PremierInvestor.net Newsletter Monday 03-24-2003 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: Bulls First to Surrender Watch List: AMZN, AZO, EDS, KO, MO, and more... Play of the Day: Proceed With Caution ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 03-24-2003 High Low Volume Advance/Decl DJIA 8214.68 - 307.29 8514.82 8185.20 1535 mln 80/1447 NASDAQ 1369.78 - 52.06 1392.40 1368.37 1301 mln 109/1181 S&P 100 439.67 - 16.69 456.41 438.83 totals 189/2628 S&P 500 864.23 - 31.67 895.79 862.02 RUS 2000 367.25 - 8.98 376.24 366.51 DJ TRANS 2183.35 - 80.14 2263.24 2170.08 VIX 34.75 + 1.13 36.05 34.13 VIXN 46.36 + 0.58 47.34 45.32 Put/Call Ratio 0.85 ****************************************************************** =========== Market Wrap =========== Bulls First to Surrender by Steven Price The recent rally finally ran out of steam, as the weekend war effort brought roadblocks the market wasn't expecting. What had seemed like a cakewalk, with little Iraqi opposition, turned ugly with captured U.S. soldiers, casualties and some actual resistance on the way to Baghdad. The expectation of a quick finish to a war that seemed on pace to end over the weekend came to a halt - as did the apparent combination of short covering ahead of a possible surrender and the euphoria over the U.S. taking full control of the oil fields - and sent the markets into reverse. After an 1100 point gain in the Dow in the previous eight sessions, we started out the day giving back almost 300 of those points. The Dow fell back below a previous significant level of support that appeared to have been the first possible entry point at which bulls could have stepped in and bought a dip. With the recent rally taking out plenty of resistance levels and this morning's drop taking out previously significant support levels, playing the technical pivot points is becoming that much more difficult in an environment that is news driven and seems to hinge on every advancement, or lack of advancement, by U.S. troops in Iraq. By the end of the day, the Dow had dropped over 300 points and the Nasdaq Composite had given back more than 50 points. We also saw tensions escalate between the U.S. and Russia on U.S. charges that Russia had sold weapons to Iraq in violation of U.S. sanctions. Think there may have been another reason Russia didn't want the U.S. moving into Iraq? Maybe they were afraid of what we'd find. Vladimir Putin said he would investigate the charges. We pulled back into a pivotal 'zone' however, and how we react to that zone may determine whether this is truly a direction changing pullback, or simply a 'buy the dip' opportunity. The Dow found support in the 8200-8300 range during the formation of its head and shoulders patterns during the fall and winter, and the 440 level in the OEX served a similar purpose. Now that we are back around those levels, after soaring through them on Thursday and Friday, a bounce from here would still suggest that the rally is holding. After all, a gain of 1100 points, followed by a pullback of 300, is not necessarily bearish. However, we got a break below OEX 440 on the news of an explosion near U.S. Navy 5th fleet base in Bahrain. That dropped the broader markets through yet another level of intraday consolidation. However, once it was learned that the explosion was caused by a protestor blowing up a propane tank, the OEX quickly jumped back above that 440 level. Bulls can point to that activity as evidence that support around 440 remains solid. However, doesn't that activity show just how driven we are by news, as opposed to technical levels? By the end of the day, we ticked down to OEX 439.83, but 0.17 is not exactly a decisive violation and where we head from here on Tuesday could be crucial for the near future. A break below the 437 level would indicate that the 50% retracement of the August-October high-low range has been violated and would look bearish. We bounced from that retracement on Wednesday and Thursday, so traders can set a bearish alert on a break below OEX 437. Chart of the OEX Chart of the Dow The oil market also reflected the concern that the war may not end as quickly as had been expected. Even though we got continued comments from President Bush that this invasion could take a while, oil futures had dropped 26% since March 12. The May futures fell back into a resistance zone from last fall, when the U.N. debates were still in the early stages. The rise in the price of oil over the past several months reflected both higher costs to businesses and consumers and also served as a barometer of the likelihood of war and victory. The inverse relationship between the price of oil futures and the level of equities has been like placing a mirror between the two charts and that relationship continued today. Oil futures spiked $1.75 per barrel, bouncing from that zone of support and making up 144% of the drop from Friday. Chart of the Crude Oil Futures Further evidence that the developments in Iraq are dominating the market action came from the activity in travel related stocks. The Airlines took a beating, reversing much of Friday's gain in the XAL, with a loss of 9%. Some of the biggest losers in the sector were American (AMR -12%), Continental (CAL -17%) and Delta (DAL -15%). The hotel stocks also headed lower, with Starwood (HOT) losing 10% and Marriott (MAR) dropping 8.6%. Part of this was due to Starwood withdrawing first quarter and full-year guidance, but even that was related to the Iraq situation. The company said there was "significant deterioration in business due to the