PremierInvestor.net Newsletter Monday 03-10-2003 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: A Line In the Sand Watch List: MO, SBC, SLM, PG, and lots more... Play of the Day: Suspicions Confirmed ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 03-10-2003 High Low Volume Adv/Dec DJIA 7568.18 - 171.85 7739.47 7559.64 1202 mln 814/2448 NASDAQ 1278.37 - 26.92 1299.55 1277.18 1088 mln 910/2295 S&P 100 409.64 - 10.48 420.12 409.24 totals 1724/4743 S&P 500 807.48 - 21.41 828.89 806.57 RUS 2000 348.01 - 6.17 354.18 347.93 DJ TRANS 1982.56 - 59.92 2041.32 1977.28 VIX 37.85 + 2.20 38.16 37.11 VIXN 47.00 + 0.61 47.60 46.75 Put/Call Ratio 0.87 ****************************************************************** =========== Market Wrap =========== A Line In the Sand by Kent Barton "May you live in interesting times." - Purported ancient Chinese curse After months of diplomatic maneuvering, U.N. weapons inspections, and an extended military buildup in the Middle East, everything is finally coming to a head. The Bush administration is growing increasingly impatient and wants to kick off the war before a blistering Iraqi summer begins. France, Germany, and Russia want to give the inspectors more time. Something's gotta give. With its proposed March 17th deadline for Iraq to comply with disarmament demands, the U.S. and Britain have effectively started the final countdown to war. Both France and Russia have made it clear that they'll veto the British resolution, which could be presented for U.N. approval as early as Wednesday. But whether or not the resolution passes is largely irrelevant in terms of President Bush's ultimate objective. What the White House has done is put the world on notice that the U.S. is unwilling to wait any longer. Barring any unforeseen diplomatic developments, one week from tomorrow will mark the beginning of open season on Saddam Hussein. Friday's rumors that two of Osama Bin Laden's sons had been captured gave the shorts a perfect excuse to cover ahead of the weekend. This created an artificial bounce that disappeared on Monday after it became apparent that the rumors were false. The general market consensus seems to favor multilateral military action. Now that it's becoming increasingly clear that the U.S. will be acting unilaterally (i.e. without the auspices of the United Nations), the bulls will find it very difficult to buck the recent trend of lower highs in the Dow Jones. Daily chart - Dow Jones: 10-minute chart - Dow Jones: Foreign investment is also fleeing U.S markets, as evidenced by Monday's new multi-year low in the U.S. Dollar (DX00Y). This has severely negative implications for large importers such as Sony (SNE) and DaimlerChrysler (DCX), whose profit margins shrink as the Yen and Euro strengthen. Interventions from the Bank of Japan to prop up the Dollar have thus far had a minimal impact. Incidentally, DCX and SNE are both trading at long-term lows, and the Japanese Nikkei 225 just broke the 8,000 level for the first time in 20 years. In a fresh reminder that accounting issues are still lurking in the shadows, Bristol Myers restated its 1999-2001 sales and profit results on Monday. The company said it overstated sales by $2.5 billion, thanks to a policy that encouraged drug wholesalers to buy more drugs than they could sell. Bristol's "mea culpa" pressured the stock in early trading, but shares managed to outperform the broader market with a loss of only 1.2%. Investors seemed to be soothed by BMY's reiteration of full-year 2003 EPS expectations in the $1.60-$1.65 range. Government-funded mortgage lender Fannie Mae (FNM) was whacked for a 6.8% loss after St. Louis Federal Reserve president William Poole suggested that poor debt management had put the company in a position where it could be a risk to the economy. With Alan Greenspan recently making bearish comments regarding the housing market, investors didn't have to think twice about selling. FNM tagged a 52-week low on extremely high volume of 26 million shares. Fannie's brother Freddie Mac (FRE) moved sharply lower in sympathy. Receiving the dubious distinction of being today's worst sector performer was the airline index, which gave back most of Friday's short-covering gains. The XAL.X was pressured by reports that AMR (parent company of American airlines) has quietly starting talking to banking firms about bankruptcy loans. Shares of AMR dropped 14% on the news. The rest of the airline group (and the transportation sector in general) continues to be plagued by the rising price of oil. Crude futures (cl02j) are holding above $37.00/barrel and aren't likely to roll over while the geo- political climate continues to heat up. Oil traders will be focusing on tomorrow's OPEC meeting, where the cartel will discuss how