PremierInvestor.net Newsletter Tuesday 07-24-2001 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/3765_1.asp ================================================================= In section one: Market Wrap: Looking For Divergence Market Sentiment: Tercio Del Muerte Play-of-the-Day: CSG Systems - CSGS (Bearish) Watch List: Pizza, Oil, and Technology what a Combo ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 7-24-2001 High Low Volume Advance/Decline DJIA 10241.10 -183.30 10423.80 10203.70 1.19 bln 975/2137 NASDAQ 1959.20 - 29.30 1994.03 1939.28 1.59 bln 1300/2410 S&P 100 603.88 - 10.25 614.41 600.44 Totals 2275/4547 S&P 500 1171.25 - 19.38 1191.03 1165.54 RUS 2000 474.14 - 8.44 482.70 472.53 DJ TRANS 2862.52 - 98.36 2961.81 2839.35 VIX 27.62 + 1.50 28.83 26.39 Put/Call Ratio 0.75 ----------------------------------------------------------------- =========== Market Wrap =========== Looking For Divergence by Jeff Bailey On a day like today, sometimes traders and investors are able to uncover future opportunity by looking for divergence. With the Dow Industrials losing 183 points (-1.75%), the S&P 500 trading lower by 19 points (-1.62%) and the NASDAQ Composite shedding 29 points (-1.47%) we immediately find divergence and perhaps opportunity! One would have "thought" that a day when the markets were generally blood red across the board that the NASDAQ Composite (COMPX) would be the big loser. After all, this index is loaded with all those high tech stocks that are still trading at lofty valuations even though most of them have been cut in half in recent months. Heck, some stocks in technology have been cut in half in recent months. Today however, the NASDAQ Composite was not the big loser. This is even more baffling when you look at the CBOE Internet Index (INX.X) and its decline of 6.59% and haircut of 10 points to 152. The Networking Index (NWX.X) wasn't working either as it lost 4.9% of its value by falling 16 points. Add to that the Biotechnology Index (BTK.X) lost another 4.2% or 22 points to 495. With carnage taking place like this, how did the NASDAQ Composite (COMPX) manage to only lose 1.47% today? Something had to go up! One stock that continues to impress me is shares of Foundry Networks (NASDAQ:FDRY). The broader market negativity seems to be keeping the stock in check, but today's 0.5% gain to close at $19.35 is still impressive. Volume was relatively light with just over 1 million shares traded, but the stock remains on my bullish watch list and bullish action point at $21. This stock "smells" of divergence and has been holding up well in the broader market pullback. I classify the stock as a networking stock and this stock traded against the NASDAQ and Networking Index today. Another stock in the Networking index that held up relatively well (this one really surprised me) is shares of Cisco Systems (NASDAQ:CSCO). Next to the NASDAQ-100 Index Tracking Stock (QQQ), Cisco Systems (CSCO) was active with 50.9 million shares traded. I find it hard to believe that the stock is trying to run ahead of an earning report scheduled for August 7. The average estimate for its 4th quarter is for a profit of $0.02 a share and that will put the stock at a rather lofty 45 times earnings (at $0.40 for the year) at today's closing price of $18.38. The technicals are shaping up for CSCO, but there's a lot of work to be done. Cisco Systems Chart - $1 and $0.50 box On occasion, a trader/investor may find it useful to study volume as it relates to supply/demand moves. Remember, X's (excess demand) represent upward moves and O's are down (excess supply). It takes a 3-box reversal to equate to a "meaningful" reversal in direction. As I look at the above chart, the market seems to be "coming to grips" with CSCO in the $16.50 to 18.50 range. In March and April (red 3 and 4) we see big volume on the downward moves. CSCO was in terrible technical shape at that time and everyone wanted out. The broader NASDAQ was also in a state of decline and the stars were aligned for the stock to get creamed. The last real "volume spike" on the above chart came on an upward move from $19 to $24. That volume perhaps signifies a level of price where major disagreement occurred. That move also came just near the end of the most recent NASDAQ advance. With volume having calmed down recently on upward and downward moved, I begin to get the feeling that shares of CSCO are starting to find a level of equilibrium. If the market is all knowing then this stock is at least being monitored closely in the current market environment. For the most part, I know of, nor have read to many analysts looking for the moon from CSCO near-term. However, the market is very much a forward-looking instrument. I find it hard to believe that there would be money flowing into the stock on a bullish short-term basis, but perhaps longer-term is what I'm monitoring here. I'd argue that "smart money" will start casting a pretty big vote in the not to distant future as it relates to CSCO over the next several months. I don't think the market is looking for any type of surprise as it relates to what has happened in the quarter about to end. What Cisco's President and CEO John Chambers is saying or has to say about the future is what matters most. Again... I'll admit that the NASDAQ performance today surprised