PremierInvestor.net Newsletter Tuesday 11-06-2001 section 1 of 2 Copyright © 2001, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.PremierInvestor.net/htmlemail/3678_1.asp ================================================================= In section one: Market Wrap: Fed's 50 basis points, times three Market Sentiment: Number ten sparks a late day rally Play-of-the-Day: The Ultimate Big Cap ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 11-6-2001 High Low Volume Advance/Decline DJIA 9591.12 +150.09 9600.60 9386.51 1.3 bln 2053/1054 NASDAQ 1835.08 + 41.43 1835.49 1777.91 1.9 bln 2079/1513 S&P 100 576.30 + 9.62 576.86 563.14 Totals 4132/2567 S&P 500 1118.86 + 16.02 1119.73 1095.36 RUS 2000 442.78 + 5.24 442.79 435.70 DJ TRANS 2291.15 + 6.43 2292.36 2257.71 VIX 29.85 - 2.09 32.66 29.22 VXN 57.34 - 1.62 60.13 57.26 TRIN 0.91 Put/Call Ratio .58 ----------------------------------------------------------------- =========== Market Wrap =========== Fed's 50 basis points, times three Take today's 50 basis point rate cut by the Fed, multiply by 3 and you get the Dow Industrials up 150 points. Equity bulls wish there was such an equation that ties a Fed rate cut to stock prices, but today's reaction was bullish as stocks jumped higher and broader market averages closed at their highest levels since the terrorist attacks on September 11th. Today, the Federal Open Market Committee decided to lower its target for the federal funds rate by 50 basis points to 2%. In related action, the Board of Governors approved a 50 basis point reduction in the discount rate to 1.5%. Brief comments from the Fed indicated that the Committee continues to believe that the background of its long-run goals of price stability and sustainable economic growth and the information currently available, feels the risks are weighted mainly toward conditions that may generate economic weakness. The Fed also believes that current economic conditions are due to a reallocation of resources by companies as they try to cut costs and protect the bottom line. The Fed understands these actions and near-term implications for a drop in productivity for a time, but believes the longer-term prospects for productivity gains and economic stimulus remain favorable and should become evident one the unusual forces restraining demand abate. NASDAQ Composite Index Chart - Today's rate cut by the Fed marks the 10th rate cut since the Fed began loosening on January 3rd of this year. I've tried to show where past rate cuts have occurred, the basis point rate cut (pink is 50 basis, blue is 25 basis point cuts) and level the NASDAQ was trading near once rate cut was announced. Today's close at $1,835 is the first time the NASDAQ Composite has managed to close above a level dating back to the four most recent rate cuts. This may signal a change in market posture toward the belief that the Feds actions are finally going to be having some type of positive effect on the economy or at least NASDAQ stocks going forward. If we count backward to three rate cuts (excluding today's) to the 7th rate cut on August 21st, we note the close of trading that day was $1,831, but for the first time since the Fed began cutting rates, the NASDAQ closed above a rate cut that occurred "three cuts ago" while also closing above the prior two rate cuts (8th and 9th). This is a DEVIATION in past trading and we want to make note of that today. It may be interesting to note that the Fed only cut rates 25 basis points back on June 27th (6th rate cut) when the NASDAQ closed that day at 2,074. What's interesting about that "25 basis point cut" is that the Fed had been cutting 50 basis points prior to that time. Perhaps the Fed thought the economy was improving (NASDAQ was higher than 3rd cut at $1,857). It's that period where the NASDAQ looked to be trying to recover from a recent low. Only thing I notice different right now, is that we've now seen the NASDAQ close above the prior two rate cuts. On June 27th, the NASDAQ did not close above the prior two rate cuts (April 18th $2,079 and May 15th $2,085) and also close above a 3rd prior rate cut dating back to August 21st close of $1,831. The NASDAQ Composite is beginning to look like it is "predicting" some type of economic stimulus going forward if we are benchmarking back to past patterns. Fed comments I find it interesting to read the brief comments that come out of the FOMC meetings. I'm not going to reprint all of the comments as subscribers can visit http://www.federalreserve.gov/fomc and click on the Meeting calendar, statements, and minutes link. What I find interesting is what the Fed was thinking at the time of their interest rate decision. For those looking for more reading, print out the full minutes of the FOMC meeting. Good bedtime reading! Today's Fed Summary: The patterns evident in recent months--declining profitability and business capital spending, weak expansion of consumption, and