to handle the current situation. In one of the handful of positive news stories today, Qualcomm raised estimates for its second-quarter chip shipments from 27 million to 28 million. QCOM has staked a lot on its critical third-generation (G3) CDMA technology, and thus far the network deployment seems to be going smoothly. Evidence of strong demand within the industry was also reflected in a consultants report that showed handset sales in the fourth quarter were better-than- expected. But with the NASDAQ bleeding steadily lower throughout the session, those two news stories weren't enough to prevent QCOM and NOK from finishing solidly in negative territory. Daily chart - NASDAQ: As you can see from the above chart, there's a whole lot of downside potential for the NASDAQ if it breaks under the relative lows. Big-cap techs INTC, MSFT, and IBM (Big Blue is traded on the NYSE) are all are looking quite weak. The semiconductor index (SOX.X) and software index (GSO.X) are trading at or below short-term support, and have ample room to move to the downside. Most traders are familiar with that tried-and-true axiom; "It's always darkest before dawn." Things are looking pretty dark at the moment. Every Dow component and major sector index finished in the red today, and down volume destroyed up volume on the NYSE by a 17:1 ratio (the NASDAQ was more tame at 3:1). The combination of last week's abysmal economic data and the pending war with Iraq has created what appears to be an ideal environment for the bears. From a contrarian standpoint, extreme negativity is an indication that a market bottom might be forthcoming. But two critical elements are lacking from the current decline: volume and fear. As has been the case recently, today's volume was very light at only 1.2 billion shares on the NYSE. This buyers strike is likely to continue ahead of the March 17th deadline. Meanwhile, growing anxiety has pushed the volatility index (VIX.X) up to the long-term descending trendline that we've been watching in recent weeks. Daily chart - VIX.X: Until we start seeing some powerful upward movement in the VIX.X and a couple down days with very strong volume, it'll be very tough to call a market bottom. Investors will become increasingly skittish as war approaches, possibly leading to a breakdown in the key equity indices. Potential buyers are simply unwilling to take sizable long positions in this uncertain climate. At the moment there are simply too many unanswered questions. For instance, how long will it take for the U.S to unseat the Iraqi regime and win the war? The Pentagon has hinted at a furious bombing campaign in the first few days, using laser- guided munitions and other airborne weapons. Ground troops would move into Baghdad after the Iraqi military has been shocked by the initial hostilities. This weekend there were reports that a dozen Iraqi troops had surrendered to British forces. Watching a British live-fire exercise, the malnourished and poorly-equipped Iraqis thought the war had already started. When they tried to surrender, the soldiers were told to wait until the war had actually started! The troops' loyalty (or lack thereof) doesn't bode well for Saddam. Early success in the military campaign might lead to a repeat of 1991, when the market rallied shortly after the war began. Chances of a swift victory would be bolstered if Turkey gave the U.S. permission to place ground forces in the country. Although the Turkish Parliament has already voted against allowing ground forces, this weekend's election of a new Prime Minister might enable the troop deployment to be brought up for another vote. The U.S. would benefit greatly from being able to attack Iraq from its Northern border. Nobody knows how this will all play out. But given the technical weakness in the major indexes and Wall Street's opposition to unilateral action by the U.S., it's hard to envision how the market could muster anything more than a short-lived relief rally in the near future. The coming week should prove to be quite interesting indeed. Intraday index traders can continue to trade the downtrend, using failed rallies from descending resistance as potential entry points while also paying close attention to those underlying support levels on the Dow and NASDAQ. Conservative traders will probably want to remain on the sidelines and wait to see how the ongoing Iraq drama plays out before making any commitments. ================================================================== 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 --------------------------------- Viacom Inc - VIA (class A) - close: $34.74 change: -1.48 WHAT TO WATCH: Breaking to new six-month lows was VIA. The stock fell under three week old support at $35.00 as investors feared the