PremierInvestor.net Newsletter Thursday 11-08-2001 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/1980_1.asp ================================================================= In section one: Market Wrap: Stocks give back gains in final hours Market Sentiment: Logic overcoming greed Play-of-the-Day: Take My Stock, Please! ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 11-8-2001 High Low Volume Advance/Decline DJIA 9587.52 + 33.15 9721.75 9558.39 1.5 bln 1681/1421 NASDAQ 1827.77 - 9.75 1888.39 1816.56 2.2 bln 1824/1789 S&P 100 576.62 + 2.98 584.49 573.64 Totals 3505/3210 S&P 500 1118.54 + 2.74 1135.75 1115.42 RUS 2000 439.06 - 1.74 446.11 438.49 DJ TRANS 2320.98 + 13.48 2335.20 2304.04 VIX 29.91 - 0.56 30.39 28.20 VXN 58.75 + 1.55 59.57 55.27 TRIN 1.09 Put/Call Ratio .73 ----------------------------------------------------------------- =========== Market Wrap =========== Stocks give back gains in final hours Stocks ended the session flat to lower by session's end, but some things we talked about in last night's wrap played out pretty close to how we thought they might today. Dow component General Electric (NYSE:GE) gained 2.5% to close at $40.35. The move above the $40 level was what I felt equity bulls wanted to see for a move higher in the Dow Industrials and the ability to close above the $40 level is a good sign near- term. Volume was not that impressive at 23.5 million shares, I would have liked to have seen something closer to the 30 million share level to hint of true conviction by bulls and some capitulation by bears. Tomorrow's a new day and we will want to monitor things closely here. We're also playing shares of Dow component Honeywell Inc. (NYSE:HON) in the "Non-Tech / Active Trader" section of our portfolio. Shares of HON rose 2% to $31.75. This had the stock edging up 1 slot to the #24 position. I'd consider this more of a "bottom feeder" play in relation to the Dow stocks. At one point during the session, the Dow traded higher by 167 points and closed up 33 points at 9,587. The high of the session came at 9,721, which was just 8 points shy of a retracement level we've had in place for months near 9,729. I do think there were some profits being taken off the table and selling into strength. I will make note that our Dow Industrials portfolio, benchmarked back to the September 10th close, shows 15 stocks (IBM, WMT, C, DD, MSFT, MMM, INTC, JNJ, JPM, PG, HD, HWP, GE, AA, CAT) now showing a gain. GE moved up 2 slots to the #13 slot. In last night's wrap we mentioned that is was difficult to assess risk/reward in shares of Dow component Intel (NASDAQ:INTC) at $28.29. This stock finished down 1 penny at $28.28 after trading as high as $29.52. We'll note a retracement level right at the $29.40 level (fitted retracement from $32.49-$16.32 has 19.1% at $29.40 and 38.2% at $26.31). Any bullish trade at $29.40 would have trader assessing reward to $32.49 and risk to $26.31. One commentator on CNBC was interviewing a floor trader and asked the question "why can't stocks hold up today?" The floor trader responded that there just weren't enough buyers to push stock higher and profit takers were just too plentiful. The commentator then seemed to feel that that explanation wasn't sufficient and babbled something like... "Oh yeah, that again, sellers outnumbering buyers" in a sarcastic tone. Well folks, I agree with the floor trader on his assessment there. I'd also note that the S&P 500 traded right up to a retracement level of 1,126 that we've talked about as a level that was most likely a bullish target for that index. While the S&P 500 Index (SPX.X) traded a high of 1,135, the close at 1,118, back below the brief piercing of 1,126 hints of profit taking at a bullish target. S&P 500 Index Chart - There were some decisions that undoubtedly were made today around the 1,126 level. The biggest one was most likely the question of current risk/reward based on the levels being traded. For us, a new bullish trade in the S&P 500 at 1,126 would have a bullish trader targeting 1,170 and assessing risk to 1,082. That would equate to $44 reward for $44 risk, or 50/50. Those aren't the "best of odds" given pattern recognition dating back to April of this year. In April (very similar market environment to today) the SPX broke above its 50-day MA, ran to a retracement level, then pulled right back into the declining 50-day MA. I've circled that area in pink on the above chart and it wouldn't surprise me if we saw some profit taking