PremierInvestor.net Newsletter Wednesday 01-22-2003 section 1 of 2 Copyright ) 2003, 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: Slipping and Sliding Watch List: EDS, LU, MSFT, AMGN Play of the Day: Buying Opportunity? ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 01-22-2002 High Low Volume Adv/Dec DJIA 8318.73 - 124.17 8444.61 8306.59 1542 mln 1171/2080 NASDAQ 1359.48 - 4.77 1379.61 1358.23 1491 mln 1293/1957 S&P 100 452.10 - 4.68 445.67 445.31 totals 2464/4037 S&P 500 878.36 - 9.26 889.74 877.64 RUS 2000 380.53 - 2.64 383.44 380.20 DJ TRANS 2213.63 - 67.60 2274.31 2213.50 VIX 32.01 + 1.48 32.40 30.56 VIXN 44.16 + 0.92 45.06 42.54 Put/Call Ratio 0.73 ****************************************************************** =========== Market Wrap =========== Slipping and Sliding by Kent Barton Last night the stage was set for an oversold bounce in the tech sector. After watching the NASDAQ give back nearly 7% over the past four sessions, the bulls could've rallied around Tuesday evening's strong earnings report from Motorola and the better- than-expected semiconductor book-to-bill number. Positive news from JDA Software (JDAS) and Lucent (LU) also created a favorable climate for a short-covering rally. The Composite did manage to post a decent gain during the middle of today's session, but sputtered out in late-afternoon trading and finished its fifth consecutive loss. What happened? For starters, Motorola took much of the wind of the bulls' sails this morning when they released cautious comments regarding the next quarter. MOT may have had a great Q4, but these days it's the forward-looking guidance that's of paramount importance for investors. Shares of the communications equipment provider posted a loss of 2.5%. However, the more vexing problem for tech investors was a complete lack of strength in the rest of the equity market. The bulls just couldn't seem to find any traction in the face of a steady drift lower in the key non-tech sectors. The market is attempting to scale a rather large wall of worry, and several of today's earnings reports made for a very slippery journey. Daily chart - NASDAQ Composite: While the weak technical picture pictured above certainly doesn't inspire much bullish confidence, news after the bell is likely to give the NASDAQ an upward bias tomorrow morning. Shares of Qualcomm were ticking higher by more than 4% in after- hours trading after beating estimates by four cents and raising its Q2 guidance to 34-35 cents/share. The consensus expectation was for earnings of 30 cents/share. The company also raised its 2003 top-end EPS estimates from $1.20 to $1.39. Strong earnings and upside guidance...Not too shabby! This news could help the NASDAQ to find a bid on Thursday. Especially considering how short-term oversold the market is. Texas Instruments (TXN) was also rising in the extended session after the company reported earnings that were three cents better than expectations. Strong demand during the final weeks of 2002 was largely responsible for the upside surprise. TXN also updated its Q1 outlook and said they are now expecting a result of six cents, "plus or minus a few cents." Analysts had been looking for three cents/share in the first quarter. Meanwhile, fellow chip stock Altera was trading slightly lower following their fourth-quarter announcement. ALTR beat estimates but gave a Q1 estimate that was somewhat less than expected. While the book-to-bill number was largely ignored today, the TXN data supports the idea that demand has been picking up within the semiconductor industry. Of course on the other hand you have Intel cutting capex spending and AMD doing its best impression of a cliff diver. But at the very least, it looks like tonight's news could trigger a short-term bounce in the SOX.X. Daily chart - SOX.X semiconductor index: Non-tech earnings also continued in earnest today as many more high-profile companies reported their quarterly results. Banking behemoth J.P. Morgan kicked things off with a fourth-quarter loss of $0.20/share. Factoring in a 13-cent restructuring charge, this was in-line with expectations. JPM finished the session with a 2.8% loss and closed just above its 50-dma. Meanwhile, fellow Dow component Eastman Kodak offered up a snapshot of severe fundamental weakness after missing earnings by 2 cents and guiding lower for the first quarter. The company also announced additional job cuts. EK was whacked for a loss of nearly 12%, contributing to a triple-digit decline in the Industrials. Pfizer (PFE) fared much better with its quarterly report and beat estimates by a penny. The company recorded a 46% increase in net income, thanks in large part to strong drug sales. This news wasn't enough to keep the DRG.X pharmaceutical index out of negative territory. Another earnings-induced decline was seen in shares of General Dynamics. As you might expect, the company's defense division did quite well. Pentagon