PremierInvestor.net Newsletter Thursday 08-02-2001 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/3910_1.asp ================================================================= In section one: Market Wrap: The Six-Egg Omelet Market Sentiment: Sit Ubu, Sit. Good Dog Play-of-the-Day: NIKE Inc. - NKE (Bullish) Watch List: More Bullish Possibilities ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 8-02-2001 High Low Volume Advance/Decline DJIA 10551.18 + 41.17 10609.65 10513.47 1.22 bln 1781/1275 NASDAQ 2087.36 + 19.00 2103.16 2061.75 1.66 bln 1853/1771 S&P 100 626.27 + 2.66 629.20 623.56 totals 3634/2986 S&P 500 1220.75 + 4.82 1226.27 1215.31 RUS 2000 488.99 - .25 491.89 486.53 DJ TRANS 2940.59 + 6.81 2941.71 2903.31 VIX 23.28 + 0.30 23.80 22.57 Put/Call Ratio 0.55 ----------------------------------------------------------------- =========== Market Wrap =========== The Six-Egg Omelet by Jeff Bailey The true appetite for a hungry bull in technology is measured by the bulls willingness to eat a six-egg omelet. Perhaps the top 6 weighted stocks in the NASDAQ-100 Trust (QQQ) (they make up about 32% of the QQQ) and current field position will give hint of how strong this rally really is. I feel that these 6 stocks as represented by their weighting and technical shape, can give the trader a good feeling of what to be looking for in the coming sessions. As these observations unfold, a trader gets the feeling there's some upside potential still to be had. For instance, shares of Microsoft (NASDAQ:MSFT) account for the largest weighting in the QQQ. As of the end of trading August 1, Microsoft accounted for 10.56% of the QQQ. For the past seven session, shares of MSFT have hardly budged from their $65-$68 range. This stock is sitting right on top of longer-term upward trend on its supply/demand chart and if it starts getting in the act and makes an upward move, its weighting in the QQQ could really have that security packing on some weight. This is a stock I currently feel needs to show some gains. It was one of the first big tech stocks to break longer-term downward trend back in April at $59 and recent trading near $66 is the first test of bullish support trend. Microsoft Chart - $1 box I think MSFT is a great stock for traders to be looking long at current levels. My experience has been that institutions like to buy stocks that have made a major move off the bottom, when they first test the bullish support trend. If the NASDAQ is going higher, look for shares of MSFT to lead the way. The stock has had to digest a HUGE move from the $59 level. Think of MSFT as a granite mountain and try to move it. It takes a lot of buying power to get a stock like this to move from $53 to $71 without so much as a $3 reversal. It shows the willingness to commit to a stock based on some type of belief. If institutions are going to commit to this market, shares of MSFT should get a bounce here. The second most heavily weighted stock is Intel Corporation (NASDAQ:INTC). We discussed the technicals for this stock in yesterday's wrap. This is a stock I felt the NASDAQ and the Semiconductor Index ($SOX.X) needed in order to continue a charge higher. If it does, then that gives hint that the bull has an appetite. Today's 4.42% gain didn't hurt things here at all and helped the Semiconductor Index pack on another 3% gain today. When you compare the technicals of MSFT to those of INTC, you can perhaps see what the future may hold for shares of INTC. The beginning of a bull market usually show a chain reaction. You get a stock like MSFT headed in the right direction, but that direction must continue. Then another big named stock breaks downward trend and adds fuel to the fire. The speed or rate of change in the move often gives hint of how much fuel is behind it. Qualcom (NASDAQ:QCOM) has perhaps been the most overlooked stock of the NASDAQ. Here's a stock that I'd argue may have started this whole NASDAQ rally. QCOM accounts for a 5.12% weighting and its gap higher on July 27th to $63.22 has not been relinquished. After consolidating the past four sessions, the stock unleashed its fury today as the stock jumped by 4.54% and closed above its 200-day moving average. What's interesting about QCOM is how this stock recently tested bullish support trend at $57, then rocketed higher. The first test of bullish trend is often the best buying opportunity. Hmmm.... MSFT just tested its bullish support! Qualcomm Chart - $1 box Qualcomm (NASDAQ:QCOM) looks to be in a more advanced stage of bullishness. Note the tendency of this stock to trade into bullish support (blue +) then give the "triple top" buy signal or variation thereof. The last time the stock did that back in May at $53, the stock made a nice move higher. Now we look for the same thing to happen. If it doesn't, then we make the observation that the market isn't as bullish. Would I trade the stock here? Yes, but only a partial position. I'd have wanted to have bought some back in May, but right now, we need to understand the risk involved should a pullback to support occur. A trader can still participate in the bullishness of the chart, but he/she need not go overboard! Cisco Systems (NASDAQ:CSCO) is the fourth most heavily weighted stock in the QQQ at 4.55%. Recently, shares of Cisco (NASDAQ:CSCO) broke above its long-term downward trend on its supply/demand chart at $19.50 (see July 27th wrap) and that was a positive sign. Earnings are due out next week and volume has been relatively light. It looks like institutions are just nibbling away right now and seem uncertain. I get the feeling the thought here