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Daily Newsletter, Wednesday, 02/19/2003

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PremierInvestor.net Newsletter              Wednesday 02-19-2003
                                                  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:      Anyone's Guess
Watch List:       BLS, BWA, CTAC, MAN, SIAL, and more...
Play of the Day:  Dumpster Diving

******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
02-19-2003                   High    Low     Volume Advance/Decl
DJIA     8000.60 -  40.55  8043.11 7935.27   1268 mln  382/864
NASDAQ   1334.32 -  12.22  1344.59 1322.12   1164 mln  359/790
S&P 100   428.80 -  2.68    431.48  425.13   totals    741/1654
S&P 500   845.13 -  6.04    851.17  838.79
RUS 2000  360.28 -  4.25    364.53  358.92
DJ TRANS 2105.39 -  35.26  2142.23 2097.15
VIX        35.22 -   0.34    36.40   35.07
VIXN       47.63 -   0.77    49.24   47.56
Put/Call Ratio 0.81
******************************************************************


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

Anyone's Guess
by Steven Price

Time for some consolidation.  After three days of impressive
gains, the bulls finally took some profits off the table.  This
pullback came in spite of some generally positive news, but at
this point, just how much financial news is affecting the
markets, versus geo-political concerns, is anyone's guess.

The big economic item on this morning's agenda was the housing
data.  Housing starts rose a mild 0.2%, but this was an upside
surprise after the consensus favored a drop after December's
strongest reading in 15 years. On the flip side, housing permits
fell 5.6%, which was a larger than expected drop.  It is clear,
though, that low interest rates continue to spur a strong housing
market.  While it seems that prices have begun to level off in
many areas of the country, there is a backlog that has been built
up over the past year that may continue to support the housing
starts number for several months. Housing stocks such as Hovanian
have cited that backlog as evidence of strength.  Of course, if
permits continue to fall, then the backlog will eventually dry up
and the starts number won't look as good.

Speaking of interest rates, many Fed watchers will note the
FOMC's reluctance to lower rates any further than they sit at
this time.  Specifically, Alan Greenspan's recent testimony
before Congress indicated that we really won't know just how the
current policy will affect the economy until the Iraq conflict is
behind us. While it seems the Fed is a little uncomfortable with
rates this low and would like to raise them, there are a number
of concerns that are now actually beginning to favor another
possible rate cut. First and foremost is the economy.  Whether
we'll have to wait until the war is behind us or not, things do
not seem to be improving, with almost weekly layoff
announcements. Even Greenspan has admitted that spending is
pretty much on hold until the situation is resolved and if the
Iraq situation continues to drag on, lowering once again may be
the logical short-term step.  The Fed Funds Futures have ticked
to 98.78 (100-98.78 = 1.22 vs. current rate of 1.25), indicating
a very little chance of the Fed lowering rates at its next
meeting. The June Fed Funds Futures show a slightly higher
chance, currently trading 98.85 (100-98.85 = 1.15).   While
neither of these are showing much conviction, the point is that
they are still trading in favor of a cut, as opposed to a rise.
The problem with lowering rates further is the fact that we
continue to dig deeper into debt with each lowering, making it
difficult to then raise rates when the economy does begin to get
better.  Total household debt is at record levels, both when
compared to disposable income and in absolute terms.  Right now
those debt levels are not preventing consumers from spending -
the one factor that seems to be propping up the economy, because
the debt is serviceable at lower interest rates. Corporations are
also carrying record levels of debt and its current interest
payments are at all-time highs.  If rates were to go up, an
already weak business spending environment may get even worse. As
of now, even the spending that is occurring is coming under
continuously greater scrutiny due to credit concerns.