me. This is the stock that surprised me most. When I start thinking about some of the things that are looking bullish technically in shares of Foundry Networks (NASDAQ:FDRY) I become even more alert. While today I saw divergence in how shares of CSCO and FDRY traded, relative to the NASDAQ composite. I also find some divergence in how the NASDAQ Composite traded relative to the Dow Industrials and the S&P 500. The similarities I find are this. Cisco Systems and Foundry Networks are both trading at levels where they've found formidable resistance in the past. Should they both be able to get through these levels of resistance, then that too would be divergence. The other similarity is the theme of networking. I've learned, uncovered and profited more from divergence than I have from similarity. Yes, there were a plethora of stocks that traded lower today. In this morning's market commentary I mentioned a few stocks that would probably go lower. Tomorrow is a new day and things can change quickly. It seems ludicrous to even think that technology stocks are due to rally, but I've learned to never underestimate the market or take it for granted. The worst thing a bearish trader can be right now is complacent. Keep an eye on CSCO and FDRY. For whatever reason, the market doesn't seem to be "scared" of these stocks right now. Something might be up. ================ Market Sentiment ================ Tercio Del Muerte by Jeffrey Canavan When a matador realizes a bull is weak and unable to charge much longer, he will reach for his killing sword to administer the death stroke. The baby bull that was born on Wall Street two weeks ago isn't quite dead, but sellers are getting ready to administer the death stroke. During last week's earnings onslaught, enough buyers could be found to, not necessarily push the markets higher, but at least keep stocks afloat. This week those buyers look to be on vacation. The way the rest of this week plays out should tell us if buyers are merely taking a break, or have said no mas. One ray of hope for bullish traders was the Nasdaq-100 Tracking Stock being able mount a small rally and close above $40. It's a small victory, but the triple Qs are also 30 cent higher in after hours after some positive earnings from PeopleSoft. Whether those gains can hold through the night, and past the first hour of trading tomorrow, will be the early test. With call volume of 119,837 and put volume of only 34,025 for the QQQs on Tuesday, perhaps traders are a bit too optimistic. But perhaps OEX traders are a bit too pessimistic. A put/call ratio of 1.62 suggests that sellers have gotten a little too rambunctious. Well that's just great, we have mixed data. Can any other sentiment indicators help clear up the picture? The VIX continues to move higher, but is well short of oversold levels. Advisory sentiment continues to climb, but that's a contrarian indicator. A bullish percent status of bear confirmed still offers the best description - high risk if long. CNBC was out in the office today, so we were subjected to MSNBC. Other than a fascinating story about a big python climbing into some ladies car in Florida, there was a story about a bear trying to get seeds out of a bird feeder. He couldn't quite reach the food, so he just kept knocking the bird feeder around until it fell over and he could easily get the food. Bears have the Wall Street birdfeeder teetering, but haven't knocked it over yet. ----------------------------------------------------------------- Market Volatility VIX 27.63 VXN 57.62 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total .75 700,804 523,180 Equity Only .63 643,076 407,364 OEX 1.62 13,233 21,488 QQQ .28 119,837 34,025 ----------------------------------------------------------------- Bullish Percent Data *The Dow has moved to bull alert status Current Change Status NYSE 36 - Bear Confirmed NASDAQ-100 26 - Bear Confirmed DOW 36 - Bull Alert S&P 500 50 - Bear Alert 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 ----------------------------------------------------------------- 10-Day Arms Index 1.09 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 the do, they can signal significant market turning points. ----------------------------------------------------------------- Advancers Decliners NYSE 963 2108 NASDAQ 1157 2445 New Highs New Lows NYSE 50 51 NASDAQ 63 134 ----------------------------------------------------------------- Advisory Sentiment Bullish Bearish Correction Net Change 52.5% 23.2% 24.3% 29.3% +3.3% A bearish reading of 25% to 30%, combined with a bullish reading greater than 55% is typically considered bearish by contrairians. A net percentage greater than 30% is also viewed as bearish. ----------------------------------------------------------------- Commitments Of Traders Report: 07/17/01 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 Institutions have lightened up on their net bearish for the second straight week, and the S&P 500 remains above 1,200. Coincidence? The commercial sentiment is still bearish, but improving. Commercials Long Short Net % Of OI 7/03/01 316,543 395,410 (78,867) (11.08%) 7/10/01 309,374 385,178 (75,804) (10.91%) 7/17/01 336,836 403,561 (66,725) ( 9.01%) Most bearish reading of the year: (111,956) - 3/6/01 Most bullish reading of the year: ( 41,144) - 5/1/01 