Just as it looked like there may have been some meaningful profit-taking starting to develop last week, buyers returned in force on Monday as a plethora of merger and acquisition activity re-ignited optimism among investors.
Advancing issues easily outnumbered decliners by a 3-to-1 margin at the NYSE, while NASDAQ breadth was positive for a second-straight session by a 7:3 margin.
In the mining sector, shares of Bema Gold (NYSE:BGO) $5.27 10.25% jumped higher after the company said it had agreed to be acquired for $3.1 billion by fellow Canadian gold miner Kinross Gold (NYSE:KGC) $12.01 -9.42%. At Friday's closing prices, the deal valued BGO at $5.85/share which is still below the recent 52-week high of $6.33. Kinross said it would exchange 0.441 of its shares for each BGO share. Pending completion of the deal, Kinross shareholders would own 61% of the new company and shareholders will own 39%. Longer-term both companies said they expect output at the combined company to rise to 2.8 million gold-equivalent ounces by 2009, up from 1.8 million ounces in 2006 and have a cost of sales, per ounce of gold-equivalent metal, of $130 by 2009.
Buyers also gobbled up restaurant stocks in Monday's session after OSI Restaurant Partners (NYSE:OSI) $39.75 22.57%, which owns the popular Outback Steakhouse chain, said it had agreed to be bought by a private investor group for $3 billion, or $40/share.
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Truckers witnessed a bullish session of trade. Swift Transport (NASDAQ:SWFT) $29.84 24.07 rose sharply after the company's largest shareholder and ex-CEO Jerry Moyes offered to buy the company for $29/share, or $2.17 billion. Last year, Mr. Moyes paid a penalty and agreed to step down as CEO after SEC filings revealed that he bought shares of Swift two trading days before the company posted better-than-expected quarterly results. The transaction, which took place in 2004, reportedly yielded Mr. Moyes a $622,000 profit.
Four Seasons Hotels (NYSE:FS) $82.50 29.16% surged more than $18/share after the luxury hotel chain said it had received an offer to be taken private for $3.7 billion by a group of controlling shareholders, including Bill Gates's Cascade Investments, and Kingdom Hotels International. The $3.7 billion offer valued Four Season's shares at roughly $82.
If 10% to 29% premiums from Friday's close weren't enough to raise a short's blood pressure, or lift optimism that some stocks may be substantially undervalued, then KOS Pharmaceuticals' (NASDAQ:KOSP) $77.06 53.84% news that Abbott Laboratories (NYSE:ABT) $47.47 -0.35% was offering $3.7 billion, or $77/share for the company might have been the "deal of the day." Abbott executives said the purchase of KOSP would help the company expand its portfolio of cholesterol drug holdings.
Closing U.S. Market Watch - 11/06/06
Some of the brokers, or the investment banks were likely the "quiet winners" as a result of the merger/acquisition activity.
Goldman Sachs (NYSE:GS) $190 1.53%, JP Morgan Chase (NYSE:JPM) $47.65 1.62%, Morgan Stanley (NYSE:MS) $76.04 2.36%, Merrill Lynch (NYSE:MER) $88.04 1.52% and Lehman Bros. (NYSE:LEH) $76.15 2.31% posted solid gains.
Earnings also found interest among traders.
XM Satellite Radio (NASDAQ:XMSR) $13.17 5.62% rose $1.75 after the company posted a narrower-than-expected loss and said it was on track to turn a profit in Q4. XM said it lost $85.5 million, or $0.32 a share in the three months ending September, compared with $134 million, or $0.60/share, in the same period last year. Analysts were expecting the company to lose $0.46/share in the recent quarter.
XM's rival, Sirius Satellite Radio (NASDAQ:SIRI) $4.02 6.91%, was atop today's list of most actively traded stocks and gained 26-cents.
