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Daily Newsletter, Tuesday, 12/31/2002

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PremierInvestor.net Newsletter                 Tuesday 12-31-2002
                                                   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:  Finally It's Over

-----------------------------------------------------------------
U.S. Market Numbers
-----------------------------------------------------------------
MARKET WRAP  (view in courier font for table alignment)
-----------------------------------------------------------------
      12-31-2002   Change   %Chg     High     Low     Range
DJIA     8341.63 -1,679.97 -16.76% 10,673.10 7,197.49  3,475
NASDAQ   1335.52 -  614.88 -31.52%  2,074.32 1,108.49    965
S&P 100   444.75 -  139.53 -23.88%    600.80   384.96    216
S&P 500   879.82 -  268.26 -23.36%  1,176.97   768.83    408
RUS 2000  383.10 -  105.40 -21.57%    523.79   324.90     71
DJ TRANS 2309.96 -  330.03 -12.50%  3,050.40 2,008.31  1,042
VIX        32.03 +    8.74 +37.52%     56.74    18.87     38
-----------------------------------------------------------------

===========
Market Wrap
===========

Finally Its Over

After 12 months of progressively lower peaks and valleys the
major indexes all finished lower for the year, significantly
lower. The much awaited second half recovery fizzled and now
all eyes are focused on the second half of 2003 instead. The
normal holiday rebound died early with the December highs
coming on the first day of the month. Instead of seeing visions
of sugar plums the last month has turned into a holiday version
of nightmare on Wall Street. Somebody please pinch me, I want
to wake up.

Dow Chart - Daily for Year


Nasdaq Chart - Daily for Year



Tuesday began badly with the Consumer Confidence posting an
80.3 for December and well below the consensus estimate of
85.9. The biggest culprit was a serious decline in the current
conditions components but future expectations also declined.
There were some minor improvements like a small uptick in the
number of consumers planning on buying a new car in the next
six months. This is likely impacted by the expiration of the
luxury tax today. Purchasers of luxury cars will now save
thousands of dollars on any future purchase over today's
price. However, confidence is falling most strongly in the
higher income groups aged 35 to 54. This is a reflection of
concern about impact on retirement portfolios by the falling
equity markets. This is not the low for this cycle but it is
very close to the 79.6 low in October. A further drop in the
stock market over the next several weeks could send the
confidence even lower.

Consumers returned to the malls in force with those return
items and a pile of gift certificates. Those post holiday
shoppers managed to swell the Chain Store sales numbers by
+2.1% last week. This was the best weekly gain since May-4th.
Before everyone runs out to buy retail stocks be aware this
is simply a result of shoppers spending the cash and gift
certificates they received on strongly discounted post
holiday sales. This spurt of buying will not go far towards
increasing profits of the retailers although it will help
in reducing excess inventory.

Tech stocks failed to find the green today after the November
semiconductor billings rose only slightly by +1.4% on Monday.
The Americas remained the weakest global region and with Asia
Pacific the strongest. Global sales have continued to grow
very slowly but still are not showing any signs of a real
recovery. Chip sales are still over one third below their
2000 levels. Many of the chips being produced and sold are
being sold below cost to maintain cash flow and keep production
lines open. With no recovery soon there will be an increased
number of plant closings and failure or acquisition of smaller
companies.

Bernie Ebbers, Ken Lay, Martha Stewart and Jack Grubman are
just a few of the names most would rather forget from 2002.
We would also like to forget some of the numbers from the
markets as well. If you noted the numbers at the top of this
article you will see they are for the year and not for the day.
The Dow traded in a 3475-point range from its 10,673 high to
the low of the year at 7197 in October. It eventually settled
with a -17% loss for the year. The Nasdaq performed even worse
with a 965 point range (50%) and a -31% drop for the year.

The individual index numbers are bad but considering the last
three years top loser honors goes to the Nasdaq. Losing -39%
in 2000, -21% in 2001 and -31% in 2002 the Nasdaq has now lost
-73% from its 2000 high. It appears more but each number above
is a percentage drop from the prior year not from the high.
The Nasdaq hit new six year lows in October. The S&P closed
-43% from its 2000 high and for the first time ever all
sectors in the S&P closed down for the year. The Dow posted
the worst December since 1931 and the first three year loss
since the great depression.

