PremierInvestor.net Newsletter Wednesday 09-04-2002 section 1 of 2 Copyright © 2002, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section one: Market Wrap: Rebounding the Rebound Watch List: AA, AMAT, BUD, CIN, HSY, IBM and more... Play of the Day: The Insurance Diet ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 09-04-2002 High Low Volume Advance/Decl DJIA 8425.12 +117.07 8452.59 8280.40 1568 mln 1934/820 NASDAQ 1292.31 + 28.47 1294.65 1261.00 1478 mln 2037/1174 S&P 100 447.98 + 7.95 471.15 459.99 totals 3971/1994 S&P 500 893.40 + 15.38 896.08 875.73 RUS 2000 389.75 + 10.62 389.76 379.13 DJ TRANS 2315.22 + 62.82 2319.34 2238.41 VIX 39.94 - 3.92 43.44 39.45 VIXN 57.42 - 1.37 60.43 57.06 Put/Call Ratio 0.88**************************************************** =========== Market Wrap =========== Today's trading was slightly mixed as the Dow dwindled in the morning, but staged a promising rebound closing up +117.07 at 8425.12. The Nasdaq traded up +28.47, finishing the session at 893.40. NYSE advancers' outpaced decliners 1934 to 818, while Nasdaq gainers beat losers 2036 to 1173. Market volume was mediocre with 1.56 billion shares traded on the NYSE and 1.46 billion on the Nasdaq. Hershey Trust Corporation was temporarily barred from selling Hershey Foods (NYSE:HSY) by a Pennsylvania judge. Senior Judge Warren Morgan permitted an injunction that prevents the sale of HSY until further "economic and social" issues can be evaluated. Those opposed to the sale of HSY have argued that the action would cause severe impairment to the Hershey, Pa. community. Today, former WorldCom CFO Scott Sullivan pleaded not guilty to securities fraud, conspiracy, and filing false statements. Sullivan will next appear on December 9th, with former accounting director Bedford Yates. Sullivan originally refused a plea- bargain that would have given him 10 years in jail. National Semi reported results inline with analyst expectations of 0.01 cent per share. The company further commented on potential "pockets of opportunity", but made cautious comments for the following holiday season. In economic news today, the ABC News/Money Magazine Consumer Comfort Index reported a small loss, however the reading of -13 is up from the low at -15 two weeks ago. Consumer confidence has fallen in the last few months as weakening market conditions cause investors worry about the economic future. In the ABC survey, 19% of consumers said they thought the economy was getting better, versus 21% last month. Also, 44% surveyed said the economy would stay the same, and 36% said it would weaken. The report indicates that consumer spending could remain at low levels as long as the markets remain weak. Construction Spending was unchanged in July, which beat analyst expectations of a 0.5% decline. Total construction spending for July was 834.1, counter to June's 833.8. The news helped to calm fears of a modest decline, though residential construction did see a 0.7% drop. The report could still indicate future weakness in non-residential construction, which is down 17% for the year. The weekly MBA Mortgage Applications composite number slid slightly for the second week in a row. The composite number came in at 1059.5, down from 1079.7 one week ago. Refinancing decreased to 5159.6 from 5355.4, though the purchasing index rose slightly to 359.7 from 344.7. Overall the housing market still remains very stout, with interest rates safely below 7%. The Chain Store Snapshot grew 0.5% in the last week, which was the first gain in three weeks of decline. The numbers come as temporary relief with retail sales lagging in August. The Bank of Tokyo-Mitsubishi is projecting retail sales growth of 1.5%, which implies only 3% real growth...enough to keep the economy expanding. However, consumer spending continues to pose a threat to retail sales, and could hinder economic growth if lay-offs persist. Treasuries were paid a visit from buyers today, as the 10-Year yield (TNX.X) dropped -0.27 to 3.953%, while the 30-Year yield was down -0.31 at 4.784%. The ten year yield fell to multi year lows, which indicates that investors are still very skeptical about putting money back into the equity markets. Even with the drop in Treasury yields, the markets seemed to find strength in the afternoon as buyers piled into stocks. Coincidently the markets began to rally today when a rumor that the Secret Service was looking for a man headed towards D.C. with explosives was put to rest by an AP