PremierInvestor.net Newsletter Wednesday 05-15-2002 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/e15b_1.asp ================================================================= In section one: Market Wrap: Cautiously Bullish Watch List: AAPL, CLS, MXIM, RFMD, and more... Play of the Day: Waiting On the Numbers ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 05-15-2002 High Low Volume Advance/Decline DJIA 10243.70 + 29.74 10349.10 10223.70 1409 mln 1681/1485 NASDAQ 1725.60 + 6.50 1759.33 1694.34 1620 mln 1826/1680 S&P 100 542.02 - 3.58 549.41 541.43 totals 3507/3165 S&P 500 1091.07 - 6.21 1104.23 1088.94 RUS 2000 513.54 + 1.82 515.26 508.50 DJ TRANS 2797.98 + 29.74 2808.79 2762.49 VIX 22.13 - 0.03 22.42 21.03 VIXN 45.29 + 0.00 46.13 43.29 Put/Call Ratio 0.70 ****************************************************************** =========== Market Wrap =========== WE REMAIN CAUTIOUSLY BULLISH My Underlying Market View: Cautiously Bullish. From mid March until early May, the major market indexes--Dow, S&P 500 and Nasdaq Composite--were in a sustained decline. Major stocks were clobbered. Economic reports seemed contradictory. Bulls suffered. Bears ruled. Frustrating for investors? Heck yeah! But in the last few days we've seen some hopeful improvements--reversals, actually--in the major indexes. And these reversals appear to be significant. As I'll discuss below, I am cautiously bullish on the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite as we go forward over the next few weeks. The March-May consolidation now seems to be mostly over-- MOSTLY--and these indexes are displaying technical strength which suggests they will plod higher, in a sloppy two-steps-up-one- step-back manner. Today's Market: The CPI (Consumer Price Index) for April was released this morning. Consumer prices rose 0.5%, compared to an expected 0.4%. During the first four months of 2002, the CPI rose at a rate of 3.8%; during 2001, the CPI rose only 1.6%, and this discrepancy may have been enough to give some investors the willies during trading hours. But investors should have applauded the news on industrial production in the nation's factories, mines and utilities. Industrial output rose 0.4 percent in April, the Federal Reserve said this morning. The Fed noted that this is the fourth straight monthly increase in the output numbers. Capacity utilization rose slightly to 75.5 percent from a 75.3 percent level in March. The industrial reports give increasing support to the notion that the US economy is improving. It's no secret that the markets were holding their breath last night as Applied Materials (AMAT) released its earnings. When the semiconductor company reported slightly better than expected profits yesterday, we suspected that today's markets would get juiced for another positive session. With several brokerages raising their ratings on AMAT this morning, the Nasdaq Composite was able to add on 6.5 points, or 0.37%, to close at 1725. But the big cap indexes were caught up in minor profit taking. The Dow lost 54 points, closing still well above the key 10,000 level, at 10,244. The S&P Index dropped a proportional amount, about 0.5%, to finish at 1091. After the strength of the last few trading sessions, today's pullback in the Dow and S&P 500 (SPX.X) seems only natural. IBM's analyst meeting, which convened after the market closed today, did little to push the S&P futures one way or the other. As of 6 p.m. EDT, the futures were up only fractionally. Big Blue told analysts that its current environment continues to be difficult, but that its long-term expectation is to generate "double-digit" earnings into the future. Cost cutting is expected to be a principle part of this double-digit strategy to achieve these earnings, though the company did not elaborate on any reductions in its huge workforce. With IBM offering little to roil markets after-hours, the only other land mines for which we've been watching this evening concerned earnings. So far all is well on this front. Intuit (INTU) reported better than expected profits while Ann Taylor (ANN) and Brocade Communications (BRCD) came in as expected. Both INTC and BRCD traded down in after hours, but only by about 1/2% to 1%: hardly the stuff that produces market implosions. Getting Ready For Tomorrow, Thursday, May 16th. Thursday morning's economic reports will include 1) housing starts, 2) building permits and 3) initial jobless claims. There has been some uncertainty in the markets recently as to whether the brisk pace of home construction can continue. If the two construction-related reports are better than expected, this will be encouraging for the budding economic recovery in the US. If this is the case, traders can anticipate, more than likely, that Thursday's market will get an opening boost from the positive construction reports. At a technical level, the Market Volatility Index (VIX) has returned to readings in the low 20's. In the last few months the VIX has had a tendency reverse in the 19-20 region; when the VIX does reverse at these levels, selling pressure usually visits the markets. The VIX closed today at 21.93. My interpretation of this is as follows: 1) options investors have become overly bullish, and complacent (since the VIX is a contrarian indicator, this bullishness makes me short term cautious) and 2) as such, near term market volatility is likely to increase once the VIX begins