PremierInvestor.net Newsletter Thursday 08-16-2001 section 1 of 2 Copyright © 2001, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.PremierInvestor.net/htmlemail/1730_1.asp ================================================================= In section one: Market Wrap: Only hint of today's rally was positive breadth Market Sentiment: Back From the Brink Play-of-the-Day: General Dynamics Corp - GD (Bullish) Watch List: Appears in Monday, Wednesday and Weekend Editions ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 8-16-2001 High Low Volume Advance/Decline DJIA 10392.52 + 46.57 10395.21 10271.57 1.06 bln 1681/1389 NASDAQ 1930.32 + 11.43 1930.46 1879.07 1.59 bln 1755/1857 S&P 100 605.03 + 2.01 605.31 596.26 Totals 3436/3246 S&P 500 1181.66 + 3.64 1181.80 1166.08 RUS 2000 481.68 + 2.73 481.68 474.06 DJ TRANS 2864.22 + 30.56 2868.36 2826.41 VIX 23.83 + .06 24.81 23.42 Put/Call Ratio 0.96 ----------------------------------------------------------------- =========== Market Wrap =========== Only hint of today's rally was positive breadth by Jeff Bailey Current market conditions are "perplexing" at best. Earlier today in the "hot list" on OptionInvestor.com, I could only see one positive for technology. Yesterday we noted that only 5 of the 100 stocks comprising the NASDAQ-100 finished in positive ground. Even at today's worst levels, the NASDAQ-100 breadth showed 11 stocks trading in the green. Two hours later, 22 stocks were in positive territory. What does this tell me? When I started looking at the charts of those stocks that were in the green, the pattern than seemed to be most prominent was this. The stocks that were showing some slight gains early were in the lower end of their trading range. There was no sudden reversal in bond YIELDS to trigger the reversal. There was no sudden reversal in foreign currencies against the US$. Today's reversal in technology looked to be pure short covering by those that had shorted the upper end of the range. This type of action makes it very tough for the trader that doesn't watch the market every minute of every day to make money. I sympathize with that. For the most part, the bulk of the readership that reads this market wrap each day is swing traders or longer-term investors and the intra-day swings of the market just doesn't matter to them. That's what I like about the point and figure charting system. It really gives the bigger picture of what is going on, and the little intra-day swings like we had today (first to the downside and then back up) usually don't even raise an eyebrow. With that said, I think it is in the best interest of subscribers here (swing-traders and longer-term investors) to be concentrating either on listed NYSE stocks, or some of the largest more liquidly traded stocks of the NASDAQ. The reason for this is that these stocks are perhaps more "predictable" and less influenced by a few market makers. This doesn't mean I can't use the retracement techniques we've been talking about in recent weeks to identify entry and exit points. There were some stocks that found their reversals right at some retracement levels. However, those retracement levels were little good if you weren't watching them, or had previously placed an order to buy/sell at that level. Let's take a look at a couple of stocks that are listed as active trades on PremierInvestor.net on their point/figure charts. What's the risk and what's the ultimate goal? Ballard Power - $1 box Bearish traders have some nice gains riding in a bearish play profiled in the Stock Bottom portion of the newsletter on PremierInvestor.net for Ballard Power (NASDAQ:BLDP). As this trade develops, risk/reward becomes tougher to ascertain at current levels. A rally back to the $33-$35 range is not out of the question. With the bearish price objective of $35 having already been met, I find it hard to give this trade a lot of room to work against me if I'm short. A trader that is up 14% in the matter of days (profiled on Tuesday, 8/14 at $32.02) is looking at the NASDAQ Composites loss in the same time frame and saying, "I shouldn't necessarily be giving this stock the opportunity to rally back to where I entered the trade," (remembering that we're in a relatively range bound market). At today's close of $27.08, You've "beaten the market" and it's time to reduce some risk from the trade. Should the stock rally back up into the $33-$35 range and market conditions remain mixed, then you've replenished my cash reserves and perhaps ready for another round. Jon Farnlof picked this play and should be rewarded for his analysis, but risk/reward is tough to ascertain from here. When that's the case, it's time to get ready to lock in the gains