PremierInvestor.net Newsletter Tuesday 03-11-2003 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: Volume Returns Market Sentiment: Fulfillment Play-of-the-Day: Brokerage Breakdown ----------------------------------------------------------------- U.S. Market Numbers ----------------------------------------------------------------- MARKET WRAP (view in courier font for table alignment) ----------------------------------------------------------------- 03-11-2003 High Low Volume Advance/Decline DJIA 7524.06 - 44.10 7642.41 7520.63 1.69 bln 1317/1881 NASDAQ 1271.47 - 6.90 1288.99 1269.90 1.24 bln 1453/1773 S&P 100 406.74 - 2.90 413.63 406.70 Totals 2770/3655 S&P 500 800.73 - 6.75 814.25 800.30 W5000 7610.47 - 61.80 7730.09 7605.42 RUS 2000 347.03 - 0.98 350.77 346.44 DJ TRANS 1942.19 - 40.40 1986.34 1941.50 VIX 38.08 + 0.23 38.39 36.87 VXN 47.43 + 0.40 47.98 46.83 Total Volume 3,117M Total UpVol 903M Total DnVol 2,092M 52wk Highs 149 52wk Lows 511 TRIN 1.77 PUT/CALL .81 ----------------------------------------------------------------- =========== Market Wrap =========== Volume Returns Unfortunately it was down volume. Tuesday was not nearly as bad as Monday but still the down volume beat up volume better than 2:1. There was no panic selling. Traders could have best described it as frustration selling. Frustration that the war just keeps getting farther away and economy just keeps getting worse. Dow Chart - Daily Nasdaq Chart - Daily Yesterday was the third anniversary of the Nasdaq high of 5132 three years ago and today the Dow, Nasdaq, S&P, OEX, TRAN and RUT all closed at lows for this year. There was no panic selling but the consensus of opinion was "I am an investor, get me out of here". When it appeared the war was going to begin around the 17th investors had arranged their positions to take advantage of any post war rally. They were gulping down antacids as the market continued to drift lower but confident it would all be over soon. Today the shift in the potential starting date to April prompted those same investors started calling it quits. There maximum pain threshold had been reached and they do not want to try and hold on for 3-4 more weeks. Support for the US position continues to erode despite further evidence of lies and weapons from Iraq. Helping investors decide stocks were not appealing in a falling economy was the Wholesale Inventory report. Sales rebounded slightly but inventories fell -0.2% and pushed the inventory to sales ratio back to record lows. Nobody is buying anything on speculation and businesses are keeping expensive inventory to a minimum. Even worse was the report from the Richmond Fed showing the top-line shipments index falling from 18 to zero and new orders falling from 26 to -16. The backlog of orders fell from 46 to 26. This is not a positive report in any fashion. Cost pressures, energy prices, excess capacity and lack of demand is still creating the perfect storm for manufacturers. Chain store sales posted their strongest gain in six weeks but it was still less than 1% and disappointing to analysts. Sales are expected to be flat for all of March compared to only a +0.8% gain for all of February. Consumers are obviously not supporting the economy at retail stores. At least we can count on auto and home sales. Oops! Sorry, those are down too! The Transportation index sank to a new seven year low at 1941. This is due to constant pressure from oil prices and lack of demand for air travel. Shippers are also suffering from lack of traffic and higher costs. UAL requested another six months to complete their reorganization plan and rumors are rampant that they could change it from Chapter 11 to Chapter 7 which is liquidation not reorganization. AMR is looking for post bankruptcy financing and their days until a filing are numbered. Boeing announced that airplane shipments in February dropped -33% and Gulfstream dropped its delivery targets by -9%. Boeing said this will be the slowest year since 1996. Only four Boeing jets were delivered to US carriers. The Air Transport Association said economic fallout from a war could be so severe that "There is serious risk of chaotic industry bankruptcies and liquidations and forced nationalization of airlines was a real possibility." The US markets are not the only markets suffering from war fears and a weakening global economy. The Nikkei fell to another 20-year low at 7862. The FTSE and the German Dax hit a 7-year low. These are just a few. The world markets are bleeding cash and that means the US markets are at risk. If you are a large foreign investor with cash in multiple markets you have a major cash management problem. If your home market is hitting multi year lows then you may need cash to support those positions or add to them if you expect a rebound soon. With the US dollar dropping you are at double risk with your US investments. Market risk and currency risk. It does not take a rocket scientist to realize that drawing cash out of US stocks makes sense. This foreign cash drain is just one leak in our financial dike. The current market technicals in the US stink. That is as blunt as I can make it. With everything but the Nasdaq setting lows for the year and the $TRAN confirming the Dow drop there is little doubt that we could see the October lows soon. Unfortunately there is growing belief that those lows will not hold. If you are an institutional investor realizing that the war could still be a month away and earnings warning season begins in earnest next week and 54% of the S&P has ALREADY warned for the 1Q then suddenly cash as an investment vehicle