PremierInvestor.net Newsletter Monday 07-16-2001 Section 1 of 2 Copyright © 2001, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.PremierInvestor.net/htmlemail/8038_1.asp ================================================================= In section one: Market Wrap: Silicon Can Be Slippery Market Sentiment: FUNdamentals Play-of-the-Day: CSG Systems - CSGS (Bearish) Watch List: Adding Retail and an Airline ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- - 07-16-2001 High Low Volume Advance/Decline DJIA 10472.12 - 66.94 10568.69 10446.60 1.03 bln 1184/1877 NASDAQ 2029.12 - 55.67 2091.68 2025.41 1.48 bln 1466/2234 S&P 100 620.60 - 6.25 629.69 618.61 totals 2650/4111 S&P 500 1202.45 - 13.23 1219.63 1200.05 RUS 2000 483.80 - 6.91 491.40 483.77 DJ TRANS 2962.79 + 22.44 2975.35 3937.45 VIX 25.31 + 1.44 25.66 23.70 Put/Call Ratio 0.58 ---------------------------------------------------------------- =========== Market Wrap =========== Silicon Can Be Slippery by Jeff Bailey Technology stocks that base their future on silicon, slipped markedly on today, as the PHLX Semiconductor Index ($SOX.X) lost nearly 6% of its value. Shares of Applied Materials (AMAT) were the first to slip and the semiconductor equipment giant lost 9.5% of its value after the company said its visibility into the future was "foggy." The company's CFO Joe Bronson said, "I wouldn't say we have or haven't achieved bottom." Early in the trading session, shares of Applied Materials held their own and were trading near the $46 level, but by sessions end bearish traders had locked their radar on the stock and shot it down to the $41.95 level. Applied Materials Chart - last nine months Chart: = After Applied Materials said that visibility was "foggy," analyst Joe Osha at Merrill Lynch provided some visibility that the market didn't like. His research indicated that Advanced Micro Devices (AMD) and Intel (INTC) were both offering prices on their high-end desktop microprocessors that are "far below" either list or reported market prices. Advanced Micro Devices fell more than 5% during the trading session to finish at 20, while shares of Intel lost 3.5% of their value to close at 29.13. Intel Chart - last four months Chart: = The market hates uncertainty and today's early cloud from Applied Materials and comments from Mr. Osha were both just thick enough for semiconductor bears to apply pressure. If every cloud has a silver lining, then that exactly what got many technology bears got today. It was fairly evident that most stocks responded negatively to today's semiconductor news and this is now something that traders need to follow up on. Some of the news today out of the Merrill Lynch camp might give some insight as to why some of the computer stocks like Dell Computer (NASDAQ:DELL) have been trading a little more bullish as of late. If the high-end processors have been coming down in price then perhaps that gives companies like Dell Computer some leeway in their pricing models. While shares of Dell computer (DELL) gave back nearly 3% of its value today when the stock dropped to $27.12, the stock did break a two-month barrier on Friday when the stock was able to trade the $28 level. One of the "progressions" we've talked about in the past regarding computers, chips and equipment did show up drastically in today's trading. The thought process being that computers would show first sign of a recover, chips would be next and equipment would be bringing up the rear. Today, the "rear" got kicked and it did provide some pain to other parts of the chain. However, if you were bullish a computer stock like Dell Computer, the pains was less severe than being long shares of Applied Materials or other semiconductor equipment stocks like Kulicke and Soffa (KLIC). As the trading session progressed, one thing I also noticed was that bond YIELDS continued to slip lower as the sessions progressed and that seemed to put further pressure on stocks. This may have been due to some bulls liquidating some stock positions, but I think it was more a case of equity bears applying pressure with some shorting activity. With money flowing back into bonds in recent weeks, my feeling is that equity bears have little reason to worry about a prolonged stock market rally and today the market was looking for up-ticks (a term used by those shorting stocks). I still think an equity bear (one who is buying puts or shorting stocks) has to exercise some caution right in here. All three of the major bond yields we follow on a daily basis are getting very close to past reversal points. The question I have tomorrow is, "Will the market continue to buy bonds tomorrow and will