PremierInvestor.net Newsletter Thursday 07-17-2003 section 1 of 2 Copyright (c) 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: KO, CAT, UTX Watch List: NVDA, YHOO, CI, AOL and more! Market Sentiment: Barometer Falling ================================================================= MARKET WRAP (view in courier font for table alignment) ================================================================= 07-17-2003 High Low Volume Advance/Decline DJIA 9050.82 - 43.80 9113.57 9017.84 2.01 bln 741/2464 NASDAQ 1698.02 - 50.00 1729.59 1693.47 1.89 bln 704/2522 S&P 100 494.80 - 6.27 501.07 493.10 Totals 1445/4986 S&P 500 981.73 - 12.36 994.00 978.60 W5000 9443.32 -136.00 9579.32 9418.10 RUS 2000 459.93 - 13.75 473.68 459.93 DJ TRANS 2543.34 - 54.20 2596.99 2539.01 VIX 22.82 + 0.53 23.47 22.34 VXN 35.47 + 1.48 36.35 34.74 Total Volume 4,221M Total UpVol 614M Total DnVol 3,565M 52wk Highs 280 52wk Lows 40 TRIN 1.19 PUT/CALL 0.89 ================================================================= =========== Market Wrap =========== KO, CAT, UTX Nice try against overwhelming odds. Dow components KO +1.85, CAT +4.90 and UTX +1.50 struggled vainly to keep the Dow from crashing after IBM failed to paint a rosy picture with their earnings on Wednesday night. IP and XOM were the only other Dow stocks in positive territory but only fractionally. With 25 of the 30 stocks in the red it was remarkable the Dow only lost -43 points. Dow Chart Nasdaq Chart It was a good day economically but you could not tell from the market direction. The Jobless Claims fell to 412,000 but still extended its string of weeks over 400K to twenty-two. There was an unexpected drop in continuing claims of -117,000 and the prior week was revised down -47,000. Nobody appears to know why but they are not complaining considering last weeks numbers were near records. Analysts keep saying the last two weeks of claims are skewed by auto plants being shut down for the summer retooling and we will see a huge drop in the next couple of weeks. They have no excuse for the prior 20 weeks or at least none that holds water. Still 412,000 was a significant change from the prior week's 441,000. Maybe things are getting better. New residential construction soared to an annualized rate of 1.80 million units but this should not surprise anyone even the analysts. With interest rates at 45 year lows a month ago and expected to go lower it is a sure bet any builder with a lot was starting to turn dirt. Strike while the iron is hot WOULD have been the plan. With rates rocketing the demand for homes could take a sudden downturn before those slabs are even dry. There could be a glut of homes by fall. Look for Greenspan to pull some rabbit out of his hat if rates continue to climb because this would be a severe blow to the sputtering economy. The strongest report came from the Philly Fed Survey which jumped to 8.3 from 4.0 in June. This should have been a huge positive for a market in the dumps but we saw an immediate sell off. Why? The whisper number was over 10.0 and traders were disappointed that conditions were not better. Remember, the current market is priced to perfection and in some cases better than perfection and traders are frustrated when that perfection does not come to pass. There were some negatives with prices paid dropping sharply as well as inventories. Prices received still showed contraction and unfilled orders fell to 3.5 from 7.9. It was a positive report but still had some cracks in the foundation. While the economics were mildly positive the biggest influence on the market was the lackluster guidance from IBM on Wednesday night. According to analysts IBM missed earnings by a penny despite their claims to the contrary. Almost every component of the earnings announcement drew fire from analysts. They derived strong gains from currency conversions and that is not a normally recognized profit center. They continued to lose money in the chip business and services bookings fell. One analyst said IBM actually missed estimates by as much as -12% when all factors were considered. That equates to a clean 85 cents when estimates were for 98 cents. Other analysts view it differently but none viewed it as strongly positive. All would have liked to see a stronger top line. Without the currency gains the growth would be an anemic +3% not 10% as claimed. The real killer was their lack of optimism. CFO John Joyce said demand is good but not robust and he was NOT holding out hope for an economic recovery over the next five months. He also said, "I don't have to remind investors that second-half recoveries were expected in 2001 and again in 2002. We are going to take a more pragmatic view." Turn out the lights the party's over. At least that was the investor sentiment towards IBM on Thursday. The stock lost -3.41 and led the Dow decline. Helping the negative outlook was a warning from Nokia before the open that knocked -3.55 of a $17 stock. There were numerous other warnings as well as several strong reports as dozens of companies announced. The mixed messages only