looks great. The realization is dawning on many investors that it is the economy, not the war that is dragging the market down. Any still hoping for a war rally are becoming increasingly frustrated by the delays and the start date receding in the distance. If it is the war then we have another month to wait. If it is the economy then we are already in deeper trouble than most thought. Every major sector is full of warnings. Today we got ANN, MYG, NOK, BBOX, LECO, TSG, X, FLSH and Volkswagen among others. The warning from NOK was the 5th quarter in a row and cell phones are one of the growth sectors. NOK said volume was up but revenue was down due to strong price cutting to move units. If you don't give them away nobody wants them. Adding to the gloom and doom is the worry in the insurance sector after Warren Buffett warned that a major reinsurer had stopped paying claims that totaled in the billions of dollars. The entire insurance sector is suffering from the potential for hundreds of millions of dollars in write offs if the company fails. AIG and CB have been hit especially hard but the entire sector is weak. Buffett did not identify the company in question. Tbills hit a low not seen since 1958 and bond yields continued lower as cash continues to flow into safe investments despite the low returns. The financial markets are still reeling from multiple warnings of a potential financial meltdown from a bursting housing bubble. After Poole attacked FNM/FRE yesterday there were several follow on comments about the extremely high risk due to inflated housing values from the current bubble. Both stocks rallied after FNM CEO Franklin Raines rebutted Poole's comments but they rolled over again Tuesday afternoon. There were multiple downgrades to the entities based on a perceived tightening of control by the administration or a potential ending of their GSE status. The volume has picked up substantially but cannot be considered panic sales yet. On Monday we saw a 90% downside day where down volume was 18 times up volume. According to market historians this is a real sign of a market bottom in progress. Unfortunately for the last 70 years it has taken an average of six 90% down days to produce a bottom. This usually occurs over a 30-60 day period. One down and five to go if we are in an average bear market. Barton Biggs called the bottom again while saying that fear, pain, despair and capitulation are all present but that the US markets were only "fairly" valued. He feels that massive short covering by hedge funds and market entry by mutual funds could appear at any time if they feel the bottom is near. Barton has been saying that this "bottom building process", which is analyst speak for I am hedging my bets and we could still see lower lows, has been underway since late January. Dow Chart - Weekly There are as many guesses for the bottom as there are investors and I am not going to pick a number. Everyone thinks Dow 7200 is the magic number because it is the October low and every other "support level" since then has failed. For those counting there has been seven "lower lows" since 1999 for the Dow. October lows have been Oct-99 9976, Oct-00 9656, Sep-01 8062, Oct-02 7197. We will call the Sept-2001 low an October low since we were headed there already before the attack. Why is the Oct-2002 low of 7197 any more of a milestone than any of the other seven lows in this bear market? The only reason is that optimism runs rampant in the bulls. The economy is as bad or worse today than it was at any time over the last three years. I would agree that the 7200 level would and will be key, especially if the economy was showing signs of a recovery. What little signs we saw in Jan/Feb have almost completely evaporated and current analysts have to look at economic reports with a microscope to find any positives. We also have the war and the potential impact on the economy. There is a serious risk of escalated terrorist attacks once the war starts and the risk that tens of thousands of troops come home with chemical/biological injuries or come home in body bags. We have the risk of negative American sentiment if we go to war alone and in defiance of the UN. Unfortunately that appears to be the current outlook. Late news tonight is that President Bush is preparing a final demand to Saddam to disarm within seven to ten days or be attacked and that demand will be delivered on prime time TV on Thursday night. In effect a declaration of war because we know Saddam is not going to disarm. This is to be given after a vote scheduled on Thursday at the UN. Ironically this may provide some hope to the bulls due to the shorter time frame but that hope is misplaced for longer term investors due to the topics discussed above. There are rumors now that the 42,000 British troops already in Kuwait will not now fight. The 60,000 American troops called up last week and currently in route to Kuwait are a replacement for the British troops. This shows that it is going to be an American show and even our staunchest allies are in trouble. After all the negative points above there is a possibility for a market rebound due to purely technical conditions. Stocks have fallen far and bonds are at their highs. This means most fund portfolios with weighted ratios are now out of balance. Eventually they will have to adjust those asset allocations from bonds to stocks while knowing that there is still a rocky road ahead. Philosophically selling bonds at five year highs and buying stocks at five year lows does not take a lot of technical justification. The problem as you can