is "the stock used to trade $70 and there's plenty of time." The technicals here show a very early stage of turn around in this stock, but the stock is quickly becoming a key piece of the QQQ puzzle. As you look at and understand the bearish resistance in some of the above charts and the length of those trends, you hopefully understand just how long that downward trend for CSCO could and why the stock hasn't rocketed to $30. There were a lot of investors and fund managers that thought CSCO would never trade under $50 several months ago. There's some warming up to be done still before they get the confidence to get aggressive with the stock. Nonetheless, the fact that the stock got above bearish resistance will have some fires burning. Rounding out the six-egg omelet are shares of Oracle (NASDAQ:ORCL). I find the technicals on the supply/demand chart quite similar to those of Microsoft. Right now, the stock is testing its bullish support trend at $17.50. I think what we're seeing here (between Microsoft and Oracle) is the commonality of software. The current technicals here are great to be monitoring. My thinking is if the bull is hungry and has a favorable outlook for the future, both of these stocks should be gobbled up at support. If Microsoft (MSFT) and Oracle (ORCL) are "bad eggs" they'll get spit out of institutional portfolios and will break their support. These are two very good stocks to be monitoring here. I do think that both of these stocks offer some of the best risk/reward trades in technology right now. Oracle Corporation Chart - $0.50 and $1 box I'd be more interested in trading bullish in MSFT than I would ORCL at this point. While both stocks are at bullish support, the bullish support for ORCL is only 7 columns long, while MSFT bullish support is 17 columns long. I do like the attractive bullish price objective and risk/reward in the stock at current levels. This stocks field position is ideal for buying 1/2 position long and then rounding to a full position on a break above $21. I'd rate it a 3-star on a 5-star scale. And finally the sixth egg of the omelet. This egg is different than the other 5 as it represents the biotechnology group. Shares of Amgen (NASDAQ:AMGN) account for 2.59% of the weighting in the QQQ and this would be my representative stock for the biotechs. The technicals here are tough to figure out at this point. The only thing that has made sense to me here in the last few weeks is that this stock did reach a bearish price objective on its supply/demand chart that had been created back in June. The stock did have a bearish vertical count indicating a price objective of $55 and when the stock hit $54, it has jumped to the $63 level, but is now fighting with a rolling over 50-day and 200-day moving average. Right now I'd only be monitoring this stock and drawing from it the feeling of strength or weakness. Short-term, I don't think the stock can get above $66 as that is where bearish resistance and extension of old bullish support cross. I get the feeling this stock has some basing to do before it can provide a further meaningful move to the upside. What is compelling about this stock though is that it has given a buy signal at $62 on its supply/demand chart and current vertical count indicates a longer-term price objective of $76. With the group getting close to an oversold level, this stock is showing the leadership one would expect from a representative stock in the biotechs. Hopefully you can get a good feeling for how the above "Big 6" can impact the QQQ and the NASDAQ. If you can at least monitor these stocks progress as time passes, you'll get a very good feel for how the NASDAQ can trade. The big guys lead and these are all some bellwether stocks for the different types of technology they represent. My feeling is this. If the MARKET believes that we're turning a corner, then the market should be fairly aggressive buyers of MSFT and ORCL. If not, then there's either something wrong in the group or there's still some bumps to be ironed out. Just now we got the bullish percent updates for the NASDAQ-100. The bullish percent reading is at 51%. We needed a reading of 52% to get into bull confirmed status. Note that MSFT is one stock of the NASDAQ-100 that is NOT on a buy signal on its point and figure chart. For it to add to the bullishness as things stand now, the stock needs to reverse course and eventually trade $74 without a reversal. Can she do it? Is it worth the $3 per share risk? If she does do it, will it drive the NASDAQ. I think the answers are Yes, Yes and Yes. ================ Market Sentiment ================ Sit Ubu, Sit. Good Dog by Jeffrey Canavan After throwing a stick, it's hard to keep a dog from instantly fetching it. While trying to make the dog heel, his tail will start wagging, his legs start shaking, and he starts barking. When finally released, the dog explodes towards the stick. Bullish traders are trying to be patient, but their tails are starting to wag, and their legs are starting to shake. Each time an economic report comes in better than expected, or another person quips that "the worst is over," bulls become more and more anxious. Young pups rush in at the opening bell and bid stocks higher, but the older and wiser mutts step in and sell into the rallies, muting any significant gains. Semiconductors continue to be the alpha male, gaining another three percent, and closing above key resistance at 650. The major indices slightly retreated from resistance levels today, but remain within striking distance. Biotechnology, today's runt of the litter, managed to