PremierInvestor.net Newsletter Wednesday 07-31-2002 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/g31b_1.asp ================================================================= In section one: Market Wrap: No Man's Land Watch List: AXP, BRCM, ESRX, ICOS, WPI, and more... Play of the Day: Hacking and Wheezing ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 07-31-2002 High Low Volume Advance/Decl DJIA 8736.59 +56.56 8736.73 8537.10 2349 mln 1614/1505 NASDAQ 1328.26 -15.93 1335.79 1307.01 1613 mln 1371/1919 S&P 100 458.87 + 5.97 458.87 446.36 totals 2985/3424 S&P 500 911.62 + 8.84 911.64 889.88 RUS 2000 392.42 - 8.49 400.91 392.38 DJ TRANS 2370.05 -19.46 2390.29 2340.84 VIX 35.21 + 0.06 37.49 34.96 VIXN 57.86 + 1.40 60.15 56.92 Put/Call Ratio 0.87 ******************************************************************* =========== Market Wrap =========== To quote Jim Brown from today's Option Investor market monitor: "Trading this indecisive chop in the middle is murder." Mr. Brown's comment is incredibly true. Bulls and bears are undecided, while attempting to figure out what cards the other is holding. Ironically, like a poker game, the action is very quiet at times with all players displaying poker faces, attempting not to over bet. The noise comes when the last hand is dealt and the cards start to fall. In today's market, there are many wild cards, which make the game more and more complex. Counting cards from a single shoe might usually be easy, but this environment is a six shoe, multiple wild card game. Today's trading displayed a negative tone, though given the weak economic numbers, things definitely could have been worse. The Dow traded negative for the bulk of the day, staging a miracle rally to close positive in the last hour of trading. On this final day in July, the Dow closed up +56.56 at 8736.59, with the Nasdaq closing red at 1328.26, down -15.93 points. NYSE advancers beat decliners 1615 to 1507, and Nasdaq winners' under- preformed losers 1373 to 1909. Total volume for NYSE was 2.34 billion shares with 1.6 billion traded on Nasdaq. Some sectors that closed positive were: forest paper and products, biotechnology, pharmaceuticals, drugs, oil, banks, insurance, and healthcare. Losers on the day were: retail goods, gold, software, and transportation. I think it would be fair to say that America as a whole would like to see the markets go up... A bullish market is good for the greatest amount of people. Incomes are steady, employment is up; companies research, produce, expand, and export goods. People are happy. The economy will once again support this dream, however, with the economic data today, recovery is still only on the horizon. The economy continues to remain weak with revised GDP numbers today, potentially alluding to a bumpy market over the next few months. GDP came in at 1.1%, which was lower than the 1.3% consensus expected. Overall the GDP numbers were disappointing, falling far below the first quarter. In a quick rundown, consumer spending was weaker than Q1, posting a meager 1.3% versus a prior 2.2%. 1999 revisions currently display that 2001 GDP was a mere 0.3%, not the 1.2% originally thought. In layman terms the bulk of the news is negative, showing an economy that is weaker that previously thought. However, the silver lining is that software and equipment investments rose 2.9%. Also, though consumer spending is down, the numbers have firmed slightly, which could lead to a possible Q3 increase. Chicago PMI landed at 51.5, lower than the expected 56.5. A PMI number above 50 alludes to manufacturing expansion. Thus, we have been experiencing manufacturing expansion for the last six months, though the numbers have been losing steam. The Chicago PMI foreshadows tomorrows National PMI, which could be weaker than expected also. The Fed Beige book reported that overall labor conditions in the Country have not improved drastically, but manufacturing has increased slightly. Leading the weakness was: New York, Boston, Atlanta, and Dallas. Of positive note, the report indicated that the worst part of the recession could be behind the semiconductor sector, though recovery will still take quite a while. To read the Beige Book report go to: http://www.federalreserve.gov/FOMC/BeigeBook/2002/20020731/Default.htm There are still a few good companies... Only nine companies continue to have triple-A ratings from Mood's and S&P. The AAA rating is the most pristine credit rating that a company can receive. The nine companies which are still on the top of the AAA mountain are: General Electric (NYSE:GE), Automatic Data Processing (NYSE:ADP), Exxon Mobile (NYSE:XOM), Pfizer (NYSE:PFE), Merck (NYSE:MRK), Johnson & Johnson (NYSE:JNJ), United Parcel Service (NYSE:UPS), Berkshire Hathaway (NYSE:BRKa), and American International Group (NYSE:AIG). In the Enron show, a videotape of Andrew Fastow was shown on CNBC during the day, with the CFO pitching insider trading to Merrill Lynch employees. Before we hang this guy, I would like to point out that the video excerpt is a mere 7 minutes of a 50-minute tape... The context of the situation could be misleading, though if there were a smoking gun, the tape could be it. America Online (NYSE:AOL) stock is once again facing weakness, as the company confirmed an investigation by the Department of Justice and SEC. The investigation focuses on questionable revenue reported by AOL. IBM announced late Tuesday that buy PricewaterhouseCoopers for $3.5 billion in stock and cash. Although the deal is said to initially reduce IBM's