PremierInvestor.net Newsletter Monday 02-03-2003 section 1 of 1 Copyright ) 2003, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.PremierInvestor.net/htmlemail/b03c_1.asp ================================================================= In section one: Market Wrap: Going Nowhere Fast Watch List: ATK, AMD, NXTL, EMC and more... Play of the Day: A Bit More Convincing ** THERE IS NO SECTION TWO OF THE EMAIL NEWSLETTER TONIGHT. ** ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 02-0-2003 High Low Volume Advance/Decl DJIA 8109.82 + 56.01 8152.08 8053.74 1446 mln 766/662 NASDAQ 1323.79 + 2.88 1335.76 1318.00 1215 mln 652/534 S&P 100 435.70 + 3.13 437.92 432.57 totals 1418/1196 S&P 500 860.32 + 4.62 864.64 855.70 RUS 2000 370.25 - 1.92 373.73 369.86 DJ TRANS 2157.49 - 15.86 2183.22 2150.75 VIX 33.98 - 1.80 35.65 33.85 VIXN 46.04 - 0.77 48.21 45.85 Put/Call Ratio 0.84 ****************************************************************** =========== Market Wrap =========== Going Nowhere Fast by Steven Price We saw quite a wild week last week, with big intraday moves over the past few sessions, plenty of Iraq posturing and a slew of earnings reports. Monday was no exception, with an intraday range in the Dow of 100 points. However, in the end, we are just about where we started out last week. In fact, the Dow is off just 22 points from where it began last week, with the OEX off just 0.44 and the SPX off only 1.08. For traders who have gotten whiplash watching the recent movement, it doesn't really seem worth it, as they could have gone on vacation and come back to see little had changed. We had some economic data to drive the market today, coming in the form of positive releases for the ISM manufacturing index and Construction Spending. The Construction Spending number for December showed an increase of 1.2% in December, a significant increase over expectations for a rise of 0.3%. That result could also lead to an upward revision in GDP for the fourth quarter. The November number was also revised higher, showing an increase of 0.9%, versus the previous reading of 0.3%. The ISM data came in at the high end of expectations, with a reading of 53.9%. Anything over 50 shows an increase in manufacturing activity. There had been some concern that December's increase had been an aberration, but the January numbers indicate that even if things are not exactly robust in the manufacturing sector, they are still improving. Of course, for all of the economic data we are seeing, the big issue still hanging over the markets seems to be Iraq. We have gone into a holding pattern for the last week, following the President's State of the Union address last Tuesday. While we are seeing day to day swings, we are not seeing enough conviction from either bulls or bears for a true breakout in either direction. We got a nice rally to start the year, as investors funded their yearly contributions to the retirement plan, followed by a big sell-off once earnings reports started rolling out. It wasn't that the reports were bad, as much as it was due to the accompanying cautious statements about 2003. After the 1300-point swing in the month of January, the market seems a little exhausted and simply awaiting the resolution of the Iraq situation. We are trading in a range below the 2002 year-end sell-off, indicating the overall trend in the markets is still bearish, but the drop has certainly slowed and we are beginning to make back some of those losses. On any given day it can feel as though the worst is behind us and we are headed higher. It can also feel like the sky is falling, and it is time to get out - just throw a dart at any day of the week over the last five or six sessions and you're equally likely to feel either way. In reality, a big continued move is unlikely before we know just how long a war will last and if we even are going to invade. Chart of the Dow While it seems a foregone conclusion that we will invade, the notion of Saddam Hussein and his posse heading into exile is becoming more frequently discussed and seems like his only way out at this point. Oil futures continue to set higher highs, but have seen a steep drop the last couple of days. If traders truly felt we were headed into Iraq in the next couple of weeks, we probably would not be seeing such a pullback. The bet seems to be that we are in for another round of haggling at the U.N. following Powell's presentation on Wednesday. That view is contrary to what we are hearing on television, but I can't think of a better barometer of war in the middle-east than the price of oil. Make no mistake, war is still expected, as per barrel future prices remain well over $30, but with a drop ahead of the U.S. presentation, the market seems to be forecasting a slightly longer wait. The Venezuelan general strike is also a big factor in oil prices, so