this recent pattern of buying bonds adversely impact stocks?" While no one in the market knows for certain the answer to that question, it certainly gives traders a rather accurate predictor of money flow to base some trading decisions off of. ================ Market Sentiment ================ FUNdamentals by Jeffrey Canavan As a dyed-in-the-wool technician, I must yield to fundamentals this week. Technical indicators will still their impact, but they could easily be trumped by positive or negative earnings surprises. As technicians, one thing we can watch is how the markets react to the upcoming earnings announcements. Take the Banking Index for example. Citigroup and Bank of American reported better than expected earnings, yet gave up most of their profits by the end of the day. Citigroup was up $1.85 at one point in the day, but only finished up $0.29. By the end of the day, the Banking Index was in negative territory. An argument could be made that a future profit warning from Bank of New York hurt the index, but positive earnings from the No. 1 and No. 3 banks should have had a bigger impact. Overall this sector looks susceptible. Then again, most sectors are stuck in a downtrend and look susceptible. The Internet Index had a chance to break its downtrend today, but failed. Tomorrow could be the Retail Index's turn, but the way it retreated today doesn't bode well. The only sectors that come close to resembling an up trend are transports and its cousin airlines. Biotechnology and oil services are oversold, but have fun trying to catch that falling knife. Overall shorting looks like the best policy, and it's going to take a lot of positive earnings to change that. Luckily we have a plethora of earnings to choose from this week. The main focus will be on what IBM and Intel have to say, and we should then focus on how the market reacts to that. If IBM and Intel meet or beat estimates and the market still sells off, something could be amiss. *************************Sector Watch**************************** Weekly Daily Overbought Support Resistance Trend Trend Oversold DJIA Bearish Bearish Neutral 10,200 10,600 NASD Bearish Bearish Neutral 1,940 2,125 S&P 500 Bearish Bearish Neutral 1,170 1,240 Rus 2000 Neutral Bearish Neutral 465 500 Semis Bearish Bearish Neutral 525 585 Biotech Bearish Bearish Oversold 490 550 Internet Neutral Bearish Neutral 160 186 Networking Bearish Bearish Neutral 300 365 Software Bearish Bearish Neutral 188 210 Banking Neutral Neutral Neutral 625 670 Retail Neutral Bearish Neutral 850 900 Drugs Bearish Bearish Neutral 365 390 Percent Change Last Last Last Relative Strength 5 Days 10 Days 30 Days vs S&P 500 DJIA 2.8% (0.3%) (3.4%) Positive NASD 0.1% (6.2%) (5.6%) Neutral S&P 500 0.3% (1.8%) (4.6%) N/A Rus 2000 (0.4%) (5.6%) (3.6%) Neutral Semis (1.0%) (10.6%) (9.6%) Negative Biotech (11.9%) (18.7%) (20.0%) Negative Internet (1.6%) (7.9%) (18.8%) Neutral Networking 0.5% (7.3%) (21.8%) Neutral Software (3.5%) (12.1%) (10.6%) Neutral Banking (0.4%) (1.6%) (2.0%) Neutral Retail 6.1 3.3% (0.6%) Positive Drugs (2.5%) (0.6%) (7.1%) Neutral ***************************************************************** ========================= Play-of-the-Day (Bearish) ========================= CSG Systems - CSGS Close:$52.65 Change:-1.36 Stop:$55.00 Original Comments When Selected on July 12th: Company Description: CSG Systems provides cost-effective customer care solutions for the communications industry. Their full range of processing services, software and support services automate customer management functions such as billing, sales support, order processing, and invoice calculation. CSG clients, who include telephony, high- speed Internet, and Internet service providers, benefit from having a highly scaleable system that can grow with the business, as well as access next generation technologies that adapt to changing needs. Fundamentals: So basically, CSG provides software to telecoms and ISPs. Unless their software helps to file the paperwork for chapter 11 bankruptcies, I have a hard time seeing a bright future for their product and services. Even if their customers are still in business, I doubt they have the capital expenditure budget to buy or upgrade their software. CSG has somehow managed to grow revenues for the past 4 quarters, but the rate of growth is slowing. Cash flows have also dropped into negative territory, primarily due to financing activities. Salomon and CSFB must also smell a rat, since both of the brokerage houses have downgraded the stock. Strategy: With investors buying everything in sight today, CSGS' $2.43 drop suggests that somebody wants out. Perhaps it was