PremierInvestor.net Newsletter Thursday 10-04-2001 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/100401_1.asp ================================================================= In section one: Market Wrap: May be a good time to think of refinancing Market Sentiment: When the Tech Bulls Run Play-of-the-Day: Lockheed Martin - LMT (Bullish) ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 10-04-2001 High Low Volume Advance/Decline DJIA 9060.88 - 62.90 9187.37 9045.38 1.53 bln 1493/1648 NASDAQ 1597.31 + 16.50 1641.56 1581.08 1.73 bln 1380/2243 S&P 100 548.45 - 2.15 557.16 547.22 Totals 2873/3891 S&P 500 1069.62 - 2.66 1084.12 1067.82 RUS 2000 417.04 + 3.82 420.57 413.22 DJ TRANS 2210.98 - 11.88 2238.43 2204.53 VIX 34.40 + 1.30 34.57 32.98 VXN 61.94 - 0.23 63.98 60.47 TRIN 1.18 Put/Call 0.46 ----------------------------------------------------------------- =========== Market Wrap =========== May be a good time to think of refinancing by Jeff Bailey If you've been giving some thought to refinance your mortgage, then now may be the opportune time to lock in rates. If you're holding an adjustable rate mortgage, then now may be a good time to convert that to a fixed rate mortgage. While we're not a "mortgage refinancing" service, the economic impact of refinancing and pulling equity out of a home is analogous to "sell high and buy low." Realtor.com is posting 30-year fixed at 6.41% and 15-year fixed at 5.99%. Some will argue that a mortgage is a "liability" created from the underlying asset (the house). As long as there's a mortgage, then the bank that owns the mortgage is the asset holder. As long as you make the house payment, you get to live in the house. Miss a few payments and the house gets repossessed, the bank tries to sell the house for "market value" or for what's left on the mortgage balance. Whatever is left over is returned to the note holder (you). If there's still a deficit, then you owe the bank. Let's imagine someone owns a house where comparable neighborhood dwellings are selling for $150,000. The occupant has lived in that house for several years and owes about $100,000 on that mortgage. In essence, he/she has about $50,000 in equity that's "just sitting there." What does one do if they think the economy is slowing and jobless rates are on the rise? They might think that there will be fewer buyers in the housing market (demand) and single-family homes in their neighborhood might decline in value (supply, if listed for sale). Should the next door neighbor lose his/her job, there house might go up for sale (more supply) and prices might fall further. What's one to do? Since the bank already owns the mortgage, it might make sense to sell some equity back to the bank (sell high) and do it at a low cost of borrowing (buy low). Many mortgage rates are tied to either the 30-year ($TYX.X) or 10-year Treasury yield ($TYX.X). Today's action in the 10-year bond gives hint that mortgage rates are about as low as they're going to get. When you consider the 30-year YIELD was flat today and so was the 5-year, something is up as the "middle" yield jumped to 4.5%. 10-year YIELD point and figure chart Today's $6 billion sale of 10-year Treasuries at 4.519% YIELD may just be a coincidence with the bearish price objective from our YIELD chart, but we've only seen two times in recent history when the Treasury has auctioned debt in such an "unannounced fashion." Treasury officials have injected liquidity into the bond market like they did today. Once was the Russian debt crisis of 1998 (10-year YIELD fell to 4.1%) and the other time was when the U.S. nearly defaulted on its debt in 1994 (10-year YIELD rose to 8%). The move in 1998 was very similar to that found today. The recent terrorist activities have seen many market participants running to the Treasury market for safety. This rush to safety has significantly increased the demand for Treasuries and the result has been higher price (lower YIELD). Officials made it clear that today's transaction had nothing to do with the need to raise cash to help fund the country's operations in the wake of the terrorist attacks, but was only to provide liquidity to the bond market and relieve pent up demand. We should take note that past Treasury auctions like we saw today came at turning points in interest rates where significant reversals were soon found. But don't tell institutional bond firms that! I've said before that institutional investors and those that sell to institutions are interesting to follow, or at least listed to from time to time. One comment I find interesting or at least a trend is that institutions aren't trying to go out of their way to come up with any bond offering of their own, because RATES ARE TOO LOW! To me, this is a very important statement from the MARKET. If an institutional bond firm thought they could make a buck selling underwriting a low YIELD