its next upward move. Here are some key technical levels on the major indexes to watch on Thursday, May 16th: The Dow Jones Industrial Average: Support is in the 10,120 region, so another 100+ point dip would not be surprising, perhaps by the end of the week. Could we go lower? Sure, but 9970 should be the worst we'd see. S&P 500 (SPX): First support for the SPX is at 1075. If the bears get frisky, we might get pushed down to the 1055 level. As of tonight, I think that would be about it. Nasdaq Composite: The Composite (COMPX) has been the most volatile of the major indexes. Technically, it looks like it runs into resistance at the 1810 level, about 90 points above today's close of 1725. This means the COMPX might surprise us in coming days with more strength. The index should have support in the 1650-1665 region if and when brisk profit taking hits the tech stocks. Each night I'm going to plan to cover a few of the sector indexes which are likely to see action--good or bad--in coming days. Here's my thoughts on tonight's sectors: Bank Index (BKX) This index has just begun to move off of a two-month consolidation, much like the Dow. It closed at 904 today; our weekly technical indicators all point higher. This index has a tendency to sometimes lead the broader market, and the positive nature of the index is bullish for the S&P 500. Many bank/financial stocks have technical patterns similar to this index. Some of the financial-related stocks which have positive patterns include ONE, FBF, JPM, and HBC. Morgan Stanley Cyclical Index (CYC) In our Watch List, and our plays, you've no doubt seen a number of "boring" stocks appear recently. Old guard stocks, so to speak: autos, oils, manufacturers and the like. These are stocks who's well-being is bound to the state of the economy; stocks which rise and fall (hence, cyclical) with good times and bad. This index is mirroring the signals we're receiving from the Dow: higher stock prices in these stocks seem likely. An example: Deere & Company reported better than expected earnings on Tuesday, was upgraded on Wednesday and is flashing a technical pattern that we think is screams "breakout." ELUX, APN, AHC, DE, and DCN are a few stocks traders should watch. The CYC Index closed at 592. Once above 600, this could be a tough one to hold down. Sometimes boring can be good! Morgan Stanley Healthcare Index (HMO) The HMO Index was a big winner during the March-May time period when the rest of the market was suffering. Now, though, I think the tables are about to be turned. Stocks like WLP, which we have profiled recently on our Watch List, are probably in for a few weeks of more profit taking. The HMO Index closed on Wednesday at 609. The index will have to break through the 635 region to begin a new upward move. Conversely, traders involved with stocks in this index will want to be cautious on a move below 570. Semiconductor Index (SOX) The SOX is one of those indexes that can thrash the markets around on a daily basis. It is the tail that wags the dog on many trading days. That's the reason that Applied Materials' (AMAT) earnings were so eagerly awaited last night. Some of the markets' most impressive companies are in this index, including Intel (INTU), Texas Instruments (TXN) and Micron Technology (MU). The SOX closed at 538 on Wednesday. It should have support in the 515 region over the next few trading sessions. If it is able to begin trading above 546, traders should look for the SOX to make a serious run for the 600 region. Oil Services Index (OSX) The oil services sector--composed of stocks like HAL, SLB, BJS, and RIG--has been a powerful performer this year. There is a 50- 50 chance, though, that the index, like the HMO Index, is getting top-heavy and may fall into a multi-week consolidation. The upside to this observation, though, is this: the OSX could add on another 10-12% before running out of steam. The index closed at 106 today. A move back above 112 should allow it to reach the 120 region, which may be its eventual top. If we begin to see the OSX stalling persistently at the 110 region in coming days, however, that is likely to be an indication that its consolidation is ready to start. Siegfried Brian Barger, Editor ================================================================== 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. STOCKS WORTH WATCHING --------------------------------- Apple Computer - AAPL - close: 25.28 change: -0.33 WHAT TO WATCH: Short-term traders who are anticipating a continuation of the recent tech rally may want to consider biting into AAPL. After briefly piercing the bottom of its ascending channel last week, the stock shot higher with the NASDAQ. Shares are now faced with a test of resistance at $26, which thwarted rally attempts in February and April. The MACD is curling higher from just below the zero-line. This is significant, because the two previous attempts to break the $26 level were not accompanied by a bullish MACD. This indicates that AAPL may have enough momentum to break over resistance. In terms of specific action points, we'd be looking for a move over the 2002 high of $26.17. Shares may face additional resistance at the 2001 high of $27.12, but if the tech sector remains strong we'd expect a test of the top of the channel near $28. P-n-f chartists would also point out that a trade at $27 would create a double-top buy signal. Chart = --- Celestica - CLS - close: 32.55 change: +1.39 WHAT TO WATCH: The past week has been a fun ride for shareholders of CLS: The stock has risen over 28% from its low of $25.32 on May 7th. This fact alone should have some bears licking their chops in anticipation of a healthy dose of profit-taking. We think CLS is an attractive short because in addition to being overbought, the stock also faces resistance at the 50-dma ($32.80). This matches up nicely with the top of the stock's descending regression channel. Traders targeting a decline could do so with relatively little risk by placing a stop slightly above the 50-dma. If CLS keeps moving higher we'd look for a pullback near $34, which acted as resistance in April. This level is reinforced by the 50% retracement from the September lows to December highs. Chart = --- Maxim Integrated Products - MXIM - close: 50.76 change: +0.02 WHAT TO WATCH: Is the SOX.X (semiconductor index) headed back to 600? We're not sure, but MXIM could be a good way to take advantage of continued bullishness in the sector. The stock looks compelling on a technical basis: Although it only finished with a fractional gain today, MXIM rose to a near-term high in intraday trading and closed above the 200-dma. The move over $52 pushed the stock above bearish resistance on the p-n-f chart. Furthermore, the MACD is signaling a bullish crossover. This bodes well for a retest of the $58 resistance level. Watch for a move over today's high of $52.97 (just above the 50-dma) to offer a possible entry point. Chart = --- RF Micro Devices - RFMD - close: 18.18 change: -0.22 WHAT TO WATCH: Shares of RFMD joined the SOX.X is a steep rally over the past week. Maybe "steep" is an understatement; the stock has risen nearly 25% from its May 7th lows. That's a lot of gains for bulls to digest, but we think RFMD may consolidate for a few sessions and continue higher. The stock has risen above bearish p-n-f resistance at $18.00. This often signals the beginning of a longer-term uptrend. Looking at a daily chart, you can see that RFMD has briefly spiked higher three times this year. Of course, there's no guarantee that this will happen again, but it does show that the stock has the potential to post large gains in a small amount of time. Aggressive traders could target entries at current levels, while others may want to wait for several days of consolidation near the $18 level. If RFMD does spike higher once again, we'd be looking for a move to $21- $22. Chart = ============= MORE TO WATCH ============= Dole Foods Inc. - DOL - close: 33.43 change: +0.03 DOL has been stair-stepping its way higher for several months and has spent the last two months consolidating under resistance at $34. A close over this level could portend another leg higher. Chart = --- Charter One Financial - CF - close: 35.20 change: +0.80 CF recently bounced from its 50-dma and has moved higher on rising volume. The MACD and daily stochastics both look bullish, which leads us to believe that CF will break over resistance at $36. Traders can consider long entries on a close above this level. Chart = =============== Play-of-the-Day (BULLISH) =============== Mohawk Industries - MHK - close: 66.91 change: +0.76 stop: 62.98 Company Description: Mohawk is a leading supplier of flooring for both residential and commercial applications and a producer of woven and tufted broadloom carpet, rugs and ceramic tile. The Company designs, manufactures and markets premier carpet brand names and a broad line of home products including rugs, throws, pillows and bedspreads. (source: company press release) - ORIGINAL WRITE UP: May 3rd, 2002 - Why We Like It: The continued rise in homebuilding-related issues has made it a bit difficult to find a long play in the sector. Sure, there are plenty of stocks with strong charts. The problem is finding one that doesn't look overbought. Fortunately, our scan of stocks in the group turned up MHK. The company is not a homebuilder per-se, but as a manufacturer of carpets, rugs and flooring, it stands to benefit from a strong sector. Business is brisk, as evidenced by the April 15th earnings announcement that featured an EPS of 77 cents/share, versus the estimate of 67 cents. Sales were up 12% from the year-ago total. MHK is displaying technical strength as well. Shares have trended higher since the earnings announcement and are within striking distance of the all-time high at $68.10. The daily stochastics are rising higher with room to move, which indicates that the stock may break over this level. The DJUSHB home construction index is at the midline of its ascending channel. Traders looking to confirm bullish sector sentiment may want to wait for the index to continue higher before going long. We're starting this play with a stop at $62.98, below the 50-dma. This would be a 5% move from the current price. We do expect potential resistance at $70 but the top of the channel should be close to $75, which is our initial profit target. - Most Recent Update: May 14th, 2002 - This morning's strong retail numbers kicked off a triple-digit rally in the Dow Jones that spread to the homebuilding sector. The DJUSHB home construction index bounced vigorously from the bottom of its ascending channel and finished the day with a 4.5% gain, while MHK moved higher with the sector and tacked on 3%. In the short-term, we're expecting the DJUSHB to retest the midline of its channel near 