back to the 1,082 level. After all, somebody bought the lows near $940 and I don't think it is unfair to think that some profits were taken at 1,082 and 1,126. I'm also going to write down a note to myself that is a rather blunt but obvious observation. If the market is beginning to factor in an economic recovery near-term, then the SPX should not trade much below the 1,050 level anytime soon. After the sharp move higher off the September lows, the consolidation that occurred did not see a break below the 1,052 level. Getting some new ideas We all have our "system" for locating potential trading or investing ideas. I have confessed in the past that I lean more toward the technical side of things than I do the fundamental. Yes, I used to believe ONLY in fundamental analysis. When I first started a career in the investment field, I put together a spreadsheet in my computer and began entering numbers. Revenue, gross margins, expenses, research and development, and earnings and a multitude of other income and balance sheet information. Then I took all of those numbers and began measuring them quarter versus quarter, year after year and running comparables. What ended up happening was that I was only able to focus on a very narrow part of the market as it took quite a bit of time to poor through all that financial information. What was perhaps most frustrating was buying a stock that looked to have excellent past fundamental data and earnings estimates from analysts that hinted the trend would continue only to see the stock fall 30% before the "bad news" was disclosed by the company in an "earnings warning" or latest quarterly earnings announcement. I ended up surmising that the MARKET was just smarter than any type of fundamental model I could put together and was about to call it quits. There was just no way to win. Then a couple of fellow brokers in the office, "Ben" and "Bob" turned me onto something called technical analysis. As I look back, their teachings were very simplistic from what I do today, but nonetheless, their teachings turned on a light bulb in my head that still shines today. Well... at least I think it does. The technicals they followed were very simple. Where is the stock trading versus the 50-day and 200-day moving average? A stock trading above both was strong; a stock trading below both was weak. If the stock was too high above both, then the stock was "overextended" and susceptible to a pullback from profit taking. A stock that was well below both was overextended to the downside and susceptible to a rally as shorts locked in gains. We also had those stocks that were trading in between their 200- day and 50-day moving averages and those were the stocks where we should begin monitoring new candidates from. Those that were trading below their longer-term 200-day moving averages, but above their 50-day moving averages were considered short candidates and we would get more conviction toward our bearishness should the stock break below its 50-day moving average. Stocks that traded above their 200-day moving averages were considered longer-term bullish and depending on where the 50-day moving average was in relation to current trading levels, we would tip the scale of bullishness accordingly. As I "got into" technical analysis more and more, I began learning about volume. Then one day, I became aware of something called supply and demand charting (point and figure charting) and the rest is history. Now I can look at hundreds of charts every day. Well, maybe I can't as I seem to be typing too much to actually look at hundreds of charts, but if somebody would pay me to just look at charts all day and put together a list of stock to buy or sell, I'd be a very, very happy camper. Don't get me wrong... I love trying to teach, write and trade. It would just be if I could talk on a phone and broadcast all my observations and thoughts as fast as I talk. So what does this have to do with anything? Well, I was looking around at our web site at PremierInvestor.net and imagined I didn't know much about technical analysis. I went to the "Trading Ideas" section of the newsletter and started punching up some stock charts of the stocks listed there. I try and teach subscribers how to assess stocks based on their technicals. I don't have a lot of time to be running fundamental models so I was interested in the "Value Plays" section of the newsletter. Does the MARKET think these are values? What kind of bullish signal is the