PremierInvestor.net Newsletter Wednesday 02-26-2003 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: Uncertainty Reigns Watch List: AVCT, DISH, TKR, TOO, and MACR Play of the Day: Soundly Rejected ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 02-26-2003 High Low Volume Adv/Dec DJIA 7806.98 - 102.52 7925.81 7793.89 1327 mln 1270/1965 NASDAQ 1303.68 - 25.30 1331.47 1302.83 1775 mln 1260/1912 S&P 100 418.72 - 4.68 425.75 418.14 totals 2530/3877 S&P 500 827.55 - 11.02 840.10 826.68 RUS 2000 380.53 - 2.64 383.44 380.20 DJ TRANS 2039.69 - 2.14 2052.18 2029.76 VIX 37.02 + 0.90 37.50 35.97 VIXN 46.97 + 2.64 47.11 44.86 Put/Call Ratio 0.82 ****************************************************************** =========== Market Wrap =========== Uncertainty Reigns by Kent Barton It may seem like a distant memory, but it wasn't too long ago that investors could focus almost exclusively on earnings results, economic numbers, sales reports, and other fundamental data. Even in the year following the 9/11 attacks, Wall Street seemed to be more focused on finding the answers to questions like "Are we in a double-dip recession?" and "When will the IT sector finally recover?" Those burning questions are still up in the air. But now, as words like "Blix," "Al-Samoud Missiles," and "Regime Change" become part of our daily lexicon, geo- political events have become the driving force behind the market's movement. Sure, earnings and economic reports still matter - just ask anyone who was holding long positions before the abysmal Consumer Confidence numbers were released on Tuesday morning. But recently the market seems to have its collective eyes glued to Fox News, CNN, and MSNBC instead of CNBC. The geo- political uncertainty has created a very choppy market environment that's enough to give even the most jaded trader a case of heartburn. To wit: The market experienced a steep reversal rally on Tuesday, in spite of that dismal Consumer Confidence data. There was no clear catalyst for that sudden round of buying. Depending on your bias, it was either short- covering or bargain hunting. In any case, many of those gains evaporated today as the U.S. moved ever-closer to war with Iraq. And with Dow Component HPQ gapping sharply lower this morning, the bulls never really had a chance to extend Tuesday's gains. Hewlett Packard's earnings report last night included a net profit of $0.29 cents per share - one cent better than the consensus estimate. What spooked investors was the fact that the company showed only a $17.88 billion increase in revenue. Analysts had been looking for growth of $18.47 billion. This shortfall was especially concerning because a large amount of the $17.88 billion figure was derived from HPQ's acquisition of Compaq, not actual revenue growth. Dissecting the results, industry analysts pointed out that cash flow from operations was quite weak. This prompted Goldman Sachs to downgrade the stock's rating from "outperform" to "in-line" while slashing its full- year estimates from $1.34 to $1.29. HPQ gapped down to a multi- month low of $16.60 after finishing yesterday's session at $18.18. Shares continued to drift lower throughout the day and ultimately finished with a loss of 15.4%. That weakness spread to fellow Dow techs IBM, INTC, and MSFT, making it very tough for the index to extend yesterday's gains. Annotated daily chart - Dow Jones: In keeping with the recent trend, the Dow was unable to build on Tuesday's powerful intraday reversal. The index finished near the worst levels of the session after giving back a large chunk of yesterday's gains. The bears will now be targeting the Tuesday lows at 7720. A violation of this level would set the stage for a test of the multi-month lows near 7630. In last night's Market Sentiment, Steve Price discussed how the Dow Transports (TRAN) are commonly used to gauge the conviction behind moves in the Industrials. Another sector that is thought to provide "confirmation" of broader market activity is the financials. Perhaps more than any other group, banking stocks reflect investors' opinion of where the economy is headed. Generally, any rally in the major equity indexes that isn't accompanied by a strong rebound in the financials is thought to be highly suspect. The performance of domestic financial stocks is gauged by the BIX.X, while worldwide money-center banks such as Citigroup and JP Morgan are represented by the BKX.X. The Iraq drama is being played out on an international stage with dozens of countries as the supporting cast. As such, it's not surprising to see that the index has come under pressure as war in the mid-east becomes increasingly likely. Annotated daily chart - BKX.X: This chart bears more than a passing resemblance to the Dow Jones, with the exception that the BKX.X has found short-term resistance at its 38% retracement, while the 50% retracement has put a ceiling on the $INDU. However, it's interesting to note that the BKX.X has recently shown a slight trend of relative weakness. From its relative high on February 21st to yesterday's low, the index gave back 4.7%. By way of comparison, the Dow lost 4.0% from its own relative high to yesterday's low. The BKX continued to underperform on Wednesday. On a technical basis, the bears will be waiting to take advantage of either a breakdown below the relative low of 690 or a rollover from