PremierInvestor.net Newsletter Friday 09-14-2001 Section 1 of 3 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/6078_1.asp ================================================================= In This Section Market Wrap: Market Meltdown or Explosion? Market Sentiment: Economic Update Sector Impact: Spotlight on the Gold/Silver sector Special Report: A Survival Guide For Monday Special Report: Questions on Hedging a Position ------------------------------------------------------------------- U.S. Market Numbers ------------------------------------------------------------------ MARKET WRAP (view in courier font for table alignment) ------------------------------------------------------------------ WE 9-14 WE 9-7 WE 8-31 WE 8-24 DOW 9605.51 - .34 9605.85 -343.90 9949.75 -473.42 +182.39 Nasdaq 1695.37 + 7.67 1687.70 -117.73 1805.43 -111.37 + 49.79 S&P-100 558.58 + 4.69 553.89 - 23.51 577.40 - 29.31 + 12.84 S&P-500 1092.54 + 6.76 1085.78 - 47.80 1133.58 - 51.35 + 22.96 W5000 10104.44 + 37.95 10066.49 -448.60 10515.09 -433.32 +188.32 RUT 440.73 - 4.46 445.19 - 23.37 468.56 - 12.25 + 5.16 TRAN 2676.49 - 36.65 2713.14 -100.27 2813.41 - 40.98 + 29.74 VIX 34.60 + .24 34.36 + 6.51 27.85 + 5.56 - 4.45 VXN 63.84 - 1.61 65.45 + 12.59 52.86 + 5.16 - 4.32 TRIN 3.28 1.25 .71 .70 TICK +100 -113 -74 351 Put/Call 1.01 .84 .82 .56 ------------------------------------------------------------------ WE = Week Ended ------------------------------------------------------------------ =========== Market Wrap =========== Market Meltdown or Explosion? by Jim Brown The damage has been done to lives and buildings. The damage to the stock market has yet to be seen. When the NYSE opens for trading on Monday it will not be without problems. Still the almost superhuman effort to reroute communications, occupy temporary office space, install and configure new computers, servers, routers, etc, will be tested under fire at 9:30 Monday morning. There is likely to be outages, bad ticks and massive failures as record volume hits the boards. Still America will be back in business but it will not be business as usual. CHART of the DJIA (daily) CHART of the NASDAQ Composite (daily) There is a huge difference of opinion as to what will happen on Monday morning. There is a group of analysts that think the markets could easily drop 8-10% at the open, rebound slightly and then fall off the cliff to extreme levels. The bullish camp think that Americans have put on their red, white and blue trading caps and will rush in to buy America on sale on Monday and create a very strong patriotic rally. Reality will likely be something in the middle of both those extremes. The Fed is building a fortress around the U.S. stock market and the American financial system. They have injected almost $215 billion of liquidity into the system in the last three days. $90 billion of that was funding for foreign banks to prevent a cash drain as funds are shipped around the world when the markets open for business. The Fed Funds Futures are showing almost an 85% chance for a 100 point rate cut in the next 30 days. The educated bettors are expecting a 50 point cut before the market opens on Monday with another cut at the October 2nd meeting if the markets are still in the tank. The Fed action, if it comes, will provide a boost to the market, temporarily. Because it has been telegraphed all week much of the impact has already been dulled. Heaven help us if they do not cut or only cut a quarter. The biggest problems will come from the change in the world as we know it. Airlines for example are literally on the verge of bankruptcy from the already 50% drop in revenue over the next 90 days. Reservations are being cancelled daily, and new restrictions on travel are being added as well. The CEO of Continental said on CNBC that most airlines would not survive the next 90 days without intervention. The government is trying to rush through a $2.5 billion grant to keep them liquid over the next two weeks and then a $12.5 billion loan guarantee to prevent them from bankrupting over the next 90 days. Air travel as we know it has changed. The airline sector as we know it will likely change over the next 90 days as well. Expect smaller carriers with lower reserves to experience problems and become prey for the giants. The -50% drop in airline bookings will also impact hotels, restaurants, retail and the service industry. Consumers were already losing confidence in the economy as evidenced by the huge drop in the sentiment numbers on Thursday. The University of Michigan sentiment dropped to 83.6 from 91.5 in August and was far below the 90.8 analysts expected. This is what the Fed has feared for some time. Fueling this drop was the spike in jobless claims to 431,000. With a head start down the recession hill any pull back by consumers because of the fear of terrorism could grease the skids not only in the U.S. but globally as well. The state department has issued a strong caution for overseas travel and the bombs have not even started falling. Without the U.S. tourist as well as tourists in general there will be serious problems with the global picture. Local economists are painting a gloomy picture. First Union said on Friday that the drop in retail, restaurants, hotels and travel would be enough to push the U.S. economy into a full blown recession. The economist for Bank One was also negative about the possibility of avoiding a global recession. In reality market fundamentals have worsened. Before the attack the fundamentals were terrible and the markets were tanking as companies warned on a daily basis. Now that the fundamentals for a major portion of our economy have literally been cut in half how can the markets react positively? General Electric was the first major company to warn based on the attack. They said losses in their reinsurance company for claims on the WTC would knock four cents off their earnings for this quarter. AIG also said they would lose -$500 million for their part in the claims. These are only the first of many warnings but these warnings may be seen as one time charges instead of normal operating and therefore ignored. It still sets a tone for the markets that is negative. Ford said disturbance in supply lines would cause it to make fewer vehicles and they would miss earnings estimates. Multiply this by hundreds of companies and you can see what lies ahead. Contrary to all the negative issues I mentioned above there are also many positive benefits to the economy. The amount of replacement hardware for the ground zero businesses will be substantial but it will still only be a blip on the screen long term. What will help is the change in business climate nationwide. Many corporations will see the devastation and complete destruction and start thinking about what would happen if that happened to their building due to terrorism, fire, flood, hurricane, tornado, earthquake, etc. It makes you feel very vulnerable. There will be a rise in orders as thousands of companies beef up their disaster recovery plans. The security sector will undergo a complete makeover and literally hundreds of thousands of people could find employment there over the next year. As the counter attack progresses it will heighten awareness and increase the security level for all America. This wave of capital spending will take some time to be seen in sales and profits but it will happen. It will not happen in time to help the markets next week. What will help us next week is the relaxation of the buyback rules by the SEC. They normally prevent companies from buying back their stock in volume on the open market. This prevents companies from manipulating their stock price. With the relaxed rules companies have more freedom to buy larger amounts. Cisco has already announced a $3 billion buyback to begin next week. AIG, even after announcing a $500 million loss, has approved a 40 million share buyback. This will put a floor under their shares. CSCO at $14.47 could put out a blanket order for millions of shares at $13. This would allow some market movement but limit the downside. AIG at $74 could put in a limit buy at $69.75 and basically support the stock in a very bad sector while giving themselves a little breathing room. Monday is likely to be historic in more ways than one. Many analysts think we could easily see the biggest volume day ever. Some have said we could actually see four billion shares on the NYSE. While I doubt the four million mark it will be very heavy. The best guess for direction is a strong dip at the open followed by a patriotic rebound but ending negative for the day. The war between the bears and the bulls could be waged for most of the week. There is likely to be a struggle to rally which will end with the realization of the recessionary facts. Sentiment has taken a serious hit on top of the drop from the prior week. Earnings will continue to fall through the fourth quarter and any bounce from a new wave of capital spending will not be seen until next year. The Dow is going to face a challenge from Boeing, GE, GM, JPM, AXP, C, WMT and DIS. Boeing is rumored to be at risk to drop -15% to -20%. JPM, C and AXP could easily drop -10% to -15%. The Dow, which closed at 9605 last Monday, could easily hit 9300 or even 9000 on panic selling. The European/Asian markets have fallen close to -10% on the news and could fall more in advance of our market