Financials also took a hit today.  It seems the deteriorating
credit issue just won't go away.  J.P. Morgan started the
concerns over bad telecom debt last year and those concerns have
bled to almost every business sector. Today we got another
downgrade based on credit concerns. MBNA said its net credit
losses at Jan. 31 were 5.49% of loan receivables. Wachovia, J.P.
Morgan, Goldman Sachs and Salomon cut estimates for MBNA, citing
a significant deterioration in credit quality during January. It
said the deterioration was concentrated in the consumer lending
portfolio, so apparently businesses are not the only ones unable
to pay their debts.


We got some news on the international front, but it didn't seem
to have much of an impact.  Turkey is still negotiating with the
U.S. to allow troops to be based in the country for a possible
move into Iraq.  The U.S. has offered about $6 billion in grants
and $20 billion in loan guarantees. Turkey has countered that it
would suffer greater losses from tourism, higher oil costs and
soaring interest rates on foreign debt.  Turkey is asking for
more money, saying, "If our support has value for the United
States, then the United States needs to keep in mind our
sensitivities."  The U.S. would like to station 40,000 troops
there for an invasion from the North that the U.S. says would
shorten the war.   Somehow it seems to me that if it has come
down to a matter of dollars, an agreement will be reached at some
point.  After all, Turkey's concerns about higher oil costs and
soaring interest on debt will affect them whether they allow the
troops or not and an extra $26 billion for their permission will
be difficult to turn away.  The population of the country is
already opposed to allowing troops, but apparently that hasn't
stopped the government from putting a price on its participation.

After today's sell-off, we are left to determine whether we have
seen a trend reversal and the drop offered an opportunity to buy
a pullback, or if we saw the end of a short-covering rally and
its time to jump in short and target new relative lows. It is not
an easy question to answer since it seems hard to explain the
rallies of the last few days to begin with.  The fact that we
were in oversold conditions according to bullish percents and
also approaching July lows, certainly could have led to shorts
doing some profit taking.  The rallies of the past couple of days
have also come on relatively light volume, which is a red flag
for bulls.

Daily Chart of the Dow


A look at the point ad figure charts also shows that although we
got a big bounce, making up much of the sell-off of the previous
several days, we ended quite a ways from buy signals in the major
indices. Combined with bullish percents that still remain in a
sinking column of "O," these indications are that we are still
headed lower and simply saw either a short-covering rally or an
oversold bounce (or more likely a combination of the two). The
fact that today's afternoon bounce found sellers at 8000 may be
indicating that the bulls are running out of steam after the nig
run. Of course, the fact that the Dow managed to close just over
the mark, at 8000.60 could also indicate the bulls were able to
muster enough strength to break that level after a bigger sell-
off.  If nothing else is clear, we seem to have a line drawn in
the sand that we can focus on tomorrow.   Certainly in the
current geo-political environment, technical indicators cannot
account for news risk, as they are numbers based only.  However,
they do measure the result of whatever action stems from that
news risk and still provide a valuable tool to assess direction
as well it is possible to assess under current conditions.   Of
course, we can technically analyze until our heads cave in and if
Saddam Hussein flees into exile, we will most likely see a huge
rally, at least temporarily.

Point and Figure Chart of the Dow


Bullish Percent of the Dow


The semiconductor stocks got a pat on the back, in spite of last
night's disappointing book-to-bill number. Yesterday's info
showed a drop of 10% in orders and 9% in shipments. The drop in
the BTB number to 0.92 was below analyst expectations between
0.93 and 0.98. However, Morgan Stanley raised its rating on the
entire sector, saying that the risk/reward parameters have become
more attractive over the past few months and that the miss was a
non-event.  It expects the chip stocks to out perform the market
over the next 12-16 months. Outperforming the market is a curious
proposition, since following the upgrade, many of these stocks
proceeded to wet the bed.  Interestingly enough, this seemed to
be the first group to find support last week, basically flat
lining around 260, before heading higher.  While the Dow and
Nasdaq both sunk throughout much of last week, the SOX began to
build a base and even creep higher.  Was this really the first
indication that we should have been looking for a turnaround?
The index has shown a good correlation to the broader markets, as
it reflects IT spending by both consumers and businesses and this
time it does seem we should have paid attention when it began to
bounce. Morgan also gave individual upgrades to Intel, Texas
Instruments and Xilinx.  Keeping with the same theory of this
index giving us reliable signals, this morning, traders seemed to
focus more on news from Micron that it was cutting 10% of its
workforce and began taking some recent profits out of the chips.
The SOX ended the day at 288.99, after pulling back 2.64 points.

