PremierInvestor.net Newsletter Wednesday 03-26-003 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: It's Not the Economy... For Now Watch List: ACS, BRCD, EBAY, MEDI, JEF, and more... Play of the Day: Breakout Approaching? ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 03-26-2003 High Low Volume Advance/Decl DJIA 8229.88 - 50.35 8284.99 8187.73 1546 mln 521/999 NASDAQ 1387.45 - 3.56 1397.94 1383.35 1374 mln 806/545 S&P 100 442.07 - 2.70 445.43 440.46 totals 1327/1544 S&P 500 869.95 - 4.79 875.80 866.47 RUS 2000 368.18 - 3.61 371.79 367.65 DJ TRANS 2203.88 + 1.81 2214.48 2190.91 VIX 32.16 - 0.50 33.52 32.05 VIXN 43.94 - 1.06 45.56 43.43 Put/Call Ratio 0.86 ****************************************************************** =========== Market Wrap =========== It's Not the Economy... For Now by Steven Price The market seems to be betting on an economic recovery when the conflict in Iraq is finally behind us. Unfortunately this morning's economic numbers let us know that the recovery is still a ways off. The market took an undecided approach to the data, while it continued to focus on the war in Iraq. One of the biggest factors preventing an economic collapse in the United States over the past year has been the strength of the housing sector. With consumers able to tap into their homes for re-financing dollars and also sell their houses in a sellers' market, there has been a reliable source of emergency dollars since interest rates - and mortgage rates - began dropping to multi-decade lows. Apparently some of those dollars have finally begun to slow. After a year in which it seems everyone with the ability to re-finance or buy a new house did so, we are starting to see declines in the housing market that have become measurable in numbers released over the past couple of days. February new home sales fell 8.1% to an annual rate of 854,000. This follows a 12.6% decline in January and is the lowest level since August 2000. The weather in the Northeast was partially to blame, as that area saw a decline of 37% to its lowest level since 1996, but with consecutive declines to multi-year lows, the trend seems obvious. The trend also seems to confirm comments that Alan Greenspan made earlier this year that we could not expect to rely on money from the housing market to the same extent we have over the past year. Further evidence that the market is cooling is the 352,000 homes that stood for sale at the end of the month, which is the highest number since June 1996. The 20 basis point jump in the 30-year mortgage probably won't help the recent declines, either. Recent data did show a drop in mortgage delinquencies, but the data does not include those mortgages in any stage of foreclosure. According to the Mortgage Bankers Association, "The percentage of loans in the process of foreclosure was 1.18 at the end of the 2002 fourth quarter, up from 1.15 percent at the end of the third quarter. This most likely indicates that loan foreclosures, which lag unemployment and delinquencies, are peaking." We also got data on durable goods that was not terribly encouraging. Monthly orders for durables dropped 1.2% in February and reflected drops in demand for computers (-12%), machinery (- 2.5%), automobiles, electronics (-1.9%) and metals (-2%). Shipments of durables also fell, dropping 1.6%, accompanied b a drop of 0.3% in unfilled orders and a 0.1% decrease in inventories. Just to clarify, these are not signs of growth. If we factor out defense, the non-defense capital goods number showed a decline of 5.2% (although without the 26% drop in commercial aircraft orders the decline was 2.8%). Orders excluding defense dropped 2.7%, wiping out January's 2.2% gain and more. These numbers show that while many economists are hoping that businesses will increase spending with the war behind us, it has yet to happen. The University of Michigan Consumer Sentiment report that comes out on Friday may give us an indication of just when we can expect to see a turnaround in spending. As long as consumer spending remains questionable, companies will refrain from placing orders for new capital equipment. After the lowest Consumer Confidence reading in ten years on Monday (which reflected data only up to March 18), Friday's data, which is more consumer heavy and reflects data tallied up through this week, may give us an idea of just how consumers are reacting to the war thus far. One of the areas I've given a lot of attention lately is the oil market. It is a reflection of how the well the war is going from an economic standpoint and reflects costs to businesses which have played a role in many recent earnings releases. Today's example of that factor came from Temple-Inland (TIN), which announced it would see a first-quarter loss, as opposed to the $0.15 gain expected by analysts. It blamed higher energy and pension costs, with energy costs making up more than 2/3 of that equation. Today's intraday drop in the broader markets once again accompanied a rise in oil prices, as reflected by the crude oil futures. May Crude Oil Futures rose 0.62 per barrel, following several disappointing overseas developments. The first was the fact that the Iraqi military has begun burning oil fields in Rumalia, which produces slightly more oil per day than the state of Texas. Add to that the advancement of Turkish troops toward northern oil fields in Kirkuk and suddenly the