expenditures on warships, weapons systems, and military vehicles raised the company's profit. Unfortunately for shareholders, GD's aerospace unit saw a huge revenue decline related to weakness in the business jet market. The bottom line showed a profit of $1.21/share, 12 cents below than expectations. Shares lost 12% after plummeting through long- term support near $72. Speaking of jets, the XAL.X airline index was pushed into a nosedive yesterday after Northwest Airlines (NWAC) reported a quarterly loss that was 41 cents wider than consensus expectations. However, it was this morning's announcement from AMR that sent the sector into an utter tailspin. The world's largest airline reported a narrower fourth-quarter loss and a modest increase in revenue. Those are decent results, but Wall Street is far more concerned with the outlook for future growth. Unfortunately that outlook is extremely gloomy. According to AMR's Chairman and CEO Don Carty, "Clearly, results such as the ones we reported today are unsustainable." Carty went on to state that a "permanent shift" in the airline industry would demand a reduction in annual costs by at least $4 billion. Talk about a Catch-22! AMR must aggressively cut costs in order to avoid the same fate as UAL...But these reductions will make continued revenue growth extremely hard to come by. This applies for most of the other major airline companies as well. Investors responded by slashing nearly one quarter off of AMR stock. On the other end of the spectrum, Southwest Airlines, one of the few profitable carriers, reported earnings that were 2 cents better than expectations. The company still had a very difficult quarter and suffered a 33% decline in net income. LUV finished with a 4% loss. Daily chart - XAL.X airline index: Airlines (and the transportation sector in general) are also being pressured by the sustained high price of oil. February crude oil futures (cl03g) reached new relative highs and closed above $34.00/barrel. Yesterday the first signs of cracks in the Venezuelan strike appeared when tanker captains agreed to go back to work. This should help to boost the country's oil exports from the current amount that's trickling out. But with 90% of oil workers remaining on the picket line, there's still no end in sight for the labor stoppage. Sector giant Sclumberger missed earnings by a nickel, citing "the absence of any significant growth in energy demand." This news pushed both the OIX.X oil index and OSX.X oil service to multi-week lows. Of course the other major catalyst for rising oil prices is the looming war with Iraq. During a speech in Missouri today President Bush reasserted that the country has weapons of mass destruction. But unless the U.N. inspectors find the proverbial "smoking gun," he'll face an uphill battle in finding international (and domestic) support for an invasion. Meanwhile, some pundits continue to speculate that Saddam Hussein might relinquish his power and go into exile with full immunity from persecution related to his various war crimes. Obviously this would be the optimal solution for both the U.S. and Iraq, not to mention the equity market. But as the saying goes, if it sounds too good to be true...it probably is. The chances of Hussein willingly stepping down are next to nil. We're talking about a power- hungry dictator who idolizes Josef Stalin and once ordered an assassination attempt on his own son. Perhaps a coup within his regime would be more likely, but in the past he's managed to squash any threats from within. Everything will be coming to a head next week with Bush's State of the Union address on the 28th, one day after the critical UN deadline. The related uncertainty has made it very easy for potential bulls to retract their buy orders and play the waiting game. The growing geo-political tension is also reflected in the volatility index (VIX.X), which has moved sharply higher over the past week. Technically, the Dow and NASDAQ are both looking painfully oversold on a short-term basis, and the latter index might possibly find some buying on the positive TXN and QCOM news. The NASDAQ seemed to be held back by the rest of the market today and should be able to move back towards the 1400 area on Thursday if the overall equity climate is more favorable. Meanwhile, the Dow is trading just above support in the 8200-8300 range. It would take a serious bearish effort to push the index below this region. Daily chart - Dow Jones Tomorrow will bring another round of earnings. Noteworthy announcements include Dow components CAT and T before the bell, followed by tech heavyweights AMZN, AMGN, and KLAC after the market closes. Barring any major downside surprises, the major indices (and the tech sector in particular) look poised to retrace some of their recent losses. Short-term traders might be able to take advantage of such a rebound, but bear mind in that any sustainable, multi-day rally probably won't happen ahead of next week's UN deadline. ================================================================== 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 --------------------------------- Electronic Data Systems - EDS - close: 16.76 change: -0.19 WHAT TO WATCH: We had EDS on the watch list (radar screen) over the weekend and bulls were looking (hoping) for a bounce near the bottom of the channel near the $18 mark. Unfortunately, news that the SEC has launched a formal investigation into an earnings shortfall (Reuters) put shareholders on the defense and the stock is suffering. Now that shares have literally fallen through the bottom of the rising channel the stock could easily see more profit taking. To make matters worse, Fitch has downgraded EDS' senior debt rating. We would look for initial support near the $15 area but with bad news like this the stock may not stop until fall 2002 lows. --- Lucent - LU - close: 1.81 change: +0.13 WHAT TO WATCH: Shares of Lucent were higher today after the company surprised the street with better than expected earnings numbers. Despite a triple digit loss in the Dow Industrials, LU managed to maintain a 7.7% gain. The stock might be worth looking into for a very short-term trade. We would not be surprised to see the bulls carry it forward before hitting resistance at the $2.00 mark, which would be a 10% gain from current levels. If you prefer a more patient entry wait and see if shares come back to the 50-dma near the $1.50 area and look for a bounce. --- Microsoft Corp - MSFT - close: $51.00 change: -0.33 WHAT TO WATCH: Shares of MSFT continue to languish below their 200-dma after their disappointing earnings revelations last week. Dividend or no dividend, if the stock drops below the $50 mark it could be a decent short candidate. Bears will probably speculate on a move to the $45 level. --- Amgen Inc - AMGN - close: $52.50 change: +1.63 WHAT TO WATCH: Bucking the trend are shares of biotech company Amgen. The market may be falling but AMGN has been close to hitting new relative highs. The stock came very close to breaking out above very tough resistance today. The $53 mark is the level to watch and a move above could see shorts covering in a hurry. To add more fuel to the fire, AMGN is expected to announce earnings tomorrow. Any good news could really get this stock moving! Trade cautiously. ========================= Play-of-the-Day (BULLISH non-tech play) ========================= Boston Scientific - BSX - close: 44.67 change: +0.87 stop: 40.99 Company Description: Boston Scientific is a worldwide developer, manufacturer and marketer of medical devices whose products are used in a broad range of interventional medical specialties. (source: company press release) - ORIGINAL WRITE UP: December 19th, 2002 - Why We Like It: A glance at the daily chart for BSX reveals that investors have had an insatiable appetitive for shares of this medical device company. What's driving the stock higher? The current uptrend can be traced back to early-October, when a federal judge ruled against Guidant (GDT) in a case involving drug-coated heart stents. Guidant is competing with Boston Scientific to bring the lucrative gizmos to market. The judge's ruling significantly delayed GDT's research, effectively leaving BSX and JNJ as the only major players. Meanwhile, BSX has moved ever-closer to FDA approval of its own stents. On November 18th the company reported that its TAXUS IV product had shown positive results in a safety study. More positive news arrived nine days later, when Guidant's appeal of the previous decision fell flat. This second ruling helped to propel the stock to new 52-week highs. Technically, we like how BSX has bounced back after pulling back to the bottom of its ascending regression channel. The stock showed good relative strength today and closed at levels not seen since 1999. The rising volume and MACD (which is poised to give a bullish crossover) bode well for a continuation of the existing uptrend. In terms of upside potential, we'll be aiming for a rally to the $50.00 level. Shorter-term traders may want to target a move to the all-time highs near $47.00. Our entry trigger for this play will be set at $44.01. If shares reach this level our stop will be located at $40.99, just below the December lows. This creates a risk/reward ratio of roughly 1:2. Those with slightly more conservative strategy could use a stop just below $41.50. - Last Update: January 21st, 2003 - Tuesday proved to be quite an eventful day for BSX. We'll take it from the top. The session started off on a bullish note as shares gapped higher and pegged a new multi-year high of $46.82. Investors appeared to be applauding Monday's FDA approval of Boston Scientific's heartburn treatment device. However, this news wasn't enough to take the stock above $47.00. You'll recall from previous updates that we've been expecting these 1999 highs to provide resistance. Nimble short-term traders may have been able to take profits before shares moved back towards $46.00. The stock gravitated towards this level until about 12:30 EST, when BSX announced its preliminary fourth-quarter results. The company reported EPS income of 31 cents, which was in-line with analyst estimates. Shares initially spiked down on the news but quickly moved back into positive territory. That's plenty of action for one day, but there was more news to be had before the closing bell. Shortly after 2:00 EST, word came from Europe that the EU had green-lighted Boston Scientific's Taxus drug-coated heart stent. Sounds like a positive development, doesn't it? However, the stock traded contrary to expectations and actually sold off on the news. The fact that shares traded lower on an EU approval of one of their key products indicates that this news had already been priced in. There was also some speculation on CNBC that investors may have frowned on some forward-looking statements contained in the preliminary report. The final Q4 earnings announcement will be made on February 4th. Glancing at a 15-minute chart, we see that BSX has moved back to the $43.50- $44.00 area of congestion. Traders looking to reduce downside risk could use a stop slightly below this region of likely support. We're maintaining our stop at $42.22, under the 50-dma. - Play-of-the-Day Comments: January 22nd, 2003 - Shares of BSX rebounded nicely today after moving lower on the initial reaction to yesterday's EU stent approval news. A brokerage upgrade combined with a rising NASDAQ to push shares higher on Wednesday morning. The stock was able to rally up to the $46.00 level before being dragged lower by the broader market in afternoon trading. Shares finished with a 2.1% gain, easily outperforming both the Dow Jones and DRG.X pharmaceutical index. If the overall equity climate is more bullish on Thursday we think BSX will be able to muster another attempt at the $47.00 level. Glancing at the daily chart, we see that shares found intraday support at the bottom of the ascending regression channel. We'll be looking for shares to remain above this level tomorrow. If BSX is going to continue it's multi-month uptrend then the pullback created by yesterday's decline may have offered an entry point. Long entries could be targeted at current levels, using a stop just below $44.00 (or $43.74, depending on your risk tolerance.) Picked on December 20th at $44.01 Results since picked: +0.99 Earnings Date 02/04/03 (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 ) 2003 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Wednesday 01-22-2003 section 2 of 2 Copyright ) 2003, 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 Triggered Plays: EXPE (bearish) Trading Ideas Value Plays With Bullish Signals Breakout to Upside (Stocks $5 to $20) Breakout to Upside (Stocks over $20) Breakout to Downside (Stocks over $20) Recently Overbought With Bearish Signals (Stocks over $20) ================================================================== Net Bulls (NB) Tech Stock section ================================================================== =============== NB Play Updates =============== Triggered Plays --------------- Expedia Inc - EXPE - close: 63.98 change: +0.36 stop: 68.01 This long play was activated on Wednesday at $63.37 after EXPE broke under its 200-dma. Shares managed to rebound with the NASDAQ during the middle of the session before giving up a large chunk of its intraday gains during the final two hours. Technically, we're pleased with the way shares were unable to move above $65.00 on an intraday basis. We'll be looking for this level to provide resistance if shares head higher on Thursday. Our stop is set at $68.01. ================= 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 JBSS John Sanfilippo 12.52 +1.04 NNDS NDS Group 7.64 +1.14 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change CKFR Checkfree Corp 19.90 +3.18 JDAS JDA Software 11.83 +2.86 PXWL Pixelworks Inc 7.84 +1.70 TTI Tetra Technologies 19.36 +1.36 GBBK Greater Bay Bancorp 18.25 +1.07 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change BRL Barr Labs 79.50 +2.09 FIC Fair Isaac 45.50 +2.70 COH Coach Inc 32.48 +3.31 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change ROST Ross Stores 43.10 -1.06 CAT Caterpillar 44.45 -1.62 WHR Whirpool 53.52 -1.61 SSP E.W. Scripps 81.06 -2.48 AZO Autozone Inc 61.10 -2.60 IR Ingersoll-Rand 38.83 -2.53 TXT Textron Inc 40.27 -1.72 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change PHM Pulte Homes 50.87 -0.78 MRX Medicis Pharmaceutical 51.03 -0.67 LEA Lear Corp 36.92 -0.63 AIG American Intl. 60.40 -1.00 FSNM First State Bancorp 23.75 -2.04 ================================================================= 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 ) 2003 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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