traders need to keep an eye on those developments as well, before concluding that movements here are only Iraq-related. In fact, Venezuelan President Hugo Chavez claims that his country has increased its output to 1.8 million barrels per day, which is more than three times what it has been in recent months. The country was pumping more than 3 million barrels before the beginning of the general strike, but that total dropped to 500,000 at one point, which helped drive up prices, along with middle-east tensions. In actuality, positive developments on either front can reduce the price of oil, at the same time helping the equity market. However, as long as we are faced with war, prices should remain elevated, thus keeping a lid on a stock market rally, as fuel costs remain high. Chart of Oil Futures Ford was the big winner among automakers, as it saw an increase in January sales over a year ago. That was better than GM or Daimler-Chrysler could do, as those manufacturers saw declines from the torrid pace set last year. Ford Chairman Bill Ford Jr. did caution, however, that some economic trends were worsening, such as unemployment and consumer confidence (which hit multi- year lows last month), and that Iraqi worries are also still contributing to a slow down in spending. Gold futures climbed higher, indicating a defensive play, which is also tied to the sinking U.S. Dollar Index. Gold futures are now trading 371.2, staying close to multi-year highs, set in January. Those futures are giving us bearish signs, failing to confirm what we are seeing in other areas. The dollar started off strong today continuing its rebound from mutli-year lows, but finished the day slightly in the red, also indicating a market on hold. Chart of Gold Futures The bond market also indicates bullishness in equities, as the five, ten and thirty year notes all saw selling today. There have been recent instances where both bonds and equities have dropped on the same day, but it is rare. We usually see contrary movement, with sinking bonds confirming rising equities and that is exactly what we got today. The data for inflows and outflows of funds between stocks and bonds shows just the opposite for the month of January. It is estimated that funds investing primarily in U.S. equities saw an outflow of over $5 billion in January, while bond funds saw an inflow of $3.8 billion over the last two weeks. With bonds rallying as stocks sunk during those last two weeks, we may now be seeing a reallocation back in the other direction by those institutions that are either taking profits, or taking advantage of the stretch in prices. One sector that many traders use to confirm broad market movements is the Semiconductor group. These stocks tend to reflect overall tech demand and recent action has shown little strength. The Semiconductor Industry Association this morning released data that showed the first month over month decline in global semiconductor sales in several months. For the year, the industry saw just 1.3% growth, which makes the accompanying prediction for growth of 19.8% in 2003 seem a little lofty. Traders apparently didn't seem too impressed by the prediction either, and the Semiconductor Index remained mostly flat following the release. This sector is getting tougher to predict after falling 120 points from its December high of 393. Last week's warning from Applied Materials (AMAT) that its orders would drop 35% this quarter sent the SOX down another leg, where it bounced strongly from 360, but remains below previously strong support at 280. It's clear from the statements accompanying most recent earnings releases that IT spending has not yet turned the corner and the SOX seemed to be entering a free-fall area between 280 and the low 200s. However, the drop has slowed and we seem to be suspended in space. The fact that it has not rebounded with the broader markets the last couple of days can be seen as bearish and I would be hesitant to go long the sector. Still, the second leg of the big breakdown has not occurred. The Market Volatility Index (VIX) also saw a drop today and is now below the 35 level that has been pivotal in recent months. That 35% resistance level had capped equity market drops and was broken on the most recent plunge. After topping out at 40%, it has crept lower, in spite of the recently large intraday moves. The move back under 35% indicates we are seeing some of the downside fear dissipate as we have settled into a range and tested the upside of that range today. As long as we test the upside, we can expect to see the VIX continue its descent. Those traders holding straddles are likely suffering these days and will continue to do so until we break in one direction or another. Until then, the best strategy will be buying small dips and selling small rallies against the positions in order