stock giving? Heck, I don't know! So lets put one of the stock up against a simple test of supply/demand to see if it is giving any type of bullish signal. Journal Register (JRC) - $1 and $0.50 box Stocks that are listed in the "Trading Ideas" section of the newsletter are based off of some "scan" from a software program. A test against simple supply/demand gives us an action point for a break-out at $18.50, but recent breakouts have had mixed results. I'd only risk 1/2 position long on the break above $18.50. If the stock surges higher, then I've got a piece of the action. Should the stock only trade $18.50 and I buy, then pull back to support at $15.50 I could then reassess things (market and sector) to make a decision on the remaining 1/2 position long and reduce my cost basis. I'd "rate" this stock more appropriate for investors than for traders. Getting two years worth of data on the point/figure chart tells us the stock isn't very volatile and more appropriate to swing trading or longer-term investing. Jeff Bailey Senior Market Technician ================ Market Sentiment ================ Logic overcoming greed by Russ Moore Logic overcoming greed. An early morning pop fizzled out, as investors decided it was time to take some profits off the table. Overseas rate cuts by the BOE and ECB, coupled with a better than expected jobless claims number sent the DOW higher by +163 points in pre-lunch action. The blue chip index began a steady slide thereafter, hanging on to a gain of +0.3 percent. The NASDAQ, which has been the real leader over the last week, closed in the red with a loss of -0.5 percent. The big cap tech index (NDX) slipped -0.9 percent. Volume was strong with 1.49 billion shares trading on the big board and 2.28 billions shares moving on the NASDAQ. Market breadth was positive on the NYSE with winners outpacing losers by a 17/14 margin. Winners and losers ended in a draw on the NASDAQ. The tech arena was down across the board with hardware, software and chip sectors leading the way. Oil service, utility, and natural gas sectors were strong on the broader markets while biotech, and gold, suffered. Jobless claims fell 46,000 to 450,000, much better than the 501,000 forecast. That positive news was tempered by the fact that individuals collecting benefits rose to its highest level since 83’. Tomorrow’s data will include the Producer Price Index, expected to come in at -0.1, and Michigan consumer sentiment, forecast at 78.4. A significant rise, or fall, in the Michigan number (due out at 10:00am EST.) would have a significant impact on market direction. VIX Thursday 11/08 close: 29.91 VXN Thursday 11/08 close: 58.75 30-yr Bonds Thursday 11/08 close: 4.87 Total Put/Call Ratio: .73 Equity Option Put/Call Ratio: .59 Index Option Put/Call Ratio: 1.63 === NASDAQ 100 Index (NDX/QQQ) 52-Week High: 103.51 52-Week Low: 28.19 Current close: 37.75 Volume/Open Interest Maximum calls: 35/ 61,536 Maximum puts : 33/101,829 Moving Averages 10 DMA 35 20 DMA 35 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: 576.62 Volume/Open Interest Maximum calls: 560/5,469 Maximum puts : 500/9,407 Moving Averages 10 DMA 562 20 DMA 560 50 DMA 553 200 DMA 615 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: 1118.54 Volume / Open Interest Maximum calls: 1100/18,485 Maximum puts : 950/21,889 Moving Averages 10 DMA 1092 20 DMA 1089 50 DMA 1079 200 DMA 1194 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: 9,587.52 Volume / Open Interest Maximum Calls: 94/23,783 Maximum Puts 92/19,622 Moving Averages: 10 DMA 9,377 20 DMA 9,348 50 DMA 9,309 200 DMA 10,231 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: 565.52 Volume / Open Interest Maximum Calls: 580/ 525 Maximum Puts: 420/1,576 Moving Averages 10 DMA 563 20 DMA 537 50 DMA 502 200 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: 507.45 Volume / Open Interest Maximum Calls: 570/ 515 Maximum Puts: 420/ 774 Moving Averages 10 DMA 482 20 DMA 465 50 DMA 461 200 DMA 574 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: 392.61 Volume / Open Interest Maximum Calls: 420/ 282 Maximum Puts: 400/1000 Moving Averages 10 DMA 391 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 (Bearish) ========================= Barr Labs Inc - BRL - close: 66.68 change: -3.87 stop: 71.00 Company Description Barr Laboratories, Inc. is a specialty pharmaceutical company engaged in the development, manufacture and marketing of generic and proprietary pharmaceuticals. (source: company press