and reward ourselves as well. Vitesse Semiconductor - $1 and $0.50 box Not every trade works out like we planned. The Semiconductor Index (SOX.X) had sprung back to life in recent weeks and it sure looked like the risk/reward was favorable for a bullish trade in shares of Vitesse Semiconductor (8/10 $19.25). At that time, the stock was on a "buy signal" after triggering the bullish triangle pattern at $19.50 the stock shot higher to $23. The pullback near the $19 level looked to have some late bears covering, but recent broader market weakness found this stock hitting our stop at $17. Unlike Ballard Power (BLDP) the current bearish price objective of $10.50 puts this stock in a 50/50 proposition. The bearish trader looking to short the stock at $15.50 is now facing a potential rally to $18 and shorting right at a level of two previous reversal points. The bullish trader might like the stock here with a stop at $15, but I'm not sure it's worth the risk if I end up holding the stock overnight and it gaps lower the next day. The best plan here was to honor the stop at $17. If I were a trader still holding this stock and had not taken some type of action (sell the stock, write a covered call or buy a protective put) I'd give the stock a chance to NOT trade $15, but that would be it. Shares of VTSS are no longer trading in unison with the Semiconductor Index (SOX.X) and new bullish positions should be avoided near-term. Let's also learn something from our mistake here. What could we have done to limit or negate our mistake? One thing I always try to tell a trader/investor regarding trend. If you're bullish a stock that is trading below bearish resistance, reduce your trade size. I also liked shares of VTSS near the $19 level several days ago on OptionInvestor.com. What I suggested there was that the stock had a favorable risk/reward profile, but the downward trend spelled of caution. Traders that normally risk $5000 in a stock should par back to 1/2 position size as trend was against us (bearish resistance or red +). The next thing we could have done is to "swear off" the trade all together until the stock proved it could get above bearish resistance. This in itself is often times the best thing to do anyway. How does that six-egg omelet taste? In my August 2nd market wrap, I talked about a "six-egg omelet" and the top six weighted stocks of the NASDAQ-100 Trust (QQQ). Subscribers can go back and review that commentary if they wish and look at some of the charts and items we talked about at that time. I note that Microsoft (NASDAQ:MSFT) wasn't able to hold its bullish support at $65 and the stock did give the double bottom sell signal. The shares of MSFT have not fallen apart at all and today's close of $64.62 is very close to where we were writing about the largest weighted stock in the QQQ. The longer-term 200-day moving average has been acting as support over the past 5 sessions (at $62.66), but supply has slowly been outstripping demand. We also talked about Oracle (NASDAQ:ORCL). At that time, shares of ORCL were sitting right on top of bullish support trend at $18, but two days later, shares of ORCL broke that bullish support and the stock has fallen to as low as $15 on its point/figure chart. Much like Microsoft (MSFT) we're seeing some bullish support trends in software stocks being broken to the downside. Another chart we looked at on that day was Qualcomm (NASDAQ:QCOM) at the $68 level. Since that time, the stock has traded lower and today's trade at $61 on its point and figure chart (intra-day low was $60.50) had this stock puncturing its bullish support trend (much like MSFT has done). Just between these three stocks, we're seeing some eggs start to crack as it related to our August 2nd commentary. All three of these big technology related stocks were trading above bullish support when we reviewed them. All three have given a "sell signal" on their charts also. Not one has shown the needed strength for this analyst to think the bull is running wild for technology stocks. "Big tech" as it relates to the 6 stocks mentioned on August 2nd aren't getting dismantled, but the lack of follow through still should have traders very cautious with many four-lettered stocks. The stocks that seem to be acting relatively well and seem to be less inclined to being swung around are listed stocks. Stocks like Nike (NYSE:NKE), Deere (NYSE:DE) and Office Depot (NYSE:ODP) are stocks that seem to find buyers on the pullbacks and then manage to work their way higher. Perhaps their lack of perceived "excitement" is what has these stocks trading steady and acting strong. Office Depot (NYSE:ODP) caught my attention back on 07/19 when the stock gapped up out of