PremierInvestor.net Newsletter Monday 12-23-2002 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: A Lump Of Coal For Retail Investors Watch List: CSCO, LU, HD, Q, and QCOM Play of the Day: No P.O.D. for 12/24 ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 12-23-2002 High Low Volume Advance/Decl DJIA 8493.29 - 18.03 8554.04 8462.64 1081 mln 1703/1514 NASDAQ 1381.69 + 18.64 1384.29 1358.29 1162 mln 1855/1500 S&P 100 456.06 + 0.60 459.28 453.64 totals 3558/3014 S&P 500 897.38 + 1.62 902.43 892.26 RUS 2000 389.73 + 2.85 390.05 385.41 DJ TRANS 2321.73 - 2.49 2330.70 2301.92 VIX 29.33 - 2.14 31.44 29.33 VIXN 45.89 - 2.62 49.83 45.89 Put/Call Ratio 0.58 ****************************************************************** =========== Market Wrap =========== A Lump Of Coal For Retail Investors by Kent Barton Mall parking lots across the country were jammed to the gills today as Holiday shoppers scurried to make some last-minute purchases. Anyone who braved the crowds and long lines would probably attest that retail business is humming along just fine. Unfortunately for investors within the group, there's a whole lot of evidence to the contrary. The broader market opened flat this morning as traders digested another round of economic data. Durable goods purchases bounced back with a 1.9% gain in November, following the previous month's 1.3% decline. A large portion of the gains was attributed to strong auto sales, which had been dropping from Q3 levels. New car purchases also helped to push personal spending to a 0.5% gain, which was in-line with analyst estimates. The University of Michigan index, one of the key gauges of consumer sentiment, came in at 86.7, one tenth better than expectations. Conventional wisdom dictates that strong consumer spending is absolutely crucial if the economy is going to avoid a double-dip recession. Today's numbers don't indicate any reduction in spending, but you have to wonder how well those lagging indicators reflect the current situation. Monday's news out of the Wal-Mart camp paints a far more bearish picture. Shares of the retail behemoth hit a new relative low after the company said that it expects December same-store sales to come in at the lower end of its 3%-5% growth forecast. Adding insult to injury, Federated Department Stores (the parent company of Bloomingdale's and Macy's) said they would probably miss their November/December sales targets. The company said that sales didn't increase as much as they had expected during the third week of December. After-hours news wasn't much better for retail bulls. Citing weak sales of sporting goods and apparel, Target (TGT) said that same-store sales had fallen well below expectations for the third consecutive week. Hmmmm...Slower-than-expected holiday sales for the two largest discount retailers and a frigid December for one of the leading department stores. If you're getting a distinctly bearish vibe from the entire sector you're not alone. The retail index has been in a steady decline for several weeks and today's news pushed the RLX.X to new relative lows. Wall Street, which is always looking forward and trying to factor in future economic developments, seems to be pricing in a decline in consumer spending. The fact that Americans aren't enthusiastically whipping out their pocketbooks during the Holiday season doesn't bode well for first quarter of 2003. Annotated chart - Retail Index With WMT leading the way lower, the Dow Jones was hard-pressed to remain in positive territory. A morning rally that took the index above its 50-dma (8525) quickly petered out near 8550. The final two hours of trading had the Dow trading in a small range without any clear direction. Small gains in MSFT and INTC helped to keep the Industrials above short-term support in the 8350-8400 region but news that Moody's has downgraded MCD due to their first quarterly loss in 47 years and the press release from Citigroup for its $1.3 billion charge did their best to make it hard on the bulls to get any momentum. Annotated chart - Dow Industrials: Tech stocks as a whole faired better, as the semiconductor index moved through resistance and finished in the green by 2.7%. The SOX.X has trended higher over the past three sessions and looks poised to test its 50-dma at 312. Looking at the broader tech sector today's 18-point gain in the NASDAQ wasn't anything to write home about, it's interesting to note that the index was able to break above its 50-dma, which acted as resistance on Friday. This level roughly coincides with the 38% retracement from the October low to December high. Annotated chart - NASDAQ: Rebalanced trading in the NASDAQ-100 commenced today. Former tech high-flyers such as AMCC, CHTR, VTSS, and PMCS have been cast off in favor of companies that are actually turning a profit. ROST, EXPD, XRAY, LAMR, WFMI, FHCC, PETM, PIXR, APCC, FAST, CHRW, PTEN, RYAAY, HSIC and GNTX are the additions. Mutual funds still have a few days left to make adjustments, so we may see some added volatility in those stocks for the duration of the week. Speaking of fallen angels in the tech sector, Inktomi (INKT) shot higher by 36% today after Yahoo (YHOO) announced that it would buy the software company for $235 million, or $1.65 per share. Sharp-minded traders might remember that INKT topped out at a whopping $241 per share in early-2000. Today's investors seemed to be pleased with the deal - YHOO finished the session with a 3.7% gain. After the closing bell this afternoon, a federal judge ruled that Microsoft's Windows operating system would have to include Sun's Java programming language. SUNW posted a gain of roughly 10% in after-hours trading. We'll see how this plays out tomorrow, but thus far it doesn't look like this news will weigh too heavily on Mr. Softee. Shares finished the extended session with a loss of only 10 cents. Over on Capital Hill, life began to return to normal (relatively speaking...we're talking about Washington D.C. here) following Trent Lott's resignation as Senate majority leader on Friday. Sen. Bill Frist was officially chosen as his replacement this afternoon. The GOP, and the White House in particular, can be very pleased with how things turned out. In contrast to Lott, who initially opposed Bush's candidacy in 1999, Frist has close working relationship with the Administration. This will give the President added leverage in pushing through his agenda, including larger tax cuts. Crude oil futures (cl03f) hit a new multi-month high today after OPEC decided not to increase output until their price benchmark remains above the $22-$28 range for 20 trading days. The cartel seems to view the current Venezuelan labor strike (which has entered its fourth week) as a temporary problem that has artificially reduced supply. As it stands now, the country is only exporting 10% of its previous output. The current stalemate has President Huge Chavez (who thus far has maintained military support) pitted against a widespread opposition that includes several high-level oil executives. A resolution of the strike would likely take a few dollars of premium out of crude futures. Of course the longer-term worry for OPEC is the United States' looming war with Iraq. Continued hawkish rhetoric from the White House and extensive military exercises in Kuwait make an invasion appear inevitable. At this point it's hard to imagine that crude will retest its November lows anytime in the near future. The steady beating of war drums may be helping to keep a lid on the major market indices as well. Wall Street loathes uncertainty, and nobody knows how an invasion of Iraq would play out. A quick victory could send stocks sharply higher. Investors were so sure of success during the first Gulf War that the market actually rallied when the initial air campaign began. The current situation is quite different. The ouster of Saddam Hussein will entail a takeover of Baghdad. Fighting in an urban environment against a motivated Iraqi army protecting their homeland, U.S. forces could face a much more difficult task than the relatively straight-forward desert warfare that took place in 1991. A prolonged, expensive war in Iraq would have a disastrous effect on the market. These are just some of the concerns that Wall Street has to contend with. In any case, continued high oil prices will not have a positive impact on the economy. The dearth of any noteworthy economic data or earnings reports for the rest of the week will put the focus on these geo- political situations. But short of any major developments, tomorrow's abbreviated trading day will most likely see extremely thin volume. The last time the Dow posted a loss on the day prior to Christmas was in 1997. What exactly gives the market this bullish bias during the holidays? Institutional traders go on vacation, leaving their less experienced counterparts in charge with one basic command: "Don't screw anything up." Without the major players taking large positions and pushing the market around, retail investors have an abnormally large influence. On a whole this group tends to trade with a sharply bullish bias. Throw in a little seasonal cheer, and you've got a recipe for a Santa Claus rally. Of course there are no guarantees, and the Grinch (dressed in a bear suit) might be eagerly awaiting another failed rally. Those who aren't taking a well-deserved day off tomorrow should pay attention to the aforementioned short-term resistance levels. ================================================================== 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 --------------------------------- Cisco Systems - CSCO - close: 13.44 change: +0.17 WHAT TO WATCH: If a Santa Claus rally does emerge then keep an eye on your favorite tech stock. Retail investors tend to play their favorites and CSCO might be a short-term mover. The level to watch is the 200-dma/$14.00 level. The 200-dma is currently at 13.85 but with a 15-cent difference between it and the round- number dollar mark they might as well be the same. Shares of CSCO bounced off its 50-dma three days ago and the MACD looks ready to roll into a new bullish signal. If a breakout occurs there is stronger resistance between $15.00 and $15.50. If you're not able to scalp a dollar to $1.50 then you may want to pass on this one. --- Lucent Tech - LU - close: 1.47 change: 0.08 WHAT TO WATCH: A couple of years ago Lucent investors would not even have noticed an 8-cent move. Today it is worth 5.75%. This previous tech darling has also bounced from its 50-dma three days ago and is poised to trade above the $1.50 mark. Unfortunately the stock appears to have potential resistance at $1.60, $1.80, $2.00. Trade carefully. It's been prone to big percentage point spurts. --- Qwest Communications - Q - close: 5.69 change: +0.39 WHAT TO WATCH: Wow! Talk about making a comeback. Shares of Q have rebounded from the $1.00 level in mid-August to over $5.00 in the last few months. The stock appears to be trading in a rising channel. The breakout above $5.00 looks strong but this may not be the best time to jump on the bandwagon even though shares could inch towards the $6.00 mark before retreating. Our plan would be to look for a dip back to the $5.00 area before considering a stop-protected long position. --- Home Depot - HD - close: 24.45 change: -0.38 WHAT TO WATCH: This is not a pretty chart. Despite the lowest interest rate for the housing market in decades, current home sales are not boosting shares of HD. The stock is making new December lows and fast approaching its November and October lows. Shares tend to move kind of slow but if you're bearish on the stock/group it could be worth watching for a short. --- QUALCOMM - QCOM - close: 38.99 change: +1.31 WHAT TO WATCH: Now this is an interesting chart. The telecom/wireless index (YLS.X) has been able to maintain its bullish trend despite the big pull back in recent weeks. We see a similar pull back in QCOM but it could be almost over. Shares of the wireless giant appear to be in a rising channel and the stock has been trying to maintain support near its 50-dma (yes, it was pierced pretty hard on Friday but it rebounded). The last three weeks look like a slow consolidation of previous gains and we'd consider a long position if QCOM broke out above the $40 mark. Its MACD should confirm our suspicions if this breakout occurs. Our short-term upside target would be $45.00. =============== Play-of-the-Day =============== No P.O.D. for 12/24 ================================================================= 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 Monday 12-23-2002 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 ================================================================= 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) ================= 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 ICPT Intercept Inc 17.43 +0.87 PZZA Papa John's Intl 27.57 +0.82 NHY Norsk Hydro ADR 44.50 +0.62 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change SLVN Sylvan Learning Sys. 16.02 +1.08 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change MATK Martek Biosciences 26.32 +1.38 IGEN IGEN Intl. 44.42 +2.46 NBIX Neurocrine Biosciences 46.86 +2.61 RGLD Royal Gold 23.96 +1.71 CRTK Coorstek Inc 25.48 +2.28 RCEN RSCS Connection 21.41 +1.01 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change URBN Urban Outfitters 22.49 -1.09 SCSC Scansource Inc 48.31 -1.05 RTH Retail HOLDRS 69.20 -1.46 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change
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