coming war would accelerate the drought in an already weak advertising market. The Point-and-Figure (PnF) chart looks weak and we suspect the stock is aiming for a retest of its July 2002 lows. --- SBC Communications - SBC - close: $19.35 change: -1.14 WHAT TO WATCH: Also leading the way down were shares of SBC. The stock dropped 5.5% and reached a nine-year low after collapsing through support at the $20.00 level. The on-going FCC regulation issues SBC and other bells are facing do not help matters. Odds are this stock will see even lower lows. --- Procter & Gamble - PG - close: 79.79 change: -1.17 WHAT TO WATCH: Shares of PG have been holding on to the $80 area for dear life this last week. Bears have been waiting for months for the stock to break through this support and shares will not leg go. It continues to look weak and aggressive traders can be evaluating short-entries suitable to their risk level but some traders may be best suited by waiting for a convincing close under $79.50 to $79. Our target would be $75. --- Altria Group - MO - change: $35.55 change: -0.27 WHAT TO WATCH: Shares of MO fell strongly last week as investors and analysts began to speculate that Phillip Morris was likely to lose one of its current lawsuits. The suit in question is over the term "light". Plaintiffs (representing 1.1 million Illinois smokers) are saying "light" means less harmful. MO is arguing that the term "light" refers to the tobacco's taste. Hmm... which would you think the term "light" meant? The plaintiffs are looking for more than $7 billion (with a "B") in damages and another $14 billion (with a "B") in punitive damages. The judge is looking over the closing arguments now and the case is pending a verdict by the judge. Unfortunately, he gave no timetable as to when he would be rendering a decision. When he does, he has ordered that the judgment be sealed until both sides have received it. If you look at a weekly chart of MO you can see that shares of plenty of "profit" to be taken should the verdict go against them. Of course the very opposite is true as well should the judge rule in favor of MO. This is a very risky position for both longs and shorts. Choose carefully. --- Coca Cola Co - KO - close: $37.07 change: -0.63 WHAT TO WATCH: Wow! Shares of KO are really going flat. The stock hasn't been this low since early 1996. We're not necessarily recommending bearish plays as the stock is VERY oversold. However, it is very clear what direction the stock is headed. Aggressive traders could use a tight stop just above $38, which has held as resistance for the last few sessions or use the $39-40 area as a stop for any short positions. --- SLM Corp - SLM - close: $102.35 change: -2.55 WHAT TO WATCH: All this bearishness can be overwhelming. This entry is actually for the bulls. Shares of SLM (or Sallie Mae) have been in a long-term uptrend for months. Until the stock breaks its long-term uptrend by trading below its 200-dma we feel that enterprising traders can look for an entry point for new longs. Recent market weakness should have the stock pulling back to the 200-dma (currently $98.50) and/or the $100 mark, which could be psychological support. If shares pull back and hold or bounce, then our upside target would be $110. Should the stock fail and seriously violate the rising trendline, then as traders we'll be considering short positions. Just beware that it's not a bull trap as witness in mid-summer 2002. --- Freddie Mac - FRE - close: $50.80 change: -3.20 Fannie Mae - FNM - close: $58.92 change: -4.35 WHAT TO WATCH: No doubt you probably heard about the comments made by St. Louis Federal Reserve Bank President William Poole. If you haven't here's the skinny - Poole said that FNM and FRE's capital levels are too low and well below what a regulated institutions would be. Furthermore Poole went on to say that should either firm be "rocked by a mistake" it could turn into a crisis for the markets. Both stocks were hit hard and fell through long-time support levels. If the sell off continues we would not be surprised to see FRE aim for the $40 level and FNM aim for the $50 level of support. ------------ RADAR SCREEN ------------ AIG - This insurance stock is closing at new 52-week lows. The Insurance index broke down today through long-term support at 220. We would speculate on AIG heading to the $40 level. UPS - This stock bears some investigating. The stock has plummeted from $64 a few weeks ago to $53.74 today. Where it stops, no one knows but odds for a tradeable rebound are strong. Just don't try and guess the bottom. KSS - This retailer has been up the last few days but the rally failed right at its downward trendline. Aggressive traders can target shorts with a stop just above today's high. Our short- term