Coated-stent maker Boston Scientific (NYSE:BSX) $16.89 2.98% rose 49-cents, not nearly as bullish as I would have thought after the company said its sales could rise between 11% and 21% next year, depending on how quickly markets for two types of heart devices break out of slumps. The forecast put sales between $8.65 billion to $9.45 billion next year, which looks to be in line with consensus. While the company didn't give specifics as to bottom line figures, company executives did say they expect double-digit earnings growth. According to recent analysts estimates, Wall Street sees 2006 EPS of $1.82 and 2007 EPS falling 56% to $0.79/share in 2007. A "double-digit growth" based on 2006 EPS assumptions of $1.82, would be 10% at a minimum, or $2.00/share for 2007.
BSX's executives admitted that slowdowns in the company's two key markets make it tough to issues specific financial projections and acknowledged it is taking longer than expected to realize the synergies from the Guidant deal, which they say will eventually expand the company's product line into markets that will see long-term growth.
While there were some upbeat earnings and outlooks, there were also some casualties.
Shares of Internet "close-out" retailer Overstock.com (NASDAQ:OSTK) $14.59 -17.94% plunged to a multi-year low on heavy volume of 2.43 million shares after the company said Q3 revenues fell 6% to $159 million, while gross margins shrunk 1.2%. The one-two punch of falling revenue and shrinking margins had losses building to $24.5, or $1.19 per share.
While Overstock's point and figure charts was adding some "O"s to its chart in the form of supply exceeding demand, shares of drug developer Adolor Corp. (NASDAQ:ADLR) $7.69 -44.83% were doing the same after the company said the FDA has requested more safety data on their postoperative bowel treatment Entereg.
The agency sent the companies an approvable letter on the drug, requesting 12-month safety data that includes analysis of serious cardiovascular events from an ongoing study. That study is focusing on the drug as a possible treatment to relieve constipation in people who must take opiates for cancer and other chronic pain. Phase III clinical trials showed mixed results.
The bigger they come... the faster they rise?
Good gravy! What took sellers 6-day to accomplish, took buyers less than 6-hours to erase.
Dow Industrials ($INDU) - 50-point box chart
Since late August, the Dow Industrials ($INDU) has been on a rocket-ride. The $INDU is extended above it breakout of 11,300, but overhead supply, or resistance in relatively nonexistent.
New bull entries have the greatest amount of RISK, but that doesn't always matter near-term when there's no overhead supply (old longs looking to get out). Internals as depicted by the very narrow Dow Industrials Bullish % ($BPINDU) from StockCharts.com (just 30 stocks) are very strong, but also "overbought" above the 70% reading at 86.66%. That has 26 of the 30 Dow components currently showing a point and figure buy signal associated with their supply/demand chart. Remember! X is up/demand and O is down/supply.
On the above 50-point box chart, support is viewed at 11,700. However, a 3-box reversal back up to 12,150 would have bulls pressing the issue higher with a tight stop at 11,950.
Last week, Jim, Linda, Keene and I received an email from a subscriber asking why we all use/show charts on various time intervals?
In last week's Market Monitor, I touched on the subscriber's question, saying that I think every trader, or investor should look at different time intervals.
If you're not a day trader, then you don't need to look at intra-day charts. But a swing trader, or investor, you'd better look at a lot more than a couple of months of trade.
LOOK AT THE BIG PICTURE first. That is, try and get a BROAD PICTURE of supply/demand. Not just a month, or two, but several months. Identify the MAJOR levels of resistance/support, then work in (smaller time frames) from there.
The conventional scale of a point and figure chart is a great place to start.
One technique a point and figure chartist will also use is to "cut down" on your box size.
I look at the above $INDU chart and say "It is extended, but is there a price point after this pullback that would be an early warning that supply is starting to overcome demand?"
Let's cut down our box size to 25-points, from 50-points. A bar chartist might think of this as looking at a weekly interval bar chart, then a daily interval bar chart.
Dow Industrials ($INDU) - 25-point box chart
The 25-point box chart of the $INDU adds some "noise" or more action than the conventional 50-point box chart, but it is evident that since September 26th, the pattern of higher lows and higher highs continues. See that "sell signal" on September 22nd at 11,475? Right now, as of tonight's close, a similar trade would be found IF the $INDU traded 11,950. For those that have been reading my commentary since mid-September, you should remember my notes/observation during that time that the major market bullish % ($BPNYA, $BPCOMPQ, $BPSPX, $BPOEX and $BPNDX) were all starting to reverse up and signal some meaningful internal strength building.
