PremierInvestor.net Newsletter Tuesday 10-08-2002 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: The Market Giveth and The Market Taketh... Market Sentiment: Still in the Shallow End Play-of-the-Day: Entry Point! ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 10-08-2002 High Low Volume Advance/Decline DJIA 7501.49 + 78.65 7623 7331 1939 mln 1325/1425 NASDAQ 1129.22 + 9.82 1144 1110 1840 mln 1572/1711 S&P 100 401.62 + 5.47 408.57 393.49 totals 2897/3136 S&P 500 796.32 + 11.04 808.86 779.50 RUS 2000 338.77 + 0.48 341.04 333.77 DJ TRANS 2115.35 + 56.78 2131 2059 VIX 46.46 - 2.72 VIXN 62.32 + 2.04 Put/Call Ratio 0.90 ----------------------------------------------------------------- =========== Market Wrap =========== The Market Giveth and The Market Taketh Away - and Giveth again! By Mike Parnos This morning the S&P futures were positive throughout the pre- market period - finishing about 10-points above fair value signifying a rather strong positive opening. It looked like the wishful thinkers were going to have a day to remember. And that’s exactly how it started. Chart of the DOW: Watching the DOW bounce around a 290 point trading range was like watching a tennis match. I felt like Linda Blair in The Exorcist. The eternal optimists were happy as the DOW moved up to the 7530 level early. Then, before you can say, “Gee, this may be a bottom,” it gave back 60 points to 7470. We’re just getting started. The DOW then decided to test the high and move back up to over 7520. The air was a little thin and so was the buying, so down it went - about 90 points -- until it reached its intra-day low of 7331 at about noon. Then, while the sellers were at lunch, the DOW reversed direction, showed some strength, and slowly made its way up to the high for the day - 7623 shortly before 3 p.m. But, as usual, it was too good to be true. Profit takers stepped in and snatched back over 75 points and the DOW finished at just over 7500. A decent day, but let’s not break out the cheerleader uniforms just yet. The DOW may have finished positive (18 of the DOW 30 were up), but the broader market showed decliners beating advancers by 1425 to 1325. The NYSE volume was up a little from yesterday at 1.94 million shares and the DOW 78-point gain snapped a four-day losing streak. __________________________________________________________ The NASDAQ chart was very similar - starting strong, giving it back, testing the high, tanking down, moving to the day’s high and giving back most of the positive move, leaving only a gain of 9.21. Decliners on the NASDAQ led decliners 1711 to 1572. Chart of COMPX: After four losing days in a row, today could be interpreted as a faint light at the end of the tunnel, but, then again, we may as well be waiting for the Tooth Fairy to show up. I hope he does, because many bulls have, not only lost their teeth, but lost their shirts as well. The earnings have been more positive than negative, but it’s going to take more than that to change the direction of the market. BBH (Biotech Holders) made a nice move up, broke through resistance at $80, ran up to $80.80, but came back down to finish just below the $80 level. We’ve been keeping an eye on BBH in my columns, tracking the stock for the past month. Chart of BBH: It’s been hovering around $80 and, one of these days, is going to bust out. The direction? Flip a coin. But, if you are looking for a straddle or strangle candidate, you might check this out. If you have any questions on the right way to put on a straddle or strangle, feel free to contact me. I go into these strategies in depth in my Option 101 and Traders Corner articles that can easily be found in the OptionInvestor archives. What’s Up Docks? Retail index was up about 5%. Partially as a result of the news that the dock workers are scheduled to return to work tomorrow. They’re debating on whether it’s justified to invoke the Taft- Hartley act to force the end of the work stoppage. Today, the dock-workers were bored so they were driving their trucks around in circles blowing their horns in support of their union. What can I say? Some bulbs don’t burn as bright as others. Inventories are already low at many retailers because they’re trying to run lean and mean. Without the ability to replenish their already lean inventories, they’d be running mean - without the lean - and without sales. The potential devastating effect on our sensitive economy prompted George W. to take his attention away, at least temporarily, from his saber rattling, to do something productive for the economy. Some CEO of a toy company was interviewed on CNBC. He was crying the blues because his products might not be able to get to the U.S. market in time for the Christmas season. Some big option bets