recoup some of its losses, and closed above support at 510. With resistance levels starting to crack, and bullish percent data reversing into bull alert and bull confirmed status, it might be time for bulls to slowly start marking their territory. As long as traders are thrown a positive news bone every now and then, it certainly looks like the market wants to go higher. But each day stocks become a little more overbought, so it might be wise to cautiously sniff around rather than blindly chasing stocks. Ironically enough, tomorrow is the last trading day for August cattle options, will it be the last day of this mini bull run? Tomorrow's Scooby Snack takes the form of the unemployment report, which is expected to show a 36,000 drop in payrolls, and an up tick to 4.6 percent in the unemployment rate. ----------------------------------------------------------------- Market Volatility The VIX and VXN temporarily halted their 6-day decline. VIX 23.28 VXN 48.53 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total .55 660,924 363,290 Equity Only .47 615,314 290,833 OEX .95 10,603 10,055 QQQ .25 120,228 29,656 ----------------------------------------------------------------- Bullish Percent Data The S&P 500 has turned into bull confirmed status, and the Nasdaq-100 is one box away from going bull confirmed. Current Change Status NYSE 34 - Bear Confirmed NASDAQ-100 50 +12 Bull Alert DOW 36 - Bull Alert S&P 500 54 +6 Bull Confirmed 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 1.22 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 1782 1279 NASDAQ 1849 1776 New Highs New Lows NYSE 132 26 NASDAQ 113 61 ----------------------------------------------------------------- Advisory Sentiment Bullish Bearish Correction Net Change 52.6% 23.7% 23.7% 28.9% -0.4% 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: 07/24/01 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 The three-week reduction in the net bearish position of commercials came to an end. This wasn't the result of new short positions being added, but rather more long positions being dropped than short positions. Commercials Long Short Net % Of OI 7/10/01 309,374 385,178 (75,804) (10.91%) 7/17/01 336,836 403,561 (66,725) ( 9.01%) 7/27/01 317,241 392,146 (74,905) (10.56%) 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 7/10/01 135,587 59,889 75,698 38.72% 7/17/01 122,525 50,211 72,314 41.86% 7/24/01 141,372 61,665 79,717 39.26% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 The net bearish position of institutions has increased for the third week in a row. (11,802) is the third highest bearish reading of the year. Commercials Long Short Net % of OI 7/10/01 26,688 34,640 ( 7,952) (12.97%) 7/17/01 26,721 37,225 (10,504) (16.43%) 7/24/01 27,396 39,198 (11,802) (17.72%) 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 7/10/01 9,073 7,486 1,587 9.58% 7/17/01 11,680 8,183 3,497 17.61% 7/24/01 12,170 7,744 4,426 22.23% 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 added a few more long positions, increasing their net bullish stance on the Dow. Commercials Long Short Net % of OI 7/10/01 13,743 12,999 744 2.8% 7/17/01 14,145 12,963 1,182 4.4% 7/24/01 16,080 12,812 3,268 11.3% 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 7/10/01 5,048 7,835 (2,787) (21.63%) 7/17/01 5,255 9,144 (3,889) (27.01%) 7/24/01 5,599 9,526 (3,927) (25.96%) 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 (Bullish) ========================= NIKE Inc. - NKE Close:$49.79 Change:+1.98 Stop:$47.75 NEW Original Comments When First Selected on July 14th: Company Description: The Beaverton, Oregon based firm is the world's largest athletic shoe and apparel maker. It has over 40-percent of the entire US athletic shoe market. The company also sells Cole Hann dress and casual shoes and a Nike-branded product line of athletic apparel and equipment. The company also operates NIKETOWN stores and is opening JORDAN in-store outlets featuring Michael Jordan brand merchandise. As youth fashion tastes have moved toward hiking boots and other casual shoes, and consumer demand has slumped in Asia, NIKE has felt the pain. To cut expenses, the firm has reduced athlete endorsements, downsized facilities, and released 6-percent of its employees. The company, which relies on outside manufacturers, has taken steps to avoid more criticism of human rights violations in its factories. Fundamentals: Analysts expect the firm to earn $2.34 per share on sales of $9.9 billion in the fiscal year ending May 2002. Last year, the company earned $2.16 per share on sales of $9.5 billion. The company's earnings growth of 8-percent is inline with the industry average of 7.8-percent. The firm has a current P/E of 22 and a forward one of 20, a premium over the industry average P/E of 15. Why We Like It: To gain a fuller understanding of why we like NKE shares please read Jeff Bailey's Market Wrap. He discusses how the selling in Treasury bonds may not necessarily be needed for this stock to advance. Bonds are the bank account for big money. When they are buying bonds it often is because they are selling equities. They reason it is better to be safe in bonds (and earn a little interest) than suffer equity losses. Yet since March, Nike shares have been in a slowing ascending trading channel seemingly impervious to drops in the general market. This suggests there is a lot of underlying strength in the shares. Simply put, even when the market looks ugly money managers are not selling Nike shares to buy bonds. What they (and we) are seeing is that this franchise company is making progress in reducing inventories