PremierInvestor.net Newsletter Thursday 07-18-2002 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/g18b_1.asp ================================================================= In section one: Market Wrap: XL-ent! Play-of-the-Day: Bear Poker Market Sentiment: What Never Goes Up Must Come Down ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 07-18-2002 High Low Volume Advance/Decline DJIA 8409.49 -133.00 8621.95 8404.43 2.02 bln 1024/2138 NASDAQ 1356.95 - 40.30 1395.29 1356.80 1.80 bln 1025/2334 S&P 100 441.28 - 12.40 454.56 440.74 Totals 2049/4472 S&P 500 881.56 - 24.48 907.80 880.60 RUS 2000 396.71 - 12.98 409.69 396.71 DJ TRANS 2382.60 - 29.20 2435.12 2378.90 VIX 39.95 + 0.15 41.33 38.24 VXN 63.61 + 0.38 65.38 62.61 Total UpVol 677.7M Total DnVol 3,322.1M 52wk Highs 66 52wk Lows 436 TRIN 1.29 PUT/CALL .93 ************************************************************* =========== Market Wrap =========== XL-ent! Bears appeared hungry today and bulls simply look like they are going to continue to stash cash in Treasuries as stocks lacked any type of follow through to yesterday's end-of-session marginal gains and Treasury yields headed lower again as investors plowed some cash back into the perceived safety of bonds. By sessions end, the YIELD on the benchmark 10-year ($TNX.X) fell back below the 4.635% level to finish with a closing YIELD of 4.61% and dragged the major market average with it. The Dow Industrials fell 133 points to 8,409 (-1.55%), the S&P 500 dropped 25 points to 881 (-2.7%) and the broader NASDAQ Composite slid 40 points to 1,356 (-2.8%). Only the Gold/Silver Index (XAU.X) 70.69 +1.13% managed to show a gain greater than 1%. The North American Telecom Index (XTC.X) 410 +0.03%, Oil Service (OSX.X) +0.74% and Forest/Paper Products (FPP.X) 326 +0.03% were sectors showing modest gains. Several sectors show losses greater than 4%. Leading declines were the GSTI Software Index (GSO.X) 97.56 -5.36% after Siebel Systems (NYSE:SEBL) $9.61 -18% announced earnings of $0.06 per share last night, which missed estimates by $0.03 a share. Investors sold the stock in disgust and wondered why the company didn't warn ahead of the release. Siebel Systems Chart - $1 & $0.50 box Six consecutive "sell signals" (O column exceeding below a previous column of O) without any "buy signals" (X column exceeding above a previous X column) and investors proclaim their disgust and disbelief that the company didn't warn that it would miss estimates? The only thing that might have "surprised" the MARKET is if the company had beaten estimates. The insurance sector as depicted by the S&P Insurance Index ($IUX.X) 249 -4.98% also suffered some steep declines today. Bearish traders in our July 3rd bearish trade of XL Capital (NYSE:XL) 65.50 -12.08% know why as they found a belly full of gains after the provider of insurance and reinsurance products announced that it was increasing reserves for losses related to the September 11 attacks by approximately $200 million in its second quarter. In addition, XL expects to report net investment losses of approximately $120 million for the quarter ended June 30, largely due to investments in certain telecommunications companies. (They haven't been reading PI newsletters over the past year have they?). XL Capital Chart - $1 box The bearish profile in XL Capital (XL) couldn't have been timed too much better. The bearish vertical count of $68 gave just enough downside to have a bear interested. The bearish count, combined with the spread-triple-bottom sell signal at $82 (Professor Davis' study revealed that the spread-triple-bottom pattern was profitable 86.5% of the time, for an average gain of 24.9% over a 4.6 month time span under bear market conditions), hinted at a potential bearish target of $61.50. As profiled, trader may have stopped out at the open ($66) as our bearish target as profiled was $70. If still short, I'd certainly move a stop down to $68.10 if trying to target the probabilities of Professor Davis' study. XL will be removed from the play list as the stock achieved our profiled bearish trade target. Still waiting on the internals! The bullish % charts of the various market averages continue to be interesting. The more volatile NASDAQ-100 Bullish % ($BPNDX) continued to show some gains, with a net gain of 1 stock to a "buy signal" today and currently reads "bull confirmed" at 35%. As a comparison, last Thursday's reading was 21%. Remember that the bullish % is NOT weighted and each of the 100 stocks gets "one vote" as it relates to the point/figure chart showing a "buy signal" or "sell signal" on the chart. By comparison, the WEIGHTED NASDAQ-100 Index (NDX.X) 994.61 -3.31% doesn't reflect the internal repair that is showing up in the bullish %. This is what market technicians refer to as "bullish divergence." In essence, what looks to be happening is that some of the more heavily weighted stock in this index are falling and weighing on the index's outward appearance. Using the same time-period benchmark week-over-week as we did with the NASDAQ-100 bullish %, the NASDAQ-100 Index (NDX.X) closed at 998.03, so it's down about 4-points (-0.4%). Be very alert here as something has got to give! Right now, I have to think that the strength shown in the NASDAQ- 100 bullish % and how the NASDAQ-100 has held up rather well during the past week is simply short-covering. I'm still waiting for some type of "confirmation" from the also narrow, but not as volatile (less technology stock exposure) S&P 100 Index (OEX.X) 441.28 -2.73% and its Bullish % ($BPOEX) which is still pegged near 15%. Today's action did see a net gain of 1 stock to a "buy signal," but the lack of improving internals begins to have the improving NASDAQ-100 internals suspect. In essence, while the NASDAQ-100 shows some internal repair, the lack of any type of "following" from the also narrow S&P 100 certainly hints that while this market (S&P 100) is at a high risk level for bearish traders, stocks here just aren't seeing any type of meaningful demand improvements. Even as we get away from the "100-stock indexes" like the NASDAQ- 100 and