open on Monday. A 5% drop on the Dow would put it at 9124. A 10% drop would see 8644. The markets were already severely oversold from the prior week and even a 5% drop from here may be too much of a temptation for investors to resist. That is of course if there are any investors willing to buy the dip in front of a huge unknown. With comments in the media today that Bin Laden has over 10,000 trained soldiers at his disposal across several countries, the battle is shaping up to be long and arduous. Up to 50,000 reservists have been approved to be called into active duty. This is bound to weigh on investors and consumers. The threats of revenge are already being made by the Taliban and they have the resources to carry it out. This will not be a couple cruise missiles launched in the night. This is going to be a sustained conflict with a good possibility of a ground war. Russia spent years and lost thousands of soldiers in Afghanistan. It is a very rough terrain and not conducive to a quick conclusion. Benjamin Netanyahu called the attack the "wake up call from hell." The threat has always been there but their technical ability to act on it was lacking. He said they are capable of changing the direction of history if they are not stopped soon. This type of information is being absorbed by investors and it will weigh heavy on the markets. I would love to tell you that the market will do thus and so on Monday and have you plan your trades accordingly. Unfortunately there is no human being with the ability to predict what will happen. We have spent the entire week producing special reports and analyzing the possibilities. We have received some great emails from our readers about these efforts. The sector analysis, trading tips and sentiment pieces were our efforts to equip you to make the right decisions on Monday. We have had some very successful put plays recently. Many of them could have been very successful on Monday as well. Because we do not want to look like opportunists trying to profit on the tragedy we are dropping all of them this weekend. BA, PGR, TSG, JPM, AIG, ACF and MER. How you continue to play these is of course up to you. We have been asked by many to suggest some plays that we thought would benefit from the money shuffle that will occur. We tried to find a couple politically correct companies that were not directly impacted but would benefit from a longer term outlook. We chose ATK, Alliant Tech Systems and NBR, Nabors Industries an oil driller that focuses on the lower 48 states. We also suggested a couple plays on the QQQ and DJX to benefit from any major dip and rebound. We will resume a regular play pick schedule on Tuesday after the smoke clears. If you are not in the markets currently I would be very careful attempting to trade them on Monday. Those readers who are long options and have seen time value evaporate over the last week would do well to monitor those positions closely. The Options Clearing Corp will not change the expiration date. Remember, for every holder of a long option who is wishing for another week of time to hopefully recover value, there is another writer of that option that wants it to expire worthless. Do not expect relief in that direction. I apologize! Apparently many readers took my comments from Thursday night incorrectly and not in the spirit given. I apologize for the misunderstanding. I fully support Bush and realize that plans for any military operation must be fully developed before being put into operation. That was never in question. The point I was trying to make was the tone of the delivery of every speech by Bush was so soft and lacking in emotion that I feared the leaders of the rogue nations would read it as weakness. I wanted to see him speak more forcefully and with passion. I never suggested he simply start flinging bombs with reckless abandon. The various speeches on Friday were delivered with much more confidence and determination. It was encouraging. I seldom use this venue to make political statements and I apologize for any misunderstanding. Check out the great strategy sections and special reports in this weekends edition of the newsletter. New articles as well as the articles from earlier in the week are being repeated and summarized for your trading education. Profit from it! Definitely, enter passively, exit aggressively! Jim Brown Contributing Editor ================ Market Sentiment ================ Economic Update by Jeffrey Canavan Now more than ever there is going to be a focus on the U.S. economy. It pales in comparison to the emotional pain and suffering we are all experiencing, but eventually we will rebound fiscally. An economic recovery, or economic counter-strike as some are calling it, may be delayed for a quarter or two, but I fell completely confident in the strength of American consumers and corporations to hold up during this trying time. The importance of economic and corporate data that has been released this week may be miniscule, but it will give us a yardstick to measure our country's financial performance going forward. The most encouraging news came from Cisco. Its board has approved a $3 billion stock buyback program to be implemented over the next two years to bolster investor confidence. According to CFO Larry Carter, "We think this is the right thing to do now for our shareholders." Pfizer also stated that it would continue its stock buyback program, and reaffirmed guidance for 2001 and 2002 earnings. "Pfizer, like America remains strong, and we continue to be confident in our future as a company and in the strength of the nation's economy and institutions," said CEO Hank McKinnell. The SEC is expected to temporarily ease restrictions on companies buying back more than a specific amount of their own shares to help inject money into the market. Oracle's thoughts were focused on their eight missing coworkers, not on company earnings, but the company posted a 2% increase in net income. Any conference calls and future guidance have been postponed until trading resumes. Airlines have eased back into operation, with 20% to 50% of daily flights operating. The airline industry has reportedly lost $40 to $60 million dollars per day during the travel stoppage. A measure currently in front of the House of Representatives would provide $15 billion in relief to the struggling airline industry. $2.5 billion of that would go to cover losses, and the remaining $12.5 billion would extend credit or guarantee loans. Not all news from corporate America is positive. Ford announced that they would cut production by 110,000 to 120,000 units, and third-quarter earnings would come up short of expectations. General Electric reported that they would cut their third quarter earnings by 4 cents per share due to $600 million in expected claims for its Employers Reinsurance unit. Semiconductor testing equipment maker Teradyne has eliminated 1,000 jobs, or 11% of its workforce, and warned that financial results would come in at the low end of expectations. One of the most closely watched economic indicators going forward will be consumer confidence. Before the affects of Tuesday's attacks were realized, consumer confidence dropped 7.9 points to 83.6. While these events could break consumer confidence, a Gallop Poll revealed that 6 out of 10 respondents do not plan to make any changes in their personal lives or activities to avoid being a victim. Count me in. Demand for homes and refinancing activity remains strong, but have come off their highest levels of the year. The Mortgage Bankers Association's index of mortgage applications fell 2.6% for the week ending September 7th, but that is still 18% above levels from four weeks ago. There are no significant signs of the housing market slowing. Industrial production continues to decline. After a slight improvement last month, industrial production fell 0.8% in August. Production has now fallen for eleven straight months. Announcements like Ford's may see this trend continue for a few months until rebuilding gets underway. The employment situation also continues to weaken. Initial jobless claims jumped 21,000 to 431,000, and continuous claims rose to 3,345,000. Disruptions to air travel and the normal flow of the economy could lead to further worsening in the employment situation in the short-term. The Economic Cycle Research Institute's Weekly Leading Index fell to 118.9 from 119.7 for the week ending September 7th. The decline in stock prices, one of the components of WLI, was the leading contributor to the decline, but labor data also added weakness. The indicator had been pointing to short-term weakness, but a slowly recovering economy. That recovery will most likely be postponed. The components of WLI include money supply, industrial markets price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless claims. The above data will do little sway investors on Monday, but once Wall Street gets back to normal, or at least as normal as humanly possible, we will once again have to turn attention back to the economic and corporate outlook. In the meantime traders and investors will most likely break one the cardinal rules - trading on emotion. ============== SPECIAL REPORT ============== Sector Impact - Spotlight on the Gold/Silver sector by Jeff Bailey I will ask every subscriber to do this NOW! Before you read any further, what do you think gold stocks