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Daily Newsletter, Monday, 07/21/2003

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PremierInvestor.net Newsletter                 Monday 07-21-2003
                                                  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:      MMM Soars, LXK Crashes
Play of the Day:  Free Fall

===============================================================
MARKET WRAP  (view in courier font for table alignment)
===============================================================
     07-21-2003         High     Low     Volume Advance/Decline
DJIA    90906.69 - 91.46  9187.80  9075.19 1.51 bln    328/1164
NASDAQ   1681.41 - 27.09  1706.29  1675.18 1.47 bln    367/1096
S&P 100   492.80 -  8.70   501.50   497.16   Totals   1326/2718
S&P 500   978.80 - 14.52   993.32   945.63
RUS 2000  457.17 -  7.59   464.76   456.54
DJ TRANS 2572.55 -  3.74  2571.87  2559.75
VIX        22.12 +  0.76    22.78    21.76
VXN        33.07 -  0.34    34.62    33.04
Total Volume 3,233M
Total UpVol    728M
Total DnVol  2,471M
52wk Highs     259
52wk Lows       37
TRIN          1.29
PUT/CALL      0.81
===============================================================

===========
Market Wrap
===========

MMM Soars, LXK Crashes
by James Brown


Monday turned out to be another day of consolidation with
individual stocks making headlines instead of economic reports.
The market bounce on Friday was too tempting a target and bears
pounced after some disappointing earnings guidance from the likes
of Lexmark Intl (LXK) and Merck & Co (MRK).  However, offsetting
those losses were shares of 3M Company (MMM) who single-handedly
kept the Industrials above the 9000 mark.

Market internals were negative with declining issues out
numbering advancing stocks 20 to 7 on the NYSE and 2 to 1 on the
NASDAQ.  Down volume was more than three times stronger than up
volume across both exchanges.

Chart of the Dow Jones Industrials:



Chart of the NASDAQ Composite:



Monday's declines swept across market sectors leaving all of them
in the red save the XAU gold & silver index and the XAL, which
managed to squeak out a 0.02-point gain.  Those sectors hardest
hit were the GHA hardware index (-2.99%), the GSO software index
(-2.58%), the SOX semiconductor index (-2.0%), the DDX disk drive
index (-2.13%) and the DRG drug index (-2.14%).

The hardware group took the worst beating because of the violent
reaction in shares of Lexmark Intl (LXK).  The problem with LXK
wasn't their Q2 results.  Yes, they did miss consensus estimates
of 78 cents a share by a penny but the real culprit was their
forecast for the third quarter.  First Call lists LXK's Q3
estimates near 80 cents a share.  However, LXK now expects its Q3
numbers to come in between 63 cents and 73 cents a share.
Management said revenue growth would be in the low to middle
single digits.  The company blamed weakness in both corporate and
consumer spending as well as tougher competition.  Shares of LXK
plummeted from $73.50 to close at $59.40, down 19 percent.  Their
negative Q3 forecast put the brakes on printer-rival and Dow
component Hewlett Packard (HPQ) who's shares dropped more than
three percent on the session.

Breaking down through support today was the DRG drug index, which
lost more than two percent to close below support at 320.
Fueling the move was this morning's earnings announcement from
Merck & Co (MRK).  The headline number was 83 cents a share, a
penny below estimates.  Revenues were up four percent to $13.28
billion but below general estimates for $13.69 billion.  The
company said many of its biggest drugs only saw modest sales
growth and it is lowering projections for sales of Zocor, which
will soon be losing patent protection in some European countries.
The company also claimed that overall sales were impacted by
wholesalers stocking up on inventory in previous quarters.  MRK
also told investors that its on-again/off-again spin-off of its
Medco unit was now "on".  However, instead of issuing an IPO it
will issue shares to current MRK shareholders.  The stock lost
more than three percent and was a drag on fellow Dow component
Johnson & Johnson (JNJ), which lost more than 2.5 percent on the
session.