Small Traders Long Short Net % of OI 7/03/01 133,098 54,865 78,233 41.62% 7/10/01 135,587 59,889 75,698 38.72% 7/17/01 122,525 50,211 72,314 41.86% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 About face! After slowly reducing their net bearish position for seven straight weeks, institutions abruptly switched gears. Keep in mind this data is from 6/17/01, before the start of earnings week. Perhaps some institutions sold some futures contracts to limit their risk. This change could be a one or two week anomaly. Commercials Long Short Net % of OI 7/03/01 26,544 34,880 ( 8,336) (13.57%) 7/10/01 26,688 34,640 ( 7,952) (12.97%) 7/17/01 26,721 37,225 (10,504) (16.43%) Most bearish reading of the year: (15,521) - 3/13/01 Most bullish reading of the year: (1,825) - 1/02/01 Small Traders Long Short Net % of OI 7/03/01 10,443 7,063 3,380 19.31% 7/10/01 9,073 7,486 1,587 9.58% 7/17/01 11,680 8,183 3,497 17.61% Most bearish reading of the year: (1,028) - 1/02/01 Most bullish reading of the year: 8,460 - 3/13/01 DOW JONES INDUSTRIAL Institutions got slightly more bullish on the Dow for the second week in a row. This is the only index with a commercial net bullish position, and the Dow was the only index to finish the week higher than it started. Commercials Long Short Net % of OI 7/03/01 12,761 14,623 (1,862) (6.8%) 7/10/01 13,743 12,999 744 2.8% 7/17/01 14,145 12,963 1,182 4.4% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 8,925 - 5/22/01 Small Traders Long Short Net % of OI 7/03/01 4,708 5,715 (1,007) ( 9.66%) 7/10/01 5,048 7,835 (2,787) (21.63%) 7/17/01 5,255 9,144 (3,889) (27.01%) Most bearish reading of the year: (7,572) - 5/08/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- =============== Play-of-the-Day =============== CSG Systems - CSGS Close:$48.15 Change:-3.25 Stop:$51.20 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: Bearish momentum picked up in a big way on Tuesday after breaking through support at $52.50 on Monday. Tuesday's $3.25 per share drop was on a spike in volume suggesting the selling sentiment has legs. The shares look to have the oomph to push through mild support at $47.50. This would give this Bearish selection a good shot at the next levels of support at $45, $43.75 and $40.00. New entrants to this play should wait for this move below $47.50 before taking a position. We are moving our stop to just above the session high at $51.20. Picked on July 11th $54.04 Gain Since Picked +5.92 Earnings Date 7/30 (Confirmed) ========== Watch List ========== CEC Entertainment - CEC - close: 45.90 change: -0.10 WHY WE LIKE IT: Hmmm.. let us count the ways. CEC or better known to most of us as Chuck E. Cheeses, operates about 328 company run restaurants (there are about 54 franchisee stores). CEC announced their Q2 earnings today and they missed analysts estimates of 50 cents a share by a full seven cents a share. Comparable store sales were down 1.0% for the quarter. The company says that a number of different factors attributed to the quarter's troubles including remodeling cost, higher cheese costs, and an overall weak economic environment. POTENTIAL TRIGGER EVENT: A couple of days ago, shares of CEC where making a run for $50. Unfortunately, it never got there. The selling started at $49 on Monday and it accelerated into the close to end the day near $46. You don't suppose someone knew about the earnings beforehand do you? Uninformed bulls tried to take the stock higher this morning but they didn't last long as the selling continued. Despite it all, there was a bounce near the close today and shares were only off 10 cents. $45 is the next level of support and anything below this would be a potential trigger for a short play. Bears are likely to target the next level of major support at $40. --- Amerada Hess - AHC - close: 70.80 change: -1.98 WHY WE LIKE IT: The Oil industry attempted a bounce a few days ago but the market quickly nipped it in the bud before it could really get any steam behind it. AHC has fallen below its 200-dma and Friday/Monday it tried to regain this level but failed to do so. AHC's recent announcement to buy Triton Energy (an oil- exploration company) for $2.7 billion and $500 million in debt certainly increases its exposure to the oil sector's ups and downs. POTENTIAL TRIGGER EVENT: Traders should be looking for a close under $70 as a potential trigger to short AHC. With any luck shares could reach $65 and if the oil situation worsens AHC could fall as low as $60. --- OpenWave Systems - OPWV - close: 23.24 change: +3.94 WHY WE LIKE IT: Today's 20% gain is a bit much for us but that's why we want to watch this stock. Openwave just announced their earnings yesterday and shockingly the company's revenues rose by more than 150% from $57 million to $144 million. OPWV had a significant increase in number of new customers and they continue to see 10% to 20% growth. Pretty exciting numbers not to mention the positive outlook going forward. Now we have to ask ourselves if OPWV can keep it up. Normally, no matter how strong a company is, if the market is going down, its stock will decline as well. Occasionally, an exceptional story or new twist can keep a great company's stock bucking the trend despite the market downturn but then the question is for how long. POTENTIAL TRIGGER EVENT: We will look for