did after Iraq invaded Kuwait? After you finish reading this article, you will understand why it is so important Monday morning not to rush to judgment regarding any type of investment decision! In times of uncertainty, many market participants become interested in gold stocks. Over the past couple of months we've talked about the Philadelphia Gold/Silver Index ($XAU.X) and what it may have been trying to tell us about the economy, inflation or possible stagflation. The index by itself doesn't "tell us anything" with monitoring the bond market and certain sectors that are more economically sensitive. A quick review must be made here. First, understand that the XAU.X is a basket of stocks. One's first impression if they're looking for some type of defensive play here is this.... If the markets were halted, is this investment going to provide me the hedge that I was looking for? Sounds silly to even think that doesn't it? I remember all too well when I was sitting in my World Finance class in college that Professor Olinyk (I'm sure I'm butchering the spelling of his last name) asked the class if a gold stock was truly a hedge against currency crisis. The discussion began, but the prevailing answer seemed to be that the true hedge was gold bullion, not the stock. The reason for that answer was that if stocks exchanges were to halt trading under an extreme global crisis, then perhaps gold bullion would be a truer hedge. I think I asked the question.... "how many 7-elevens will let me shave off a sliver of gold to pay for my candy bar and soft drink?" I think I know why I didn't get an "A" in global finance. With that said, Gold stocks will undoubtedly be pushed into the spotlight in coming weeks. As I did last night with Oil stocks, we should take a look back in history at the Persian Gulf War and that time frame as it may give us the needed historical pricing to see how things trade for this sector in coming weeks and months. Historians will remember that there were tensions rising before the United States and its allies pushed back the assault on Kuwait from Iraq. It was on August 2, 1990 when Iraq invaded Kuwait, but it was not until January 16th of 1991 that operation "Desert-Storm" began. This may be an interesting time line to study. So far, the United States has not declared war on anyone. As I mentioned in yesterday's commentary. Current market conditions are vastly different, but perhaps the global impact is seen as similar and some of these similarities may present themselves near-term. One might argue that the world's confidence has been shaken under current conditions, compared to those events dating back to the Persian Gulf War. Gold/Silver Index (XAU.X) - before and after Persian Gulf War Now, how did you answer the question in the opening paragraph of this article? Surprised? I sure as heck am. I would have answered it as "significantly outperformed the market." From the looks of it, a "speculator" that dumped their entire account into gold stocks when Iraq invaded Kuwait may not have like the result. As the time line unfolds, tensions were unfolding and things were "getting worse" in the Middle East. There was great uncertainty. Note the date 01/12/01 on the above chart when Congress voted to allow US troops to be used in the Middle East. At the time of this writing, Congress has yet to approve any use of US troops in a war effort. There may never be a "war effort," but it does give hint of how much time has yet to pass since terrorist attacks on the WTC and the Pentagon. As you can see from the above chart, there were certain jumps and declines in the Gold/Silver Index (XAU.X) as it pertains to certain events that unfolded during the Persian Gulf War. While past performance is no guarantee of future results, the above chart truly drives home the fact that every trader and investor must monitor an investment not based on BELIEF, but on how the instrument performs. I've mentioned that saying before and I'll do it again.... "forget what you believe, trade what you observe." The commodity itself Now it's time to put some statement to the test that I wrote in the fourth paragraph as it relates to Professor Olinyk's question of "commodity or stock?" Jeff Canavan has gathered the following information during the same time frame on the commodity itself based on Comex Gold Futures. Comex Gold Futures 7/01/90 $361.96/oz. 9/28/90 $408.17/oz. 2/01/91 $379.20/oz. 3-month gain $46.21 12.77% 6-month gain $17.24 4.76% The q-charts symbol for this commodity is (gc01v), which is the October futures symbol. Some subscribers may want to monitor this to get a feel for the MARKET's perception to various currency risks. The best bet for investors looking for some sort of guidance regarding the future of the markets is to try and sit tight the first couple of days of trading. This will allow some trends to develop where we can better interpret what the market is saying. The first priority for many investors will be to protect/hedge their current investments in their accounts. I've said before, that it is very difficult to simply watch one index by itself and make any type of analysis based on how that index trades. For the Gold/Silver Index and gold stocks, this is very true. ============== Special Report ============== A Survival Guide For Monday by Jon Farnlof Portfolios have already been hammered by the bear market and now...this. With good reason, many frightened investors are wondering whether to swallow losses by dumping long positions on Monday. They are concerned that short sellers and computerized program traders will push the markets into panic selling and a precipitant decline. However, before leaping, it may pay to understand the rules, conditions and historical precedents under which the equity markets will be operating when they reopen on Monday. It may also be useful to consider what trading strategies are available to you. Here is a summary of some items to consider: What To Do - Personal Strategy As far as existing long positions, if you think you are in a sector vulnerable to a significant drop, your options may be limited if you are on margin as opposed to owners of cash accounts. Once an investor gets a margin call, he/she will need to transfer new funds to cover the call or they may have no choice but to liquidate until they are in compliance with their broker's margin requirements. It may be a good idea to check with your broker a head of time to know exactly where you stand before being forced to make a snap decision. Owners of cash only accounts are more fortunate, they have four options: ride it out, hedge, set stops or sell outright. Riding it out requires nothing more then patience and a tolerance for pain. However, the others require a level of skill and forethought. For those of you who are fairly new or inexperienced to the gyrations of Wall Street, it is important that you have an understanding of the use of stop loss and stop limit orders in volatile markets. This may also be a good time to become knowledgeable about some of the hedging strategies used by the pros. Hedging a position reduces risk by enabling an investor to in effect buy a form of insurance to offset declines in long positions. Our master market strategist Jeff Bailey covered both these topics this week. Following are links to those articles: A Traders Personal Defense: Definition of various stop orders http://www.PremierInvestor.net/education/traderscorner/091101_3.asp Hedging a position http://www.PremierInvestor.net/markets/intradayupdates/091301_4.asp There was a swarm of reader emails following Jeff's original hedging article. You can read his responses elsewhere in this newsletter. As far as selling outright is concerned, traders need to be aware that there is no way to predict at what price market orders placed prior to the market open will be filled. Market makers will gauge order flow to determine the opening prices of shares. After that, your market order would be fed into a crush of orders and where it comes out nobody knows. It might be safer to stick with limit orders. Many investors will wait for 15 minutes to an hour after the opening bell to give the markets a chance to settle before making their sells. Historical Behavior Of Markets Following Crisis Events Unfortunately, this is not the first national tragedy that the markets have had to endure. Fortunately, if history repeats itself, after a sharp decline on Monday the markets will rebound within a short period of time. The day after the assassination of President Kennedy the Dow Industrials dropped 2.9-percent, but was up 12-percent after two months. The closest recent event in terms of affecting the price of oil and creating waves of travel cancellations was the Desert Storm war in the Persian Gulf. The DOW lost 4.3-percent in the weeks leading into the war, but regained 20-percent in the next two months. This pattern repeated itself following the terrorist attack on Pan Am #103, the 1993 bombing of the World Trade Center and the destruction of the Murrah Federal Building in Oklahoma City. In fact, according to markethistory.com, in the three weeks following 25 occurrences of US military action since 1941, the Dow Jones Industrial Average has risen by an average of 3-percent in 84-percent of those occurrences. Bullish Factors This crisis has exacted a terrible human cost, but it has not dealt a crippling blow to