Massachusetts Financial Services or Seligman J.W., CSG's top two institutional investors. If the other institutions get a whiff of this, it may set off a snowball effect. Conservative traders may want to wait for some confirmation of this, which would be signaled by a drop below $53.55. This level has been recent support, and is the home of the 38.2% retracement bracket. Once that is support is gone, CSG is primed to fall to $47.60, an 11% drop. We'll start out with a stop at $57.75, but will continue to lower that to reduce risk or most likely lock in profits. Updated Comments: Monday delivered the drop below $53.55 we had been anticipating. This puts a move to $47.60 within reach. If the selling picks up momentum the following levels of support are at $45, $43.75 and $40.00. We are moving our stop to $55.00. Picked on July 11th $54.04 Gain Since Picked +1.42 Earnings Date 7/30 ========== Watch List ========== ================================================================== WATCH LIST ================================================================== Wal-Mart Stores - WMT Close:$53.48 Change: +0.58 WHY WE LIKE IT: A value portfolio staple, Wal-Mart is the king of discount stores with over 1,736 stores, 888 Supercenters and 475 Sam's Clubs expected to rack in over $216.3 billion in sales this year. POTENTIAL TRIGGER EVENT: The shares have had a nice run gaining $6 in 5 trading sessions. Although the shares managed to pick up 58-cents on Monday, the bulls seem to be running out of gas and don't have the oomph to push past big-time resistance at $54.75. This means the shares are vulnerable to a pullback to the 200-day moving average at $50.41 or possibly support at $49. Watch for a close below Monday's $53.48 or a session high near $54.75 to present favorable entry points for a bearish trade. --- AMR Corp.- AMR Close:$37.26 Change: -0.68 WHY WE LIKE IT: AMR's main subsidiary is American Airlines, which is the second largest airline in the country after United Airlines. Fuel is the second largest expense after labor for airlines; therefore declining fuel prices can be expected to be a big boost to the balance sheet and share prices. POTENTIAL TRIGGER EVENT: After a bull run from $32.50, a brief dip back to support at $37 would present a good entry point. The next move should be a test of resistance at $39.60 with a possible short-term continuation to $44.00. --------------------------- Continuing Watch List Items --------------------------- Usa Education Inc - SLM - Close: 77.24 Change: +1.11 WHY WE LIKE IT: At $64.5 billion, USA Education is one of the biggest sources for college loans. You haven't heard of USA Education before? Then may you know them by the name Sallie Mae. The stock hit resistance at $76 back in early March. Since then shares have seen a slow and patient consolidation as it made a new base near the $65 area. That was mid-May. Shares have now appreciated and the bulls have managed to break through resistance at $76. POTENTIAL TRIGGER EVENT: We wish we had have made this a play. The strong steady climb, the timely pullbacks and new entry points seem to make it too easy. Seeing the stock close over $76 last Thursday was the trigger. Today's move to $77.96 on a spike in volume means it may be off to the races. One could expect the stock to quickly appreciate to $80, but we might also get another shot at it if the shares pullback to $76. Be careful as earnings are expected on Thursday, July 19th. --- Americredit Corp. - ACF - close: 59.55 change: +0.84 WHY WE LIKE IT: More than doubling since the first of the year, investors should be pretty happy with ACF. Prone to significant two or three week retracements, buyers have taken these opportunities to pick up shares of ACF at easy to identify levels of support. We've been watching this one for several days and regret not publishing it on the watch list when it was at $54. POTENTIAL TRIGGER EVENT: The breakout came on July 10th as shares broke through resistance of $55 on almost double the normal volume. You can see that the bulls have continued to drive it higher. Instead of chasing the stock we are now looking for ACF to stall and consolidate again near $60 or more likely to dip back to $56 (or even $55) before bouncing higher again. --- Best Buy Co. Inc - BBY - close: 68.17 change: +0.22 Thursday, July 12th Write Up: WHY WE LIKE IT: Did you know that the Best Buy Company is the same people who run MediaPlay.com, OnCue.com, SamGoody.com, Suncoast.com, MagnoliaHiFi.com in addition to BestBuy.com? Neither did we. We are most familiar with its retail stores upon which 68% carry the Best Buy name. Surprisingly, there seems to be a