S&P 100 to the broader S&P 500 (SPX.X) 881.56 -2.7%, we see marginal internal deterioration. Yesterday's S&P 500 Bullish % reading was 21.6% and tonight's reading is 21.2%. This tells us that there was a loss of 2 stocks to sell signals on their point and figure charts. While that's only 2 of the 500, any equity bull would certainly have wanted to see a net gain, not a net loss. The point I'm trying to make in this section and review of the internals is what I tried to express in Monday's 03:00 PM EST update. http://www.PremierInvestor.net/markets/intradayupdates/071502_3.asp Right now, the S&P 500 bullish % would be considered the "big river" and its internals continue to deteriorate even at these very low levels of bullish %. To me, this means the river's current is still pretty strong on the downhill side of things. Then we've got the "narrower" NASDAQ-100 internals acting like fish that are trying to swim upstream, against what looks to be a pretty strong current. If bears stop covering their shorts in some of these stocks and the current remains powerful to the downside, then the fish that have given some "buy signals" will most likely get flushed back downriver. Speaking of "fish" If we're going to talk about the NASDAQ-100 as being "fish" then we've got to mention the biggest fish in the pond and software giant Microsoft (NASDAQ:MSFT) $51.11 -1.71%. Remember, that Microsoft (MSFT) is the LARGEST weighted stock in the NASDAQ-100 at 13.06% weighting! The second largest weighted stock in the NASDAQ-100 is semiconductor giant Intel (NASDAQ:INTC) $19.15 -1.49% at a rather paltry by comparison 6.13%. For further comparison, Siebel Systems (SEBL) mentioned earlier accounts for just a 0.87% weighting. Tonight, after the bell, Microsoft (MSFT) reported Q4 earnings of $0.43 per share, which was a penny better than consensus. Revenues came in at $7.25 billion, which was also better than consensus of $7.08 billion. The company said results were boosted by stronger than expected unit sales for its XBox, after cutting its price to $199. The company then went on to say that fiscal 2003 revenues look strong as unearned revenue growth is rising as the company signed a lot of annuity agreements. Annuity agreements? This has been a topic of discussion between our Information Technology (IT) staff and myself in recent weeks. Now I'm not an "IT" guy, but as it has been explained to me (or I understand it), Microsoft is attempting to transition away from the "operating system in a box" type of platform and offering corporate customers an "annuity" type of agreement. As I understand it, MSFT is sick and tired of recognizing just "one sale" of its operating system, then have it copied to about 20-different computers and used. You and I would associate this with "software pirating." By offering the "annuity" MSFT can then have better control on who and how many users can then use a "sale" of their operating system. Again, as I understand it, if you're a corporate customer, you're going to have to "sign up" for X-number of seats (users) and will only be able to use that many seats. Under proper accounting, MSFT therefore CANNOT recognize these revenues right now, as these agreements don't go into effect until July 31, 2002. Then, for those opting for the "annuity" type of license, it allows them to get upgrades over the course of the annuity arrangement, without necessarily having to pay extra for any upgrades. I'll further discuss the potential "impact" and "dice rolling" that MSFT is doing with this new strategy. On the company's conference call, Microsoft gave guidance for its upcoming Q1 (Sep) revenue and EPS of $7.0-$7.1 billion and $0.42- $0.43, versus current consensus of $7.1 billion and $0.42 respectively. For full year 2003 (June 2003) revenue estimates were $31.4-$32 billion and EPS guidance was $1.85-$1.91. This compares to revenue consensus of $32.0 billion and EPS of $1.93. The "below consensus" estimate for EPS on full year, appeared to be a bit of a negative and the stock did trade lower at $50.60 in after-hours trading. The company did shine some light on the PC sector, saying that it expects it's PC software shipments (this is the MSFT software that is already installed on your new PC when you buy it) to be in the low to mid-single digit range in fiscal 2003, so basically no change from past guidance. The PC software guidance, did appear to be marginal "good news" for Intel (NASDAQ:INTC) $19.15 -1.49% as the pc-chipmaker gained 5-cents in after-hours, but Dell Computer (NASDAQ:DELL) $26.05 -1.1% traded about 5-cents either side of their close on those remarks. Now for the rest of the discussion between our IT staff and myself. Some will argue that MSFT's new strategy involving this "annuity- based" type of billing to get a better control on "piracy," but also help smooth out revenue projection stability may have a kink in it and a kink that won't necessarily be decided very soon. The Linux operating system is basically free, while the various MSFT operating systems cost money. On the surface, one may begin wondering why anyone would pay money for an operating system when they can get one for free. Right? Well, I'm not about to go into great detail on all this (for one, I'm not really versed to do so anyway), but a company's IT support of a MSFT operating system comes at a much smaller cost when considering the cost of salaries for a MSFT-based administrator or support person, when compared to the salary of an administrator for a Linux-based system. It becomes a case of, do I pay more for the MSFT operating system up front and less for the staffing requirements, or do I pay less for the Linux operating system and more for the staffing to run and program the system to meet my various needs. Hmmmm.... I've noticed our IT guys are all trying to get up to speed on their Linux lately. I wonder why? Could it be they perceive a higher wage if they learn Linux? As I look around, all the computers here are running MSFT operating systems! Microsoft Chart - $1 box Microsoft's supply/demand chart is bearish and the vertical count of $46 would be