the US economy. After an initial negative reaction, the factors that influenced the market before the tragedy will likely reassert themselves as the primary arbiter of market strength or weakness. And even though we were knee deep in a deflating economy, signs were in existence that a bottom was in sight. Of great significance for Monday's trading, the SEC has suspended the rules that require companies to file before repurchasing its own stock. This means that attempts to short stock could be countered by companies buying their own stock to support their price. Woe to the company CEO whose shareholders discover he or she did not take advantage of this relaxation to do his or her patriotic and practical duty. A difficult factor to gauge will be old-fashioned patriotism. This pain has had a profound affect on even the most cold-blooded money managers. Many of the largest players have come forward to say they will restrain their short ways and not take advantage of the crisis. Will they? Or, if the markets begin to implode, will their fiduciary responsibilities overcome their patriotic intentions. In a bittersweet fashion, some of the expected declines may be mitigated by gains in the defense and security sectors. Bearish Factors These have been well covered elsewhere, but suffice to say the insurance and travel industries, in particular airlines, hotels and aircraft manufacture have and will suffer substantial financial losses as a consequence of last Tuesday. Trading Curbs and Circuit Breakers (Thank you to Buzz Lynn of our www.Indexskybox.com sister site for this information) For starters, it is important to realize that roughly 30% of all NYSE stocks traded each week on the NYSE, give or take a few percent, are traded by computer programs responding to volume and prices triggered by previous trades. Such is true when an index trades outside of fair value of its underlying securities. There is then an automatic computer-driven execution of trades by any number of financial institutions to arbitrage minute spreads between underlying stock values and the indexes they make up in a never- ending constant hedge. If an index exceeds fair value of its underlying stocks, stocks are purchased while the index is sold in order to re-create balance. Similarly, if fair value of an index becomes to cheap in relation to its underlying stocks, computers trigger the purchase of the index and sell the stocks in an arbitrage or hedged action until both arrive back at parity. However, in times of unbridled conviction or uncertainty, euphoria or fear, and extreme liquidity or panic, the system can go haywire as triggered orders heavily favored in one direction act in domino- like affect triggering yet more orders. Usually, the domino action takes place to the downside, but not always. It is for this reason that we humans need to have a method of pulling the plug on snowballing markets in either direction. That is where curbs come in. Curbs are designed to restore human thought to the selling or buying process, which theoretically allows cooler heads to prevail over meltdown (or melt up) market conditions. Here is how it works. No need to reinvent the wheel here. I have cut and pasted the exact language taken from the H. L. Camp & Company website and provided a link below. "A collar on program trading firms instituted by the NYSE is most commonly referred to on CNBC as "Curbs In". The Exchange applies program trading curbs whenever the Dow Jones Industrial Average moves 200 points higher, or 200 points lower than the previous day's closing price. The NYSE restriction on program trades stays in place until the Dow Jones returns to within 100 points of the previous day's closing price; or, until the end of the trading day at 3:00 CT. The restrictions will be re-imposed each time the Dow Jones advances or declines 200 points. NYSE Trading Curbs apply only to our firm's (and other program trading firm's) computer assisted program trades. The NYSE defines a Program Trade as: 1. A basket of 15 or more stocks from the S&P's 500 Index. 2. A basket of stocks from the S&P's 500 Index valued at $1 million or more. Once the NYSE program trading collar is in place, Program Selling can be executed only on an up-tick. That means that the last trade was executed at a higher price than the trade before it. Program Buying can be executed only on a down-tick. That means that the last trade was executed at a lower price than the trade before it. Program Trading "Circuit Breakers" If the Dow Jones Industrial Average falls 10%, trading is halted on the New York Stock Exchange for 60 minutes. If the Dow Jones rallies 10%, there is no restriction. Why? Because program buying and the accompany rally is always perceived as "good". If the Dow Jones Industrial Average falls 20%, trading is halted on the New York Stock Exchange for two hours. There is no trading halt if it rallies 20%, as that would be perceived as "very very good". If the Dow Jones Industrial Average falls 30%, trading is halted on the New York Stock Exchange for the day. There is no trading halt if it rallies 30%, as that would be perceived as "the best thing that ever happened in the history of the world". According to the NYSE the current 10, 20 and 30 percent decline levels, respectively, in the DJIA will be as follows: A 1,000 point drop in the DJIA will halt trading for one hour if the decline occurs before 2 p.m.; for 30 minutes if before 2:30 p.m.; and have no effect between 2:30 p.m. and 4 p.m. A 2,000 point drop will halt trading for two hours if the decline occurs before 1 p.m.; for one hour if before 2 p.m.; and for the remainder of the day if between 2 p.m. and 4 p.m. A 3,000 point drop will halt trading for the remainder of the day regardless of when the decline occurs. Point levels are set quarterly by using the DJIA average closing values of the previous month, rounded to the nearest 50 points. The percentage levels are adjusted quarterly on Jan. 1, April 1, July 1 and Oct. 1." For more information from HL Camp & Co. visit: http://www.programtrading.com/curbs.htm Add It Up These are by no means the only factors that will be making a taffy- pull out of trading sessions over the next few days. Futures traders are a real wild card. They have been sitting on short and long positions since last Tuesday growing increasingly anxious with every halted trading day. As they maneuver to extract themselves from positions, the market could react with a number of artificial bullish and bearish moves. No one of them indicative of a true market trend, but just the result of a technical move by a big money player looking to square a position. Given this level of volatility, for all but the most nimble and aggressive traders the best advice may be to trade lightly and not attempt to dance with the elephants. For more information that could aid you on Monday we encourage all of our readers to check out previous special reports on the site. You'll find additional links for them in a separate section of this email newsletter. ============== Special Report ============== Questions on Hedging a Position by Jeff Bailey Questions from readers I have been inundated with subscriber e-mail regarding different questions and comments. The most reoccurring question is that of hedging as I had written an article on one way a trader might want to look to hedge. To quickly revisit the Hedging a Position article, click here: (for PI) http://www.PremierInvestor.net/markets/intradayupdates/091301_4.asp ________________ Q: Isn't it to late to think about hedging? A: I don't know. No one knows for sure. Every investor must begin (if they haven't already) and search for that answer deep within them. Here's the process I go through. I go through this process BEFORE I ever buy/call a stock or short/put a stock. I ask myself. At what point are you going to sell for a profit? At what point are you going to sell for a loss? Now that the markets are halted, it is very much a possibility that a stock gaps below my previous stopping point. This is not a time that I throw my trading strategy and discipline out the window, but I MUST reassess the situation and have a contingency plan in place. This is where account management comes into play. How am I positioned? If I've been playing the market from both sides (bullish and bearish) then I will have some stocks that I'm short/put showing gains should the markets open lower. I may have some bullish positions turn against me. The IMPORTANT thing as it relates to investing is how your account performs over time. I would argue that the markets in the U.S. were not in the best of shape before the recent tragedy. Many of our subscribers that have been reading my intra-day market commentary were well aware of that. The ultimate question as it relates to investing/trading is "how is my account positioned?" Then.... at what point do I need to begin taking preventive action? A trader that is on margin in his/her account needs to take utmost care. Note: Nobody predicted or could have predicted recent events. I do feel a trader that is long a stock takes a "neutral" position once a hedge is established. A hedge is not necessarily established to totally eliminate losses! A hedge is designed to help lessen the blow should a decline take place or continue. ________________ Q: Jeff.... shouldn't a trader actually buy two put options on a stock with