release) Why We Like It: UGLY! Whether you consider BRL a drug stock or a biotech stock shares of this company have ignored any strength in both sectors for the last three weeks. We've been watching the stock for a few days as it had been consolidating at price support of $70 and its 200-dma. In the past few months, BRL had developed a pattern of a very strong bounce after two days of consolidation at its 200-dma. After BRL failed to begin its next leg up the bears grabbed a hold of the stock and appear to have a tight grip on it. The intraday chart for today looks hideous. The very negative down trend indicates heavy selling pressure. The technical breakdown below its 200-dma (and $70) probably triggered a lot of stops and the stock will have to redefine support again. The point-and-figure chart looks equally appalling with a bearish price target of $49.00. The stock produced a small three-box pullback before beginning its next leg down. Our initial target is the $60 to $62 area. We're going to start the play with a stop at $71.00, just over today's high. Once the stock confirms the move down we'll adjust the stop tighter. If shares produce a bounce tomorrow we would look for the stock to roll over under the 200-dma. Picked on November 8th at $66.68 Gain since picked: +0.00 Earnings Date 10/23 (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 Thursday 11-08-2001 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/1980_2.asp ================================================================= In section two: Net Bulls Bullish Play Updates: ADPT, ALGX, LRCX, LGTO, NMTC Stock Bottom / Active Trader New Bearish Play: BRL, SBC Bullish Play Updates: BMS, CLX, GE, HON Bearish Play Updates: AHC, HCR, PPDI High Risk / High Reward Bullish Play Updates: AOL, 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) / Tech Stock section ================================================================== =============== NB Play Updates =============== -------------------- Bullish Play Updates -------------------- Adaptec Inc - ADPT - close: 13.59 change: -0.64 stop: 13.50 Getting close only counts in horseshoes and shuffleboard but at today's high of $14.75 for ADPT we were within a quarter of reaching our target. Unfortunately, a much-needed pullback in several tech sectors including the semiconductors happened after a strong morning session. The SOX slipped almost 12 points or 2.29% while the DDX closed the day with a fractional gain. But speaking of close calls, the low for ADPT was 13.52 or two cents above our stop. Odds are very good we'll get stopped out tomorrow morning at 13.50 unless the futures are trading significantly higher. Those traders looking for a new entry point to go long for the next leg up (should it occur) can watch the $13.00 level. The stock should find price support there as well as the 10-dma, which has been strong trading support for the last few weeks. Remember, if ADPT surprises us and trades to $15.00 tomorrow we'll close the play if we're not stopped out first. Picked on November 2nd at $12.86 Gain since picked: +0.73 Earnings Date 10/18 (confirmed) --- Allegiance Telecom - ALGX - close: 8.88 chg: +0.26 stop: 7.90 Our new play from Wednesday night was off to a strong start this morning with the technology stocks trading higher. The high for the day of $9.67 represented a 12% gain in the stock before the afternoon sell-off brought shares back to current levels. If ALGX can trade strongly bulls might get lucky and hold support at the $8.75 level tomorrow. If investors decide to close some positions ahead of the weekend ALGX could pullback to stronger support at $8.00. We're going to leave our stop at $7.90 for now since we're expecting a possible dip in the morning. Investors with a longer time horizon may want to wait for a dip back to $7.00. Let's just hope it doesn't happen before we can close the play for a profit at $10.00. According to our initial play write up on Wednesday, if ALGX trades to $10 intraday we're out for a gain. Picked on November 7th at $ 8.62 Gain since picked: +0.26 Earnings Date 10/23 (confirmed) --- Lam Research - LRCX - close: 21.40 change: -0.89 stop: 20.50 LRCX is another chip stock that was trading higher in the morning but gave it all back and more when bears grabbed a hold of the market in the afternoon session. The selling pressure was very strong for LRCX in the last two hours of trading on Thursday with shares beating a steady retreat. Some profit taking is not out of line but