report that the suspect had been apprehended. At the same time, bad news from National Semiconductor (NYSE:NSM) triggered a halt in the stock. The stock opened lower at 12:41 EST, but then proceeded to trade higher on the day. The NYSE Up/Down Ratio ($TICK) printed a high of 1253, carrying stocks into the heavens for the remainder of the session. Incidentally, the U.S. Dollar traded positive all day and could have been a partial catalyst for the afternoon rally. Many sectors closed positive on the day including: Forest Paper and Products (FPP.X), the Oil Index (XOI.X), S&P Insurance index (IUX.X), Combined Telecom Index (IXTCX), GSTI Software Index (GSO.X), S&P Banks Index (BIX.X), S&P Retail Index (RLX.X), Semiconductor Index (SOX.X), Pharmaceutical Index (DRG.X), Biotechnology Index (BTK.X), Defense Index (DFI.X), and the Dow Jones Transportation Index (TRAN). On the economic front, there is still not anything incredibly notable for bulls to be overly excited about. Friday presents the Employment Report, which will help to unravel more of the current economic puzzle. Until then, fantastically eager bulls could be jumping the gun by placing large bets in this uncertain market. Tomorrow's economic numbers include: Chain Store Sales, Factory Orders, ISM Non-Manufacturing Index, Jobless Claims, Oil and Gas Inventories, Productivity and Costs, and the Weekly Natural Gas Storage Report. The Dow continues to observe weakness, as today's move was only a partial rebound to yesterday's sell-off. On a technical basis, the Dow is still under the 50-dma, where it recently failed in the rebound from July 24th. Further, the MACD continues to look weak, teetering the 0 line, with the daily Stochastics traveling into the oversold region. A breach of 8300 could bring technical bears off the fence and instigate added pressure to the index. Chart of: Dow Jones Industrial Average, Daily. Chart of: Market Volatility Index, Daily. The Market Volatility Index (VIX.X) has once more traded above "normal" levels. The VIX closed at 39.94, with the MACD recently attempting to trade over the 0 line. In addition, the daily Stochastics are headed towards the overbought region. For the market to rally, we would like to see the VIX fall back underneath the 50-dma and slump back into the normal range where 30 is a standard market top and 20 is a typical market bottom. Regarding oil, the current war premium is figured to be around $8.00 per barrel. However, if the U.S. begins to deploy missiles into Iraq, that premium could be on the low end of the spectrum. President Bush stated today that "doing nothing" about Hussein is not an option. Oil futures closed at $28.27 per barrel, climbing higher from yesterday's relative low. Crude futures dropped in yesterday's session when Iraqi Deputy Prime Minister Tariq Aziz said Iraq would consider the return of United Nations weapons inspectors. After Aziz made his statement, UK Prime Minister Tony Blair then voiced support for the US to proceed with consideration of an attack on Iraq. Further, oil anxiety is weighing heavily on investors with skepticism of OPEC's desire to alter production quotas in the upcoming Sept. 19th meeting. Oil demand still remains at highs, and continues to cause a substantial amount of concern if supply side issues cannot be resolved. In a nutshell, bulls are eager to get back to buying. However, until war tensions are eased, oil returns to humane levels, September 11th passes, and the economy begins to show improvement in the form of stable employment and positive consumer sentiment, bears are in control. Buyers could begin to selectively find stocks that have incredible valuation, though staking a portfolio at this time might not be the best idea. As the old saying goes: "good things come to those who wait". Mark Whistler Editor Questions or comments 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 --------------------------------- Alcoa Inc - AA - close: 23.14 change: -0.38 WHAT TO WATCH: Shares of the world's leading aluminum producer fell to a 52-week low on Wednesday, as investors continued to react to yesterday's tepid U.S. manufacturing report. AA was the third-worst performer in the Dow, ending the session with a 1.6% loss. The stock is looking very weak on a technical basis: Recent selling volume has been high, the MACD just produced a bearish crossover, and the p-n-f chart is signaling a double- bottom breakdown. If AA falls under today's low ($22.55), there's little to