the near-term level of risk a bull is certainly having to deal with, while the $46 level is a bear's near-term target. With the stock trading near $51, this presents a very difficult and unattractive risk/reward profile from which to attempt a full position trade. From the "fundamental" side of things, a bear could argue in his favor that under some rather uncertain economic times, a new "annuity-based" revenue model launch may also be coming at a somewhat difficult time. In the future, I do think a trader/investor can get up to speed on things as it relates to a pending Linux / MSFT operating system dilemma. If you work for a company with an IT staff, ask them some questions. The IT staffer might actually be flattered that you're actually coming to them with something than a complaint that your computer isn't working! In my talks with the IT staff, one of them argues that Sun Microsystems (NASDAQ:SUNW) $5.79 +1.93% would most likely be the biggest benefactor of a Linux operating system win. Sun Microsystems' computers are Linux capable (as I understand it). Sun Microsystems Chart - $0.25, $0.50 and $1 box While our IT-staff has given me a scenario, right now I'm not seeing the "bullish" Sun Microsystems (SUNW) type of chart. If the MARKET is all knowing and begins to figure things out, then at some point, SUNW's point and figure chart should give some type of "buy signal" is my thinking. Currently that would come with a trade at $8.00. Yep! That's a whopping 38% gain from here, but a retest of the $4.50 level would be a 22% decline. Jeff Bailey Senior Market Technician PremierInvestor.net ========================= Play-of-the-Day (New High-risk/High-reward BEARISH play) ========================= Pinnacle Entertainment - PNK - cls: 9.20 chg: -0.70 stop: 10.01 Company Description: Pinnacle Entertainment owns and operates seven casinos (four with hotels) in Nevada, Mississippi, Louisiana, Indiana and Argentina, and receives lease income from two card club casinos, both in the Los Angeles metropolitan area. The Company is developing a casino resort in Lake Charles, Louisiana. (Source: company press release) Why We Like It: After recently forming a lower high at resistance near the $11 mark, Pinnacle Entertainment looks as if it could attempt to test its 200-Day MA. We are expecting that weakness in the gaming sector will help with a decline in our stock's price. If the stock does fall, we could potentially see our price target of $8.00 at the 200-Day MA. Stochastics (14,1,3) confirm selling pressure after recently falling below the lower line, triggering out entry on today's close. The MACD has also crossed underneath the 0 line, with the histogram giving us further affirmation of potential selling. Because this stock trades relatively thin, we are urging discretion with loose stops. A cautious trader could actually raise their profit target by a dime to $8.10; ensuring that their order will be executed if the stock trades on the offer at $8.00. We are putting a relatively tight stop on this trade at $10.01, where we will close the entire position if our stop is reached. In a sense, we are immediately challenging the weakness of this stock by not giving our trade much room to breathe. The trade will have to battle a slight bit of congestion at $9.00, though with an increase in volume, it shouldn't have much trouble breaking this level. We would again like to urge caution in trading thinner, low volume stocks such as this one. To avoid any unnecessary surprises, we suggest that traders decide what their own individual stop loss is and strictly adhered to it. If the trades succeeds in meeting our goals, we could see a 13% return on this trade. Understanding our risk, with stop at $10.01, we stand to lose 8.8% if the trade moves against us. Because this is a higher risk, low volume trade, we have put it in our High Risk, High Reward section. Annotated Chart of: Pinnacle Entertainment, Daily. Picked on July at $ 9.20 Gain since picked: +0.00 Earnings Date 04/30/02 (confirmed) ================ Market Sentiment ================ What Never Goes Up must Come Down By Steven Price What started out looking like a rebound, once again soured as the day went on, with a 200 point downward swing in the Dow Jones beginning around 2:00 PM ET. The earnings season's heaviest day started out on a positive note with IBM posted slightly better than expected earnings after yesterday's close. A drop in jobless claims seemed to foretell a positive trend in the labor market. However, the index of leading economic indicators was not so good, and contributed to a tempered reaction. As the day wore on, the retreat covered most sectors. S&P 500 was down 24.48 to 881.56, the Dow fell 132.99 to 8409.49 and the Nasdaq dropped 40.30 to 1356.95. The leading winners were Oil Services (OSX.X) and Gold and Silver (XAU.X). Interestingly enough, the VIX was actually down fractionally on a very volatile day. This may have had something to do with expectations of positive earnings news from Microsoft. As Jim noted on the Market Monitor, we have reached some interesting support levels. The Dow now hovers just over 8400, and the SPX is just above its 877 support. Microsoft surpassed expectations by $0.01, earning $0.43 versus expectations of $0.42. Revenue also was up 10% to $7.25 billion. They did, however, reduce estimates for fiscal 2003, which began July 1. Profits are now expected between $1.85 and $1.91 per share, down from analyst's expectations of $1.92. After closing at $51.11, the stock was down slightly, trading at $50.80. AOL Time Warner Chief Operating Officer Robert Pittman has resigned, confirming the longstanding rumors that he was being forced out. That was the tip of the iceberg on a day when rumors circulated about the company improperly booking revenue, and a story in the Washington Post questioned unconventional deals AOL used to increase revenue before the Time Warner merger. In other earnings news, EBay said they would match 3rd quarter earnings expectations, but revenue will be just under analyst predictions. Gateway missed by $0.02, but confirmed targets