PremierInvestor.net Newsletter Monday 07-08-2002 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/g08b_1.asp ================================================================= In section one: Market Wrap: Based Upon the Advice Of Counsel Watch List: AYE, ESRX, KO, NVDA, NOK, LLL, and more... Play of the Day: Check It Out ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 07-08-2002 High Low Volume Advance/Decline DJIA 9274.90 -104.60 9410.38 9240.36 1.17 bln 1326/1890 NASDAQ 1405.61 - 42.75 1452.56 1401.28 1.70 bln 1276/2146 S&P 100 486.29 - 6.37 495.03 483.91 Totals 2602/4036 S&P 500 976.98 - 12.05 993.56 972.91 RUS 2000 433.61 - 7.31 441.55 433.36 DJ TRANS 2615.79 - 36.85 2669.04 2614.14 VIX 31.39 + 1.18 32.68 30.79 VXN 58.61 + 2.33 60.13 56.66 TRIN 1.19 PUT/CALL 1.02 ****************************************************************** =========== Market Wrap =========== Based upon the advice of counsel Based upon the advice of counsel, I would like to exercise my Fifth Amendment, constitutional right. Given the events with WorldCom today, T.V. watchers heard a lot of this. The simple facts: On this weak Monday, the Dow closed down -104.60 at 9274.90, followed by the S&P 500 at 976.98, dropping -12.05. The NASDAQ fell -42.75 to 1405.61, and we viewed a concentrated drop in the NASDAQ 100, which fumbled -46.56 or -4.38% to 1014.33. Strong sectors du jour included: gold, casinos, and tobacco. Today’s decline was fueled by the carnival sideshow of WorldCom’s (WCOME) house hearings, Merck’s accounting debacle, weakness in the dollar, an earnings warning by Allegheny Energy (NYSE:AYE) and a poor earnings performance by Alcoa (NYSE: AA). Can I plead the fifth yet? NYSE advancers were 1326, compared to 1819 decliners. Nasdaq had 1276 advancers and a almost double 2146 decliners. Most of the gains in the Semiconductor Index made on Friday were given back with a drop of -17.82 in the $SOX today. Chart of: Nasdaq 15 minute The above chart of the Nasdaq shows today’s selling. Psychological and very short-term trading technical support sits at 1400, which was not broken today. The low of the day was a scary 1401.28, with the close just slightly above it. However, even though the index pulled back, there is a technical point here. For the sake of protocol, all numbers are rounded. To begin, the Nasdaq closed at 1380 last Wednesday, and then rallied (gap included) to 1450 on Friday. Today’s pull back closed at 1406. Including the gap, the total three day move was +70 points; and today’s pullback was -44 points. The total percentage pullback for the move equals 63%. Traditional Fibonacci investors could interpret this move as a SHORT TERM bullish pullback near 61.8%, almost right on the money. Unfortunately, the other side of this coin is the short-term channel we have been trading in since the middle of May. We have tested the upper resistance of this channel four times without success, allowing bears to re-short their positions. I would also like to point out that the last two times the Nasdaq tested the upper channel resistance, it rallied the first two days, stalled on the third, and then failed on the fourth... Oh, wait, tomorrow will be the fourth day in the same type of pattern. The only difference between this attempt at resistance and the previous two attempts, is the preceding two rally’s third day closed flat and positive. We closed negative... Uh oh! Hold the presses! This is actually a rare candlestick pattern called a Tasuki gap, and it is a Bullish continuation pattern! Really, I’m not making this stuff up as I go! So, we have a bit of a technical gamble, but the house odds are pointing to a SHORT TERM bounce. In English, the short-term technical analysis (excluding that we are at the TOP of the channel) points to a short-term dead cat bounce. Keep in mind, that this is pure technical analysis on the Nasdaq chart only! We don’t want to get suckered into a short covering rally, so let’s look for more information. Chart of: Nasdaq daily, short-term channel Beginning in May. Simply looking at the S&P 500, we see the descending channel with the most recent rally stumbling directly at short-term resistance. Chart of: S&P 500 (SPX.X) Daily. Today’s failure indicates a short covering rally in the S&P 500, where the bears now have a chance to re-short their positions. Although the Market Volatility Index (CBOE - VIX.X) is trading in the upper portion of it’s range, it can still easily go higher. Since 2000, the VIX has traded above 36 five times. The First was in April of 2000, followed by November and December. Then in 2001: March and April, with September 17th ensuing of course. Just for the sake of mentioning it, don’t forget that the VIX.X has an inverse relationship to the market. Traditionally, technicians that follow the VIX note that extremes near 20 "usually" indicate a potential short-term top is nearby (and it's time to get out) and extremes near or above 30 indicate a short- term bottom is at hand (and it's time to get in). Analyzing the "fear" index, as some call it, has never been an exact science. As you can see from chart of the VIX, it has been trading near 20 for months before its recent June-rally to above 30 and we have yet to see the "bottom" yet. Although many investors are hoping last Wednesday's low was "it". On a more positive note, the Dow