Not everyone knows that the Dow Jones Industrial average is a
dollar-weighted index.  The higher dollar the stock the more
weight it carries in moving the average. The single-most powerful
stock in the index is MMM, which was trading near $130 before
investors pushed it to a new all-time closing high of $136.35
(+4.73%).  Vaulting the stock higher was its pre-market earnings
report where the company blew past analysts' estimates by 5
cents.  The $1.56 a share equaled a net profit of $619 million,
which according to the company's chairman was the highest second
quarter earnings in the company's 100-year history.  Revenues
jumped from $4.16 billion in the second quarter last year to
$4.58 billion this year.  3M admits that the weak dollar boosted
its net income and helped the company post 17 percent sales
growth overseas (compared to just 2 percent growth here in the
U.S.).  More importantly MMM raised its full-year forecasts to
$5.90 to $6.05 a share, which is significantly stronger than
current estimates of just $5.91 a share.  Not that there was a
large amount of shares shorted on this stock but the close above
$136 could have bears scrambling to cover.  Yet at the same time
a quick glance at the chart shows that a stock like this tends to
consolidate its big gains and that could spell bad news for the
Dow (remember, it's the highest weighted stock in the index).

The stream of earnings will continue to take center stage with
another one third of the S&P 500 expected to report this week.
Last week's announcement saw plenty of mixed results with the
general consensus being that earnings are up over six percent
overall.  However, corporate America still seems way too cautious
about the third and fourth quarters to justify current valuation
levels.  With investors starting to question the reality of a 2H
recovery they're going to be looking at any and all indicators to
help shape market direction.  The following are charts of the
dollar and the price of oil; which can be influences on market
direction and strength.

The U.S. dollar has risen strongly off its June lows but the
daily oscillators all suggest the rally is fading and we could
see a retracement of its recent gains.  The chart below is
actually a weekly chart of the dollar illustrating how it appears
to be rolling over near the top of its descending channel.

Chart of the U.S. dollar:


Next is the price of crude oil, which has moved strongly off its
April-May lows near $25.00 a barrel.  Currently, the August
light, sweet crude futures are trading under $32 a barrel almost
at its highs prior to the start of the Iraqi war.  As Jim
mentioned in his Sunday commentary this is an unspoken tax on the
economy to the tune of billions of dollars.  Higher oil prices
are felt throughout our economy from transportation to
manufacturing.

Chart of August crude oil:



Fortunately, short-term traders may have some hope.  Texas
Instruments (TXN) announced earnings after the bell this evening
and the results were positive.  TXN said its Q2 profits rose 27
percent.  Earnings were 7-cents a share beating consensus
estimates by a penny.  Sales rose by more than 8 percent to $2.34
billion.  Chip analysts realize that TXN beat vastly reduced
expectations but Wall Street can have a short memory and the
stock is trading up in after hours.  This could have a positive
affect on the SOX, which has been pulled back to its rising 50-
dma (support).

Tomorrow it's another full day of earnings announcements and two
previous tech high fliers, Amazom.com (AMZN) and Sun Microsystems
(SUNW), will be announcing after the bell tomorrow.




===============
Play-of-the-Day  ( BEARISH )
===============

Hovnanian Ent. - HOV - close: 50.62 change: -2.03 stop: 55.10*new*

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 knew we were being aggressive when we decided to try playing
the downside in the Housing sector last week, but given the
bearish implications to the group from the recent sharp rise in
Treasury yields, it was too good to pass up.  From the trading
action of the past couple days, it looks like we may have finally
caught a decent trade in the sector, as HOV has continued down,
filling in its late-May gap on Friday and catching a mild rebound
from the $52 level.  We've been looking for that level to provide
at least minor support and the subsequent price action next week
should prove quite instructive.  With the Dow Jones Home
Construction index breaking below $430 over the past couple days,
it looks like we can expect further weakness.  A rebound failure
below $55 looks good for new entries, although we could see a
stronger rebound near $56 and still preserve the bearish trend.
HOV has closed below its lower Bollinger band for the past 3 days,
so we aren't advocating new entries on further weakness.  Look for
the $DJUSHB to roll over from resistance in the $430-435 area to
confirm weakness in HOV before playing.