correlation between good news for the technology sector and consumer electronic stores. We like BBY for its positive (yet rocky) up trend since its break out above the 200-dma on April 18th, 2001. POTENTIAL TRIGGER EVENT: Our outlook remains the same. Shares of BBY have significant resistance between $69.50 and $70.00. Our signal to re-evaluate BBY as a long play would be a close over $70 on decent volume. We don't have an earnings date for BBY yet but we'd expect one in late July. --- Nisource Inc Holding Company - NI - close: 26.00 change: -0.16 Thursday, July 12th Write Up; WHY WE LIKE IT: Completing its fifth down day in a row, we thought bearish investors might be looking for new victims if the tech sector can hold on to a rally. NI is an energy and utility-based holding company with operations in Indiana and New England. The company was formerly known as NIPSCO. Currently, the company is being investigated by a local utility regulatory commission for its base electric rates. Adding more injury to investors was a recent downgrade by Goldman Sachs who lowered estimates for 2001. POTENTIAL TRIGGER EVENT: The trigger point is pretty defined for NI. There is very important support at the $26 level. The stock has bounced here more than once and today is the third time since February that it has approached this support. Actually, on Feb. 2nd, 2001, shares of NI closed at 25.87 probably faking out several bearish traders when it quickly rebounded the next day. Considering the recent negative news, we're going to keep the evaluation point simple. If shares close under $26 we'll look into a short play on NI. More conservative traders may want to see it take out the old low of 25.87. --- Reebok Intl. - RBK - close: 32.43 change: -0.20 Thursday, July 12th Write Up: WHY WE LIKE IT: In this market it's hard not to like something hitting 52 week highs. RBK did so in late June and is looking to do it again. The stock has made a significant run since hitting a triple bottom against support at $22 in late April. We have seen the bulls tackle resistance at $32 and now that shares have seen a little profit taking buyers are stepping back in. POTENTIAL TRIGGER EVENT: From the recent high at $33, RBK has almost completely recovered a 10% pullback and today shares took off. Volume is lighter than we would want so we're waiting for shares to close over $33 as our signal that the bulls are ready for the next leg up. Earnings are expected on July 24th. ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright © 2001 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Monday 07-16-2001 section 2 of 2 Copyright © 2001, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.PremierInvestor.net/htmlemail/8038_2.asp ================================================================= In section two: Split Trader Split Announcements: UBS (NYSE:UBS) New Plays: No new ST plays Play Updates: Updates to stops Closed Plays: No closed plays for ST Net Bulls New Plays: Brocade - BRCD (Bearish) Play Updates: Updates to stops Closed Plays: Nokia Corp ADS - NOK Stock Bottom / Active Trader New Plays: No new SB Plays Play Updates: Updates to stops Closed Plays: No closed plays for SB ================================================================= Split Trader (ST) section ================================================================== =================== Split Announcements =================== Swiss Investment Giant Splits Stock 3 for 1 Before Monday's open, UBS (NYSE:UBS) announced that it has split its stock on a 3-for-1 basis in order to adjust prices to levels in line with other global competitors. Trading commenced on a split-adjusted basis with today's open at $45.40. Previously announced, UBS share capital will also be adjusted for a par value reduction in line with recent Swiss regulations that allow Swiss companies to reduce the par value of their shares below CHF 10 (USD $5.66). Shareholders of record as of July 13, 2001 will receive a distribution of CHF 1.60 (USD $0.91) per share on July 18, 2001, resulting in a par value of CHF 2.80 (USD $1.59) per share. Currently there are 426 million shares outstanding, 421.7 million in the float, and unlimited shares authorized for issuance. The stock has a 52-week range of $119.60-$177.10 and an average 3- month volume of 44 thousand shares. With today's split announcement, volume by mid day was heavy with 65,000 shares changing hands, and prices rising to $45.90. UBS is a leading global financial services firm with 71,000 employees worldwide, providing a range of services to a client base that includes affluent individuals, corporations, institutions and governments. Headquartered