elongated Iraq negotiations and the related geopolitical conditions that worsened over the quarter and culminated recently in armed conflict." The bleeding continued into the travel reservation stocks, with big losses in Expedia (EXPE -4%), Hotels.com (ROOM -6.7%) and Sabre (TSG -5.3%). Those traders following the bullish percents of the major indices have seen the rally produce the first upturn in those percents since December. That indicates that there has been enough buying interest to not only make up for recent losses, but establish enough point and figure buy signals to change the percent of stocks giving those signals in the Dow from 10% to 40%. It would also indicate we should be looking to buy dips, as those percents are just coming out of oversold territory and are nowhere near overbought at 70%. But there are a couple of concerns here. First is picking a support level as a bottom after a meteoric rise that didn't pause for very long at any particular point. If the previous levels of support and resistance weren't very important on the way up, with the market simply moving on geo- political developments, then they may not be significant on the way back down, either. Which brings us to the second concern - how much do the technical market indicators mean when we are in this environment? If the action from last week is any indication, the market loves a U.S. victory and if traders believe we will eventually be successful, then shouldn't we at least revisit the level we were at before the weekend, when victory seemed imminent? Of course a bear would suggest that the world mostly believes the U.S. will eventually be successful and we still got a big correction today; so maybe last week's action was just short covering to protect positions in case of a victory over the weekend and now those shorts aren't in such a hurry to cover. If that is the case, then we could be looking at a return to the previous downtrend once the war is behind us and traders are left to focus on the economy. Chart of the Dow Bullish Percent Certainly we could have expected the travel related stocks to suffer during war time, as Americans and even worldwide travelers would avoid the dangers of traveling and U.S. citizens also want to avoid the possibility of attacks in foreign countries. But how is the war affecting spending here? Retailers saw a drop of about 3% in sales during the 1991 conflict. This time around analysts have been expecting a drop of only around 1% as a result of war. However, Federated (FD) announced it was seeing a drop of 3-4% since last Wednesday and J.C. Penney said sales were trending below expectations, as well. Wal-Mart, on the other hand, said sales were on target over the weekend. We get Consumer Confidence numbers out on Tuesday, so we should get a snapshot of how the war is affecting consumers' willingness to spend. Of course, with things turning south just over the weekend, we may have to wait for the University of Michigan Consumer Sentiment report on Friday for a clearer picture. The defense sector was one of the few winners today in the equities, with the DFI gaining 0.55. These stocks were sold off hard even as the U.S. moved closer to war. They bounced on the invasion and then sank as the U.S. forces got little opposition in the initial phase. However, today we saw gains from contractors such as Northrop Grumman (NOC +$2.08), Lockheed Martin (LMT +$1.00) and L-3 Communications (+$0.35), following the possibility that a longer war will require more re-stocking of the U.S. arsenal. Traders watching the Semiconductor Index for indications of tech sentiment saw that group turned back from its exponential 200-dma (337), where it ended on Friday, as the selling hit all sectors, with the exception of defense. The SOX, which cracked its simple 200-dma (currently 313) last week, is now sitting between the two averages and the next move through either should give us an indication of which way the techs are headed next. The NYSE ran into some public relations problems on the nomination of Citigroup CEO Sandy Weill to sit on its board. After shaking his head at the effect that putting the CEO of a company that has had some problems with the SEC on the board of the NYSE, New York Attorney General Eliot Spitzer called NYSE chairman Dick Grasso and said he would publicly and vigorously oppose Weill's appointment. Weill eventually withdrew from consideration. We continue to see news driven markets and picking a direction will be extremely tough under these circumstances. As long as OEX 437-440 holds up, traders looking to capitalize on rising bullish percents can try buying the dip. However, as this afternoon's propane explosion highlighted, support/resistance levels may not hold up the way they would in a traditional market scenario and traders relying on them should be trading only high risk capital. ================================================================== 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 --------------------------------- Andrx Group - ADRX - close: 9.45 change: -0.36 WHAT TO WATCH: Shares of Andrx lost a large chunk of their value on March 5th after the company reported that regulatory and legal obstacles had prevented it from marketing generic versions of drugs such as Prilosec, Wellbutrin, and Zyban. Shares gapped lower from $11.50 and eventually based out near $7.75. The recent upward action in the broader market pushed ADRX back to psychological resistance at $10.00 - also the location of the 21- dma. That moving average thwarted a rally attempt in February. Now