and expenses, and improvements in future overseas orders are suggesting that historical double-digit growth is likely to return to Nike sometime next year. What is also improved is the short-term technical outlook for Nike shares. For the last week and a half NKE shares have been consolidating between roughly $46 and $48. On Wednesday the shares bounced off of this lower range on a slight rise in volume and followed through on Thursday with another jump in price and volume. This indicates Nike shares are going to make a run at breaking through resistance at $48 and the upper trend line at approximately $48.75. This would put the shares on a strong path to test subsequent level of resistance at $50, $52.50, $57.50 and $60. We don't see this play as an aggressive short-term play, but rather a longer trending one. Accordingly, we will start this play with a stop at $44, which is just below the 200-day moving average of $44.25. Updated Comments: Shares of Oakley got pummeled today after the company announced it was having a tiff with Sunglass Hut. So how does that affect Nike? Sunglass Hut said that if Oakley doesn't want to play ball, it would look elsewhere, specifically Nike. The news was just what Nike needed to catapult it out of its trading range. Since $48 posed such stiff resistance, it should make for good support. We are raising our stop to $47.75, just under that support level. Picked on July 26th at $47.84 Gain since picked: +1.95 Earnings Date N/A (Not Confirmed) ========== Watch List ========== Compuware Corp. - CPWR - close: 14.28 change: +0.32 WHAT TO WATCH: Is software ready to move? The GSO index may be inching higher but CPWR appears to be breaking out! The stock traded through resistance at $14 on very strong volume. For aggressive traders this is a big green light! More patient traders may want to see shares close above $14.50 which has proved too tough for the stock over the last year. Once over 14.50 there is no clear resistance until the stock hits $20 from its gap down well over a year ago. Frankly, the stock has been basing so long, 14.50 may not mount much of a challenge for it. --- K Mart Corp. - KM - close: 12.28 change: +0.60 WHAT TO WATCH: K Mart recently announced that they would complete their buy back of its failing BlueLight.com subsidiary. While this has produced mixed reviews from the press at large, KM's stock price has been steadily climbing these last several days. Buyers made a big push today sending the stock up 5%. The stock is now at a turning point. Do sellers step in and take it back down to 10.50? Or can the bulls push through resistance and set new 52 week highs? If you're interested in following a retail stock under $20 this is one to watch. --- Brocade Communications - BRCD - close: 38.08 change: +0.38 WHAT TO WATCH: Volume has been average lately but BRCD just may have broken out to the upside. Shares have been in a descending channel since the middle of May. Many traders may feel that shares of BRCD are very overbought from its recent lows near $28. However, the renewed hope in tech stocks may be able to keep the dream alive for BRCD investors. The stock is trading at or above the top of its channel and today's trading puts it right on the 50-dma. Keep your eye on the $40.75 level where the stock took a serious gap down in early July. This will be resistance if you're bullish. --- Applied Materials - AMAT - close: 50.00 change: +1.70 WHAT TO WATCH: If you're still watching the semiconductors or if you're looking for stocks in that group, keep AMAT on the list. The upgrade by Merrill Lynch has helped the stock move beyond resistance at 47.50. Now the battle between the bulls and the bears will continue as it sits at the psychological level of $50. If the rally continues, bulls can look for a close over $50 as a potential trigger. The stock could rally to $55 given enough time. If the stock pulls back, shares should find support at 47.50 now. --- Motorola - MOT - close: 19.40 change: +0.26 WHAT TO WATCH: Shares of MOT are showing a bullish pattern of higher lows. Buyers were previously supporting the stock price at 17 but they have since moved up their dip buying to 18.50. The last two days have seen the coil get even tighter. Resistance appears pretty firm at 19.50 but a breakout feels imminent. Shares can probably get to $21 before stopping to rest again. Look for the trigger on stronger than average volume. --- QUALCOMM - QCOM - close: 68.34 change: +2.97 WHAT TO WATCH: Looking for a little more volatility? An old tech favorite may be making a move. Shares of QCOM have been fighting back from a sub-$50 share price for the last six weeks. The stock seemed to hit a wall in the $67-$68 level until today. In the last half-hour of trading buyers were able to push QCOM up and through the $68 mark and above its 200-dma (67.88). Aggressive traders may want to look at this as a potential trigger to go long. The rest of us will wait to see if shares can breakthrough more resistance at $71 (established in mid-May). ------------------------- -- 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. ------------------------- PeopleSoft Inc. - PSFT - close: 43.85 change: -0.20 UPDATE: We're still watching PSFT to see if it can close above $45. Today's dip and bounce at $42 may be the runner's crouch before the starting gun goes off. Keep your eyes on it. Wednesday, August 1st's write up: WHAT TO WATCH: If the technology sector can continue the rally, then PSFT could be preparing to make an assault on $50. The stock has made a dramatic comeback from an intraday low near $30 after falling