It would appear on the surface that the worst is over. Surely
the markets cannot make it four in a row? At least that is
what almost every major analyst is predicting. Of the 67
advisors Business Week surveyed this week only two were not
expecting the markets not to finish higher. I sure wish I
knew how many of those analysts were expecting 2002 to finish
higher one year ago. Obviously you could line up 1000 analysts
with a 99% consensus and still not have them match reality
for 2003. We simply do not know what 2003 is going to bring.

For 2002 all hopes were pinned to a tech/economic revival
in the second half of the year because "it had to happen"
based on prior business cycles. Obviously it didn't and
doesn't have to happen for 2003. I personally think there
is a complete computer replacement wave in our future but
the longer it takes to appear the less impact it will have.
If the economy was to boom in 2003 then pent up buying
demand would surge in a short period of time and help feed
the fire. It would be like throwing an entire arm full of
dry branches on a small fire at once. You would get an
explosion of crackling fire with sparks shooting off in
all directions. This is what happened in 1999 with the Y2K
replacement cycle. There was a specific date by which
everything had to occur.

If the economy continues to drag or even slip back into
a recession in the first half of 2003 then the replacement
cycle will not be everyone moving at once but 100 computers
here, 100 computers there on an as needed basis. This is
the equivalent of breaking up that arm load of dry branches
into matchstick size pieces and feeding them into the fire
one stick at a time. The result is a steady fire but no
big blaze and not much heat.

The problems we are facing in 2003 are many and varied.
Most likely we are 30 days from attacking Iraq. This will
not be dropping megatons of bombs on troops hiding in the
desert but building to building street fighting. The
government is making plans on a short engagement according
to the recent news reports but they are planning on using
250,000 troops. We are not going to move 250,000 troops
across Iraq and into Baghdad and out again in a couple
months. There is always the possibility that Saddam will
suffer an early demise and the war will end quickly. We
should not count on it.

Then there is the problem with North Korea. While they are
grabbing headlines there is little chance of an actual
invasion or attack other than a possible surgical strike
against their reactor complex. (my opinion) They are trying
to trade their nuclear project for even more ransom than
they got from Clinton in 1994.

Either way I think those two events and the next two weeks
of earnings warnings should keep a lid on the markets in
January and early February. By then we will have a better
handle on a potential double dip in the economy. With
most major indicators showing only a minimal growth in the
4Q (normally strong) there is always a possibility the 1Q
could slip back into the negative column again. This would
depress the markets and cause another round of plant closings
and layoffs. This is the biggest problem as I see it but
the Fed is aggressively pumping money into the system to
keep it afloat. It is a race to see if they can pump enough
to keep it alive before dies from exhaustion. Lately it
appears they are trying to inflate a balloon with a hole
in it. The harder they blow the faster it leaks.

So, my prognosis for the year is weakness in January for
various reasons. The economy and the outcome of the war
will decide our fate for February-March and earnings in
April will decide if the summer doldrums come early.
Everyone will hold their breath toward the end of the
2Q with eyes focused on signs of the expected second half
tech rebound. If we see the signs appearing then we could
be off to the races. If we don't see the signs then the
markets could set up for a potential fourth year down.
Nobody wants to face that reality but it does exist.

There is a growing body of investors that believes the
Kondratieff Winter cycle will continue until all the debt
has been flushed out of the system. With $35 trillion in
debt choking the economy this is too much overhead for
companies and consumers to bear. Major bankruptcies are
starting to reduce the corporate side with WCOM, ENE,
CNC, KM, UAL, etc leading the way. Consumers are fighting
the battle as well with home foreclosures at a 30 year high
and auto repossessions up +30% this year alone. Unemployment
is expected by some to rise to 7% and this will put even
more pressure on the consumer sector.

Whatever your view of 2003 it should be easy enough to see
that the crystal ball is very cloudy. Everybody is counting
on a very back end loaded forecast and as we saw in 2002
it was so heavily loaded that we blew out the tires. The
same conditions are setting up for 2003. Despite market
direction in 2003 there will be stocks going up and stocks
going down. Our job is to find the best opportunities to
apply the right amount of capital at the right time to
capitalize on those opportunities. We look forward to the
coming year and see it as one of tremendous potential
regardless of the direction. I thank our readers for their
support in 2002 and look forward to becoming an even more
valuable part of your investment arsenal in 2003. In addition
to the current options strategies we will be adding E-Mini
futures trading to the monitor on January 13th. Hope to see
you there. A very happy and prosperous New Year to everyone!

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor

For more information on the Kondratieff Winter:

(http://www.financialsense.com/transcriptions/Gordon.htm)




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send email to Contact Support
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DISCLAIMER
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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

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Copyright ) 2002  PremierInvestor.net. and
The Premier Investor Network.
Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter                  Tuesday 12-31-2002
                                                    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:

Stock Bottom / Active Trader
  Closed Bearish Plays:   COST

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)


==================================================================
Stock Bottom / Active Trader (AT) section
==================================================================

===============
AT Closed Plays
===============

  --------------------
  Closed Bearish Plays
  --------------------

Costco Wholesale - COST - cls: 28.06 chg: +0.04 stop: 28.32

It seemed like all the necessary ingredients were in place for a
breakdown in COST.  The stock had fallen below every recent
support level.  The p-n-f chart was showing a triple-bottom
breakdown.  News from the major retailers was predominantly
bearish.  But despite all these factors working in our favor,
COST trended slowly higher over the past week without ever
threatening to breakdown to new lows.  With the stock firming up
above $27.00 and the oscillators beginning to curl higher, we
took a conservative approach and reduced our stop-loss to $28.32.
Our play was closed for a loss of 2.6% when that level was
violated on Tuesday morning.  Shares actually came within just
two cents of our stop on Monday afternoon, following Wal-Mart's
announcement that it expects December same-store sales to
increase by 3%.  The company also said that it expects weaker
sales at its Sam's Club stores.  Although WMT gave no specific
reason for this development, some investors may have perceived
the weak sales as a sign that COST is gaining market share.  Of
course, one could just as easily make the argument that the poor
sales as Sam's Club are a result of market challenges that Costco
must also contend with.  In any case, we're content to close this
play for a small loss.  We'll keep COST on our radar screen and
watch for an eventual breakdown.  P-n-f enthusiasts will note
that COST is still on a triple-bottom sell signal.

Picked on December 18th at $27.56
Results since picked:       -0.76
Earnings Date:           12/12/02 (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

EME     Emcor Group                53.01     +0.60
JNY     Jones Apparel Group        35.44     +0.93
HVT     Haverty Furniture          13.90     +0.55
CKH     Seacor Smith               44.50     +1.10
KMB     Kimberly Clark             47.47     +0.51
POWL    Powell Industries          17.08     +0.91
NRRD    Norstan Inc                 5.03     +0.70

---------------------------------------
Breakout to Upside (Stocks $5 to $20)
---------------------------------------
Ticker  Company Name               Close     Change
NFLX    Netflix Inc                11.01     +1.02
TYC     Tyco Intl.                 17.08     +1.73
AIT     Applied Industrial Tech.   18.90     +1.51

---------------------------------------
Breakout to Upside (Stocks over $20)
---------------------------------------
Ticker  Company Name               Close     Change

AME     Ametek Inc                 38.49     +1.07
HON     Honeywell Intl             24.00     +1.53
ABT     Abbott Laboratories        40.00     +2.90

-------------------------------------------
Breakout to Downside (Stocks over $20)
-------------------------------------------
Ticker  Company Name               Close     Change

ZOLL    Zoll Medical Corp          35.67     -1.99
KMG     Kerr-Mcgee Corp            44.30     -1.45

-----------------------------------------
Recently Overbought With Bearish Signals (Stocks over $20)
-------------------------------------------
Ticker  Company Name               Close     Change

COCO    Corinthian Colleges        37.86     -0.48
TMP     Tompkins Trustco           44.10     -1.26
AFCE    AFC Enterprises            21.01     -0.35




=================================================================
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.

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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