succeeded in convincing many traders that we may be seeing a stabilization of the economy but we are NOT seeing a strong recovery. July is normally when expectations meet reality and it is not a pretty picture. With growth for the economy expected to be 3-5% for the second half earnings are expected to be up significantly. With companies still giving cautious guidance or worse now that they can see order flow for the next quarter it simply drives home the no strong recovery picture. The Manpower CEO said today that they were seeing NO signs of an economic recovery yet. They typically see job requirements 90-120 days in advance and there has not been any pickup in expectations. The travel sector is still in the tank. The transportation sector is losing ground. Boeing announced another 5,000 worker layoff today. According to IDC PC demand in the 2Q was up +7.6% and according to Gartner Group it was up +10.6%. This could actually be bad news. The surge could have been in anticipation of a post war rebound that fizzled. Also, where is the surge in profits from the jump in PC demand? Answer: It is a buyers market and there is no profit. Without a substantial increase in demand that will support higher prices the tech companies could be left to tread water until the 2H of 2004. There it is out, I said it. I expect the term "second half recovery in 2004" to begin to appear more often in the mainstream press over the next couple months. It would be funny if it were not so painful. I deviated from the topic above but the main problem with the markets this week is simply "inline won't cut it." With the great expectations for the 2003 recovery it does not excite investors to hear inline or flat guidance. One trader said today after a disappointing earnings release, "if this keeps up everyone will be long on nothing." Bingo! In a market priced to perfection and facing expectations that look like a ski jump from the bottom it is rapidly becoming clear that those expectations may be impossible to obtain. Not only are the earnings tough to produce but the quality of earnings is being called into question even quicker. IBM was a prime example. Numerous earnings components were seen by analysts as one time events or the product of cost cutting and not repeatable. COF got killed after posting earnings of $1.23 and blowing away estimates of $1.11. Analysts said fears of losses from the growing unemployment and a maturing loan portfolio were to blame for the -$7 loss. COF committed the unforgivable sin of not raising its guidance. Correct, it did not warn but simply said they were comfortable with estimates. They said the effort to attract better credit borrowers would offset gains in other areas. Guilty, of giving accurate guidance, penalty -$7. I am not trying to beat a dead horse here and I am sure you are getting the picture. The economy is stable, maybe recovering but recovering very slowly. It is not recovering at the pace that would justify the recent 50% rally in tech stocks. This does not mean we are not going to see a year end rally. It only means that we should see the normal July adjustment period. As the July earnings reality dawns, investors will continue to readjust their valuations to fit that reality. If that means EBAY needs to trade at $95 instead of $115 then it will eventually settle at $95. If the 3% real growth for IBM is only worth $75 then it will be a long time before it sees $87 again. The Dow closed at 9053 today and over -200 points below the Monday high. No big deal really. A 200 point drop from the high but only -70 points from Friday's close. This is not a material drop, yet. What was holding it up was the hope that earnings would surprise to the upside. The hope that Intel would guide much higher. The hope that IBM was setting the globe on fire. And finally the hope that Microsoft would announce a windfall profit and strong guidance. Intel "no recovery yet, no major upgrade cycle, no pickup in IT spending." IBM "not holding out hope for a recovery over the next five months." And finally Microsoft tonight, "not expecting a marked improvement in the economic environment" and "we may be seeing indications that the spending environment has stabilized but IT budgets remain tight." They missed estimates by a penny and guided lower by a penny for the next quarter. They also said factors that helped profits in the past would disappear this year. Could that be a pre-warning warning for future quarters? MSFT closed the after hours up only +16 cents and S&P futures fell from their post MSFT bounce at 982 to 978.50 as I write this. Friday we get the Michigan Consumer Sentiment and Semiconductor Book-to-Bill report and a handful of earnings before the market opens. Last week we saw a relief rally after a four-day slide. That rally was in anticipation of good news. Now that the news is out I would doubt we get anymore rocket rides and instead we could see some short covering or profit taking as the week draws to a close. I do not expect to see 9250 again any time soon and there is a good chance support at Dow 9000 