I think the Dow Industrials ($INDU) needs to see a trade at 11,925 at a MINIMIMUM to even begin to think sellers are gaining control over buyers.
As BULLISH as you can make it look!
One technique I'll use to try and find weakness, is to make a chart look as BULLISH as I can. Get the chart to tell me where I was wrong from the BEARISH perspective, and where BULLS have been the winners.
For a couple of weeks, some traders in the Market Monitor have been "feeling the pain" from the bearish side in the S&P Depository Receipts (AMEX:SPY) $138.08 1.12% as profit takers REFUSED to take any profits, where in fact, buyers continued to press the SPY well above the November $136 Put strike. Adding to the "pain" was declining volatility, or option premiums, even as the SPY came back to my 10/17/06 bearish entry point.
At Friday's close, today was a day I thought it would either be a "put up, or shut up" trade, where any November out the money put option holders (out the money= prices below current level of trade) needed to see a break. I don't think we got it today, and an unconventional $0.40 box chart may be a good box size to have the SPY looking as BULLISH as I can get it.
S&P Depository Receipts (AMEX:SPY) - $0.40 box chart
One of the best ways to get a feel for a market, or index is to trade it. At Friday's close, I think many S&P 500 traders could feel some pressure building, and traders holding put options, had a feeling today was a "make or break" session.
In the first 60-minutes of trade, over 15 million SPY shares changed hands, and for the most part, it was up, up and away.
That action still gives me the feel and observations that there are some BIG SHORTS, or bears that are still trying to get "squared up," or get things under control and any resumption of strength, regardless of how "overbought" things seem, continues to build on itself.
A $0.40 box chart of the SPY would have the SPY showing 5 continuous "buy signals" (a column of X exceeding to the upside a prior column of X) without a single sell signal (a column of O exceeding to the downside a prior column of O). First sign of any weakness here would be a trade at $135.60.
CNOOC Ltd - CEO - close: 84.79 change: -0.05 stop: 82.89
A rebound in crude oil back over $60 a barrel and widespread market strength helped power the oil sectors higher on Monday. Unfortunately, CEO failed to participate in the rally. The stock actually gapped down this morning before slowly inching higher. We remain on the sidelines and we're waiting for a breakout over resistance at the $85.00 level. Our suggested entry point to buy calls is at $85.25. If triggered our target is the $89.50-90.00 range.
Picked on November xx at $ xx.xx <-- see TRIGGER
Cerner Corp. - CERN - close: 48.95 chg: -0.14 stop: 46.90
Networking giant CSCO turned in an impressive 3.8% gain one day ahead of its earnings report. This fueled a 2.3% gain in the NWX networking index. Yet strangely shares of CERN, a networking company, failed to participate in today's rally. This should set off warning signals for investors. We expected potential resistance at the $50.00 mark so a pull back toward $48 could be in the cards. Our target is the $52.00-52.50 range.
Picked on October 30 at $ 48.05
GlobalSantaFe - GSF - close: 54.30 chg: 1.91 stop: 49.39
Crude oil futures rebounded higher on Monday and broke out back above $60 a barrel thanks in part to more talk from OPEC about cuts to support oil prices. The rising oil and a broad market rally helped oil stocks rush higher. The OSX oil services index rose 1.45%. Shares of GSF really out performed its peers with a 3.6% gain to close over minor resistance at $54.00. Don't be surprised to see GSF pull back on profit taking when it hits the 200-dma near $55 soon. Our target is the $57.50-58.00 range.
Picked on November 05 at $ 52.39
Holly Corp. - HOC - close: 50.06 change: -0.69 stop: 46.99
We were a little surprised by HOC's relative weakness on Monday. The intraday bounce from its lows near $49.35 is bullish but shares still closed down 1.3%. More aggressive traders may want to buy the dip but more conservative traders may want to see a new relative high first (over $51.10). Our target is the $54.90-55.00 range.