bond, they'd do it! However, many firms aren't coming with any deals because they're afraid nobody will buy the lower yielding debt. It's these kinds of comments from some institutions that hive hint we may be getting close to a bottom in YIELDS, and perhaps a good time to be locking in some lower rates. Something to think about For many American homeowners, they're faced with many decisions. How safe is my job? What do I owe and what are my assets? Are my assets (home, stocks and bonds) going to appreciate or depreciate? Are these assets liquid or illiquid? For some its "crazy" to even think of losing their job and possibly their home. It's not a pleasant thought. To not plan for such an event is perhaps even crazier. Some may think of refinancing their home as a way to save money. However, those that understand risk management and how to manage it, see refinancing their home as a "shifting of risk." When a bank lends money, they assume the risk. The borrower assumes a liability with a promise to pay back the money. In areas where real estate prices have soared or increased significantly, and mortgage interest rates are at historical lows, it makes sense to some to perhaps pull some equity out of the house (sell high) and pay down some debt or generate some liquidity for a rainy day fund. Rainy day fund The "rainy day fund" is what many stock investors are more interested in. No!!!! Refinancing your mortgage is not a reason to further risk capital in the stock market! Mortgage refinancing can however become an key player in how the economy grows or contracts from here. Often times, many people that refinance their houses and pull equity from their homes use that money to pay down debt. Those pesky monthly payments at 18% interest on the credit card, or that 10% loan on the two-year old car. Lots of people pay down higher rate debts by borrowing at lower costs. Eventually, consumers find that once the debts are paid down, then cash flow turns more positive and there's money burning a hole in their pocket. There are even those who feel comfortable with their job security and use the equity found from refinancing real estate to purchase some expensive items like durable goods. Think of the banks or lenders Today's 2.27% decline in the S&P Banks Index (BIX.X) now gets interesting. Some weird things happened here today, but perhaps some of what we're seeing in the bond market and how it may relate to mortgage refinancing makes sense. Banks that are big lenders right now are doing what? As it relates to mortgages they're lending money at low rates and perhaps assuming great risk considering the economic climate. Tomorrow, I'm going to have a close eye on shares of Fannie Mae (NYSE:FNM). If the 10-year YIELD shoots higher, this stock could get "whacked" to the downside. Fannie Mae (FNM) - last eleven months Should the 10-year YIELD ($TNX.X) rise tomorrow morning before the opening of stock trading, traders may want to keep an eye on shares of Fannie Mae (NYSE:FNM) as a stock that could see weakness. I think we could see near-term level of $75, so I'm looking "out the money" and the November $80 puts (FNMWP) and they were offered $2.60 at today's close. OK... maybe I'll take $260.00 from my mortgage refinancing and put it at risk. But that's it! Jeff ================ Market Sentiment ================ When the Tech Bulls Run Russ Moore Tech bulls continued to snap up their favorite NASDAQ stocks after Dell Computer announced it would meet estimates. Yesterday, it was Cisco Systems that sparked the tech rally and today’s gains, followed a reaffirmation of earnings by Dell Computer. The company saw its shares rise +8.13 percent and helped lift the NASDAQ to +1.1 percent gain. For much of the day it looked as though the DOW would also finish in the green, but weakness in financial, consumer and retail sectors put a damper on the blue chip index which closed the session with a loss of –0.7 percent. Volume was on the heavy side with 1.56 billion shares moving on the big board and 2.51 billion shares trading on the NASDAQ. Winners came out on top by an 18/13 count on the NYSE and 21/15 margin on the NASDAQ. Winning sectors on the tech side included chip, hardware, software, internet, and networking. Oil, oil service, insurance, utility, natural gas, and brokerages were all up, on the broader markets. Jobless claims were 71,000 to 528,000, the largest jump since July 92’, and far higher than the 468,000 expected. The dismal data had little affect on the market performance. August factory orders came in above the –0.3 percent expected with a flat reading. Today’s jobless number is a prelude to tomorrow’s employment rate. Economists are forecasting a rate of 5.0 percent. Following today’s data, investors are prepared for the worst, and, with investor sentiment currently leaning towards the bullish side, it will take a major downside