a high delta to hedge his/her position? A: Perhaps. The example I have was for shares of United Airlines (NYSE:UAL) and it has historically had less volatility associated with it. There will be different types of volatility associated with different stocks that traders may be looking to hedge. Traders have until Monday to do their research and put together their action plans to determine what (if any) hedge strategy is appropriate for their accounts. ________________ Q: If the market starts out free falling, how do you actually go about buying the put option before it is too late, that is, before the stock has fallen considerably? I am not sure how to make whatever put order necessary to execute. A: Since the markets are closed, we have not been able to buy a put option on any stocks traded here in the U.S. on our exchanges. I would argue that many institutions have created their hedges in foreign markets. For example... British Petroleum (NYSE:BP) trades here in the U.S. and well as in London. I'm willing to bet that much of the volatility we've seen in overseas markets has been a result of various hedge strategies taking place against those stocks to help hedge positions here in the United States. Depending on the investment that a trader holds, they should immediately establish a trading plan under three levels of what we will call conditions. Best case, the stock opens at or near where it closed on Monday. This would allow the trader to consider multiple hedging strategies if you predict weakness in the equity such as selling a covered call or buying a protective put (take into account, even if you are fortunate enough to have the stock open near where it closed on Monday option premiums are likely to be slightly inflated due to expected market volatility ...more specifically with the VIX being high, call premiums are going to be light. Bad case, stock gaps to a level where the trader on MARGIN now becomes at risk for a margin call. A trader that is on margin is currently in a tough position and they need to know at what level they may be subjected to a margin call. If you have not hedged a position prior to a margin call an can not meet your margin requirements the stock will be sold for you by your broker. Worst case, the trader is trading on margin and was already near margin call levels before Tuesday's events (this is assuming the investment is in a sector that will experience selling pressure). Any time a trader is met with a margin call it is a sign that some type of preventative action needs to be taken. Those unable to meet a margin call should currently be ranking their investments from weakest to strongest. Then the trader can decide on buy/sell decisions of these investments. This is what I would consider to be a "too late" scenario. The other way to view the reader's question is what happens if their stock ABCD that was trading at $30 on Monday gaps down to $25 on September 17th? That's a hefty loss and some investors may feel that it may be too late to purchase a "protective" put, especially now that put premiums have likely gone up. Unfortunately, investors need to consider what their total risk is in the stock investment. That $25 stock could go to zero. It is unlikely but consider this...prior to Tuesday's events, who could have imagined that a year ago, JDSU, which was trading near $120, would now be less than $7. Was it too late to hedge JDSU at $100, at $50...? Each individual trader has had to answer questions like these relating to JDSU and ABCD. It all depends on the trader/investor's risk tolerance. ________________ Q: Do you put an order into buy put at market instead of a limit price? A: This is a very difficult question. I prefer to place a LIMIT order. For example... let's say that the ABCD December $20 put option begins trading at $4 and I want to buy that put to create a hedge against my stock. A "MARKET order" could get filled anywhere in a fast market. I could conceivably get filled at $5 or $6. A MARKET order is an order to buy at the market and in a fast market that price can be wide ranging. What I will do with a limit order is this..... I will plan for the worst. Even though the offer is $4, I understand I may be in a "fast market" and place a LIMIT order for $4.50. This is an amount GREATER than the stated market price. I could get filled anywhere from $4 to $4.50, but no more. If a trader is able to watch the ticker in real time, they can better control and get a feel for how trading is taking place. If the premiums of a put option are considered by the investor as "too rich", then one could turn to a deep in the money call option (say the ABCD Jan $5 or Jan $10) and sell that call. The other alternative is to either hang in there or sell the stock. Only you the investor can know what is best for you. Selling call options on stock you own is considered a covered call but there is always a risk you can be called out of your position. You need to weigh the potential losses versus any capital gains you might have in the position if you did not plan to be called out (that is a buyer of a call option exercises their right to buy your stock you sold the options on). This would only be expected to happen if the stock price was above the strike price of the option you sold at or near the options expiration. However, investors should take note, most equity options are American-style which means you can be called out at any time before expiration but this is uncommon. Thus selling a deep in-the-money call has its own set of risks. Do you expect the stock to recover before the option expires? If you do choose to sell deep ITM calls then most of the premium you receive will be based on intrinsic value which should help offset losses in the stock price - the whole reason we're looking into this strategy to begin with. Selling out of the money calls would be "safer" but the premium you receive is likely to be a lot less, especially on a stock that is dropping. As you can see, there are several options that a trader has, but you'd better start planning now, not when the markets open for trading. ________________ Q: In recent example of United Airlines (NYSE:UAL), shouldn't we also ask ourselves, "How long will the stock trade below our theoretic purchase price of $35? What about selling call premiums? A: The subscriber has a point here, but selling an at the money or out of the money call option would not be considered a "true hedge." Even in my above example, selling a deep "in the money call option" is only a hedge until the strike price of that option is achieved (if achieved at all). Nonetheless, if a trader feels that a stock will not significantly violate a particular strike price, then the writing of a covered call may be a way to partially hedge a decline, but the trader must be willing to deliver the stock should he/she be exercised. ________________ These are just a few of the questions from readers that I am finding. The bulk of questions are regarding my recent hedge article. Hopefully some of the above answers are addressing these types of questions properly. Also... I want to take a moment to thank those subscribers that have taken time to write such wonderful and uplifting comments in recent days. It is often said that the Premier Investor Network think of its employees and subscribers as "family." Recent e- mails from our subscribers also give strong statement to the FACT that America is a family and will recover from recent events stronger and more united than before. Portions of reader e-mail. Comments and perseverance. ..... I am proud to be an American; I am proud of our President; I am proud of our financial system. You have stated how many of us feel at these difficult times. (Subscriber, individual) ..... Our only wish is that for all New York exchanges (NYSE, NASDAQ, AMEX) stay closed until after the weekend. Americans need time to absorb this before making rash stock decisions. Nobody will benefit from panic decisions in the next few days. The exchanges can help provide assurance to the US public - and not give a moral victory to "the enemy" - by not demonstrating a pricing rout. (Subscriber, individual) ..... Thanks for the uplifting editorial (Special Update) Wednesday. I just got around to reading it and found it extremely uplifting and showing a considerable amount of restraint and good taste. To avoid profiting from tragedy at a time when it is very tempting to make a buck any way possible is an admirable quality. I believe your editorial should be forwarded to the SEC, NASD, Department of the Treasury, Federal Reserve System, and many of the other major regulatory offices. This morning on CNBC Squawk Box I heard Vince Farrell echo similar sentiments about not taking profits from a tragedy. (Subscriber, individual) ..... Agree. Please pray for God's help at this time. For passing on if you wish. A fund has been established to aid the families of the firefighters who were killed. To donate, send checks or money orders payable to the fund to: New York Firefighters 9-11 Disaster Relief Fund c/o Firehouse.com 9658 Baltimore Ave - Suite 350 College Park, MD 20740 Please, do not send cash. The United Way of New York and The New York Community Trust have established a fund to help the victims of Tuesday's attacks and their families. Anyone wishing to contribute may call (212) 251-4035. You can donate securely online to