PremierInvestor.net Newsletter Thursday 09-06-2001 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/5015_1.asp ================================================================= In section one: Market Wrap: Out Of The Frying Pan, Into The Fire! Market Sentiment: Capitula Play-of-the-Day: Fifth Third Bancorp - FITB (Bearish) U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 9-6-2001 High Low Volume Advance/Decline DJIA 9840.84 -192.43 10028.35 9826.09 1.34 bln 997/2106 NASDAQ 1705.64 - 53.37 1753.83 1702.92 1.85 bln 1101/2537 S&P 100 565.51 - 13.38 578.89 564.98 Totals 2098/4643 S&P 500 1106.40 - 25.34 1131.74 1105.83 RUS 2000 453.39 - 9.12 462.51 452.60 DJ TRANS 2804.84 - 30.33 2834.83 2800.66 VIX 32.42 + 3.46 32.80 30.12 VXN 62.01 + 3.28 62.01 60.06 TRIN 2.38 Put/Call Ratio 0.98 ----------------------------------------------------------------- =========== Market Wrap =========== Tonight we have a guest market commentator on PremierInvestor.net. Jim Brown is well known for his market insight and option trading education in the Option Investor Newsletter. If you'd like more information about Option trading, please visit their website, www.OptionInvestor.com. Our normal market wrap columnist, Jeff Bailey, is on vacation this week. =========== Out Of The Frying Pan, Into The Fire! Jim Brown The news just after the open this morning, that the Justice Dept had dropped plans to ask for a breakup of Microsoft, provided a momentary bounce for the beaten down indexes but the relief was short lived. The good news, no breakup plans and no intent to pursue the browser bundling question. The bad news, the government wants to impose very strict guidelines and penalties for the charges that have already been judged. Now that breaking up the company is not an option it means that Microsoft will end up with a government oversight committee of some kind that will rule on all future business practices. This means Windows-2004 may not be released until 2010 if every feature has to be approved in advance by the Justice Dept. In 1984 the same thing happened to AT&T after their breakup. They had to ask Judge Harold Greene for permission on every decision it made. The Justice Dept also said late today that they would not seek to delay Windows-XP because the damage had already been done and Windows-DOJ may be the next release you see. The Labor Day rally is officially over and the gains made since last Thursday's low of 9869 have all disappeared with today's close of 9839. The +313 point bump in the beginning of the week has gone the way of prior weeks rally to 10440. Lower lows and lower highs, not a pretty picture. Welcome to the dog days of September! The layoffs continue with Motorola warning today that it would cut -2000 more jobs and they would not return to profitability this quarter as they previously predicted. The 3Q is now expected to be flat compared to estimated gains of +5%. The CEO apologized to shareholders for consistently providing poor performance and said again that he thought the sector was near the bottom. He also said Motorola was gaining market share in the handset business but that sales in that sector were still slowing. A bigger piece of a much smaller pie doesn't pay the bills in the case of MOT. The economic news today was mixed with the NAPM falling another -3.4% to 45.5, the lowest level in eight months. New orders fell -2.7% as the economic contraction continued to deepen. The only bright side was a continued fall in inventories. Traders were cheered by the news that the Fed was a long way from done and could shift into aggressive mood again, but they were also worried that the economy could continue to get worse before it gets better. As a result the stock markets fell as earnings estimates fell yet again. The Jobless claims previewed a possible problem with the Jobs Report on Friday. Claims fell slightly to 402,000 from a revised 405,000 from last week but continuing claims rose to 3.2 million for the first time since 1992. Workers are finding it hard to get a new job with layoffs continuing across all sectors. The market is scared that jobs are finally getting critical and the unemployment is about to skyrocket as companies in denial of the trend finally capitulate and trim the ranks. Traders will be holding their breath as they watch the Jobs Report on Friday. The other report will be Wholesale Inventories and any real reduction in this number will be welcomed. Chain Store Sales increased slightly by +3.5% which was mostly credited to consumers spending their tax checks. Discount retailers benefited the most and apparel retailers the least, especially the higher priced retail stores. Tax holidays in several states also fueled the bounce but indicate that there may not be any follow through. The tax checks will probably impact September as well but then retailers will be on their