resistance near 730. As if financial bulls didn't have enough problems to contend with, the brokerage group came under fire today after the Wall Street Journal reported that Morgan Stanley is looking at a possible SEC lawsuit accusing the company of "laddering." Laddering involves giving IPO's to large banking customers who have indicated a desire to buy more shares. Already reeling from an industry-wide decrease in trading volume, the last thing MWD shareholders want to see is an SEC lawsuit. The airlines, another beleaguered sector, were pressured today by speculation that AMR could soon join UAL in Chapter 11 bankruptcy. It's hard to imagine that things will get much better for the group as long as oil prices remain pegged at long-term highs. Meanwhile, the NASDAQ gave back 1.9% amid a relatively quiet news day for the tech sector. The technical picture for the Composite is similar to that of the Dow, with a clear downtrend emerging over the past four sessions. There are also some developments in the semiconductor index that should have the bulls on their toes. The SOX.X underperformed the broader market today with a loss of nearly 3%. Not only did the index retrace Tuesday's gains, but it also set a new relative low. Continued weakness in the SOX.X could send the NASDAQ down to its own relative lows near 1260. Annotated daily chart - SOX.X: Across the Atlantic, British Prime Minister Tony Blair is facing opposition from his own Labour party regarding the use of the country's military force in an Iraqi war. Blair has been one of America's staunchest allies in the aftermath of the 9/11 attacks. This loyalty has held firm, even while polls show that the overwhelming majority of the British public opposes war without the auspices of the U.N. Meanwhile, the minority Conservative party is largely in favor (favour?) of regime change. Strange bedfellows indeed! That support from the Tories was enough to pass a Parliament amendment today echoing President Bush's call for a second U.N. resolution. Still, with 199 members of Parliament voting for a separate amendment opposing the war, Blair is in some very hot water. There were other developments today that suggest military action will be taking place sooner rather than later. Turkey moved its ambassador out of Iraq and pulled its oil tankers away from the area. The U.S. has offered Turkey billions of dollars in aid in exchange for the use of the country's airbases. Saudi Arabia also said it would allow an American air force presence within their borders. In Baghdad, Saddam has inexplicably refused to comply with UN demands that he destroy the country's al-Samound missiles, which have a range beyond that of the mandated limit. Tony Blair speculated that he's keeping this as a trump card to use just before military action appears imminent. With several thousand troops knocking on the front door, Hussein might suddenly throw up his arms and say "Okay, I'll destroy the missiles! Look at how well I'm cooperating." However, there were reports today that the U.N. and independent weapons analysts believe this missile might be part of a secret effort to design a delivery system with enough range to hit Israel. Chief U.N. Weapons Inspector Hans Blix wants the missiles destroyed by Saturday. Will Hussein comply? Stay tuned. As a sweltering middle-eastern summer approaches, the timeframe for war in Iraq is ticking away. Hans Blix says that several more months of weapons inspections are needed to ensure that Hussein has fully disarmed - and that's assuming that they get full cooperation. This is simply unacceptable for President Bush. Despite its overwhelming military force, an Iraq invasion would become substantially more difficult during the summer. Analysts have even drawn parallels to World War II, when the German army was defeated on the frozen Russian tundra. While this situation is vastly different, the White House does not appear willing to delay the war much longer. At a speech in Washington tonight, Bush is going to discuss his belief that regime change in Iraq will lead to greater chances for peace in the middle-east; namely between the Israelis and Palestinians. The President is also slated to talk about other benefits of toppling Saddam while also seeking to allay concerns of other Arab governments that war will plunge the region into turmoil. To the contrary, Bush believes that regime change in Iraq will help spread democracy to surrounding countries such as Iran. Make no mistake: This approach represents a clear turning point in American foreign policy. It's true that the United States, particularly during the Reagan years, played an instrumental role in liberating the citizens of Eastern Europe from Soviet rule. The key difference is the fact that those people liberated themselves without direct assistance from the American military. In the post-9/11 world the U.S. is taking a more pro-active role towards eliminating perceived threats. What does this have to do with the stock market? Everything. Iraq will be the first test for the Administration's new strategy, and a fear of the unknown has given the market a serious case of the jitters. Some investors are looking for a repeat of 1991, when the market began moving higher shortly after the hostilities began. Until that happens we're likely to see a lot more choppy trading with a bearish bias. But it's equally