the United Way: https://www.uwnyc.com/epledge/sept11.cfm (Subscriber, individual) I have been an avid reader of your work for many years now and do enjoy your writings. While today's article on hedging, puts and calls may be a valid "everyday trading" strategy, I would like to point out that, as we all know, these are not normal times. In view of the great tragedy that has swept the financial community, your readers, their families, and their loved ones: I would like you to ask your reader's, and all Americans the following: Let us not give into the aims of terrorists when markets reopen soon, let us not be fooled into panic selling! I am sure these terrorists would like for nothing more than to see us falling all over ourselves in an endless financial panic driving our markets and our economy into an emotionally, and evilly inspired meltdown. Let us stand together as investors from across America and around the world who will not be frightened by evil doers into panic selling, rather let us show our faith in America and BUY America shares tomorrow in our great economy. Let us put our wallets where our hearts are and thwart these terrorist's goals. Clearly some may have to sell for financial reasons, but let those of us who feed from the speculative trough take a break from our speculative natures and resist the temptation to sell short or engage in any unnecessary panic selling. Let us show the world we still believe in America and will not let these cowardly acts terrorize us into acting without reason. If we do this and rally our markets, we will not only have no reason to hedge, but we may help our nation avert a more serious financial crisis. (Subscriber, Member New York Stock Exchange) Personally, I think we have a great group of subscribers! Jeff ================================================================= 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 Weekend Edition 09-14-2001 section 2 of 3 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/6078_2.asp ================================================================= In This Section: Links to selected articles from last week that contain important information to help you cope with the uncertainty of this week: --SPECIAL REPORTS-- September 11th, 2001 A Trader's Personal Defense: Definition of various stop orders Is My Brokerage Account Insured? Historical Market Reaction to Terrorist Attacks United We Stand --SPECIAL REPORTS-- September 12th, 2001 Brokers Ready To Roll Options Issues - Lost Time! --SPECIAL REPORTS-- September 13th, 2001 Hedging a position Sector Impact - Playing Defense Sector Impact - Insurance Exposure Sector Impact - Airlines and Aircraft Manufacturers Sector Impact - Spotlight on Oil --PLAY UPDATES for Monday, September 17th-- Split Trader New Plays: none Play Updates: Amerada Hess - AHC Closed Plays: none Net Bulls New Plays: none Long-Term Tech Play: none Bullish Play Updates: AMGN, RFMD Bearish Play Updates: MEDI, MMM, PSFT Closed Bullish Plays: none Closed Bearish Plays: none Stock Bottom / Active Trader New Plays: none Bullish Play Updates: CLX, MO, PEP Bearish Play Updates: ACF, FITB, TCB Closed Bullish Plays: none Closed Bearish Play: none ================================================================= During these turbulent times, the Premier Investor Network has strived to bring you pertinent, timely, and thoughtful articles that today's investor would want to read. Whether it be gauging the impact of Tuesday's events on specific sectors to how-to articles on hedging a position to thought provoking commentaries on the state of the markets and country, our team wants you to know how important you are. ================================================================= SPECIAL REPORTS - September 11th, 2001 ================================================================= A Trader's Personal Defense: Definition of various stop orders A detailed explanation of how traders can and should use a stop loss order versus a stop limit order. In volatile times you need to know the difference. http://www.PremierInvestor.net/education/traderscorner/091101_3.asp --- Is My Brokerage Account Insured? Many investors may be wondering if and how their brokerage accounts are insured. Investors are never insured against stock price fluctuation, but their accounts are insured against a firm's inability to continue business. http://www.PremierInvestor.net/education/traderscorner/091101_1.asp --- Historical Market Reaction to Terrorist Attacks In the days and months following large-scale terrorist or military action, the U.S. financial markets have proven to be resilient. http://www.PremierInvestor.net/education/traderscorner/091101_4.asp --- United We Stand Central banks across the globe reassured the financial community Tuesday that the system would not be allowed to fail in the wake of the Attack on America. The U.S Federal Reserve said that it was open and providing ample liquidity to the financial system. http://www.PremierInvestor.net/education/traderscorner/091101_2.asp ================================================================= SPECIAL REPORTS - September 12th, 2001 ================================================================= Brokers Ready To Roll Brokers say they will be ready when the markets reopen, but how will they handle orders pending when the markets closed? http://www.PremierInvestor.net/education/traderscorner/091201_2.asp --- Options Issues - Lost Time! The markets' closures over the past two days have brought up several important questions. Specifically, what's going to happen with open options positions? http://www.PremierInvestor.net/education/traderscorner/091201_1.asp ================================================================= SPECIAL REPORTS - September 13th, 2001 ================================================================= Hedging a position Hedging a stock may not be appropriate for every trader, but it does give the trader an opportunity to buy some "insurance" for a stated period of time and better assess his or her investment. http://www.PremierInvestor.net/markets/intradayupdates/091301_4.asp --- Sector Impact - Playing Defense With the bipartisan support coming from government leaders for a further increase in defense spending, we thought it would be beneficial to profile several companies in the defense industry ahead of any continued build out. http://www.PremierInvestor.net/education/traderscorner/091301_1.asp --- Sector Impact - Insurance Exposure Damages from this week's attacks on the World Trade Center and Pentagon are expected to reach billions of dollars. How will this tragedy affect the insurance sector? http://www.PremierInvestor.net/education/traderscorner/091301_2.asp --- Sector Impact - Airlines and Aircraft Manufacturers Already battered by slumping business demand because of a weak global economy, the financial aftershocks of Tuesday's events are going through the aviation industry like a typhoon. http://www.PremierInvestor.net/education/traderscorner/091301_3.asp --- Sector Impact - Spotlight on Oil The reason this group of stocks has been pushed back into the spotlight is that there is some speculation that supply to the United States could be disrupted should U.S. and Middle East tensions escalate. http://www.PremierInvestor.net/education/traderscorner/091301_4.asp ================================================================= Below are updates on current play list selections that were chosen before the attack on New York and DC. ================================================================= Split Trader (ST) section ================================================================= =============== ST Play Updates =============== ----------------------- SPLIT CANDIDATE Updates ----------------------- Amerada Hess - AHC - close @ Sept 10th: 76.92 stop: 75.80 Thursday, September 13th offered a few news articles that could bode omen or boon for the company. On the positive side, AHC received permission from the North Atlantic Faroe Islands Petroleum Ministry to drill an exploration well in its offshore waters (- Reuters). Obviously, investors hope this will lead to a new round of producing wells but we may not see results for a few months. On the negative side, AHC announced that its President and COO, Sam Laidlaw, who had been with the company for 20 years, would be leaving AHC to pursue new opportunities in the U.K. Typically, investors get uncomfortable when there is an unexpected departure by top management and it is certainly hard to tell if this will have any affect on the stock price. It may be a non-event as current Chairman and CEO, John Hess, will be covering Laidlaw's duties. We continue to think that the oil sector may see buying pressure for the short-term as America and the globe continue to digest the implications of Tuesday's events. If shares of AHC can clear resistance between $79 and $80 then the stock could appreciate to $85 even $90 given enough time with potential levels of resistance at intervals of $2.50 (82.50, 85.00, 87.50, 90.00). - edited reprint from Tuesday 9/11/01 - In the shadow of such a tragedy that occurred in New York and DC on Tuesday the oil sector might be an unexpected beneficiary of buying interest. As is common when thoughts of war invade the public and more importantly the market's collective mind there is normally a surge in oil prices and this tends to be reflected in