own as of the start of the holiday season. Worst hit was the Gap which reported a sales slump of -17% and a drop in share price of 22% on the news. The biggest piece of news, which had the market teetering on the edge was the Intel mid quarter update after the bell. The bulls were hoping for an affirmation of prior guidance and the bears were afraid they would warn like MOT, AMD and several other chip makers. The results...INTC split the difference and said revenue would be in the middle of the lower end of prior estimates and margins would be slightly higher from reduced expenses. Sounds like nit picking but considering how traders were straining for good news they wanted to be very careful in how they phrased the release. Margins were quoted at 47% but were far less than recent quarters as high as 64%, so how can the margins be higher due to improved expenses? Did I miss something? Intel and the chip sector were up only slightly after the news. Phraseology is becoming more important as evidenced by a MSFT statement from yesterday. Microsoft CFO, John Connors, was quoted as saying that MSFT was reiterating its company and revenue goals for 2002. Several sources including the WSJ reported it. Today Microsoft issued a statement correcting his comments saying they were NOT reiterating estimates but they were not changing estimates either. So...when is a positive statement not a positive statement? Evidently this one. If they went to the effort to say they were NOT reiterating then the obvious conclusion is a pending drop. Will they warn? It may be too soon to tell but I would not bet against it. Investors are dropping stocks at record rates. The TrimTabs.com cash flow report today showed that outflows from mutual funds were accelerating. After losing more than $15 billion in all of August the first week of September, including the holiday, accounted for -$10 billion of outflows from stock funds. OUCH! There are also rumors of stock funds being forced to liquidate like the big hedge fund scandal from a couple years ago. Fund liquidation? Now that would be a really big hurdle for the already shaky markets to overcome. We all know that money in funds may go up and down with the markets but suddenly a scare of losses due to liquidations, that would shake ma and pa investor back into CDs and cash in mason jars. These are only rumors but you can bet the boys at the Fed would meet this problem head on and do everything possible to avoid any messy public fund failures. We don't need any fund failures when we already have a really messy market failure. We are quickly heading below the April lows on some indexes and not far away on others. The S&P-500 low on April 4th was 1103.25 and the close today at 1105.94 was only a hair above it. The Nasdaq 100, not the comp, set a new 52-week low today at 1361 by slipping below the 1370 April low. The Dow has over 800 points to cover before being in danger of the 9106 March low but at the current rate of fall that is only about a week. Other global markets are continuing to fall with the German Dax also setting a new 52-week low today. Traders can no longer complain that they are waiting for volume to return after Labor Day. The NYSE posted 1.3 billion shares and the Nasdaq a whopping 1.84 billion shares. The internals were very bad with decliners beating advancers 2:1. The put/call ratio rose to almost 1.0 as investors feeling real fear bought puts to protect portfolios. Speaking of fear the VIX has now risen to a five month high of 32.42 after seven straight days of gains. The last time we were at these levels....April. Can we go higher from here? You bet, the VIX spiked over 40 several times in Feb/March of this year. The VXN, the Nasdaq equivalent, hit a four month closing high of 62.01 but well below the April high well over 80. The TRIN also closed at 2.31 with a spike over 4 at the open this morning. What does all this mean? The market internals and indicators mentioned above show that the market is very oversold again. In fact it is indicating a possible relief rally on Friday. I have said here many times that nothing goes straight up or straight down. We all know that stocks and markets oscillate from overbought to oversold and back again. Sometimes quickly, sometimes slowly. If funds are truly liquidating to raise cash to pay those redemption requests then we could become a lot more oversold before we see any real bounce. When investors call for their money the funds have no choice but to sell anything with value to raise that cash. It makes no difference how good a deal the fund managers think stocks may be at these levels, the investor rules and they have to raise cash. -$35 billion has left stock funds in the last five weeks and with September and October still ahead of us the cash drain may not be over. 17% of the Nasdaq-100 hit new 52-week lows today