Jones Transportation Average Index (TRAN), is attempting to hold support at the 2600 area. We have observed for a few weeks now that the TRAN is consolidating sideways in a channel. Currently the top of the channel is between 2750 and 2775. This sector could rally right back to this level only to roll over again. Only when the Transports can demonstrate a confident move over the 2800 level will the market take notice. President Bush made comments on corporate corruption and accountability. He stated that the US government will "vigorously pursue" corrupt corporations and CEO’s. Would knowing a CEO could go to jail for fudging revenue make you feel more comfortable about putting your hard earned money behind their company? This is a sentiment booster for the market but it has yet to take affect. Speaking of potential jail time... Merck (NYSE:MRK) booked revenue never collected to the tune of $12.4 billion. The Wall Street Journal reported that the company included co-payments received by pharmacies in its income statements, even though it never actually collected the money!!? What happens if I include Merck’s revenue in my checking account balance? The bank won’t mind right? We're shocked that the stock only lost 2% on the day's session but volume was very strong at 18.9M shares. We would be wary of its relative strength today! Tomorrow, President Bush Remarks on corporate governance and the CIBC Consumer Growth Conference is hosted in Boston. The Schedule for the conference is: 08:15 ET - BBY - FOSL - STEI 08:50 ET - LTD - GES - BKST 09:25 ET - PETC - OAKT - AWGI 10:00 ET - PSUN - SBUX - CHBS 10:35 ET - SKX - WEN - DEBS 11:10 ET - CHCS - NLS - IRN 11:45 ET - BGP - FLWS - FINL 12:20 ET - TLB 13:45 ET - YUM - ALOY 14:20 ET - PNRA - SRV 14:55 ET - CHRS - CPKI 15:30 ET - DLIA - SONC 16:05 ET - ZQK - ULTE 16:40 ET - JAH Occasionally conferences can generate buying/selling momentum in equities, either by analysts, fund managers, or traders who are in attendance. After hours, Sears (NYSE:S) filed $9.5 billion debt shelf. The proceeds of this debt filing are to be used to reduce short-term debt. So, the key to the market is... Playing it safe one could trade the old cliché "the trend is your friend", by using this short covering rally to get short in the next leg down. Or, if one were to be a more SHORT TERM trader with an aggressive contrarian attitude, a long bet could be attempted. The key is in the descending resistance in the current channel. Shorts cover a breakout, longs set such a small stop loss that the gamble will never be thought of as more than that: a gamble. When in doubt the best bet is usually to sit out. - Mark W. ================================================================== 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 --------------------------------- Allegheny Energy - AYE - close: 23.95 change: -2.14 WHAT TO WATCH: Aye, aye, aye! This energy stock hit a new 52- week low today after the company reduced guidance for 2002. Volume backing the 8.2% decline was a brisk 3.1M - more than three times the daily average. Shares are in danger of falling below the all-time low of $23.62. A break below this level could quickly take AYE to psychological support at the $20 level. The stock has fallen dramatically in recent months and is technically extremely oversold. But as Enron, DYN, and WMB have shown, the floor's the limit when it comes to energy stocks. --- Express Scripts - ESRX - close: 48.97 change: +0.25 WHAT TO WATCH: ESRX was among the handful of NASDAQ-100 stocks that finished today's session with a gain. Shares have been behaving bullishly since bouncing from historical support near $45 last week. The stock tagged an intraday high of $50.35, above both psychological resistance at $50.00 and the 200-dma at $50.02. ESRX pulled back in afternoon trading but nonetheless left us with a clearly-defined action point. A move above today's high could clear the way for a test of the 50-dma near $54. This level coincides with bearish resistance on the p-n-f chart. The daily stochastics (5,3,3) are shooting higher from the oversold region, indicating potential upside ahead. Alternatively, one could argue this is just a bounce and Monday's action was just a failed rally at resistance and another opportunity to get short. A break below $45 could lead the way for a test of $40. --- Coca Cola - KO - close: 57.28 change: +1.48 WHAT TO WATCH: Coca Cola's introduction of "New Coke" in the mid- eighties will go down as one of the worst marketing disasters of all time. If the stock price is any indication, the response to the company's new Vanilla Coke product seems to be much more positive. KO has been trending higher over the past month and is currently approaching the 52-week high near $58. Bullish positions could be targeted on an intraday move above this level, which would create a double-top p-n-f buy signal. More conservative or longer-term traders may want to wait for a close above $58.00. On a related note, it's interesting to see that PEP has been declining in recent weeks. This divergence is encouraging for KO bulls. Note that the company announces earnings on July 17th. --- NVIDIA Corp - NVDA - close: 19.56 change: +0.57 WHAT TO WATCH: NVDA staged a powerful rebound last week near the bottom of its descending regression channel. However, shares now