target would be $45.00. UNM - Ouch! Shares of UNM lost 36 percent today after an unfavorable report by Moody's. Volume was huge at 8 million shares. Can it rebound? Absolutely, but by the looks of the intraday chart this still has some selling it needs to process. Only high risk traders should keep this one on their watch list for a short-term bounce... once signs of a bounce actually appear. MACR - It takes some faith in this market but shares of MACR are right at their rising support trend. Speculative traders could enter longs here with very tight stops. Considering the market environment it may be more prudent to wait for some signs of strength first (like waiting for a move back over $15). LMT - Shares are very oversold but they seem hell bent on hitting the $40 level of support. Should the stock offer a bounce and failed rally back at the $44 or $45 level we'd consider short- term bearish positions with tight stops. The cloud of war on the horizon has done nothing for this group. ATK - Similar story to LMT except the next support level is closer to $38. Any failed rally near $45 might be a shorting opportunity but use a tight stop. -OIL/GAS- SLB - This oil stock has been fighting to hold its gains for days and the breakdown today looks ominous. This looks like one to watch. KMI - The four month up trend in KMI looks ready to reverse. The last few weeks have been sideways and the move today is a strong close under the 50-dma. Should the stock retrace some of its gains from the October 2002 low, then a 38.2% retracement would put shares right at the $40 level. SUN - Wow! Here's a stock that has been up six weeks in a row and is showing no signs of stopping. We're not recommending any long plays as shares are quickly approaching resistance near $37.50-38.00. Watch this level for a failed rally and we might get an attractive short opportunity. -BANKS- We noticed a ton of bank stocks that had broken through long time support during Monday's session and several looked pretty intriguing as far as play candidates go. CMA - Just broke multi-week support at $39.50, could retest its October lows. FITB - A pretty ugly trend. If it breaks $50, watch out! NTRS - Broke the $30 level three sessions ago. No real support in sight. PVN - For aggressive traders, we'd look for a move below $5.00. If it occurs, target $4.25 to $4.00. =============== Play-of-the-Day (BEARISH non-tech play) =============== Sears Roebuck - S - close: 19.01 change: -0.89 stop: 21.11 Company Description: Sears, Roebuck and Co. is a broadline retailer with significant service and credit businesses. In 2002, the company's annual revenue was $41 billion. The company offers its wide range of apparel, home and automotive products and services to families in the U.S. through Sears stores nationwide, including approximately 870 full-line stores. Sears also offers a variety of merchandise and services through its Web sites, sears.com and landsend.com, and a variety of specialty catalogs. (source: company press release) - ORIGINAL WRITE UP: March 6th, 2003 - Why We Like It: Nary a day goes by that we aren't confronted with more evidence of fundamental weakness in the retail sector. The group is already reeling from a tepid Holiday season and a nation full of consumers who are more concerned with the looming war in Iraq than missing the latest big sale at the mall. Making a bad situation even worse, the East Coast was recently hammered with a severe winter storm that left many potential customers involuntarily cocooned in their homes. This had a decidedly negative effect on several retailers, including Sears. The company reported today that its same-store sales for February fell by 9.4%. Analysts were expecting a decline of only 7.6%. This news follows last Friday's credit rating reduction from Standard & Poor's, who cut Sears from "A" status to "BBB+." Today's news pushed S to new multi-year lows on the strongest volume since January 16th. This 3.5% decline was more than enough to push the stock below critical support at $20.00. Pulling up a yearly chart, we see that shares haven't traded this low since Ronald Reagan's first term. Now that's what we call a historical breakdown! In light of the technical and fundamental weakness, we feel that S could be headed for the next level of psychological support at $15.00. We'll initially target a move to that region. Shorter-term traders might want to aim for $16.00 or $17.00. We know, that's a bit ambiguous...But with shares trading at multi- DECADE lows, it's very tough to gauge downside potential. Suffice it to say we think the recent downtrend will continue. This hypothetical trade is active at current levels with a stop at $21.11. Very conservative traders might want to use a stop slightly above today's high of $20.20. Finally, on a purely anecdotal note: There's a Sears store adjacent to the Premier Investor offices here in Denver. With the exception of the Holiday season, the surrounding parking lot has been largely unfilled in recent months. While that's not information that one could base an investment decision on, it's nonetheless interesting to see tangible evidence of the sales decline that has weighed so heavily on Sears stock. - Last Update: March 7th, 2003 - Friday's trading kicked off in predictable fashion as S followed the broader market to some early-morning losses. The stock moved below Thursday's intraday support at $19.15 and made its way to an intraday low of $18.90. Not a bad start...but you probably know the rest of the story. Rumors that two of Osama Bin Laden's sons had been captured or killed triggered a sudden short- covering equity rally. S followed the major indices higher and topped out at $20.30 shortly after 12:00 EST. At that point the bullish enthusiasm slightly waned, and the stock formed a plateau 10-20 cents below $20.00. The fact that S closed below that level of psychological resistance is a positive sign for this bearish play. It's also encouraging to see that today's rally came on only 4.6 million shares. By way of comparison, volume during the previous three sessions of down days clocked in at 7- 10 million. Of course there's always the possibility that today's reversal formed a short-term bottom in S. The bulls will be looking for shares to provide upside confirmation by reclaiming the $20.00 level and breaking above today's high at $20.30. Those with a conservative strategy may want to use a stop just above that level. Traders looking for new entries will probably want to wait for a move under the relative low of $18.63 before thinking about going short. - Play-of-the-Day Comments: March 10th, 2003 - We were pretty suspicious of Friday's light-volume short covering rally in shares of Sears. Our bearish suspicions were confirmed today when the stock gapped below $20.00 and proceeded to move steadily lower throughout the session. The stock closed near the lows of the day and finished with a loss of 4.4%, easily underperforming the Dow Jones and RLX.X retail index. The stock's rejection from the $20.00 region is a promising development for this short play. Continued broader market weakness on Tuesday could see S fall under its relative low of $18.63. A move under this level would offer a potential action point for new short positions. More aggressive traders could also target entries on a failed rally near $19.40, which acted as intraday resistance this afternoon. Ideally we'd like to see a move to new lows be accompanied by strong volume, but that might be hard to come by if the overall market continues its recent trend of light volume. Conservative traders may want to place stops just above yesterday's high of $20.30. Picked on March 6th at 19.30 Results since picked +0.29 Earnings Date 04/17/03 (unconfirmed) ================================================================= 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 Monday 03-10-2003 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 Closed Bullish Plays: GLW 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 Closed Plays =============== -------------------- Closed Bullish Plays -------------------- Corning Inc. - GLW - close: 5.54 change: -0.25 stop: 5.64 Success!! Although Monday was obviously a very tough day to be a bull, GLW experienced some early-morning buying that lifted it towards whole-number resistance at $6.00. Anticipating that shares might max out at that level, we placed an exit target for this play at $5.99. Lo and behold, that was the high for the day. The stock then succumbed to the broader market weakness and retraced most of Friday's gains, ultimately finishing with a loss of 4.3%. Longer-term traders will note that the stock has not yet broken its short-term uptrend. But even though the technical picture for GLW is still bullish, further downward in the movement in the NASDAQ might drag the stock back towards the $5.00 region. In light of the broader market negativity, we're more than happy to part ways with GLW after harvesting a gain of 19.5% in this paper trade. After the closing bell today, Corning reiterated its first-quarter earnings expectations of 1 cent to 4 cents per share and said it expects to return to profitability in 2003. This mirrors the comments that the company's CFO made last Tuesday, and as such it shouldn't have a large impact on the stock price tomorrow. Picked on March 3rd at $5.01 Results since picked: +0.98 Earnings Date 04/24/03 (unconfirmed) ================== 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
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