were being placed on Ford Motor Co. (F) as the AMEX January 5 calls and November 5 calls were the most actively traded today. Why? Today Ford traded at a 52-week low of $7.51 before finishing at $7.75. That’s a nasty looking chart. Pepsi (PEP), after tremendous option volume on Monday, beat the street’s estimates and was up $5.32 today to finish at $41.10. It has some serious resistance to get through at $41-42. If it does, the next resistance level is at $45. Remember, Pepsi owns a large chunk of YUM - which owns KFC, Pizza Hut, Taco Bell and a lot of snack foods. If you’ve read my columns, you can appreciate why PEP is one of my favorites. When I go on a diet I always get two letters - one from PEP and the other from Hostess. They want to know what’s wrong and why I don’t love them any more. Morgan Stanley trimmed estimates for car sales for 2003. Tobacco stocks rebounded Monday from getting nailed on Friday, but today these same stock’s sails lost a few puffs. MO was down $2.36 and CSCO keeps going down as analysts keep reducing their estimates. Support & Resistance Levels Dow Jones Industrial Average (INDU) - support at 7330; resistance at 7700 Nasdaq Composite (COMP) - support at 1080; resistance at 1160 S&P 500 (SPX) - support at 775; resistance at 825 Tomorrow’s Earnings Announcements Tomorrow’s trading should be interesting. Among the companies that will be announcing earnings are Rambus, Yahoo, YUM, Abbot Labs, Commerce Bancorp, Winn-Dixie, Sun Trust, Genentech, Sonus Networks, and Redback Networks. Happy Trading! Do your homework and make sure you know, and limit, your risks before you click those “buy” and “sell” buttons. Regards, Mike Parnos Contact me at: mparnos@OptionInvestor.com ================ Market Sentiment ================ Still in the Shallow End by Steven Price I've been discussing the levels in the Dow (7500), S&P 500 (800) and S&P 100 (400) that I felt would be pivotal points that could send us in one direction or another. For some reason, these indices have failed to co-operate with my plan. Actually they have only underscored their importance as pivot points and support and resistance levels, confounding me slightly in the process. The Dow finished above 7500 (7501.49); the OEX (S&P 100) finished above 400 (402.88) and the S&P 500 (SPX) finished below 800 (798.55). After yesterday's close below the aforementioned levels, I was looking for intraday resistance at those points, in order to reinforce my bearish sentiment. That did not happen today. Instead, all of the averages broke through those levels and then two of them found support as the market sagged toward the end of the day. Does this mean I'm bullish? Not a chance - at least not yet. But what it does mean is that I haven't gotten the sign I was looking for to pile on the shorts. I want to know there is a ceiling to my short positions before I put them on in entirety. While I have been bearish for the last couple of months, we are at a point where the drop has slowed. It is true that we have continued to establish a series of lower highs and lower lows, but a look back at the Dow shows an awful lot of noise between 7400 and 7500 in the falls of 1997 and 1998. The SPX also shows some consolidation at that point in time, although it is 100 points higher, around 900. The SPX, however, has yet to break its July intraday low of 775. The OEX activity is similar to that of the SPX. My point is, the screw seems to be tightening, and I'm not going to bet the farm until I get the signals I am looking for. OK, now that I have presented both sides of the argument, the market still "feels" awfully bearish. The rally in the banking sector, with the S&P Banks Index (BIX.X) gaining 10.99 to close at 248.44, looks like short covering; or possibly short profit taking, as there is still nothing but bad news coming out of the group. More layoffs and bad loans have plagued the banks and unless bankrupt companies start having garage sales to pay off their debt, there doesn't appear to be a rosy immediate future for lenders. The series of lower lows remains in tact and the sector was probably due for a bounce after the BIX lost 16% in the previous four trading sessions. The Retail Index (RLX.X) also got a boost, gaining 11.86 to close at 265.54. This group had also lost 12% in the last three weeks, as September sales continued the trend of coming in under previous estimates. The west coast port lockout also hurt the stores, as merchandise sitting on ships could not be sold. News that the President was getting involved in the dispute, helped boost the group today. The announcement that he would invoke the Taft-Hartley Act, re-opening the docks for 80 days (which conveniently ends just after Christmas), should continue to give