but investor sentiment still shows over 40% of analysts are still bullish. Until the indexes see a washout of this sentiment we will not see a bottom. The global economy is still a factor. Japan continues to fall and is only days away from even more serious problems. Intel said tonight that sales in Japan had fallen significantly and the outlook was worsening. Brazil markets hit another 52-week low. As investors we need to be aware of the world around us and not be so introverted that we are fixated on some index number like S&P-1100 or Nasdaq 1638. These numbers would be critical in any normal market as clear turning point signals but in today's environment they may be meaningless. The forecast for Friday is a good possibility of a relief or short covering rally. Highly profitable shorts may want to clear the table and start over on Monday. However, last Friday, while positive did not really show a rush to cover. Shorts are becoming more confident that the markets have much farther to fall and therefore are less likely to cover. There are no bargain hunters. There will be some investors averaging down but funds will be using any bounce to raise cash and that is not a recipe for a long term rally. Sell the rally is the battle cry and until that strategy fails it will continue to create repeat profits for those who trade the trend instead of their beliefs. Definitely, enter passively, exit aggressively! ================ Market Sentiment ================ Capitula Jeffrey Canavann Tech warnings, weak retail sales, and worse than expected economic data was almost enough to make bulls capitulate. The S&P 500 lost 2.23%, and closed within 16 points of the April 4th low. The Nasdaq finished the day at 1,705, 86 points away from its April low. It's almost as if bulls were running scared. Market Volatility Index Daily Chart Since May, bulls have been relatively fearless, but over the last seven days the Market Volatility Index (VIX) has jumped 10 points, 3.40 of that today, to 32.36. A rising VIX means increasing fear, but readings above 35 are generally interpreted as overly pessimistic and possible turning points. We are not there yet, but fear is starting to permeate Wall Street. Bullish percent data, which measures the number of stocks trading on a point and figure buy signal, is also telling us that stocks may be getting too skewed to the downside. Readings below 30 generally mean that an index is too oversold. The Nasdaq-100 bullish percent is currently sitting at 14 and closing in on oversold levels not seen since April. The S&P 500 bullish percent is also closing in on April levels. Throw in some put/call ratios that are leaning to the bearish side and an Arms Index above 1.50, and perhaps were getting somewhere. But then Intel had to come out and say that they are "as comfortable as [we] can be with the third quarter." Microprocessors continue to follow seasonal growth patterns, sales in Japan are weak, but revenues and margins should come in just below the mid-point of estimates. Not a stellar report, but not too bad when everyone was expecting the worst. That should prevent a sharp sell off tomorrow, which would have helped to push contrarian indicators to extreme levels, but instead we might have to wait for the next warning for that to happen. That shouldn't take long. So in conclusion, things are getting so bad that they are almost good. The arguments against are deteriorating advance/decline and new high/new low readings, failure of bonds to continue their sell off, and consistent flows out of equity mutual funds. ----------------------------------------------------------------- Market Volatility VIX 32.36 VXN 62.01 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total .98 742,052 728,941 Equity Only .82 598,331 489,344 OEX 1.13 25,292 28,602 QQQ 1.05 95,054 99,387 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 32 -2 Bear Confirmed NASDAQ-100 18 -6 Bear Confirmed DOW 30 - Bear Confirmed S&P 500 42 -2 Bear Confirmed S&P 100 32 -4 Bear 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 ----------------------------------------------------------------- 5-Day Arms Index 1.60 10-Day Arms Index 1.46 21-Day Arms Index 1.47 55-Day Arms Index 1.30 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 997 2107 NASDAQ 1098 2533 New Highs New Lows NYSE 67 150 NASDAQ 35 267 Volume (in millions) NYSE 1,340 NASDAQ 1,872 ----------------------------------------------------------------- Advisory Sentiment Bullish Bearish Correction Net Bullish Change 43.9% 30.6% 25.5% 16.7% -3.4% 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: 08/28/01 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 Commercial traders increased their net bearish by 6.9%. This isn't a drastic move, but (79,126) is the most bearish commercial traders have been since 3/13/01. Commercials Long Short Net % Of OI 8/14/01 