surprise to affect market direction. VIX Thursday 10/04 close: 34.40 VXN Thursday 10/04 close: 61.94 30-yr Bonds Thursday 10/04 close: 5.30 Total Put/Call Ratio: .60 Equity Option Put/Call Ratio: .47 Index Option Put/Call Ratio: 1.84 === NASDAQ 100 Index (NDX/QQQ) 52-Week High: 103.51 52-Week Low: 28.19 Current close: 31.30 Volume/Open Interest Maximum calls: 30/98,784 Maximum puts : 27/58,568 Moving Averages 10 DMA 29 20 DMA 31 50 DMA 36 200 DMA 46 Fibanocci Retracements Relative High: 51.95 (05/22/01) Relative Low: 27.00 (09/21/01) 38% 36.60 50% 39.57 62% 42.59 === S&P 100 Index (OEX) 52-Week High: 834.93 52-Week Low: 491.70 Current close: 548.45 Volume/Open Interest Maximum calls: 600/6,860 Maximum puts : 440/6,240 Moving Averages 10 DMA 526 20 DMA 537 50 DMA 579 200 DMA 632 Fibanocci Retracements Relative High: 680.03 (05/22/01) Relative Low: 480.07 (09/21/01) 38% 556.14 50% 579.65 62% 603.55 === S&P 500 (SPX) 52-Week High: 1530.01 52-Week Low: 965.80 Current close: 1069.62 Volume / Open Interest Maximum calls: 1050/26,651 Maximum puts : 1050/23,407 Moving Averages 10 DMA 1027 20 DMA 1051 50 DMA 1131 200 DMA 1224 Fibanocci Retracements Relative High: 1315.93 (05/22/01) Relative Low: 944.75 (09/21/01) 38% 1086.75 50% 1130.62 62% 1175.23 == DJIA (INDU) 52-Week High: 11,518.83 52-Week Low: 8,235.81 Current close: 9,060.88 Volume / Open Interest Maximum Calls: 100/26,651 Maximum Puts 100/41,698 Moving Averages: 10 DMA 8,756 20 DMA 9,078 50 DMA 9,945 200 DMA 10,398 Fibanocci Retracements Relative High: 11,350.05 (05/22/01) Relative Low 8,062.34 (05/21/01) 38% 9,308.92 50% 9,693.99 62% 10,085.60 == Biotech Index (BTK) 52-Week High: 811.61 52-Week Low: 383.28 Current close: 459.08 Volume / Open Interest Maximum Calls: 520/ 300 Maximum Puts: 440/2002 Moving Averages 10 DMA 443 20 DMA 466 50 DMA 497 200 DMA 548 Fibanocci Retracements Relative High: 811.61 (09/25/00) Relative Low: 383.28 (03/22/01) 38% 546.22 50% 596.57 62% 646.71 == Semiconductor Index (SOX) 52-Week High: 1280.84 52-Week Low: 362.00 Current close: 405.54 Volume / Open Interest Maximum Calls: 450/1,025 Maximum Puts: 390/2,117 Moving Averages 10 DMA 380 20 DMA 434 50 DMA 526 200 DMA 595 Fibanocci Retracements Relative High: 710.78 (05/22/01) Relative Low: 343.93 (09/27/01) 38% 484.50 50% 527.18 62% 570.57 == Pharmaceutical Index (DRG) 52-Week High: 455.28 52-Week Low: 339.49 Current close: 389.48 Volume / Open Interest Maximum Calls: 400/505 Maximum Puts: 360/628 Moving Averages 10 DMA 380 20 DMA 380 50 DMA 388 200 DMA 397 Fibanocci Retracements Relative High: 448.43 (12/29/00) Relative Low: 339.49 (03/22/01) 38% 382.22 50% 395.69 62% 409.03 ***** CBOT Commitment Of Traders Report: Friday 09/28 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. 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 are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader’s direction. S&P 500 Commercials Long Short Net %Change 9/11/01 359,360 442,070 (82,710) 3.4% 9/18/01 406,387 471,823 (65,436) (20.8%) 9/25/01 357,873 407,036 (49,163) (24.9%) 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 %Change 9/11/01 156,500 69,090 87,410 2.7% 9/18/01 172,988 100,531 72,457 (5.6%) 9/25/01 122,613 71,721 50,892 (29.7%) Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 Commercials Long Short Net %Change 9/11/01 26,784 37,912 (11,128) 18.9% 9/18/01 35,497 45,731 (10,234) (8.0%) 9/25/01 26,761 36,812 (10,051) (1.8%) 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 %Change 9/11/01 15,263 12,555 2,708 6.8% 9/18/01 22,876 21,702 1,174 (56.6%) 9/25/01 10,699 6,580 4,119 251.0%) Most bearish reading of the year: (1,028) - 1/02/01 Most bullish reading of the year: 8,460 - 3/13/01 DOW JONES INDUSTRIAL Commercials Long Short Net %Change 9/11/01 25,445 13,033 12,412 32.6% 9/18/01 28,425 15,077 13,348 7.5% 9/25/01 20,013 7,806 12,207 (8.5%) 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 %Change 9/11/01 7,460 12,735 (5,275) (8.9%) 9/18/01 7,335 15,044 (7,709) 46.1% 9/25/01 4,530 12,621 (8,091) 4.9% Most bearish reading of the year: (7,572) - 5/08/01 Most bullish reading of the year: 1,909 - 1/16/01 Small Specs Commercials S&P 500 (Current) (Previous) (Current) (Previous) Open Interest Net Value +50,892 +72,457 -49,163 -65,436 Total Open Interest % (+26.19%) (+26.49%) (-6.43%) (-7.45%) net-long net-long net-short net-short Small Specs Commercials DJIA futures (Current) (Previous) (Current) (Previous) Open Interest Net Value -8091 -7709 +12207 +13348 Total Open interest % (-64.11%) (-34.45%) (+43.88%) (+30.68%) net-short net-short net-long net-long Small Spec Commercials NASDAQ 100 (Current) (Previous) (Current) (Previous) Open Interest Net Value +4119 +2708 -10,051 -11,128 Total Open Interest % (+23.84%) (+9.73%) (-15.81%) (-17.20%) net-long net-long net-short net-short What COT Data Tells Us ---------------------- Indices:.Both the Commercials and Small Specs held steady on