during a sustained bull market and if anyone was every ready for a sustained bull market, we are. When you step back and look, it's really a non-issue at this point. Bad news is everywhere but the market won't go down. Everyone thinks this is a trap because they've been burned so many times before. That in itself is a market ploy. The market has no ears and doesn't hear the news. It's a lot older than any of us and has a mind of its own. To the market, days mean nothing, weeks mean little and years are what gives it it's character. Once in a while we need to quit asking it what kind of day its having and back up and look to see how it's been feeling lately. My guess is it's starting to get rid of it's crankiness of the last few years and in the coming months might start to give us a smile or two. ************************Advertisement************************* "If you haven't traded options online – you haven't really traded options," claims author Larry Spears in his new compact guide book: "7 Steps to Success – Trading Options Online". Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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