face resistance at the psychologically important $20.00 level. This resistance was confirmed today when NVDA pulled back from an intraday high of $20.24. A break above that level could create another round of short covering that takes NVDA to the $25 region. Technically, odds appear weighted in the bulls' favor. The stock demonstrated impressive relative strength today when it outperformed the SOX.X by more than 7%. The uptrending MACD (it's on the verge of a bullish crossover) and daily stochastics (5,3,3) also bode well for a continued advance. --- Phelps Dodge - PD - close: 41.83 change: +0.13 WHAT TO WATCH: Mirroring a similar uptrend in copper futures (HG02N), shares of PD have moved steadily higher over the past two months. That's pretty impressive when you consider that the cyclical index (CYC.X) trended lower during the same time period. The stock is now approaching the 52-week high at $42.51. Traders can evaluate entries on a move above this level. The recent relative strength and fresh double-top point-and-figure breakout suggest shares could continue higher in the near future. Note that PD tends to be a relatively slow mover and is thus more tailored towards longer-term strategies. --- Polaris Industries - PII - close: 67.15 change: +1.65 WHAT TO WATCH: Shares of this ATV and snowmobile manufacturer have rallied sharply since bouncing near the 200-dma at $59.72 and the $60 support level. Today's 2.5% gain in the face of a triple-digit Dow Jones decline suggests that the bulls are currently in control (or bears are still running scared). The upward hook in the MACD and the bullish reversal in the daily stochastic oscillators support this view. Short-term traders could target entries on a break above near-term resistance at $67.50 but watch out for resistance between the 50-dma at $70.52 and overhead horizontal resistance near $74.00. --- L-3 Communications - LLL - close: 49.05 change: -1.70 WHAT TO WATCH: We came very close to adding LLL to the bearish play list today. The stock has failed three times in the last three days at the 200-dma near $52.00. Plus, this is the second close under the $50 mark in the last three days as well. The company is in the communications equipment sector, which has not been a very safe area for bulls, but LLL has been able to avoid most of the first quarter sell-off. This was likely due to its defensive contract wins and appearance as a possible homeland/wartime defense play (compare a chart of LLL with the DFX.X or the DFI.X). Meanwhile, when these sectors topped out in May, so did LLL. The stock saw a lot of volume in late June when the company came out with news it would be selling 14M shares to raise cash. There is some potential support between $48 and $49 from last October and shares have bounced here twice in the last three days. A move under the recent lows could be a potential trigger to go short and capture a move towards the PnF chart's vertical count near $42. Watch out for any support near $45 if you go short. Something else to consider is how will the market react to the news that Buffett is making investments in beaten down telecom and communication equipment bonds like he did with LVLT. Will there be a splash over affect in LLL or will LLL just keep tumbling? --- Nokia Corp - NOK - close: 14.50 change: -0.64 WHAT TO WATCH: We had NOK on the weekend watch list because the stock and the group had shown some unbelievable strength for its sector. The stock had gapped up strongly on Friday's big rally and it looked like it could go either way. Well, today's candlestick pattern, a bearish engulfing candlestick, appears to be pointing for a pull back of recent gains. Unfortunately, with potential support at the 50-dma (14.25) and price support between $13.00 and $13.50, NOK isn't offering us a lot of room to really plan a strong risk-reward scenario for a bearish play. More adventurous traders can try their luck but we're going to keep it on the Watch List. On the other hand a bounce at $13.00 might be an interesting opportunity for a bullish trade. ========================= Play-of-the-Day (BEARISH) ========================= Check Point - CHKP - close: 13.84 change: -0.42 stop: 15.06 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) - ORIGINAL WRITE UP: July 5th, 2002 - Why We Like It: They say a rising tide lifts all boats, and that certainly seemed to be the case today. To wit: Only one stock in the NASDAQ-100 finished in the red today. That stock was CHKP, which stood out on our screens like a giant swollen sore thumb. CHKP hit a new multi-year low on Tuesday, July 2nd after J.P. Morgan downgraded the stock. The bears finally relented after taking it as low as $10.37, and shares actually finished the session with a gain. CHKP continued higher on Wednesday despite having its earnings estimates cut by Salomon Smith Barney. Although bulls can point to the strong volume during these sessions, we believe this was simply a function of shorts running for the exits with profits in their hands. One would think that any real buying would've carried over into today's session. Today's blatant display of relative weakness suggests that there ARE no willing buyers at these levels. It might've been understandable to see CHKP finish with a loss if there was some tidbit of negative company or sector news, but the bulls have