their S&P net-short positions. The big move came on the DJIA where the Commercials added on to their net-longs while the Small Specs were loading up on net-short contracts. Gold:.Talk about a shift in contracts the Commercials went from 49,456 contracts net-short to 36,638 contracts net-long. Gold has been relatively flat since Tuesday so we’ll have to keep on eye on this one and see if they reverse their positions next week.. 8/28 50,852 contracts net-short 9/04 49,839 contracts net-short 9/11 No Data. 9/18 49,456 contracts net-short 9/25 36,638 contracts net-long Data compiled as of Tuesday 09/25 by the CFTC. ========================= Play-of-the-Day (Bullish) ========================= Lockheed Martin - LMT - close: $45.60 change: +0.20 stop: $42.00 Original Comments When Selected on September 27th: Company Description: Lockheed is the largest weapons manufacturer in the world and the second largest defense and aerospace company (after Boeing). The company has five principal segments: systems integration (missiles and fire control), space systems (communication satellites and submarine-launched missiles), aeronautics (aircraft), technology services (management, engineering, and logistic services), and global telecommunications (satellites). Well-known products include: the F-16 and F-22 jet fighters, the C-130J transport plane offensive missiles like the Trident II and defensive ones such as their Theater High Altitude Area Defense. Over 70-percent sales comes from the US government. Fundamentals: The company earned $1.07 per share on sales of $25.3 billion in 2000. This year, the company earned is expected to earn $1.44 per share on revenue of $24.6 billion and $1.71 on $26 billion in 2002. Why We Like It: On a fundamental basis, with a forward 2001 P/E of 30, LMT shares are not inexpensive. However, as the leading recipient of US defense spending, it stands to reason the company and its shares are going to benefit well from the expected U.S. defense build up. This should make the shares resistant to the economic woes and thus a buy on any dip. Prior to the events of September 11th, LMT had been consolidating for six months within a roughly $35 to $40 price range. When the markets reopened, the LMT shares saw a $5.46 one- day gain. Too sudden to chase and too high to hold, profit-taking over the next few days brought the shares back to support in the $41 to $42.50 area. On Thursday, a spike in volume and price suggests the shares are ready to put in a test of the $46.00 52- week high. If the shares can maintain momentum through this level, a run at our bullish $56 6-month price target would be a reasonable expectation. We will start this play with a $40 stop, although more risk averse traders probably could do as well with a stop just below last Friday's $41.00 session low. . Updated Comments: The expected big-time defense buildup is not confined to US shores. Late Thursday, the US approved the sale to Gulf ally Oman $1.12 billion in assorted defense products including 12 of Lockheed Martin's F-16's. This is probably only the beginning of a deluge in orders. As such these shares are a buy on any dip. On Thursday, the shares dipped in the morning hours before ending strongly. This portents a good result to LMT shares current assault on their $46 52-week high from mid-September. New entrants to this play should wait for the break of $46 on solid volume (average is 2.1 million) or a dip to near $42. Picked on September 27th at $43.30 Gain since picked: + 2.30 Earnings Date 10/25 (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. 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PremierInvestor.net Newsletter Thursday 10-04-2001 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/100401_2.asp ================================================================= In section two: Split Trader New Plays: Tenet Healthcare - THC (Bullish) Play Updates: Chevron Corp. - CHV, Jacobs Eng. - JEC Closed Plays: none Net Bulls New Plays: Engineered Support Systems - EASI (Bullish) Bullish Play Updates: none active at this time Bearish Play Updates: none Closed Plays: DNA, GILD, SDS Stock Bottom / Active Trader New Plays: none Bullish Play Updates: BMET, LMT, MO, RMCI Bearish Play Updates: none active at this time 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 ------------------------- Tenet Healthcare - THC - close:$60.22 change:+1.82 stop: $57.00 Company Description: This is one of the largest hospital chains in the US. Tenet owns or operates about 110 hospitals in 17 states, as well as one in Barcelona, Spain. In addition, subsidiaries own or operate clinics, HMOs, a PPO, home health care programs, a managed care insurance company, outpatient surgery centers, and rehabilitation and specialty hospitals. In response to decreased Medicare funding (more than 30% of Tenet's revenues), the company is closing its medical