Why This is our Play of the Day
Treasury yields continued to soar on Monday and that development
had the Dow Jones Home Construction index ($DJUSHB) getting
pummeled to the tune of -2.12% and that test of the $390 support
level is looking more likely by the day.  HOV was one of the
standout losers in the sector (much to our liking!) and caved in
below the $52 level with a 3.85% closing loss.  Unless the bulls
can muster a bounce from the $50 level on Tuesday, the next likely
level for a rebound will be our profit target zone in the $45-46
area.  Monday made it four days in a row that HOV has closed below
its lower Bollinger band, and with daily Stochastics deep in
oversold territory, the potential for an oversold bounce is
increasing.  Should such a rebound appear, it should find
resistance back at $52 and then stronger resistance in the $53.50-
54.00 area.  The next rollover from resistance will be our next
high-odds entry setup.  We're still keeping a fairly wide stop on
the play, moving it down tonight to $55.10, just above last
Thursday's intraday high.  Conservative traders that don't want to
take the risk of a strong bounce may want to harvest gains here
and then look for re-entry on the rollover.

Annotated Chart of HOV:


Picked on July 16th at   $54.25
Change since picked       -3.63
Earnings Date           08/27/03 (unconfirmed)
Average Daily Volume =    997 K








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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

*****************************************************************
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Copyright ) 2003  PremierInvestor.net. and
The Premier Investor Network.
Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter                  Monday 07-21-2003
                                                   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
=================================================================

Active-Trader/Non-tech
  Closed Bearish Play:  GTI


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)


==================================================================
Active Trader/ Non-tech plays
==================================================================

============
CLOSED PLAY
============

  ---------------
  CLOSED BEARISH
  --------------

Graftech Intl. - GTI - close: 5.85 change: -0.28 stop: 5.99

The drop that began in the middle of last week continued on
Monday, with the bearish action in the broad market continuing to
exert pressure on GTI.  The stock slammed down through our stop
at the open and then spent the remainder of the session chopping
between $5.80-6.15, eventually closing near the bottom of the
range.  That bearish action dashed any hopes we might have still
had of GTI running higher into its earnings report on Thursday,
forcing us to close the play for a small loss.  While a rebound
from the 50-dma is possible, that's going to be too little, too
late for us.  Traders that didn't exit on Monday's weakness
should use a rebound on Tuesday as a gift, providing a more
palatable exit point.

Picked on July 3rd at     $6.06
Change since picked       -0.21
Earnings Date           07/24/03 (confirmed)
Average Daily Volume =    391 K






==================================================================
  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

CF      Charter One Financial      32.31     +0.51
FO      Fortune Brands Inc         55.24     +1.07
SOV     Sovereign Bancorp Inc      18.38     +0.98
WL      Wilminton Trust            32.02     +0.57
MGAM    Multimedia Games           27.99     +3.69

---------------------------------------
Breakout to Upside (Stocks $5 to $20)
---------------------------------------

MDCC    Molecular Devices          17.48     +1.05
LIOX    Lionbridge Technologies     6.80     +1.01
SCOX    SCO Group                  13.32     +1.37
CELL    Brightpoint Inc            17.75     +2.38

---------------------------------------
Breakout to Upside (Stocks over $20)
---------------------------------------

MMM     3M Company                136.35     +6.17
PX      Praxair Inc                64.48     +1.51
IR      Ingersoll-Rand             54.30     +1.56
VAR     Varian Medical Systems     62.10     +1.25
UTSI    UTStarcom Inc              41.83     +1.92
NTLI    NTL Inc                    42.00     +1.85
GGG     Graco Inc                  35.57     +1.50

-------------------------------------------
Breakout to Downside (Stocks over $20)
-------------------------------------------

CAJ     Canon Inc (ADR)            45.86     -1.29
LXK     Lexmark Intl               59.40    -14.10
UST     UST Inc                    32.65     -1.23
TTWO    Take-Two Interactive       26.28     -1.36
TTC     Toro Co                    39.36     -1.67

-----------------------------------------
Recently Overbought With Bearish Signals (Stocks over $20)
-------------------------------------------

BWA     BorgWarner Inc             64.23     -3.83
SUP     Superior Industries Intl   42.10     -1.18
ZRAN    Zoran Corp                 23.29     -0.70
HARB    Harbor Florida             25.77     -0.92
ATRS    Altiris Inc                21.18     -2.37




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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.

DISCLAIMER

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.

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