a base on BIG volume of 6,000,000 shares at $12. I remember a similar situation back in February as it relates to volume, when Cendant Coproration (NYSE:CD) traded over 37 million shares at the $13.25 level. At that time, the stock was just starting to get through its bearish resistance and the broader markets were trading lower. Today, shares of CD trade $20.15. If you get a chance, take a look at the point and figure charts at www.stockcharts.com of the stocks mentioned above. For stocks you're looking at on your own, take a look at their supply/demand. Today's "debacle" for Cienna (NASDAQ:CIEN). Take a look at that point and figure chart there. There were signs of weakness and I'm beginning to think I should simply ignore any attempt to trade a stock bullish that trades below bearish resistance. Heck... even some of the big tech in our six-egg omelet are having trouble finding the needed sponsorship at their bullish supports. If that's the case (and it is), then there is still a lot of work to be done for a tech turnaround to take place. For the trader that just can't watch things on a hour-by-hour basis, its probably best to seek out some stocks with favorable supply/demand charts that are bullish and trade those long. Don't be opposed to mixing in a short every now and then, but when you get a nice gain in a day or two, lower that stop and remove some risk from the trade. Continue to monitor the six stocks mentioned on August 2nd in the "six egg omelet." So far their action has pretty well summed up the recent trading and direction of the NASDAQ and broader technology and should continue to give technology traders a feel for the current environment. I'd say they all spell of uncertainty. It's been my long-held belief that the MARKET hates uncertainty and tries to avoid it whenever possible. For a trader/investor that can't watch the market closely, that sounds like good medicine for now. ************************************ NOVEMBER STOCK & OPTION TRADING EXPO ************************************ I am really excited to announce our biggest Denver Stock and Option Trading Expo ever. Over fifteen speakers from many different trading environments. Jon Najarian, Dr "J" on the CBOE, David Nassar, Tim Truebenbach, Russ Wasendorf, Patrick Lafferty, Don Bright, Joe Lombard, Robin Dayne, Carolyn Boroden, to name just a few. Of course Austin Passamonte, Jeff Bailey, Jon Farnlof, Buzz Lynn, Eric Utley and myself will also take center stage. We have changed the format to a weekday schedule instead of a weekend in order to do real time trades and analysis every day. Bring those laptops as WE WILL ALSO HAVE INTERNET ACCESS AVAILABLE FOR ALL ATTENDEES in the main hall so you can follow our research and trades as well as trade yourselves. This is also EXPIRATION WEEK and we will be taking full advantage of cheap options and expected market swings. In order to move to an open market format we had to change the date to November 12-16th. Make the change on your calendar and plan on being there! Could you actually make enough trading that week to pay for the seminar? That is of course up to you but it will not be due to a lack of opportunity! Seating is limited, sign up now! http://www.premierinvestorseminars.com/expos/oi_fall01.asp ================ Market Sentiment ================ Back From the Brink Once again the market was able to pull itself back from the brink of disaster, and finish the day in positive territory. In the morning the focus was on poor future guidance from Ciena and Brocade. Perhaps it was some short covering, program buying, or traders deciding to focus on some of the positive economic news, but the major indices managed to finish in positive territory. Housing starts came in better than expected, the unemployment picture improved, and the CPI showed no signs of inflation, which allows the Fed to cut interest rates as needed. S&P 500 Daily Chart For the fourth time in 5 weeks, the S&P 500 tested 1,177, the 61.8% retracement of the April to May gains, and rallied to close above it. No bounce off of this level has gone higher than 1,230, and the last one was especially weak, failing to clear 1,204. For today's move to have any credence, we need some follow through tomorrow. Momentum would have to build off of that to clear resistance in 1,204 to 1,211 range. Nasdaq Composite Daily Chart The late-day rally in the Nasdaq came up a little shy of the previous support area at 1,934. If that level doesn't act as resistance tomorrow, perhaps the Nasdaq could approach 2,000 over the next few days. Testing 2,100 would be the longer-term, more optimistic target. Buying stocks when the situation looks bleakest has worked over the past few