a close over $25 as a potential trigger for us to go long on OPWV. Watch to see if the stock can overcome this hurdle on decent volume. Today's volume was an astronomical 21 million vs. the normal 6 million. --- Qlogic Corp. - QLGC - close: 40.74 change: -1.39 WHY WE LIKE IT: We've been telling traders to watch QLGC for a potential short position for a few days now. As of Friday's close, the stock is down over five points. Unfortunately, we were concerned that the company's earnings report could be a trigger point for bulls to move back into the stock and we didn't want to be short over this announcement. QLGC did report this afternoon and performance was relatively inline with expectations but they warned that the next quarter would be flat to down with the following quarter expected to be more positive. Lately, talk like that has been the signal for another round of selling. POTENTIAL TRIGGER EVENT: With earnings out of the way, all we need to see now is a close under support at $40. This is an important level the bulls want to see held and if the stock falls below it shares could potentially see $35 maybe even $30. ------------------------- -- Continuing to Watch -- ------------------------- Some stocks on the Watch List will be carried over from one day to the next if they continue to show potential but have not yet breached the trigger point. Some stocks have met our conditions for a trigger point but other factors hold us back from making it a full-time stock pick. ------------------------- Vodafone Group - VOD - close: 19.91 change: -0.90 UPDATE: Does anyone else have a feeling of deja vu? It was two days ago and shares of VOD had closed under $20 and looked like they were going south in a hurry. Of course Monday, rolled around and the stock gapped up and managed to stay there before selling off in today's session. This was exactly the reason we wanted to wait and watch list VOD to see if the stock would be able to stay under the $20 level. The last few days there has been a few news articles about the industry and third generation phones expected in the coming months but nothing to uplifting for the stock. Their Vodafone Pacific, the Australian arm of the largest mobile provider in the world, reported that earnings were up 47% for the fiscal year ending 3/31/01 against the year before earnings. Friday, July 20th's write up: WHY WE LIKE IT: We like it if you are thinking SHORT! Shares of VOD have not closed on the south side of $20 since 10/05/98. Vodafone's latest woes come from a lack of new handsets with the proper technology to handle its GPRS networks - the next level in wireless services. This lack of phones is a major decision to slow VOD's construction of these next generation networks. In the NXTL write up you read that Lehman had cut price targets on three wireless companies and the last few days have seen analysts buzzing about Nokia's lack of guidance for the next six months. On a fundamental basis VOD may be a stock worth looking into for a long-term hold but right now the stock looks terrible and further weakness is almost assured. POTENTIAL TRIGGER EVENT: Normally, we don't like to short stocks that are less than $20. Therefore only more experienced traders should look into this type of trade. Another alternative would be put options but that's another story altogether. Shares of VOD gapped down on Friday and the selling continued throughout the afternoon as it closed near its low for the day. Traders should take note that VOD is very prone to gapping up or down as the parent stock trades in Britain and its ADR shares on the NYSE gap to the appropriate value based on how trading went overseas. As far as a potential trigger point, this is it. Closing under $20 is a major breakdown of support. Our only concern is that back in 1998 when shares closed under $20, looking equally bad as they do today, the stock immediately gapped up the next day and never looked back. We want to make sure this is not a one-day event. ================================================================= 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. 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PremierInvestor.net Newsletter Tuesday 07-24-2001 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/3765_2.asp ================================================================= In section two: Split Trader Split Announcements: NEU, DXFI, SBIB New Plays: Alliant Techsystems - ATK Play Updates: No play updates Closed Plays: TRC Companies - TRR Net Bulls New Bullish Play: Alpha Industries - AHAA New Bearish Play: Skillsoft Corporation - SKIL Bullish Play Updates: BEAS, PCLN Bearish Play Updates: BRCD, CHKP Closed Play: Take-Two Interactive Software - TTWO Stock Bottom / Active Trader New Plays: No new SB plays Bullish Play Updates: APC, PATH, RAIL, SGU Bearish Play Updates: ANF, PDII, CSGS Closed Plays: FLM, LH, THC ================================================================= Split Trader (ST) section ================================================================== =================== Split Announcements =================== Despite Earnings Drop, Neuberger Berman Declares Split, Increases Cash Dividend Before today's opening bell, Neuberger Berman (NYSE:NEU) declared a 3-for-2 stock split, payable in the form of a 50 percent stock dividend