on earnings fears and a potential lawsuit from an unhappy client. Looking at an intraday chart, buyers stepped back in to buy the stock when it dipped to $40 on the 30th which should be a strong support level for it. A potential trigger to evaluate a long play would be a close over $45. ------------------- POTENTIAL PLAYS NOW These Watch List candidates have met yesterday's potential triggers and many could be great plays for the active trader now. We are going to watch list them for another day to see if they confirm the move. Choose your stop wisely if you proceed to trade them. ------------------- Emulex Corp. - EMLX - close: 27.20 change: +0.64 UPDATE: Decisions, decisions. Is this our entry point? We did get a dip to 25.86 as well as a close over $27. We are keeping it on the Watch List as it still looks like it could make it to $30 (and hopefully beyond). Don't forget, earnings are Monday. Be careful. Wednesday, August 1st's write up: WHAT TO WATCH: Frankly, chasing a stock that's already up 13% today is not the strongest strategy. EMLX appears to be making a comeback from its intraday low near $20 last week. Now that the share price is over resistance at $25 we can look for our entry point to try and ride it to $30. Our preferred entry would be a pullback to $25 again and then move in on the bounce back up. However, it's possible that we may not get that kind of dip so one alternative would be to look for a close over $27. Next resistance is $30 which would still be a decent gain on a short-term play. Especially since earnings are expected on August 7th and as you know we don't like to hold a position over earnings without very good reason. ================================================================= 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. 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PremierInvestor.net Newsletter Thursday 08-02-2001 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/3910_2.asp ================================================================= In section two: Split Trader Split Announcements: Matthews International - MATW New Plays: E.W. Scripps Company - SSP (Bullish) Play Updates: No active plays updates for Split Trader Closed Plays: AAS, THC Net Bulls New Plays: Microsoft MSFT (Bullish) Citrix Systems CTXS (Bullish) Bullish Play Updates: AHAA, EMC, RFMD Closed Plays: eBay Inc. - EBAY Stock Bottom / Active Trader New Plays: Chevron Corp. - CHV (Bearish) Bullish Play Updates: GBCB, NKE, RAIL, SGU Bearish Play Updates: PDII, RIG Closed Plays: No closed plays for Stock Bottom Trading Ideas Value Plays With Bullish Signals Breakout to Upside (Stocks $5 to $20) Breakout to Upside (Stocks over $20) Breakout to Downside (Stocks over $20) Recently Overbought With Bearish Signals (Stocks over $20) ================================================================= Split Trader (ST) section ================================================================== =================== Split Announcements =================== Matthews Wakes Up the Dead with Stock Split Announcement Mausoleum and memorialization products maker Matthews International Corporation (Nasdaq:MATW) declared a 2-for-1 stock split during regular trading today. Shareholders of record on August 16, 2001 will receive one additional common share for each one owned, payable on August 31, 2001. On the execution date of September 3 there will be 30.4 million shares outstanding and a float of 19.2. There are 70 million shares currently authorized for issuance. Matthews announced its last 2-for-1 split in 1998 when the stock was at $45 and by the payable date of that run, shares were trading at $50. Matthews also announced today that it has agreed to purchase coffin maker York Group (Nasdaq:YRKG) to the tune of about $90 million. MATW shares were trading down -0.07 today to $42.99 on average volume of 21,300. About the Company: Matthews International Corporation, headquartered in Pittsburgh, Pennsylvania, is a leading designer, manufacturer and marketer principally of custom-made identification products. The Company's products include cast bronze memorials and other memorialization products, cremators and cremation- related products; mausoleums; printing plates, pre-press services, and imaging systems for the corrugated and flexible packaging industries; and marking equipment and consumables for identifying various consumer and industrial products and containers. (company press release) ============ ST New Plays ============ ------------------------- New Split Candidate Play ------------------------- E.W. Scripps Company - SSP Close:$70.21 Change:+0.31 Stop:$66.40 Company Description: One of the nations oldest newspaper chains has 21 daily newspapers (Denver Rocky Mountain News, Memphis' The Commercial Appeal), a handful of weekly and semiweekly community newspapers, and the Scripps Howard News Service. Scripps' TV interests include 10 TV stations, cable network Home & Garden Television, Do It Yourself Network, a 64-percent interest in the Food Network, and a 12-percent stake in FOX Sports South. The company's United Media syndicates more than 150 comic strips, including Peanuts. In the fourth-quarter of 2001 the company intends to launch the Fine Living national network. Trusts benefiting the Scripps family own 84-percent of the company. Fundamentals: The analysts' consensus forecast is for the company to earn $2.13 per share in 2001 on revenue of $1.7 billion and $2.72 on $1.8 billion in 2002. Last year, the firm earned $2.19 on sales of $1.72 billion. The company has indicated a 60-cent per share annual dividend. Why We Like