337,327 411,504 (74,177) ( 9.91%) 8/21/01 342,332 416,372 (74,040) ( 9.76%) 8/28/01 342,742 421,868 (79,126) (10.35%) 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 8/14/01 130,432 55,750 74,682 40.11% 8/21/01 134,280 58,785 75,495 39.10% 8/28/01 141,046 58,001 83,045 41.72% 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 didn't add any long positions, but did dump a few short positions, so the net bearish position improved slightly. Commercials Long Short Net % of OI 8/14/01 29,909 37,822 ( 7,913) (11.68%) 8/21/01 30,348 38,964 ( 8,616) (12.43%) 8/28/01 29,255 36,551 ( 7,296) (11.09%) 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 8/14/01 11,165 9,508 1,657 8.02% 8/21/01 10,499 7,576 2,923 16.17% 8/28/01 11,131 9,694 1,437 6.90% 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 Last week commercials came close to the most bullish reading of the year, but have pulled back this week. Commercials Long Short Net % of OI 8/14/01 21,652 15,856 5,796 15.5% 8/21/01 22,710 14,625 8,085 21.7% 8/28/01 22,141 14,959 7,182 19.4% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 8,925 - 5/22/01 Small Traders Long Short Net % of OI 8/14/01 4,441 8,528 (4,087) (31.51%) 8/21/01 5,059 10,410 (5,351) (34.59%) 8/28/01 5,240 9,835 (4,595) (30.48%) Most bearish reading of the year: (7,572) - 5/08/01 Most bullish reading of the year: 1,909 - 1/16/01 COT Commercial Net Position Charts ----------------------------------------------------------------- ========================= Play-of-the-Day (Bearish) ========================= Fifth Third Bancorp - FITB Close:$55.92 Change:-1.44 Stop:$57.75 NEW Original Comments When Selected on August 28th: Company Description: Fifth Third Bancorp, through its affiliate banks, operates over 1,000 branches in Florida, Arizona, Kentucky, Illinois, Michigan and Ohio. The company also offers insurance (credit, health and accident), investment services (mutual funds, trust and brokerage) and processes credit card transaction. Fundamentals: Last year, the company earned $1.88 per share on revenue of $3.3 billion. This year, the firm is expected to earn $2.37 on revenue of 3.7 billion and $2.77 on $4.3 billon in 2002. It has a forward 2001 P/E of 25, which is significantly higher than the industry average of 16. Why We Like It: Regional banks in general are looking very weak. Sector shares had been benefiting from a resilient real estate market and falling interest rates. Traders are becoming concerned that the poor economy is finally reaching the home sale market and that the Fed may be nearing the end of this cycle of cutting interest rates. Having been driven up so far, banks are looking painfully overvalued. FITB shares have moved from below $30 in March of 2000 to a 52-week high of $64.77 on August 15th. After stalling out at that level since then, the shares began tumbling from above $64. The bulls attempted to right reverse direction at the $59 support level, but after some initial success in the morning hours on Tuesday, the shares faltered badly. Despite the 10-cent gain, it is clear the bears are in charge. Downside support should occur at the 200-day moving average of $56.48. We have a bearish price target of $53. Aggressive traders can get in now; conservative ones should wait for the break below $59. Updated Comments: FITB continued its slide today by dropping 2.51%. That puts it below the 200-dma, and free to fall further. The Banking sector also lost some key support levels today. We are moving our trailing stop down to $57.75. Picked on August 28th at $59.30 Gain since picked: +3.38 Earnings Date N/A ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright © 2001 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Thursday 09-06-2001 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/5015_2.asp ================================================================= In section two: Split Trader New Plays: Toro Co - TTC (Bullish) Play Updates: AHC, STJ, Closed Plays: Lennar - LEN Net Bulls New Plays: Amgen Inc - AMGN (Bullish) Bullish Play Updates: Atrix Laboratories - ATRX Bearish Play Updates: MEDI, MMM, QCOM, Closed Plays: none Stock Bottom / Active Trader New Plays: none Bullish Play Updates: CLX, MO, PEP Bearish Play Updates: FITB, TCB, PSFT, VRSN Closed Plays: none 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 ================================================================== ============ ST New Plays ============ ------------------------- New Split Candidate Play ------------------------- Toro Co - TTC Close: 46.48 Change: +0.49 Stop: $45.00 Company Description: Toro makes mowers, snow blowers and other lawn and landscaping products for professional (nearly two-thirds of sales) and residential use. Its professional products (Toro, Dingo) include turf and grounds maintenance equipment such as mowers, trimmers, sprayers, and aerators. Its