on August 16, 2001. Shareholders of record on August 1, 2001 are eligible for one additional common share for every two common shares owned. On the execution date of August 17 the Company will have 73.5 million shares outstanding and 50.7 million in the float. This marks Neuberger's first stock split since trading publicly in 1999. The Board also approved a 12.5 percent increase in the quarterly cash dividends to 7 1/2 cents per share (post-split). Shareholders of record on August 1 will receive dividends on the payable date of August 16. These announcements come just prior to the Company's second quarter earnings release, which reportedly dropped by 4 percent. Earnings of $33.7 million, or 68 cents per share, compared with $35.1 million, or 71 cents per share, for the year-ago period. The Company had lowered its second-quarter projections in early June but claims that it now expects to meet analysts' full-year 2001 estimates of $2.94 per share. NEU shares are currently trading down -1.59 to $65.12 on increasing volume of 375 thousand shares; the average volume is 252.6 thousand. The 52-week trading range for the stock is $47.50 -85.69. Neuberger Berman Inc. through its subsidiaries is an investment advisory company with $58.2 billion in assets under management as of June 30, 2001. For more than 60 years, the firm has provided clients with a broad range of investment products, services and strategies. Neuberger Berman Inc. engages in private asset management, wealth management services, tax planning and personal and institutional trust services, mutual funds and institutional management, and professional securities services for individuals, institutions, corporations, pension funds, foundations and endowments. (company press release) === Direct Focus Offers More Than Good Health Bowflex and Nautilus company Direct Focus, Inc. (Nasdaq:DFXI) announced a 3-for-2 stock split, payable to common stock owners on August 13, 2001. Better late than never, PremierInvestor analysts had anticipated this announcement to occur July 17 with the Company's earnings release. DFXI currently has 23.4 million shares outstanding and a float of 20 million. The stock is expect to trade on a split-adjusted basis on August 14 and will mark the second split executed by the Company this year. Direct Focus reported second quarter earnings of $0.61 per diluted share, up 78% from $0.34 reported for Q2 of 2000. Quarterly sales increased by 56 percent to $75 million. DFXI gapped up one point from yesterday's close of $48.01 and is currently trading at $48.40 by midday on Tuesday. Please check back for updates as PremierInvestor watches this split run for potential Play opportunities. About Direct Focus, Inc. Direct Focus, Inc. is a marketing company for fitness and healthy lifestyle products with a direct business model. The Company currently markets its Bowflex line of home fitness equipment and Nautilus Sleep Systems directly to consumers, using an effective combination of television advertising, 800-call centers and Web sites. The Company also sells its Nautilus commercial fitness equipment directly to health clubs and other institutions, and its Nautilus consumer fitness products through retail athletic stores. (company press release) === A Sterling announcement Sterling Bancshares, Inc. (Nasdaq: SBIB) announced during morning trading that its board of directors approved a 3-for-2 stock split, payable in the form of a 50 percent stock dividend on September 18, 2001. On the execution date of September 19, the Company will effectively have 39.45 million shares outstanding and a float of 30.3 million. The last split announced by Sterling was a 3:2 in 1998. Additionally, Sterling declared a quarterly cash dividend of $0.055 per share, payable August 20 to shareholders of record on August 6. Sterling Bancshares, Inc. is a Houston-based bank holding company that operates 33 community-banking offices in the greater metro areas of Dallas, Houston, San Antonio, and South Texas. The Company also provides mortgage-banking services through its 80 percent-owned subsidiary, Sterling Capital Mortgage Company. The Company is currently undergoing a merger with Lone Star Bancorporation, which is expected to be completed on August 22, 2001 with Lone Star's stockholder's approval. SBIB shares are currently trading at the day's opening price of $20.33. Volume is at half its 3-month average at 40.9 thousand shares. ============ ST New Plays ============ ------------------------- New Split Candidate Play ------------------------- Alliant Techsystems - ATK Close:$95.44 Change:+1.52 Stop:$91.50 Company Description: Alliant Techsystems is the Pentagon's largest ammunition supplier and the world's largest manufacturer of solid-fuel rocker engines. This Hopkins, Minnesota-based firm has three business groups: aerospace systems, conventional munitions, and defense systems. The company's aerospace group makes solid propulsion systems for space vehicles, strategic missile systems, and reinforced composite structures for aircraft and spacecraft. Its conventional munitions group makes ammunition ranging from small arms to tank ammunition for the M1A1 Abrams (the US's main battle tank). Alliant Techsystems' defense systems group turns out smart munitions, electronic systems, and batteries. The US government (and