Picked on November 05 at $ 50.75
NTL Inc. - NTLI - close: 27.33 chg: 0.45 stop: 26.75 *new*
Tomorrow is our last day for NTLI. We're planning to exit on Tuesday at the closing bell to avoid the company's earnings report on Wednesday. We're going to raise our stop loss to $26.75 to reduce our risk. Our target was the $29-30 range.
Picked on October 26 at $ 27.41
Petroleo Brasileiro - PBR - cls: 90.35 chg: 1.41 stop: 85.65
We did not have to wait very long for PBR to hit our trigger. The rally in oil and oil stocks today produced a 1.58% gain in PBR and a breakout over the $90 level. Our suggested trigger to buy calls was at $90.05. Now that the play is open our target is the $95.00-96.00 range. FYI: PBR is a Brasilian stock traded as an ADR here in the U.S. One risk traders are facing is the company's earnings report. We cannot find a specific date or even a history of recent earnings reports. The risk is that they announce a negative report while we're trading them.
Picked on November 06 at $ 90.05
Transocean - RIG - close: 76.52 change: 1.45 stop: 69.99
RIG is another oil service stock that powered higher thanks to strength in crude oil and the widespread market rally. Shares rose 1.9% and managed to breakout over technical resistance at its 200-dma. We have two targets. Our conservative target is the $79.50 level. Our aggressive target is the $84.00 level.
Picked on November 05 at $ 75.07
Schlumberger - SLB - cls: 64.35 chg: 0.85 stop: 60.95
SLB is yet another oil service stock that posted gains on Monday. Shares rose 1.3% and look poised to hit new relative highs soon. Our target is the $67.50-68.00 range. SLB is an oil services company and the services sector tends to be a little more volatile than the rest of the oil sector.
Picked on November 05 at $ 63.50
Vimpel Comm. - VIP - close: 64.99 chg: 0.82 stop: 62.49
VIP's bounce on Monday may have been a temporary reprieve from the recent profit taking. We're not suggesting new positions and more conservative traders may want to exit early here. Don't forget that we're dealing with a rising risk environment due to the earnings report. The company is expected to report this month but we can't find a specific date. Estimates for when VIP will announce range from November 7th to November 23rd. Our target is the $67.50-70.00 range.
Picked on October 12 at $ 62.17
Alcon Inc. - ACL - close: 106.25 chg: 0.63 stop: 110.01
ACL spiked lower this morning but shares managed to rally back into the green and erase Friday's loss by the closing bell. As a drug company ACL could get pushed around tomorrow and Wednesday as investors react to every sound byte about which party might be winning the mid-term elections. The overall pattern remains bearish but ACL is somewhat short-term oversold and due for a bounce. More conservative traders may want to tighten their stops toward the $108 level. Our target is the $100.10-100.00 range.
Picked on October 31 at $105.75
Advanced Micro Dev. - AMD - cls: 21.39 chg: 0.51 stop: 22.05
Attention! It may be time to abandon ship with this put play in AMD. The SOX just produced a strong bounce from support and the NASDAQ doesn't look ready to give up its bullish trend just yet. AMD still has resistance near $22.00 but more conservative traders may want to cut their losses right here. We're going to ride it out and see what happens. We're not suggesting new positions with AMD above $20 at this time. Our target is the $17.50-17.00 range.
Picked on October 29 at $ 20.86
Amazon.com - AMZN - close: 38.21 chg: 0.75 stop: 40.25
A strong day for the Internet stocks and a new relative high for the INX Internet sector helped AMZN produce a positive session. AMZN bounced from its recent test of the rising 10-dma and shares are once again challenging resistance at the $39.00 level. Readers can choose to wait and watch for a failed rally under $39.00 (or $40 if it occurs) as a new entry point. We're using a relatively wide stop loss above $40 to give AMZN room to maneuver. Our target is the $35.00-34.00 range.