residential products -- sold under the Toro, Lawn-Boy, and Lawn Genie names -- include power walk-behind and riding mowers and snowblowers. Toro also makes irrigation products (Toro, Irritrol). The company sells its products through mass retailers, home centers, and distributors mostly in North America, and in more than 65 countries. Major competitors are Deere and Honda. Fundamentals: For the first half of 2001, net income increased 13-percent to $31.4 million on a 3-percent pop in sales to $747 million. Analysts expect the company to earn $3.90 per share in the fiscal year ending in October 2001 and $4.35 per share in 2002. Last year, the company earned $3.47 per share on sales of $1.3 billion. The company expects full-year revenue growth to be relatively flat and is comfortable with analysts' earnings projections. For 2002, the firm expects single-digit revenue growth, but double-digit earnings growth. Why We Like It: Toro is not letting the weak economy mow it down (sorry for the pun). They've announced a plan to increase net margins to 5- percent by 2003. If successful, this would give them earnings in excess of $6.00 per share, a nice increase over the $3.90 forecasted for 2001. Based on their estimated 2001 P/E of 12, this would give them a projected share price of $72. Although the bulk of this appreciation should occur in 2002 as investors track the success of their efficiency plan, the shares are performing well in today's bear market. Since hitting $29.87 in late-October they have been on a consistent up trend. The shares have backed off from their $48.82 52-week high set on August 21st, but four consecutive positive trading sessions on rising volume suggests they are ready to resume their upward movement. We see a short- term target of price of $51 and a one-year target of between $69 and $72. Short-term traders can start with a $45.00 stop, which would be just below the recent $45.25 lows. Long haul investors can sleep at night with a stop at $40, which is just below the long-term bullish trend line at $41. Picked on September 6th at $46.48 Earnings Date: N/A (Not Confirmed) =============== ST Play Updates =============== ----------------------- Split Candidate Updates ----------------------- Amerada Hess - AHC - close: 77.98 change: -0.17 stop: 75.80 AHC is hanging in there despite the pounding losses in the broader market. The Oil Services sector was one of the few that closed in positive territory on Thursday. Recent news that is probably propping up a number of oil stocks was the API report showing a 1.9 million barrel drop in last week's gasoline inventories. This helped push gasoline futures to a 14 week high. The price for October crude oil rose 63 cents to 27.58 a barrel. Shares of AHC have benefited from this trend in gas and oil prices. The stock has managed to hold a new level of support at $78 since the 4th of September. This doesn't look strong enough to trade from it but it is an encouraging sign in a discouraging market. We still suggest that investors wait for the stock to close over $79 before considering a long play. Picked on August 15th @ $ 78.90 Gain since picked: - 0.92 Earnings Date: N/A (not confirmed) --- St. Jude - STJ - close: 69.39 change: -0.45 stop: 67.88 There is something to be said for relative strength (again). STJ continues to hold on to its bullish trend in direct contrast to the larger market declines. If only the stock could break through resistance at $70; then the trend would truly be confirmed as bullish. $70 has been a tight lid on the stock price for over a week now. Today's news of a joint marketing alliance with LifeScan, a Johnson & Johnson company, for an anti- coagulation monitoring system could not inspire the buyers with enough strength to make a break out. Who could blame them with the DJIA down almost 200 points today? If you're looking for long plays then patience is the name of the game. Right now we're patiently waiting for that close over $70 to mark our potential entry point. Picked on August 30th @ $ 69.85 Gain since picked: - .46 Earnings Date: N/A (not confirmed) =============== ST Closed Plays =============== ---------------------------- Closed Split Candidate Plays ---------------------------- Lennar - LEN - close: 42.43 change: -1.61 stop: 42.50 Giving in to market pressure, traders did some profit-taking in LEN the last couple of days. We were stopped out at 42.50 today helping cement a gain of 1.84 or 4.5%. We should have followed our own advice on Tuesday and closed the play when it was up almost 11%. Aside from the last couple of days, LEN has shown surprising strength. If $42 can hold as new support traders should watch the stock for the up trend to continue. The company put out a press release yesterday stating their preliminary new home orders for August were up 7% over last year. If business is that good they are sure