The wireless sector also suffered the upgrade curse today. Credit
Suisse First Boston raised their rating on the wireless equipment
sector.  The firm said trading opportunities exist over the next
3-6 months and that valuations now look attractive.  It cited
Nokia and Qualcomm as having the most upside.  The upgrade was
followed with a Nokia downgrade by Wachovia, based on the firm's
Global Handset Sentiment Index, which indicated that demand for
replacement handsets over the next quarter could be weaker than
expected.  On top of the dueling analysts, Nortel said that a
price war in the wireless equipment sector could cause the entire
market to drop 10% in 2003, which is worse than the predicted
single-digit losses.  Let's see, I don't recall my college
economics classes teaching that lower demand and lower prices
equal a stock buying opportunity.

Another indicator that has gotten some attention here at OI
recently is the Market Volatility Index (VIX).  Market Monitor
subscribers will note the discussions from Mark, Linda and myself
with regard to support and resistance levels that have given us
advance clues and continue to do so. The VIX reflects option
premium levels in the OEX and generally moves higher as the
market sinks and lower as it rises.  As it reaches resistance, it
often indicates the end of a drop and possibility of a bounce and
as it hits support it often portends a pullback after a rally.
The 40% resistance level has served us well recently.  It has
predicted intraday bounces and the reluctance to break above that
resistance level eventually foreshadowed a more decisive
turnaround in the equities.  The 35% level had served as
resistance as the Dow dropped from January highs down to support
in the 8200-8300 range.  After the Dow broke that support, the
VIX also broke resistance, and moved into the 35-40 range.  The
rebound of the past few days had driven the VIX back down from 40
at the recent equity lows, to support (previous resistance) at
35.  When we hit that support, lo and behold, we got an equity
pullback.  While this indicator is not exact, it has been giving
as reliable signals on a short-term basis.

Chart of the VIX


Today's trading still amounted to another low volume day. While
the range seems large with a high in the Dow of 8043 and a low of
7935, only one stock managed more than a dollar's worth of
movement. The moves we are seeing are almost always pegged to
geo-political tensions.  It's either renewed war fears or a
possible delay due to some new factor. This afternoon we got
conflicting reports about a second Iraqi resolution, with the
White house saying it could come in the next week or two,
contrary to reports that the soonest would be in March after the
next Blix report. It is next to impossible to guess what will
develop next.  Let's do our best to trade what we see, but be
ready to protect ourselves with tight stops ahead of whatever
tomorrow's developments may bring. Right now, we are still seeing
internal bearishness on the PnF charts, in spite of the rally on
Friday and Monday.  However, it was a big reversal, so we need to
be cautious. I'd like to simply say "short any rally," and that
is what I am personally looking to do.  However, I am keeping it
small, with mostly 1/2 positions, as the White House has yet to
fill me in on the "real" schedule.


==================================================================
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
---------------------------------

BellSouth - BLS - close: 22.14 change: -0.90

WHAT TO WATCH: Keep an eye on BellSouth.  Tomorrow the Federal
Communications Commission is expected to vote on whether to scale
back or eliminate regulations that force the Baby Bells (BLS,
SBC, and VZ) to let competitors use their networks at wholesale
rates.  If investors don't react favorably to the FCC ruling, BLS
looks like it could succumb to some heavy selling.  The stock is
already showing signs of technical weakness after Wednesday's
violation of support at $22.00.  Other than psychological support
at $20.00 (which is also the location of a short-term ascending
trend on the p-n-f chart), the daily chart shows no major support
until the September lows near $18.50.  A retest of this level
would not be out of the question if Wall Street decides the FCC
decision is a negative for BLS.  In late-breaking news this
evening, the company announced that it would take a $500 million
charge related to a change in accounting for its telephone
directory business.