earnings in the fourth quarter, Big Blue could see an earnings addition by mid 2003. Goldman Sacs increased their global equity allocation from 60 percent to 65 percent. The firm attributed the increased outlay for stocks to a high VIX, low and stable interest rates, low inflation, asset reallocation into equities by pension funds, and treasury buybacks by individual companies. The Volatility Index ($VIX.X) still remains higher than normal, hovering in the 35 area. Bulls believe that the index could move towards the bottom of its range, thus giving the market plenty of room to potentially rally. As an indicator, the $VIX.X helps to determine overbought and oversold situations, aiding traders in determining bottoms and tops. Traditionally, the VIX has been a signal for a short-term bottom when it approached or got above the 30 mark (as fear was high, which usually meant the markets were falling). On the opposite side of the scale was a move towards or below the 20 level, which meant investor complacency was high and the markets were overbought and in need of a correction. When the VIX was above 50 only a week ago, we inferred that the markets were EXTREMELY oversold and due for a big bounce. Now that the VIX has cooled down (somewhat), the question is which way will it go? Unfortunately the double-edged sword here is that even though the VIX indicates that the market has plenty of room to accelerate, it also depicts additional room to fail. Bulls like that the VIX is below 40, adding resistance just in case the market fails again, and the VIX tries to move higher. On the chart of the VIX.X, the 200-Week-ma is 26.32 and the 200-dma (line not shown), is 26.54. Because the VIX is supposed to be range bound, we can assume that the VIX will eventually return to the 200-wma, and the 200-dma. The question is when? Unfortunately our crystal ball is out of order this week. Chart of: Volatility Index, VIX.X. Treasury bonds traded positive today with the thirty-year yield falling to 5.305% down -0.90, and the ten-year yield declining to 4.465%. The increase in bond buying reflects the weak economic news, indicating that some institutions and investors are still favoring the safety of treasuries. The Dow is trying to figure out which way it wants to go. The most recent rebound rally has led us to our current 8700 level. Our investigation of technical analysis will potentially help us understand what might happen and why. First, (not shown on chart), the retracement tool drawn from July 9th indicates that the 61% level, 8677.25, is almost where we are currently at. The last two days of uncertainty have fumbled right in this area. Also, today's candlestick pattern is a "hanging man", and could be a reversal pattern but needs some confirmation. The next retracement line is at 8995.72, just short of the 9000 technical and psychological resistances. What I would like to get across here is that if the market continues to rally, it does have technical resistance to fight. In the next day or two, stay alert for a potential pull back resulting from the trading action of the week. Chart of: Dow Jones, Daily. The market is a confusing place at the moment. Though there has been "just in case" buying over the last week, investors are not sure whether we have seen a bottom or not. Current economic data has its silver lining, however to find it, you have to look for it. Now is the time to step back and make sure all current positions are reasoned out with logic. We are in the middle of a range; this is a potential minefield for uncertain investors. With much ambiguity in economics, company specific future guidance, accounting legislation, August 14th*, and oil specific political environments, this is probably not the time to bet the farm. Stay alert * Some companies have already certified their accounting ahead of the August 14th deadline. In reality the August 14th deadline is just the beginning date for this certification process as not all 900+ companies have to report on the same day, this merely begins the reporting period. I will try to compile a list of all of the companies who have already certified their numbers for Fridays wrap. Mark Whistler Editor P.S. Another outside influence that could have an affect on the markets was new political talk about the Iraq situation. The US has talked about an invasion into Iraq again. However, an invasion would cost approximately 80 billion dollars, which would certainly not help with our deficit, which is predicted to be 165 billion by the end of the year. The gulf war had cost approximately 60 billion dollars, which the Allies paid almost 80% of. Because the Allies do not currently support an invasion the way they had previously, the U.S. would get stuck paying almost the entire tab for a new strike. Can we afford this in the middle of a recession where our fight against terrorism has already increased our national deficit? Readers are encouraged to respond on thoughts of a possible invasion. Should we, or shouldn't we? What are the economic and political implications? Opinions will be published on Friday. mwhistler@PremierInvestor.net ================================================================== 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 --------------------------------- American Express - AXP - close: 35.26 change: +1.34 WHAT TO WATCH: An upgrade from Lehman Brothers had AXP trading relatively strong today. Shares outperformed the Dow Jones and finished with a gain of nearly 4%. Not a bad performance, but AXP appears to have limited