400 and propel MHK to a test of resistance at $68. A move over this level could clear the way for a move to psychological resistance at $70 and hopefully beyond. - Play-of-the-Day Comments: May 15th, 2002 - Stronger-than-expected retail sales numbers sent the retail sector rocketing higher yesterday. In this uncertain economic climate, investors lend a lot of credence to this sort of "boring" economic data. Keeping with this theme, we think MHK could receive a substantial boost from tomorrow's release of housing starts data. An upside surprise could be the catalyst that MHK needs to breakout to all-time highs. Besides, the bearish reaction to the inflationary CPI data today hit several of the homebuilding stocks pretty good. Bulls might decide to buy the dip tomorrow. Of course in MHK's case it could be by the breakout. If the market reaction is positive (the numbers are released before the bell), aggressive traders can consider entries on a move above the all-time high of $68.45. However, be aware that bears may defend psychological resistance at $70. Picked on May 3rd at $66.30 Gain since picked: +0.61 Earnings Date 04/15/02 (confirmed) Chart = ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to remove@PremierInvestor.net ================================================================= 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 advertising@PremierInvestor.net. ***************************************************************** Copyright © 2001 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Wednesday 05-15-2002 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/e15b_2.asp ================================================================= In section two: Net Bulls Closed Bearish Plays: TBH Active Trader Non-Tech Stocks Closed Bearish Plays: IGT 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 Closed Plays =============== ------------------- Closed Bearish Play ------------------- Telecom Brasil - TBH - close: 27.92 change: +0.62 stop: 28.35 The beleaguered telecom sector finally experienced a short- covering rally this week. There wasn't any specific news to suggest that the group may have bottomed out, but stocks like TBH were due for some short-covering after a 3-week decline. In intraday trading today, TBH violated our stop-loss of $28.35. At this point our play was closed out for a gain of 4.96% from our original entry point. We're still bearish on the stock, but would like to see a rollover near the $30 level before reconsidering a short position. Bears would also want to see the North American Telecom index (XTC.X) falter at the 550 resistance level or watch for the IXTCX Combined Telecom Index to closed back under the 140 level for a potential rollover. Traders still looking for telecom shorts may also want to take a look at T, which has been relatively weak compared to other stocks in the group. Picked on May 3rd at $29.83 Gain since picked: +1.48 Earnings Date N/A ================================================================= Active Trader/Non-tech Stocks (AT) section ================================================================= =============== AT Closed Plays =============== -------------------- Closed Bearish Plays -------------------- Intl Game Tech - IGT - close: 64.13 change: +0.54 stop: *text* We had bearish aspirations for IGT, but the stock just didn't want to cooperate. Our strategy was to capture a rollover from the top of the stock's descending channel. Instead of rolling over, IGT moved higher with the broader market rally and is now trading near levels not seen since early-March. Needless to say, we're no longer willing to attempt a short play on this stock. Since shares did not move below $61.25, our play was never triggered. A similar move out of the descending channel in March turned out to be a bull trap, but at this point we need to wait and see whether the rally is sustainable. We may give IGT another look if it falls below the 50-dma near $61. Picked on May xth at $xx.xx <- see text Gain since picked: +0.00 Earnings Date 04/23/02 (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 DT Deutsche Telekom 12.58 +0.53 MLEA Millea Holdings Inc ADR 40.07 +0.56 YUM Tricon Global Restaurants 64.90 +0.75 CF Charter One Financial 35.20 +0.80 FTN First Tennessee Natl. Corp 40.45 +0.71 RDN Radian Group 54.76 +0.95 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change AMZN Amazon.com Inc 19.94 +1.13 IMMU Immunomedics Inc 14.41 +1.42 USU USEC Inc 8.95 +1.10 BLUD Immucor Inc 17.86 +1.16 MRGE Merge Technologies Inc 8.25 +1.01 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change UBS UBS AG Ord. 50.86 +1.22 FDC First Data Corp 82.18 +2.73 CCU Clear Channel Comm. Inc 52.65 +2.69 QCOM QUALCOMM Inc 32.07 +1.39 ITW Illinois Tool Works 74.00 +1.54 NWS The News Corp. Ltd 30.43 +1.98 MCO Moody's Corp 50.26 +1.77 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change MO Phillip Morris Companies 53.59 -1.32 AIG American Intl. Group 65.90 -2.17 ABT Abbott Labs 46.90 -4.84 SGP Schering Plough 25.00 -3.49 BAX Baxter Intl. Inc 53.34 -1.63 IMI San Paolo IMI Spa 21.30 -1.42 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change DEBS Deb Shops Inc 31.25 -1.12 DRQ Dril-Quip Inc 23.98 -1.50 ESV Ensco Intl. Inc 33.12 -2.24 ================================================================= 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.
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