control of oil fields by the U.S. looks murky. While it is unlikely that anyone but the U.S. will eventually control those supplies, assuming control may take longer than planned. Crude Oil Futures reflected that activity and traded pretty much in tandem (inversely) with the Dow for most of the day. While this certainly is not a traditional measure of the equity market, such as activity in the bond market, it seems to be serving that purpose during the conflict with Iraq. In fact, the failure to break the $29 per barrel level mid-day timed closely with the bounce in the Dow. The events in Iraq have even trumped the news coming out of Venezuela, which announced that it intended to start exporting gasoline by the end of the month. Last year that country exported 16.7 million barrels of gasoline, so it could have a noticeable impact once those exports begin. I imagine things would be much different if the U.S. was invading France. We may be tracking the price of wine stocks instead. Chart of Crude Oil Futures It seems that each day we get some additional news that tells us the war will be a more drawn out affair than expected. Today we heard that Iraqis have had success in destroying U.S. tanks and are planning on blowing up bridges as the U.S. closes in on Baghdad. That news continued to drive us today and the market reacted intraday to rumors and developments yet again. While we traded in a very tight range for the most part, we did make a couple of trips outside that range on war-related news/rumors. We saw a quick intra-day drop on a rumor that the government was raising the terror alert to red status, which is the highest level of alert. That rumor turned out to be false and we got a sudden bounce. That bounce was followed by news that the U.S. had attacked an Iraqi convoy of 1,000 vehicles moving south to engage U.S. troops and we rallied all the way back into the green temporarily. Intraday Chart of the Dow We did get another look at a support level that has held up well over the past week. On the way up last week, we saw several pullbacks to the OEX 437-440 level that has been pivotal over the past several months. Even on the code red rumor, the pullback stopped at OEX 440.46. The 50% retracement of the August highs and October lows in the Dow and OEX have acted as both support on the latest rally and also as resistance during a consolidation period at the end of January and beginning of February. That retracement comes in at OEX 437 and has put a floor on the market since the big breakout. Traders looking for a pivot point in a market that is hard to assess can use that level as the closest indicator to where we now stand. Chart of the OEX The Nasdaq Composite also continues to find a ceiling at the 1400 level. That level has acted as resistance (within a couple of points) in six of the last seven sessions. The first bullish move in the equities that sticks will likely have to involve a break back above that level. We did get through it on March 21, when we ran into the 1426 level that has been even more pivotal. However, since the pullback on Monday, we have been unable to crack it again, although we have tried the past two sessions, with highs of 1400 and 1397. In business news, Sears said it is considering selling its troubled credit card unit. The $30.8 billion dollar portfolio, which garnered attention for its possible defaults in 2002 that required the company to set aside millions of dollars, is expected to fetch around $6 billion. While the money will help clear up the company's balance sheet, critics are pointing to the $1.5 billion in profits - 60% of the company's total - that Sears will lose and saying that the loss of revenue may make it more difficult to turn around other sectors of its business. While Sears is hoping that the portfolio sells at a premium, the poor economy and increasing bankruptcies might weigh against the price a big credit card issuer, such as Citibank or Bank One, might be willing to pay. Investors loved the news, however, jumping into the stock, which gained $2.69. Another factor that continued to weigh on the market was yesterday's vote by the Senate to cut the President's tax-cut plan in half. Those cuts could severely reduce his plan to eliminate the double taxation on dividends. The plan, when announced, led to a big rally due to the sudden inflated value of dividends to both corporations and the shareholders that receive them. If those dividends don't receive the tax benefits President Bush is pushing for, they can suddenly lose as much value as they seemed to have gained, taking value out of the stocks that pay them. For the first time in a while, we traded in a tight range, with only a couple of intraday swings that qualified as significant moves. And those moves were mostly news-based. Volume was also on the light side at 1.2 billion shares on the NYSE and 1.4 billion shares on the NASDAQ. The aimless drifting for most of the day seemed to signal exhaustion and a waiting period for the next big development in the war effort. While the economic data we saw suggests a worsening economy, all attention remains on the war as it appears to be the last great hope for the economy. If the theory that businesses will start spending once it is over pans out, then we may make another run at last year's highs. However, with no hard evidence yet that that is the case, the market will continue