months, but in order for stocks to get a bounce going tomorrow, they are going to have to fight past a gloomy outlook from Dell, HP, and Gap. Should that happen, the best bounce scenario for the S&P 500 looks like a 4% gain. Bears still have the longer-term upper hand, but way want to consider lowering some stops should a bounce mount. ----------------------------------------------------------------- Market Volatility VIX 23.83 VXN 50.64 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total .96 680,315 653,498 Equity Only .85 532,716 453,303 OEX 1.18 32,792 38,551 QQQ .90 66,132 59,517 The total and equity only put/call ratios have hit levels that can mark a possible bullish turning point, but I am a bit skeptical due to options expiration. ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 34 - Bear Confirmed NASDAQ-100 40 -2 Bear Confirmed DOW 36 - Bull Alert S&P 500 54 - 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 ----------------------------------------------------------------- The 10-Day Arms Index has reached a point that usually signals a bottom. This signal tends to be early, and doesn't mean the market is going to rally tomorrow. 5-Day Arms Index 1.23 10-Day Arms Index 1.52 21-Day Arms Index 1.32 55-Day Arms Index 1.26 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 1680 1393 NASDAQ 1755 1862 New Highs New Lows NYSE 156 53 NASDAQ 102 184 Volume (in billions) NYSE 1.060 NASDAQ 1.608 ----------------------------------------------------------------- Advisory Sentiment Bullish Bearish Correction Net Change 46.0% 27.0% 27.0% 19.0% +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: 08/07/01 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 net bearish position of commercial traders increased slightly, but that was the result of more long positions being dumped than short positions, and not a significant amount of new shorts being added. The % of Open Interest for small traders is at bullish levels similar to February and March. Commercials Long Short Net % Of OI 7/24/01 317,241 392,146 (74,905) (10.56%) 7/31/01 335,532 409,352 (73,820) ( 9.91%) 8/07/01 331,881 406,210 (74,329) (10.07%) 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 7/24/01 141,372 61,665 79,717 39.26% 7/31/01 129,648 54,552 75,096 40.77% 8/07/01 128,454 53,191 75,263 41.43% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 Commercial traders added a few long positions and dropped a few shorts, but the most encouraging sign is the fact that small traders are starting to give up hope. Commercials Long Short Net % of OI 7/24/01 27,396 39,198 (11,802) (17.72%) 7/31/01 28,009 39,613 (11,604) (17.16%) 8/07/01 28,867 38,956 (10,089) (14.88%) 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 7/24/01 12,170 7,744 4,426 22.23% 7/31/01 11,216 8,938 2,278 11.30% 8/07/01 9,715 8,098 1,617 9.08% 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 Commercials continue to get slightly more bullish, small traders continue to get more bearish. Commercials Long Short Net % of OI 7/24/01 16,080 12,812 3,268 11.3% 7/31/01 17,748 13,669 4,079 13.0% 8/07/01 18,644 13,733 4,911 15.2% 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 7/24/01 5,599 9,526 (3,927) (25.96%) 7/31/01 5,049 9,079 (4,030) (28.52%) 8/07/01 4,841 9,909 (5,068) (34.36%) 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) ========================= General Dynamics Corp - GD close: 83.24 change: +1.39 stop: 79.00 Original Comments When Selected on August 9th: Company Description: Falls Church, Virginia-based defense manufacturer operates in four primary areas: marine (warships and nuclear submarines), aerospace (business jets), information systems and technology (command and control systems), and combat systems (tanks and amphibious assault vehicles). Almost 60-percent of its revenue comes from the US government, and it is the largest shipbuilder for the US Navy. The company's Bath Iron Works subsidiary builds the Navy's class DDG 51 destroyers. Another subsidiary, Electric Boat, builds Seawolf class attack subs. The company's Land Systems subsidiary builds the M1 series tank. GD has been focusing on its commercial aircraft and defense-related electronics operations, but it's also expanding into munitions for tanks and other weapons systems. The company has announced a tender offer good through August 17th of 22 million shares for rival Newport News Shipbuilding (NNS). This equates to approximately $2.1 billion, or 10 times operating earnings. Fundamentals: Analysts forecast the firm will earn $4.56 per share on sales of $11.9 billion and $5.17 on $12.5 billion in 2002. Last year, the company earned $4.03 on $10.4 billion. This gives the company a current P/E of 20.8 and a