that a rollover is beginning to take shape, it looks like the stock might be on course to retest the $8.00 region. Aggressive traders can watch for either a move under today's low ($9.27) or another failed rally near $10.00 to provide a shorting opportunity. Risk could be limited with a stop-loss slightly above resistance. --- Amazon.com - AMZN - close: 26.23 change: -1.70 WHAT TO WATCH: Readers who checked out this weekend's edition of the Watch List might remember that AMZN had formed a hanging man candlestick on Friday. Today we got some serious confirmation of that bearish pattern. Shares gave back 6%, finished near the lows of the day, and probably would've taken out near-term support at $26.00 if the closing bell hadn't sounded. A move below that level looks like it could be a good entry point for short positions. There is a large underlying fast-move region crated by the rapidly ascending price action over the past few weeks. Depending on your trading style and timeframe, you could target either the 21-dma at $23.84 or 50-dma at $22.53. --- Autozone Inc - AZO - close: 70.37 change: -2.78 WHAT TO WATCH: Autozone shot higher on March 13th after a brokerage upgrade helped to push shares above resistance in the $66-$67 area. However, the ensuing rally wasn't enough to push AZO above the 200-dma ($73.66), near the early-January high. Today's action saw the stock follow the broader market lower on the strongest volume in a week. If short-term support at $70.00 fails, AZO could retrace its recent gains and move towards the 50-dma at $65.51. --- Electronic Data Systems - EDS - close: 17.90 change: +0.27 WHAT TO WATCH: EDS bucked the broader market weakness on Monday and finished with a respectable 1.5% gain. The source of this relative strength was speculation that either Microsoft (MSFT) or Hewlett-Packard (HPQ) would acquire the company in an effort to more effectively compete with IBM in the enterprise software market. Shares of EDS popped higher last week when investors cheered a shakeup of the company's management. This propelled the stock above its 50-day and 100-day moving averages. EDS is now in the process of retracing the sharp mid-January decline from the $21.00 region. With little overhead resistance, aggressive traders could think about going long if shares break above today's high ($18.10). More conservative types will probably want to wait for a pullback to the $16.50-$17.00 area. Point-and-figure enthusiasts will be interested to note that EDS is on a bear trap alert after giving a triple-top buy signal at $17.00. --- eBay Inc. - EBAY - close: 87.55 change: -2.24 WHAT TO WATCH: We're probably not alone in thinking EBAY is overextended. Granted, the stock has staged a very impressive breakout. EBAY rode the wave of market bullishness, plowing through resistance at $80.00 and moving to levels not seen since Spring 2000. But since October, the stock had channeled higher in a more gradual uptrend. Will shares revert to the mean and return to that uptrend? Chances are pretty good if the NASDAQ extends today's losses. Specifically, we'd be watching for a pullback to the rising 21-dma at $81.65. Short entries could be targeted at current levels, using a stop slightly above $90.00. Traders looking for signs of more bearish conviction will probably want to wait for a move under $87.00. --- InterDigital Communications - IDCC - close: 21.86 change: +1.87 WHAT TO WATCH: IDCC launched from the $14.00 level last Monday after the company announced that it had settled a royalty and patent dispute with Ericsson. ERICY agreed to pay InterDigital $34 million to compensate for sales in 2002, as well as a $6 million annual fee and a royalty on each product sold through 2006. Investors were extremely happy with this development - IDCC has gained about 50% over the past week. Shares were bid higher by another 9.3% today, oblivious of what the overall market was doing. Volume has been steadily increasing, providing evidence of growing institutional interest. Bulls may be aiming for the next level of historical resistance at $25.00. That would be a reasonable target for short-term traders. Of course, a very aggressive strategy is required in this case. IDCC has moved rapidly higher and could see some profit-taking at any time. Watch for a pullback to psychological support at $20.00 to offer a potential entry point. --- Coca Cola - KO - close: 40.91 change: -1.34 WHAT TO WATCH: Coke fell into the abyss of multi-year lows during the latter part of January. The key technical breakdown occurred when shares took out long-term support at $42.00. The stock continued to trend lower and eventually leveled out near $37.00 before the huge Dow rally erased those losses. Now KO is beginning to roll over from the $42.00 region, which should act as resistance. Speculative traders could target short positions at current levels, with a stop just above Friday's high of $42.30. --- Altria Group - MO - close: 33.59 change: -1.45 WHAT TO WATCH: Here's another Dow component worth keeping an eye on. Last week the tobacco sector was pressured by news that the Justice Department had demanded $289 billion from the industry for "ill-gotten gains" related to fraudulent marketing practices. That's an incredibly large sum - even more than the $206 billion that big tobacco agreed to pay in a 1998 settlement with 46 states. The news got even worse on Friday evening when MO was slammed with a $10 billion verdict in an Illinois class-action lawsuit related to the misleading marketing of "Lite" cigarettes. S&P responded to this development by