upside. In addition to congestion in the $36-$38 region, the stock faces resistance at the converging 50-day and 200-day MA's near $36.75. A rollover from this area would provide a tempting shorting opportunity. AXP has rallied sharply from its recent low of $26.92 and looks overdue for some profit taking. --- Broadcom Corp - BRCM - close: 18.76 change: -0.89 WHAT TO WATCH: During the month of July, BRCM formed a large wedge pattern of lower highs and higher lows. A break out of this wedge could produce a large move. Given the stock's failure to move above psychological resistance at $20.00 (backed by the 50-dma at $20.11), we think odds are in favor of a steep decline. Although the daily Stochastic and MACD oscillators are painting an uncertain picture, aggressive traders could evaluate bearish entries on a move below short-term support at $18.63. In terms of sector strength, the SOX.X continues to flounder under resistance at 350. The index underperformed the NASDAQ today and gave back 4.4% as Wall Street reacted to negative news from KLAC and NVDA. A continued decline in the SOX.X would likely create additional selling pressure in BRCM as nervous bulls move their money to safer havens. --- Express Scripts - ESRX - close: 51.99 change: +1.99 WHAT TO WATCH: In an impressive display of technical strength, ESRX recently sliced through the 200-dma, 50-dma, and psychological resistance at $50.00. This development may trigger another round of short covering that could take the stock back to its June highs near $57.50. Entries can be considered on a pullback to the 50-dma ($50.31), while aggressive traders can watch for a move above today's high of $52.82. However, be aware that ESRX may face some congestion in the $53-$54 region. --- Manor Care - HCR - close: 21.99 change: +0.66 WHAT TO WATCH: A positive reaction to Manor's July 26th earnings report sent HCR rocketing higher this week. Shares continued to perform well today, rising in tandem with the HMO.X health provider index. However, the stock is now looking overbought (it's gained more than 20% over the past week) and seems to be running out of willing buyers; volume has been steadily decreasing over the past week. With the 50-dma and 200-dma both looming overhead (at $22.72 and $22.60, respectively), we think the bulls will have a very difficult time pushing HCR higher. Bearish positions can be evaluated on another failed rally from $22.50-$22.75 or on a rollover from current levels. Our downside target would be psychological support at $20.00. --- ICOS Corp. - ICOS - close: 24.45 change: -0.42 WHAT TO WATCH: Whoa! ICOS added an astounding 73% from its July 23rd low of $14.66 to today's high. These explosive gains have been fueled by recent news of regulatory progress for the drug Cialis, which ICOS believes will see FDA approval by the second half of 2003. That's all well and good, but we believe the reaction to this news was overdone. The sudden and sharp nature of the recent rally smacks of short covering, and today's 1.6% decline is an indication that the bullish momentum has finally subsided. Shares are currently resting under solid resistance in the $25.00-$25.50 region. Playing biotech stocks always requires an aggressive strategy, but traders willing to deal with the risk of sudden news-related gaps can consider short positions at current levels. We'd use a stop just above $26.00 and target a move back to psychological support at $20.00. Of course, it's entirely possible that additional positive news could send ICOS even higher. Ultra-aggressive *bullish* positions could be considered if ICOS moves above $27.64 and begins to fill in its April 30th gap. --- Smurfit-Stone Container - SSCC - close: 14.42 change: -0.22 WHAT TO WATCH: Shares of SSCC rallied sharply from $12.00 but ran headlong into resistance at the 50-dma ($15.32). The subsequent reversal may the beginning of a more pronounced decline that could send the stock back to its recent lows. The daily stochastics are beginning to release from overbought levels, indicating that SSCC has plenty of downside potential. Short entries can be targeted on a move below today's low of $13.96. In the news on Wednesday, shareholders of parent company Jefferson Smurfit voted for a resolution to spin-off SSCC. Jefferson is currently the target of a takeover bid for U.S. based Madison Dearborn. This may create added volatility in SSCC. --- Teleflex - TFX - close: 49.34 change: -0.14 WHAT TO WATCH: Shares of TFX have rallied more than 20% over the past week. However, the bulls must now contend with the 200-dma at $49.71 and psychological resistance at $50.00. Given the stock's rapid ascent, we think a pullback could be just around the corner. Bearish positions can be targeted on a rollover from current levels, although cautious traders may want to wait for break under today's low of $48.00. We'd be looking for a pullback to the $44-$46 region. --- Watson Pharmaceuticals - WPI - close: 21.07 change: +0.54 WHAT TO WATCH: WPI rallied nicely off the $18 level over the past week and has shown no signs of slowing down. The stock outperformed the DRG.X pharmaceutical index on Wednesday and closed safely above psychological resistance at $20.00. Short- term traders can gauge entries on a move above near-term resistance at $21.20. This could lead to a retest of the 50-dma at $23.17. A trade at $22.00 will create a double-top buy signal on the p-n-f chart. Note that Watson announces earnings next Wednesday. =============== Play-of-the-Day (Non-tech BEARISH play) =============== Phillip