we had been encouraged by Wednesday's strength with shares of LRCX through the top of its recent trading channel. To repeat part of Tuesday's update, if LRCX trades below 21.25 we would be concerned that the stock might head for the bottom of its trading channel near $18.50. If stopped out at 20.50 we would post a 3.9% loss on the trade. More conservative traders may want to raise their stops. Keep an eye on the SOX for leadership up or down. Picked on November 2nd at $21.34 Gain since picked: +0.06 Earnings Date 10/09 (confirmed) --- Legato Systems - LGTO - close: 9.84 change: -0.05 stop: 8.99 Uh oh! We had set a trigger to go long LGTO at $10.10 last night and the stock opened very strong and traded to 10.99 before giving into the bears late afternoon sell-off. The problem lies in LGTO's opening price at $10.47. We're going to have to use that as our entry price putting us at a disadvantage. The pullback in the software sector (GSO.X) stopped a couple of points above what should be support at 160. We're still bullish on LGTO but we need to see the stock find a bottom again. We would look for shares to bounce at $9.50. Depending on your risk profile waiting for the bounce at 9.50 or waiting for shares to trade back over 10.00 may be the play. We would not recommend new positions under 9.50. We're going to leave our stop at 8.99 because we're optimistic the stock can turnaround before trading that low. Readers should adjust stops to their own comfort level. Picked on November 8th at $10.47 Gain since picked: -0.63 Earnings Date 10/23 (confirmed) --- Numerical Tech. - NMTC - close: 26.71 change:+0.03 stop: 24.25 Believe it or not NMTC actually proved to be stronger than both the SOX and the GSO in Thursday's session. Both sector indices traded lower while NMTC managed to maintain a razor thin gain. While this should be encouraging to shareholders if the markets sees a pullback on Friday due to traders closing positions ahead of the weekend we would look for targeted dips in NMTC to open new positions. The stock might offer attractive entry points at $26, $25.50 or even $25.25 (Tuesday's low). Confirm stock and market direction before committing new capital. Currently the newsletter is up about $1.27 or 4.99%. Picked on November 2nd at $25.44 Gain since picked: +1.27 Earnings Date 10/10 (confirmed) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== =============== AT New Plays =============== -------------------- New Bearish Play -------------------- Barr Labs Inc - BRL - close: 66.68 change: -3.87 stop: 71.00 Company Description Barr Laboratories, Inc. is a specialty pharmaceutical company engaged in the development, manufacture and marketing of generic and proprietary pharmaceuticals. (source: company press release) Why We Like It: UGLY! Whether you consider BRL a drug stock or a biotech stock shares of this company have ignored any strength in both sectors for the last three weeks. We've been watching the stock for a few days as it had been consolidating at price support of $70 and its 200-dma. In the past few months, BRL had developed a pattern of a very strong bounce after two days of consolidation at its 200-dma. After BRL failed to begin its next leg up the bears grabbed a hold of the stock and appear to have a tight grip on it. The intraday chart for today looks hideous. The very negative down trend indicates heavy selling pressure. The technical breakdown below its 200-dma (and $70) probably triggered a lot of stops and the stock will have to redefine support again. The point-and-figure chart looks equally appalling with a bearish price target of $49.00. The stock produced a small three-box pullback before beginning its next leg down. Our initial target is the $60 to $62 area. We're going to start the play with a stop at $71.00, just over today's high. Once the stock confirms the move down we'll adjust the stop tighter. If shares produce a bounce tomorrow we would look for the stock to roll over under the 200-dma. Picked on November 8th at $66.68 Gain since picked: +0.00 Earnings Date 10/23 (confirmed) --- SBC Communications - SBC - close: 37.99 change: -0.05 stop: 38.38 Company Description SBC Communications Inc. is a global communications leader. Through its subsidiaries' trusted brands - SBC Southwestern Bell, SBC Ameritech, SBC Pacific Bell, SBC Nevada Bell, SBC SNET and Sterling Commerce - and world-class network, SBC companies provide a full range of voice, data, networking and e-business services, including