no such excuse. The GSO.X software index traded higher by nearly 5% on Friday and there was no news to speak of on CHKP. Speaking of the GSO, it's come right back to the midline of its descending channel. This level has acted as resistance since mid-May. In light of its underperformance, we're expecting CHKP to trade sharply lower if/when the NASDAQ reverses course next week. Specifically, we're looking for a near-term decline to the $12 level. More optimistic bears could be targeting a retest of Tuesday's low, but we'll be satisfied with a dip to our official exit price of $12.06. Due to the possibility that today's tech rally could extend into Monday's session, we're not willing to play CHKP at current levels. Instead, we'll wait for shares to fall below $14.00 before entering the play. If triggered, we'll use a stop at $15.06. If shares can move above today's high ($14.87), they'll still have to contend with psychological resistance at $15.00. - Play-of-the-Day Comments: July 8th, 2002 - Given the inability of CHKP to rally on Friday, it wasn't surprising to see shares follow the NASDAQ lower during today's session. Our short play was activated shortly after 1:00 when the stock reached $13.99. The close near the lows of the day bodes well for a continued decline on Tuesday. CHKP bears have also got to be pleased with the action in the broader software group: The GSO.X software index rolled over from its two-day rally and looks to be headed for another test of recent support near 100. A break under this level would be extremely bearish for the software sector. Traders still looking to short CHKP may want to wait for a failed rally near $14.00 or a decline below $13.50. Remember that our stop is located at $15.06 and our official exit price is currently $12.06. Picked on July 8th at $13.99 Gain since picked: +0.15 Earnings Date 7/18/02 (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 Monday 07-08-2002 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/g08b_2.asp ================================================================= In section two: High Risk/Reward Triggered Plays: CHKP (bearish) Closed Bullish Plays: GENZ 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) ================================================================== HIGH RISK/HIGH REWARD (HR) section ================================================================== =============== HR Play Updates =============== Triggered Short Plays --------------------- Check Point - CHKP - close: 13.84 change: -0.42 stop: 15.06 Given the inability of CHKP to rally on Friday, it wasn't surprising to see shares follow the NASDAQ lower during today's session. Our short play was activated shortly after 1:00 when the stock reached $13.99. The close near the lows of the day bodes well for a continued decline on Tuesday. Traders still looking to get short may want to wait for a failed rally near $14.00 or a decline below $13.50. Remember that our stop is located at $15.06. =============== HR Closed Plays =============== -------------------- Closed Bullish Plays -------------------- Genzyme Corp - GENZ - close: 19.58 change: -0.29 stop: 18.33 GENZ spiked higher on Monday morning and quickly reached our entry trigger at $20.36. Trading was somewhat calm until 1:45, when news hit the wires that TKTX (Genzyme's competitor) had released a date for the FDA's panel review of its application for the drug Replagel. This created a knee-jerk reaction that had investors bailing out of GENZ in droves. Our play was stopped out for a 10% loss when the stock violated our stop at $18.33. Shortly thereafter the stock turned on a dime and rebounded sharply after GENZ announced that an FDA panel will review its own Fabrazyme license application on September 26th, a day before the TKTX review. Shares briefly moved above the $21.00 level (this created a double-top buy signal on the point-and-figure chart) before declining into the close. No doubt about it, these developments are extremely frustrating. Had the GENZ news hit the wires first, we'd likely still be in this play. Today's action illustrates why only high-risk capital should be used when trading biotech stocks. Traders who are still long on GENZ should be watching for a break above today's high at $21.50. The stock still looks technically well- positioned to fill in the large gap from June 20th. Picked on July 8th at $20.36 Gain since picked: -2.03 Earnings Date 07/17/02 (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 TOT Total Fina Elf Sa 82.93 +1.43 E Eni Spa Ads 82.11 +1.51 BTY British Telecom 39.62 +0.76 LAF Lafarge North America Inc 33.66 +0.54 BN Banta Corp 34.47 +0.71 FBC Flagstar Bancorp Inc 22.34 +0.88 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change DOCC Docucorp Intl. Inc 11.36 +1.34 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change .. none .. ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change WAT Waters Corp 22.42 -2.84 AYE Allegheny Energy Inc 23.95 -2.08 PP Prentiss Properties 29.30 -1.15 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change LSTR Landstar System Inc 106.31 -2.69 QCBC Quaker City Bancorp 32.54 -1.19 HRBT Hudson River Bancorp 25.50 -0.86 ================================================================= 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 "email@example.com"
Option Investor Inc