to make up for the time decay. Chart of the VIX Point and figure charts are beginning to give us some bullish signals, with the Dow, OEX, SPX and NDX all reversing back up into bullish columns of "X." However, only the Dow has managed to break above its most recent rebound high and the bullish percents for all of these remain in reverse mode. Once again, conflicting signals as to where we are headed next. Today's bottom line seems to be a tepid attempt at a rebound. We are getting bullish signs after a big drop, but we are still range bound at sub-breakdown levels and very light volume ahead of this week's events. It is difficult to determine whether we are just taking a breath before the next leg down, or building support for a rebound from the late-January sell-off. We are likely to remain on hold throughout much of the day Tuesday. We will get Cisco's earnings after the bell and then the Powell presentation on Wednesday. Following that presentation, we are likely to have a better idea of whether the U.S. has worldwide support, or if we will be going it alone. In either case, once the picture becomes clearer, we should break out of the current range and get a better signal on where the trend goes from here. ================================================================== 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 --------------------------------- Alliant Tech Systems - ATK - close: 48.02 change: -6.34 WHAT TO WATCH: Shares of ATK were hit hard today after the Sunday morning shuttle tragedy. Alliant's Thiokol Propulsion division builds solid rocket boosters for the shuttle program and investors took a sell first approach before waiting for evidence to come back and potentially point the finger at ATK. The stock gapped down at the open and ended the session almost 12 percent lower. Whether or not ATK's products are responsible this looks pretty over done and we would not be surprised to see a bounce back in a day or two. This bears watching. --- Advanced Micro Devices - AMD - close: 5.05 change: -0.19 WHAT TO WATCH: The chip sector has not been a fun place to bet lately. Last week's news from AMAT hit the group hard. More news from AMD has the stock in a bearish trend that appears to have no hope of recovery. The company has delayed the launch of their next-generation Athlon chips. We would be watching the $5.00 mark, where shares have bounced (lightly) twice in two days. If this level breaks then aggressive bears might be able to target a move to the $4.00 level waiting below. --- Nextel Communications - NXTL - close: 12.02 change: -0.60 WHAT TO WATCH: Shares of NXTL have been somewhat range bound for the last three months. Fortunately for the bulls the channel has a very small upward slope. The bad news is given the market environment the stock could be a target for profit taking. Shares are near the bottom of their channel/range and are due for a bounce despite their ominous performance lately. We would look for a bounce from the $11.00 area or the 100-dma (just above $11). If the pattern repeats, look for a move back to the top of the channel between $14 and $14.50. NXTL is expected to announce earnings on Feb. 20th. --- E M C Corp - EMC - close: 7.66 change: -0.04 WHAT TO WATCH: There aren't many tech stocks offering traders a bullish pattern to pin their hopes on but EMC might be one of them. The stock has steadily built on its pattern of higher lows for weeks and is approaching overhead resistance. Is this stock preparing for an upside breakout? Looking at an intraday chart looks somewhat encouraging as does the ascending triple top breakout on its Point-and-Figure chart. Bulls should remain cautious as EMC still has significance resistance overhead assuming it can close over the $8.00 mark. The RADAR Screen ---------------- CSCO - The Networking giant is due to announce earnings after the bell on Tuesday. Keep an eye on it. The stock has been hovering around its 200-dma the last two sessions and is currently under previous support near $14. Oscillators are looking mixed. Considering that the rest of the industry isn't doing so hot we're not expecting any big surprises. The key will be in their guidance forward assuming Chambers is brave enough to give us any. WPI - Another earnings announcement to watch is Watson Pharmaceuticals. The stock has slowly been inching higher despite broader market weakness. Shares are with 10% (or so) of 52-week highs and overhead resistance near $33. The company is due to announce tomorrow, Feb. 4th. =============== Play-of-the-Day (SHORT/BEARISH PLAY) =============== Cabot Microelectronics Corp - CCMP - cls: 43.13 chg: -0.77 stop: 46.93 Company Description: Cabot Microelectronics, headquartered in Aurora, Illinois, USA, is the world leader in the development and supply of high- performance polishing slurries used for chemical