its contractors) accounts for about two-thirds of the company's sales. Fundamentals: It's mid-2001 acquisition of Alcoa's Thiokol rocket engine unit should cause a 50-percent pop in revenue for the fiscal 2002 year ending in March. Analysts forecast the firm will earn $5.34 per share in the current fiscal year on revenue of $1.6 billion. Last year the firm earned $4.80 per share on sales of $1.1 billion. This gives the shares a current P/E of 19.8 and an estimated 2002 P/E of 17.9. This is inline with the industry average P/E of 17.07. Why We Like It: We liked this stock when we first selected it in June, we liked it when we booked some profits on a dip and we still like it now that it is bouncing off of support. The reason we are so bullish has not changed. At their annual meeting on August 7th, shareholders are scheduled to vote on increasing the number of outstanding shares by 40 million from the current 14.2 million. This sets the stage nicely for a stock split. Another sign that encourages us that a split may be in the cards is historical. In November 2000 the company split 3 for 2. That split was declared when the stock price was $89.00 - below current levels. Combine the company's strong fundamentals, a defense friendly political environment, bullish short-term technical momentum with split potential and there is much to be bullish about this stock. Strong downside support is nearby at $92.50 and upside resistance at $100.00. We will tighten up our stop when $100 comes near. For now we will start this play with a stop just below support at $91.50. Picked on July 24th at $95.44 Earnings Date 8/8 (Confirmed) =============== ST Closed Plays =============== ---------------------------- Closed Split Candidate Plays ---------------------------- TRC Companies - TRR Close:$40.52 Change:-4.03 Stop:$42.00 Without any specific news to base the last two day's decline to, we'll have to thank over-all market weakness for the fate of this play. The company even got what would normally be a boost on Monday when Zacks analysts upgraded TRC as a Strong Buy. Ironically, TRR is now at a great looking entry point for those still interested in the stock or for those who haven't been stopped out yet. Nevertheless, we shall walk away licking our wounds. Picked on July 19 at $45.99 Gain since picked: -3.99 Earnings Date 8/8 (Not Confirmed) ================================================================== Net Bulls (NB) section ================================================================== ============ NB New Plays ============ -------------- New Bullish Play -------------- Alpha Industries - AHAA Close: $36.00 Change: +2.41 Stop: $32.50 Company Profile: Alpha Industries, Inc. designs and manufactures gallium arsenide (GaAs) integrated circuits, silicon and GaAs discrete semiconductors and ceramic products for cellular telephones, global positioning systems and wireless equipment. For the FY ended 4/1/01, net sales rose 46% to $271.6M. Net income rose 86% to $33.4M. Revenues reflect increased demand for wireless and broadband products. Earnings also reflect increased interest income. Fundamentals: For the 2001 fiscal year the company's net income increased 86- percent. Analysts expect company earnings to rise from a loss of $0.10 in 2002 to a profit of $0.48 in 2003. Because of the loss AHAA shares do not possess a current P/E. However, the forward P/E is 75. Strategy: AHAA has rebounded nicely from the doldrums it sat in back in April. And though it certainly wasn't uncommon for a tech stock to sink to its lows in April, recent performance from AHAA has been uncommon. With a strong profit forecasted for the upcoming fiscal year end and recent upgrades from influential brokerage firms, AHAA could be ready to move. The predominantly positive moves that have taken shape over the course of the month of July have typically aroused quite a bit of volume. The intersection of the 20 and 200 DMAs on strong volume just days ago could indicate that the run will continue. If you take a glance at the daily chart for AHAA, you'll undoubtedly notice that the stock has several gaps, both up and down. The inherent volatility suggests that the stop be placed under the $33.00 support level at $32.50. Significant support exists at $30.00, however, we are not prepared to risk a percentage loss of that magnitude. For those leaning more toward a short-term time horizon, a $40.00 target above resistance of $36.00 would likely present the best exit price. Those with a longer time horizon might look to the next level of resistance just above $44.00. Keep in mind that the company caters to the cell phone industry and the battered sector may have most of its bad news out already. Picked on July 24th $36.00 Earnings Date 10/17 (Unconfirmed) ---------------- New Bearish Play ---------------- Skillsoft Corporation - SKIL Close:$28.01 Change:-2.01 Stop:$31.00 Company Description: Skillsoft is one of the dominant players in the fast growing e- learning industry. The company offers 624 web-based classes to over 330 clients including Microsoft, Coca Cola, Procter & Gamble and Anheuser-Busch. The savings of web-classes over traditional instruction is causing cost constrained companies to flock to Skillsoft. The company attracted 219 new clients in fiscal 2001 and when they try e-learning they