PremierInvestor.net Newsletter Monday 12-31-2001 section 1 of 1 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/5303_1.asp ================================================================= ************************* HAPPY NEW YEAR ************************ Market Wrap: Bring On The New Year Watch List: QQQ, JDSU, INTC, MSFT Play of the Day: Ready for the Bounce to Begin Market Sentiment: 2001 is in the books. ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 12-31-2001 High Low Volume Advance/Decline DJIA 10021.60 -115.40 10137.60 10019.10 954 mln 1615/1558 NASDAQ 1950.40 - 36.80 1989.17 1950.40 1.39 bln 1945/1846 S&P 100 584.28 - 7.47 591.75 584.17 totals 3560/3404 S&P 500 1148.08 - 12.94 1161.16 1148.04 RUS 2000 488.50 - 5.12 494.20 488.41 DJ TRANS 2639.99 - 3.06 2658.97 2636.63 VIX 23.29 + 0.79 23.41 22.27 Put/Call Ratio 0.63 ----------------------------------------------------------------- =========== Market Wrap =========== Bring On The New Year I suppose Monday's trading was a microcosm for the year. The major averages finished lower by a painful amount, selling off at the open and accelerating to the downside into the close. For the day, the Dow Jones Industrial Average (INDU) lost 1.13 percent, the S&P 500 (SPX) dropped 1.11 percent, and the Nasdaq-100 (NDX) shed 2.71 percent. It was a dismal day to end a dismal year for the bulls. The one-year performance of the major averages reveals as much: Index 2001(%) INDU -7.11 SPX -13.04 NDX -25.92 The year questioned many preconceived notions about investing and trading. It paid to fight the Fed during its interest-rate-cutting binge, which was unthinkable prior to 2001. Through September 21, when the major averages bottomed, the Fed was losing the battle of stimulating the market and economy through its benign monetary policy. It was preached to never fight the Fed, which was wrong for the majority of this year, starting after the first surprise rate cut on January 3. The bear market that lasted through September 21 was one of the most fierce in financial history and most certainly tested the theory of betting with the Fed. It was only the second time in history that fighting the Fed proved correct. Born in March of 2000, the bear market through which we've endured should not be forgotten anytime soon. The great bear impacted corporate America just as much as Main Street. It began with companies like Winstar Communications and 360 Networks, then spread to others such as Exodus, AtHome, and XO Communications. The old blue chip names were not immune as Polaroid and Bethlehem Steel declared bankruptcy. Then there was Enron (NYSE:ENE), the former pinnacle of corporate America. Once one of the most respected companies on Wall Street, Enron claimed the fame of the largest bankruptcy in U.S. history. Only 18 months ago the company was valued at more than $60 billion. Today, it's a penny stock. Shareholders and employees were left holding an empty bag after the leaders of the company ran it into the ground. The board of directors was blind to it all. Or were they? Innocence was lost prior to the Enron debacle, when the unthinkable happened on September 11. The heart of American capitalism was struck with ignorance, resulting in a great loss of many of the financial world's most talented participants. But the subsequent rebound, in both the tangible and intangible, revealed that democracy, freedom, and capitalism are right; these are the forces greater than fear. Going into the New Year, momentum is building in the economy judging by the most recent data. Short-term interest rates remain exceptionally low and inflation is under control. Corporate profits are returning signaled by the recent upward revisions, which are significantly higher than the year-ago period. And the war against terrorism is working in the favor of the free-world. By most measures, better time lie ahead. Still, the future remains unknown. Such is the existence of investors and traders. But the past is a guiding light, which is why it's so very important to hold onto what was learned in the last year. Monday's Market Volume remained light during Monday's pre-holiday session. Only 954 million shares exchanged on the NYSE, while 1.4 billion traded on the Nasdaq. A large amount of Monday's total volume came in the final hour of trading, when money managers made final adjustments to portfolios. For example, over 1.5 million shares of Microsoft (NASDAQ:MSFT) traded in the last five minutes of the day. No more than 500 thousand shares of Softee traded in any five minute period prior to the last hour. The selling was evident early in the day, when the major averages moved lower. Stocks drifted sideways during the majority of the afternoon, but sharply slid into the closing bell. The late-day selling was most likely a result of last minute tax-loss sales by individuals and money managers, who recorded losses for 2001 instead of carrying the losses over into 2002. The INDU managed to hold above the psychologically significant 10,000 level, but lost more than 100 points on the day. The INDU's biggest losers included Eastman Kodak (NYSE:EK), Intel (NASDAQ:INTC), Microsoft, Caterpillar (NYSE:CAT), Alcoa (NYSE:AA), and General Electric (NYSE:GE). Of the 30 components, only Honeywell (NYSE:HON) finished higher, but only by two cents. The SPX shed almost 13 percent, pressured by weakness in the technology, financial, and healthcare segments of the market. The SPX did, however, stop at its 10-dma Monday, which currently sits at the 1147.19 level. Below the 10-dma, the SPX may find support between the 1130 and 1140 range, where it has built recent bases. Chart of the S&P 500 The NDX was the poorest performing of the three Monday, but it was also the poorest performing for the year, so its weakness wasn't out of the ordinary. The NDX was pressured lower by weakness in the biotech, semiconductor, software, and hardware sectors. The NDX traded up to its 200-dma Monday in the early going, but failed to advance past that level. The 200-dma currently sits at the 1615.80 level. The NDX did, however, stop near a retracement level at 1575. The general area has provided support in the past, but if broken, could pressure the NDX down to the 1500 area. Chart of the Nasdaq 100 Monday's poorest performing sectors were found in the Nasdaq, where the AMEX Biotechnology Index (BTK) shed 3.60 percent on the news that Imclone (NASDAQ:IMCL) had an application rejected for its cancer drug. The BTK was the worst performing sector of the day. The Philly Semiconductor Index (SOX) was next with a 3.08 percent drop, followed by the Disk Drive Index (DDX) with its 2.10 percent drop. Monday's best performing sector was the Airline Index (XAL), which added 5.22 percent on the news of a government loan granted to America West (NYSE:AWA), whose shares gained more than 40 percent. The Gold and Silver Index (XAU) was the only other sector index that I track that was higher in Monday's session. The XAU tacked on 0.87 percent, which was most likely a flight to quality-related bid. The same flight to quality was seen in the Treasury market, where yields finished lower across the board. The benchmark 10-year Note Yield (TNX) was off by 0.75 percent, to 5.03 percent. The 10-year (TY02H) contract finished higher by 0.58 percent to 105.045. Among the Treasuries, the 5-year Note Yield (FVX) fell the most, by nearly 2 percent. New Day, New Year There are several tax-related issues to consider for Wednesday's trading as it relates to short-term price action. First, there are those investors who will have waited to take losses on 2002 taxes. The reason for waiting is that an investor may have already taken the maximum capital loss for 2001 and carried more losses over into the new tax year, which could be used to offset any future gains in the New Year. The result is that 2001's worst performing stocks could remain under tax-loss selling pressure for another few days. Readers who are looking for tax-loss bounce candidates should be watching for the stock's that hold or trade higher in the next few days as that would signal that the tax-loss selling has run its course. Conversely, investors holding big winning positions through 2001 may look to book those gains in the new tax season. There's a chance that some of 2001's best performing stocks could fall under pressure in the next few weeks as investors with a lower cost basis established in 2001 look to lock in those gains on 2002's taxes. That means those who are looking to buy some of 2001's best performing stocks should be on the watch for artificial weakness in the coming weeks in the form of tax-gain selling. Both Jeff Bailey and I will be writing about the tax-related issues in the coming days. Until then, have a safe and enjoyable evening. And a profitable New Year! Eric Utley Premier Investor ========================= Play-of-the-Day (Bullish) ========================= (New Bullish High Risk/High Reward Play) TranSwitch Corp - TXCC - close: 4.50 change: -0.17 stop: 3.98 Company Description: TranSwitch Corporation, headquartered in Shelton, Connecticut, is a leading developer and global supplier of innovative high-speed VLSI semiconductor solutions - Connectivity Engines (TM)- to original equipment manufacturers who serve three fast-growing end-markets: the Worldwide Public Network Infrastructure, the Internet Infrastructure, and corporate Wide Area Networks (WANs). Combining its in-depth understanding of applicable global communication standards and its world-class expertise in semiconductor design, TranSwitch Corporation implements communications standards in VLSI solutions which deliver high levels of performance. (source: Company Press Release) Why We Like It: We're looking to TXCC as one of our tax-loss bounce candidates for January. The stock has lost almost 92% from its 52-week high of $55.75 but has slowly been building a new up trend from its October lows. On our charts we're drawn a trendline from the lows in late October and early November to the low in early December as a guide showing support for the stock. This support trend line happens to coincide with the TXCC's 50-dma which also lines up with price support at $4.25. The expectation is that shares of TXCC will enjoy a strong "January" effect and tax loss bounce as demand exceeds supply. Beware that there are two major caution flags, which persuaded us to put TXCC in the high-risk section. Number one, the semiconductor sector put in a negative day on Monday, which isn't that surprising given the year-end selling. Yet if the SOX falls below its own 50-dma at 516 it could forecast a much more prolonged bout of profit taking and this could produce a tough environment for TXCC to rally in. Secondly, the point-and-figure chart for TXCC shows the stock in a fresh column of O's that looks pretty bearish. Until shares trade back above the $5.00 mark we suggest only aggressive traders look for entry points. A strong entry point could be a bounce at the $4.25 area. Below $4.25 we would be very suspicious and look for confirmation in a rebound higher again. We're going to start the play with a stop at $3.98 but this is one play where we would definitely confirm stock direction before committing any capital. If TXCC performs as we think it might, we'll look for a move up to the $7.00 level as our initial target. Of course a move from $5 to $6 is nothing to sneeze at either. Don't forget that TXCC is expected to announce earnings on January 17th, 2002 but we have yet to confirm it. Picked on December 31st at $ 4.50 Change since picked: +0.00 Earnings Date 01/17/02 (unconfirmed) ========== Watch List ========== The PremierInvestor.net watch list is not designed to be read as full fledged stock picks. Rather we would prefer to offer it as an extra tool in today's investor toolbox. Think of it as a radar screen with your own radar operator pointing out interesting developments, technical patterns or potential plays that you may or may not have seen on your own. Due to time constraints we do glance at the news but rarely do we have time to fully read pertinent news stories, due background research and other necessary screens that investors should do before making a decision. A common exercise is to read the entry, glance at the sector and other stocks in that industry and then compare what's happening in the stock to what's happening in the broader market indices. We hope you enjoy the Watch List and that it proves to be a useful tool for your own trading success. ----------- Nasdaq-100 Index Tracking Stock - QQQ - close: 38.91 change: -1.42 WHAT TO WATCH: You're probably heard it already, but Monday was a disappointing end to an ugly year in the stock market. The QQQ had rallied up to its 200-dma last week but today's 3.5% drop smells strongly of a failed rally that could forecast the next move lower. Keep your eyes on the 50-dma currently at 38.67. If the QQQs can hold this level of support the New Year might not have such a bearish beginning. If it doesn't hold the 50-dma then we may find the QQQs and other tech-flavored equities as strong candidates for new bearish plays. --- JDS Uniphase Corp - JDSU - close: 8.73 change: +0.27 WHAT TO WATCH: Shares of JDSU turned in a 3% gain to end 2001 but shares only got as far as its 15-dma near $9.00 before encountering selling pressure and rolling over towards the closing bell. Traders will certainly be watching JDSU come January. If shares close under $8.00 it might make a good short candidate with potential support at $7 and again at $6. If the stock can close over $9.00 it could be a long candidate although there is a lot of potential resistance above it. A move over $10 would be stronger confirmation and may still allow traders a chance to catch any move to resistance near $12. --- Intel Corp - INTC - close: 31.45 change: -0.79 WHAT TO WATCH: The chip sector came under some selling pressure on the last trading day of the year as investors took losses (or gains) for 2001. The SOX.X fell 16 points and looks negative but remains above its 50-dma, a key support level. In a similar move, shares of INTC also succumbed to profit taking today and dropped under key support at $32. Yet it too has its 50-dma below it and both the bulls and the bears may be targeting this level of support, near $30, as their action point. The move under $32 is very negative for short-term momentum but we suspect their may be buyers waiting at the $30 level. A break below $30 and INTC will probably find itself trading back towards $27.50. Right now we'd be bearish but a bounce at $30 would be interesting. --- Microsoft Corp - MSFT - close: 66.27 change: -1.60 WHAT TO WATCH: Mr. Softee is another stock that should definitely be on everyone's watch list for January. As one of the biggest big caps out there it should not be influenced by any "January effect" but as the biggest component in the GSO.X software index it will lead a big section of tech stocks lower or higher. We would be watching for MSFT to bounce off its 50-dma near $65 or its 200-dma near $64. Either one may be worth a very short-term long play (scalping a couple of points on the bounce) but more importantly we would be watching for shares of MSFT to hold these levels as a breakdown would be very negative for the sector. Of course, MSFT is a component of the Nasdaq and the Dow Jones so its influence will be felt on both major indices. ================ Market Sentiment ================ 2001 is in the books. by Russ Moore After seeing the DOW drop -7.0 percent, the S&P 500 -13.0 percent, and the NASDAQ -21.0% over the last twelve months, perhaps it was only fitting that today’s session end in the red. For much of the day the major indices stayed within a narrow trading range, holding losses to a minimum. Selling pressure intensified with an hour to go, leaving the DOW with a -1.1 percent loss. The NASDAQ shed -1.8 percent and the big cap NDX - 2.7 percent. Volume remained thin with 946 million shares being exchanged on the big board and 1.39 billion on the tech index. Sector action saw chip, hardware and software heading up the loser’s list. Biotech’s were hit hard after the FDA’s failure to approve an ImClone (IMCL) experimental cancer drug. Oil service and chemicals were also weak on the session. Green arrows were limited to the gold and airline sectors. As we head towards the New Year, several questions remain unanswered. Will consumer confidence translate into investor confidence and help drain those over-stuffed money market accounts? How many earnings surprises does corporate America have up its’ sleeve? Will the economic recovery begin in the second half of 02’, or, will we see the expert prognosticators push the rebound out a little further? These questions, and more, should make for an interesting start to another year of exciting market action. The coming weeks will see us pay close attention to what the big players are doing via the COT report. As noted below, the Commercials have moved to a net-long (bullish) position on the NASDAQ 100 while the Small Specs dramatically increased their net-shorts. This increased divergence deserves our attention however; a similar move on the SPX would really grab us. The SPX is considered a better barometer of overall action and when the big boys/girls move into an accumulation phase while the smaller players add to their shorts, it’s time to load up the “call truck”. I’d like to take this opportunity to wish all of you a very healthy, happy and prosperous New Year! Monday 12/31 close: 23.29 VXN Monday 12/31 close: 47.17 30-yr Bonds Monday 12/31 close: 5.49 Total Put/Call Ratio: .73 Equity Option Put/Call Ratio: .64 Index Option Put/Call Ratio: 1.98 === NASDAQ 100 Index (NDX/QQQ) 52-Week High: 103.51 52-Week Low: 28.19 Current close: 38.91 Volume/Open Interest Maximum calls: 40/129,876 Maximum puts : 40/ 93,261 Moving Averages 10 DMA 39 20 DMA 40 50 DMA 38 200 DMA 40 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: 584.29 Volume/Open Interest Maximum calls: 590/4,382 Maximum puts : 520/4,828 Moving Averages 10 DMA 586 20 DMA 584 50 DMA 578 200 DMA 599 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: 1148.13 Volume / Open Interest Maximum calls: 1150/38,118 Maximum puts : 1150/31,855 Moving Averages 10 DMA 1147 20 DMA 1144 50 DMA 1127 200 DMA 1166 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: 10,021.64 Volume / Open Interest Maximum Calls: 100/13,919 Maximum Puts 100/28,244 Moving Averages: 10 DMA 10,039 20 DMA 9,979 50 DMA 9,749 200 DMA 10,091 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: 580.71 Volume / Open Interest Maximum Calls: 650/ 231 Maximum Puts: 580/2,281 Moving Averages 10 DMA 586 20 DMA 585 50 DMA 576 200 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: 522.16 Volume / Open Interest Maximum Calls: 440/1,201 Maximum Puts: 410/2,050 Moving Averages 10 DMA 532 20 DMA 545 50 DMA 516 200 DMA 555 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: 381.24 Volume / Open Interest Maximum Calls: 400/525 Maximum Puts: 360/505 Moving Averages 10 DMA 383 20 DMA 385 50 DMA 391 200 DMA 390 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, 12/28. 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 12/11/01 367,397 429,640 (62,243) 2.6% 12/18/01 391,995 456,968 (64,973) 4.3% 12/25/01 412,581 471,239 (58,658) (9.7%) 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 12/11/01 158,490 86,717 71,773 (1.4%) 12/18/01 158,300 80,507 77,793 8.4% 12/05/01 152,521 79,444 73,077 (6.1%) 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 12/11/01 45,468 51,392 (5,924) (35.9%) 12/18/01 55,276 58,433 (3,157) (46.7%) 12/25/01 55,250 47,476 7,774 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 12/11/01 12,425 11,754 671 (81.0%) 12/18/01 17,649 18,626 (977) 12/25/01 15,810 25,687 (9,877) 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 12/11/01 23,135 12,576 10,559 (1.7%) 12/18/01 21,919 13,810 8,109 (23.2%) 12/25/01 15,492 7,335 8,157 .6% 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 12/11/01 3,469 9,065 (5,596) (8.6%) 12/18/01 6,790 10,943 (4,153) (25.8%) 12/25/01 4,293 9,086 (4,793) 15.4% 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 +73,077 +77,793 -58,658 -64,973 Total Open Interest % (+31.50%) (+32.58%) (-6.64%) (-7.65%) net-long net-long net-short net-short Small Specs Commercials DJIA futures (Current) (Previous) (Current) (Previous) Open Interest Net Value -4,793 -4,153 +8,157 8,109 Total Open interest % (-35.82%) (-23.42%) (+35.73%) (+22.70) net-short net-short net-long net-long Small Spec Commercials NASDAQ 100 (Current) (Previous) (Current) (Previous) Open Interest Net Value -9877 -977 +7,774 -3,157 Total Open Interest % (-23.80%) (-2.69%) (+7.49%) (-2.78%) net-short net-short net-long net-short What COT Data Tells Us ---------------------- Indices:.We’ve seen a major move by the Commercial players on the NASDAQ 100 this week. The Commercials have gone net-long while the Small Specs added to their net-shorts. This would seem to be a bullish move for the tech side however, we still see the Commercials holding their net-short positions on the SPX, the favored vehicle, and usually a better barometer of overall Commercial sentiment. Gold: No significant changes this week. 11/27 1,738 contracts net-long 12/04 2,534 contracts net-short 12/11 13,626 contracts net-long 12/18 15,198 contracts net-short 12/25 11,976 contracts net-short Data compiled as of Tuesday 12/25 by the CFTC. ================================================================= 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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