in Switzerland, the firm has significant operations in all of the world's major financial centers. The three main business groups contained within the Company are UBS Switzerland, UBS Warburg and UBS Asset Management. In November 2000, the acquisition of Paine Webber Group, Inc. was completed, creating "UBS PaineWebber". =============== ST Play Updates =============== ----------------- Split Run Updates ----------------- Changed Stop: Cabletron Systems(CS) to $22.00 ----------------------- Split Candidate Updates ----------------------- Changed Stops: Alliant Techsystems (ATK) to $90.00 Johnson Controls (JCI) to $77.50 ================================================================== Net Bulls (NB) section ================================================================== ============ NB New Plays ============ --------------- New Short Plays --------------- Brocade - BRCD Closed:$34.06 Change:-1.78 Stop:$37.50 Company Description: Brocade Communications Systems, Inc. provides the infrastructure equipment and software for connecting multiple data storage devices in a storage area network (SAN). The SAN model has higher reliability because data can be redundantly stored on multiple devices and can easily be expanded by adding addition storage device to the network. The company sells through OEM partners, systems integrators, resellers and service providers. Fundamentals: In March the economic blues caused the company to reduce 2001 earnings and revenue guidance. Analysts' forecast the company will earn 29-cents per share on revenue of $524 million. This is flat against last year's earnings of 28-cents on revenue of $535 million. This gives the shares a current P/E too high for nervous investors at 121 and a forward one of 117. The industry average P/E is 110. Why We Like It: In fiscal 2000, 49-percent of total revenue for Brocade came from Compaq Computers and EMC Corporation. With each of these companies issuing earning warnings citing global weakness in corporate spending it is difficult to see how Brocade will prosper. Also problematic is a recent Merrill Lynch survey of IT executives. The survey said that 72-percent of the executives see tech spending as flat in the 2nd half of 2001 and only 18-percent seeing an increase in spending. All in all, these indications bode poorly for high-multiple growth stocks like Brocade. After bouncing off of $30 support the shares are now retracing off of $37 resistance. In each of the last two trading sessions, the bulls have been able to manufacture a test of $37 only to be pushed back by the bears. Friday saw a $37.31 high turn into a $35.84 close and a 14-cent loss. On Monday, the test was slightly lower at $37.14 and the close much lower at $34.06 and a $1.88 loss for the day. With bearish sentiment on the rise the next test should be of support at $30. If the shares break through this level the next areas of support are at $25 and $20. We will start this Bearish play with a stop at just above resistance at $37.50. Picked on July 16th at $34.06 Earnings Date 8/14 (Not Confirmed) =============== NB Play Updates =============== ----------------------- NB Bullish Play Updates ----------------------- Changed Stops: IBM (IBM) to $107.00 Electronic Arts (ERTS) to $56.50 =============== NB Closed Plays =============== ----------------- Closed Long Plays ----------------- Nokia Corp ADS - NOK - close:$17.20 change:-1.10 stop:17.50 Nokia was very actively traded on the NYSE on Monday, but unfortunately it wasn't to the benefit of our bullish play. We were hoping for a bottom on NOK shares and were anticipating that it could ride along with Motorola's positive news, but that wasn't the case. Even without analysts calling the MOT news a "head fake", market weakness had Nokia investors responding in kind. Shares opened down a dime from Friday's close of $18.30 and continued southbound through our stop of $17.50 to the day's low of $16.92. Recovering slightly to the final close of $17.20, we may in fact have a bottom now, but we'll wait for confirmation before entering another play. Picked on July 12th at $ 19.13 Gain since picked: -1.63 Earnings Date: 7/19 (confirmed) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== =============== AT Play Updates =============== ----------------- Long Play Updates ----------------- Changed Stops: AmeriPath (PATH) to $31.95 Tenet Healthcare (THC) to $52.50 ------------------ Short Play Updates ------------------ Changed Stops: CSG Systems (CSGS) to $55.00 ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright © 2001 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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