the retailers a boost tomorrow. However, it does not solve the problems that led to the sell-off in the first place - people aren't buying merchandise, due to increased layoffs and a poor economy. Friday should be a big day for the sector, as we will get the final retail numbers for September and a look at the preliminary University of Michigan Consumer Sentiment report. Sentiment will give us an idea just how consumers are faring and what can be expected for the holiday shopping season. A look at the final market data for the day looks pretty positive, but doesn't really tell the story of the late afternoon fade. At one point the Dow was up almost 200 points, before falling back and landing right above 7500, for a gain of 78.65. The SPX was up almost 25 points, before falling back and closing just under 800, for a gain of 13.27. The OEX was up over 12 points, before landing just over 400, for a gain of 6.73. Overall, the rally didn't feel like such a rally by the end of the day. I am still looking for that intraday resistance before jumping into the deep end, but until then I will be wading in the short, I mean shallow, water. The S&P Retail Index(RLX.X): The retailers finally got a bounce, as the president got involved in the west coast port lockout. President Bush said he would invoke the Taft-Hartley act, keeping the docks open through the holiday shopping season (he didn't mention the shopping season, but that was the effect). The group was led higher by Wal-Mart (+2.25), Target (+2.06) and Kohl's (+2.83). This was a nice boost, after Sears reduced earnings estimates on Monday. Unfortunately, the President can't do much about shoppers staying out of the malls because they are worried about their jobs. The end of the week will bring us September's retail sales numbers, but we already know they will be rather low, as a host of companies have already said that numbers will be below expectations. the RLX has now bounced at its July support level of 250, but I expect that level to be re-tested before the end of the year. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10679 52-week Low : 7331 Current : 7501 Moving Averages: (Simple) 10-dma: 7699 50-dma: 8351 200-dma: 9458 S&P 500 ($SPX) 52-week High: 1176 52-week Low : 775 Current : 798 Moving Averages: (Simple) 10-dma: 821 50-dma: 882 200-dma: 1027 Nasdaq-100 ($NDX) 52-week High: 1734 52-week Low : 795 Current : 811 Moving Averages: (Simple) 10-dma: 843 50-dma: 818 200-dma: 1224 Market Volatility The VIX gave back some of yesterday's pop, which had put it just below the 50 level, getting as high as 49.71 intraday and closing at 49.18. the slow and steady rise in market volatility has mirrored the drop, although the drop has occurred at a faster rate. The last several times the VIX has hit 50, we have experienced a broad market rally shortly thereafter. However, it has made it into the upper 50s or 60 before the rally ensued. I am still looking for the VIX to break 50 on another downswing in the Dow and S&P, before we begin to hit higher ground. The VXN has mirrored the movement in the VIX, with the upper 60s, or possibly 70 being the target before a Nasdaq rally. CBOE Market Volatility Index (VIX) = 46.46 -2.72 Nasdaq-100 Volatility Index (VXN) = 31.16 -1.16 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.90 635,529 574,415 Equity Only 0.71 465,468 328,736 OEX 1.09 40,933 44,452 QQQ 0.66 35,734 23,822 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 27 - 3 Bull Correction NASDAQ-100 15 - 2 Bear Confirmed Dow Indust. 10 + 3 Bull Correction S&P 500 20 - 4 Bear Confirmed S&P 100 20 + 0 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 1.50 10-Day Arms Index 1.40 21-Day Arms Index 1.49 55-Day Arms Index 1.34 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 they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 1324 1426 NASDAQ 1581 1708 New Highs New Lows NYSE 22 10 NASDAQ 351 414 Volume (in millions) NYSE 2,231 NASDAQ 1,831 ----------------------------------------------------------------- Commitments Of Traders Report: 10/01/02 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 There has not been much change in the positions of Commercials, who reduced both longs and shorts by about 2,000 contracts each. Small traders are also relatively unchanged, with reductions of about 1,000 contracts to both the long and short sides. Commercials Long Short Net % Of OI 09/10/02 426,230 470,537 (44,307) (5.0%) 09/17/02 476,224 503,268 (27,044) (2.7%) 09/24/02 425,276 442,661 (17,385) (2.0%) 10/01/02 423,661 440,133 (16,472) (1.9%) Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: ( 16,472) - 10/01/02 Small Traders Long Short Net % of OI 09/10/02 166,696 85,259 81,437 32.3% 09/17/02 182,243 116,377 64,866 21.7% 09/24/02 