to trade on hope, or the lack thereof. ================================================================== 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 --------------------------------- Affiliated Computer Svcs. - ACS - close; 45.40 change: +0.25 WHAT TO WATCH: Like most tech stocks, ACS posted some solid gains after it bottomed out earlier this month. However, the rally ran out of steam once ACS reached its 50-dma at $47.52. Yesterday's session saw the stock move below its 200-dma ($46.78) on the strongest volume since early-February. Shares are now sitting just above the 21-dma at $44.77. That moving average coincides with the 50% retracement level from the October lows to January highs. A breakdown through that region would open the door to a possible retest of the relative lows near $41. Bears thinking about going short will probably want to wait for a move under last Thursday's low of $44.56 to provide downside confirmation. --- Brocade Communications - BRCD - close: 5.13 change: +0.09 WHAT TO WATCH: Former high-flyer BRCD has been trending higher for more than a month. What's interesting about the recent price action is that shares have broken above resistance at $5.00, which coincides with the 100-dma. The next obstacle for the bulls is the January highs near $6.00. That would present a reasonable short-term target for aggressive traders. In terms of potential entry points, one strategy would be to wait for a pullback and bounce from the $5.00 level before going long. Other traders could watch for BRCD to break above today's Inside Day pattern and move over the relative high of $5.27. --- eBay Inc - EBAY - close: 90.15 change: +1.45 WHAT TO WATCH: That's right...It's another Watchlist appearance for EBAY. On Monday we were looking for shares to roll over from the $90.00 region and move back towards the steady uptrend that had been in place since October. But this stock just does not want to cooperate with any bearish expectations! Instead, the upward momentum has propelled shares to new 52-week highs. EBAY has just about achieved its bullish vertical count (derived from the point-and-figure chart) of $91. However, there are signs that the uptrend could continue. YHOO is rocketing higher and seems to be taking other internet stocks along for the ride. EBAY also stands to benefit from end-of-quarter window dressing during the end of the month as fund managers try to bolster their portfolios with stronger performers. How much upside remains? Short-term bulls will now be targeting a move to the $100 level, which should act as a powerful price magnet. Long entries could be gauged on a move above $90.50, with a stop under the Monday lows near $87.00. This would create a favorable risk/reward setup. --- Jeffries Group - JEF - close: 37.75 change: -1.24 WHAT TO WATCH: Following an extended decline that took JEF from the January highs near $45 to a 52-week low of $32.65, this financial stock experienced a rapid short-covering rally. Shares moved higher with the Dow Jones but weren't able to break above the 100-day and 200-day moving averages, just above psychological resistance at $40.00. The stock trended lower from that level on Monday and Tuesday while holding above the 50-dma ($37.89). That moving average was violated during today's session, as JEF underperformed the market with a 3.1% loss. The decline (which was backed by the strongest volume since July of last year) also created a three-box reversal on the point-and-figure chart. This breakdown has raised the possibility that JEF could retrace its rapid gains and retest the $33-34 area. Watch for a move under today's low ($37.75) to offer a bearish action point. --- MedImmune - MEDI - close: 33.78 change: +0.23 WHAT TO WATCH: A breakout might be looming for this biotech stock. It's spent nearly two weeks in the $32-$34 area, consolidating a move to multi-month highs. There are now signs that resistance at $34.00 is eroding. Shares actually ticked to a high of $34.40 today before they were dragged lower by weakness in the BTK.X biotech index. The reversing daily stochastics (5,3,3) and rising volume are hinting that pressure might be building for a break to the upside. With the weekly chart showing no clear levels of resistance directly overhead, it looks like MEDI has plenty of upside potential. Short-term traders could aim for a move to the next level of daily chart resistance at $38. Long positions could be targeted on either a move above today's high ($34.40) or a pullback to $32.00. --- Nvidia - NVDA - close: 14.41 change: +0.39 WHAT TO WATCH: Nvidia caught a bid today after the company announced that it had entered into an outsourcing agreement with IBM. Under the deal, Big Blue will manufacture NVDA's next generation of high-end graphics chips. The stock tacked on 2.7%, distancing itself from the 200-dma at $13.14. Another day of similar gains would put shares within range of resistance at $15.00. Should that level give way, NVDA might be able to rally towards the long-term bearish point-and-figure trend at $18.00 and the December highs at $18.27. --- Scholastic Corp. - SCHL - close: 26.78 change: -0.04 WHAT TO WATCH: Shareholders of SCHL suffered a painful downward gap on February 11th after the publishing company announced an earnings warning. The stock drifted lower after the initial sell-off before it finally stabilized in the $23-$25 area. Shares were lifted out of that range by the recent market rally and are now beginning to fill in the large gap, which extends all the way up to $33. Other than the descending 50-dma at $28.91, there are mo major obstacles to prevent a continued ascent. Aggressive traders can watch for a move above the relative high ($27.35) to provide a potential action point. --- Wellpoint Health Ntwk. - WLP - close: 74.15 change: -1.10 WHAT TO WATCH: WLP has staged an impressive breakout above several levels of resistance, including the February high ($72.70), the January high ($73.79), and the 200-dma at $73.41. On Tuesday the stock also cleared bearish point-and-figure resistance at $75. That's an impressive performance - but rather than chase this one higher, we'd feel more comfortable targeting a pullback to the 200-dma. Once the bulls have a chance to catch their breath the stock might be able to make its way towards the $80.00 level. The daily chart shows possible resistance at $78. ========================= Play-of-the-Day (BULLISH High-risk/High-reward play) ========================= Black Box Corp. - close: 30.50 change: +0.34 stop: 28.69 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) - ORIGINAL WRITE UP: March 18th, 2003 - 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. - Last Update: March 25th, 2003 - There is not too much new to report on BBOX unless you're interested in hearing more about the shareholder lawsuits that pop up whenever a stock gaps down like BBOX did. The rally attempt to fill the gap has been turned sideways. Shares continue to consolidate around the $30 mark. We're going to keep our stop at $28.69 but more conservative traders could bump their stop up to $29.00 or even $29.25, which was today's low. We'll continue to monitor the action but there is not any need to rush into a long position. The company has obvious earnings problems and the traditional "fill the gap" action may be slow in coming. If you are the type of trader that likes to move in with momentum then wait and look for BBOX to trade back above the $31 mark. - Play-of-the-Day Comments: March 26th, 2003 - Things are looking up for BBOX. Although the stock continues to trade it its recent sideways range, today's action suggests that a breakout to new highs might not be too far behind. Black Box shook off the general malaise that plagued the NASDAQ and outperformed the NWX.X networking index, which finished with a fractional gain. Shares also traced a higher high and higher low compared to Tuesday's session. With the MACD on the verge of a bullish crossover from deeply oversold levels, it looks like BBOX could continue to fill in its March 12th gap. Aggressive traders can target new entries on a move above $31.00, while those seeking more upside confirmation will want to wait for a break above the relative high ($31.38) before considering long positions. Picked on March 19th at $30.86 Results since picked: -0.36 Earnings Date 05/08/03 (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 Wednesday 03-26-2003 section 2 of 2 Copyright ) 2003, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section two: Net Bulls Triggered Plays: ADBE (bullish) Trading Ideas Value Plays With Bullish Signals Breakout to Upside (Stocks $5 to $20) Breakout to Upside (Stocks over $20) Breakout to Downside (Stocks over $20) Recently Overbought With Bearish Signals (Stocks over $20) ================================================================== Net Bulls (NB) Tech Stock section ================================================================== =============== NB Play Updates =============== Triggered Plays ---------------- Adobe Systems - ADBE - close: 31.95 change: +0.28 stop: 29.88 As was the case on Tuesday, ADBE traced a higher high and higher low during today's session. The stock showed good relative strength versus both the NASDAQ and GSO.X software index. That's impressive, considering the fact that Deutsche Securities reiterated their Sell rating on ADBE this morning. Investors paid the negative comments little attention, as shown by the eager buyers that emerged when shares reached an intraday low of $31.00. Our long play was activated in afternoon trading when ADBE traded above $32.00. Our stop for this play is set at $29.88. If shares continue to rise tomorrow, new entries can be targeted on a move above today's high of $32.16. ================== 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 BWS Brown Shoe Co 28.62 +0.60 RD Royal Dutch Petroleum 41.73 +0.55 HNP Huaneng Power 36.30 +0.64 GLYN Galyan's Trading 12.90 +0.85 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change UNTD United Online 18.57 +1.54 NTES Netease.com 16.60 +2.40 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change YHOO Yahoo Inc 24.76 +1.14 BSTE Biosite Inc 38.47 +2.30 MATK Martek Biosciences 28.93 +1.08 NFLX Netflix Inc 20.60 +1.35 ROOM Hotel Reservations Ntwk. 60.74 +1.72 JCOM J2 Global Communications 30.20 +2.40 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change URBN Urban Outfitters 22.86 -1.38 TECUA Tecumseh Products 42.01 -1.23 JEF Jefferies Group 37.75 -1.24 TIN Temple Inland 38.85 -2.93 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change MCO Moody's Corp 46.58 -0.69 ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright ) 2003 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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