forward 2001 one of 18. This is inline with the industry average P/E of 20. Other fundamental industry comparisons are gross profit margin (company: 23.89-percent, industry: 19.48-percent), return on equity (24.4-percent, 4- percent), price/sales ratio (1.55, 0.89), price/book ratio (4.18, 2.58), price/cash flow ratio (14.42, 11.65) and debt/equity ratio(0.28, 0.87). Why We Like It: This defense monster has one of the best balance sheets in the industry and strong cash flow. The shares have been consolidating just short of resistance at $84 in a range of roughly $84 to $81.50. On Thursday, the shares put in a strong day from the opening bell through to the close with nary a dip in-between. Volume spiked from 595k on Wednesday to 920k on Thursday. This is consistent with other recent bullish indications; as the shares have consolidated, on down days volume has been consistently lower than on up days. Taken as a whole, it looks as if the bulls are gearing up for another run at besting $84. Conservative traders can wait for a close above $85 before taking a position. Our longer-term price objective is $95; intermediate resistance is at $88.00. We will begin with a stop at $79. Updated Comments: The race to buy Newport News Shipbuilding (NYSE: NNS) has been a close one between GD and Northrop Grumman (NYSE: NOC). Yet so far, GD had appeared to have the edge over NOC. On Wednesday, the U.S. Defense Dept. announced that it wants more data from both companies on their rival $2.1 billion bids. The gov't believes any decision could be months away and this may have been dis- appointing for GD investors. Despite the news, the stock continued to slip to its support level at $81.50 before bouncing higher this afternoon. On Tuesday we had mentioned this was a likely scenario and a possible entry point for new long positions (that is buying on a bounce at 81.50). Current resistance is its 52 week high above $85. Volume was above average today and we would expect bulls to push the stock higher if the market permits. Picked on August 8th @ $ 83.85 Gain since picked: - 0.61 Earnings Date: 10/17/01 (not confirmed) ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright © 2001 PremierInvestor.net. and The Premier Investor Network. 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PremierInvestor.net Newsletter Thursday 08-16-2001 section 2 of 2 Copyright © 2001, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.PremierInvestor.net/htmlemail/1730_2.asp ================================================================= In section two: Split Trader New Plays: Lennar Corp - LEN (Bullish) Play Updates: AHC, GD Closed Plays: SSP Net Bulls New Plays: Integrated Silicon - ISSI (Bullish) Bullish Play Updates: Univ. of Phoenix - UOPX Bearish Play Updates: PSFT, VRSN Closed Plays: VTSS Stock Bottom / Active Trader New Plays: none Bullish Play Updates: NEM, PEP, RAIL Bearish Play Updates: BLDP Closed Plays: BZH 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 =================== ============ ST New Plays ============ ------------------------- New Split Candidate Play ------------------------- Lennar Corp - LEN Close:$40.66 Change:+2.15 Stop:$38.00 Company Description: Lennar is one of the nation's largest homebuilders after industry leader Pulte Homes. The company builds homes in the $100,000 to $1 million range for all types of homebuyers from first-timers, move-ups and retirees. Its US Homes acquisition expanded operations to a total of 13 states. The company buildes homes under name brands such as; Lennar, US Homes, Greystone Homes, Village Builders and Renaissance Homes. The firm also offers title and mortgage services. Fundamentals: Analysts expect US Homes to earn $5.28 per share on sales of $5.6 billion in the current fiscal year ending in November, $5.75 on $6.2 billion in 2002. Last year, they earned $3.64 on sales of $4.7 billion. Even though Lennar estimated earnings growth over the next five-years at 15-percent is expected to outpace the industry average of 13.61 - the shares are undervalued with a forward P/E of 8 when compared to the industry average P/E of 11. Why We Like It: Shares of homebuilders have been dropping on the assumption that last Thursday's report on new residential construction would be a dog. Instead, a reasonably positive report suggests that Americans are not letting the economic blues deter them from moving into their dream home. This knocked the bears off their game and turned homebuilders shares over to the bulls. Lennar is attractive to us for three reasons; first, it is well undervalued as compared to its peers. Second, despite recent weakness the shares are still in a long-term up trend and lastly, the shares are just