saying it may cut the company's debt rating. MO gave back 4.1% on Monday and retraced a large chunk of last week's gains when it gapped lower at the opening bell. The stock quickly bounced back to the $33.50 region, so bears will be looking for a move under either today's low ($32.35) or last week's low ($31.75) to provide downside confirmation. =============== Play-of-the-Day (BULLISH non-tech play) =============== Timberland - TBL - close: 41.04 change: -1.35 stop: 38.74 Company Description: The Timberland Company designs, develops, engineers, markets and distributes, under the Timberland, Timberland PRO and Mountain Athletics by Timberland brands, footwear and apparel and accessories products for men, women and children. The Company's products fall into two primary groups, footwear and apparel and accessories (including product care and licensed products). Timberland's products are sold in the United States and international better-grade department stores and athletic stores. (source: company website) - ORIGINAL WRITE UP: March 13th, 2003 - Why We Like It: A scan of news stories for TBL turns up few recent developments. As a matter of fact, the latest noteworthy event was the company's earnings announcement on February 6th. But what an announcement it was! Timberland reported fourth-quarter results that beat Multex estimates by 11 cents per share, and revenue growth of 4.7% on a year-over-year basis. Not too shabby, considering the otherwise bearish retail environment. The company's CEO also said that TBL is anticipating low double-digit revenue growth in the first half of 2003 and mid single-digit growth for the second half. These sunny expectations did not fall on deaf ears. TBL gapped higher in reaction to the earnings report and hasn't looked back. Shares have shown excellent relative strength over the past five weeks, trading contrary to the steadily downtrending Dow Jones. Shares of competitors Nike (NKE) and Reebok (RBK) are also trading at or near long-term highs. After a brief pullback from resistance at $40.00, today's broader market rally helped to push TBL to new multi-month highs. This breakout created a double-top buy signal on the point-and-figure chart. The bullish vertical count is $66. Glancing at the weekly chart, you can see that the next region of overhead resistance is at the May 2002 highs of $43.00. This would offer a possible short-term upside target. We're anticipating that TBL will eventually break above that level and make its way towards the highs for that year in the $45.50 area. Our entry strategy for this play will be to enter a hypothetical long position if TBL breaks above today's high of $40.80. Conservative traders might want to wait for shares to first pull back and test the $40.00 level, which should now offer support. If the play is activated our stop will be set at $38.74, slightly under yesterday's low. Those with a more aggressive strategy could use a stop below the rising 21-dma at $38.25. TBL hasn't traded under that moving average since it gapped higher on February 6th. - Last Update: March 21st, 2003 - TBL capped off the week in a fitting way as shares plowed through resistance at $42.00. The bears tried their best to defend that level, but the task to be quite impossible as the Dow exploded for another huge gain on Friday. Today's breakout has raised the possibility that TBL could soon reach our target region at $45.00. At this time we're going to place an official profit- target just below that level at $44.94. Traders with a slightly longer timeframe might want to aim for a retest of the 2002 highs near $46.00. So what's next for TBL? The weekly chart shows possible resistance at the May 2002 highs of $43.00. Ideally, we'd like to see TBL pull back and test the $42.00 level before shares attempt to clear that hurdle. Such a pullback might give short-term traders an opportunity to open new long positions. Those with a conservative strategy can be using a stop just below psychological support at $40.00. - Play-of-the-Day Comments: March 24th, 2003 - These days it takes a very good crystal ball to figure out where the market is headed. On Friday a potent combination of short-covering and panic buying pushed the major indexes to huge gains. Fast-forward to today's action, and those advances were completely erased by news of U.S. casualties and strong Iraqi resistance. We're probably going to see a lot more volatility as the war continues. Traders need to exercise extreme caution in this uncertain environment. That said, we think TBL could offer a good bullish entry point if the market bounces back from today's sell-off. On Monday the stock pulled back in tandem with the Dow Jones. The 30-minute chart shows short-term support at $40.50-$41.00. A rebound from this level, concurrent with a broader market rebound, might lead to a breakout above the relative high at $42.40. Downside risk could be limited by using a stop slightly below psychological resistance at $40.00. Our stop for this play, which was activated at $40.81, is set at $38.74. Picked on March 14th at $40.81 Results since picked: +0.23 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 03-24-2003 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 ================================================================= 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) ================== 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 CME Chicago Mercantile Exch. 48.00 +0.90 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change
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