slowing growth abroad--continue to weigh on the economy. The associated easing of pressures on labor and product markets is expected to keep inflation contained. Although continuing favorable trends bolster long-term prospects for productivity growth and the economy, the Committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future. Past comments The June 27th (6th rate cut) comments read similar to today's brief summary with the only difference being that "easing of pressure on labor and product markets is expected to keep inflation contained." The Fed cut just 25 basis points that day. Perhaps they were thinking that the economic slowdown was beginning to subside and the easing of workforce pricing pressures would also help some corporate bottom lines? On August 21st (7th rate cut) comments take a turn toward concern as the Fed cuts 50 basis points. "Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the U.S. economy. The associated easing of pressures on labor and product markets is expected to keep inflation contained." The last sentence is that of the June 27th, but now the Fed is becoming concerned On September 17th (8th rate cut) the Fed is responding to the terrorist attacks on September 11th, but waits for markets to be open for trading for all participants to be able to trade the 50 basis point rate cut. The Fed is talking about further economic decline due to higher unemployment, weaker production and business spending. On October 2nd (9th rate cut) the Fed has changed it tone from August 21st comments regarding household spending. "...Business and household spending as a consequence are being further damped." Bringing it together In Friday's wrap, we discussed some various sectors to be keeping an eye on. What we wanted to do was "look for something that doesn't make sense." Since the Fed has recently changed their tone toward "household demand" then that most likely means the consumer isn't spending and retail stocks should be getting crushed! Since the MARKET is never wrong, lets look at the S&P Retail Index (RLX.X) and see if action there makes sense. S&P Retail Index Chart - We can build a scenario for "household demand" and the Fed comments dating back to October 2nd. At the close of trading that day, the RLX.X closed at $787, and today's close at $847 has this group of household-consumer-spending-stocks trading higher by 7.6%. Now this doesn't make sense! The first part of our scenario might be for further heads up to bullishness on a close above $860. The rolling 200-day moving average (a longer-term moving average) and 50% retracement (retracement from the April 2000 highs to October 2000 lows) gives us a very good level to be monitoring. Those that believe the longer-term trend is the overriding trend (downward trend is still bearish until broken to the upside) then understand that the MARKET is yet to believe everything is OK at the consumer level. However, a break above the $900 level would most likely put this index above downward trend and 61.8% retracement. If the MARKET is "all knowing" then the market might be convinced of an economic recovery occurring above the $900 level. Maybe this is why Wal-Mart (NYSE:WMT) remains in the #1 slot of our Dow Portfolio of gain since its September 10th close (day prior to terrorist attacks we've been benchmarking from). Perhaps this is also why we were so quickly stopped out of a bearish play we highlighted in Dow component and fellow retailer Home Depot (NYSE:HD) on November 2nd at $39.25. While the trade cost our portfolio a 4.39% loss, I expect to gain something for that cost. With the stock now trading $42.70, shorting a more discount based retailing stock was obviously not the thing to have been doing on October 30th. This stock could hold near-term fortunes If there's one stock I'd have my eye on near-term, it would be shares of Dow component General Electric (NYSE:GE) $39.80. A break above $40 could have this stock moving sharply higher near- term and could have a significant impact on both the Dow Industrials and S&P 500 Index. This stock looks like it is at a major "pivot point" or point where broader market bulls and bears collide. General Electric (GE) has its proverbial finger in about every economic pie there is. It's price action near-term could shape market action over the next couple of weeks. Here's why. General Electric Chart - It's almost "unconceivable" to think the economy could be improving without shares of GE going along for the ride. Near- term, this stock becomes a "guinea pig" for traders and investors to be keeping an eye on. It's one of those broadly diversified companies that has a finger in just about every segment of the economy. My test is this. A break above $40.10 means that the MARKET believes there is hope that an economic recovery is near and that there's no holding back the diversification of GE. The "final test" for economic recovery getting to a more healthy stage would be for the stock to break out of our regressions channel (something it was not able to do back in May and June for more than 3 sessions). However, a trader having played the stock long back on April 10th with the break above $42.65, would have had an opportunity to profit from the stock's rise to upper regression channel just over one month later near $53 (23% gain). Those not wanting to expose too much capital to a trade in GE on the break above $40.10 might take a look at the GE Dec. $40 calls (GELH) that are currently offered $1.95. I'm only guessing, but would think a trade at $40.10 would have them offered 30 cents higher at $2.25. 