is about to break. With 70% of the S&P still to report there will still be fireworks but they may have lost their market moving potential. Technicians tell us that market drops on low volume are nothing to worry about. Thursday's volume was above average and decliners beat advancers 3:1. New 52-week lows rose to a level not seen since May-23rd. New highs fell to only 25% of the July-14th level. For those that are watching the internals are changing. Follow the internals. Enter Very Passively, Exit Very Aggressively! Jim Brown ================================================================== 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 --------------------------------- NVIDIA Corp. - NVDA - close: 22.00 change: -1.16 WHAT TO WATCH: After leading the NASDAQ higher, Semiconductor stocks got hammered on Thursday, posting a loss of more than 4%. NVDA had been one of the stronger stocks in the sector until today, and the stock got hit for a 5% loss, ending right at the $22 support level. More importantly though, the stock broke and stayed below the 50-dma throughout the day. Look for a break below today's intraday low to be good for a quick trip down to the $20 level. --- Yahoo! Inc. - YHOO - close: 30.61 change: -1.24 WHAT TO WATCH: The bullish run in YHOO (and the rest of the Internets) was truly impressive over the past few months, but now it is time to pay the piper. The recent run up to the $35 level looks like a blowoff top, and on Thursday, the stock broke down out of its ascending channel and delivered nearly a 4% loss on the day. $30 has been the key support level for the past month and that level is even more important now, as it is the site of the 50-dma. Use a trigger of $29.90 and look for a quick pullback into the $27.50-28.00 level. --- Cigna Corp. - CI - close: 40.55 change: +0.40 WHAT TO WATCH: Bottom fishing, anyone? Shares of CI got slammed lower over the past week, with the real thrust occurring on Monday after the company's earnings warning the prior Friday. Since then, BofA has cut their price target and S&P cut the company's debt rating. Despite all that negative press and a negative market the past 2 days, the stock just won't break the $40 level. So we're looking to play it for an aggressive short- term bounce back towards the $43-44 resistance level. Use a tight stop at $39 just in case support fails. --- AOL Time Warner - AOL - close: 28.35 change: -1.95 WHAT TO WATCH: In contrast to many of the other leading Internet stocks, AOL is still working higher within its 5-month ascending channel. The stock got a boost from a new Buy rating from Merrill Lynch this morning and despite the weakness in the rest of the market, managed to hang onto a small gain at the close. There are a couple ways to play -- dip buyers can target a rebound from the bottom of the channel ($16.10), while a breakout over $17 can be used by the momentum set. Target a quick rise to the $18 resistance level ahead of earnings next Wednesday. =================== On the RADAR Screen =================== CAH $65.01 - Health Care stocks were one of the bright spots on Thursday, with the HMO index actually posting a gain. CAH caught our attention, as the stock is holding support right at the bottom of its 6-week channel. This looks like a good risk/reward setup to play for a rebound back towards the top of the channel at $70 ahead of earnings on July 31st. ATH $76.40 - Another recently strong HMO stock, ATH has pulled back with the HMO index and today found strong support at $75, also rebounding back over the 50-dma. This is an aggressive rebound play, where we're looking for a rally up to test resistance at $80 ahead of the company's July 31st earnings release. VRTS $27.65 - Looking for a quick momentum play? VRTS got hammered lower on Thursday and came to rest right on its 50-dma and just above major resistance at $27.25. A breakdown below these measures of support could see a quick downside continuation to next support near $25.75 ahead of the company's earnings report next Wednesday. =============================== Market Sentiment =============================== Barometer Falling "On the djx daily candlesticks this looks like 3 black crows a highly reliable bearish pattern. The BP% crossover yesterday is glaring at me. Increasing volume on the declines is also confirming. Better yet the vix is climbing. Looking very bearish." This email came in as I was looking over the daily charts for material tonight. Reader Dan managed to encapsulate exactly what I see. On the daily candles, we have the VIX and VXN crossing above their 20 and 50 day MAs, with the BPSPX (bullish percent) and BPCOMP right at the top, the former leading the latter off their highs. Other breadth indicators, including the McClellan oscillator, are also sending bearish messages for equities. Rather than rehash the data for you, I'll provide what is hopefully some enlightenment on it. As a novice, I used to look at such data and begin planning my bearish trades immediately, waiting for the charts to tank. As a function of the greater lesson of patience, I've learned to read the data in broader terms. Just as we had dips and corrections throughout the rally, we will have spikes, bounces, and upside corrections on the way down. Experienced traders will not expect an immediate plunge or crash, although such cannot be ruled out. Instead, they will note that the breadth, sentiment and volatility data are indicating the beginning of a possible change in trend, with all that such implies. Just as a falling barometer doesn't mean that there's a twister blowing in within the next minute, it does signal the time to begin checking the windows, battening down the hatches, and preparing for foul weather. The various indicators we follow are issuing similar signals for traders. The actual timing and trading signals will have to come from more accurate, minute indicators such as we follow in the intraday Market Monitor and Futures Monitor. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9353 52-week Low : 7197 Current : 9050 Moving Averages: (Simple) 10-dma: 9127 50-dma: 8949 200-dma: 8445 S&P 500 ($SPX) 52-week High: 1015 52-week Low : 768 Current : 981 Moving Averages: (Simple) 10-dma: 996 50-dma: 972 200-dma: 901 Nasdaq-100 ($NDX) 52-week High: 1316 52-week Low : 795 Current : 1255 Moving Averages: (Simple) 10-dma: 1279 50-dma: 1205 200-dma: 1065 ----------------------------------------------------------------- There is little to say here regarding the volatility indices that Jon didn't already cover in the commentary above. We do indeed see both rebounding from their lows but they have yet to make new relative highs above the early June highs. CBOE Market Volatility Index (VIX) = 22.82 +0.53 Nasdaq-100 Volatility Index (VXN) = 35.47 +1.48 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.89 938,695 839,522 Equity Only 0.81 684,346 559,684 OEX 0.73 65,122 48,142 QQQ 3.49 47,057 164,665 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.9 + 0 Bull Confirmed NASDAQ-100 81.0 + 0 Bull Confirmed Dow Indust. 83.3 + 0 Bull Confirmed S&P 500 78.8 - 1 Bull Confirmed S&P 100 83.0 + 1 Bull 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 0.99 10-Day Arms Index 1.11 21-Day Arms Index 1.18 55-Day Arms Index 1.14 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 -NYSE- -NASDAQ- Advancers 700 617 Decliners 2126 2432 New Highs 54 130 New Lows 25 8 Up Volume 375M 170M Down Vol. 1587M 1694M Total Vol. 1975M 1874M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 07/08/03 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. 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 There was little change last week in the large S&P contracts. It appears both big and small traders are waiting to see how the initial burst of Q2 earnings come in and how investors react to them. Commercials Long Short Net % Of OI 06/17/03 519,887 501,401 18,486 1.8% 06/24/03 405,382 447,526 (42,144) (4.9%) 07/01/03 415,976 453,005 (37,029) (4.3%) 07/08/03 415,053 453,720 (38,667) (4.5%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 18,486 - 6/17/03 Small Traders Long Short Net % of OI 06/17/03 202,040 184,028 18,012 4.6% 06/24/03 159,405 85,182 74,223 30.3% 07/01/03 150,232 75,937 74,295 32.8% 07/08/03 152,239 74,749 77,490 34.2% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 The same holds true for the commercials here in the e-minis, as they appear to be waiting before making any big commitments. However, we've seen a drastic turnaround in the small traders sentiment going from extremely bullish to know the most bearish in months. Commercials Long Short Net % Of OI 06/17/03 306,279 661,114 (354,835) (36.6%) 06/24/03 150,208 201,724 (51,516) (14.6%) 07/01/03 175,893 216,993 (41,100) (10.5%) 07/08/03 192,815 224,124 (31,309) ( 7.5%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: (41,100) - 07/01/03 Small Traders Long Short Net % of OI 06/17/03 466,837 70,609 396,228 73.7% 06/24/03 84,081 44,347 39,734 30.9% 07/01/03 57,639 67,449 9,810 7.8% 07/08/03 56,394 72,090 15,696 12.2% Most bearish reading of the year: 9,810 - 07/01/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 NASDAQ futures remain in a holding pattern. Commercials remain net short and small traders remain net long. Commercials Long Short Net % of OI 06/17/03 60,964 65,561 (4,597) (3.6%) 06/24/03 28,780 47,425 (18,645) (24.4%) 07/01/03 28,662 48,265 (19,603) (25.5%) 07/08/03 30,489 48,311 (17,822) (22.6%) Most bearish reading of the year: (19,603) - 07/01/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 06/17/03 29,400 23,232 6,168 11.7% 06/24/03 24,519 7,064 17,455 55.3% 07/01/03 26,777 8,498 18,279 51.8% 07/08/03 26,136 9,035 17,101 48.6% 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 Ditto here too. There's almost no change in the commercials' net long position in the Industrial futures and there is a small bump in the small traders net short position. Commercials Long Short Net % of OI 06/17/03 20,625 18,593 2,032 5.1% 06/24/03 19,373 11,565 7,808 25.2% 07/01/03 20,504 11,871 8,633 26.7% 07/08/03 20,752 11,860 8,892 27.3% 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 06/17/03 9,092 9,398 ( 306) ( 1.6%) 06/24/03 5,950 7,442 (1,492) (11.1%) 07/01/03 5,799 6,822 (1,023) ( 8.1%) 07/08/03 5,005 8,093 (3,088) (23.6%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ================================================================= 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 Thursday 07-17-2003 section 2 of 2 Copyright (c) 2003, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= Play of the Day: Wait For The Bounce Closed Plays: BRCM, SNPS, EELN 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) ================================================================= Play-of-the-Day (bearish) =============== Hovnanian Ent. - HOV - close: 53.75 change: -0.50 stop: 59.25 Company Description: Hovnanian Enterprises constructs and markets single-family detached homes and attached condominium apartments and townhouses in more than 196 new home communities in New Jersey, Pennsylvania, New York, Maryland, North Carolina, Texas and California. The company offers a wide variety of homes that are designed to appeal to the full range of buyers, from first-time to luxury buyers. Additionally, HOV provides financial services, including mortgage banking and title services to the homebuilding operations customers. The company does not retain or service the mortgages it originates, but rather sells them and the related servicing rights to investors. Why we like it: We've run this drill so many times, you probably know the script by heart. The housing boom of the past couple years has been largely fueled by continued falling rates, but that dynamic is changing and not in favor of the bulls. Despite the Fed's promises to not raise rates, bonds have come under heavy selling pressure recently and that means yields are rising. In just one short month, the yield on the benchmark 10-year Note has jumped from below 3.1% to today's intraday high of nearly 4.1%. That's a huge move for such a short period of time and it will likely put a major crimp in a continued low interest rate environment. Rising rates are likely to slow down both home purchases and refinancing activity and investors seem to be getting that message loud and clear this week, with the $DJUSHB index falling sharply yesterday and just barely holding onto support near $430 today. If the index loses the 50-dma on a closing basis, then bears are likely to get more aggressive and will probably be targeting a break of $400 for a retest of the $395 breakout level from May. Out of the universe of Housing stocks, HOV caught our attention for a couple of reasons. First of all, it is showing weakness relative to other players in the space and the $DJUSHB, breaking below major support today just over $55 and falling into the late- May gap. In the process, the stock broke below its 50-dma ($56.45), one of the first stocks in the sector to break that important measure of support. With the stock falling into its gap today, a continued drop to the bottom of the gap near $52 seems quite likely. The other thing that appeals to us about this play is that the company doesn't release earnings until the end of August. That means we have a decent amount of time for this one to play out without having such external influences to deal with. The biggest problem with this play is the volatility that has become normal in the sector. Despite our expectations for continued weakness, we have to factor in the very real possibility of a sharp rebound after the past two days slide. The situation seems to be different this time around with the sharp rise in Treasury yields, but we need to prepare for that volatility just the same. So we're starting out with a wider stop than we'd prefer at $59.25, as that is just above the descending trendline from the June highs. One possible entry point would be to target a failed rebound near the 50-dma, while an aborted rally below the $58 level would provide a better, if more aggressive entry. Traders looking to capitalize on continued weakness need to wait for a drop under $53.50 before chasing the stock lower. While we're expecting to find minor support near $52, our target for HOV will be a retest of the $46-47 support area from the middle of May. Why This is our Play of the Day Despite strong Housing Starts data this morning, the Dow Jones Home Construction index ($DJUSHB) couldn't buck the bearish trend in the overall market and turned in a 1.96% decline for the day, closing below the important $430 support level for the first time since early June. The strength in bond yields seems to still be working its bearish black magic on the group and our new play on HOV got off to a solid start, continuing the slide that really got started on Tuesday. But we really would have expected to see more weakness today, and the fact that we didn't hints that HOV will indeed find some support near the bottom of its late-May gap just above $52. The real tell will be how strong a rebound the bulls can mount off of that level. We're not looking to chase the stock lower, but instead want to pounce on the rebound failure following that bounce. The top of that gap near $55.50 is one likely target area for new positions, as is the 50-dma (currently $56.74), just above yesterday's intraday high. Until we see either a decisive break below $52 or a lower high failure, we've still got to keep a fairly wide stop. We're leaving our coverage stop at $59.25 for now, which is just above the descending trendline that began with the mid-June high. Annotated Chart of HOV: Picked on July 9th at $54.25 Change since picked -0.50 Earnings Date 08/27/03 (unconfirmed) Average Daily Volume = 976 K ================================================================= Net Bulls / Tech Stocks ================================================================= =========== CLOSED PLAY =========== -------------- Closed Bullish -------------- Broadcom Corp. - BRCM - close: 25.43 change: -1.91 stop: 26.50 Last night we raised the possibility that the Semiconductor sector (SOX.X) might be running out of steam after failing to hold the $400 level. That certainly seems to be the case today, as the SOX shed more than 4% and looks destined to test and possibly break down below the bottom of its ascending channel. Shares of BRCM fared even worse, losing nearly 7% today and stopping us out right at the open. The stock gapped down below its descending trendline (which should have provided some support) as well as the 20-dma ($26.63) and never looked back. We knew that this group's relative strength would fail eventually and apparently today was the day. That's what stop losses are for, though. Picked on July 2nd at $27.16 Change since picked -1.73 Earnings Date 07/22/03 (confirmed) Average Daily Volume = 13.9 mln --- Synopsis, Inc. - SNPS - close: 60.69 change: -2.92 stop: 63.20 So much for the SNPS' strong fundamentals and recent relative strength. Yesterday's incipient weakness really bloomed today, with the SOX leading the loser parade with a 4.17% loss and not to be outdone, SNPS tallied up a 4.59% slide by the closing bell. Starting the day with a gap below the 20-dma, which we thought should provide some support, SNPS triggered our $63.20 shortly thereafter, making us thankful we tightened it up earlier in the week. There was very little buying interest throughout the day, and the stock took out numerous levels of support, closing at its low of the day and the past two day's weakness has wiped out an entire month's worth of methodical gains. Today's sharp drop after the recent strength is a neon reminder of the necessity of using stops. Picked on June 25th at $63.59 Change since picked -2.90 Earnings Date 08/20/03 (unconfirmed) Average Daily Volume = 1.52 mln ================================================================= High Risk-Reward Plays ================================================================= =========== CLOSED PLAY =========== -------------- Closed Bullish -------------- E-LOAN - EELN - close: 5.70 change: -0.74 stop: 5.99 There was little news to facilitate the 11.5 percent decline in shares of EELN today except for the broad-based selling pressure across market sectors. The INX Internet index fell some 3.5% while the BKX banking index lost 1.47%. As one of the best performers in 2003, shares of EELN are a prime candidate for profit-taking and that's exactly what happened. The stock opened at $6.15 and we were quickly stopped out at $5.99 for a 46 cent loss. The late day push lower is probably forecasting a move to its 50-dma and quite possibly a retest of the $5.25-5.00 level of support. Picked on July 9 at $6.46 Change since picked: -0.76 Earnings Date: 07/24/03 (confirmed) Average Daily Volume: 2.7 million ================== 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 JCI Johnson Controls Inc 92.34 +4.32 ASD American Standar Cos 75.00 +1.40 NAP National Processing Inc 18.15 +1.53 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- PECS Pec Solution Inc 18.00 +2.13 SCTC Systems & Computer Tech 11.43 +1.52 SLNK SpectraLink Corp 14.88 +3.81 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- CAT Caterpillar 63.58 +4.94 ALL Allstate Corp 39.20 +1.70 TV Grupo Televisa Sa 35.82 +2.05 GDT Guidant Corp 49.91 +3.40 IR Ingersoll Rand 52.38 +3.81 HSY Hershey Foods 73.10 +1.30 AAPL Apple Computer 20.90 +1.03 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- KFT Kraft Foods Inc 28.81 -1.99 SAP SAP Ag (ADS) 28.10 -2.60 FDC First Data Corp 40.64 -2.11 FRX Forest Labs 46.67 -2.37 PGR Progressive Corp 67.12 -6.08 COF Capital One Financial 48.20 -7.12 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- DOX Amdocs Ltd 23.92 -1.78 ISIL Intersil Holding 25.35 -3.11 EFX Equifax Inc 24.90 -1.20 NFI Novastar Financial 68.25 -3.45 DISH EchoStar Communications 34.95 -2.29 UTSI UTStarcom Inc 37.98 -2.01 FDS Factset Research 45.31 -1.72 SINA Sina Corp 24.50 -3.70 SAH Sonic Automotive 23.05 -0.74 JCOM J2 Global Comm. 44.62 -5.33 NRP Natural Resources Ptnrs 32.70 -1.05 ================================================================= 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.
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "email@example.com"
Option Investor Inc