for the rest of the year. Sun Microsystems also met expectations. The after hours markets have looked soft in these stocks, with Sun down almost 20% (trading just over $5 after a $5.79 close) and EBay down $1.25, in addition to Microsoft's slight pullback. However, Intel has done fine after disappointing earnings on Tuesday and IBM has been strong after beating expectations by a penny last night. If the markets react negatively tomorrow we could be in for a very large down move. Below Monday's S&P 500 low of 876.46, the first real support appears to be under 800. In the Dow, a drop below 8400 could see us retesting September's closing lows, as we did earlier in the week. Below that the next significant support looks to be in the 8000 range and then 7500. The bearishness is underscored by the CBOE's Put/Call ratio, which has soared back to .93, representing almost as many puts traded as calls. As I noted a couple of days ago, the bullish percent in the Nasdaq 100 ($BPNDX) continues upward. It has now surpassed the oversold level and appears on its way up. The Bullish percent in the Dow, S&P 500, and OEX, however continue downward. As long as the NDX continues to make new relative highs there seems to be a glimmer of hope. Watch out, however, if the pattern reverses itself. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 11350 52-week Low : 8062 Current : 8409 Moving Averages: (Simple) 10-dma: 8811 50-dma: 9542 200-dma: 9819 S&P 500 ($SPX) 52-week High: 1316 52-week Low : 876 Current : 881 Moving Averages: (Simple) 10-dma: 929 50-dma: 1016 200-dma: 1094 Nasdaq-100 ($NDX) 52-week High: 1782 52-week Low : 946 Current : 994 Moving Averages: (Simple) 10-dma: 1007 50-dma: 1132 200-dma: 1387 Gold and Silver ($XAU.X) The XAU was back in contrarian mode today, rallying as the equity markets and dollar both slipped. The index has slipped, however, back to its 50% retracement level from its Nov 2001 to May 2002 rally. Last time the sector was here it rebounded to its 50-dma. Keep an eye on this factor as Placer Dome (PDG) and Barrick Gold (ABX) are removed from the S&P 500 at the end of tomorrow's trade. 52-week High: 89 52-week Low : 49 Current : 70.69 Moving Averages: (Simple) 10-dma: 73 50-dma: 78 200-dma: 65 ----------------------------------------------------------------- Market Volatility The VIX was down slightly today, cracking back below the 40 level, to 39.63. This is still a very high reading, and has maintained itself in this range since last week. Periods of high volatility reflect fear in the market place on everyone's part, since the OEX option bids would be repeatedly hit and taken down if anyone had confidence that the market would return to normal soon. This has not happened. CBOE Market Volatility Index (VIX) = 39.63 -0.17 Nasdaq-100 Volatility Index (VXN) = 62.99 -0.24 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.93 839,580 778,924 Equity Only 0.81 564,328 462,004 OEX 0.70 73,306 51,657 QQQ 0.66 90,150 59,458 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 36 - 1 Bull Correction NASDAQ-100 35 + 6 Bull Confirmed DOW 13 + 3 Bear Confirmed S&P 500 21 - 1 Bear Confirmed S&P 100 15 + 1 Bear Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.22 10-Day Arms Index 1.26 21-Day Arms Index 1.47 55-Day Arms Index 1.36 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when the do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 994 2124 NASDAQ 982 2303 New Highs New Lows NYSE 29 211 NASDAQ 66 177 Volume (in millions) NYSE 2,013 NASDAQ 1,591 ----------------------------------------------------------------- Commitments Of Traders Report: 07/09/02 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. 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 tend to be wrong. S&P 500 Commercials gave back only 700 of their net long contracts, a small percentage change, maintaining a bearish position. Small Traders added back a couple of thousand contracts to their long position. Commercials Long Short Net % Of OI 06/18/02 437,530 487,956 (50,426) (5.4%) 06/25/02 378,214 438,775 (60,561) (7.4%) 07/09/02 396,321 456,164 (59,843) (7.0%) Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: ( 36,481) - 10/16/01 Small Traders Long Short Net % of OI 06/18/02 181,178 88,517 92,661 34.3% 06/25/02 134,380 62,792 71,588 36.3% 07/09/02 145,017 71,402 73,615 34.0% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 114,510 - 3/26/02 NASDAQ-100 Commercials added only slightly to their short position, maintaining the status quo. Small Traders reduced their long position by over 40%. Commercials Long Short Net % of OI 06/18/02 54,816 49,169 5,647 5.4% 06/25/02 27,238 35,926 (8,688) (13.8%) 07/09/02 31,227 39,592 (8,725) (12.3%) Most bearish reading of the year: (15,521) - 3/13/02 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 06/18/02 20,883 29,153 (8,270) (16.5%) 06/25/02 14,749 7,570 7,179 32.2% 07/09/02 12,520 8,348 4,175 20.0% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 8,460 - 3/13/02 DOW JONES INDUSTRIAL Dow Commercials brought their long positions back up to their previous levels, adding almost 2,000 contracts. Small Traders maintained their previous bullish levels. Commercials Long Short Net % of OI 06/18/02 25,995 19,115 6,880 15.1% 06/25/02 18,016 13,255 4,761 15.2% 07/09/02 20,761 14,122 6,639 19.0% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 06/18/02 5,379 11,813 (6,434) (37.2%) 06/25/02 6,414 6,597 183 1.40% 07/09/02 6,831 6,623 208 1.50% Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. 