above support from the lower trend line and the 200-day moving average at $38.80. This sets up a play with an attractive risk/reward ratio. To the downside our $38 stop is just below significant support leaves us with minimal downside exposure. Yet if the bulls really get running the upside is solid with resistance at $45 and $50. Given the trend less nature of the markets we will look to tighten up our stops once we can pocket a 10-percent gain. Picked on August 16th at $40.66 Earnings Date 9/19 (Not Confirmed) =============== ST Play Updates =============== ----------------------- Split Candidate Updates ----------------------- Amerada Hess - AHC - close: 78.13 change: -0.77 stop: 74.25 The price of oil barely moved today but shares of AHC saw a $2 swing but managed a strong bounce by the close. This morning's sell-off and late day recovery was mirrored in both the PHLX Oil Service Sector, OSX, and the CBOE Oil Index, OIX. The stock continues to have a bullish bias with the recent number of higher lows. Resistance remains at the 50-dma of 78.70 and the $79.25 level we mentioned on Tuesday. Wait for confirmation and a close over $79.25 before evaluating a new long position. Picked on August 15th @ $ 78.90 Gain since picked: - 0.77 Earnings Date: N/A (not confirmed) --- General Dynamics - GD - close: 83.24 change: +1.39 stop: 79.00 The race to buy Newport News Shipbuilding (NYSE: NNS) has been a close one between GD and Northrop Grumman (NYSE: NOC). Yet so far, GD had appeared to have the edge over NOC. On Wednesday, the U.S. Defense Dept. announced that it wants more data from both companies on their rival $2.1 billion bids. The gov't believes any decision could be months away and this may have been dis- appointing for GD investors. Despite the news, the stock continued to slip to its support level at $81.50 before bouncing higher this afternoon. On Tuesday we had mentioned this was a likely scenario and a possible entry point for new long positions (that is buying on a bounce at 81.50). Current resistance is its 52 week high above $85. Volume was above average today and we would expect bulls to push the stock higher if the market permits. Picked on August 8th @ $ 83.85 Gain since picked: - 0.61 Earnings Date: 10/17/01 (not confirmed) =============== ST Closed Plays =============== ---------------------------- Closed Split Candidate Plays ---------------------------- E W Scripps - SSP - close: 68.99 change: -0.36 stop: 69.00 The fourth down day in a row has stopped us out at $69. There has been no news on the company. Investors were probably just taking some money off the table of their recent winners to protect from any future downside in the market. Yesterday was the real warning flag for position holders when shares slipped below the $69.50 level as cautioned by us on Tuesday. Picked on August 2nd @ $ 70.21 Gain since picked: - 1.21 Earnings Date: 7/12/01 ================================================================== Net Bulls (NB) section ================================================================== ============ NB New Plays ============ -------------- New Long Play -------------- Integrated Silicon - ISSI Close: $15.10 Change: 0.55 Stop: $13.50 Company Profile: ISSI designs, develops and markets high-performance memory devices including static random access memory (SRAM),specialty dynamic random access memory (DRAM), and nonvolatile memory (NVM). Fundamentals: For the 6 months ended 3/31/01, revenues totaled $117.3M, up from $53.3M. Net income totaled $29.5M, up from $3.9M. Revenues reflect increased unit shipments of SRAM products. Earnings also reflect a $22.5M gain on the sale of investments. Analysts expect company earnings to decline from +$0.94 in 2001 to a +$0.63 in 2002. The current P/E ratio is 11.27 and the forward P/E ratio is 16. Strategy: Three days of increasing upside volume have driven shares of ISSI to the brink of short-term resistance just above $15.00. And buying interest has propelled the 20 DMA through the 200 DMA just yesterday. This during a week that has seen most things tech get hammered, particularly semiconductors amid negative guidance and revised earnings estimates. But, shares of ISSI have held fast and current technical indicators suggest that the stock is strong, despite the continued downturn in the sector. Analysts believe that wireless providers may be close to seeing a bottom in their sales figures and, with a major portion of the company's business coming from this sector via contract manufacturers, ISSI looks ripe for the picking. Take a look at the daily chart for ISSI and you're sure to notice that the stock is rather volatile on a percentage basis. Our approach for this recommendation