mechanical planarization (CMP), a process that enables the manufacture of the most advanced integrated circuit (IC) devices and hard disk drive components. (source: company press release) - ORIGINAL WRITE UP: Thursday January 30th, 2003 - Why We Like It: The entire chip equipment group was dealt a severe blow earlier this month when Intel announced that capex spending in 2003 would be much lower than analysts had expected. The implicit reduction in demand for companies engaged in the semiconductor manufacturing process did not sit well with investors. A sell-off within the sub-sector immediately took hold, leading to large losses in stock such as AMAT, KLAC, and NVLS. CCMP doesn't have the same high profile on Wall Street, but was nonetheless subjected to heavy selling pressure. Shares moved sharply lower from the $55.00 area before finally bottoming out near $44.75 less than a week later. Subsequent rally attempts were turned back at $48.00, which has emerged as reliable short-term resistance. While that's enough to frustrate the bulls, today's action was downright foreboding. CCMP trended lower for the entire session and plummeted to levels not seen since October. These losses stemmed from a steep sell- off in the semiconductor index, which posted a 5.8% decline. The SOX.X has fallen to multi-month lows and does not have any clear support until the 220-230 region. Minor support at 245 and 260 might be rendered obsolete if the overall market continues to decline at a rapid pace. Point-and-figure enthusiasts will also be interested to note that the index will give a double-bottom sell signal if it reaches 272. This sector weakness does not bode well for shareholders of CCMP. Much like the SOX.X, Cabot is sitting well above its next of solid support. How far could the stock fall? The daily chart shows a fast-move region all the way down to the October lows at $32.50. We're going to be a bit more conservative in targeting a decline to the $35.00 area. However, we won't hesitate to close the play if shares rebound from psychological support at $40.00. Our action point to enter this hypothetical trade is set at $44.69, two cents under today's low. If the play is activated our stop will be set at $48.01, above the aforementioned short-term resistance. Traders looking for less upside risk could use a stop slightly above the 200-dma at $45.84. - Most Recent Update: Friday, January 31st, 2003 - (Triggered Play) The difficulties facing the chip equipment sector were underscored on Friday morning when Applied Materials warned that it expects to see a 35% reduction in first-quarter orders. Previous guidance was for a decline of only 20%. The company cited "ongoing economic weakness and geopolitical uncertainties (and) deferred capital expenditures" as the reasons for the slippage in expectations. Just about any business can blame poor sales and orders on the poor economy and Iraq-related war concerns. The poor capex spending also comes as no surprise. As we said last night, Intel had already made it clear that companies such as AMAT would be receiving less of their money for equipment upgrades. Investors with nonetheless disappointed with this morning's news. The SOX.X gapped lower and quickly reached a relative low of 261. CCMP joined the sector in the downward gap and opened below our entry trigger at $44.69. This play was activated at the initial trade of $43.70. Short-covering then took the stock into positive territory before the bears reasserted themselves. CCMP finished with a 2.0% loss, easily underperforming the SOX.X. That relative weakness is understandable when you consider that the stock is trading well above its next clear level of support on the daily chart. Now that the $45.00 support region has given way we think chances are good that shares could soon test psychological support at $40.00. However, because our entry point is lower than we'd anticipated, we need to make an according adjustment to our stop-loss. Our stop is now set at $46.93, two cents above the rising 100-dma. More conservative traders could use a stop slightly above the 200-dma at $45.75. New entries can be targeted on a move under today's low of $43.30 or on another failed rally at $45.00. - Play-of-the-Day Comments: February 3rd, 2003 - Weakness in the chip sector continues into February. This time AMD announced that they would be delaying their next-generation of Athlon desktop chips. Shares of CCMP fell in sympathy and the decline from Friday looks more convincing with today's close. Initial support still appears to be the $40 area and short-term traders may want to take some money off the table as CCMP approaches it. Picked on January 31st at $43.70 Results since picked: +0.57 Earnings Date 01/23/03 (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.
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