local and long-distance, high-speed Internet access and data transport, network integration, software and process integration, Web site and application hosting, e- marketplace development, paging and messaging, as well as directory advertising and publishing. America's leading provider of high-speed DSL Internet service, SBC companies currently have more than 60 million access lines nationwide. SBC has a 60 percent equity interest in Cingular Wireless, its joint venture with BellSouth. (source: company press release) Why We Like It: To be short and to the point, we like SBC as a short play because the bearish wedge forming on this stock is just screaming "short me". The stock dove in mid-October and has been unable to break back above resistance at $40. The month of November has shown a consecutive string of lower highs (until today). This stock is coiling for a breakout and the bias is down. However, before you think we're too enthusiastic take note of our concerns. Number one, as a component of the Dow, SBC may be artificially buoyed if the index can keep the up trend going. While it has had little affect the last couple of weeks it can always surprise us. Number two, the MACD has flattened out for the last few days and its fast and slow moving averages are converging. We need a breakout one way or the other soon. Because the stock has been going nowhere after the big drop in October the MACD histogram is showing a bullish divergence but we think this will reverse if shares breakdown under support at $37.75. Number three, and just who is buying this stock anyway? It could be the company. Recently SBC announced they would begin a second stock buy back program. On Nov. 5th, they announced they would buy back 100 million shares in addition to their previous buy back of 97 million shares. The announcement didn't do anything for the stock price but we thought you should know. The stock has coiled so tight that the move appears almost imminent. We're going to set an entry trigger on this play. If SBC trades to $37.70 we're going to go short. To begin the play we'll start with a stop at 38.38 or one cent above today's high. Our biggest risk is the stock dips to 37.70 and then reverses to stop us out intraday for a 1.8% loss. Our initial target is 10%. The stock does have support at $35 but it may not be able to hold. Beyond $35 the next level of support is $30. Picked on November Xth at $37.70 -- waiting to be triggered Gain since picked: +0.00 Earnings Date 10/22 (confirmed) =============== AT Play Updates =============== -------------------- Bullish Play Updates -------------------- Bemis Co. - BMS - close: 48.51 change: +1.54 stop: 44.99 *new* We did see a pullback on Wednesday but buyers were quick to step in and shares bounced at the $46.50 level twice before closing near $47. BMS has really confirmed the breakout over the $45 level and the point-and-figure chart has extended its bullish price objective to $76.00, which is great news for investors with a long-term time horizon. We, on the other hand, are short-term traders and plan to close the play for a profit if BMS trades to $49.95. This could happen intraday but will allow us to capitalize on the recent surge. I know a few investors are speculating that the strength and volume of the breakout could be forecasting a bullish trend that could last several weeks to months. This may be so but if we can selectively grab 10% here and 10% there we'll have the freedom to pick and choose our entry points. Currently the newsletter is up about 7.8%. I know some traders like to cement a gain of 5% whenever they have the chance. We consider moving our stop to 47.25 to do just that but have chosen to raise our stop to cost (44.99) instead and give the stock room to run up to $50 even if we see a strong dip tomorrow. Picked on October 26th at $44.99 Gain since picked: +3.52 Earnings Date 10/23 (confirmed) --- Clorox Co. - CLX - close: 38.78 change: +0.06 stop: 36.85 Our consumables play has managed to hold on to its gains despite encountering resistance at $39.00. If traders look at a 5 minute chart of CLX they can notice how shares have been trying to build support at the $38.50 level (yes, it dipped to 38.33 in the late morning session). The last hour or two on Thursday saw a lot of volume come in and it looks like it was buyers as the stock moved up off its lows. Speaking of volume, today's 2 million shares was pretty big compared to the norm. Investors looking to establish new