Picked on October 29 at $ 38.24
Cardinal Health - CAH - cls: 64.18 chg: 0.92 stop: 64.85
The rampant strength in stocks today helped CAH bounce from support near $63.00. Volume actually came in above average on the move. We're waiting for a breakdown under support near $62.35. Our suggested entry point to buy puts is $61.99. If triggered our target is the $58.00-57.50 range. Be prepared for a bounce on CAH's initial test of the $60 level.
Picked on November xx at $ xx.xx <-- see TRIGGER
CDW Corp. - CDWC - cls: 65.06 chg: 1.07 stop: 66.25
Strength in technology stocks inspired a 1.6% bounce in CDWC on Monday. Shares found some resistance at the $65.50 level but looking at the intraday chart we can't tell if CDWC is poised to continue its run into Tuesday. We would wait for a failed rally near $66 or a new decline under $64 before opening new put positions. We do note potential support at its rising 50-dma near 63.25. Our target is the $60.50-60.00 range. Be advised that CDWC is hosting an analyst day on November 8th.
Picked on November 02 at $ 63.90
Capital One Finc. - COF - cls: 78.68 chg: 2.12 stop: 80.05
Financial stocks played a part in today's widespread rebound and COF got in on the act with a sharp 2.7% oversold bounce of its own. A failed rally under $80 could be used as a new bearish entry point to buy puts. Our target is the $75.10-75.00 range.
Picked on October 31 at $ 79.33
Centex - CTX - close: 50.34 change: -0.05 stop: 52.55
The homebuilding sector may have closed in the green but its performance today was pretty weak. The pattern for the group and CTX still looks bearish. We are suggesting a trigger to buy puts at $49.75. If triggered our target is the $45.50-45.00 range.
Picked on November xx at $ xx.xx <-- see TRIGGER
DIAMONDS ETF - DIA - close: 121.01 chg: 1.23 stop: 121.16
Danger! The bounce in the DJIA and 1% rebound in the DIA diamonds has apparently produced a buy signal or a bullish breakout from what now appears to be a bull flag pattern. More conservative traders may want to exit early if they can. Odds are good that we'll be stopped out tomorrow morning at $121.16. We're not suggesting new put positions.
Picked on November 02 at $119.80
Intercont.Exchange - ICE - cls: 84.90 chg: 3.15 stop: 82.55
ICE bounced strongly on Monday with a 3.8% gain thanks to strength in the financials. We're still on the sidelines. It is our plan to buy puts on a breakdown under support at the $80 level. Our suggested entry point is at $79.85. If triggered our target is the $75.15-75.00 range. More conservative traders may want to exit at the rising 50-dma near $75. FYI: A decline under $81.00 would reverse the P&F chart into a new sell signal. More aggressive traders may want to consider opening early positions under $81.00.
Picked on November xx at $ xx.xx <-- see TRIGGER
Lehman Brothers - LEH - cls: 76.15 chg: 1.72 stop: 77.01
Wow! Today really was a merger Monday. A number of bid deals were announced today and the broker-dealers naturally saw a positive reaction. The XBD broker-dealer index rose 2.57% and shares of LEH paced the move with a 2.3% gain of its own. The stock erased Friday's decline but it did not break Friday's bearish engulfing candlestick pattern. The move today looks dangerous for the bears so we would wait for a new decline under $74.50 before considering new put positions. Our target is the $70.25-70.00 range.
Picked on November 05 at $ 74.43
PACCAR Inc. - PCAR - cls: 58.53 chg: -0.68 stop: 60.55*new*
Caution! Over the weekend we suggested that PCAR was poised to bounce higher. Fortunately, the rebound failed at $60.00 resistance but short-term technicals are inching higher from oversold conditions. If the major market indices continue to rally tomorrow we could see PCAR breakout over the $60 level. More conservative traders may want to tighten their stops toward $60. We're going to move our stop to $60.55. Currently our target is the $56.00-55.50 range.