124,232 73,506 50,726 25.7% 10/01/02 123,371 74,704 48,667 24.5% 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 reduced both longs and shorts, but by a relatively small percentage, giving up 600 long contracts and 1,700 shorts. Small Traders also made few changes to their overall positions, getting slightly longer overall, by about 600 contracts. Commercials Long Short Net % of OI 09/10/02 53,309 58,745 (5,436) ( 4.9%) 09/17/02 72,522 75,815 (3,293) ( 2.2%) 09/24/02 46,637 54,613 (7,976) ( 7.9%) 10/01/02 46,000 52,976 (6,976) ( 7.0%) 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 09/10/02 14,024 10,494 3,530 14.4% 09/17/02 15,288 14,142 1,146 3.9% 09/24/02 11,163 9,421 1,742 8.5% 10/01/02 11,896 9,575 2,321 10.8% 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 Commercials left long positions unchanged, while reducing shorts by 10%. Small traders reduced longs by 1,000 contracts, while adding the same amount to the short side. Commercials Long Short Net % of OI 09/10/02 22,946 14,936 8,010 21.1% 09/17/02 26,863 21,187 5,676 11.8% 09/24/02 18,951 10,074 8,877 30.6% 10/01/02 18,969 8,903 10,066 36.1% 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 09/10/02 7,568 10,129 (2,561) (14.5%) 09/17/02 13,393 11,637 1,756 7.0% 09/24/02 7,939 9,453 (1,514) ( 8.7%) 10/01/02 6,809 10,503 (3,694) (21.3%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- =============== PLAY-of-the-Day ((new BULLISH non-tech play)) =============== InterMune Inc - ITMN - close: 31.39 change: +1.11 stop: 29.74 Company Description: InterMune is a commercially driven biopharmaceutical company focused on the marketing, development and applied research of life-saving therapies for pulmonary disease, infectious disease and cancer. (source: company press release) Why We Like It: The overall drug sector has proved to be surprisingly strong over the past two weeks. The Dow Jones is stuck in an extended downtrend and has fallen by 2.3% since September 24th. Meanwhile, the DRG.X pharmaceutical index has actually risen by 3.6% over the same time period. The lack of any high-profile disasters within the sector (FDA rejections, earnings warnings, etc) has helped the bulls to find some traction. But investors are also taking notice of companies like InterMune that are touting positive news. ITMN exploded in late-August after the company announced that its Actimmune drug had substantially reduced the mortality rate in lung disease patients. The results weren't good enough to pass FDA regulators, but analysts believe that doctors could still prescribe the drug (which is already approved to treat congenital diseases) to needy patients. This "off-label" use essentially allows ITMN benefit from the recent positive data, regardless of what the FDA decides. The latest news has been positive as well: On Monday ITMN announced it was seeing progress in efforts to produce an Actimmune drug that only has to be taken once a week. Today the company announced that it had entered into a deal with INHL to develop a hepatitis C drug. The promising outlook for Actimmune has helped to push ITMN to multi-month highs. The past week has seen shares pull back and retrace some of its gains. What grabbed our attention was the way shares bounced from the 200-dma ($30.23) on Tuesday. We think this could be the beginning of a rebound that eventually takes ITMN back to the $35.00 region. This view is supported by the daily stochastics (5,3,3), which have reached oversold levels. The last two oversold stochastic reversals heralded impressive rallies. We're also satisfied with the risk/reward ratio that ITMN offers. This play is active at current levels, with an official profit-target of $34.94. Our stop will be set at $29.74, safely below the 200-dma. Those who are more aggressive could use a stop just under the $29.00 mark. On another risk-related note, it's worth mentioning that drug stocks are subject to sharp and volatile moves. A negative news event isn't likely, but the chance is always there. Conservative traders may want to take smaller positions or move on to another play. Click here for an annotated chart of ITMN: Picked on October 8th at $31.39 Results since picked: +0.00 Earnings Date 10/23/02 (unconfirmed) ================================================================= 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 Tuesday 10-08-2002 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 Closed Bearish Plays: ACS Stock Bottom / Active Trader New Bullish Plays: ITMN Bearish Play Updates: GM, KMB, NEU, RYL Closed Bearish Plays: FLIR, LNC, MWRK High Risk/Reward Closed Bearish Plays: BGEN Trading Ideas Value Plays With Bullish Signals Breakout to Upside (Stocks $5 to $20) Breakout to Upside (Stocks over $20) Breakout to