involves the use of a relatively tight stop at $13.50 with target prices above the recent highs that now represent resistance at $16.00. The COMPX will likely need to cooperate and, if it does, we see a short-term exit price just above the $16.00 level. Longer term, we're looking for a move to $18.00 and would consider this the perfect place to exit the trade. Once again, set your stop under the 100 DMA of $13.82 so as to allow the stock some trading room and prevent the trade from stopping out. Picked on August 16th $15.02 Earnings Date 10/14 (Unconfirmed) =============== NB Play Updates =============== ----------------------- NB Bullish Play Updates ----------------------- Univ. of Phoenix - UOPX - close: 35.97 chg: +1.07 stop: 33.50 *new* Rising share prices on rising volume! It doesn't get much better than that. Volume today was 409K vs. the average of 153K while shares gained another 3 percent. Even though the MACD is about to turn positive again we're concerned that the 12 percent move up from its low a few days ago may be too tempting to just leave on the table. Tomorrow will be a test. Shares closed right at the descending trendline starting with the 52-week high made in July. This could be potential resistance. Add that to the odds of some profit taking on another summer Friday and we expect the stock to pullback tomorrow. Optimistically, we hope that if a pullback does occur we'll see a bounce somewhere between here and $34. We are going to raise the stop on the stock to 33.50 which is a quarter above our entry price to protect capital. Our upside target remains at $38. Picked on August 13th @ $33.25 Gain since picked: + 2.72 Earnings Date: N/A ----------------------- NB Bearish Play Updates ----------------------- PeopleSoft - PSFT - close: 38.19 change: -0.90 stop: 40.00 *new* Thursday was a very interesting day for shares of PSFT. Gapping lower, shares fell below $36 before doing a complete reverse course to close just below the opening price. Last Friday we warned that the next true hurdle for PSFT bears was the 200-dma then at 38.20. Funny, that's exactly where shares closed today (give or take a penny). The 200-dma remains a sticking point for shorts to overcome. Without any positive news to buoy the stock we looked at the GSO software index. The GSO showed a similar pattern of selling off early in the day only to rebound by the close. Not satisfied we looked at the two largest components of the GSO index MSFT and ORCL; who together account for almost 20% of the index. We were not surprised to see that both MSFT and ORCL posted positive days which we felt accounted for a lot of the strength in the GSO which surely influenced trading in PSFT. So what are, as traders, to do? We still expect weakness in PSFT but considering its potentially oversold position want to be prepared for any relief rally in the stock. That means we're going to tighten our stop to $40 and protect some of our profits. If the stock rallied up towards $40 and rolled over again we'd consider new short positions but with the doji candlestick pattern created today we should take a wait and see attitude to any new decisions in this play. At the moment, our $4 profit in the trade looks tempting and we wouldn't be the only ones looking to cover our shorts before the weekend. Picked on August 7th @ $42.38 Gain since picked: + 4.19 Earnings Date: N/A --- VeriSign - VRSN - close: 47.65 change: +1.58 stop: 52.50 You've heard it before and you'll hear it again. Nothing moves in a straight line when it comes to stocks. Identifying trends is part of the game and VRSN is definitely in a downtrend. Yet this still means we'll see up days as relief rallies or short covering. The stock has filled the gap it created in late July but the selling pressure continues. Not surprisingly, $45 has become the current level of support but if the trend continues we still expect the stock to hit $42.50 (or even $40). While we are profitable in the play be prepared for a second up day in this relief rally. New positions should be considered if the stock fails at $50 (shares run up and then roll over at the $50 mark). The MACD just recently turned negative a few days ago which is confirming the downward trend. Picked on August 14th @ $48.98 Gain since picked: + 1.33 Earnings Date: N/A =============== NB Closed Plays =============== ----------------- Closed Long Plays ----------------- Vitesse Semi. - VTSS - close: 15.97 change: -1.70 stop: 17.00 Yet again, the warning flag went off yesterday when the SOX dropped over 20 points. Wednesday's dismal performance set off our alarms but eternal bulls kept hoping the NASDAQ would finally turn green. Their hope was fulfilled today with a paltry 