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PremierInvestor.net Newsletter Thursday 07-18-2002 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/g18b_2.asp ================================================================= In section two: Net Bulls Bearish Play Updates: INVN Stock Bottom / Active Trader New Bearish Plays: BLL, LOW Bearish Play Updates: BUD, FRK, SAH, THO Closed Bearish Plays: FLR, XL High Risk/Reward New Bearish Plays: BYD, PNK Bearish Play Updates: JAS.A, NPSP Split Trader LSTR: 2-for-1 split announcement TSCO: 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 Play Updates =============== -------------------- Bearish Play Updates -------------------- InVision - INVN - close: 25.10 change: -2.30 stop: 27.20 *new* It took two days to start dropping, but INVN is cooperating nicely with our short play. Shares were strong on Wednesday following news that the company had received a $106.8M order from the U.S. Transportation Security Administration. However, the bulls seemed to be exhausted after pushing the stock to a new relative high of $28.96. Our play was triggered in the first half-hour of trading today when INVN fell to $26.47. Technically, we're very encouraged by these developments. INVN spiked above its (loosely-defined) ascending channel yesterday only to promptly get smacked back down. This price action is often indicative of a near-term reversal. The daily stochastics (5,3,3) are looking bearish as well, just beginning to fall from overbought levels. The willingness of investors to sell into Wednesday's good news suggests that all the good news (i.e. new contracts) is already priced in. New entries can be evaluated on a failed rally near $27.00 or a break under $25.00. Due to today's 8.3% decline, we're going to tighten our stop to $27.20, just above today's high. More aggressive traders could use a stop above the 200-dma at $27.44. Also note that INVN reports earnings after the bell on Tuesday. We'll probably close this play ahead of the announcement. Picked on July 18th at $26.47 Change since picked: +1.37 Earnings Date 07/23/02 (confirmed) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== ============ AT New Plays ============ ----------------- New Bearish Plays ----------------- Ball Corp. - BLL - close: 38.25 change: -0.45 stop: *text* Company Description: Ball Corporation is one of the world's leading suppliers of metal and plastic packaging to the beverage and food industries. The company also owns Ball Aerospace & Technologies Corp. Ball reported 2001 sales of $3.7 billion, of which approximately $3.3 billion came from its packaging segment and $400 million from its aerospace and technologies segment. (source: company press release) Why We Like It: As shown above, Ball has its feet planted in two distinctly different sectors. Unfortunately for shareholders, both of those sectors have been decidedly bearish in recent weeks. The majority of Ball Corporation's business comes from the beverage and food industry. Looking at some of the largest stocks in the beverage group (KO, PEP, BUD, RKY, and DEO), we see a common theme of heavy selling, although BLL's participation is limited to making the tin and aluminum cans and not the products that fill them. The defense sector (as gauged by the $DFX.X defense index) has also been trimmed, as investors come to grips with the fact that the U.S. government may not have a large enough budget to fund all of the proposed military spending. In other words, contracts that had previously been priced into defense stocks may not materialize. Overall it seems that the Ball is getting bounced lower as investors sell everything in sight. The economy is expanding, which is good news for Ball's main business but it's not expanding as fast as everyone thought it would. This plus the defense sector-related negativity have weighed heavily on BLL. The stock has fallen under its 200-dma ($39.57) and is danger of setting multi-month lows. Based on this violation of moving- average support and the bearish MACD, we're expecting a continued decline in the near-term. Also, with a Stochastics dip below the lower line, it looks as if BLL is about to encounter further selling pressure. Specifically, we looking for BLL to move under our entry trigger at $38.17 (just under today's low) and make its way to the January lows near $32. Although the near-term low of $37.51 and the $35 level, which was resistance back in November and December may provide some measure of support, we don't anticipate the bulls will offer more than a half-hearted defense of these levels. If our play is triggered we'll use a stop just above the Tuesday high at $40.50. Note that we'll likely be closing this play ahead of Ball's July 25th earnings report. Just for kicks, pull up a chart of BLL's Point-and-Figure chart and see if you can project its bearish vertical count? We'll give you a hint. It's under $30. Picked on July xxth at $xx.xx <- see text Gain since picked: +0.00 Earnings Date 07/25/02 (confirmed) --- Lowes Companies - LOW - close: 37.85 change: -0.34 stop: 41.01 Company Description: With 2001 sales of $22.1 billion, Lowe's Companies, Inc. is the world's second largest home improvement retailer. Headquartered in Wilkesboro, N.C., Lowe's is a Fortune 100 company and the 13th largest retailer in the U.S. Lowe's and its 110,000 employees are Improving Home Improvement for more than seven million do-it- yourself retail and commercial business customers each week at more than 790 stores in 43 states (source: company press release) Why We Like It: Lately one of the hottest topics in financial circles has been whether the sinking broader market and steady news of corporate accounting fraud will have a negative impact on consumer confidence. If the latest economic data is any indication, the bulls have a lot to be worried about. On July 12th the University of Michigan released its preliminary consumer sentiment numbers. The reading of 86.5 was substantially less than both the analyst consensus of 93.0 and the prior month's number of 92.4. Considering that this data probably did not reflect the full impact of the WorldCom disaster, the next reading could be even worse. As you might expect, the prospect of a spooked consumer has taken its toll on retail stocks. The RLX.X retail index is approaching its September lows. The big boys in the group - WMT, TGT, HD, and LOW - are doing the same. Based on its weak technicals, we think LOW is an especially good candidate for a short trade. The stock broke through support at $42 last week and has fallen to multi-month lows (no pun intended). Volume backing the recent decline has been stronger than the daily average. And, although the daily stochastics (5,3,3) are