to see buying interest while the rest of the market is falling. Picked on August 16th @ $ 40.66 Gain since picked: + 1.84 Earnings Date: 09/19/01 (not confirmed) ================================================================== Net Bulls (NB) section ================================================================== ============ NB New Plays ============ -------------- New Long Play -------------- Amgen Inc - AMGN Close: 65.66 Change: +0.46 Stop: $62.00 Company Description: This is the largest of the biotech firms. Amgen makes drugs for nephrology, cancer, inflammatory disorders, and metabolic and neurodegenerative diseases. It’s anti-anemia drug Epogen and immune system stimulator Neupogen account for nearly 90-percent of sales. Amgens Infergen has been commercialized as a treatment for hepatitis C, and Stemgen is approved for stem cell therapy in Australia, Canada, and New Zealand. The company has a strong pipeline of drugs in various stages of development. Fundamentals: Analysts expect the firm to earn $1.18 per share on sales of $4.1 billion in 2001 and $1.40 on $4.8 billion in 2002. Last year, the company earned $1.06 on sales of $4.3 billion. Why We Like It: Although not immune to the recent market weakness, the biotechs have held up reasonably well. With the markets approaching the April lows, we want to position ourselves for a possible bounce. If a rally does ensue, as one of the stronger sectors, biotechs should perform well over weaker sectors. As one of the best names in the sector, AMGN shares have been on a solid bullish run since hitting $53.48 in mid-July. If they can move this well in the teeth of a declining hitting, it is reasonable to think they will outperform the market with any rally. There are several reasons for the popularity of AMGN shares. The company's has strong earnings and a great pipeline ensuring a rosy future for their shares. An FDA advisory panel has recommended approval of Kinerit for rheumatoid arthritis, which is expected to have sales of $160 million. Later this year, approval is expected for Aranesp, a second-generation anti-anemic drug, which is forecast to be a blockbuster product with sales in excess of $1 billion. After basing around their $63.69 200-day moving average, AMGN shares look ready for the next leg up. Four out of the last five trading session have been positive on rising volume. A short-term test of the June 5th $70.60 session high is likely, with a possible run at the February 28th $75.06 high. To the downside, the before mentioned 200 dma should provide support from a bear attack. We will start this play with a stop at $62, which is just below Wednesday's $62.20 session low. Picked on September 6th at $65.66 Earnings Date: 10/25 (Not Confirmed) =============== NB Play Updates =============== ----------------------- NB Bullish Play Updates ----------------------- Atrix Laboratories - ATRX - close: 25.99 change: -0.49 stop: 24.25 By the close of today's session, traders found shares of Atrix bouncing off of support at 25.50. The stock bounced here at 25.50 last Thursday before making a rally attempt towards $28. If shares closed under this level of support we would be concerned. Traders should see it as a red flag. Investors probably feel fortunate that ATRX didn't drop farther today with both the Drug index and the Biotech index both dripping red ink today. The question for traders now is whether ATRX has the strength to rally from this level. Company management provided long-term shareholders positive news today with their decision to recall the remainder of their convertible notes. Redeeming these notes will erase over $7 million in debt and strengthen the company's financial position. Before we wrap up our comments on ATRX let us remind you of our comments on Tuesday. Any dip and bounce at $26 or $25.50 could be viewed as potential entry points for long positions. We got the dip. If the stock can bounce from here the play might work out after all. Picked on August 31st @ $26.97 Gain since picked: - 0.98 Earnings Date: N/A ----------------------- NB Bearish Play Updates ----------------------- MedImmune - MEDI - close: 39.21 change: -2.39 stop: 41.50 *new* U.S. Bancorp Piper Jaffray's Biotechnology analyst released a 116 page report on the biotech sector today. We're sure it would make interesting reading but the media has summarized the report for us. The analyst claims that investors should be focusing on select small to mid-cap companies for future investments to profit in the second half of 2001. Interestingly enough the press release made sure to show us that his top rated large-cap pick was MEDI. Unfortunately for MEDI this proved to be no support today as the stock fell 5.74% to close below key support of $40. But this got us thinking...