obviously see is timing. If the market is still perceived to be going lower and bonds are continuing to inch slightly higher then they can wait to pull the trigger until the last possible minute. That minute would be Dow 7200 to some but probably the start of the war to others. Either way, regardless of whether 7200 is the bottom the odds are good we will see some asset allocation when we hit that level. It all boils down to long-term risk versus short term risk. It is my opinion that this will power any rebound over the next couple weeks and NOT a belief that stocks are suddenly a good value. Our challenge is to not be caught off guard when this process starts. Typically a sharp dip at the end of several days of drops is the key trigger for the event. Nobody wants to wait until the last minute and nobody wants to be last to board the train. Unfortunately while everybody is looking for the signal it still catches many by surprise as it occurs when the gloom and doom is the strongest. Last October we saw a +1350 point jump in eight days while most traders were still waiting for the next dip. Since very tense and irritable fund managers tend to jump the gun to avoid being late we need to be continually alert to every bounce. It should not be hard to spot. It will be the one with real volume. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor ================ Market Sentiment ================ Fulfillment by Steven Price The bulls huffed and puffed and snorted a little, following more news on the geo-political front that seemed to favor yet another delay in a U.S. invasion of Iraq. Pakistan's decision to abstain from the U.N. vote and the apparent softening of the U.S. March 17 deadline led to a morning rally right up to intraday resistance from Monday just below Dow 7650. From there it was the bears' turn, as they stepped in and slammed the market for 100 points in the opposite direction. Just when it looked like we were going to take out last July's low of 7532 and head toward a re-test of the October lows around 7200, the bulls stepped back in to defend that July level. For those following the pivot analysis we've been using in our swing trade and index trade models, the support at the daily and weekly S1s also coincided with that July low. The weekly S1 of 7541 was the closest support level to the morning bounce off 7540.73 and suggests a confluence of support factors. Of course the afternoon rollover below those levels is important as well. The weekly S2 sits at 7342. Another of those factors is the head and shoulders pattern that we have seen form across the broader market indices. The Dow in particular is what I am looking at today, as it was the index that behaved most closely according to script over the summer and fall of 2002. Between July and September, the Dow formed a bearish head and shoulders pattern that carried with it a downside objective just below 7200 (7180-7190). When it broke its neckline around 8250 in September, it was pretty much a straight shot down to a low of 7197 on October 10. Once that level was achieved, the next move we saw was a powerful rally all the way up to 9000. It did pause along the way, finding resistance at 8800, but by the end of the rally, we had seen a gain of 1800 points. That resistance at 8800 was important in that it was the beginning of another head and shoulders pattern. The pause at 8800 and then pullback to 8300 formed a new left shoulder, with a subsequent head at 9043. After yet another pullback to 8300, the right shoulder was formed on the subsequent rally to 8869. I can label this a definitive head and shoulders pattern because we then rolled over and broke a neckline at 8200. I've posted this chart in the Swing Trade Wrap for those readers who would like to see it. The key to any useful H&S pattern is targeting the move that results from the neckline break. In this case, the objective of the pattern was right around Dow 7500. Our closing low of 7524 was awfully close to achieving this objective and the bounce from this level, as well as the above referenced S1s ought to be a sign that the bulls are putting up a fight in this region. Also note the point and figure bearish vertical count on the Dow of 7100 is down near the October low. The objective in the OEX is 390. The Dow Diamonds, however, have a bearish count of 75 and that would correlate to a Dow trade of 7500, as well. Back in October, it seemed the sky was falling and there was no real reason to go long. However, we rallied 26% in the Dow and those traders looking to pick a rally top to short along the way took an awful lot of pain. At that time, we also saw similarly extended bullish percents, which had fallen dramatically from August highs. Those bullish percents in the Dow, OEX and SPX are not yet as low as they were in October, however, they are getting close and all have entered oversold territory. The October drop also did not see bullish percents as low as they were in July, although the markets actually dropped further. What's more, the October-November rally came during an earnings period in which we got repeated warnings from the tech sector and companies that consistently missed forecasts. I am not trying to say that any trader should be going long at these levels. However, those traders who can't see any reason not to go short need to be aware of the technical factors that could pose some barriers as the prospect of war grows closer. How does the war figure into all of this? It is really anyone's guess. Many traders are expecting a big rally once the bullets start flying, much like we saw in 1991. However, at that time, the speed of victory was not necessarily known. This time we are expecting a short war and yet the market is still dropping. We may continue that drop right through the H&S objective and with no obvious reasons to buy the current levels, bears may yet get a test of the October lows. However, the snap back rallies have had legs and those traders still getting in short (or maintaining short positions) should be giving extra thought to their risk profiles and where they want to place their stops. We did not get a big turnaround rally off the H&S objective test, like we did in October, but we have not quite achieved that objective, either. Back in October, the SPX and OEX did not achieve their objectives, even though the Dow did. We are in a similar position now, with the Dow very close, but the OEX objective sitting just below 400 and the SPX sitting around 790. That's not to say they aren't close, just not as close as the Dow. Traders will want to put these levels on their radars and tighten their stops as we get close. Some bounce can be expected, so a small one will not necessarily signal a major reversal. However, if that bounce starts to get some legs and we see an upturn in the bullish percents, it may be time to readjust our thinking, just as we should have in October. It is hard to make a case against shorts, with the weakness of today's bounce, in relation to the recent slide. However, I felt that way in July and October, as well. The trend is still down, I am just raising the risk alert for bears from yellow to orange. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10673 52-week Low : 7197 Current : 7524 Moving Averages: (Simple) 10-dma: 7741 50-dma: 8144 200-dma: 8512 S&P 500 ($SPX) 52-week High: 1176 52-week Low : 768 Current : 800 Moving Averages: (Simple) 10-dma: 825 50-dma: 862 200-dma: 901 Nasdaq-100 ($NDX) 52-week High: 1734 52-week Low : 795 Current : 959 Moving Averages: (Simple) 10-dma: 984 50-dma: 1006 200-dma: 1000 ----------------------------------------------------------------- S&P Banks Index (BIX): The BIX and BKX have been in free fall mode, taking both regional and international banks down with them. The indices have both broken down below February lows and could see as much as a 10% decline from these levels before testing support at the October lows. It will be hard to get any type of market bounce without the financials participation and right now those financials show little signs of a bounce for some time. Watch this sector closely, as heavyweights BAC, C, JPM, and CMA have all dropped hard and are approaching vacuums of support. The broker dealers, represented by the XBD, are also falling fast, with GS, MWD, LEH, MER and BSC all heading lower. Shorts looking to get involved here can put any of these on their radar and see a similar chart, but some are more broken down than others. Look for those that have already given up February lows as the best short candidates. 52-week High: 331 52-week Low : 236 Current: 258 Moving Averages: (Simple) 21-dma: 271 50-dma: 278 200-dma:287 ----------------------------------------------------------------- The VIX rose only slightly today, and is slowing its ascent as we near 40%. That key level has signaled short-term bounces, with highs between 40 and 41, but never a close above 40%. At least not since October, when we were rebounding from multi-year lows in the Dow/SPX/OEX. If we do manage a close above 41%, it may signal further weakness, as institutions will not have taken advantage of those elevated levels to sell premium and collect time decay. CBOE Market Volatility Index (VIX) = 38.08 +0.23 Nasdaq-100 Volatility Index (VXN) = 47.53 +0.50 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.81 444,918 360,712 Equity Only 0.66 294,904 193,392 OEX 1.00 25,615 25,680 QQQ 1.45 18,759 27,233 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 36.6 - 1 Bull Correction NASDAQ-100 31.0 - 2 Bear Confirmed Dow Indust. 10.0 - 3 Bear Confirmed S&P 500 28.8 - 2 Bull Correction S&P 100 23.0 - 3 Bear Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 2.07 10-Day Arms Index 1.86 21-Day Arms Index 1.52 55-Day Arms Index 1.43 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 1115 1720 NASDAQ 1391 1679 New Highs New Lows NYSE 62 215 NASDAQ 36 101 Volume (in millions) NYSE 1,657 NASDAQ 1,212 ----------------------------------------------------------------- Commitments Of Traders Report: 03/04/03 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov <http://www.cftc.gov>. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 We hear about trading volumes falling but now we're seeing it in the institutional futures positions as well. Commercial traders remain net short, expecting the market to go down. Small traders are still net long and actually increased the number of contracts on both sides of the fence. Commercials Long Short Net % Of OI 02/11/03 412,333 472,156 (59,823) (6.8%) 02/18/03 423,871 481,871 (58,000) (6.4%) 02/25/03 424,276 482,476 (58,200) (6.4%) 03/04/03 426,053 472,492 (46,439) (5.2%) Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: ( 16,472) - 10/01/02 Small Traders Long Short Net % of OI 02/11/03 161,126 95,618 65,508 25.5% 02/18/03 155,475 91,102 64,373 26.1% 02/25/03 157,790 91,083 66,707 26.8% 03/04/03 164,759 98,636 66,123 25.1% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 114,510 - 3/26/02 NASDAQ-100 The professional traders in the NDX futures are just trading water. There is little difference from the week before. Meanwhile the individual trader has bumped up the number of short contracts but remains net long. Commercials Long Short Net % of OI 02/11/03 39,412 53,818 (14,406) (15.5%) 02/18/03 38,486 50,501 (12,015) (13.5%) 02/25/03 38,787 51,745 (12,958) (14.3%) 03/04/03 39,934 52,978 (13,044) (14.0%) Most bearish reading of the year: (15,521) - 3/13/02 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 02/11/03 29,667 8,915 20,752 53.8% 02/18/03 25,482 9,425 16,057 46.0% 02/25/03 25,378 7,431 17,947 54.7% 03/04/03 24,240 8,038 16,202 50.2% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Looks like interest has been picking up for the DJ futures. Commercials upped both the long and short sides of the contracts but remain net long (expecting the Industrials to go up). The small trader slid a bit more to the bullish camp but remains net short overall. Commercials Long Short Net % of OI 02/11/03 19,826 11,800 8,026 25.4% 02/18/03 18,812 11,939 6,873 22.4% 02/25/03 19,985 11,866 8,119 25.5% 03/04/03 21,326 12,724 8,602 25.3% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 02/11/03 5,390 9,300 (3,910) (26.6%) 02/18/03 5,561 8,973 (3,412) (23.5%) 02/25/03 4,872 8,723 (3,851) (28.3%) 03/04/03 5,233 8,075 (2,842) (21.4%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ------------------------------------------------------ =============== PLAY-of-the-Day ((new BEARISH Active Trader/non-tech play)) =============== Morgan Stanley - MWD - close: 34.32 change: -1.06 stop: *text* Company Description: Morgan Stanley is a global financial services firm and a market leader in securities, asset management and credit services. With more than 700 offices in 28 countries, Morgan Stanley connects people, ideas and capital to help clients achieve their financial aspirations. (source: company press release) Why We Like It: With the Dow Jones and S&P 500 both trading at multi-month lows and the U.S. Dollar sinking to levels not seen since 1999, it's not surprising to see widespread weakness in the financial sector. Both the BIX.X banking index (which represents domestic banks) and the BKX.X banking index (a gauge of the larger money- center banks such as C and JPM) are leading the charge lower. The XBD.X broker/dealer index is looking quite weak as well, having recently fallen below support at 360. The next area of historical support is at 320. All this sector weakness hasn't been very healthy for shares of Morgan Stanley. The stock is trading at new relative lows after succumbing to heavy selling pressure over the past two days. MWD displayed relative weakness today with a loss of almost 3%. This decline led to a violation of bullish support on the point-and- figure chart. Further evidence of technical weakness can be garnered from the MACD, which is on the verge of giving a bearish crossover. The previous two bearish crossovers in early-December and mid-January occurred shortly after the stock put in a multi- week high. What's even more disconcerting for shareholders is the fact that MWD has fallen into a fast-move region with no clear bar chart support until the October lows near $29.00. Our initial profit target will be set at $30.06, just above the psychologically-important $30.00 level. We've started this paper trade with an entry trigger at $34.19, a penny under today's low. If the play is activated our stop will be placed at $36.51. This will force MWD to move above both the 21-dma ($36.09) and Monday's high of $36.49. Those who are a bit more aggressive could use a stop just above Friday's high of $37.05. On a final note, Morgan Stanley announces earnings before the opening bell on March 20th. Because we'll probably be closing the play before the announcement, our timeframe is somewhat limited. Longer-term traders looking for another weak financial stock might want to check out BAC or CMA. Annotated chart - MWD Picked on March xxth at $xx.xx Results since picked: +0.00 Earnings Date 04/20/03 (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. 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PremierInvestor.net Newsletter Tuesday 03-18-2003 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: Net Bulls Closed Bearish Plays: INFY Stock Bottom / Active Trader New Bullish Plays: BBY Bullish Play Updates: TBL, TOO Bearish Play Updates: T Closed Bearish Plays: S, UHS High Risk/Reward New Bullish Plays: BBOX Closed Bearish Plays: CTAC 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) ================================================================== Net Bulls (NB) Tech Stock section ================================================================== =============== NB Closed Plays =============== -------------------- Closed Bearish Plays -------------------- Infosys Technologies - INFY - cls: 58.52 chg: -0.15 stop: 60.01 Last week we discussed how the dissipation of bullish momentum in the software index and sector leader MSFT had helped to keep INFY under resistance at $60.00. The bears put up a valiant defense of that level on Monday as the GSO.X and overall tech sector moved explosively higher. INFY tagged an intraday high of $60.00, leaving our short play hanging by a thread. This morning the stock gapped up to an opening price of $60.19, stopping our play out for a loss of 70 cents, or 1.1%. In light of the powerful market rally from last weeks lows, it wasn't surprising to see INFY move sharply higher. Another factor that helped fuel the stock's rise is the recent uptrend in the U.S. Dollar. The currency has been pushed higher by the equity rally and a growing belief that the pending war with Iraq will be quickly resolved. The corresponding weakness in the Indian rupee is a positive development for Infosys. On the daily chart, we see that INFY is approaching its 200-dma at $62.27. That moving average provided resistance in late-February/early-March. Longer-term traders may want to maintain a stop just above those highs at $62.44. Picked on March 5th at $59.49 Results since picked: -0.70 Earnings Date 04/11/03 (unconfirmed) ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== ============ AT New Plays ============ ----------------- New Bullish Plays ----------------- Best Buy Co - BBY - close: 30.50 change: +0.63 stop: 26.99 Company Description: Minneapolis-based Best Buy Co., Inc. is North America's leading specialty retailer of consumer electronics, personal computers, entertainment software and appliances. The Company operates retail stores and/or web sites under the names: Best Buy (BestBuy.com), Future Shop (FutureShop.ca), Magnolia Hi-Fi (MagnoliaHiFi.com), Geek Squad (GeekSquad.com), Media Play (MediaPlay.com), Sam Goody (SamGoody.com) and Suncoast (Suncoast.com). The Company reaches consumers through nearly 1,900 retail stores in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. (source: company press release) Why we like it: Some of our readers are probably scratching their heads that we're considering another retail stock for a bullish long play. Believe us, we had the same reaction at least initially. There is no arguing that the economic stability of this country is on shaky ground and the retailing sector has NOT been a leader recently. With so many signs pointing to a potential double-dip recession how does one build a case for bullish retailers? The short answer would be "carefully". Not all retailers are on equal footing and both investors and traders need to be choosy. Let's try and look at the story for Best Buy. The company is expected to announce full year earnings on April 1st, 2003. BBY management has affirmed that they will hit analyst estimates and actually guided toward the upper half of the range. BBY's Q4 revenue numbers were 9% higher than the year before and total revenue for the year appears to be up 16% to $22.71 billion. As the number one retailer of consumer electronics, industry watchers expect BBY to continue to take market share from its closest rival Circuit City, who is still struggling to remodel its stores. Bears will be quick to point out that all is not pretty at BBY. The company's Musicland operations have been bleeding money, which is no doubt due to the malaise affecting the entire music industry. However, BBY is restructuring its Musicland operations and closing some stores. So the domestic economy is stumbling along and BBY still manages to raise its revenue numbers? There are plenty of other retailers who would like to say the same but can't. We also found it very interesting that the Oracle of Omaha, Warren Buffett, appears to have taken a liking to BBY. Recent research into the top 35 stock holdings of Berkshire Hathwaway showed that the company bought additional shares in seven of its top 35 stocks positions during the fourth quarter of 2002. High on the list was BBY. Now Buffett won't tell the media why he likes BBY but one reporter speculated that the Oracle certainly doesn't mind BBY's low P/E. Historically, shares of BBY tend to trade between a P/E of 20 and 40 times earnings. Currently they are only trading at 14 times estimated 2003 earnings (source: Forbes.com). That definitely leaves room for upside price appreciation, especially if you have a longer-term perspective like Warren. We also noticed some very bullish developments on BBY's point- and-figure chart. Not only did BBY breakout above descending bearish resistance but the stock is also in breakout mode from a bullish triangle. Now here's the skinny on those bullish triangle breakouts for PnF charts. According to studies, a bullish triangle PnF breakout is profitable 71.4% of the time. Not only that, the stock in question has an average gain of 30.9% over the next 5.4 months. Here's the trick - these results only apply in a bull market. It would take a lot of faith and a whole lot of guts to call today's markets a new bull market. Also positive for PnF chart readers is the stock's bullish vertical count, which is currently pointing to a price target of $60 (again, this is probably a long-term target). On a much shorter-term time frame bulls should be encouraged by the breakout above the $30 level on rising volume. However, we feel that the best entry point is probably on a pull back to the $29.00 area. This is why we're going to initiate the play with such a wide stop loss (of $26.99). A pull back and bounce anywhere between $28 and $29 would allow traders a much smaller amount of exposure. Our short-term target is $35.00 with a two- to-four week time frame. Annotated Chart of BBY: Picked on March 18th at $30.50 Gain since picked: +0.00 Earnings Date 04/01/03 (unconfirmed) =============== AT Play Updates =============== -------------------- Bullish Play Updates -------------------- Timberland Co. - TBL - close: 41.35 change: -0.43 stop: 38.74 News continues to be scarce for TBL but that has not stopped the stock from enjoying the bullish atmosphere in the markets. When the broader indices soared on Monday, shares of TBL joined in the rally and headed higher. That is until they slammed smack dab into resistance at $42.00. The stock spent most of the session trading sideways between 41.80 and 42.00 before slipping back from its highs into the close. TBL saw some profit taking early in Tuesday's session but buyers bought the dip and by the afternoon the stock was ticking higher again. Very conservative traders could use today's