---

Borg Warner - BWA - close: 54.20 change: -0.10

WHAT TO WATCH: BWA reported strong quarterly earnings earlier
this month.  While that fundamental strength wasn't enough to
prevent the stock from being dragged lower with the broader
market, shares are now looking bullish after rebounding from the
50-dma at $52.13.  BEA did a good job of maintaining its recent
gains today and closed above the 200-dma ($53.95) for the second
straight session.  We think BWA would offer a good long play if
it can break above the relative high of $55.39.  Should this
occur, shares might be able to retrace the remainder of the steep
September/October sell-off.  Short-term traders could target a
rally to psychological resistance at $60.00, while those with a
slightly longer timeframe could target a retest of the September
highs near $62.50.




---

1-800 Contacts - CTAC - close: 20.66 change: -1.09

WHAT TO WATCH: Shares of CTAC exploded higher on December 3rd
after the company announced a deal with Johnson & Johnson to
become an authorized dealer of JNJ's Vistakon contact lenses.
This created a sizable gap on the daily chart.  Now the stock is
threatening to fall into that void.  Shares are hovering above
$20.00 after steadily declining for more than a month.  A move
below this support level would put CTAC into the large vacuum
region that extends all the way down to $14.50.  Historical
support at $18.00 is the only visible obstacle that stands in the
way of a complete filling-in of the gap.  Take note, however,
that the stock trades on relatively light average daily volume of
42,000 shares.




---

Genentech - DNA - close: 35.70 change: -0.28

WHAT TO WATCH: DNA recently pulled back to the long-term trend of
higher lows that has put a bottom under the stock since last
July.  This trendline coincides with the rising 100-dma at
$34.59.  Shares rebounded from that level earlier this week as
investors cheered on news that Genentech had been awarded a U.S.
patent for the manufacturing of its interferon alpha treatment.
This gains continued into today's session.  However, the morning
rally lost momentum just below this descending 21-dma at $36.51.
Shares pulled back with the BTK.X biotech index and finished the
day with a small loss.  But with the oscillators looking bullish
and the stock holding above its 50-dma ($35.51), odds of a
continued uptrend look good.  We'd be watching for a move above
$36.51 to pave the way for a potential retest of the January
highs at $39.75.




---

JDS Uniphase - JDSU - close: 2.91 change: -0.09

WHAT TO WATCH: During the tech bubble a few years ago, traders
used to joke that JDSU stood for "just don't sell Uniphase."  Of
course that was before the stock plummeted from its all-time
highs above $150.  Shares have spent the past seven months
gravitating towards $2.50, with $3.50 continually acting as
resistance.  Aggressive speculative traders might be able to
capture a rally to the latter level if JDSU musters a convincing,
volume-backed breakout above $3.00.  The rising MACD and daily
stochastics (5,3,3) provide evidence of technical strength.  Long
entries could be targeted on a move above today's high of $3.05.




---

Manpower Inc. - MAN - close: 31.15 change: -0.74

WHAT TO WATCH: It doesn't take a genius to figure out how a
worsening economy could negatively impact companies that provide
staffing services.  The demand for temporary workers just isn't
what is used to be.  Manpower's latest earnings report, which
included a downward revision in expectations for the following
quarter, underscored those challenges.  Given those fundamental
problems, it's not surprising to see that MAN has had a sell-side
bias since last May.  What's technically interesting about the
stock is the fact that it recently rebounded from $30.00 after
filling in a large gap that was created on October 17th.  The
subsequent rebound petered out at $32.00.  If this reversal
continues, shares could soon violate support at $30.00.  A move
below this level (which also happens to be the location of
bullish support on the point-and-figure chart) would clear the
way for a possible retest of the October lows at $25.00.