uncertain whether Gulf War II will be an easy victory for the U.S. After all, urban combat with Saddam's elite Republic guard in Baghdad would prove to be far more difficult than the open-desert warfare that was seen twelve years ago. The other wild card is that Iraq could use biological or chemical weapons on U.S troops. But speculation aside, there are a few technical signs that traders can watch for to indicate that we may be approaching a market bottom. One such indication would be a large upward spike in the volatility index. So far the VIX hasn't punched through its long-term descending trend of lower lows. A powerful move up to the 45-50 area would suggest growing fear among investors. This was last seen in October, just before the Dow bounced back from a multi-year low. A large increase in volume, especially if it coincided with a steep broader market sell-off, would also help to confirm that the war worries have finally been conquered. Lately volume has been relatively light, indicating that many of the large institutional players are simply sitting on the sidelines and waiting for the right time to act. Until that occurs it looks like the market is doomed to continue its erratic and unpredictable behavior. But remember...with difficulty comes opportunity. Savvy traders have been able to profit from the recent gyrations. Large intraday swings will continue to provide actionable entry points. Just keep an eye on those short-term resistance/support levels, and as always, don't hesitate to cut your losses if a trade goes sour. ================================================================== 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 --------------------------------- Macromedia - MACR - close: 15.26 change: -0.41 WHAT TO WATCH: Shares of this software company continue to climb despite a malaise across the sector. Chart readers can see the ascending channel and the very strong relative strength. Bullish traders can be encouraged that support at $15.00 held today despite the broader market weakness. We would consider bullish entries here or above $15.80, but our target would only be $17.50-18.00. If the stock does dip, a bounce at $14.00 would be attractive. --- Avocent - AVCT - close: 28.34 change: +0.85 WHAT TO WATCH: Here's a stock that was up on a big down day. Shares actually broke through overhead resistance at $28.00, pulled back and then bounced at $28.00 again. What makes this significant is the $28.00 level has been overhead resistance for YEARS. While this is great news for the bulls and shorts could panic and cover, the short-term channel/resistance trendling shows the stock right at resistance as well (this is where a annotated chart would come in handy). Keep an eye on this one and look to see how it reacts now that the stock has closed above $28.00. --- EchoStar - DISH - close: 26.39 change: -0.11 WHAT TO WATCH: Again, this is a stock that is showing very good relative strength versus the overall markets. Shares are up big over the last few months and the stock has been able to make headway in the last couple of weeks. The trend of rising lows is very bullish and the stock looks ready to make a run for the $30 level. --- Timken Co. - TKR - close: 15.55 change: -0.15 WHAT TO WATCH: You wouldn't think of a steel and bearings company as an investment these days but this stock actually looks attractive. Shares are WAY oversold and are just now starting to rebound. The selling stopped when TKR reached its October lows near $15.00. MACD is already positive but we would wait for shares to get above the $16.00 mark before considering a long play. Our initial target would be $18.00. --- TOO Inc. - TOO - close: 15.17 change: -0.05 WHAT TO WATCH: Here's another bottom fishing play. Shares just collapsed after breaching the $30 mark back in early December 2002. The long down trend appears to have bottomed and there is plenty of upside should investors decide to do a little bargain shopping. We would encourage traders to check the news to see if there is any particular reason the stock was sold off to such and extent, but the risks appear rather limited with a decent stop loss. We would consider a long play once shares recrossed the $15.75 mark. Conservative traders may want to wait for TOO to close above $16.00. ========================= Play-of-the-Day (BEARISH high-risk/high-reward play) ========================= IDEC Pharma. - IDPH - cls: 28.57 chg: -0.94 stop: 31.38 Company Description: IDEC Pharmaceuticals Corporation is a leader in the discovery, development, and commercialization of targeted immunotherapies for the treatment of cancer and autoimmune diseases. IDEC discovered and developed the first monoclonal antibody product (Rituxan.) and the first radioimmunotherapy product (Zevalin.) approved in the United States for the treatment of cancer. IDEC is a San Diego based, integrated biopharmaceutical company with multiple products in clinical stage development and strategic alliances in a variety of research platforms. (source: company press release) - ORIGINAL WRITE UP: February 4th, 2003 - Why We Like It: IDEC Pharmaceuticals announced earnings last Thursday that were in-line with consensus expectations. Owing mostly to strong sales of its cancer drug Rituxan (which is co-marketed with Genentech), the company reported a large increase in fourth-quarter profits. This came