(okay, so it didn't but stay with us)... are there any biotechs worth buying right now? As long as you're in them for the short-term trade we thought Amgen and Biogen both looked pretty attractive. Thus, we decided to put conflicting trades on the newsletter. We maintain our short play in MEDI but tonight you'll see a new long play for AMGN which is clearly bucking the trend in the overall markets as well as the biotech sector. Speaking of the biotech sector, the BTK.X produced huge gains from Aug. 22nd through Aug. 27th. Yet since then the group has pulled back and today completed a retracement of 61.8% of those gains. Retracement fans should recognize that number as a common Fibonacci retracement level for gauging potential reversals and/or levels of support. Unfortunately, if it's come back this far we don't have a lot of hope aside from an oversold bounce. We are going to lower our stop on MEDI to 41.50 or just over today's intraday high. Look for speed bumps on the way down at $38, $36 and $34. Picked on August 28th @ $40.46 Gain since picked: + 1.25 Earnings Date: 10/24 (not confirmed) --- 3M - MMM - close: 103.90 change: -1.10 stop: 108.00 Hmmmm... today's trading in 3M should have you wondering. The Dow Jones falls almost 200 points and we get a lousy $1.10 slip in MMM? That doesn't sound like what we were hoping for. Looking at today's low and last Thursday's low it appears that someone's willing to pay $103 for this stock and until they change their mind or they run out of money this short play may be in trouble. Don't get us wrong. We don't seriously think one person or agent out there is going to stop this stock from going down if the market keeps sliding but this does make us pause for concern. We did lower our stop to $108 yesterday and we've decided to leave it there for the moment. Since both the Dow and MMM both look weak we should be okay but we don't want to get caught in a relief rally too soon. Confirm stock and market direction before initiating any new plays. Picked on August 29th @ $106.75 Gain since picked: + 2.85 Earnings Date: N/A --- QUALCOMM - QCOM - close: 48.51 change: -4.70 stop: 49.50 *new* QCOM could be working on a new record. The stock has suffered eight down days in a row. The bulls may be battered and beaten but even the bears have to pause and catch their breath. Which is our primary concern - the sharp sell-off in QCOM is way over- due for a bounce. Negative market conditions bolstered by still more negative sector news has powered the move down on big volume. Today's drop was produced with volume of 24.9 million versus the normal 11.9 million shares traded. In Tuesday's update we mentioned that bears would likely target support at $50 or $48 before choosing to cover. Looks like they preferred the latter which was support in mid-March and again in mid-June. However, considering that the stock closed on its low for the day could mean the selling isn't quite over. Thus our dilemma; do we cover here at 48.50, just 50 cents from what looks like decent support and close the play with a 18.5% gain in a week? Or, do we keep the short open and "see just how far down the rabbit hole goes"? Well, we may be greedy but we're not stupid. After putting our heads together we've decided to lower our stop down to $49.50. If the pain continues for QCOM shareholders and the bears decide that the ride won't stop until we hit the April low of 42.75 then we want to hold on to our seat. But if the stock bounces and the shorts decide to cover we want out before it gets violent. At $49.50 our only concern is a gap up above our stop, which would cut into our gains. Friday could be an interesting day to say the least. Picked on August 30th @ $ 59.59 Gain since picked: + 11.08 Earnings Date: N/A --- PeopleSoft - PSFT - close: 27.70 change: -3.38 stop: 30.25 *new* Were you watching the GSO index like we said? The Goldman Sachs Software index fell over 5% today closing at 142. The software sector has not seen levels this low since October of 1998 and that marked the bottom before the next leg up in a huge bull market. Somehow we don't get the same feeling today. PSFT is really feeling the pressure as well. Shares managed to avoid any heavy losses yesterday despite the fact that a brokerage started coverage on them with an "underperform" based on earnings visibility concerns. Today shares gapped down under the stock's key support level of $30 and didn't look back. Even worse, the loss came on huge volume of 16.9 million shares versus the normal 8 million. We've said it before and we'll say it again, it never hurts to take a profit. Currently, the newsletter is up about 19.6% in this bearish play for PSFT. Odds are you are not the only trader short this stock and there could be some covering tomorrow. We've decided to lower our stop to $30.25 which was Wednesday's low. With the software sector in such disarray over earnings for the foreseeable future it wouldn't hurt us to get stopped