It: The company is looking good to investors with Disney's $5.2 billion deal to buy the Fox Family Channel from News Corp as this hefty price tag will boost the value of Scripps Home and Garden and Food Networks. In addition, the company is benefiting from much higher advertising rates and decreased costs for its Denver Rocky Mountain News daily paper after the government approved its Joint Operating Agreement with longtime rival the Denver Post. The technical picture of the shares reflects the promising outlook for the company. The shares have been in a long-term up trend since March 2000. On Thursday they built on Tuesday's break of resistance at $69.69 to set a new 52-week high. Rising trading volume suggests bullish momentum will not end soon. A point and figure analysis gives us an $85 price objective. We start this play with a $66.40 stop. Picked on August 2nd at $70.21 Earnings Date 07/12 (Confirmed) =============== ST Closed Plays =============== ---------------------------- Closed Split Candidate Plays ---------------------------- Amerisource Health - AAS - close: $56.30 change: -0.89 Though shares traded through resistance at $59.00, AAS wound up losing the conviction to push it beyond psychological resistance of $60.00. Yesterday's chip upgrades from Merrill Lynch and today's positive news from Intel likely contributed to cash flowing out of AAS and the Healthcare sector into other equities that are just above their short-term lows. The next stop could be support just under $55.00 and if buyers return, perhaps we'll give AAS another look. Picked on July 26th @ $57.50 Gain since picked: -1.20 Earnings Date: 7/26 === Tenet Healthcare - THC Close:$54.25 Change:-1.30 Stop:$53.00 THC was never able to make it to our recommended *ideal* entry point of $56.50 and just to prove that we should have taken our own advice, the stock hiccoughed through our stop today. For those still in the play, it was encouraging to see that shares were dramatically revived at midday from the low of $52.49 and closed the day at a strong support level of $54.25. We still like this company and we'll watch for more opportunities as prices push towards $56. Picked on July 31st at $55.51 Gain since picked: -2.51 Earnings Date 07/11 ================================================================== Net Bulls (NB) section ================================================================== ============ NB New Plays ============ -------------- New Long Play -------------- Microsoft - MSFT Close:$67.45 Change:+0.98 Stop:$64.00 Company Description: Microsoft is the largest software developer in the world and has a number of revenue producing new products and upgrades hitting the street. Recently the company released a new upgrade to its Office Suite called Office XP. The application software represents over 30- percent of Microsoft's revenue. With over 250 million users, this first upgrade of the software in two years should prove to be a nice pop to the bottom line. Additional jumps should come from the October release of the Windows XP operating system and the xBox. Microsoft's new entry into the video game console market is scheduled to hit the shelves on November 8th and should end up being the hot Christmas toy this year. Fundamentals: For the fiscal year ending June 2002 analysts forecast the company would earn $1.94 per share and $2.19 in 2002. Last year the company earned $1.80. This gives the shares a P/E of 35 times forward 2001 earnings. The average P/E for this industry is 43. Forecasts of fifteen brokers providing 12-month target prices for the shares range from a low of $65 to a high of $115 with a mean of $85.67. Why We Like It: As the bulls begin to return to the tech sector, Microsoft shares find themselves making their first baby steps away from important support at $65. The shares spent the early part of the day declining in reaction to minor bad news from their ongoing antitrust battle with the government. After traders digested the legal non-event the shares began to turn bullish. They rallied from about 2 PM EST and $66.28 into the close. This may attract the attention of institutional money looking for safe tech plays to participate in a bullish market move. Look for any sort of continuation of Thursday's momentum on Friday as bullish confirmation. Although resistance exists at $70, we see a test coming of important resistance at $72. If the shares succeed here, a move to $80 would be the likely outcome. On the downside we can limit risk by placing a $64 stop just below the before mentioned $65 support. Picked on August 2nd at $67.45 Earnings Date 07/19 (Confirmed) === Citrix Systems - CTXS Close:$36.69 Change:+1.20 Stop:$34.00 Company Description: Citrix Systems, Inc. is a supplier of application server software and services that enable the effective and efficient enterprise- wide deployment and management of applications, including those designed for Microsoft Windows operating systems. Fundamentals: For the 3 months ended 3/31/01, revenues rose 4% to $132.8M. Net income fell 25% to $28.9M. Results reflect new customer wins and the release of new products, offset by increased marketing expenses. Analysts expect the company to earn 76-cents per share on revenue of $583 million in 2001 and $0.93 on $713 million in 2002. This gives the firm a current P/E of 73 and a forward 2001 P/E of 39. Why We Like It: CTXS is sitting just under its 52-week high, closing today at resistance of $36.69. So many of its peers have succumbed to the volatility of the NASDAQ and, though CTXS has certainly seen days with wild price swings, the stock has