higher share prices for oil stocks. Now, if you read the commentary this evening you should know that there is a large expectation of a sizeable downdraft in the markets on Monday. AHC may or may not participate in such a sell-off which is to be determined by investors' desire to own oil stocks. Strangely enough AHC is headquartered in NYC but we don't think the disaster will affect their operations. We are going to leave our stop at 75.80 which may be too close and could leave us vulnerable a dip when the markets open. Picked on August 15th @ $ 78.90 Gain since picked: - 1.98 Earnings Date: N/A (not confirmed) ================================================================= Net Bulls (NB) section ================================================================= =============== NB Play Updates =============== ----------------------- NB Bullish Play Updates ----------------------- Amgen Inc - AMGN - close @ Sept. 10th: 64.13 stop: 62.00 Our caution remains high as the European markets fell on Friday. Technology stocks like AMGN could see selling pressure. We have edited our update from Tuesday but still expect to be stopped out on Monday morning. - edited update from Tuesday, Sept. 11th - The Biotech sector continued to hold on to support at the 500 level on Monday, Sept. 10th and shares of AMGN gapped lower but managed a strong rebound to lose back above $64. As we have mentioned in the market commentary, when the markets open next we could see a powerful dip as evidenced by the large sell-offs in the overseas stock exchanges. It is highly likely that AMGN could gap lower than our stop loss at $62.00, which would immediately close the play at the opening price. We urge our readers to read the article this evening on stop losses versus stop limit orders. Picked on September 6th @ $65.66 Gain since picked: - 1.53 Earnings Date: 10/25 (not confirmed) --- RF Micro Devices - RFMD - close @ Sept. 10th: 22.73 stop: 19.50 There has been little to go on with the U.S. market's closure this last week but talk and news articles from overseas point to a lowered demand for chips as many expect a slowdown for the 4Q. The $20 level might hold as support but if investors start selling, there is stronger support near the $19 level which would close our play. RFMD is still up from its April lows under $10 and any panic might provoke investors to take those gains off the table. - edited update from Tuesday, Sept. 11th - Similar to the biotech sector, the semiconductor sector is also holding on to support near the 500 level. At least it was on Monday, Sept. 10th. Shares of RFMD closed just above its 200-dma by the end of Monday's trading. Where it opens on Sept. 17th is truly anyone's guess. We are going to leave our stop loss order at 19.50 but urge all of our readers to look over the market commentary as well as the special reports on stop loss orders versus stop limit orders. Picked on September 7th @ $22.31 Gain since picked: + 0.42 Earnings Date: 10/25 (not confirmed) ----------------------- NB Bearish Play Updates ----------------------- MedImmune - MEDI - close @ Sept. 10th: 37.85 stop: 39.44 Looking overseas to the foreign markets could predict lower prices for many biotech shares here in the states. No one can predict how the balance of bearish and bullish forces will shape Monday's markets but there could be a stronger move to transfer investments to "safer" industries. - edited update from Tuesday, Sept. 11th - Shares of MEDI continue to slip as the biotech sector hangs precariously at support near 500. MEDI collapsed under support of $40 last week and Monday, Sept. 10th's close under $38 does not bode well for the open. If a sell-off ensues MEDI is likely to find a bottom near $34 or potentially $32.50. We encourage everyone tonight's market commentary as well as the trading article on stop losses versus stop limits. Picked on August 28th @ $40.46 Gain since picked: + 2.61 Earnings Date: 10/24 (not confirmed) --- 3M - MMM - close @ Sept. 10th: 102.20 stop: 104.25 Shares of MMM will probably follow any lead set by the DJIA that it is a part of. If the patriotic spirit can overpower investors' fears then the stock could see a short-term rebound. If the market's trend lower...then it is very likely that MMM will see its April low near $97 and possibly revisit last fall's support levels near $95. - edited update from Tuesday, Sept. 11th - MMM may not feel the affects of Tuesday's upgrade by US Warburg to "strong buy" for an indefinite period of time. As part of the DJIA the stock is likely to feel a lot of selling pressure as investors unload positions once exchanges open again on Sept. 17th. We encourage everyone to read tonight's commentary as well as the article detailing market history surrounding tragic events for a better understanding of what we might expect. Picked on August 29th @ $106.75 Gain since picked: + 4.55 Earnings Date: N/A --- PeopleSoft - PSFT - close @ Sept. 10th: 29.14 stop: 30.25 Obviously any significant downdraft will be a boon for short traders but many may choose to cover in the face of such support by the U.S. gov't, corporate America and the individual investor. ORCL's better than expected earnings announcement this last week could be a spark that fuels a turnaround in the software sector. It may be heresy to say it but a rally could be short lived and any future announcements by big cap companies approving large stock buyback programs could stall and temporarily reverse the bearish trend in the software sector. Those with profitable positions should re-evaluate when they plan to cover their short position and all of us should make sure we are happy with the position of our stops. Despite the tragedy we see no fundamental shift in the condition software's future earnings at this time. - edited update from Tuesday, Sept. 11th - On Monday, Sept. 10th, Salomon Smith Barney cut its targets on selected software companies with PSFT being one of them. Despite the bad news shares of the beleaguered software maker managed to close in positive territory but remained under resistance of $30. As we now look forward into the unknown of a market that has been shaken to its core by Tuesday's events one can only wonder where trading will take us when they reopen. Picked on August 31st @ $ 34.48 Gain since picked: + 5.34 Earnings Date: N/A ================================================================= Stock Bottom / Active Trader (AT) section ================================================================= =============== AT Play Updates =============== -------------------- Bullish Play Updates -------------------- Clorox Co. - CLX - close @ Sept. 10th: 39.28 stop: 37.00 Financial news has been quiet with the nation focused on New York and DC. We were actually surprised to find a couple of articles that echoed our comments from Tuesday. Investors are likely to move to consumer staple stocks with steady revenues during uncertain times. How long a move like this can last is unsure but CLX already had a bullish trend before the tragedy albeit a slow one. - edited update from Tuesday, Sept. 11th - To many investors Clorox can be seen a somewhat of a safe haven stock. When times get tough sales of soap are not likely to dwindle. Unfortunately, there is no way of knowing if this age old pattern of buying "safe" stocks will even matter when the markets open again. We are choosing to leave our stop loss for the newsletter at $37.00 but encourage all of our readers to look over our special report on trading and the use of stop losses versus stop limit orders. Picked on September 5th @ $38.42 Gain since picked: + 0.86 Earnings Date: N/A (not confirmed) --- Philip Morris Co. - MO - close @ Sept. 10th: 48.15 stop: 45.00 It is unclear how MO will be perceived on Monday morning's market open. Will investors move into it as a "consumer staple" with steady revenues? Or will they see the newer, tighter advertising bans on the global market place as a sign of things to come for MO's popular product? The stock has been pretty resilient over the years despite all the negative publicity by anti-smoking groups and lawsuits galore. We can only stand by our current stops and see where the market leads us. - edited update from Tuesday, Sept. 11th - New trading support at $47 may have held on Friday but it is our hope that any sell-off in MO might be stopped at the 200-dma which is currently trading at 46.15. Unfortunately there is little to guide us in determining if MO will be able to withstand the selling pressure that is likely to occur on Monday, Sept. 17th We encourage our readers to check out the market commentary as well as the special report on stop losses versus stop limit orders for Tuesday evening. We will leave the stop loss order for the newsletter at 45.00. Picked on August 30th @ $47.94 Gain since picked: + 0.21 Earnings Date: 10/17 (not confirmed) --- Pepsi Co - PEP - close @ Sept. 10th: 46.90 stop: 46.50 Similar to the CLX update above, there is likely to be a move into consumer staple stocks like PEP as investors look for "safe" havens to wait out any storm in the markets. PEP had already seen a positive trend develop for most of August but we need to see the stock close above $48 to convince us to really go long. We continue to suggest patience. - edited update from Tuesday, Sept. 11th - Trading sideways for more than two weeks now, shares of PEP almost stopped us out