like it. The renewal rate for clients is 97-percent. Fundamentals: For their 2002 fiscal first-quarter the Company reported total quarterly revenue of $8.5 million, a 303-percent increase from $2.1 million in the 2001 first quarter. Gross margin increased to 93.8-percent, compared to 89.4-percent in the year-ago first quarter. For the fiscal fourth quarter, gross margin was 93.5- percent. They also reaffirmed their intent to reach profitability by the fourth-quarter ending January 2002. For the upcoming second quarter ending July 2001, analysts expect the company to lose 23-cents per share, an improvement over the 47-cents lost in the same period the previous year. For the year, the consensus estimate is for the company to lose 62-cents per share and to gain 64-cents in following year. Why We Like It: In late May, the company filed a registration statement with the SEC for a public offering of 2.8 million shares, with an option to increase the IPO by another 420k shares. Between 800k and 855k of the shares will come from existing shareholders. Presently, the company has 13.4 million shares outstanding with a float (unrestricted public shares) of 4.6 million. Although the company has not announced a date for the offering, the prospect of 3.2 million shares being dumped in the marketplace keeps a lid on this stock. The shares have been slip sliding away since reaching $38.94 in early June. Last Friday, the shares began to break down again with a low-volume drop of $2.53. After bargain hunters pushed the shares up 20-cents on Monday, the bears took complete control on Tuesday tacking on a high volume drop of $2.02. If the bearish momentum continues, a close below support at $27.50 would put the next support level of $23.35 well within reach. Protection from a bullish reversal exists at $30 giving us a solid risk to reward ration. We will start this Bearish selection with a stop at $31.00. Picked on July 24th at $28.01 Earnings Date N/A (Not Confirmed) =============== NB Play Updates =============== ----------------------- NB Bullish Play Updates ----------------------- BEA Systems - BEAS - closed: 21.18 change: +0.47 stop: 19.50 Ouch! Talk about sell the news. BEAS announced great news with new strategic partner Intel and shares gapped up on Monday only to sell-off throughout the day closing at their low. BEAS and Intel will cooperate to use BEAS' application software on Intel's high-end server chips. This should really be a great move for BEAS in the long run but right now the stock is floundering with the rest of the market. The stock really needs to hold $20 as its support level and right now it doesn't look so great. Proceed with caution. Picked on July 20th @ $23.01 Gain since picked: - 1.83 Earnings Date: 08/14 (not confirmed) --- PriceLine.com - PCLN - close: 7.93 change: -0.52 stop: 7.45 Quick, someone call Will Shatner! Priceline's shares fell another 6% today as the rest of the market headed South. If there is any good news here it is the low volume this drop occurred on (only 2.8 million vs. the normal 6.3 million). Unfortunately, the bad news is that the price broke down under what was supposed to be support at $8.00. Remember that on Friday we edged our stop up to 7.45. This may be too far away for some traders so use your best judgement. Wednesday will be the test. If the stock rebounds then we might be okay. If it doesn't then it may be time to ask Scotty to beam us up. Picked on July 13th @ $ 8.70 Gain since picked: - 0.76 Earnings Date: 07/31 (not confirmed) ----------------------- NB Bearish Play Updates ----------------------- Brocade Comm. - BRCD - close: 29.18 change: +1.07 stop: 31.13 *new* The bounce in Brocade is cause for concern but don't panic yet. This morning Morgan Stanley came out with an upgrade on the stock to an outperform from a neutral rating. Additional good news came straight from Brocade with their announcement of two new offices in Europe and a handful of new resellers in the region. Shares may be green today but not enough to make us worry too much. Monday's drop was the key. Shares fell through support at $30 and today's good news couldn't push shares back above this critical level. As long as BRCD remains under $30 then bearish traders should be okay. A continued drop is likely to stall at $27.50 and then eventually hit $25. However, if shares do rebound we will want to protect ourselves. Set a new stop at $31.13 Picked on July 16th @ $34.06 Gain since picked: + 4.88 Earnings Date: 08/14 (not confirmed) --- Check Point - CHKP - close: 37.87 change: +1.30 stop: 40.09 *new* Warning! Warning! Danger Will Robinson. That's right short sellers, this is one technology company that is reiterating its 30 to 50% growth for the year. In a market where tech companies are slashing forecasts and earnings projections (if they offer any guidance at all), CHKP is "excited about the prospects" said CHKP's CEO, Gil Shwed. The question we must ask ourselves is whether we believe the current market environment can keep CHKP's share price down. We picked it at $40 and saw shares fall to $35 but the earnings report has provided potential fuel for a bullish fire. At the moment, shares are just too wet under the market's deluge to ignite. Some traders may decide to just take their $2 and go home. We're going to move our stop down to