Morris - MO - close: 46.05 change: -0.71 stop: Company Description: The Philip Morris family of companies, including Kraft Foods Inc. (Kraft), is the world's largest producer and marketer of consumer packaged goods. Philip Morris Companies Inc. recorded 2001 underlying net revenues of approximately $81 billion and owns 83.9% of the outstanding common shares of Kraft and is the largest shareholder, with an approximately 36% economic interest, in SABMiller plc. The Philip Morris family of companies also includes Philip Morris Incorporated (PM USA), Philip Morris International Inc. and Philip Morris Capital Corporation. (source: company press release) - ORIGINAL WRITE UP: July 30th, 2002 - Why We Like It: With the Dow staging a strong rally over the last few days, MO has showed reactionary strength. Based on chart technicals, Philip Morris seems to have run into horizontal resistance. Since the recent July low, MO has rebounded 16% in just two weeks. On July 15th, the tobacco stock had a low of 40.30. Although we are happy to see the company's stock price appreciate, the move could be a dead cat bounce, potentially foreshadowing another failure. The horizontal resistance that we mentioned earlier sits in the 45.90-47.30 area, with the most recent high at 47.20. We are looking at three points to gauge resistance, and pinpoint our stop. Our first area of resistance is in the consolidation occurring in November, December, and January of the last year. Second, the July 9th, 10th, and 11th highs gave us an indication that last year's resistance meant business. Third and final, after failing in the 47.50 area during early July, MO flopped to the bottom of its range, where it made the most recent low at 40.30. Please see the annotated chart below. We believe that the same resistance (which the stock is at now) could be a potential short swing trade worth our time. Also of commendable notoriety, the Stochastics are showing the stock is currently overbought, and could fall back into the mid-range of the indicator. Because the 50-dma, and the 200-dma are well above where the current price is, we will keep a tight stop on this trade. Our concern is that although we like the current horizontal resistance, the stock could still make a run at the benchmark averages. Because the newsletter is planning to add this as a short at current levels, we want to make sure our stop is somewhat constrictive. The initial stop for our position will be at $48.01, a little more than a quarter above the high on July 8th. The official price target for this position is 42.05, which is slightly above support. We anticipate support in the 44 area, which would be both: psychological and technical. If the support at 44 is breached, the stock could fade into our hands, with the stock price going up in a cloud of smoke. - Play-of-the-Day Comments: July 31st, 2002 - In today's trading, Philip Morris displayed weak relative strength compared to the rest of the market. Closing negative on the day, MO lost -1.51%. New shorts could put a trigger below today's low, though be sure to keep stops tight. Our current stop is $48.01, slightly greater than a quarter above the July 8th high. The is no fresh news stories on MO today. Picked on July 25th at $46.76 Results since picked: -0.71 Earnings Date 07/18/02 (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 Wednesday 07-31-2002 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/g31b_2.asp ================================================================= In section two: Active Trader Non-Tech Stocks Triggered Plays: DD (bearish) 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) ================================================================= Active Trader/Non-tech Stocks (AT) section ================================================================= =============== AT Play Updates =============== Triggered Plays --------------- DuPont - DD - close: 41.91 change: -0.14 stop: 44.26 A negative reaction to this morning's release of GDP data had both the Dow Jones and DD trading lower after the opening bell. Our short play was triggered when the stock hit our trigger price of $41.61. Shares rallied with the index in the final hour of trading and finished with a small loss. Aggressive traders can target new entries on a move below today's low of $40.84, but remember that $40.00 may act as support. Our stop-loss is currently set at $44.26. ================== 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. Ticker Company Name Close Change Value Plays With Bullish Signals EDS Electronic Data Systems 36.77 +1.58 MIMS Mim Corporation 11.61 +0.81 ASO Amsouth Bank Corporation 22.32 +0.62 AYE Allegheny Energy Inc 21.05 +2.97 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change IVX Ivax Corporation 13.50 +1.35 PVN Providian Finacial Ser. 5.02 +1.27 IDT Idt Corporation 18.10 +1.10 EXEL Exelixis 6.95 +1.38 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change SIE Sierra Health Services 22.75 +1.31 TARO Taro Pharmaceuticals 31.22 +1.45 GRMN Garmin Limited 20.43 +1.38 CVX Chevron Texaco 75.00 +2.00 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change URBN Urban Outfitters Inc 23.26 -4.50 TOO Too Inc. 24.41 -1.59 LIN Linens 'n Things 24.35 -2.73 ROP Roper Industries Inc. 29.75 -3.25 KMP Kinder Morgan 29.71 -1.29 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change None ================================================================= 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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