prevent a test of the $20.00 level. The stock is already oversold (as shown by the daily stochastics), but further weak economic data could lead to another downward leg. --- Applied Materials - AMAT - close: 12.70 change: -0.29 WHAT TO WATCH: It seems that every new day brings another rash of negative news in the chip sector. Today's action saw the semiconductor index hit a multi-year low after investors responded negatively to NSM's earnings report. Also pressuring the group were bearish analyst comments regarding INTC. The SOX.X actually recouped its intraday losses and finished with a small gain. Only time will tell whether this was a large bear trap or merely another temporary wave of short-covering. This may largely depend on the market's reaction to tomorrow's mid- quarter update from INTC. Should the downtrend continue, AMAT looks particularly prone to more selling. Shares of the chip maker reached a new multi-year low today and showed relative weakness versus the SOX.X. The 2.2% decline was backed by strong volume, and the point-and-figure chart is showing a fresh double- bottom sell signal. The MACD has also produced a bearish crossover. With the technical picture looking weak, aggressive traders could target a breakdown under today's low of $12.23. We'd be looking for a near-term decline to the psychologically critical $10.00 level. --- Anheuser Busch - BUD - close: 53.16 change: +0.64 WHAT TO WATCH: There aren't many Dow Components that are threatening a breakout to all-time highs, but BUD fits the bill. Citing strong fundamentals in the beer industry, Anheuser Busch announced this afternoon that the company expects full-year EPS growth of 14%, and remains confident that it will reach its longer-term growth objectives. These bullish comments had shares of BUD gaining 1.2% on the strongest volume in over a month. The stock is now resting just below resistance (and the all-time high) at $54.00. Traders could think about going long if shares move above this level. The lack of overhead resistance makes it difficult to gauge upside potential, but a near-term move to the $60.00 region would not be unreasonable. --- Cinergy Corp - CIN - close: 33.41 change: -0.59 WHAT TO WATCH: This electric utility stock is a relatively slow mover, but patient bears may want to take note of the recent downtrend. Shares have rolled over from the $36 resistance level and are beginning to accelerate to the downside on increasing volume. Today's action saw CIN underperform the broader market, as shares closed under the 200-dma ($33.54) and briefly moved under the 50-dma at $33.29. With the MACD showing a bearish crossover from high levels, it seems likely that shares will continue to move lower in the near-term. Bearish entries could be gauged on a move under $33.00. Psychological support at $30.00 provides a possible profit target to aim for. --- Hershey Foods - HSY - close: 72.51 change: -3.09 WHAT TO WATCH: A Pennsylvania court threw a wrench into the planned sale of Hershey Foods on Wednesday. Citing concerns that a transfer of ownership could lead to massive layoffs, state Judge Warren Morgan issued a temporary injunction against the sale. This news sent shares of HSY tanking to the tune of 4.0%. The stock had gapped sharply higher on the initial news that Hershey was looking for a buyer. Now that the sale's outcome is in doubt, shares may begin to fill in that July 25th gap. Short entries could be targeted on a move below the August low of $70.99. Possible support exists in the $69.00 region, but further negative developments could send HSY tumbling back to the $65.00 level. Note that this play is more suited towards aggressive traders who are willing to tolerate possible news- related gyrations. --- Intl. Business Machines - IBM - close: 73.73 change: +1.38 WHAT TO WATCH: Shares of IBM have spent the past two weeks consolidating a healthy chunk of the steep early-August rally. The stock successfully tested its 50-dma ($72.28) on Wednesday, indicating that a near-term bottom may have been realized. The bulls can also be heartened by the daily stochastics (5,3,3 setting), which are starting to curl higher from the oversold region. For almost three months, this has been a reliable short- term buy signal. Traders may want to consider going long on a move above $74.00. An acceptable risk/reward ratio could be created by using a stop just below today's low ($71.60), and placing an exit target near $80.00. Those with a longer timeframe