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Daily Newsletter, Monday, 02/03/2003

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PremierInvestor.net Newsletter                 Monday 02-03-2003
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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. **


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MARKET WRAP  (view in courier font for table alignment)
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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
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===========
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)







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