out and re-enter a new bearish play at a future date. Of course by the looks of it the selling in PSFT could pick up again first thing tomorrow morning. Picked on August 31st @ $ 34.48 Gain since picked: + 6.78 Earnings Date: N/A --- VeriSign Inc. - VRSN - close: 34.16 change: -2.29 stop: 37.25 *new* This is another software stock that is falling on huge volume. Today's losses were fueled on volume of 17.1 million shares versus the normal 7.3 million shares. There are different schools of thought on volume and how it pertains to stock activity but usually when you see a breakout or a breakdown on big volume it really confirms the move or trend. What traders should find interesting with VRSN is the late day rallies. The stock is fighting hard to rebound from these losses but so far the bears are winning. The bulls are likely to find strong support at the $30 level and with the condition of the GSO.X we could be there soon. Needless to say the whole group is oversold and due for a relief rally. It was a tough choice to decide between closing the play with an 11% gain today or maintaining the short based on the big volume drops. We chose to keep the play open but we're lowering our stop to $37.25. If you look at an intraday chart of VRSN you'll see that the afternoon rally on Wednesday peaked near $37. We opted to put our stop just above this level. We've already said it once today but it bears repeating, it never hurts to take a profit. If you're profitable in this play think about taking some money off the table. Picked on September 4th, 2001 @ $38.44 Change since picked: + 4.28 Earnings Date: 10/25/01 (not confirmed) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== =============== AT Play Updates =============== ----------------- Long Play Updates ----------------- Clorox CLX Close:$38.40 Gain:-0.02 Stop:$27.00 Losing two cents on a day when the Dow lost 192 isn't too bad. Clorox should be positioned well if and when the overall market turns around, and based on today's performance, should hold up well during a sell off. Picked on September 5th at $38.42 Gain since picked: -0.02 Earnings Date N/A --- Phillip Morris MO Close:$47.86 Gain:-0.64 Stop:$45.00 Even defensive stocks could avoid the carnage on Wall Street today, and Phillip Morris slipped $0.64 today. It did hold up better than most, and remained above recent lows at $47. Picked on August 30th at $47.94 Gain since picked: -0.08 Earnings Date 10/17/01 (unconfirmed) --- Pepsi PEP Close:$47.10 Gain:-0.70 Stop:$46.50 Pepsi Bottling Group (PBG) said that they were on track to meet Q3 earnings, but that couldn't help Pepsi (PEP) during today's sell off. The stock lost $0.70, but remains in a five-day consolidation range between $46.79 and $47.94. Picked on August 10th at $45.66 Gain since picked: +1.44 Earnings Date N/A ------------------ Short Play Updates ------------------ Fifth Third Bancorp FITB Close:$55.92 Gain:-1.44 Stop:$57.75 NEW FITB continued its slide today by dropping 2.51%. That puts it below the 200-dma, and free to fall further. The Banking sector also lost some key support levels today. We are moving our trailing stop down to $57.75. Picked on August 28th at $59.30 Gain since picked: +3.38 Earnings Date N/A --- TCF Financial TCB Close:$43.10 Gain:-0.89 Stop:$44.60 NEW TCF Financial has lost $2.23 over the past two days as banking stocks, and most stocks for that matter, continue to attract selling. We are now up 9.45% on this pick, but the 200-day moving average is only $1.48 away, which may offer a place for this stock to bounce. For now we are lowering our stop to $44.60, but keeping an eye on the 200-day moving average. Picked on August 24th at $47.60 Gain since picked: +4.50 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 COCB Conoco Inc 31.06 +0.56 DEBSDeb Shops Inc24.37+1.37 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change SLNK Spectralink Corp 18.70 +1.83 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change BGEN Biogen Inc 61.76 +1.10 FTN First Tennessee National 32.61 +1.32 GWW WW Granger Inc 44.93 +1.48 EXPD Expeditors Int Wash Inc 55.46 +3.18 VLO Valero Energy 43.59 +1.59 DP Diagnostic Products 43.95 +1.40 ----------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change QCOM Qualcomm Inc 48.51 -4.70 BAC Bank of America 59.78 -1.51 MSFT Microsoft 56.02 -1.72 MDT Medtronic 42.86 -2.09 JPM Jp Morgan Chase &Co 36.94 -1.41 ------------------------------------------------------------ Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------------------------- Ticker Company Name Close Change AEE Ameren Corp 41.43 -0.07 CIV Conectiv Inc 23.65 -0.10 GALN Galen Holdings Plc 41.40 -2.10 TOL Toll Brothers Inc 35.66 -1.59 ================================================================= 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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