low as a potential stop loss guide while potentially less but still conservative traders could use the $40 mark as a guide. Currently, we're going to keep our stop loss at 38.74. Remember, this is a short-term trade with our target near $45. The longer-term weekly patterns are showing TBL to be overbought and ready for a pull back. Picked on March 14th at $40.81 Results since picked: +0.54 Earnings Date 04/17/03 (unconfirmed) --- TOO Inc - TOO - close: 17.21 change: +0.01 stop: 16.94 Our bottom fishing retail play in TOO has been a real trooper lately. The stock has taken every opportunity to rally with the markets and today's show of strength by not pulling back was very encouraging for shareholders. After Monday's big day we seriously considered closing the stock play for a profit. Yet after seeing the broader markets closing performances we decided to give TOO more time but using a very tight stop loss. That new stop loss from Monday night is $16.94. This protects a decent gain (even more decent if you entered on the pull back near $14.50) while still allowing TOO a chance to run. The stock is up significantly in the last four sessions and we would not recommend new positions unless the stock offered a pull back an bounced. Of course this will stop out our current play. Keep in mind that the S&P Retail index is looking just as top heavy and approaching its 200-dma. What could keep this rally going is shares of WMT, the leader in the retail group. WMT managed to close above both its $52 level and its 200-dma. WMT looks just as top heavy and due for a pull back but if the stock keeps running it can power the retail group to new highs. TOO is likely to keep the pace. Again, we do not recommend any new positions at this time and traders should be considering when they plan to exit if they are not already taking some profits off the table. Picked on February 27th at $15.66 Gain since picked: +1.55 Earnings Date 02/19/03 (confirmed) -------------------- Bearish Play Updates -------------------- AT&T - T - close: 17.15 change: -0.08 stop: *text* Shares of T bounced sharply on Monday. Did the business outlook for AT&T suddenly improve? Not a chance! But with the Dow Industrials rallying more than 280 points, nearly every component of the index posted solid gains. Yesterday's short-covering erased most of last week's losses. The stock traded in a much smaller range during today's session and finished with a fractional decline. News from Sprint this morning underscored the intense telecom competition that has pressured T. FON announced that it plans to begin selling local phone service with wireless and long-distance calling. These sorts of developments will make it increasingly difficult for AT&T to turn a profit. As far as the technical outlook is concerned, we're not quite convinced by the bounce off the relative lows. Until the stock shows additional confirmation, we'll maintain an entry trigger at $15.74. Remember that the play won't be activated if shares gap below $15.50. If these requirements are met our stop will be placed at $17.16. In other recent news, AT&T announced a quarterly divided on Monday morning. The dividend of $0.1875 per share will be payable on May 1st to shareholders of record on March 31st. Picked on March xxth at $xx.xx Results since picked: +0.00 Earnings Date 04/24/03 (unconfirmed) =============== AT Closed Plays =============== -------------------- Closed Bearish Plays -------------------- Sears Roebuck - S - close: 20.52 change: +0.65 stop: 20.62 The current market rally began last Wednesday when all three major indexes bottomed out at relative lows. Sears, however, didn't initially show much of a response to the equity gains. The stock continued to languish near multi-decade lows without showing any ability to catch a bid. It wasn't until Monday morning that shares finally shook off the weakness. S saw steady buying throughout the session and closed just below psychological resistance at $20.00. Driving this powerful upward move were news announcements from the Federated and Wal-Mart camps. FD, the parent company of Bloomingdale's and Macy's, affirmed its same-store sales forecast of a 3%-4% decline for March. WMT said it expects the same figures to show an increase in the low-single digits. The fact that Sears rallied sharply on its competitors reiteration of a *decline* in sales shows just how panicky shorts are in this environment. It's hard to imagine that that news would've triggered heavy buying a week ago, when the market was still mired in bearishness. But rally it did, and our play was stopped out for a 6.4% loss this morning when shares extended yesterday's uptrend. Traders who used a more lenient stop will be pleased to see that shares closed below the 21-dma after failing to move above whole-number resistance at $21.00. It's also interesting to see that the long-term trend of lower highs hasn't been broken. Nonetheless, with both the MACD and daily stochastics (5,3,3) hinting at further bullishness, traders still holding long positions in S may want to consider heading for exits during intraday pullbacks. Picked on March 6th at 19.30 Results since picked -1.32 Earnings Date 04/17/03 (unconfirmed) --- Universal Health - UHS - cls: 38.45 chg: -0.14 stop: 39.06 As the saying goes, a rising tide lifts all boats. Last week UHS showed a rather tepid response to the ascending action of the broader market. The stock lifted off its short-term lows but wasn't even able to break above its 21-dma. That all changed on Monday when the Dow Jones exploded for a 282-point gain. UHS followed the index higher throughout the session and continued to rally on Tuesday. Our short play was closed out for a loss of 2.8% when the stock spiked up to our stop-loss during the second hour of trading. Shares clawed their way to an intraday high of $39.48 before profit-takers finally moved in late-afternoon action. Longer-term traders who elected to give UHS more breathing room may want to use a stop slightly above either today's high or psychological resistance at $40.00. Picked on March 6th at 37.98 Results since picked -1.08 Earnings Date 02/13/03 (confirmed) ================================================================== HIGH RISK/HIGH REWARD (HR) section ================================================================== ============ HR New Plays ============ ----------------- New Bullish Plays ----------------- Black Box Corp. - BBOX - close: 30.82 change: +2.14 stop: *text* Company Description: Black Box is the world's largest technical services company dedicated to designing, building and maintaining today's complicated network infrastructure systems. Black Box services clients through 117 offices in 132 countries throughout the world. (source: company press release) Why We Like It: As Albert Einstein once pointed out, opportunity can often be found in the midst of great difficulty. That piece of wisdom applies particularly well to the recent trading in BBOX. Shares of the networking company lost roughly a third of their value on March 12th after Black Box reduced its fourth-quarter earnings expectations to 53-54 cents/share. Analysts, on average, had been expecting an EPS result of 74 cents. Explaining the shortfall, BBOX said "overcapacity in just about all vertical markets...continues to have an impact on our business." They also cited the continued war and terrorism concerns as reasons for the weakness, but of course that could be said for the entire economy in general. Investors were not pleased with these bearish comments regarding IT demand. BBOX gapped from $39.14 to $26.78 on extremely high volume of 7.5 million shares. The stock continued to decline and bottomed out at $25.58 during the following session. Things were looking awfully bleak as BBOX fell to multi-year lows, but the bears finally decided to call it quits when they were confronted with Thursday's broader market rally. Although there have been no fresh news developments for Black Box since last week's earnings warning, bargain-hunting and short covering have pushed BBOX sharply higher over the past two sessions. Obviously yesterday's market rally played a big factor in those gains. Shares continued to trade strong on Tuesday and outperformed the NASDAQ with a gain of 7.4%. That relative strength is a positive sign for the bulls. Point-and-figure chartists will also note that BBOX has reversed into a column of "X." And while a case could be made for some consolidation of the recent bounce from the $26.50 region, we feel the stock is poised to continue higher as it fills in the March 12th gap. An entire retracement of those losses would take BBOX to the $39-$40 area. This might be a realistic goal for longer-term traders. Because we have a shorter-term timeframe, our objective will be to capture a rally to our official exit target at $34.94, just below psychological resistance. The action trigger to enter this play is set at $30.86. Should we be triggered, we'll use a stop- loss at $28.69, five cents under today's low. Those looking for less downside risk might want to use a stop slightly below $29.50, which acted as a price magnet during the middle of today's session. Annotated daily chart - BBOX: Picked on March xth at $xx.xx <- see text Results since picked: +0.00 Earnings Date 05/08/03 (unconfirmed) =============== HR Closed Plays =============== -------------------- Closed Bearish Plays -------------------- 1-800 Contacts - CTAC - cls: 20.09 chg: +0.60 stop: 20.01 CTAC didn't show much of a response to yesterday's bullish onslaught in the equity market. The stock posted a paltry 1.4% gain while remaining well below the relative high of $19.70. That relative weakness gave the bears some hope that shares would roll over and begin to retrace the recent gains. But with the major indexes holding firm on Tuesday, a delayed bullish reaction propelled CTAC to a 3.0% gain. Our 6.4% stop-loss at $20.01 was violated when shares broke through psychological resistance near the end of the trading day. Given the lack of additional overhead resistance until the declining 50-dma at $21.64, we would not advise maintaining short positions at this time. Picked on February 20th at $18.80 Results since picked: -1.21 Earnings Date 02/18/03 (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 DUK Duke Energy 15.51 +0.87 FE First Energy 30.97 +0.67 SHPGY Shire Pharma. 18.20 +1.25 TECD Tech Data 24.25 +1.27 PRX Pharamceutical Resources 40.00 +1.20 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change DGIN Digital Insight Corp 15.55 +1.27 URS URS Corp 12.14 +1.11 CELL Brightpoint Inc 14.47 +1.26 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change DD DuPont 40.08 +1.38 SLB Schlumberger Ltd 39.50 +1.42 NAB National Australia Bank 90.25 +1.63 ABK Ambac Financial 49.57 +1.15 ESV Ensco Intl. 26.21 +1.24 FMX Fomento Economico 33.80 +1.01 GRMN Garmin Ltd 34.92 +1.32 BCR C.R. Bard 61.05 +1.31 AGE A.G. Edwards 27.52 +1.13 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change NHY Norsk Hydro 36.10 -1.24 RJR RJ Reynolds 33.57 -3.12 WGO Winnebago Industries 24.45 -5.31 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change
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