11 point gain for the NAZ but our play on VTSS was doomed with a faulty earnings warning report on CNBC about VTSS. CNBC later retracted their statements but the damage was done and VTSS ended the day down almost 10 percent. To be honest, we don't know when the false report aired on CNBC and the newsletter's play was stopped out at 17.00 early this morning. Strong support should exist for VTSS between 15.25 and 15.50 so patient investors interested in following this stock might want to watch for a rebound and hope for a new rally back to $20. Picked on August 10th @ $19.25 Gain since picked: - 2.25 Earnings Date: N/A ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== =============== AT Play Updates =============== ----------------- Bullish Play Updates ----------------- Newmont Mining NEM Close:$20.45 Gain:+0.08 Stop:$20.40 NEW The Gold Index broke through a resistance level today, and Newmont held above its recent resistance level at $20.64. The key to gold has been the strength of the Euro. As this currency trades higher, so will gold stocks. We are moving our stop up to $20.40. Picked on July 14th at $20.50 Gain since picked: +0.64 Earnings Date 11/1/01 (unconfirmed) --- Pepsi PEP Close:$45.95 Gain:+0.39 Stop:$45.00 NEW Pepsi gained 39 cents today, but couldn't break free of recent congestion zone. Closing above $36 would do that. Today's gain could have been partially limited by a proposed tax of food in Mexico, Latin America's second largest country. We are moving our stop up to $45, just below the 50 and 200-day moving averages, to limit our risk, but give Pepsi enough room to move. Picked on August 10th at $45.66 Gain since picked: +0.29 Earnings Date N/A --- RailAmerica RAIL Close:$13.55 Gain:-0.03 Stop:$12.90 For the past four days this stock has been trying to break through resistance at $14.00. The Dow Jones Transportation Index has been consolidating at support for the past few days. Transport breaking out to the upside might be the catalyst RAIL needs to get through resistance. Picked on July 14th at $11.41 Gain since picked: +2.14 Earnings Date N/A ------------------ Bearish Play Updates ------------------ Ballard Power - BLDP Close: $27.00 Change: -2.17 Stop: $29.50 new Two days and a 16-percent gain is sweet, but its time to protect those gains with $29.50 stop. A good case could be made to close this one right out as the shares are approaching the $32.75 52- week low, but if the shares can break through then the bottom could be a long way off. If you are already in this play, make your choice according to your tolerance for risk. If you are not in this play, you need to wait for the break. Before you make any decision, be certain to read our master strategist Jeff Bailey's take on this play in today's Market Wrap. Picked on August 14th $32.02 Gain Since Picked +5.02 Earnings Date 11/06 (Unconfirmed) =============== AT Closed Plays =============== ----------------- Closed Bearish Play ----------------- Beazer Homes BZH Close:$65.40 gain:+2.13 Stop:$65.00 Housing data came in stronger than expected, and we were stopped out of our bearish play in Beazer Homes. Building permits did fall significantly, suggesting this could only be a bounce in homebuilding stocks before a further decline. Picked on August 6th at $65.08 Gain since picked: +0.08 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 ABN ABN AMRO Holding $18.50 +0.87 TEO Telecom de Argentina $10.12 +0.67 WBST Webster Financial $37.06 +0.63 TK Teekay Shipping $35.70 +0.60 MW Men's Wearhouse $26.42 +0.52 OSG Overseas Shipholding Group $26.86 +0.78 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change TSFG South Financial Group $19.95 +1.21 DRQ Dril-Quip, Inc $19.33 +1.23 NFLD Northfield Laboratories $19.84 +2.89 URBN Urban Outfitters, Inc $13.40 +1.86 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change MCD McDonald's Corporation $29.70 +1.21 GWW W.W. Grainger, Inc $40.92 +0.35 ----------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change FTE France Telecom $39.84 -1.13 ENE Enron Corp $36.85 -3.40 CAJ Canon, Inc $34.05 -1.11 TV Grupo Televisa, S.A $38.46 -1.57 CLS Celestica, Inc $40.54 -1.52 ACF AmeriCredit Corp $56.87 -3.82 ------------------------------------------------------------ Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------------------------- Ticker Company Name Close Change DEO Diageo plc $41.27 -0.75 HI Household International $66.87 -1.08 MRBK Mercantile Bankshares $43.00 -0.20 PCSA AirGate PCS, Inc $55.00 -2.14 DOM Dominion Resources $20.30 -1.22 ================================================================= 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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