could look for a retest of the relative high at $82.85. --- Polo Ralph Lauren - RL - close: 22.70 change: +0.65 WHAT TO WATCH: Ralph Lauren announced today that it expects to meet 2003 earnings estimates of $1.80-$1.90. This news was good for a gain of nearly 3%, as shares continued to bounce from the 50-dma at $21.45. The stock itself has roughly mirrored the action on the RLX.X retail index, but this newly-found relative strength is a sign that RL may see more buying in the near future. Technically, this outlook is bolstered by rising daily stochastics and a double-top p-n-f buy signal. Keeping in mind that overhead resistance lies in the $24.00-24.50 region, long entries can be evaluated on a move above today's high of $22.90. A pullback to the 50-dma ($21.45) may also yield an entry point. Traders could target a rally to the 200-dma at $25.79, slightly below bearish p-n-f resistance. --- Toll Brothers - TOL - close: 24.76 change: +1.43 WHAT TO WATCH: The homebuilding sector caught fire today after HOV reported blowout Q3 earnings of $1.43/share, which was significantly better than the consensus estimates of $0.86/share. The company also increased its 2002 and 2003 guidance. This news had the DJUSHB home construction index rebounding sharply from the 305 region. Shareholders of TOL enjoyed a 6.1% gain, and the stock is now resting just below psychological resistance at $25.00. This level also coincides with the converging 50-day and 200-day moving averages. A rally above this region could lead to a retest of the relative high at $27.50. More positive sector news surfaced tonight, as LEN announced it expected to beat Q3 estimates by 20% or more. This should have TOL trading with a bullish slant on Thursday morning. A move above the 50-dma (25.01) would provide a possible action point to go long. --- TXU Corp - TXU - close: 45.99 change: -0.92 WHAT TO WATCH: After bottoming out at $33.65 in late July, TXU exploded for a gain of nearly 50% in just over a month. The bears finally asserted themselves after shares ran into psychological resistance at $50.00, slightly above the 200-dma. This level also coincides with bearish resistance on the point- and-figure chart. Shares have been rolling over for the past week and are in danger of falling below the 50-dma at $45.26. Volume has been ramping up, indicating more downside could be in store. The bearish picture is bolstered by the MACD, which is about to crossover from the overbought region. P-n-f chartists will also note that TXU has just reversed into a column of "O's." Short entries can be gauged on a move below psychological support at $45.00, with an initial profit target at the $40.00 level. More conservative traders could look to lock in gains near $42.00. =============== Play-of-the-Day (Non-tech BEARISH play) =============== Chubb Corporation - CB - close: 60.64 change: +0.39 stop: 63.70 Company Description: The Chubb Corporation was formed in 1967 and was listed on the New York Stock Exchange in 1984. It ranks among the top 10 publicly traded insurance organizations based on revenues in the United States. With more than 10,000 employees throughout North America, Europe, South America, and the Pacific Rim Chubb serves property & casualty customers from more than 132 offices in 33 countries. Chubb works closely with 5,000 independent agents and brokers worldwide. (source: company press release) - ORIGINAL WRITE UP: August 27th, 2002 - Why We Like It: Two weeks from the anniversary of September 11th, the market might not see a vast amount of buying in the insurance sector. Specifically, Chubb could see some profit taking, as investors grow weary of another potential attack. The stock has been descending in the current channel since May 17th, and recently failed at three points of resistance. Chubb fell sharply during the month of July and hit a relative low of $53.06. CB has since rebounded 18.7% from this level, rallying to the current price at 63.00. However, it appears that the stock has run into descending channel resistance, the 50-dma, and horizontal resistance at $65.00. With a decline of -1.06% in the Dow Jones today, CB fell -0.50 to close at 63.00. The move could signal future weakness, supported by the daily Stochastics rolling out of the overbought region. Bears are further encouraged with the last two days providing a breach of the most recent ascending trend line. Our strategy for Chubb Corporation is fairly simple. We will place a trigger at $62.49, one cent under today's low. If the stock collides with our trigger and our position is activated, we will put our initial stop at $65.01. The stop loss is just above shelf resistance and the whole number. Our preliminary profit target for the position is at $58.50, though if the stock begins to slide with volume, we will quickly adjust our objective. Watch the $60.00-60.25 region, as it could prove to be support for bulls on the way down. - Most Recent Update: Tuesday, September 3rd, 2002 - With no fresh buzz on Chubb today, the stocks move may be attributed to broader market selling. The Dow closed down 355.45 today, causing many NYSE companies to falter at the knees just eight days before the September 11th 2002. Speaking of Sept. 11th, we are guessing that the insurance sector will probably not perceive much buying before the anniversary. The newsletter will move the stop down to one penny above the 50-dma at $63.70. - Play-of-the-Day Comments: September 4th, 2002 - The anniversary of September 11th resides just around the corner, while rumors of a potential attack on the U.S. loom over our heads. Thus, we are thinking that investors could be skeptical of taking any major positions in the insurance sector at this time. Further, the stock made a lower low today and underperformed the Dow Jones. The technical picture also remains negative, with the daily MACD showing a fresh bearish crossover underneath the baseline. In addition, the daily Stochastics (5,3,3) are hovering above the oversold region and could dip lower if selling pressure continues. The stock still remains below the 50-dma and has short-term resistance in the $60.75 region. New entries can be considered on a move under today's low of $59.64. Picked on August 28th at $62.49 Results since picked: +1.85 Earnings Date 07/29/02 (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 © 2002 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Wednesday 09-04-2002 section 2 of 2 Copyright © 2002, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section two: Net Bulls Tech Stocks Closed Short: SYMC 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 Tech Stocks (NB) section ================================================================= =============== NB Closed PLay =============== Closed Long Play ================= Symantec Corp. - SYMC - close: 30.76 change: +3.09 stop: 30.64 Positive brokerage comments had SYMC moving sharply higher on Wednesday. CS First Boston reiterated its "buy" rating on the stock, based on their belief that Symantec is gaining market share in the software security industry. RBC Capital Markets also commented that the Bush Administration is expected to call for an increase in the government's computer security budget. These bullish assessments, combined with heavy short-covering, sent the stock soaring to an 11.1% gain. This play was stopped out for an 8.3% loss when shares moved above our stop-loss during the final hour of trading. SYMC has already rebounded explosively from the relative low of $27.21. But given the upturning oscillators and strong upside momentum (today's gains came on the strongest volume in several months), a test of the 50-dma at $32.12 appears likely. Picked on September 3rd at $28.29 Results since picked: -2.35 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 ATAC Aftermarket Tech Corp. 16.35 +0.75 HHLF Hurricane Hydro 11.00 +0.73 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change WOR Worthington Industries 18.99 +1.13 PLXS Plexus Corp 15.15 +1.20 CK Crompton Corporation 11.72 +1.17 BYD Boyd Gaming 17.10 +1.30 IOM Iomega Corp. 12.98 +1.14 OI Owens Illinois Inc. 12.51 +1.13 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change FOSL Fossil Inc. 23.60 +1.17 HRB H&R Block 51.20 +2.03 FULL H.B. Fuller Co. 28.33 +1.94 RCII Rent A Center 56.72 +2.62 GLH Gallaher Group 41.67 +2.42 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change FSH Fisher Scientific Inst. 26.85 -1.05 MO Philip Morris 47.80 -1.71 CI Cigna Corp 80.00 -2.65 CORS Corus Bankshares Inc. 45.25 -1.51 HSY Hershey Foods Corp. 72.51 -3.09 CNI Canadian Natl Railway 41.58 -1.17 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change PUB Publicis Groupe 20.70 -0.30 AMGP Amerigroup 27.13 -1.79 ================================================================= 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 ) 2002 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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