practice management business and is divesting facilities to cut costs. Tenet has formed a joint venture with Ventro to sell medical supplies to health care providers on the Internet Fundamentals: Analysts forecast the company will earn $2.84 per share in the current fiscal year ending May 2002 and $3.34 in 2003. They project revenue of $13 billion for 2002. In the fiscal year ended May 2001 the company earned $2.30 on sales of $12.1 billion. The shares have a forward 2001 P/E of 21. These are inline with the industry average P/E of 22. On October 3rd, at its fiscal first quarter earnings report the company easily beat analysts 64-cents per share earnings estimates by 3-cents per share. In addition to the quarterly earnings of 67-cents per share, the company reported a 14-percent jump in quarterly revenue to $2.89 billion as compared to the year-ago quarter. Other first quarter metrics were equally positive from the year ago quarter, gross margins increased from 17 to 19-percent, cash flow from operations increased 80-percent, admissions were up 5.9-percent. The company also raised earnings guidance citing "accelerating demand" for hospital services, as the baby boomer generation gets older. The firm sees the year's earnings from operations growing by at least 25 percent. In July, the company forecast "high-teens" profit growth for fiscal 2002. The company also reaffirmed it long-term growth rate in the mid-to-high teens. Why We Like It: What's not to like about these shares. Particularly in light of the stream of companies painting dour business pictures, for Tenet business couldn't be better, and an aging population says business will continue on an upswing for a long time. What have also been going up for a long time are THC shares. A monthly chart shows these shares have risen unabated since kissing $15.37 in August 1999. On Thursday, the sparkling earnings report pushed the shares through $60 resistance on above average volume. In the short-term we have a $66.00 price target. Short-term traders can use a stop at $57.00; investors in for the long-term can consider a $52 stop. Picked on October 4th at $60.22 Earnings Date N/A (Not Confirmed) =============== ST Play Updates =============== ----------------------- Split Candidate Updates ----------------------- Chevron Corp. - CHV - close: 87.11 change: +1.70 stop: 84.75 *new* Tally Ho! Shares of oil stocks have been on the rise and CHV's steady climb from late September has bulls feeling positive. Wednesday, oil service stocks saw buying pressure as analysts came out with comments saying the two-year low on the OSX index makes several companies look pretty attractive on a valuation basis. After closing at 85.50 on Tuesday, CHV dipped to 84.00 early Wednesday only to rally back towards 85.50 by the close. Thursday, major oil companies were again on the gainers list. There is growing expectation that OPEC will cut production to protect the price of oil and this fueled a rally in oil crude futures which helped push oil stocks higher. One OPEC leader was quoted as saying the cartel would take "any measure necessary to stabilize the world oil market". According to one analyst note, if the OPEC basket of oil prices stays below $22 for 10 consecutive days then it would trigger the cartel's agreement to increase or decrease production by 500K barrels a day until the price once again enters the $22 to $28 target range (CBSMW). We were not surprised to find shares found a little resistance at the $88 level. $88 was the intraday support back in late June and previous support typically becomes new resistance. Unfortunately, the battle ahead for CHV could be tough. The stock should find even heavier resistance at $90 and just under that is the 200-dma and the 50-dma at $89. We would encourage traders to start thinking about when you should take profits. The newsletter is going to raise its stop to 84.75, which was our entry price on Sept. 27th. If the stock sees any profit taking buyers should step in to provider support between $85.00 and $85.50. Even so, it would be a shame to see this play stop out with a push. New positions can be consider if the stock comes back to above mentioned support level. FYI, long-term investors may like to know that at least one analyst has a bullish price target of $107 for CHV. Picked on September 27th @ $ 84.75 Gain since picked: + 2.36 Earnings Date: 10/25 (not confirmed) --- Jacobs Eng. - JEC - close: 66.15 change: -1.82 stop: 64.25 Wow, when we asked for a positive close over $65, JEC delivered big time. The broad market rally sparked a huge move in JEC. Shares blasted through overhead resistance gaining almost 5 points or 7.88% on Wednesday. With such a gain profit taking was almost a sure thing for Thursday but after the morning dip the bulls took control again and almost reach $70 before a late afternoon sell-off. This should be a very encouraging