cost at $40.09. If the stock can rally then we'll let it take us out. If not, then we'll look for a retest of new support at $35 and hope shares can fall even further. Picked on July 18th @ $40.09 Gain since picked: + 2.22 Earnings Date: 07/23 =============== NB Closed Plays =============== ----------------- Closed Long Plays ----------------- Take-Two Interactive Software - TTWO - close: 18.69 change: -1.76 With the markets turning in a very disappointing day, TTWO followed suit and traders took profits off the table as shares fell over 8%. Fortunately, our stop was at $19.00. One can see that TTWO suffered selling pressure from early this morning and it was steady throughout the day. It's too bad shares could not hold up better as today was TTWO's shipping day for their much awaited Max Payne PC game. Picked on July 17th @ $19.96 Gain since picked: - 0.96 Earnings Date: N/A (not confirmed) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== =============== AT Play Updates =============== ----------------- Long Play Updates ----------------- Anadarko Petroleum APC Close:$52.39 Gain:-0.59 Stop:$50.00 Anadarko closed down 59 cents today, but what stock didn't? The good news is that the gap that formed on Monday is still open. If we get one more close above the gap, it should be solid support. Picked on July 20th at $51.51 Gain since picked: +0.88 Earnings Date 7/26/01 === AmeriPath PATH Close:$35.20 Gain:-1.50 Stop:$34.00 Biotechnology stocks lost 4.27% today, and AmeriPath was drug down with them. If the selling spree continues into tomorrow, our stop at $34 runs the risk of getting hit. At least that would lock in a gain of $3.05. Picked on July 11th at $30.95 Gain since picked: +4.25 Earnings Date 7/31/01 === RailAmerica RAIL Close:$12.40 Gain:-0.35 Stop:$11.50 NEW RAIL continues to have trouble getting above the $12.90 to $13 range, and today was the third failed attempt. With transportation stocks getting pounded today, RAIL held up well, but we are still going to raise our stop to $11.50 to ensure this doesn't turn into a losing pick. For that stop to get trigged, RAIL would have to fall below the 50-dma, and fill a gap formed on 7/16. Picked on June 14th at $11.41 Gain since picked: +0.99 Earnings Date N/A === Star Gas Partners SGU Close:$21.15 Gain:-0.09 Stop:$19.50 SGU has been in a small four-day up trend, but can't crack through resistance at $21.50. It resided above that level for a bit today, but sold off it the final two hours of trading. We will leave our stop where it is at, for now. Picked on June 17th at $21.18 Gain since picked: -0.03 Earnings Date 7/26/01 ------------------ Short Play Updates ------------------ Abercrombie and Fitch ANF Close:$40.10 Gain:-0.02 Stop:$42.50 Abercrombie doesn't look like it wants to move higher any time soon, but refuses to breakdown. The Retail Index falling below 877 might be the catalyst to start this stocks slide. Picked on July 12th at $40.46 Gain since picked: -0.36 Earnings Date 8/14/01 (unconfirmed) === Professional Detailing PDII Close:$65.24 Gain:+0.44 Stop:$68.25 NEW With the widespread selling today, PDII should have tanked. Granted the stock was due for some profit taking, but just to be safe we are going to lower our stop to $68.25. Resistance looks strong at $67.75, but our new stop still gives us some room if this stock wants to head lower. Picked on July 18th at $70.00 Gain since picked: +4.76 Earnings Date N/A CSG Systems - CSGS - See our Play of the Day in section 1 =============== AT Closed Plays =============== ---------------- Closed Long Play ---------------- Flemming - FLM Close:$35.11 Change:-1.80 Stop:$35.50 There was no company specific news impacting the shares, so we must assume the sudden onset of bearishness must be related to the general weakness in the overall market. Although the shares snapped our stop at $35.00, it was a bullish sign that the shares managed to close above $35 even if ever so slightly. If the shares need to consolidate some more before resuming their march north then strong support exist near $32.50. Picked on July 19th at $37.30 Gain since picked: -1.80 Earnings Date 8/1/01 (not confirmed) === Laboratory Corp of America - LH Close:$85.62 Change:+0.48 stop:$84.50 After topping earnings expectations, our play still wasn't able to hold up to Monday's dip, which cruised past our stop on its way to the low of $82.40. Recovering swiftly, Tuesday's close earned +0.48 on the day, showing some promise that it will continue to work its way back to resistance of $88. Picked on July 13th at $83.98 Gain Since Picked +0.52 Earnings Date N/A (Confirmed) === Tenet Healthcare - THC Close:$53.96 Change:-1.16 Stop:$53.75 We reported that we thought these shares were beginning to look tired after a nice run up. We closed play when it tripped our tight stop at $53.75 leaving us with a $2.66 per share gain. We suspect the reason for the drop is the company's upcoming earnings release on Wednesday. Some investors sitting on solid gains are deciding it would be prudent at this point to bank some profits before the release. Picked on June 17th at $51.09 Gain since picked: +2.66 Earnings Date 7/25/01 ================================================================= 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. 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