currently pinned at oversold levels, the recent violation of bullish point-and-figure support is a sign of more weakness to come. Exactly how much weakness, you ask? Our initial profit target will be psychological support at the $30 level. However, if the retail picture gets really ugly we wouldn't be surprised to see a retest of the September lows at $25. In terms of risk management, we're going to start this play with a fairly wide stop of $41.01. This is a penny above the highs for the week. Less risk-averse traders could use a stop just above psychological resistance at $40.00. Short-term traders may also want to consider exiting at potential support near the $35.00 mark and the $32.50 area. Both are areas of support/resistance in October 2001. Picked on July 18th at $37.85 Gain since picked: +0.00 Earnings Date 08/19/02 (unconfirmed) -------------------- Bearish Play Updates -------------------- Anheuser-Busch - BUD - close: 47.30 change: -0.30 stop: $48.05 After being triggered earlier in the week, our BUD short has been slowly working in our favor. BUD fell sharply on Tuesday, closing well below the 200-Day MA. This is good news for our trade, though we are currently waiting for more follow through. Over the last two days, BUD has slowly rallied, attempting to poke its head up above the 200-Day MA once again. Reasoning behind this move is that BUD had fallen so hard through the 200- dma bulls could be hoping for an oversold bounce. Fortunately this level of resistance is holding. Actually, it's a good opportunity to consider new shorts as the stock fails at the $48 level or the 200-dma. Potential stock moving news was a filing yesterday with the SEC to sell $1 billon in debt securities. If BUD continues to fail underneath the moving average, we expect to see our profit target fairly quickly. However, because of the support implications of the 200-Day MA, we will keep our stop at $48.05, protecting ourselves in case of a strong bounce from these levels. Picked on July 15th at $48.75 Change since picked: +1.45 Earnings Date 07/24/02 (confirmed) --- Florida Rock - FRK - close: 32.60 change: -0.57 stop: 34.11 After falling to multi-month lows on Wednesday, FRK staged a partial comeback rally, but has continued to drift lower. During Wednesday's decline, FRK touched the bottom of its Keltner channel for the first time since our short was triggered, indicating potential follow through for a continued sell off. Of course a rebound from the bottom of the channel is always a possibility, thus we will keep a stop tight at $34.11. With no news coming forward for the week, this trade is simply technical analysis at this point. Looking at an intraday chart, FRK has found a slight bit of resistance at $33.50, which will hopefully help our trade to decline to lower levels. The official target for this trade is $30.06, where we will cover our entire trade. Picked on July 10th at $32.99 Gain since picked: +0.39 Earnings Date 8/07/02 (unconfirmed) --- Sonic Automotive - SAH - cls: 21.85 chg: +0.25 stop: 23.01 With no innovative news on Sonic Automotive, the stock has continued to trade in its descending channel over the last few days. Our short is slowly working, with no new developments. The chart for competitor KMX also displays weakness, which is an encouraging sight! Our only real concern is a potential rumor rally prior earnings in two weeks. Of course we are always fearful of a technical rebound to the 200-Day MA, but we are not going to move our stop in light of this. Our profit target remains at $20.66, where we will close all of our position. Picked on July 10th at $22.73 Gain since picked: +0.88 Earnings Date 07/30/02 (confirmed) --- Thor Industries - THO - close: 29.20 change: -0.79 stop: 32.71 Weakness in THO has definitely helped our trade move towards our target. After shares dropped nearly 6% yesterday, we were happy to have entered at our trigger of $31.90. Trading today remained mixed, with an intraday high of $30.78. THO was not able to hold its highs, and continued to fall in the afternoon session. We are pleased to see THO below support of its Keltner Envelope, indicating potential selling pressure into the 200-Day MA. Although this play was not opened on pure merit of a post split depression, this is definitely helping our cause. To avoid being stopped out, we have elected to not move our stop on THO yet, as we could see volatility over the next few days. There is no new news on Thor Industries but we see similar weakness in WGO. Picked on July 3rd at $31.90 Gain since picked: +2.70 Earnings Date 07/30/02 (confirmed) =============== AT Closed Plays =============== -------------------- Closed Bearish Plays -------------------- Fluor Corp. - FLR - close: 32.08 change: -0.05 stop: 33.15 We've said it before, and we'll say it again... You never go broke booking profits. Our FLR short has been working very well since we implemented the trade on July 2nd. Because of the time duration of the trade, and the implications of trading on the bottom of the channel, we had decided to "challenge" this trade with a lower stop. Today, our stop at $33.15 was triggered, forcing us to cover our entire position. We are very pleased to report a 7.8% gain in this trade in only 16 days. With no new news, the bounce was purely a technical rebound. If FLR were to recover some its lost ground in potential short covering, we will consider this trade again as another short candidate. Traders who are still short FLR could implement a tight stop in order to hang onto un-booked profits. Picked on July 3rd at $35.94 Change since picked: +2.79 Earnings Date 07/30/02 (confirmed) --- XL Capital - XL - close: 65.50 change: -9.00 stop: 78.16 Wow! There's nothing quite like being short a stock when the company comes out with bad news. Such was the case this morning with XL, when the company announced it was increasing reserves by $200M for losses related to the 9/11 attacks. They also said they expect to lose $120M due to telecom investments. As could be expected, XL gapped sharply lower on the news. In last night's update we had set an official exit price at $70.51. Thus, Our play was closed at the opening trade of $66.00 for a gain of $14.89, or 18.4%. Although there's little to stop XL from falling to its September low at $61.50, we would not be looking to chase the stock lower - It's looking awfully oversold after today's 12% decline. Traders still short should now be challenging XL with a very tight stop, as it would be a shame to see those wonderful gains go up in smoke! After all, there are plenty of other possible bearish trades in the insurance sector: Check out HIG, ACE, MET, and AIG, just to name a few. Picked on July 3rd at $80.89 Gain since picked: +14.89 Earnings Date 04/29/02 (confirmed) ================================================================== HIGH RISK/HIGH REWARD (HR) section ================================================================== ============ HR New Plays ============ ----------------- New Bearish Plays ----------------- Boyd Gaming Corp - BYD - close: 14.11 change: -1.45 stop: 16.01 Company Description: Headquartered in Las Vegas, Boyd Gaming Corporation (NYSE:BYD) is a leading diversified owner and operator of 12 gaming entertainment properties located in Nevada, Mississippi, Illinois, Indiana and Louisiana. Boyd Gaming is also developing "The Borgata", a $1 billion entertainment destination resort in Atlantic City, through a joint venture with MGM MIRAGE. (Source: company press release) Why We Like It: Boyd Gaming Corporation reported earnings yesterday, beating estimates of 25 cents per share, stating 29 cents per share. However, given a 9% drop in the stock today, the market has rejected the earnings announcement. This was a classic case of buy the rumor, sell the news. Even though BYD had decent earnings, we believe that this stock is suffering from overall sector weakness. Other stocks in the sector that look weak are: ISLE, ILX, HET, ASCA, MBG, and STN. Most recently, the stock made a double top on the daily chart, producing a lower high. Further, Stochastics have fallen below the upper line, indicating temporarily overbought conditions. On the sixty-minute chart, BYD, had support in the $14.70 area, which it broke today. Given the sharp reaction to the earnings news, we feel that BYD looks like a good short at these levels. If all things work out as planned, we could see $10.50 with in a matter of days; our target at $10.50 is slightly above the 200-Day MA. We are putting our stop just above the most recent high, at 16.05. If our stop is breached we will close this play immediately, as the stock could see a potential breakout. We anticipate support in the $12.40 to 13.25 area, where our trade will have to fight congestion to break down. If our trade begins to move in our direction, we will move our stop down with it, in order to protect any possible profits. We would like to point out that this is a thinner stock, which trades with less volume than our normal plays. Because of this, we are listing this play in the High Risk/High Reward section. We would encourage traders to keep a close eye on this play, as a relatively low amount of volume could produce erratic moves. More conservative traders may want to wait for BYD to trade under or even close under its 50-dma currently at $14.00. It might be a good idea to pre-set stops with brokers to ensure that the trade gives no surprises. Annotated Chart of: Boyd Gaming Corp, Daily. Picked on July at $14.11 Gain since picked: +0.00 Earnings Date 07/17/02 (confirmed) --- Pinnacle Entertainment - PNK - cls: 9.20 chg: -0.70 stop: 10.01 Company Description: Pinnacle Entertainment owns and operates seven casinos (four with hotels) in Nevada, Mississippi, Louisiana, Indiana and Argentina, and receives lease income from two card club casinos, both in the Los Angeles metropolitan area. The Company is developing a casino resort in Lake Charles, Louisiana. (Source: company press release) Why We Like It: After recently forming a lower high at resistance near the $11 mark, Pinnacle Entertainment looks as if it could attempt to test its 200-Day MA. We are expecting that weakness in the gaming sector will help with a decline in our stock's price. If the stock does fall, we could potentially see our price target of $8.00 at the 200-Day MA. Stochastics (14,1,3) confirm selling pressure after recently falling below the lower line, triggering out entry on today's close. The MACD has also crossed underneath the 0 line, with the histogram giving us further affirmation of potential selling. Because this stock trades relatively thin, we are urging discretion with loose stops. A cautious trader could actually raise their profit target by a dime to $8.10; ensuring that their order will be executed if the stock trades on the offer at $8.00. We are putting a relatively tight stop on this trade at $10.01, where we will close the entire position if our stop is reached. In a sense, we are immediately challenging the weakness of this stock by not giving our trade much room to breathe. The trade will have to battle a slight bit of congestion at $9.00, though with an increase in volume, it shouldn't have much trouble breaking this level. We would again like to urge caution in trading thinner, low volume stocks such as this one. To avoid any unnecessary surprises, we suggest that traders decide what their own individual stop loss is and strictly adhered to it. If the trades succeeds in meeting our goals, we could see a 13% return on this trade. Understanding our risk, with stop at $10.01, we stand to lose 8.8% if the trade moves against us. Because this is a higher risk, low volume trade, we have put it in our High Risk, High Reward section. Annotated Chart of: Pinnacle Entertainment, Daily. Picked on July at $9.20 Gain since picked: +0.00 Earnings Date 04/30/02 (confirmed) =============== HR Play Updates =============== -------------------- Bearish Play Updates -------------------- Jo-ann Stores - JAS.A - close: 23.30 change: -0.19 stop: 26.13 Because we didn't want to short JAS.A until it was trading at relative lows, we wrote this play with a trigger at $23.17. This level was reached on Thursday when shares dipped in early-morning