development for bullish traders. The $65 - $66 area could have proved a tough hurdle but shares are now over it and already the stock has bounced at $65 re-establishing it as support. Traders need to be thinking when they plan to start taking profits. The newsletter is already up almost five points and active traders could have captured even more. At this point the plan for new positions should be focusing on dips back to $65 or a follow through bounce from its current position near $66. This would not be a big trade as $70 is likely to prove tougher than resistance at $65. However, given enough time, JEC might reach $75 again. Don't forget that investors have plenty of time before the earnings report on November 1st. Keep your eye on the Dow for direction. Picked on September 25th @ $ 61.21 Gain since picked: + 4.94 Earnings Date: 11/01 (not confirmed) ================================================================== Net Bulls (NB) section ================================================================== ============ NB New Plays ============ ----------------------- New Bullish (Long) Play ----------------------- Engineered Support Systems - EASI - close:$53.50 change:+5.12 stop: $48.25 Company Description: Engineered Support Systems designs and manufactures military support equipment and electronics for the U.S. armed forces, material-handling equipment for the Post Office, and custom molded plastic products for commercial and industrial products. Its defense products includes heavy military support equipment (tank transport, bridging, and load-management systems), electronics and automation systems (electronic warfare systems, fire support systems, and avionics test equipment), light military support equipment (generators, environmental control systems, and water systems), and plastic components (plastic faucets) to military specifications Fundamentals: For the fiscal year ending in October 2000, the company earned $1.43 per share on sales of $361.5 million. In the current October 2001 fiscal year, analysts expect the company to earn $1.78 per share on $396 million and $2.18 per share in 2003 on $403 million. This gives them a forward 2001 P/E of 31. At their last earning report (Third Quarter) in August the company reported a 6-percent increase in revenue, 28-percent jump in net income, record YTD cash flow of $30.6 million and a backlog of $1 billion. Why We Like It: With the increasing probability of US military action in the near future and the absolute probability of higher levels of defense spending, Engineered Support Systems' diverse and well positioned product line will likely put EASI shares on an extended bull run. Experts indicate that the war against terrorists will likely be a new type of warfare. The September contracts alone suggest the company has the appropriate product line to support a 21st century battlefield. These wins include; its Striker system ($3.3 million in revenue), which provides battlefield fire-support and econnaissance capabilities, Chemical/Biological Environmental Control Units ($72 million in revenue to date), which are portable battlefield shelters that include protection against chemical and biological agents, and portable generators ($175 million over 10-years). Since mid-September, EASI shares have been building a strong base between roughly $45 and $51. On Thursday, these shares broke strongly out of this area with a $5.12 one-day gain. Taking a position following an 11-percent gain requires some finesse and patience. Still, our analysis produced a 6-month target of $77 and a short-term one of $60. Given that defense is one of the few "safe" sectors in which to be a bull. The question is not if but when to jump in. We are looking for either a profit-taking dip to between $51 and $52, or additional evidence that the bulls are not done yet to give us the entry point we need. Volume was strong at 1.1 million (an average day is 334k), so another up day on this or greater volume would do the trick. We'll initiate this play with a stop at $48.25, which is just a hair below Thursday's $48.57 session low. Picked on October 04th at $53.50 Earnings Date N/A (Not Confirmed) =============== NB Closed Plays =============== ----------------- Closed Bullish Plays ----------------- Genentech - DNA - close: 43.15 change: -2.55 stop: 43.25 Honestly, we're a little disappointed in DNA. The stock has really underperformed the biotech sector Tuesday and Wednesday. Now that the BTK.X was due for a pullback, shares of DNA just lost it without even attempting to mount a midday rally like the rest of the market. Closing at the low for the day at 43.15 does not bode well for Friday morning. The stock struggled for a week to try and overcome overhead resistance at $46.50 but couldn't do it. This sets a new relative lower high. The company may have strong revenues but the bad press lately about