1 contract costs you about $225 (plus commission) and gives you control of 100 shares until December 21st, which is option expiration. Risk of buying 100 shares of GE at $40.10 with a stop just below $38 at $38.75 is also about $225 on 100 shares. Don't over leverage!!!!! If you would normally consider the purchase of 100 shares of a stock, then only buy 1 contract! Too many traders/investors think that buying options is a chance to over leverage. It's not, so don't do it! Options are an opportunity to expose a lesser amount of capital, control your risk that should be equal to, but not greater than the risk of the stock itself. Jeff Bailey Senior Market Technician ================ Market Sentiment ================ Number ten sparks a late day rally by Russ Moore Number ten sparks a late day rally. The bulls got what they wanted as the Fed came through with another .50bps rate cut. It took the markets about an hour before they decided which direction to go, but once they got going it was a steady rise with the DOW posting a +1.6 percent gain. Tech stocks were very strong and that had the NASDAQ and NDX adding +2.3 and +2.9 percent respectively. Volume picked up noticeably after the FOMC decision, ending with 1.33 billion shares trading hands on the big board, and 1.93 billion shares moving on the tech index. Winners trounced losers by a 21/11 count on the NYSE and 21/15 margin on the NASDAQ. Gold, oil and airlines were the only sectors ending in the red. Internet, chips, hardware, software, financials, biotechs and retailers were all strong on the day. The Dow’s gains were helped in part, by news that the Helwett- Packard/Compaq deal may be in jeopardy. The Hewlett family, which has a 5 percent stake in Hewlett stock, said it would vote against the proposed merger. Hewlett-Packard stock was up +17 percent on the news while Compaq’s stock fell -5.3 percent. There can be no doubt that the Fed is doing everything in its power to move the economy forward. Aggressive fiscal and monetary policies are being heralded by many, as the catalyst for a second quarter 2002 recovery. While investors will no doubt enjoy some of the benefits of the rate reductions i.e. declining mortgage rates and zero percent automobile financing, they will need to see and hear something positive on the corporate earnings front before loading up on equities. Until that happens, the “sideways shuffle” will be played a lot on Wall Street. VIX Tuesday 11/06 close: 29.85 VXN Tuesday 11/06 close: 57.34 30-yr Bonds Tuesday 11/06 close: 4.86 Total Put/Call Ratio: .58 Equity Option Put/Call Ratio: .47 Index Option Put/Call Ratio: 1.32 === NASDAQ 100 Index (NDX/QQQ) 52-Week High: 103.51 52-Week Low: 28.19 Current close: 38.19 Volume/Open Interest Maximum calls: 35/68,102 Maximum puts : 33/96,864 Moving Averages 10 DMA 35 20 DMA 34 50 DMA 33 200 DMA 43 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: 576.30 Volume/Open Interest Maximum calls: 560/5,465 Maximum puts : 500/8,369 Moving Averages 10 DMA 559 20 DMA 559 50 DMA 554 200 DMA 616 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: 1118.86 Volume / Open Interest Maximum calls: 1075/18,994 Maximum puts : 950/22,317 Moving Averages 10 DMA 1088 20 DMA 1086 50 DMA 1081 200 DMA 1197 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: 9,591.12 Volume / Open Interest Maximum Calls: 94/25,398 Maximum Puts 92/20,795 Moving Averages: 10 DMA 9,343 20 DMA 9,324 50 DMA 9,336 200 DMA 10,241 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: 585.81 Volume / Open Interest Maximum Calls: 580/ 525 Maximum Puts: 420/1,576 Moving Averages 10 DMA 557 20 DMA 528 50 DMA 500 200 DMA 538 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: 520.03 Volume / Open Interest Maximum Calls: 570/ 509 Maximum Puts: 420/ 812 Moving Averages 10 DMA 474 20 DMA 459 50 DMA 463 200 DMA 576 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: 395.98 Volume / Open Interest Maximum Calls: 420/ 282 Maximum Puts: 400/1000 Moving Averages 10 DMA 392 20 DMA 394 50 DMA 388 200 DMA 393 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 11/02 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 10/16/01 378,866 415,289 (36,423) ( 6.0%) 10/23/01 377,177 413,658 (36,481) 0.1% 10/30/01 377,468 413,729 (36,261) (0.06%) 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 10/16/01 124,568 73,779 50,789 6.3% 10/23/01 127,016 71,212 55,804 9.9% 10/30/01 123,546 71,225 52,321 (6.2%) 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 10/16/01 27,398 40,397 (12,999) (2.7%) 10/23/01 29,920 40,358 (10,438) (19.7%) 10/30/01 32,055 45,574 (13,519) 29.5% 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 10/16/01 12,901 6,893 6,008 21.7% 10/23/01 11,567 6,934 4,633 (22.9%) 10/30/01 12,725 6,475 6,250 34.9% 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 10/16/01 25,402 10,267 15,135 3.1% 10/23/01 25,568 11,832 13,736 (9.2%) 10/30/01 25,872 12,556 13,316 (3.1%) 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 10/16/01 4,514 12,104 (7,590) (13.5%) 10/23/01 4,902 11,900 (6,998) (7.8%) 10/30/01 4,261 11,220 (6,959) 0.0% 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 +52,321 +55,804 -36,261 -36,481 Total Open Interest % (+26.86%) (+28.15%) (-4.58%) (-4.61%) net-long net-long net-short net-short Small Specs Commercials DJIA futures (Current) (Previous) (Current) (Previous) Open Interest Net Value -6,959 -6,998 +13,316 13,736 Total Open interest % (-44.95%) (-41.65%) (+34.65%) (+36.73%) net-short net-short net-long net-long Small Spec Commercials NASDAQ 100 (Current) (Previous) (Current) (Previous) Open Interest Net Value +6,250 +4,633 -13,519 -10,438 Total Open Interest % (+32.55%) (+25.04%) (-17.41%) (-14.85%) net-long net-long net-short net-short What COT Data Tells Us ---------------------- Indices:.For the third week in a row, Commercials have shown little change in their net-short positions on the S&P 500. We did see the Small Specs and Commercials move in opposite directions on the NASDAQ 100 with the Small Specs adding to their net-longs and the Commercials increasing their net-shorts. Gold: No significant changes on Commercial positions. 10/02 67,122 contracts net-short 10/09 64,729 contracts net-short 10/16 51,816 contracts net-short 10/23 25,191 contracts net-short 10/30 33,199 contracts net-short Data compiled as of Tuesday 10/30 by the CFTC. ========================= Play-of-the-Day (Bullish) ========================= General Electric - GE - close: 39.80 change: +1.03 stop: 37.75 Company Description GE is a diversified services, technology and manufacturing company with a commitment to achieving customer success and worldwide leadership in each of its businesses. GE operates in more than 100 countries and employs 313,000 people worldwide. (source: company press release) Why We Like It: I agree very much with Mr. Bailey's analysis of GE and future market direction. If the Dow Industrials are going to continue higher with this breakout above the 9500 level they'll be hard pressed to do it without GE joining the climb. As far as I can tell, GE, with its market cap of about $380 billion is the largest company on the planet (readers should feel free to correct me if I'm wrong but I think MSFT is second at $340 billion). For years investors have used GE as a proxy for the market. This time around shares of GE seem to be lagging a bit but this allows us to capture the move when it attempts to "catch up" with its Dow-component comrades. We are electing to initiate this play only if our trigger point is hit. The newsletter will hypothetically go long when GE trades $40.10. Once this occurs our stop will be 37.75, which incidentally was the late afternoon dip in Friday's session. If the stock doesn't trade to our trigger but you like the stock consider looking for a dip back to the bottom of its recent channel at $36.00. We think the move up from $40 could be exciting as shorts decide to run for cover. Picked on November Xth at $40.10<-- not triggered yet Gain since picked: +0.00 Earnings Date 10/24 (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. 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PremierInvestor.net Newsletter Tuesday 11-06-2001 section 2 of 2 Copyright © 2001, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.PremierInvestor.net/htmlemail/3678_2.asp ================================================================= In section two: Net Bulls Bullish Play Updates: ADPT, LRCX, NMTC Stock Bottom / Active Trader New Bullish Play: GE Bullish Play Updates: BMS, CLX, HON Bearish Play Updates: AHC, HCR, PPDI Closed Bearish Plays: BMY High Risk / High Reward New Bullish Play: AOL Bullish Play Updates: HTCH, HM Split Trader - 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) ================================================================= Net Bulls (NB) section ================================================================== =============== NB Play Updates =============== -------------------- Bullish Play Updates -------------------- Adaptec Inc - ADPT - close: 14.18 change: +0.33 stop: 13.50 Readers may have noticed some internal divergence between myself and Mr. Bailey's classification of ADPT. Is it a semiconductor stock as I described it in the original play write up, or is it a disk drive stock? According to Bailey, ADPT is a component of the AMEX Disk Drive Index (DDX). He is correct. However, other stock sorting criteria sorts ADPT as a semiconductor stock. If I were to use the latest ADPT press release about their RAID drivers (which are software) and their ADPT RAID cards (which would be semiconductors) then we have more evidence that maybe ADPT can't be classified as just a disk drive stock or just a semiconductor stock. The most telling clue may be from today's trading action. The DDX traded flat with a +$0.02 change today. The SOX added 17 points to gain 3.3%. ADPT added 2.38%. This could make one believe that the market tends to trade ADPT like a chip stock. Whatever the case, ADPT is bound to benefit from positive moves in both the DDX and the SOX. In Monday's newsletter (and on the website) we raised the stop on ADPT to $13.50 to protect Monday's gains. With the intraday low on Tuesday at 13.70 we're still in the running. If the market can add another day to its bullish run we should be in good form. Please note that in Monday's write up we decided that if ADPT trades to $15.00 on an intraday move we will close the play at $15.00 even though long-term bulls will probably be looking for that bullish price objective of $20.00. It looks like short-term resistance is at $14.20. Be sure to adjust your stops as the newsletter is currently up over 10% in the play. Picked on November 2nd at $12.86 Gain since picked: +1.32 Earnings Date 10/18 (confirmed) --- Lam Research - LRCX - close: 22.10 change: +0.35 stop: 20.50 *new* The positive moves in the SOX over the 500 level have helped fuel LRCX's third day over its 50-dma and its fifth positive day in a row. The latter observation should give some traders pause for concern. Short-term the stock is looking a little overbought even though the MACD is finally trading over the zero line again and appears to be picking up steam. Another concern we have is how volume has slowly been slipping the past couple of days. We can probably write that off as investors waiting for the FOMC decision but we didn't see a lot of volume come into LRCX after the announcement. The SOX should now find some support at the 500 level and likewise LRCX has been finding support near $21.25. We've chosen to raise our stop to 20.50, which is just below the 50-dma currently resting at 20.69. In our original write up we discussed the risk of trading LRCX long while its near the top of its trading channel but fortunately the surge near the close today helped push it through the top while also putting it above the $22 mark. This is a bullish sign for tomorrow but one never knows how the market reacts the day after a fed meeting. In the past it has been to "sell the news" the day after and then ramp the market up. If we do get a dip traders can look for an entry at $21.50 or $21.25. Under $21.25 we would be concerned about a more prolonged pullback. Depending on your investment horizon traders can target the top of the gap down at $23, price resistance at $24 or the 200-dma at $25 as potential targets. Picked on November 2nd at $21.34 Gain since picked: +0.76 Earnings Date 10/09 (confirmed) --- Numerical Tech. - NMTC - close: 26.18 change:+0.11 stop: 24.25 *new* Hmmm... traders should be thinking about NMTC's performance and how it relates to the SOX and the GSO. The last two days have seen strong moves in the SOX and GSO but we've not seen a corresponding move in NMTC. This immediately makes us cautious. We still think NMTC is a strong candidate to play bullish and the last two days have confirmed the breakout over $25.00 but we were looking for more oomph in the follow through. As a result we've chosen to raise our stop a dollar to $24.25. This is just below the late morning dip (about 10:55 AM) in Friday's trading. The good news was the late morning dip today found buyers near 25.25, which is exactly what we want to see. If the market dips tomorrow (or the SOX/GSO) we would look for potential entries near any round number from $25.25 to $24.75 but wait for the bounce up to begin. Picked on November 2nd at $25.44 Gain since picked: +0.74 Earnings Date 10/10 (confirmed) =============== NB Closed Plays =============== -------------------- Closed Bullish Plays -------------------- ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== =============== AT New Plays =============== ---------------- New Bullish Play ---------------- General Electric - GE - close: 39.80 change: +1.03 stop: 37.75 Company Description GE is a diversified services, technology and manufacturing company with a commitment to achieving customer success and worldwide leadership in each of its businesses. GE operates in more than 100 countries and employs 313,000 people worldwide. (source: company press release) Why We Like It: I agree very much with Mr. Bailey's analysis of GE and future market direction. If the Dow Industrials are going to continue higher with this breakout above the 9500 level they'll be hard pressed to do it without GE joining the climb. As far as I can tell, GE, with its market cap of about $380 billion is the largest company on the planet (readers should feel free to correct me if I'm wrong but I think MSFT is second at $340 billion). For years investors have used GE as a proxy for the market. This time around shares of GE seem to be lagging a bit but this allows us to capture the move when it attempts to "catch up" with its Dow-component comrades. We are electing to initiate this play only if our trigger point is hit. The newsletter will hypothetically go long when GE trades $40.10. Once this occurs our stop will be 37.75, which incidentally was the late afternoon dip in Friday's session. If the stock doesn't trade to our trigger but you like the stock consider looking for a dip back to the bottom of its recent channel at $36.00. We think the move up from $40 could be exciting as shorts decide to run for cover. Picked on November Xth at $40.10<-- not triggered yet Gain since picked: +0.00 Earnings Date 10/24 (confirmed) =============== AT Play Updates =============== -------------------- Bullish Play Updates -------------------- Bemis Co. - BMS - close: 47.20 change: +2.13 stop: 43.75 *new* Thank goodness! Friday's update discussed our concerns that the stock was beginning to look tired and we needed to see a move soon. Fortunately the move came today. We've been talking about how the chart on BMS could have been interpreted to show a flag formation that usually denotes a temporary consolidation before the prevailing trend continues. With the stock over the $45.50 resistance level it should be free to makes its next bullish leg up. Investors should also be encouraged that the previous three days of trading was on strong volume and today's breakout move came on very strong volume of 467K shares versus the average of only 154K. Previous resistance should now become new support. If we see a pullback in the market, traders can look for a dip back to the 45.50 - 45.25 level but hopefully we'll see buyers step in sooner than that ($46 anyone?). We're going to move our stop up to 43.75. Picked on October 26th at $44.99 Gain since picked: +2.21 Earnings Date 10/23 (confirmed) --- Clorox Co. - CLX - close: 38.86 change: +0.60 stop: 36.85 The extremely bullish trading formation we saw developing in CLX on Friday has produced a strong gap up for Monday with a follow through day on Tuesday. After the gap up yesterday we raised our stop to 36.85 in Monday's newsletter. Volume has been dropping off after the recent high of 4M shares. Yet even today's 929K is above the average daily volume. The strong move in this sector has not stopped and is on its fourth or fifth day of a new bullish trend depending on which equity you look at. A breakout above $39 would be encouraging but we'd actually like to see the stock come back to $38 before trading higher. There appears to be strong resistance at $39.50 to $39.75 but we are looking for CLX to eventually trade to $42.75. Picked on November 1st at $37.48 Gain since picked: +1.38 Earnings Date 11/01 (confirmed) --- Honeywell Intl - HON - close: 31.99 change: +0.01 stop: 29.00 Shares of HON have turned in a third day above its 50-dma which is nice confirmation that the stock should be able to build on its new upward trend. The stock seems to be finding support just north of the $31 level as Monday's low was 3.14 and today's low was 31.12. Granted this is in a "bullish" market with the Dow trading strongly the last few days but we're not complaining. If the market does pullback we could see HON dipping to stronger support near $30. More conservative traders may feel more comfortable with a tighter stop. Adjust according to your risk tolerance. Watch the Dow for indication of HON's short-term direction. Picked on November 2nd at $31.15 Gain since picked: +0.84 Earnings Date 10/24 (confirmed) -------------------- Bearish Play Updates -------------------- Amerada Hess - AHC - close: 57.56 change: -0.50 stop: 60.05 *new* Per our weekend write up, the $58 level was the key level to watch. On Monday shares of AHC slowly drifted lower managing to close at $58.06 with the OIX index following suit. Fast forward to Tuesday. Today saw shares of AHC gap lower as the OIX index traded below the crucial support level of 290. There are multiple factors weighing in on the Oil sector but one of the biggest is probably Russia's refusal to dance in step with OPECs struggle to raise the price of oil (who likes to keep oil between $22 and $28 a barrel). If OPEC tries to curtail production to limit supply then cash-strapped Russia seems to be more than happy to come up with that supply even though it may keep the price of oil cheap or allow it to fall lower. OPEC may not allow this to occur as Russia could then gain crucial market share against its rivals. The drop in the price of oil has been a big factor in AHC's decline but the drop in AHC and the OIX was halted and reversed by the market's strong bullish reaction to the 50 basis point cut by the FOMC today. Now both AHC and the OIX, which traded back above the crucial 290 level, have formed a hammer-style doji. These candlestick formations can forecast a reversal in the trend. While normally this may encourage us to really tighten our stop or take profits we're not convinced that AHC and the OIX will be able to truly reverse the trend for more than a day or two. Thus, we are lowering our stop but only to $60.05. This will allow for AHC, who is currently oversold, to bounce for a day or two before continuing to new lows. Another strategy some traders may choose to apply is to set an extremely tight stop, which will probably be triggered tomorrow. They would then gain the freedom to look for a new entry point if shares of AHC rollover again at $59 or $60. One "signal" that is in favor of the bears is that even though the OIX traded back above key support of 290, AHC could not trade back above key support of $58. Enter new positions carefully and confirm the direction of the sector. Picked on November 2nd at $58.36 Gain since picked: +0.80 Earnings Date 10/23 (confirmed) --- Manor Care - HCR - close: 20.82 change: -0.90 stop: 21.75 *new* Our play of the day for Tuesday performed on schedule with a gain of 4.14%. What makes this move even more exciting is the divergence between the Healthcare index (HCX) and HCR. We were expecting the HCX to trade lower today but the market's bullish reaction to the FOMC rate cut helped drive the index higher. In contrast HCR fell to new relative lows on extremely high volume of 2 million shares (average volume is normally 697K). In Monday's update we stated that if HCR traded to a low of $20.05 intraday we would close the play for a profit. This has not occurred but remains in effect. The continuing weakness in HCR is encouraging us to lower our stop again. This time we're placing the stop at 21.75 which is just above the Monday afternoon highs. If we get stopped out here we can still pocket a 10% move. Currently the short play stands with a 14% gain. Picked on October 26th at $24.23 Gain since picked: +3.41 Earnings Date 10/26 (confirmed) --- Pharmaceutical Product Development Inc. - PPDI - close: 24.31 change: -0.73 stop: 26.00 *new* Our new bearish play in PPDI is performing to expectations as shares continue to follow through on the technical breakdown below support of $26.50. Very conservative bearish traders could make use of one strategy that places your stop at the previous days high. This tends to work on extreme trending stocks and would have worked on PPDI from 8/28 to 9/19 but would not have worked on a similar move back in March where bearish traders could have been prematurely stopped out before reaching the low under 17.50. We are lowering our stop but only to $26.00 or breakeven. We are encouraged by Tuesday's trading action in PPDI. We had expected the Drug Index (DRG.X) to trade lower today but similar to the HCX, the market's bullish reaction to the FOMC rate cut helped drive the Drug index back above the 200- dma. Whether or not it can stay there is another story. We encourage you to look at a 5-minute chart of HCR. Active traders should notice how HCR tends to trade up a little in the morning before sellers lean on it again and drive it lower. Today's action was very negative and there was heavy selling (resistance) at the 24.50 level for most of the session. If HCR trades to $20.00 on an intraday spike down we will close the play for a profit. Picked on November 2nd at $26.00 Gain since picked: +1.69 Earnings Date 10/16 (confirmed) =============== AT Closed Plays =============== -------------------- Closed Bearish Plays -------------------- Bristol Myers Squibb - BMY - cls: 55.76 chg: +2.49 stop: 54.60 The courts ruled that a U.S. regulator's decision to approve generic versions for BMY's Taxol drug was wrong. Immediately shares of IVX and MYL, two companies who sell the copy cat versions fell on the news while BMY traded higher. Fortunately for IVX and MYL it is unlikely that BMY would force them to take their generic versions off the market despite BMY's significant losses in Taxol sales this last quarter. In addition to this moral win for BMY, shares of the stock traded higher after the company said it would reveal some of the drugs in its pipeline in an analysts conference tomorrow. The volatile trading in BMY on Tuesday stopped us out midday at $54.60 for a 6 percent move. At this point we would expect BMY to probably trade higher tomorrow but its 200-dma at 57.50 could be a tough obstacle to overcome. Picked on October 23rd at $58.02 Gain since picked: +3.42 Earnings Date 10/23 (confirmed) ================================================================== High Risk / High Reward (HR) section ================================================================== =============== HR New Plays =============== ---------------- New Bullish Play ---------------- AOL Time Warner - AOL - close: 35.15 change: +1.66 stop: 32.25 Company Description The Internet powerhouse turned media mogul has become a communications company to worth watching. Now the combination of American Online and Time Warner are developing the synergies between T.V. assets and Internet assets and everything in between. Why We Like It: One of the assets AOL is planning to capitalize on is its film division it adopted when it merged with Time Warner. From all the hoopla you and I are hearing about the upcoming Harry Potter movie it's going to be a windfall. Whether this one movie is enough to drive the stock price is up for discussion but what traders should know by now it's not the facts that matter but investors perception of the facts. If Wall Street thinks Harry Potter will work its magic for AOL then by all means the stock is likely to see buying interest. I for one will donate my $8 at the box office to see the movie. There's no counting how many parents will make multiple donations for their kids to see it more than once so the potential to be a box office mega-hit is there. AOL has overhead resistance at $37.50, $40, $42.50 and its 200-dma is near $44. Given enough hype about the movie that is due to hit theatres on Nov. 16th, we think the stock can trade over $40. How high over $40 is an internal debate in the office. More conservative traders may want to use a tighter stop but we're placing ours 25 cents below Monday's low. Long live Harry Potter but let's hope the Muggles are willing to watch the little bugger work some magic on the silver screen. Picked on November 6th at $35.15 Gain since picked: +0.00 Earnings Date 10/17 (confirmed) =============== HR Play Updates =============== -------------------- Bullish Play Updates -------------------- Hutchinson Tech. - HTCH - close: 21.87 change: +0.65 stop: 20.10*new* If you're following the new high risk/high reward plays then you know we were triggered in HTCH when it traded at $20.10 in Monday's session. The stock erupted on Monday closing at 21.22. The AMEX disk drive index (DDX.X) also put in another strong day on Monday (after a string of strong days). As noted in Sunday's write up, we suspected that the big move in HTCH was at least partially fueled by shorts deciding to cover their positions. The trend continued today with shares reaching a high of $21.90. Unfortunately, the stock really disappointed on earnings this afternoon with a loss of 43 cents a share versus estimates of 37 cents a share. Management did say they expected to breakeven by first quarter of next year but there is no telling how investors will react to the report. To make matters worse, the DDX.X traded sideways and looks ready for a pull back of its own. We are expecting a dip tomorrow and hopeful bulls will be looking for support between $20.50 and $21.00. We've decided to limit our risk to breakeven by raising the stop to $20.10. If the stock surprises us we'll close the play for a profit at $22.50. Picked on November 5th at $20.10 Gain since picked: +1.77 Earnings Date 11/06 (confirmed) --- Homestake Mining Co. - HM - close: 8.20 change: -0.10 stop: 7.95 The gold sector continues to trade sideways as investors throw money at anything tech or consumable. The trading range on HM has narrowed in the last two days to 8.40 on the top side and 8.15 on the bottom. We would only consider a long play on HM if the stock trades above $8.50. The 15-dma has been acting as resistance but most traders don't follow it. We like to watch the 30-minute chart with the 15-day MA (or 195 period moving average) as a guide. Enter passively. Picked on November 2nd at $ 8.37 Gain since picked: -0.17 Earnings Date 10/31 (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 SI Siemens Aktkien 51.70 +0.84 MAY May Department Stores 35.24 +1.35 AN Autonation Inc 11.70 +0.69 LZ Lubrizol Corp 29.99 +0.67 RYAN Ryans Family Steak House 20.00 +0.85 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change FNSR Finisar Corp 10.22 +1.45 MBG Mandalay Resort Group 19.08 +2.03 DCLK Doubleclick Inc 8.37 +1.32 GETY Getty Images Inc 18.96 +1.85 GNTA Genta Inc 16.36 +1.09 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change FOX Fox Entertainment Group 22.50 +1.13 RTRSY Reuters Group 63.60 +1.60 CHIR Chiron Corp 56.80 +1.45 BBI Blockbuster Inc 28.12 +1.22 TOY Toys R Us Inc 22.10 +1.68 ----------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change SLB Schlumberge Ltd 45.97 -1.37 NDN 99 Cents Only Stores 33.97 -2.27 ROP Roper Industries 41.40 -1.25 SONC Sonic Corp 30.97 -4.28 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- PECS Pec Solutions Inc 22.85 -2.31 ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. 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