been impressively resilient, climbing to new recent highs. Earnings were announced after the close of the market on July 19th and were quite impressive. Despite the economic slow down, the company was able to post its fourth consecutive quarter of growth in revenue and earnings as well as sign on numerous customers. We would look to the 52-week high of $37.19 as the next level of resistance. CTXS's leadership role in its sector and its impressive financial results lend credence to a longer term holding period, if one was so inclined. If the shares can usurp the 52 week high and the NASDAQ cooperates by acquiescing with higher relative highs, we think that CTXS could see $40.00 by mid August. Volatility suggests that a stop price of $34.00, just under today's low should allow for fluctuations in the share price without stopping us out. Picked on August 2nd at $36.69 Earnings Date 7/19 (Confirmed) =============== NB Play Updates =============== ----------------------- NB Bullish Play Updates ----------------------- Alpha Ind. - AHAA - close: 40.36 change: +1.28 stop: 37.00 With the semiconductor sector in breakout mode, AHAA is looking pretty strong. We're actually more concerned over the SOX than AHAA. The Philadelphia SOX index is up over 100 points since the 25th of July without much of a break. There is strong overhead resistance at 700 for the SOX but one might expect it to pause (read "pull back") at least once before trading that high. Company specific news on AHAA has been quiet but the stock's technicals look okay considering its bullish trajectory. Traders should expect some resistance at $42 and again at $44.50. The bottom of its trading channel looks to be near 37.20, its 10-dma is 37.18 right now. Our stop at 37.00 may be too tight for some investors but right now we'd rather protect our capital. Bulls should be encouraged that that the share price closed over $40 which is a positive for tomorrow's trading. Picked on July 24th @ $36.00 Gain since picked: + 4.36 Earnings Date: 10/17 (not confirmed) --- E M C Corp. - EMC - close: 20.46 change: -0.44 stop: 18.50 There was a short article in Reuters today that quoted EMC CEO, Joe Tucci, as having his "Plan B" ready if the company sees a deep global recession hitting its business. The company has already shaved costs in a number of areas and the article left one guessing if Tucci planned to trim staff to cut costs again if need be. On a more positive note, traders can breathe a little easier with EMC's share price back over $20. If you're really an optimist then you might be encouraged with today's trading. Despite a day long downward drift the stock may have helped establish $20 as new support with a small bounce towards the close. We're going to leave our stop at 18.50 but cautious traders might consider moving theirs up a notch if you feel a need to. Picked on July 27th @ $20.01 Gain since picked: + 0.45 Earnings Date: 07/18 --- RF Micro Dev - RFMD - close: 31.53 change: +0.57 stop: 28.50 Thank you, Merrill Lynch! As you have probably heard, MER gave their blessings on the semiconductor group while upgrading several individual stocks. RFMD was one of those upgraded from an "accumulate" to a "buy". The stock rallied on the news and cleared resistance at $30. Today the rally continued but shares were unable to hold on to Thursday's gains and drifted lower before buyers stepped in again near the close. Investors are probably looking at $35 - $37.50 as major resistance for this stock but short-term traders should be looking at 32.50. If shares pullback, new players should consider entry points if the stock bounces at $30. Picked on July 26th @ $27.79 Gain since picked: + 3.74 Earnings Date: 07/17 =============== NB Closed Plays =============== ----------------- Closed Long Plays ----------------- eBay Inc. - EBAY - close: 60.80 change: -0.82 stop: 59.50 Hmmm... EBAY isn't responding the way we had hoped it might with PCLN's earnings a couple of days ago. The stock price isn't responding to the NASDAQ's continued climb. Recent news about shareholder lawsuits against Morgan Stanley and its analyst Mary Meeker for her recommendations on certain Internet stocks, with eBay being one of them, is probably not encouraging buyers into the stock either. Looking at the chart one can see that it is becoming more and more bearish. $59.50 - $59 is still support but once it is broken shares could quickly trade down to $55. We're going to close the play and cut our losses now. Picked on July 31st @ $62.57 Gain since picked: - 1.77 Earnings Date: N/A ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== ============ AT New Plays ============ --------------- New Short Plays --------------- Chevron Corp. - CHV Close:$90.64 Change:-0.12 Stop:$93.00 Company Description: The third largest US integrated oil company (behind Exxon Mobil and Texaco) runs more than 8,100 gas stations and has proved reserves of 5 billion barrels of oil and 9.5 trillion cu. ft. of natural gas. It will expand even further by buying Texaco, and the new ChevronTexaco will be the world's fourth-largest integrated oil company, behind Exxon Mobil, Royal Dutch/Shell, and BP. Overseas, Chevron is pursuing an exploration and production strategy in such lucrative areas as Kazakhstan and Angola, and it holds a 50-percent stake in Caltex, a global refiner and marketer jointly owned by Texaco. Chevron has also combined its chemicals operations with those of Phillips Petroleum. Fundamentals: Analysts forecast the company will earn $7.86 per share in 2001 and $5.98 in 2002. Last year, the company earned $8.13 per share. The company