Downside (Stocks over $20) Recently Overbought With Bearish Signals (Stocks over $20) ================================================================== Net Bulls (NB) Tech Stock section ================================================================== =============== NB Closed Plays =============== -------------------- Closed Bearish Plays -------------------- Affiliated Cmptr Srvcs - ACS - cls: 37.15 chg: +1.12 stop: 36.51 When shares closed on Monday at $36.03, we felt that the stock was within striking distance of trading at or below our exit price of $35.50. However, given the sharp declines, the stock's oversold nature, the VIX near resistance, we lowered our stop on ACS Monday night to $36.51 in hopes of protecting our gains. Fortunately, we did because the stock did manage a bounce this afternoon with the broader markets but not before trading within 38 cents of our target. If you remember our chart from the initial write up, we drew some descending channel lines for ACS. The stock is right at the bottom of its channel and could bounce higher if the market decides to bounce or even trade sideways. There was news today for ACS and the company announced a new one year contract for $18.8 million to service some NASA computers. This did little to really lift the stock price as the news was out this morning and shares didn't rally until this afternoon. As it stands now, we're still bearish on ACS but this is not a good risk/reward entry point for new bearish plays. A failed rally at $40.00 or the top of the channel would be a much better play. Those investors still interested in following ACS should keep an eye on IBM. IBM, who has a significant services division, was downgraded today by Goldman. The company countered with a share buy back program but then IBM is notorious for buying back its own shares to manage its earnings numbers. Earnings for IBM are October 16th, while earnings for ACS aren't due until Oct. 22nd. Premier is closing the play with a +4.55 move or an 11.0% change. Picked on October 2nd at $41.06 Change since picked: +4.55 Earnings Date 10/22/02 (unconfirmed) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== ============ AT New Plays ============ ----------------- New Bullish Plays ----------------- InterMune Inc - ITMN - close: 31.39 change: +1.11 stop: 29.74 Company Description: InterMune is a commercially driven biopharmaceutical company focused on the marketing, development and applied research of life-saving therapies for pulmonary disease, infectious disease and cancer. (source: company press release) Why We Like It: The overall drug sector has proved to be surprisingly strong over the past two weeks. The Dow Jones is stuck in an extended downtrend and has fallen by 2.3% since September 24th. Meanwhile, the DRG.X pharmaceutical index has actually risen by 3.6% over the same time period. The lack of any high-profile disasters within the sector (FDA rejections, earnings warnings, etc) has helped the bulls to find some traction. But investors are also taking notice of companies like InterMune that are touting positive news. ITMN exploded in late-August after the company announced that its Actimmune drug had substantially reduced the mortality rate in lung disease patients. The results weren't good enough to pass FDA regulators, but analysts believe that doctors could still prescribe the drug (which is already approved to treat congenital diseases) to needy patients. This "off-label" use essentially allows ITMN benefit from the recent positive data, regardless of what the FDA decides. The latest news has been positive as well: On Monday ITMN announced it was seeing progress in efforts to produce an Actimmune drug that only has to be taken once a week. Today the company announced that it had entered into a deal with INHL to develop a hepatitis C drug. The promising outlook for Actimmune has helped to push ITMN to multi-month highs. The past week has seen shares pull back and retrace some of its gains. What grabbed our attention was the way shares bounced from the 200-dma ($30.23) on Tuesday. We think this could be the beginning of a rebound that eventually takes ITMN back to the $35.00 region. This view is supported by the daily stochastics (5,3,3), which have reached oversold levels. The last two oversold stochastic reversals heralded impressive rallies. We're also satisfied with the risk/reward ratio that ITMN offers. This play is active at current levels, with an official profit-target of $34.94. Our stop will be set at $29.74, safely below the 200-dma. Those who are more aggressive could use a stop just under the $29.00 mark. On another risk-related note, it's worth mentioning that drug stocks are subject to sharp and volatile moves. A negative news event