Picked on October 29 at $ 59.42
Pantry Inc. - PTRY - close: 52.04 change: -0.27 stop: 56.01
Shares of PTRY continue to under perform. The stock lost another 0.5% on Monday with volume coming in above average on the decline (which is bearish). We don't see any changes from our weekend update. Our target is the $48.00-47.00 range but we do expect a bounce on PTRY's initial test of the $50 level. We do not want to hold over the November 16th earnings report.
Picked on October 29 at $ 54.05
NASDAQ-100 ETF - QQQQ - cls: 42.54 chg: 0.61 stop: 42.81
A pervasive rally in tech stocks produced a sharp rebound in the QQQQ. We came close to being stopped out but the rally ran out of steam at $42.71. If the markets see any follow through higher tomorrow we would expect to be stopped out. We're not suggesting new positions at this time. Our target was the $40.25-40.00 range.
Picked on November 02 at $ 41.75
Semiconductor HOLDRs - SMH - cls: 33.59 chg: 0.63 stop: 34.15
A strong bounce in the SOX semiconductor index was surpassed by an even stronger rebound in the SMH holders ( 1.9%). More conservative traders may want to tighten their stops since this could be a bullish reversal following last week's bearish breakdown! We're not suggesting new positions at this time.
Picked on November 03 at $ 32.95
Univ.Forest Prod. - UFPI - cls: 44.83 chg: 1.02 stop: 48.05
After three weeks of losses UFPI is finally seeing something of an oversold bounce. However, the stock is still trading under its 10-dma so we wouldn't panic yet. More conservative traders may want to think about tightening their stops toward the $46 level. We're not suggesting new positions at this time. We're aiming for a decline into the $41.00-40.00 range.
Picked on October 24 at $ 46.13
(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)
Bear Stearns - BSC - cls: 149.27 chg: 2.58 stop: n/a
A merger Monday with several big deals being announced fueled a big bounce in the broker-dealers. BSC added 1.75% but failed to breakout over the $150 level. We're not suggesting new positions at this time. The options in our strangle are the November 155 call (BSC-KK) and the November 145 put (BSC-WI). Our estimated cost was $4.00. We're planning to exit if either option rises to $6.00 or more. FYI: Don't forget that November strikes expire in less than three weeks.
Picked on October 22 at $150.19
Cephalon - CEPH - close: 71.91 change: 1.66 stop: n/a
CEPH is finally seeing a breakout from its recent trading range. The stock rose 2.3% and closed at a new seven-month high. We're not suggesting new positions at this time. The options in our strangle are the December $75 call (CQE-LO) and the December $65 put (CQE-XM). Our estimated cost was $3.45. We plan to see if either option rises to $4.90 or more.
Picked on October 29 at $ 69.35
ConocoPhillips - COP - close: 61.05 chg: 0.08 stop: n/a
Lack of directional movement in COP is killing this strangle play. Over the weekend we adjusted our target to breakeven at $1.15 but more conservative traders may want to try and exit at a fraction of our estimated cost (50%, 75%, etc). We're not suggesting new positions. Our suggested options were the November $65 call (COP-KM) and the November $55 put (COP-WK).
Picked on October 15 at $ 60.03
Blue Nile - NILE - cls: 35.85 chg: 0.08 stop: n/a
NILE produced a very weak bounce considering its declines last week. We're not suggesting new positions at this time. Our estimated cost was $2.40 and we're planning to sell if either side of our strangle rises to $3.90. The options in our suggested strangle are the January $45 call (JWU-AI) and the January $35 put (JWU-MG).
Picked on October 29 at $ 38.92
Frontier Oil - FTO - close: 31.24 change: 0.13 stop: 28.90
It was our plan to exit FTO today at the closing bell to avoid holding over the company's earnings report expected tomorrow. Wall Street is looking for FTO to report $1.07 a share.
Picked on October 15 at $ 28.90
NewMarket - NEU - close: 65.06 change: 2.92 stop: 67.05
The bounce in NEU was too strong for us. After last week's decline the stock recouped most of its losses with today's 4.69% gain. This looks too much like a short-term bullish reversal so we're suggesting an early exit to limit losses.
Picked on October 31 at $ 64.30
Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.
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