---

Outback Steakhouse - OSI - close: 30.45 change: -0.26

WHAT TO WATCH: Darden Restaurants (DRI), a major player in the
casual dining industry, spooked the bulls yesterday with an
earnings warning.  The parent company of eateries such as Red
Lobster and Olive Garden said that it expects third-quarter
earnings of 34-36 cents per share.  Analysts, on average, had
expected a Q3 result of 39 cents/share.  This news gave
shareholders of Outback Steakhouse a severe case of indigestion.
The stock underperformed the market and headed lower from its
short-term trend of lower highs.  Shares continued to descend on
Wednesday, gapping lower and closing below the 50% retracement
from the October lows to December highs.  With the oscillators
looking bearish and the stock trading at multi-month lows, it
looks like OSI could be headed for the $26-$28 area of
congestion.  Bearish traders can watch for a move below
psychological support at $30.00 to yield a potential action
point.




---

Sigma-Aldrich Corp. - SIAL - close: 43.69 change: +0.08

WHAT TO WATCH: Positive brokerage comments helped shares of SIAL
to hold firm on Wednesday while the overall market moved lower.
However, the bullish news wasn't enough to push the stock out of
its multi-week descending regression channel.  The top of this
channel is reinforced by the 21-dam at $44.04.  Based on the
assumption that the trend will hold, SIAL looks it would offer a
possible short entry on a rollover form current levels.  A
favorable risk/reward ratio could be created by using a stop
slightly above the 21-dma (something like $44.25 or $44.50,
depending on your personal strategy), and targeting a move to the
bottom of the channel near $40.00.  Bulls will correctly point
out that the MACD and daily stochastics are heading higher, so
conservative traders might want to look elsewhere for a short
play.





=========================
Play-of-the-Day (new BEARISH high-risk/high-reward play)
=========================

Allied Waste - AW - close: 8.75 change: -0.41 stop: *text*

Company Description:
Allied Waste Industries, Inc., is the second largest, non-
hazardous solid waste management company in the United States,
providing non-hazardous waste collection, transfer, disposal and
recycling services to approximately 10 million customers.
(source: company press release)

Why We Like It:
Allied Waste did not impress Wall Street with its earnings
announcement last Thursday.  In an ongoing effort to work off
millions of dollars in debt, the company managed to swing back
into profitability after reporting a net loss for the same period
last year.  However, the quarterly profit came in at only 19
cents per share.  This was a full five cents less than the
analyst consensus.  In terms of its future outlook, AW said that
it expected 2003 EBITDA earnings to be $1.75 billion - the same
results that were seen in 2002.  The disappointing quarterly
profit and forecast for no earnings growth did not sit well with
investors.  AW gapped lower on the news and quickly took out
support at $9.25.  On Tuesday the stock failed to respond to the
broader market's steep rally, squeezing out a gain of only six
cents and trading an Inside Day.  The bears piled on en masse
once this consolidation pattern was broken on Wednesday morning.
Shares finished with a 4.4% loss, closing well below the
converging 100-day and 200-day moving averages near $9.00.  That
level also happens to coincide with the 38% retracement from the
October low to the December high.  These support levels were
abandoned on the second-strongest volume of the year, showing a
large amount of conviction behind the selling.  So now that AW
has broken down, just how far could it fall?  A complete
retracement of the October-December rally would take the stock to
the $5.50 region.  We're going to be more conservative in
targeting a decline to the mid-October highs near $7.00.  Our
initial profit-target will be set just above this level at $7.06.
The entry trigger for this hypothetical trade is at $8.54, a
penny under today's low.  We'll use a stop-loss at $9.28 if the
play is activated.  This would force AW to move above the
aforementioned support levels near $9.00, as well as today's
high.  Longer-term or more aggressive traders could use a stop
slightly above yesterday's high of $9.50.