trading. The stock never really had a chance to post a gain today with the RLX.X retail index declining by another 1.6%. A break below the near-term low of 273.38 would be bearish for the entire sector, and likely create more selling pressure in shares of JAS.A. New short positions can be gauged on a move below today's low of $22.50. Although our stop is currently set at $26.13, we'll probably tighten it to just above the 50-dma (25.01) if shares suffer another day of losses. We would also watch for any rally back to the $25 level or the 50-dma. A failed rally at resistance would be a great lower-risk entry point to go short. Picked on July 18th at $23.17 Change since picked: -0.13 Earnings Date 08/20/02 (confirmed) --- NPS Pharmaceuticals - NPSP - cls: 19.02 chg: +0.01 stop: 20.09 The biotech index (BTK.X) pulled back by nearly 5% on Thursday, giving back the lion's share of the previous session's gains. This is an interesting technical development, because the index had briefly popped above its descending regression channel. Today's reversal could portend another downward leg for the BTK. Pressuring the sector was a Merrill Lynch downgrade of biotech behemoth BGEN. NPSP remained relatively strong today but was unable to move over heavy resistance. During the past three sessions, intraday rallies in NPSP have been thwarted by the $20.00 level. These failed rallies are an encouraging development for this play. We'd expect frustrated bulls to throw in the towel if the BTK.X continues to fall. NPSP continues to look extremely top heavy and potentially prone to a selloff. Technically, we'll be watching for the daily stochastics (5,3,3) to release from the overbought region and begin to drop. The previous three times this occurred (in late-March, mid-April, and mid-June), the Stochastics drop preceded steep declines in the stock. Despite all the short-term overbought conditions we will urge some caution. While we are looking at NPSP with bear-tinted glasses the recent consolidation sideways under $20 has been showing higher lows and that's typically a bullish development. More conservative traders (who probably shouldn't be playing our high- risk plays or shorting biotechs to begin with) might want to wait for NPSP to trade under its 50-dma at 18.20. Picked on July 16th at $18.70 Change since picked: -0.32 Earnings Date 07/23/02 (unconfirmed) ================================================================== Split Trader (ST) section ================================================================== Split Announcements ------------------- Landstar Sets 2-for-1 Stock Split Prior to the opening bell this morning, Landstar System, Inc. (NASDAQ: LSTR) announced that its Board of Directors had declared a 2-for-1 stock split. The additional shares will be distributed on or about August 12, 2002 to shareholders of record on August 2, 2002. This marks the first split for LSTR since it began trading in 1993. In sharp contrast to the Dow Transports, LSTR performed strongly throughout the second quarter of 2002 and reached an all- time high of $110.30 in June. The stock has since fallen back below the psychologically important $100 level. Shares closed at $95.45 on Thursday. For a current quote, click here: http://user.financialcontent.com/pin1/quote.cgi?account=pin1&ticker=LSTR About the company Landstar System, Inc. is headquartered in Jacksonville, Florida. The Landstar carrier group comprised of Landstar Gemini, Inc., Landstar Inway, Inc., Landstar Ligon, Inc. and Landstar Ranger, Inc. delivers excellence in complete over-the-road transportation services. (source: company press release) --- Tractor Supply Harvests 2-for-1 Stock Split After the market closed today, Tractor Supply Company (NASDAQ: TSCO) announced that its Board of Directors had authorized a 2- for-1 stock split. The split will be distributed on August 19, 2002 to shareholders of record on August 2, 2002. This will be the first split for TSCO since it began trading in 1994. Today's announcement follows an impressive year-long run that saw shares rise from the $15 level to an all-time high of $73.25. The stock has recently pulled back to intermediate-term support at $55. Shares closed at $58.08 on Thursday. For a current quote, click here: http://user.financialcontent.com/pin1/quote.cgi?account=pin1&ticker=TSCO About the company Tractor Supply Company operates 426 stores in 30 states, focused on supplying the lifestyle needs of recreational farmers and ranchers. The Company also serves the maintenance needs of those who enjoy the rural lifestyle, as well as, tradesmen and small businesses. Stores are located in towns outlying to major metropolitan markets and in rural communities. (source: company press release) ================== 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 AHO Koninklijke Ahold N.V. 17.44 +0.74 SID Companhia Siderurgica 19.65 +1.15 RACN Racing Champions 16.71 +0.51 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change .. none .. --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change GS Goldman Sachs 75.60 +1.12 RTRSY Reuters Group 31.85 +2.00 CLS Celestica Inc 22.00 +3.31 ARB Arbitron Inc 32.45 +1.50 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change LLY Eli Lilly & Co 48.54 -2.36 WB Wachovia Corp 32.36 -2.16 KFT Kraft Foods Inc 35.13 -2.81 NVS Novartis Ag Ads 36.45 -1.68 AIG American Intl Group 57.23 -3.67 BAX Baxter Intl Inc 32.00 -11.41 ADP Automatic Data Processing 31.60 -9.75 GIS General Mills Inc 40.23 -2.57 AFL Aflac inc 26.65 -1.34 SLM SLM Corp 84.48 -1.57 PNC PNC Financial 39.69 -6.91 PGR Progressive Corp 47.50 -2.25 MEL Mellon Financial 25.20 -1.28 PAYX Paychex Inc 24.50 -3.72 XL XL Capital Ltd 65.50 -9.00 KEY Keycorp 22.60 -1.60 CMA Comerica Inc 54.04 -3.43 SNV Synovus Financial Corp 22.79 -1.46 CLX Clorox 33.65 -1.35 ACE Ace Ltd 25.40 -2.62 SPC Saint Paul Companies 27.78 -1.46 DST DST Systems 36.81 -2.39 TSG Sabre Holdings Corp 24.45 -4.05 PRE Partnerre Ltd 41.65 -3.35 AFC Allmerica Financial Corp 32.63 -2.48 ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. 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