positions may want to look for a breakout above $39.00 (or $39.50) or a dip a back to $38.00. Under $38.00 we would be concerned the stock may have farther to fall and would wait for the bounce to occur. Even though we are leaving our stop at 36.85 more conservative traders can consider stops under the $38 level. In the news today, CLX announced it was looking for a buyer for its institutional and industrial trash can liner unit. Management says they want to focus on their core-consumer businesses and analysts may approve the move. Picked on November 1st at $37.48 Gain since picked: +1.30 Earnings Date 11/01 (confirmed) --- General Electric - GE - close: 40.35 change: +1.00 stop: 37.75 The positive move in the Dow Industrials this morning was bolstered by a bullish breakout in shares of GE. However, while the Dow gave most of its gains back to profit taking, GE spent the rest of the day in a tight trading range between $40.50 and what should be new support at $40.00. The newsletter's trigger to go long on GE at $40.10 occurred near 10:40 AM this morning. This puts our initial stop at 37.75 but more conservative traders can consider stops near 38.40, the lows on Monday and Tuesday or even a stop under 39.00 but a strong dip in the Dow could bring GE back to the $39 area. The fact that GE stayed above the $40 level is very encouraging and hopefully GE can offer some leadership if the other Dow components start to falter. Picked on November 8th at $40.10 Gain since picked: +0.25 Earnings Date 10/24 (confirmed) --- Honeywell Intl - HON - close: 31.75 change: +0.63 stop: 29.00 Our other big-cap blue chip stock, HON, has been consolidating under price resistance at $32 after breaking out above its 50-dma five days ago. The dip on Wednesday saw shares of HON trade back to the 50-dma but buyers stepped in and the stock closed off its lows. Thursday showed the stock slowly trading higher and it looks like bulls will try to tackle the $32 area if the broader markets can provide a cooperative environment. The MACD fast and slow moving averages have both crossed the zero line and remain in a strong up trend. We will leave our stop at $29 for now but traders might be able to get away with a tighter stop just under $30. Picked on November 2nd at $31.15 Gain since picked: +0.60 Earnings Date 10/24 (confirmed) -------------------- Bearish Play Updates -------------------- Amerada Hess - AHC - close: 59.15 change: +0.86 stop: 60.05 Right on target. We expected the $60 level to be resistance for AHC which proved true with the high today at 59.89. Like the rest of the market, shares of AHC fell back in the afternoon leaving us to wonder if this is a failed rally in the making and should we consider new short positions. One development that would favor the bulls was the strong move in the price of oil. At Tuesday's close, light sweet crude was $20.09 a barrel. Wednesday saw shares move strongly higher and today's trading saw yet another gain to put the December oil contract at $21.30. This move in oil probably helped fuel the bounce in the Oil sector (OIX.X) which has posted its second positive day in a row. We do find it interesting that the OIX found a lot of resistance at the 296 level today. Using a retracement tool from the September lows to the mid-October highs put the 38.2% retracement just under 297. This technical resistance was strengthened by the 5-dma, which was short-term resistance today, as well as on the 1st of November. All of these observations seem to be setting up for another leg down in the oil group which will help push AHC to new lows. Our one concern is the proximity of our stop to the current share price. A morning spike could stop us out before bears apply pressure to the stock. Yet this will have to be an acceptable risk as the stop is supposed to save us from a breakout to the upside. Picked on November 2nd at $58.36 Gain since picked: -0.79 Earnings Date 10/23 (confirmed) --- Manor Care - HCR - close: 21.00 change: +0.45 stop: 21.75 The S&P Healthcare sector (HCX) drifted lower today but failed to give bears enough fuel to take HCR to the next level. We're not complaining. HCR has fallen nine days in a row and was due for a bounce. We are a little surprised at the volume of 2.1 million shares in Thursday's trading but are content to let ourselves be stopped out at 21.75 for a 10% move. Traders may want to watch the 21.30 level, which could prove to be a very short-term pivot point. If HCR trades above 21.30 we would plan on being stopped out (even though 21.70 could be resistance). If HCR stays under 21.30 then we have a chance to be closed out for a profit if the stock trades to $20.05 intraday. Picked on October 26th at $24.23 Gain since picked: +3.23 Earnings Date 10/26 (confirmed) --- Pharmaceutical Product Development Inc. - PPDI - close: 24.94 change: +0.85 stop: 26.00 PPDI is another healthcare/drug stock that was in need of an oversold bounce. The stock had been in a steady down trend for seven days straight and today's bounce could just be a speed bump on the way down. The stock found selling pressure at its 5-dma and failed to close over round number price resistance at $25. Both developments are positive signs for bears. We're also encouraged that the DRG.X and the HCX.X are both back under their 200-dma's. Traders should confirm the move down in HCR before initiating new plays. Conservative traders may want to wait for the stock to breakdown below the $24.00 level. Remember, if HCR trades to $20.00 on an intraday basis we'll close the play for a profit. Picked on November 2nd at $26.00 Gain since picked: +1.06 Earnings Date 10/16 (confirmed) ================================================================== High Risk / High Reward (HR) section ================================================================== =============== HR Play Updates =============== ------------------- Bullish Play Updates ------------------- AOL Time Warner - AOL - close: 36.45 change: +1.95 stop: 32.25 Our Harry Potter, breakout over the 50-dma, high-risk play from Tuesday is off to a good start. Shares of AOL dipped a little in Wednesday's trading but traders merely saw that as an entry point to jump in. The stock soared 5.65% on decent volume today. With America breathlessly waiting for "the magic to begin" on Nov. 16th, we're expecting traders to continue to bid up shares of AOL until the opening weekend numbers can be uncovered. The stock just barely closed below the intraday high set back on Oct. 4th but the strength of Thursday's move looks good for tomorrow. If AOL does see a pullback traders can look for new entries on bounces at $35 or $34.50. We'll re-evaluate our stop after Friday's session. More conservative traders may want to consider using Tuesday's low. Picked on November 6th at $35.15 Gain since picked: +1.20 Earnings Date 10/17 (confirmed) --- Homestake Mining Co. - HM - close: 8.06 change: -0.34 stop: 7.95 Gold bullion and gold stocks appear to be at a critical turning point. Some are speculating this is a bear trap and the price of this cherished metal is about to soar. To my eyes this gold stock is about to collapse as it dropped 4% and narrowly maintained the illusion of support at the $8.00 level. Okay, I'm being melodramatic but bullish investors might be encouraged by the MACD producing a bullish crossover recently. Odds of being stopped out tomorrow on an intraday spike look high but investors interested in following this sector should watch the 8.50 level for a bullish breakout and of course the 8.00 level for a bearish breakdown. Picked on November 2nd at $ 8.37 Gain since picked: -0.31 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 FTE France Telecom 42.41 +1.11 ING Ing Groep 28.06 +1.01 CVC Cablevision Systems 36.70 +0.75 HPT Hospitality Prop Trust 25.92 +0.52 URI United Rentals Inc 20.54 +0.87 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change WIND Wind River Systems 16.20 +1.10 EMBT Embarcadero Technologies 17.30 +1.40 KWK Quicksilver Resources 17.19 +1.43 IONA Iona Technologies 14.99 +2.41 URBN Urban Outfitters Inc 15.15 +1.07 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change CCU Clear Channel Comm. 42.19 +1.10 MU Micron Technologies 26.91 +1.01 UVN Univision Communications 30.30 +1.57 MIKE Michaels Stores Inc 55.35 +2.57 KOSP Kos Pharmaceuticals Inc 34.42 +2.05 ----------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change MO Philip Morris 46.32 -1.48 BTY British Telecom 47.82 -2.23 THC Tenet Healthcare 54.10 -1.82 ABC AmerisourceBergen Corp 58.50 -5.35 WPI Watson Pharmaceuticals 45.95 -1.56 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- ATK Alliant Techsystems 85.30 -3.57 MLHR Herman Miller Inc 21.50 -0.31 ATVI Activision Inc 36.74 -1.85 GNSS Genesis Microchip Inc 43.47 -7.14 SEAC Seachange Intl 25.84 -1.30 ================================================================= 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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