Prozac for rival LLY could have been too much to bear for skittish traders looking for any excuse to take some money off the table. We hate to say it but the stock is likely to sell-off more. Potential support exists at $42, $40 and $38. The newsletter was stopped out at 43.25. Picked on September 20th @ $41.20 Gain since picked: + 2.05 Earnings Date: 10/10 (confirmed) -------------------- Closed Bearish Plays -------------------- Gilead Sciences - GILD - close: 58.40 change: +1.78 stop: 58.00 As we expected, shares of GILD gapped up at the open on Thursday after being halted for two day awaiting FDA approval on their latest HIV treatment. The FDA advisory panel praised the drug on Tuesday due to its effectiveness on patients who had previously showed little or no results with other treatments. It was really too bad for GILD shareholders that the stock had to reopen on a day the Biotech index was due for some profit taking. GILD gapped up to almost 61.00 before coming back towards Monday's close of 56.62. However, once the gap was filled buyers started stepping in despite the negative BTK. Those looking to go long the stock should probably wait for it to close over $60 or $61 which is heavy resistance. A failed rally at these levels could provide for another shorting opportunity but we'll need to keep an eye on the sector as a whole. Because of the gap open today our stop at 58.00 was not as successful as we hoped. The newsletter will show a loss of 4.79 points. Picked on September 28th @ $56.17 Gain since picked: - 4.79 Earnings Date: 10/18 (not confirmed) --- SunGuard Data Sys - SDS - close: 21.00 change: +0.47 stop: 22.50 Our bearish play on SDS never really materialized. We saw the big down day on Monday and believed that the breakdown of heavy support would promote a new bearish trend as investors threw in the towel and shorts piled on to ride it down. Unfortunately for the bears, buyers and with more than a little help from SDS management managed to stem the loss to $20, which is now new support. Wednesday's trading was typical considering the massive rally in the broader markets but today the stock showed no signs of slowing down. With SDS executing a $100 million stock buyback between Oct. 1st and Oct 12th it could be tough for the bears to really get their paws on this one. The letter was stopped out at 22.50 Picked on October 1st @ $20.53 Gain since picked: - 1.97 Earnings Date: 10/18 (not confirmed) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== =============== AT Play Updates =============== ----------------- Bullish Play Updates ----------------- Biomet Inc - BMET - close: 30.77 change: -0.22 stop: 28.00 In our original write up on Tuesday we discussed how most analyst believe medical device makers should be sheltered from any down turn in the economy. From the looks of BMET's chart, investors began to believe them a couple of weeks ago. The bad news is the S&P Health Care index (HCX) has rolled over at overhead resistance of its 200-dma (824). This is the second down day in a row for the group putting the index at 810. The good news is BMET appears to be ignoring its sector mates for the moment. We rarely recommend going long a stock if the sector is looking weak because most stocks can't stand up to the pressure of a sliding industry group. However, occasionally a stock might be able to hold off joining its peers if it has exceptional news or other catalyst to keep shareholders from selling. It's very possible that the HCX is merely pulling back to regroup after its strong run up (normal profit taking). We would look for potential support in the HCX at 800 or 790. Considering that BMET is showing relative strength against its sector the bulls might be on to something. Looking for entry points the stock looks good here over the $30 mark. However, if there is a dip, traders might want to consider buying at $30 or at $29 which should be strong support. Confirm stock, sector and market direction before initiating any new plays. Picked on October 2nd at $30.35 Gain since picked: +0.42 Earnings Date 09/20 (confirmed) --- Lockheed Martin - LMT - close: 45.60 change: +0.20 stop: 42.00 The expected big-time defense buildup is not confined to US shores. Late Thursday, the US approved the sale to Gulf ally Oman $1.12 billion in assorted defense products including 12 of Lockheed Martin's F-16's. This is probably only the beginning of a deluge in orders. As such these shares are a buy on any dip. On Thursday, the shares dipped in the morning hours before ending strongly. This portents a good result to LMT shares current assault on their $46 52-week high from mid-September. New entrants to this play should wait for the break of $46 on solid volume (average is 2.1 million) or a dip to near $42. Picked on September 27th at $43.30 Gain since picked: + 2.30 Earnings Date 10/25 (Not Confirmed) --- Phillip Morris - MO - close: 49.85 change: +0.40 stop: 47.75 *new* They say patience is a virtue. The stock market has proven that maxim time and time again. Yet it's frustrating for us as optimistic investors to simply sit on our hands. We're talking about our comments on Tuesday to wait for shares of MO to finally close over strong resistance at $50. We were elated that the stock closed over $49 on Tuesday but the real test could be tomorrow. Looking at the intraday charts for Thursday one can see that the bulls were really bringing the fight to the bears in that last 20 cents before the stock hits $50. You've heard it before and we'll probably repeat it again but MO is not only seen as a strong defensive play in a recession but its yield to investors makes it an attractive investment in a low interest environment. Just to show you we're human too we're going to raise our stop. We've been trying to capitalize on MO since the end of August and now that it's right at the turning point we're going to raise our stop to 47.75. Our original entry price was 47.94. At this point in the game MO is likely to breakout like many traders expect or we could see some profit taking (back to $45 anyone?). In the event that we fail to see either interested traders can look for new entries at dips to $49 or $48.50. Don't forget that MO is due to announce earnings on October 17th. FYI, long-term players may be like to know that some analyst have posted a bullish price target of $59 on MO. To help it get there Standard & Poor's announced today after the close that they would select MO to replace Global Crossing (GX) in the S&P 100 index. Traditionally, this can produce strong buying pressure as index funds make adjustments and add the new addition to their portfolios to accurately reflect their tracking of the market. Unfortunately, they don't have to do it tomorrow and S&P does not place a time limit on their activities. Frankly, most of us were surprised that MO wasn't already in the S&P 100. This could be the catalyst needed to really get a fire going under this stock! Picked on August 30th at $47.94 Gain since picked: +1.91 Earnings Date 10/17 (unconfirmed) --- Right Mgmt - RMCI - close: 32.98 change: -1.07 stop: 31.75 This stock just won't stop! Interest in job transitions and career management must be skyrocketing in the event of layoff after layoff. Volume continues to be huge and the stock produced a major move up on Wednesday from the 29.50 level to 35.00. We thought for sure profit-taking would finally hit. After all, at $34.05, shares of RMCI were up over 12 points from Sept. 18th's close of 21.72. That's a gain of over 56%. The newsletter picked it at 24.70 which was a difference of $9.35 or 37.8%. We chose to raise our stop to 31.75 in Wednesday's letter believing we would be stopped out today. Once again, RMCI has amazed us. The stock actually traded higher at the open before slowly coming back to settle near the $33 area. This can't go on forever folks. Don't let greed get in the way of a profitable trade. Think about where you plan to take some profits and hold yourself to it. Now just to test your resolve, one analyst produced a price target of $61 for RMCI. That's not going to happen tomorrow so you'll have plenty of time to watch the stock for new trades if you get stopped out. We would not recommend any new entries at this time. RMCI is expected to announce earnings on October 22nd, 2001. Picked on September 20th at $24.70 Gain since picked: +8.28 Earnings Date 10/22 (not confirmed) ================== 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 GS Goldman Sachs Group 79.00 +2.31 APC Anadarko Petroleum 50.70 +2.69 APA Apache Corp 45.55 +2.80 AOG Alberta Energy 35.34 +1.14 AMD Advanced Micro Devices 9.00 +0.54 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change SEBL Siebel Systems 18.81 +1.20 NXTL Nextel Commnications 9.16 +1.80 JNPR Juniper Networks 13.27 +1.27 LRCX Lam Research 18.81 +1.22 MRVL Marvell Technology Group 19.96 +1.65 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change TXN Texas Instruments 27.05 +1.79 DELL Dell Computers 22.32 +1.68 GS Goldman Sachs Group 79.00 +2.31 RTRSY Reuters Group 57.13 +1.88 VRTS Veritas Software 24.61 +1.12 ----------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change QCOM Qualcomm 42.00 -2.81 BGEN Biogen Inc 52.94 -3.55 LNCR Lincare Holdings 24.39 -1.54 HCR Manor Care Inc 26.73 -1.78 AOT Apogent Tech 23.10 -1.49 ------------------------------------------------------------ Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------------------------- Ticker Company Name Close Change WM Washington Mutual 37.41 -1.22 HMA Health management Group 20.02 -0.26 IDXX Idexx Laboratories 23.85 -0.49 ================================================================= 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. 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