Annotated daily chart - AW:



Picked on February xxth at $xx.xx <- see text
Results since picked:       +0.00
Earnings Date            02/13/03 (confirmed)







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DISCLAIMER
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This newsletter is a publication dedicated to the education
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only. The information provided herein is not to be construed
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Copyright ) 2003  PremierInvestor.net. and
The Premier Investor Network.
Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter               Wednesday 02-19-2003
                                                   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:

High Risk/Reward
  New Bearish Plays:     AW

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)


==================================================================
HIGH RISK/HIGH REWARD (HR) section
==================================================================

============
HR New Plays
============

  -----------------
  New Bearish Plays
  -----------------

Allied Waste - AW - close: 8.75 change: -0.41 stop: *text*

Company Description:
Allied Waste Industries, Inc., is the second largest, non-
hazardous solid waste management company in the United States,
providing non-hazardous waste collection, transfer, disposal and
recycling services to approximately 10 million customers.
(source: company press release)

Why We Like It:
Allied Waste did not impress Wall Street with its earnings
announcement last Thursday.  In an ongoing effort to work off
millions of dollars in debt, the company managed to swing back
into profitability after reporting a net loss for the same period
last year.  However, the quarterly profit came in at only 19
cents per share.  This was a full five cents less than the
analyst consensus.  In terms of its future outlook, AW said that
it expected 2003 EBITDA earnings to be $1.75 billion - the same
results that were seen in 2002.  The disappointing quarterly
profit and forecast for no earnings growth did not sit well with
investors.  AW gapped lower on the news and quickly took out
support at $9.25.  On Tuesday the stock failed to respond to the
broader market's steep rally, squeezing out a gain of only six
cents and trading an Inside Day.  The bears piled on en masse
once this consolidation pattern was broken on Wednesday morning.
Shares finished with a 4.4% loss, closing well below the
converging 100-day and 200-day moving averages near $9.00.  That
level also happens to coincide with the 38% retracement from the
October low to the December high.  These support levels were
abandoned on the second-strongest volume of the year, showing a
large amount of conviction behind the selling.  So now that AW
has broken down, just how far could it fall?  A complete
retracement of the October-December rally would take the stock to
the $5.50 region.  We're going to be more conservative in
targeting a decline to the mid-October highs near $7.00.  Our
initial profit-target will be set just above this level at $7.06.
The entry trigger for this hypothetical trade is at $8.54, a
penny under today's low.  We'll use a stop-loss at $9.28 if the
play is activated.  This would force AW to move above the
aforementioned support levels near $9.00, as well as today's
high.  Longer-term or more aggressive traders could use a stop
slightly above yesterday's high of $9.50.

Annotated daily chart - AW:



Picked on February xxth at $xx.xx <- see text
Results since picked:       +0.00
Earnings Date            02/13/03 (confirmed)





==================
  Trading Ideas
==================

This section contains stocks that meet criteria which may make
them of interest to long and short side traders.  These are not
recommendations, nor have they been reviewed by PremierInvestor
editors for investment potential.  However, each of them has
technical and fundamental characteristics that make them worthy
of further review by traders and investors looking for fresh ideas.
New stocks will appear daily following the market close.

Value Plays With Bullish Signals
---------------------------------
Ticker  Company Name               Close     Change

FRK     Florida Rock               34.40     +0.65

---------------------------------------
Breakout to Upside (Stocks $5 to $20)
---------------------------------------
Ticker  Company Name              Close     Change

IMCL    Imclone Systems           13.50     +2.41
MNS     MSC Software               8.85     +1.52

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

ANF     Abercrombie & Fitch        29.57     +1.75
CAT     Caterpillar Inc            45.95     +1.40
LH      Laboratory Corp            26.78     +2.32
DGX     Quest Diagnostic           51.94     +2.94

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

AMG     Affiliated Managers Group  44.09     -1.61
YRK     York International         21.44     -1.78
FTE     France Telecom             24.20     -1.45
GALN    Galen Holdings             22.70     -1.31
CTAC    1-800 Contacts             20.66     -1.09

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

TNC     Tennant Co                 30.75     -1.39




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