isn't likely, but the chance is always there. Conservative traders may want to take smaller positions or move on to another play. Click here for an annotated chart of ITMN: Picked on October 8th at $31.39 Results since picked: +0.00 Earnings Date 10/23/02 (unconfirmed) =============== AT Play Updates =============== -------------------- Bearish Play Updates -------------------- General Motors - GM - cls: 33.60 chg: -2.28 stop: 34.06 *new* Quite a busy day for GM! Last night's installment of CNBC's "After Hours" featured an extended interview with General Motors CEO Rick Wagoner. Mr. Wagoner didn't unleash any bombshells, but did acknowledge that that his company (and the auto industry in general) is facing some very tough challenges. GM's multi- billion dollar pension and health care obligations in particular were addressed, but no specific solutions were outlined. This may have turned off investors, but the real blow came this morning when an Italian newspaper reported that Wagoner said the he expects 2003 vehicle sales to decline. Previous guidance had been for a flat 2003. This news sent GM into a freefall during the first two hours of trading, with shares dropping to an intraday low of $33.07. Bargain hunters moved in shortly after noon when the company released a press release that implicitly denied that Wagoner had made any comments regarding visibility in 2003. Judging by the way GM rolled over from the $35 level, Wall Street didn't seem very impressed with this denial. As far as our play is concerned, we're very pleased with the current 11% gain. We'd dropped our stop down to $34.06 in order to protect the lion's share of these hypothetical profits. We've also set an official profit target at $32.06, which would be a 15% move from our entry point. Due the stock's current oversold condition, we would not recommend opening new short positions. Picked on October 3rd at $37.77 Results since picked: -4.17 Earnings Date 10/15/02 (unconfirmed) --- Kimberly Clark - KMB - cls: 54.75 chg: -0.57 stop: 56.06 *new* Our patience has been rewarded. After waiting two weeks for KMB to live up to our bearish aspirations, the stock is finally breaking down. Today's action was encouraging for the bears, as shares set a new relative low and closed under the psychologically-important $55.00 level. KMB underperformed both the Dow Jones and FPP.X forest/paper products index, the latter of which finished solidly in the green. The overall technical picture suggests that shares will soon reach our profit-target at $52.51. However, the deeply oversold FPP.X looks like it could extend today's bounce. KMB may be weak, but the bears would have a tough time dragging it lower if the paper sector is rallying. With this in mind we've lowered our stop to $56.06, three cents above today's high. Given the stock's proximity to our profit- target, we would not advise taking new entries at this time. Picked on September 20th at 56.85 Results since picked: -2.10 Earnings Date 10/22/02 (unconfirmed) --- Neuberger Berman - NEU - close: 24.39 chg: +1.31 stop: 26.51 We knew this would happen sooner or later. The market begins to run out of sellers and bears begin to cover some shorts and take some profits off the table. Just as a bull market has corrections, so does a bear market. The XBD.X broker/dealer index bounced off its 320 lows while shares of NEU rallied with most other investment related issues. We do not see this as a reversal but would not look to enter new positions until we see shares begin to fail at potential resistance of $25.00 or $26.00. Volume was light and despite the uptick in several of the oversold indicators we still expect lower prices ahead. Picked on October 5th at $24.01 Results since picked: -0.38 Earnings Date 10/22/02 (confirmed) --- Ryland Group Inc - RYL - close: 34.98 change: +1.88 stop: 37.26 RYL continued its losing ways on Monday, as shares set a fresh multi-month low of $32.61. A breakdown appeared to be in the works this morning, but the bears were unable to push the stock below $32.68. Shares moved higher with the broader market in afternoon trading, as investors cheered on news that President Bush would enact the Taft-Hartley act to temporarily halt the West Cost dockworkers strike. Tomorrow's action may be very telling for this short play. Another failed rally above the $35.00 mark could lead to a retracement of today's gains. On the other hand, continued market strength could scare more shorts into covering. If this occurs, conservative traders may want to use a stop just above today's high ($32.58) to minimize their upside risk. We would not advise new bearish entries until RYL breaks under Monday's low. Picked on October 4th at 34.65 Results since picked: -0.33 Earnings Date 10/22/02 (confirmed) =============== AT Closed Plays =============== -------------------- Closed Bearish Plays -------------------- FLIR Systems - FLIR - cls: 30.63 chg: +2.41 stop: 29.01 The bears piled on FLIR yesterday after the stock fell through intraday support at $31. There wasn't any apparent news to push the stock lower, but the technical breakdown really seemed to spook investors. With the stock sharply lower from our entry point, we elected to use a tight stop at $29.01. Our play was closed for a 12.7% gain when FLIR gapped slightly higher with the broader market on Tuesday morning. The stock also seemed to benefit from news that FLIR Systems had been selected by the U.S. government to assist state and local law enforcement agencies with their thermal imaging technology. From a technical perspective, shares were deeply oversold and looked overdue for some short-covering. We would not recommend holding bearish positions at this time. Picked on October 2nd at $33.52 Results since picked: +4.27 Earnings Date 07/24/02 (confirmed) --- Lincoln National - LNC - cls: 26.60 chg: +0.69 stop: 27.68 Fourteen measly cents! That's how close LNC came to our exit target ($25.06) on Tuesday. Shares fell to a new 52-week low this morning on news that the President and CEO of Delaware Investments and Lincoln National Investment Companies (both subsidiaries of LNC) had resigned. Shares looked poised to test the $25.00 level, but the selling pressure abated when the broader market began to rise in afternoon trading. LNC finished in positive territory, creating a bit of conundrum for this play. Do we keep the play open with our current stop and hope for another dip to the $25.00? The downtrend is still intact, but the oversold oscillators indicate that shares could continue to bounce. We could lower our stop, but we'd prefer to lock in our hypothetical profits before the bulls have a chance to push the stock any higher. That's why we've decided to close this play at current levels ($26.60) for a gain of 7.9%. Considering that LNC has bounced near the bottom of its short-term descending regression channel, it wouldn't be surprising to see a rally back to the $28-$30 region. Picked on October 3rd at 28.89 Results since picked: +2.29 Earnings Date 10/30/02 (confirmed) --- Mothers Work - MWRK - close: 30.80 change: +1.30 stop: 30.06 MWRK wasn't working very well for the bulls on Monday. Shares were slammed as investors reacted to the Sears earnings warning. The stock set a new relative low and closed below round-number support at $30.00. This had us anticipating a decline to our profit-target at $26.60. However, shares mustered a strong bounce this morning after traders reacted positively to the company's latest sales data. Mothers Work reported that September same-store sales rose by 2.6%, and total net sales rose 16.5% on a year-over-year basis. Not exactly blowout numbers, but these days it can be difficult to find retailers that are experiencing growth in business. Our stop at $30.06 was reached shortly after the opening bell, closing this paper trade for a profit of 10.2%. The oversold daily stochastics suggest that MWRK may continue higher in the short-run, but a failed rally near the 50-dma ($33.72) might offer another bearish entry point. Picked on October 4th at $33.49 Results since picked: +3.43 Earnings Date 07/15/02 (confirmed) ================================================================== HIGH RISK/HIGH REWARD (HR) section ================================================================== =============== HR Closed Plays =============== -------------------- Closed Bearish Plays -------------------- Biogen Inc. - BGEN - close: 29.63 change: +0.44 stop: 30.06 That's the way it goes. On Monday we were looking at BGEN and decided that if the stock wasn't going to move our direction we were going to put a tight stop on it. After all, it wasn't moving against us but it was displaying some relative strength. We choose to look at a 30-minute interval chart. By doing so we could see the intraday highs and lows. Chart readers will see the trend of lower highs from mid-August through yesterday, October 7th. By attaching a trendline across these tops we could clearly identify where the stock might break this trend. The afternoon rally today that took it above the $30 level did just that - break the short-term trend. While we have been stopped out of the play with a $1.37 loss we will continue to keep an eye on the stock. Picked on September 30th at $28.69 Results since picked: -1.37 Earnings Date 10/18/02 (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 TCLP TC Pipelines 27.45 +0.55 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change
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