on Monday but bounced 5 cents from our stop loss at 46.50. It remains difficult to predict how investors will react when markets open up again on Monday and how they will perceive PEP. Will this be a "safe" stock to own or will all stock be sold with an unbiased fear before stability returns to the markets. Considering that we only have 42 cents worth of wiggle room before the share price hits our stop loss it's likely that any opening gap down could take us out. Keep PEP on your watch list and see if buyers can push it above the $48 level of resistance. Picked on August 10th @ $45.66 Gain since picked: + 1.24 Earnings Date: 7/19 (not confirmed) -------------------- Bearish Play Updates -------------------- AmeriCredit - ACF - close @ Sept. 10th: 39.79 stop: 44.00 There is nothing new to report for ACF. Looking to the overseas markets the major indices saw selling pressure on Friday and the financial services sector could see weakness in the U.S. despite the patriotic push to prop up the markets. We would caution short traders to re-evaluate where your both your profit and loss thresholds should be and urge you to stick by your decisions now before the markets reopen. - edited update from Tuesday, Sept. 11th - Already in a terrible downtrend, shares of ACF could feel even more pressure as an offshoot of our financial system. With the stock under the 200-dma just overhead acting as resistance we could see investors push shares to $37.50 or even $35.00 before finding enough support. We encourage our readers to check out the market commentary and the other special reports provided on the website. Picked on September 7th @ $40.00 Gain since picked: + 0.21 Earnings Date: N/A (not confirmed) --- Fifth Third Bancorp - FITB - close @ Sept. 10th: 54.56 stop: 55.80 For many, the attack on the WTC towers wasn't just an attack on America but an attack on our economy, our freedoms and our way of life. It was also an attack on our financial infrastructure. The Federal Reserve is doing its part to make sure there is liquidity in the markets and in the banking system to keep the markets secure. It is unclear how investors and fund managers will decide to interpret these moves going forward for a sector (and a stock like FITB) that was already in a steep decline. We have a tight stop on this trade (less than $1) but expect market weakness to push shares through support near $54. Short traders should re-evaluate when and where they plan to cover should a large dip or a rally occurs. - edited update from Tuesday, Sept. 11th - Already under pressure the banking sector is likely to feel more weakness after the tragedy that occurred in New York. Seeing that FITB was already putting in lower highs and fighting for support at $54.00 we wouldn't be surprised to see the stock trade to $50 (or worse) during what is expected to be a very volatile market. Picked on August 28th @ $59.30 Gain since picked: + 4.74 Earnings Date: 10/15 (not confirmed) --- TCF Financial - TCB - close @ Sept. 10th: 42.50 stop: 43.25 Suffering a similar fate to FITB above, TCB is currently trading above support. Whether shares will open near last Monday's close is another story and not something we're willing to guess at. We would not encourage any new short positions at this time as volatility in the market place could be extreme. Since the newsletter is already profitable in TCB before the Tuesday attacks we would encourage short-traders to re-evaluate when and where they feel they should cover their short position in the event of both a large sell-off or a rally on Monday. We will keep a tight stop at 43.25. - edited update from Tuesday, Sept. 11th - Another regional bank that had already been in a steep decline, TCB could easily suffer more selling pressure as investors try and digest the impact of the WTC collapse will have on the banking industry. The 200-dma at 41.65 will be acting support for TCB and once below it we are likely to see shares fall to $40 and possibly $38 where there is stronger support. Picked on August 24th @ $47.60 Gain since picked: + 5.10 Earnings Date: N/A (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. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Weekend Edition 09-17-2001 Section 3 of 3 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/6078_3.asp ================================================================= In section three: Expected/Likely Split Announcements For The Coming Week - None New Split Candidates: None Market Watch for Week of September 17th - Major Earnings - Stock Splits - Economic Reports ================================================================= ================================================== Market Watch for the week of Sept 17th ================================================== Major Earnings This Week Symbol Company Date Comment EPS Est GIS General Mills Mon, Sep 17 Before the Bell 0.59 MTN Vail Resorts Mon, Sep 17 Before the Bell -0.50 CPRT Copart Mon, Sep 17 After the Close 0.21 ESIO Electro Scientific Mon, Sep 17 After the Close -0.09 SLR Solectron Mon, Sep 17 After the Close 0.06 BBY Best Buy Tue, Sep 18 Before the Bell 0.37 ABG Groupe AB SA Tue, Sep 18 Before the Bell n/a PRGS Progress Software Tue, Sep 18 Before the Bell 0.13 RHAT Red Hat Tue, Sep 18 After the Close 0.00 IPR International Power Tue, Sep 18 ----- n/a ----- n/a CTAS Cintas Wed, Sep 19 Before the Bell 0.33 CC Circuit City Stores Wed, Sep 19 Before the Bell 0.02 CLC CLARCOR Wed, Sep 19 Before the Bell 0.40 FDS FactSet Data Systems Wed, Sep 19 Before the Bell 0.25 KR Kroger Wed, Sep 19 Before the Bell 0.32 MKC McCormick & Co Wed, Sep 19 Before the Bell 0.49 PIR Pier 1 Imports Wed, Sep 19 Before the Bell 0.14 COMS 3Com Wed, Sep 19 After the Close -0.35 NDC NDCHealth Wed, Sep 19 After the Close 0.31 ADBE Adobe Systems Wed, Sep 19 ----- n/a ----- 0.28 BEAV BE Aerospace Wed, Sep 19 ----- n/a ----- 0.27 IBC Interstate Bakeries Wed, Sep 19 ----- n/a ----- 0.43 LEN Lennar Wed, Sep 19 ----- n/a ----- 1.33 MDZ MDS Wed, Sep 19 ----- n/a ----- n/a WOR Worthington Ind. Wed, Sep 19 ----- n/a ----- 0.17 AM American Greetings Thu, Sep 20 Before the Bell -0.48 BMET Biomet Thu, Sep 20 Before the Bell 0.21 CYCL Centennial Comm. Thu, Sep 20 Before the Bell n/a CHBS Christopher & Banks Thu, Sep 20 Before the Bell 0.31 GTK Gtech Holdings Thu, Sep 20 Before the Bell 0.53 KBH KB Home Thu, Sep 20 Before the Bell 1.42 SCS Steelcase Thu, Sep 20 Before the Bell 0.06 GPN Global Pmts Thu, Sep 20 After the Close 0.32 NKE Nike Thu, Sep 20 After the Close 0.71 PALM Palm Thu, Sep 20 After the Close -0.08 RSTN Riverstone Networks Thu, Sep 20 After the Close -0.02 SCHL Scholastic Thu, Sep 20 After the Close -0.92 TIBX TIBCO Software Thu, Sep 20 After the Close 0.04 LBRT Liberate Tech Thu, Sep 20 4:00 pm ET -0.12 COGN Cognos Thu, Sep 20 4:05 pm ET 0.05 CAG ConAgra Thu, Sep 20 8:00 am ET 0.28 FDX FedEx Corp Thu, Sep 20 8:00 am ET 0.31 DRI Darden Restaurants Thu, Sep 20 ----- n/a ----- 0.50 ESF Espirito Santo Fin. Thu, Sep 20 ----- n/a ----- n/a JBL Jabil Circuit Thu, Sep 20 ----- n/a ----- 0.14 MWD Morgan Stanley Dean Thu, Sep 20 ----- n/a ----- 0.65 PAYX Paychex Thu, Sep 20 ----- n/a ----- 0.19 SVU Supervalu Thu, Sep 20 ----- n/a ----- 0.36 MERX Merix Fri, Sep 21 ----- n/a ----- 0.04 ================================================================== Upcoming Stock Splits This Week... Symbol Company Name Splits Payable Executable NICK Nicholas Financial 2:1 09/10 09/11 HRLY Herley Industries 3:2 09/10 09/11 NVDA NVidia Corp 2:1 09/11 09/12 SFD Smithfield Foods 2:1 09/14 09/17 CHZ Chittenden Corp 5:4 09/14 09/17 SBIB Sterling Bancshares 3:2 09/18 09/19 NYCB N.Y. Community Banc 3:2 09/20 09/21 MOGa Moog Inc. 3:2 09/21 09/24 ================================================================= Economic Reports for the week of September 17, 2001 The government and most statistical organizations are planning to release economic reports as planned, however, any impact of this data will recede to the ongoing implications of Tuesday's attack. The following events could change or be cancelled without notice. Monday ====== Business Inventories Jul Forecast: -0.4% Previous: -0.4% Trade Balance Jul Forecast:-$29.8B Previous:-$29.4B Tuesday ======= CPI Aug Forecast: 0.2% Previous: -0.3% Core CPI Aug Forecast: 0.2% Previous: 0.2% Wednesday ========= Fed Beige Book 2:00 PM ET Forecast: N/A Previous: N/A NAHB Housing Market Sep Forecast: N/A Previous: 62 Oil/Gas Inventories 9/14 Forecast: N/A Previous:303.3MB International Trade Jul Forecast:-$29.9B Previous:-$29.4B MBA Mortgage App 9/14 Forecast: N/A Previous: 601.8 Thursday ======== Initial Claims 9/15 Forecast: N/A Previous: 431K Housing Starts Aug Forecast: 1.635M Previous: 1.672M Building Permits Aug Forecast: N/A Previous: 1.558M Philadelphia Fed Sep Forecast: -14.1 Previous: -23.5 Friday ====== Treasury Budget Aug Forecast:-$44.7B Previous:-$10.4B ECRI Wkly Lding Indx 9/14 Forecast: N/A Previous: N/A Week of September 24 ==================== Sep 24 Leading Indicators Sep 25 Consumer Confidence Sep 25 Existing Home Sales Sep 27 Initial Claims Sep 27 Durable Orders Sep 27 Help-Wanted Index Sep 27 New Home Sales Sep 28 Chain Deflator-Final Sep 28 GDP-Final Sep 28 Mich Sentiment-Rev Sep 28 Chicago PMI ================================================================= 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.
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc