PremierInvestor.net Newsletter Thursday 02-21-2002 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/022102_1.asp ================================================================= In section one: Market Wrap: Some heads are turning Market Sentiment: Business as usual. Play-of-the-Day: Leading The Way Lower! ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 02-21-2002 High Low Volume Advance/Decline DJIA 9834.68 -106.49 10029.94 9831.98 1.34 bln 1290/1839 NASDAQ 1716.24 - 59.33 1769.37 1716.24 1.81 bln 1188/2319 S&P 100 548.58 - 9.01 559.57 547.98 Totals 2478/4158 S&P 500 1080.95 - 17.03 1101.50 1080.24 RUS 2000 458.44 - 8.81 467.71 458.43 DJ TRANS 2714.21 + 17.08 2752.08 2693.92 VIX 25.72 + 1.46 26.20 23.48 VXN 48.06 + 1.36 48.73 45.72 TRIN 1.43 PUT/CALL 0.82 ----------------------------------------------------------------- =========== Market Wrap =========== Some heads are turning There are some heads turning in the stock market and it's not the type of heads that most think of. In past commentary we've mentioned how the market is somewhat like an "inchworm" and even a snake. There's the head portion (strongest stocks) the middle part of the body (those that are rather neutral) and those at the tail (the weakest stocks). Today's market action should be alarming for the bulls. As a technical analyst, the action I'm seeing is that of extreme bearishness where the bulls are starting to throw in the towel while they hold onto their losers and begin selling their winners. This type of market action usually comes on a "final" leg down as investors that have held onto weak stocks in hopes that they'll rebound (and they didn't) begin selling their winners to lock in some gains to make up for the losses they continue to hold. It's the selling of the winners that has the head of the snake turning back to look at the tail to see what's pulling at it. To help explain this, I'm going to start with PremierInvestor.net's play list from the "Current Play List." I try my best to keep a running total each month of bullish and bearish plays gains/losses to make sure our analysis and trading strategy is in tune with the market. I also use this portfolio to give me a bit of a historical perspective of past observations (good or bad.) Hypothetical account with $5,000 invested in BULLISH plays The above chart is BULLISH plays only. Those in black are plays that have been closed out and the $Gain/Loss is that based on a $5,000 investment. I'm also looking at %Gain/Loss to see just how much heat we take. As a general rule, I don't like to take more than 8%-10% risk in a trade. I also want to keep track of "Running Total." Can I make a living from trading, regardless of what the market is doing? Those in Pink are those plays we still carry as "open" and have been marked to the market close. Do you see what I see at first glance? Those in pink that are still open plays has H&R Block (NYSE:HRB) carrying the only gain. It's also the "oldest" play on the list that was initiated on February 2nd. While a 5.9% gain as of tonight's close may not be an impressive gain, we might compare that to the S&P 500 performance during the same time period and 3.6% decline to gain perspective. The more recent trades are showing losses and based on trades that have been closed, I'm inclined to think that the current losses are due to a more bearish market environment and not necessarily the result of poor stock picking. As it relates to "heads are turning" I'm going to focus on Cognos (NASDAQ:COGN) that we had profiled as bullish on January 26th and dropped as a bullish play on February 13th after the stock traded higher and through our bullish target of $29.50. With the stock now trading $24.59 (the bulk of decline has been last three sessions), I get the distinct feeling that bulls are starting to sell their winners. Cognos Chart - Daily Interval Cognos (COGN) shares treated our bullish play list and subscribers very well, but not wanting to try and squeeze every last drop of water from the sponge, we took the exit at what now looks to be the near-term peak. If you owned the stock in the $12-$18 range, but also held some stocks that were down 20% from purchase price, what might you be doing with COGN? Notice the sharp decline lately on light volume. I'm thinking that the MARKET thinks the stock could get cheaper so why step in and buy here if we think she may fall to the $20 level? That may also be what a market maker is thinking and based on our retracement, market maker support might not come into play until the $22 level. Now, before we go hog wild and think short, remember that the current market environment is uncertain. Not just uncertain to the downside. Don't forget that somebody threw the "buy switch" yesterday and the markets turned from lower to rally mode. The problem I have with going overboard and shorting a stock with good relative strength like COGN, is if the market environment were to turn bullish, being overly short a recent winner can be costly. Here's an interesting stock where several things certainly look to be in play. Imagine you own 100,000 shares of a stock that you bought from $14-$17 an have an average cost basis in it at $15.50. Then imagine that you thought the stock had potential to trade $25.50 at some point in the future. Now imagine the stock recently traded $25.50. Now imagine that you sat in on a conference call with the company and they said that they are still optimistic about the future, but the business environment remains challenging and current outlook is uncertain. What would you do? Especially if you had a bunch of other stocks that were under water in the account/mutual fund. Storage Technology Chart - $1 and $0.50 box The bullish vertical count in Storage Technology's (NYSE:STK) $19.48 -16.89% point/figure chart indicated a potential bullish price objective of $25.50 (the stock actually traded $25.65 on February 6th)! The bullish triangle formation and resulting buy signal at $14 may have had you building a position in the stock for your mutual fund. Today, the company held a conference call with analysts and stated that they remained optimistic about the future, but the business environment remained challenging. Is that statement anything different than we've heard from Cisco Systems (NASDAQ:CSCO) in recent moths/weeks or other companies? I don't think so. However, when a stock has perhaps reached a bullish vertical count and you've got some big gains, no sense in hanging around to see if profits will erode. After all, your mutual fund may be holding some other stocks that haven't faired nearly as well. Bullish target achieved, so pull the plug? Sidelines for now We're going to let our bullish play list stay pat for now. We may add a stock or two, but from what I'm seeing in stocks like COGN and STK, the odds of putting together some gains near-term are going to be tough. If the broader market is sell side like it sure seems to be now, then no sense trying to risk further capital at this point. There are some stocks that are looking strong and I still like the trades we've got listed in our play list from the bullish side. The Dow Transports (TRAN) actually gained 0.63% at 2,714 today to close above their 200-day moving average, which resides at 2,697. Guess where they closed on a technical basis? That downward trend dating back to May 1999 that's where! Airborne Freight (NYSE:ABF) came darned close to setting another 52-week high today, but the broader market negativity held the stock in check. We'll keep our stop right where it is at as our play list still has some nice gains and can take a little heat. If you're account has been a little shaky and you don't feel like taking heat, then move to the sidelines, but don't feel like you've failed. If there's one thing that buying technically strong stocks will do for a bull, is give them a chance to move to the sidelines with their account still intact. The bullish trade that looks to have the most "risk" right now is our recently added Biotech HOLDRS (AMEX:BBH) $117.40 -2.16%. These little buggers held tough all day until the last two hours of trading. While I'm never happy with a 2.16% loss, today's action does give hint that this group is finding some sponsorship. The broader NASDAQ-Composite fell 3.34% and the narrower NASDAQ-100 fell 4.26% today. In after hours trading, Amgen (NASDAQ:AMGN) $57.65 -2%, announced that they were going to offer $2.5 billion in zero coupon senior convertible notes and said it would use approximately $650 million to repurchase shares in the open market. The immediate reaction in after-hours trading looks negative with some trading at the $56.55 level. In the past we've talked about how market participants may view these convertible offerings as dilutive or how hedge funds may use the convertible as leverage to short the common stock. Since AMGN makes up a good portion of the Biotech HOLDRS (BBH) I'd expect some weakness at the open in both AMGN and the HOLDRS. In last night's market wrap, we talked about AMGN's technicals and will monitor those observations closely. How about them bears! I'm perfectly willing to give equal time to bulls and bears. We reviewed our "bullish" play list, now lets look at the "bearish play list." I do the same thing here as that from above. Hypothetical $5,000 investment in each pick and same discipline of using stops. Hypothetical account with $5,000 invested in BEARISH plays Our bearish play selection list hasn't been as "active" as the bullish play list, but it hasn't had to be. The statistics show that some of the better gains are found in bearish markets so you don't have to have an account full of bearish trades as long as you've got a couple at the right time and the right environment. Isn't it interesting that the two shorts that are still open (pink) with the largest gains have a lot in common. Both are "computer technology" related and both were from the "bearish triangle" pattern that we pointed out on the point and figure charts. We remember too well Professor Davis' study from Purdue University where he found the "bearish triangle" to be profitable 87.5% of the time for an average gain of 33.3% (for the bearish trader) in a 2.5 month time span on average. We're about halfway there on the % gain side, so its time to move down some stops and remove some risk from the trade. I would be surprised if the both of the stocks fell straight down to a 33% decline as there will be short-covering rallies. However, if every short trade I ever initiated showed a gain of 10%, I'd be a very happy camper. Now what's going on with Lehman Bros. (NYSE:LEH) $55.85 -2.54%? Why is it down just 3.76% since profiled? We discussed one possibility in Tuesday night's wrap. We calculated the bearish vertical count at $56 and the stock did achieve that level and actually exceed it by $1.20 to $54.80. She can always go lower still and under current market conditions there can still be some downside left. We've got a tight stop and will let the MARKET determine the outcome. Today's rally came right to the bottom of that triple-bottom and kept things in check. If she's going to break to our target of $52, it should be within the next day or two and the way some of these stocks have been pegging their vertical counts, we'll be happy with $52. Still some downside Yesterday's action along with today's has the NASDAQ-100 Bullish Percent ($BPNDX) from www.stockcharts.com back in "bear confirmed" status with 31% of the stocks in this market showing a point/figure buy signal. The traffic light has turned red once again for many 4-lettered stocks and this indicator can always go to 2% like it did in September. This has us looking at a potential short in shares of Microsoft (NASDAQ:MSFT) $58.05 -3.08% on a break at $58. That would be a good action point on the point/figure chart as it would be a double-bottom sell signal. A less aggressive bear may want to see a trade at $57.50 (just to try and make sure the break isn't a "bear trap"), but with a bearish vertical count of $47, this one still has some good potential downside. Microsoft Chart - $1 box Today's low for Microsoft (MSFT) was $58.01. There could be some very stubborn bulls at this level, but if they back off and we were to see a trade at $58, this would be a spread triple bottom sell signal. According to Professor Davis' study, the spread- triple bottom under bear market conditions is profitable for a bearish trader 86.5% of the time, for an average gain of 24.9%, over a 4.6 month time span. A bear that shorts the stock on the break lower at $58, follows with a stop near $63 and targets the lower end of our channel as diagramed may like this trade. I do. Final Note Just because our "hypothetical portfolio" is shows with a $5,000 investment in each pick, doesn't mean that you have to trade $5,000 per trade to make money in the market. One reason I show the percentages is that this is what traders/investors should be concerned with or monitoring. I would also suggest that traders/investors include into their trading the discipline of outlining what a "full position" is for your account. Too many times, I see traders/investors buying 1,000 shares of a stock. If your discipline is stated in share size, then you cannot consistently measure your risk. Again, 1,000 shares of a $10 stock is very different than 1,000 shares of a $20 stock. Conversely, $5,000 of a $20 stock, is the same as $5,000 of a $10 stock. It's still $5,000. And it's very consistent and disciplined. Consistency and discipline are two very important ingredients in successful trading/investment. Jeff Bailey Senior Market Technician ================ Market Sentiment ================ Business as usual. Russ Moore Any hope of a continuation rally was dashed with more accounting concerns and poor corporate growth prospects grabbing center stage. The news wasn't all bad, in fact, the leading economic indicators number along with the Philly Fed index data were both very positive. Another signal that an economic recovery may be just around the corner. Early action on the DOW was positive, however, late day selling pressure on the tech side proved too much to overcome, handing the index a loss of -1.1 percent. The NASDAQ was very weak in the late going, falling -3.3 percent by the closing bell. The NDX plunged -4.3 percent. Volume was modest with 1.33 billion shares moving on the big board and 1.84 billion on the NASDAQ. Losers trounced winners by a margin of 18/13 on the NYSE and 23/12 on the tech index. Airlines, gold, oil service, oil and natural gas were the broad market winners. Tech sectors were seeing red all day with the chip (-6.67 percent), and networking sectors (-5.95 percent) leading the slide. The S&P investment policy group summed up our current situation perfectly in its weekly research note. The group noted equity premiums continue to rise in the wake of the Enron scandal and the increased scrutiny of accounting methods. "This will place additional pressure on still-elevated valuations. How will the investor trust be restored? Time and increasingly detailed accounting reports". VIX Thursday 02/21 close: 25.72 VXN Thursday 02/21 close: 48.06 30-yr Bonds Thursday 02/21 close: 5.38 Total Put/Call Ratio: .82 Equity Option Put/Call Ratio: .70 Index Option Put/Call Ratio: 1.46 === NASDAQ 100 Index (NDX/QQQ) 52-Week High: 103.51 52-Week Low: 28.19 Current close: 33.48 Volume/Open Interest Maximum calls: 40/126,719 Maximum puts : 37/143,576 Moving Averages 10 DMA 35 20 DMA 36 50 DMA 38 200 DMA 39 Fibanocci Retracements Relative High: 43.24 (12/06/01) Relative Low: 34.97 (02/08/02) 38% 38.13 50% 39.11 62% 40.10 === S&P 100 Index (OEX) 52-Week High: 834.93 52-Week Low: 491.70 Current close: 548.58 Volume/Open Interest Maximum calls: 580/5,664 Maximum puts : 520/5,821 Moving Averages 10 DMA 558 20 DMA 561 50 DMA 575 200 DMA 594 Fibanocci Retracements Relative High: 600.80 (01/04/02) Relative Low: 546.13 (01/30/02) 38% 567.00 50% 573.44 62% 579.99 === S&P 500 (SPX) 52-Week High: 1530.01 52-Week Low: 965.80 Current close: 1080.95 Volume / Open Interest Maximum calls: 1100/39,019 Maximum puts : 1150/45,072 Moving Averages 10 DMA 1099 20 DMA 1106 50 DMA 1129 200 DMA 1157 Fibanocci Retracements Relative High: 1176.97 (01/07/02) Relative Low: 1077.78 (02/06/02) 38% 1115.67 50% 1127.37 62% 1139.27 == DJIA (INDU) 52-Week High: 11,518.83 52-Week Low: 8,235.81 Current close: 9,834.68 Volume / Open Interest Maximum Calls: 100/19,839 Maximum Puts 98/43,377 Moving Averages: 10 DMA 9,844 20 DMA 9,812 50 DMA 9,916 200 DMA 10,061 Fibanocci Retracements Relative High: 10,300.15 (01/07/02) Relative Low 9,529.46 (01/30/02) 38% 9,823.86 50% 9,914.80 62% 10,007.28 == Biotech Index (BTK) 52-Week High: 811.61 52-Week Low: 383.28 Current close: 484.35 Volume / Open Interest Maximum Calls: 520/927 Maximum Puts: 520/932 Moving Averages 10 DMA 495 20 DMA 498 50 DMA 537 200 DMA 543 Fibanocci Retracements Relative High: 625.15 (12/06/01) Relative Low: 450.20 (02/07/02) 38% 517.03 50% 537.67 62% 558.66 == Semiconductor Index (SOX) 52-Week High: 1280.84 52-Week Low: 362.00 Current close: 507.26 Volume / Open Interest Maximum Calls: 550/1,265 Maximum Puts: 500/1,267 Moving Averages 10 DMA 542 20 DMA 542 50 DMA 546 200 DMA 549 Fibanocci Retracements Relative High: 606.88 (01/09/02) Relative Low: 499.09 (01/22/02) 38% 540.26 50% 552.98 62% 565.91 == Pharmaceutical Index (DRG) 52-Week High: 455.28 52-Week Low: 339.49 Current close: 379.50 Volume / Open Interest Maximum Calls: 400/300 Maximum Puts: 380/500 Moving Averages 10 DMA 377 20 DMA 375 50 DMA 378 200 DMA 389 Fibanocci Retracements Relative High: 403.83 (11/26/01) Relative Low: 365.22 (02/08/02) 38% 379.93 50% 384.51 62% 389.17 ***** CBOT Commitment Of Traders Report: Friday, 02/15. 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 01/29/02 345,583 401,923 (56,340) 9.0% 02/05/02 347,583 401,569 (53,986) (4.3%) 02/12/02 355,276 412,868 (57,592) 6.6% 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 01/29/02 128,826 63,127 63,127 5.1% 02/05/02 128,235 64,404 63,831 1.1% 02/12/02 126,730 59,902 66,828 4.7% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 Commercials Long Short Net %Change 01/29/02 31,577 33,651 (2,974) (13.3%) 02/05/02 32,357 35,405 (3,048) 2.5% 02/12/02 32,712 34,841 (2,129) (30.1%) 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 01/29/02 9,709 8,293 1,416 (54.2%) 02/05/02 10,416 8,173 2,243 58.2% 02/12/02 9,009 7,415 1,594 (29.0%) Most bearish reading of the year: (1,028) - 1/02/01 Most bullish reading of the year: 8,460 - 3/13/01 DOW JONES INDUSTRIAL Commercials Long Short Net %Change 01/29/02 19,956 12,171 7,785 9.0% 02/05/02 21,868 12,068 9,800 25.9% 02/12/02 26,811 16,488 10,323 5.3% 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 01/29/02 5,872 9,709 (3,837) 11.1% 02/05/02 5,764 10,528 (4,764) 24.2% 02/12/02 4,562 10,038 (5,476) 15.0% 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 +66,828 +63,831 -57,592 -53,986 Total Open Interest % (+35.81%) (+33.13%) (-7.50%) (-7.21%) net-long net-long net-short net-short Small Specs Commercials DJIA futures (Current) (Previous) (Current) (Previous) Open Interest Net Value -5,476 -4,764 +10,323 +9,800 Total Open interest % (-37.51%) (-29.24%) (+23.84%) (+28.88) net-short net-short net-long net-long Small Spec Commercials NASDAQ 100 (Current) (Previous) (Current) (Previous) Open Interest Net Value +1,594 +2,243 -2,129 -3,048 Total Open Interest % (+9.71%) (+12.07%) (-3.15%) (-4.50%) net-long net-long net-short net-short What COT Data Tells Us ---------------------- Indices:.We mentioned on Thursday that we’ll need to see some accumulation by the big players if a rally is going to get underway. We’re not seeing any signs yet, as the Commercial players held on to their net-short positions while the Small Specs added to their net-longs. Gold: Commercial activity has been a little puzzling of late. Gold has been enjoying a solid run over the last few weeks and yet, the big players have been adding to their net-short holdings (bearish). We’re going to dig a little deeper and see if we can provide an explanation for their behavior. 01/15 53,938 contracts net-short 01/22 50,959 contracts net-short 01/29 31,515 contracts net-short 02/05 58,180 contracts net-short 02/12 62,223 contracts net-short Data compiled as of Tuesday 02/12 by the CFTC. ========================= Play-of-the-Day (Bearish) ========================= Microsoft - MSFT - close: 58.05 change: -1.85 stop: 61.01 Company Description: Founded in 1975, Microsoft is the worldwide leader in software, services and Internet technologies for personal and business computing. The company offers a wide range of products and services designed to empower people through great software -- any time, any place and on any device. (source: company press release) Why We Like It: The breakdown in the software sector has been lead by weakness in its leader, Microsoft. Shares have been in a steady decline since their last earnings report on January 17th. In the last couple of weeks the stock tried to put in a bottom and rally attempt off a bounce near $59 but all it succeeded in doing was a three-box pull back on its point-and-figure chart. It is the p- n-f chart that confirms this ugly downtrend in the daily. According to Bailey, he thinks MSFT will head sub-$50 prices. We suspect there will be some support at $55 and $52.50 but we'll target $50 for now with a longer-term target of $48. We will initiate the play with a stop at $61.01. Picked on February 21st at $58.05 Change since picked: +0.00 Earnings Date 01/17/02 (confirmed) ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright © 2001 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Thursday 02-21-2002 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/022102_2.asp ================================================================= In section two: Net Bulls New Bearish Play: CHKP, MSFT Bullish Play Updates: BBH Bearish Play Updates: CLS, PMCS Stock Bottom / Active Trader New Bearish Play: C Bullish Play Updates: ABF, COL, FRX, HRB Bearish Play Updates: LEH High Risk / High Reward Bearish Play Updates: ADLAC Split Trader announcement: DF: 2-for-1 split announcement PMI: 2-for-1 split announcement WLP: 2-for-1 split announcement ELMS: 21-for-20 split announcement YORW: 2-for-1 split announcement 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 New Plays ============ ----------- New Bearish ----------- Check Point Software - CHKP - cls: 27.48 chg: -1.37 stop: 30.05 Company Description: Check Point Software Technologies is the worldwide leader in securing the Internet. It is the confirmed market leader of both the worldwide VPN and firewall markets. The company's Secure Virtual Network (SVN) architecture provides the VPN and security infrastructure that uniquely enables secure and reliable Internet communications. SVN solutions, as delivered in the company's Next Generation product family, secure business communications and resources for corporate networks, remote employees, branch offices and partner extranets. (source: company press release) Why We Like It: We highlighted CHKP as a potential bearish play on the Wednesday watch list as the stock failed to truly participate in the late day market-wide rally. Today's failed rally attempt in the GSO.X software index at 160 helped lead CHKP to a new relative low and to prices not seen since October. It is today's close under the $28 level that spurred our play selection today. The stock was already weak after its mid-January earnings announcement but now we feel CHKP will be in for a retest of its September lows near $20. We are going to start the play with a stop at $30.05. Picked on February 21st at $27.48 Change since picked: +0.00 Earnings Date 01/15/02 (confirmed) --- Microsoft - MSFT - close: 58.05 change: -1.85 stop: 61.01 Company Description: Founded in 1975, Microsoft is the worldwide leader in software, services and Internet technologies for personal and business computing. The company offers a wide range of products and services designed to empower people through great software -- any time, any place and on any device. (source: company press release) Why We Like It: The breakdown in the software sector has been lead by weakness in its leader, Microsoft. Shares have been in a steady decline since their last earnings report on January 17th. In the last couple of weeks the stock tried to put in a bottom and rally attempt off a bounce near $59 but all it succeeded in doing was a three-box pull back on its point-and-figure chart. It is the p- n-f chart that confirms this ugly downtrend in the daily. According to Bailey, he thinks MSFT will head sub-$50 prices. We suspect there will be some support at $55 and $52.50 but we'll target $50 for now with a longer-term target of $48. We will initiate the play with a stop at $61.01. Picked on February 21st at $58.05 Change since picked: +0.00 Earnings Date 01/17/02 (confirmed) =============== NB Play Updates =============== -------------------- Bullish Play Updates -------------------- Biotech HOLDRs - BBH - close: 117.40 chg: -2.60 stop: 114.00 Negative earnings news from the likes of CIEN quickly routed an already fragile market and the Nasdaq ended lower by 3.3%. This was enough to send tech-interested traders to the sidelines and the BBH fell 2% by the close after trading higher most of the day. The biggest losers in the BBH basket were AFFX -4.88%, MLNM -3.4%, IMNX -3% and ICOS -3% while QLTI actually closed higher by 2.4%. The new relative low on the Nasdaq has us cautious over all and we would probably not be eager to place bullish bets on anything tech including biotechs right now. Traders will want to take a wait and see approach. Wait and see if the $116 level will hold for the BBH, which was the most recent low or the $115 level. Picked on February 20th at $120.00 Gain since picked: -2.60 Earnings Date N/A -------------------- Bearish Play Updates -------------------- Celestica - CLS - close: 33.07 change: -2.67 stop: 35.51 *new* The new bearish trend or should we say the confirmation of the recent bearish breakdown is really coming to fruition in shares of CLS. Wednesday's trading saw shares move from the $37 area then down to $34 followed by a bounce back to towards $36 (give or take a dime or two). Today's move was just ugly from start to finish if you are a bull. The weakness in the Nasdaq that was accentuated by the negative news from CIEN increased investors uneasiness and had traders moving to the sidelines and taking their money with them. Volume was strong for CLS today with 3.77 million shares trading. The stock is clearly short-term oversold but with shares closing at their low for the day it is a bad sign for Friday's session. We did some more analysis of the point and figure chart of CLS while also looking at some retracement levels of the stock from its September to December run up. We've decided to alter our exit strategy. Shares "should" see support between $31 and $30. The $31 level is the 61.8% retracement while the $30 level is just round-number psychological support. However, we now believe that CLS could fall closer to the $26 level. Therefore we are moving our exit price to $27.50. This way we can get out before the rest of the crowds at what could be potential support. Secondly, we are also lowering our stop to $35.51, which is close to a 10% gain in the play from our picked price of $39.40. New positions can be added but we would probably wait for a bounce and/or another failed rally. Picked on February 5th at $39.40 Gain since picked: +6.33 Earnings Date 01/31/02 (confirmed) --- PMC Sierra - PMCS - close: 16.93 change: -2.27 stop: 18.64 *new* More telecom weakness, this time from the likes of CIEN hit the Nasdaq and the sector pretty hard today. Investors also pummeled PMCS even more after hearing about the downgrade of chip giant Intel. As you know, PMCS is a chipmaker focused on telecom, optical and wireless equipment. Shares of PMCS fell almost 12% today and closed right on the 61.8% retracement level. We're using a retracement tool from the Sept/October lows to the December high. Like our CLS play, shares of PMCS are definitely short-term oversold but its close near its low of the day is a bearish sign for tomorrow's trading. Bulls can hope that the 61.8% retracement level might be support. However, if shares bounced from here, we would suspect it to be mere short-covering while bears look for new entries. We are also going to alter our target on PMCS and initiate an exit price of $14.15. In the meantime we'll lower our stop to $18.64, which should protect close to a 10% gain in the play. Picked on February 15th at $20.71 Gain since picked: +3.78 Earnings Date 01/24/02 (confirmed) ================================================================== Stock Bottom / Active Trader (AT) Non-tech stock section ================================================================== ============ AT New Plays ============ ----------- New Bearish ----------- Citigroup Inc - C - close: 42.80 change: -0.72 stop: 45.05 Company Description: Citigroup, the preeminent global financial services company with 192 million customer accounts in more than 100 countries, provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, insurance, securities brokerage, and asset management. Major brand names under Citigroup's trademark red umbrella include Citibank, CitiFinancial, Primerica, Smith Barney, Banamex, and Travelers. (source: company press releases) Why We Like It: As our regular readers know we turned bearish on Citigroup last month and initiated a bearish play but were stopped out by the thinnest of margins several sessions ago. Two days after we were stopped out by a penny the stock collapsed again as we had expected it would. Now shares have bounced back and closed the gap from Tuesday's gap down. The highs today found resistance at the $44 level, which was the top of the gap and the late day market sell-off pushed shares of C back under the $43 level. The overall market bearishness is weighing heavily on the markets but Citigroup should suffer even worse due to continuing concerns over exposure to South America and the Enron scandal. As the Enron probes continue to search for fault it's possible some of that blame and/or negativity will reach C due to their involvement in the lucrative partnerships with Enron. The point- and-figure chart shows the stock at its bullish support line, which might suggest that we're early in this bearish play. However, a breakdown under the bullish support line could lead to investors unraveling their long positions quickly and the stock could fall to the $38 level or worse. Picked on February 21st at $42.80 Change since picked: +0.00 Earnings Date 01/17/02 (confirmed) =============== AT Play Updates =============== -------------------- Bullish Play Updates -------------------- Airborne Inc - ABF - close: 15.98 change: -0.18 stop: 14.95 The Dow Transports turned in a small bounce today but any sector closing in the green today is worth another look. The rollover in the DJIA and the terrible day in the Nasdaq was enough to pull the Transports off their highs and ABF fell back below the $16 level after trading to $16.40 at its high. We're still feeling optimistic about our play in ABF but we'd really like to see shares begin to close above the $16 level and breaking out above $16.50. This isn't the strongest environment to be considering bullish positions so enter cautiously. Picked on February 11th at $16.05 Gain since picked: -0.07 Earnings Date 02/01/02 (confirmed) --- Rockwell Collins - COL - close: 22.04 change: +0.69 stop: 20.49 Investors were looking for any signs of strength to hide their money with other sectors of the market suffering from earnings worries or worse. One of those sectors that traders were moving money into was defense. Unfortunately, the overall market bearishness was enough to pull shares of COL down from their highs near $23 today. This is another failed test at resistance of $23. Traders will want to confirm stock direction before initiating new positions. We are beginning to expect that COL will continue to consolidate higher under the $23 level for the next few sessions before finally breaking out convincingly. We see no rush to enter new positions at this time. In the news today was a press release from COL that said they would be presenting at the Salomon Smith Barney Global Industrial Manufacturing Conference at 1:30 p.m. EST on Feb. 27th. Picked on February 15th at $22.50 Gain since picked: -0.46 Earnings Date 04/17/02 (unconfirmed) --- Forest Labs - FRX - close: 80.17 change: -0.18 stop: 77.49 The DRG.X drug index continued its late day rally from yesterday into the early morning session on Thursday. Unfortunately, the broader market weakness weighed on the group throughout the day and the late day sell-off in the Dow Jones helped bring the drug sector towards its lows. FRX traded in a relatively narrow range and we now feel that investors may want to wait for shares to break out above the $83 level or look for bounces near $78 again for a more low risk entry. Picked on February 15th at $82.58 Gain since picked: -2.41 Earnings Date 04/16/02 (unconfirmed) --- H R Block - HRB - close: 49.00 chg: -0.10 stop: 45.95 Bulls should notice that volume has been rising the last three sessions for HRB. It's possible that investors are beginning to accumulate the stock ahead of its Feb. 27th earnings report. We are optimistic because the stock has broken out above the $48 level, which had been tough resistance the last couple of weeks. It would not be unexpected to see HRB fall back to the $48 level and bounce before moving higher. Picked on February 5th at $47.01 Gain since picked: +1.97 Earnings Date 02/27/02 (confirmed) -------------------- Bearish Play Updates -------------------- Lehman Brothers - LEH - cls: 55.85 chg: -1.46 stop: 58.46 Like several stocks, shares of LEH rallied higher with the late day market rally on Wednesday. Unfortunately for the bulls both the XBD.X and LEH failed to rally through resistance that was previous support. This is good news for the bears and we would expect shares to fall lower from here but confirm stock direction. In the news recently, Merrill Lynch cut its earnings estimates for LEH for both 2002 and 2003 EPS numbers due to reduced equity underwriting and M&A fees. Also in the news were several articles about the SEC issuing fraud charges on an ex- Lehman Brothers branch manager. While it's doubtful at this point that LEH would have any liability the negative press doesn't help. Picked on February 15th at $58.03 Gain since picked: +2.18 Earnings Date 12/20/01 (confirmed) ================================================================== High Risk / High Reward (HR) section ================================================================== =============== HR Play Updates =============== -------------------- Bearish Play Updates -------------------- Adelphia Communications - ADLAC - cls: 20.62 chg: +1.02 stop: *note* The last day and a half have seen some bullish comments surface about cable operators like ADLAC with the latest word from analyst powerhouse, Goldman Sachs. The positive outlook was enough to push shares of ADLAC to its 10-dma before the late day sell-off brought it back under the $21 level. The 3.3% drop in the Nasdaq looks pretty ominous and we feel that ADLAC will not be able to sustain any rally attempt with a bearish market. Thus we are interpreting today's action as a failed rally at the 10- dma and the bottom of its previous trading range between $22 and $24. Truly aggressive traders might see this as a shorting opportunity with a stop above today's high or just above $22. We are still waiting for shares to move through our trigger price of $18.74. Picked on February Xth at $xx.xx <-- see trigger Change since picked: +0.00 Earnings Date 03/08/02 (unconfirmed) ================================================================== Split Trader - Stock Split (ST) section ================================================================== ============= Announcements ============= Ripe for a Split, Dean Foods Offers 2-for-1 One of the last split announcements declared this evening was from Dean Foods Company (NYSE:DF). They released word that their Board of Directors had approved a 2-for-1 stock split of its common stock. The shareholder record date will be April 8th, 2002. The effective date of the split will be April 24th, 2002 and post- split the company will have almost 89 million shares outstanding. Chart readers will noticed the huge gap up in December when the company announced it would merge with Suiza Foods (SZA). The stock closed at $70.10 on Thursday. For a current quote, click here: http://user.financialcontent.com/pin1/quote.cgi?account=pin1&ticker=DF About the company Dean Foods Company is one of the nation's leading food and beverage companies. The company produces a full line of company- branded and private label dairy products such as milk and milk- based beverages, ice cream, coffee creamers, half and half, whipping cream, whipped toppings, sour cream, cottage cheese, yogurt, dips, dressing and soy milk. The company is also a leading supplier of pickles and other specialty food products, juice, juice drinks and water. The company operates over 120 plants in 39 states and 3 countries, and employees more than 30,000 people. (source: company press release) --- PMI Group Declares 2-for-1 Split. Yet another company to announce a stock split after the close today is the PMI Group, Inc. (NYSE:PMI). This private mortgage insurer announced that their Board of Directors had approved a 2- for-1 stock split in the form of a 100% stock dividend. They also approved an increase in authorized shares and an increase in the cash dividend from $0.08 to $0.10 on a post-split basis. All of these are subject to shareholder approval of the increase in authorized shares. The shareholder record date was not disclosed and will probably be decided at the May 16th, 2002 shareholder annual meeting. The stock closed at $69.91 on Thursday. For a current quote, click here: http://user.financialcontent.com/pin1/quote.cgi?account=pin1&ticker=PMI About the company The PMI Group, Inc. is headquartered in San Francisco and is one of the largest private mortgage insurers in the world. The PMI Group, Inc., through its subsidiaries, provides private mortgage insurance in the United States, Australia, New Zealand and Europe, and mortgage guaranty reinsurance in Hong Kong. The PMI Group, Inc. is a leader in mortgage risk management technology providing various products and services for the home mortgage finance industry, as well as title insurance. (source: company press release) --- WellPoint Offers Investors 2-for-1 Split After the market close this evening, WellPoint Health Networks Inc. (NYSE:WLP) announced that their Board of Directors had approved a long-expected 2-for-1 stock split. The split will take affect as a stock dividend for shareholders on record as of March 5th, 2002. The payable date for the split will be March 14th, with an effective date or distribute date of March 15th. After the split, WLP will have approximately 127.6 million shares outstanding. The stock closed at $126.06 on Wednesday. For a current quote, click here: http://user.financialcontent.com/pin1/quote.cgi?account=pin1&ticker=WLP About the company WellPoint Health Networks Inc. serves the health care needs of more than 12 million members and approximately 45 million specialty members nationwide through Blue Cross of California, Blue Cross and Blue Shield of Georgia, Blue Cross and Blue Shield of Missouri, HealthLink and UNICARE. WellPoint offers a broad spectrum of quality network-based health products including open access PPO, POS and hybrid products, HMO and specialty products. Specialty products include pharmacy benefit management, dental, utilization management, vision, mental health, life and disability insurance, long term care insurance, flexible spending accounts, COBRA administration, and Medicare supplements. (company press release) --- Elmer's Serves Up Earnings & Split. Another company to announce a split after the close today was Elmer's Restaurants, Inc. (Nasdaq:ELMS). The company also announced their Q3 earnings with revenues improving from $5.8M the quarter a year earlier to $7.9M. The stock is not actively traded and as extremely low daily volume. Currently the company has less than 2 million shares outstanding. The split is a 21-for-20 or 5% common stock dividend for shareholder of record on March 7th, 2002. The payable date will be on or about March 21st, 2002. The stock closed at $5.00 on Thursday. For a current quote, click here: http://user.financialcontent.com/pin1/quote.cgi?account=pin1&ticker=ELMS About the company The Company owns and operates 12 Elmer's restaurants and franchises 19 in Washington, Oregon, California, Alaska, Idaho, and Montana. The Company also owns and operates five Mitzel's American Kitchen restaurants in Puget Sound Washington, and ten delicatessen-style restaurants in Oregon. The Company also announced that a new Elmer's restaurant is scheduled to open in April in Nampa, Idaho, which represents the fourth new Elmer's restaurant opening in approximately 15 months. (source: company press release) --- York Water Co. Announces Earnings & Split The York County, Pennsylvania-based York Water Company announced both its earnings and a 2-for-1 stock split. The company didn't offer any split date information because it is subject to approval by the Pennsylvania Public Utility Commission. They did not offer any date on when the PPUC would meet on the subject. The company has an incredibly small amount of shares outstanding of approximately 3 million shares so the split will help increase liquidity but we would still avoid the stock due to lack of average daily volume. The stock closed at $26.37 on Wednesday. For a current quote, click here: http://user.financialcontent.com/pin1/quote.cgi?account=pin1&ticker=YORW About the company York County-specific Water Company purifies and distributes water to an estimated population of just 146,000. ================== 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 RJR RJ Reynolds Tobacco 64.27 +0.52 MYG Maytag Corp 33.35 +0.61 ZQK Quiksilver Inc 19.80 +0.80 KCP Kenneth Cole Productions 18.80 +0.62 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change TEX Terex Corp 16.72 +1.13 BSTE Biosite Inc 19.93 +2.03 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change HCA HCA Inc 43.75 +1.29 DHR Danaher Corp 67.45 +1.85 TXT Textron Inc 45.55 +2.01 BVF Biovail Corp 48.00 +3.94 DVN Devon Energy Corp 41.20 +1.46 AHC Amerada Hess Corp 66.63 +1.08 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change INTC Intel Corp 29.48 -1.96 BLS Bellsouth Corp 37.95 -2.50 AOL AOL Time Warner 23.00 -1.20 QCOM QUALCOMM 32.50 -3.41 NWS The News Corp ltd 25.01 -1.73 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change DOL Dole Food Co 28.71 -0.90 HTHR Hawthorne Financial 23.00 -1.10 ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright © 2001 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc