PremierInvestor.net Newsletter Wednesday 01-29-2003 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: Hard to Predict Watch List: BRL, CEPH, EBAY, KLAC, MSFT, and more... Play of the Day: Traveling South ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 01-29-2003 High Low Volume Advance/Decl DJIA 8110.71 + 21.87 8158.02 7945.00 1855 mln 1081/727 NASDAQ 1358.06 + 15.88 1363.31 1320.35 1466 mln 961/459 S&P 100 437.54 + 2.89 440.16 427.95 totals 2042/1286 S&P 500 864.36 + 5.82 868.72 845.94 RUS 2000 374.84 + 1.67 375.27 367.16 DJ TRANS 2163.38 - 2.06 2177.24 2121.67 VIX 35.22 - 0.30 38.28 35.20 VIXN 43.64 - 3.09 47.19 43.39 Put/Call Ratio 0.81 ****************************************************************** =========== Market Wrap =========== Hard to Predict by Steven Price Rather than predicting the next move in an extremely jittery environment, it is probably best to simply highlight just how reactive the current market is to a number of issues. It is getting tough to predict market direction in the current environment. With so many earnings reports and political events playing tug of war, hindsight is playing a bigger role in evaluating moves than foresight. For instance, I talked about the possibility that yesterday afternoon's rally being just short covering ahead of the President's speech. When we opened down sharply, that's what it appeared to be. We really got no new news from the President, other than a new deadline of February 5 when Colin Powell will present evidence to the UN, yet we opened with a triple-digit Dow drop today. It seemed to tell us that outside of the news event, the market sentiment remained down. An earnings miss and profit warning from Kraft didn't do much to change that impression. However, what we saw later in the day indicated that Iraq is still the heaviest weight on the markets. In fact, shortly after the Iraq announcement mid-day that it would pro-actively cooperate with inspectors, we got a big rally, erasing all of the day's losses. So maybe the cost of war is being factored in by enough investors that we need to very careful trying to short such a jittery market. It also raises the possibility that investors are simply waiting to hear that war is behind us before getting back in from the long side. A look at the charts still shows a market that is heading south and there has been little on the economic front to cause a bounce. Today's rally stalled at Dow 8158 and that still qualifies as a failed rally below the head and shoulders breakdown level at 8200. Of course, Iraq is just one of many news concerns and earnings reports this week and even though the indication is that market sentiment remains down, we really didn't get much of a sell-off below the point we were at prior to the speech, so it is not as though investors are running for the hills. To the contrary, we are bouncing repeatedly in a support area that indicates the big move down following the rally during the first couple weeks of January has exhausted itself and we are seeing a hard fought battle between bears and bottom feeders. Those traders/investors who felt they had missed the December bottom when the market rallied to start the year apparently still believe they are getting a deal at current prices. I'm not sure if they are right, but so far we haven't seen anything to make us think there is another big rally in the immediate future. It seems the best news for investors, which was the President's non-taxation of dividends idea, is behind us. As are the beginning of the year retirement account contributions. The earnings reports we are getting are positive for the most part for the fourth quarter. However, the guidance going forward has been shaky and that's really what we are concerned with - future action. Or at least how the market will react to how it perceives the future. An intraday chart of the Dow shows just how volatile and reactive the market is in the current high-charged environment. We took out both Monday's low, and then made it all up and took out Tuesday's high. While it seems we are headed lower based on the technical damage we've seen to the previously strong support levels, trying to day trade the current market for more than a few points has rarely been harder to do. Intraday Chart of the Dow Daily Chart of the Dow The techs have also continued to show resilience after the big drop of the last two weeks. The last three days have seen the Nasdaq Composite repeatedly test support in the 1320 range. That level served as support on the rollover from the November 6 high of 1419, just prior to rally up to 1521. That November 6 high coincides with the highs in the Dow, SPX and OEX that I have pointed out in previous columns as a possible left shoulder in a head and shoulders pattern. The fact that the pullback support level in the COMP has held is significant for one big reason - it diverges from what we have seen in the other indices. The Dow, OEX and SPX have all broken through those previous pullback support levels to the downside. The COMP and NDX have both held above those levels. In fact, in many instances, the techs have led the market over the last several years and the fact that they are holding that support should throw up a red flag for the doomsayers (myself included) that predicted another swoon following the support break in the broader indices. Chart of the COMP The Semiconductor Index (SOX) also broke out from its range of the past few days, bouncing off support that it appeared on the verge of breaking. The 280 support level was broken on a closing basis, but just barely, on Monday. The chip stocks have since found buyers, forming a small saucer bottom and look intent on testing prior resistance at 300. Part of the reason behind the move was an upgrade to chipmaker Applied Materials (AMAT) +3.3%, which was upped from neutral to buy at UBS Warburg. Chip equipment maker Cymer (+4.8%) also released earnings after the bell on Tuesday. The company posted a narrower than expected loss and raised revenue guidance going forward. The SOX finished the day up at 290, but it will take a decisive move back above 300 to signal a trend reversal. Chart of the SOX The FOMC concluded its two-day meeting today, with no change in interest rates, as expected. It also left its bias unchanged, saying that risks are balanced between inflation and economic weakness. The FOMC statement said that, "Oil price premiums and other aspects of geopolitical risks have reportedly fostered continued restraint on spending and hiring by businesses." It also said that it expects the economic climate to improve as those risks are lifted. Basically the Fed is stepping out of the way with interest rates at a 40-year low and allowing the Iraq situation to work itself out. The Market Volatility Index (VIX), which has mirrored the range bound activity of the broader markets, but broken out as they broke down, is also on the verge of pulling back below the previous resistance line. That line could now serve as support, reflecting continuing fears for more downside. If we are truly ready for a bounce, it is likely we will see the VIX move back below 35%, as the fear abates. So far, however, we are holding above that level, even on Tuesday's bounce and Wednesday's intraday recovery from the big drop. The VIX is based on the premium levels in OEX options. Because the OEX is heavily traded, it generally takes quite a bit of order flow to move the VIX and reflects the activity of large institutions. If the VIX reflects more fear than the big boys feel there needs to be, then we see the VIX drop, even if the market does not move significantly higher that day. It almost always drops on big moves to the upside as institutions reduce the cost of long positions by selling out of the money premiums. However, if it drops to the point where it looks cheap, compared to current market risk levels, then we also see support. By holding above the 35 level, which at one point institutions were willing to sell, it tells us that the big players still have downside concerns. Today's close at 35.22 is still above that mark, although just barely. Chart of the VIX Deciphering what we saw today was no easier than it was yesterday, or the day before. We know that Iraqi developments will continue to lead to big market swings. Between now and February 5, when Colin Powell makes his UN presentation, we may see some digesting, without any real developments. Of course, that's what we thought today until mid-day, as well. After the bell, AOL-Time Warner missed forecasts and announced the biggest corporate loss ever, at $45.5 billion, as it wrote down the value of America On-Line. It also announced the departure of Ted Turner. If today was simply a relief rally following the tension of the State of the Union address and FOMC meeting, we may get yet another rollover tomorrow. However, shorts who decide to act on that rollover below the aforementioned H&S breakdown level (which I still believe is the favorable play) need to keep in mind both the possibility of unpredictable action from world events and the fact that the COMP and NDX are still holding there November support levels. To the upside, playing long will have plenty of resistance between Dow 8200 and 8400 to get through, so traders may want to play on partial positions over 8200 until that congestion is cleared on a rally. If one thing is certain, it is that we are still in one of the toughest trading environments in quite some time. ================================================================== 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 --------------------------------- Affiliated Computer Services - ACS - close: 52.42 change: -0.05 WHAT TO WATCH: News of a $33.2 million IT outsourcing contract helped ACS to rebound from its 50-dma ($50.91) on Tuesday. The stock has been trending higher for several months, but wasn't able to shake the recent tech sector weakness. Shares might be able to make another run at relative highs now that some profit- taking has taken place. This outlook is supporting by the rising daily stochastics (5,3,3) and MACD, which is leveling out just above the baseline. Bullish entries could be evaluated on a move above today's high ($53.05). We'd be looking to capture a move to the $56-$57 area. --- Barr Labs - BRL - close: 79.70 change: +0.96 WHAT TO WATCH: Business for Barr Labs is ticking along at a pretty good clip. The company raised its second quarter earnings guidance on January 14th, citing stronger-than-expected sales of its oral contraceptive products. The following week they reported a Q2 profit of 94 cents, which was at the high end of the boosted guidance. The daily chart for BRL reflects the improving fundamentals. Shares went on a tear in the first half of January, as shares rapidly ascended from the $65.00 area before finally leveling out below historical resistance at $80.00. The stock has spent the previous two weeks consolidating under this level while consistently finding buyers near $77.00. Today's action saw BRL follow the DRG.X pharmaceutical index to a 1.2% gain. Shares are once again threatening to break above $80.00. A move above this level would open the door for a possible test of the all-time highs near $90.00. Although the weekly chart shows loose resistance in the $81.00 area, the reversing daily stochastics (5,3,3) suggest that BRL will be able to move through this level without much trouble. Barr Labs is presenting at Piper Jaffray's health care conference tomorrow. Any major news out of the meeting could have an impact on how the stock trades. --- Cephalon Inc. - CEPH - close: 48.18 change: -1.05 WHAT TO WATCH: That's quite a foreboding daily chart. CEPH broke below its 200-dma ($49.19) today after the company said it would probably face generic competition to its Provigil epilepsy/sleeping disorder treatment by 2006. Previously Cephalon had said that the drug's patent would be protected until 2014. The resulting 2.1% decline also took the stock below the December low of $47.76. What should have shareholders concerned is the fact that there is no clear underlying support until the $42.00 region (although the p-n-f chart does show a short-term uptrend at $44.00). The rising volume and rolling MACD do not instill much confidence in the bulls. Watch for a move under today's low ($47.57) to provide a possible bearish action point. --- Rockwell Collins - COL - close: 20.46 change: -0.20 WHAT TO WATCH: Shares of Rockwell Collins have pulled back to solid support in the $19.75-$20.00 region. This level, which was successfully tested on Monday, also happens to be the location of bullish support on the point-and-figure chart. The rising daily stochastics and MACD histogram offer technical evidence that a reversal might be taking place. After a decline of more than 15% from the relative highs, the bears seem to have lost their momentum. Long entries could be targeted on a move above yesterday's high of $20.81, with an initial profit-target near the 200-dma at $23.13. Shorter-term traders could aim for a move to the 50-dma at $22.08. --- eBay Inc. - EBAY - close: 74.93 change: +1.50 WHAT TO WATCH: In the aftermath of its bullish earnings report earlier this month, EBAY rose to a multi-year high of $76.43. Shares held up relatively well during the recent broader market sell-off. On Wednesday the stock tested its 21-dma at $72.53 and quickly moved back to the $75.00 area. Shares closed near the best levels of the day, which bodes well for continued strength tomorrow morning. The long-term uptrend is intact, despite a three-box reversal on the p-n-f chart. EBAY looks like a good bullish candidate on a move above $75.00. We'd be using a fairly tight stop-loss slightly under the 21-dma. At the current rate of ascent, it looks like shares could reach the $80.00 level by mid-February. --- KLA-Tencor - KLAC - close: 35.85 change: +1.18 WHAT TO WATCH: PI Readers who are familiar with our high- risk/reward play in XLNX already know that we've been anticipating a short-covering rebound in the chip group. So far the bulls have met our expectations. The past two sessions have seen the semiconductor index rally from support in the 278-280 region. The SOX.X showed good relative strength today with a 3.0% gain, easily outpacing the NASDAQ. Along with XLNX, KLAC looks like a bullish sector play. The stock has rebounded from the November lows near $34.00 and moved above its 100-dma. With the oscillators producing the expected upward reversals, it looks like shares might retrace a large chunk of the mid-January selloff. The daily chart shows no major levels of potential resistance until the 50-dma at $38.72. This would be a reasonable upside target for short-term traders, who could think about going long on a move above today's high ($36.06). A pullback to the $35.25 area might also offer an entry point. --- Lowes Corp. - LTR - close: 43.91 change: +0.39 WHAT TO WATCH: Shares of this insurance company are beginning to recover from a steep sell-off that took 10% off the stock's price in less than two weeks. What's compelling about this nascent reversal is the fact that LTR is bouncing from the 50-dma at $42.92. This is also the location of an ascending uptrend formed by the pattern of higher lows in November and December. The stock has also moved back above its 100-dma at $43.66. Given the solid underlying support, LTR looks like it offers a good risk/reward setup at current levels. As far as upside targets are concerned, we'd be targeting a rally back to the relative highs near $48.00. --- Microsoft - MSFT - close: 49.92 change: +1.10 WHAT TO WATCH: Things were looking rather bleak for MSFT this morning when the stock broke down out of an Inside Day formation and proceeded to violate its bullish point-and-figure trend at $48.00. A strong NASDAQ rebound, however, helped the stock to erase its early losses and finish solidly in the green. That's a strong intraday bounce, but we're not yet convinced that the stock has put in a short-term bottom. For one thing, MSFT hasn't been able to break its recent trend of lower lows. The stock also closed just below psychological resistance at $50.00. And with bullish p-n-f support already broken, the stock is in danger of falling to the October lows in the $43-$44 region. Short positions could be evaluated if MSFT retraces its intraday gains and falls under today's low (which is also the multi-month low) at $47.93. A rollover from current levels might also yield an entry point for more aggressive traders. --- St. Jude Medical - STJ - close: 43.50 change: +1.53 WHAT TO WATCH: STJ blasted to all-time highs today after the company garnered an upgrade from Morgan Stanley. MWD raised the stock's rating from "underweight" to "equal-weight," based on its belief that the risk of an earnings disappointment for St. Jude has been negated. The resulting 4.0% gain took STJ above both the relative high at $42.60 and the all-time high at $43.13. This move also produced a double-top buy signal on the point-and- figure chart. The rising oscillators are hinting at further upside potential. However, the bulls are already sitting on some rather large short-term gains - STJ has rallied more than 12% from yesterday's low. Some profit-taking could be expected to consolidate this move. Thus, we'd be looking for a pullback to the $42.00-$42.50 area to offer an entry point. The p-n-f chart shows a vertical bullish objective of $63. A more realistic upside target would be psychological resistance at $50.00. ========================= Play-of-the-Day (BEARISH tech play) ========================= Expedia Inc. - EXPE - close: 62.94 change: -1.14 stop: 66.56 Company Description: Expedia is the world's leading online travel service and was the eighth largest travel agency in the United States in 2001. Expedia is a majority-owned subsidiary of USA Interactive (source: company press release) - ORIGINAL WRITE UP: January 21st, 2002 - Why We Like It: Shares of Expedia suffered a painful downward gap on January 6th. The catalyst for this decline was an earnings warning from competitor Hotels.com (ROOM), who said that a downturn in hotel occupancy had taken its toll on the bottom line. EXPE derives a large chunk of its revenue from selling lodging reservations over the internet, so it's easy to see why investors were unnerved by the indications of a hotel industry slump. The other major source of business for Expedia is discount airfares. This sector is facing some major problems as well. To wit: The XAL.X airline index tanked by more than 5% today after Northwest Airlines (NWAC) reported a quarterly loss of $2.55 per share. Analysts had expected a loss of only $2.14 per share. NWAC's abysmal numbers bode ill for tomorrow's earnings announcement from AMR, the world's largest airline. The sector is in a nosedive and it doesn't look like it's going to recover anytime soon. This is not good news for Expedia. A sharp downturn in air traffic would be disastrous for the company. But with the hotel business already looking weak, even a small reduction in airfare sales could have a very adverse impact on the bottom line. Poor results from AMR (who announces during the market) would only underscore these challenges. On a technical basis, EXPE looks poised to extend its multi-month downtrend. Broader market strength helped the stock to fill in a portion of the January gap before the bears re-emerged at the descending 21-dma. After a few days of following the NASDAQ lower, today's negative airline news sent EXPE down to its 200- dma at $63.40. A violation of this moving average would clear the way for a possible test of the January 6th low of $60.36. And what if THIS level fails? That's when things could really start to get interesting. The daily chart shows no clear support until $55.00, with the large October 24th gap just begging to be filled. Although we'll initially target a move to the $55.00 area, longer-term traders could look to ride EXPE down to $50.00. The steep October/November gains could be retraced in a very rapid fashion if bad news continues to plague the travel group. Our action trigger for EXPE will be placed at $63.37, just below the descending 200-dma. If the play is activated we'll attempt to limit our upside risk with a stop at $68.01. More conservative traders could use a stop slightly above the 21-dma at $66.94 - Last Update: January 28th, 2003 - EXPE continues to gravitate towards its 200-dma. In a potentially positive technical development, shares closed below this moving average on Monday. The stock looked poised to break under the relative low and move towards the $60.00 area. These bearish expectations were dashed by today's rebound in the equity market. But in spite of the 1.8% gain, shares did not come close to breaking out of the multi-week downtrend. EXPE has instead been consolidating in a relatively narrow range over the past week, with neither the bulls nor the bears showing any resolve. The MACD and daily stochastics (5,3,3) are both somewhat flat and not giving any hint of where the stock is headed next. Once EXPE does pick a direction, we think the movement could be swift. We've tightened our stop to $66.56, which should keep potential losses limited to roughly 5.0%. This is also above the 21-dma at $65.92. Traders looking for new entries can continue to watch for a break under $62.76. - Play-of-the-Day Comments: January 29th, 2003 - It was not a banner day for the internet travel group. Expedia, Hotels.com (ROOM), and TSG (the parent company of Travelocity), all faded the broader market and finished in the red. EXPE posted a 1.7% loss after rolling over once again from the two- week trend of lower highs. The bulls attempted to lift shares off the relative low of $62.20 this afternoon, only to be turned back near $63.60. Given the stock's inability to move higher with the major indices, we think odds are good that a test of the January low ($60.36) could be forthcoming. It's also encouraging to see that shares once again closed below the 200-dma at $63.26. A complete abandonment of this moving average would be a very positive sign for the bears. New short entries can be targeted on a move under today's low of $62.20. Aggressive traders could also watch for another rollover from the aforementioned downtrend (currently near $64.00) to provide an action point. While the January lows do offer possible support, we suspect that shares could eventually reach the $55.00 region. Picked on January 22nd at $63.37 Results since picked: +0.43 Earnings Date 02/05/03 (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 01-29-2003 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: Stock Bottom / Active Trader Triggered Plays: APD (bearish) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== =============== AT Play Updates =============== Triggered Plays --------------- Air Products - APD - close: 40.43 change: +0.06 stop: 43.02 Early-morning broader market weakness was just what the bears needed to push APD below the $40.00 support region. Our short play was triggered at $39.84 within the first half-hour of trading. The stock continued to mirror the Dow Jones throughout the session, eventually working its way back into positive territory. But now that support has been breached on an intraday basis, sellers may find it much easier to gain traction if the market resumes its recent downtrend. Our stop is set at $43.02. As we mentioned in last night's play description, those looking for a little less upside risk may want to use a stop slightly above $42.15. ================================================================= 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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