as no surprise, because IDEC had pre-announced two weeks earlier that it would beat earnings by four cents. The stock got a quick pop in reaction to that news but has since trended lower with the BTK.X biotech index. That sector weakness continues to plague IPDH. On Tuesday the BTK.X underperformed the NASDAQ and moved to new multi-month lows. Shares of IDEC fared even worse, selling off by 5.2% on relatively strong volume. This took the stock out of a narrow range (most readily visible on a 30-minute chart) that dictated trading for more than a week. Bringing up a point-and-figure chart, we can see that today's decline also produced a triple-bottom sell signal. The current bearish vertical count is $24.00. The weekly chart shows no clear support until the $20.00 area. While longer-term traders might want to target a move to that level, we'll be aiming for a decline to the $24-$25 region. However, in order to avoid the possibility of a p-n-f bear trap (and also to ensure that a breakdown has occurred), we won't enter this play until IDPH falls below $30.00. If we're triggered our stop-loss will be placed at $32.82, one cent above the relative high. This sets up a risk/reward ratio of roughly 1:2. More conservative traders could use a stop slightly above Tuesday's intraday resistance at $31.30. - Last Update: February 25th, 2003 - IDPH moved to a new relative low on Tuesday and proceeded to bounce back into positive territory on the strongest volume in over a month. The intraday rebound mirrored a similar move in the BTK.X biotech index, which set its own multi-month low before bouncing from the 310 level. This sort of action will certainly keep the bears on their furry toes...but it's less clear whether today's reversal is indicative of a short-term bottom in IDPH. The stock has been marching steadily lower, with a descending trend of lower highs providing resistance. This trendline coincides with whole-number resistance at $30.00. Thus, we'll be looking for that level to keep a lid on any additional gains. A rollover from $30.00 might also give aggressive speculative traders a chance to open new bearish positions. Our stop is currently set at $31.38. Those looking for a little less upside risk could use a stop just above the descending 21-dma at $30.73. In the news this afternoon, IDEC announced a patent infringement suit against Corixa and GlaxoSmithKline related to Bexxar, Corixa's non-Hodgkin's lymphoma treatment. This did not appear to have any substantial impact on the stock's trading. - Play-of-the-Day Comments: February 26th, 2003 - On Wednesday IDPH was soundly rejected from its descending trend of lower highs. The stock topped out at $29.68 in early trading before it retraced nearly all of the previous session's gains. Shares finished with a 3.1% loss, clearly underperforming the NASDAQ and BTK.X biotech index. The BTK.X remains mired in a downward channel and looks like it could soon reach new multi- month lows. Traders looking to open new short positions can watch for IDPH to move below its own relative low of $28.26. Another failed rally near $29.75 might also yield an action point. This play's stop is currently set at $31.38. More conservative traders could use a stop slightly above whole-number resistance at $30.00 or the descending 21-dma at $30.57. Picked on February 13th at $29.99 Results since picked: +1.42 Earnings Date 01/30/03 (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 02-26-2003 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: DHR (bullish) 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) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== =============== AT Play Updates =============== Triggered Plays --------------- Danaher Corp. - DHR - close: 63.80 change: -0.52 stop: 61.49 This long play was triggered on Wednesday morning when DHR popped up to new relative highs and reached our entry trigger at $64.36. Shares traded to an intraday high of $64.45 before the bulls succumbed to broader market downtrend. Despite an steady decline into the closing bell, the stock closed above its 50-dma and outperformed the Dow Jones. On Thursday we'll be looking for DHR to bounce from the 50-dma and resume its recent uptrend. New entries can be targeted on a move above today's high. Our stop- loss is set at $61.49. ================== 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 PDX Pediatrix Medical 28.35 +0.66 PQE Proquest Company 18.61 +0.58 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change URBN Urban Outfitters 18.60 +1.60 MDCO The Medicines Company 18.64 +1.06 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change SONC Sonic Corp 22.10 +1.14 TIF Tiffany & Co 23.71 +1.42 EME Emcor Group 48.04 +2.02 VLO Valero Energy 39.35 +1.12 POT Potash Corp 59.96 +2.85 ATU Actuant Corp 36.25 +1.17 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change OMC Omnicom Group 53.96 -3.39 RNR RenaissanceRe 35.90 -1.08 CB Chubb Corp 45.75 -1.50 ABK Ambac Finacial 46.68 -1.08 KCP Kenneth Cole 22.75 -3.04 GAS Nicor Inc 30.08 -1.19 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change ADBE Adobe Systems 27.08 -1.20 LLTC Linear Technology 28.69 -0.80 DRYR Dreyers Ice Cream 71.90 -0.44 ================================================================= 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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