has a current P/E of 11 and a forward 2001 P/E of 12. The average P/E for the industry is 14. Why We Like It: The shares are showing a topping pattern with consecutive trading sessions of lower closes and session highs. After a sharp move up from $84.75 on July 24th the shares are over extended and ready to test lower levels. The next support level is the 200-day moving average of $87.77. Critical support exists for the shares at $85; if the bears pick up steam, a move through this level would make likely a test of $80. Picked on August 2nd at $90.64 Earnings Date 07/24 (Confirmed) =============== AT Play Updates =============== ----------------- Long Play Updates ----------------- GBC Bancorp GBCB Close:$34.00 Gain:+1.00 Stop:$32.40 GBC Bancorp looked like in was in trouble after Wednesday's close, but the stock regrouped today, and closed above resistance at $33. Keep an eye on the Banking Index (BIX.X), which is stuck at resistance at 674. If the bank sector is unable to clear this level, GBCB may have trouble moving higher. Picked on July 27th at $31.10 Gain since picked: +3.90 Earnings Date N/A Nike NKE Close:$49.79 Gain:+1.98 Stop:$47.75 NEW Shares of Oakley got pummeled today after the company announced it was having a tiff with Sunglass Hut. So how does that affect Nike? Sunglass Hut said that if Oakley doesn't want to play ball, it would look elsewhere, specifically Nike. The news was just what Nike needed to catapult it out of its trading range. Since $48 posed such stiff resistance, it should make for good support. We are raising our stop to $47.75, just under that support level. Picked on July 14th at $47.84 Gain since picked: +1.95 Earnings Date N/A RailAmerica RAIL Close:$12.97 Gain:-0.09 Stop:$12.00 Transports have had a rough go of it lately as crude oil prices jumped to $27.80 a barrel, and Rail America has been taken down with them. Thursday's loss was limited to 9 cents, and the stock remains above support at $12.90. Picked on July 14th at $11.41 Gain since picked: +1.56 Earnings Date N/A Star Gas Partners SGU Close:$20.29 Gain: +0.03 Stop:$19.50 Star Gas Partners reported a Q3 loss of $1.38 per share, compared to a $1.15 loss last year. Sales did increase to $166.05 million from 130.16 million in the same quarter last year. Star Gas also announced the $120 million acquisition of Meenan Oil, the nations third largest retail home heating oil company. After all that news, the stock has dropped a total of $1.16. Today the stock rallied off its low, and is hopefully getting ready to resume its up trend. Picked on July 10th at $21.18 Gain since picked: -0.89 Earnings Date 8/1/01 ------------------ Short Play Updates ------------------ Professional Detailing PDII Close:$57.34 Gain:-5.16 Stop:$61.65 NEW Traders want nothing to do with PDII. Today traders flocked to dump their shares, and the stock finished down $5.16 on higher than average volume. The brunt of the selling took place in the final two hours. We are lowering our stop down to $61.65. Picked on July 20th at $63.12 Gain since picked: +5.78 Earnings Date N/A === Transocean Sedco Forex RIG Close:$32.60 Gain:+0.13 Stop:$36.50 RIG falls into the oil service sector, and that group got a boost today as the House passed a bill that would allow drilling in the Alaska Artic wildlife refuge. RIG does most of its drilling offshore, but got a small 13 cent gain nevertheless. I would like to put a disclaimer on the next statement. I would never wish for this to happen to any company, but Tropical Storm Barry is hovering near Florida, and is expected to move westerly into the Gulf of Mexico. RIG has the largest fleet in the Gulf of Mexico, and operations could be seriously impact if this storm picks up. Picked on July 31st at $32.29 Gain since picked: -0.31 Earnings Date N/A ================== Trading Ideas ================== This section contains stocks that meet criteria which may make them of interest to long and short side traders. These are not recommendations, nor have they been reviewed by PremierInvestor editors for investment potential. However, each of them has technical and fundamental characteristics that make them worthy of further review by traders and investors looking for fresh ideas. New stocks will appear daily following the market close. --------------------------------- Value Plays With Bullish Signals --------------------------------- Ticker Company Name Close Change SV Stillwell Financial Inc. 31.80 +1.15 UCU Utilicorp 31.91 +0.61 SFA Scientific Atlanta 27.30 +1.42 CXR Cox Radio Inc 26.15 +1.45 ARW Arrow Elcts 28.49 +0.94 ESIO Electro Scientific Ind. 35.55 +2.90 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change None --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change INTC Intel Corp 32.11 +1.36 PMCS PMC - Sierra, Inc. 36.72 +3.38 TXN Texas Instruments 38.15 +1.52 ----------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change Q Qwest Comm. 23.10 -2.11 ADP Automatic Data Procs. 48.34 -1.65 FDC First Data Corp. 66.94 -1.06 TEVA Teva Pharmaceutical 67.75 -2.15 SPC St. Paul Co. 42.41 -1.14 ------------------------------------------------------------ Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------------------------- Ticker Company Name Close Change AVP Avon Products 45.60 -0.02 BRL Barr Labs Inc 80.73 -4.31 LH Laboratory Corp 84.90 -1.45 DRMD Duramed Pharmaceuticals 20.29 -1.16 GDI Gardner Denver Inc. 22.60 -0.25 CBSA Coastal Corp. 34.53 -1.41 ================================================================= 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. 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