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Daily Newsletter, Monday, 07/28/2003

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PremierInvestor.net Newsletter                 Monday 07-28-2003
                                                  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
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In section one:

Market Wrap:      The Stage Was Set
Play of the Day:  Toothless Fed

===============================================================
MARKET WRAP  (view in courier font for table alignment)
===============================================================
     07-28-2003         High     Low     Volume Advance/Decline
DJIA     9266.51 - 18.06  9303.83  9234.50 1.59 bln    778/ 764
NASDAQ   1735.36 +  4.66  1740.59  1726.24 1.52 bln    878/ 561
S&P 100   501.49 -  1.45   504.18   500.19   Totals   1656/1325
S&P 500   996.52 -  2.16  1000.68   993.59
RUS 2000  473.83 +  4.95   474.42   468.88
DJ TRANS 2622.80 +  7.01  2628.94  2607.75
VIX        19.93 -  0.01    20.43    19.74
VXN        30.40 +  0.36    30.93    30.04
Total Volume 3,317M
Total UpVol  1,797M
Total DnVol  1,403M
52wk Highs     561
52wk Lows       51
TRIN          0.82
PUT/CALL      0.68
===============================================================

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

The Stage Was Set, but the Anticipated Act Failed to Materialize

Foreign bourses set the stage for a strong Monday performance on
U.S. markets.  Asian markets took the stage first, with the
Nikkei leaping up almost 100 points on its open and then closing
up 191.90 points at 9839.91.  That proved to be its highest close
since July 10 when the Nikkei last closed over 9900.  The Nikkei
built upon the strong performance of the U.S. markets Friday
afternoon, but market participants also celebrated after Japanese
microchip testing equipment maker Advantest reported its first
profit in eight quarters.  Advantest's management also mentioned
expectations for rising orders, a statement that cheered
investors and raised hopes for economic recovery.

Europe's markets then took the stage, with Asia's warm-up act
readying participants for more good news.  That good news came in
the form of Germany's closely watched Ifo business climate
indicator, which rose to 89.2 from June's 88.8.  By the time U.S.
investors woke this morning, European markets were surging.

Yet our S&P futures showed a surprisingly lackluster performance
in their warm-up to the U.S. open.  They had tested but failed to
hold over 1000 in the overnight session.  Something was wrong.
With all these warm-up acts preparing the stage, was our rally
going to be a no-show?

CNBC did its part in warming up the audience.  Before the markets
opened, Maria noted statistics that showed U.S. markets prepped
for continued gains.  Those statistics included information on
IPO's and M&A activity, with the notation that M&A activity has
been the busiest in a year.  Analysts tried to warm up the crowd.
Prudential's chief investment strategist urged increasing equity
allocations to 80 percent from 70 percent and also recommended
reducing bond and cash allocations.  This strategist believes the
S&P 500 could gain another 20 percent according to one report.
CIBC chimed in, too, with its chief investment strategist saying
the U.S. economy was in the early-to-middle phase of a recovery
that will be supported by earnings.

Earnings reports before the bell included defense company
Northrop Grumman (NOC), copier behemoth Xerox (XRX), Kellogg (K),
health insurer Humana (HUM), and BMC Software (BMC).  XRX's
profit actually slipped and BMC posted a loss and forecast Q2
revenue that will be lower than the previous consensus, according
to one report.  Still, the crowd prompters characterized all
their earnings as beating expectations.

Yet S&P futures still weren't climbing over 1000.  Bonds did
their part, bowing out and letting equities take center stage.
Yields were up significantly in premarket.  Even with all that
prompting and with the stage perfectly set, the SPX opened only
at 999.  It quickly tested 1000, rising as high as 1000.68.  This
act's reception proved tepid, however, and the SPX just as
quickly retreated.  As it turned out, the SPX had already
achieved its climatic act of the day, never again touching that
day's high. At the time that day's high was achieved, the SPX
also tested a descending trendline off the June highs.  The day's
action formed a small-bodied candle that just missed being a
doji.

Daily Chart of the SPX:


Although today's action saw the SPX turning down from the
descending trendline that's been capping prices since the middle
of June, we should remember that it's possible to draw another
version of this trendline, one that includes the June 14 intraday
high.  That trendline has not yet been challenged.  Still,
today's action implies some hesitancy in driving the SPX above
the current version of the descending trendline.  That descending
trendline now coincides with the resistance now offered by the
blue regression channel.

What do we know after studying this chart?  We know that the SPX
still trades within a consolidation or continuation pattern
defined by that descending top trendline and either the
horizontal support at 975-976 or the rising red trendline marked
on the chart.  One formation has bearish implications while the
other is neutral.  We know that the low ADX number shows that the
previous trend--the rally--continues to lose strength.  We know
that MACD has flattened, as it often does during consolidation.
We can see that RSI generally maintains its pattern of lower
highs, although Friday had seen RSI bump slightly above its own
descending trendline.  We know that the 21(3)3 stochastics have
maintained their series of higher lows.

We know precious little.  The SPX consolidates:  that's what we
know.  Market participants wait in their seats, ready to leave
the theater or cheer the performance.  It's up to the markets
now, and we must wait until those consolidation or continuation
patterns are broken either to the upside or downside.

Fortunately, the ascending supporting trendline has risen to
intercept the horizontal supporting line, so that we no longer
have to question which line is most important or whether the
bearish or neutral formation appears more valid.  A downside
violation of one will now be a downside violation of the other.
Any such downside violation, especially on a closing basis, would
suggest another test of the 25 percent rally retracement near the
982 level that marked the July 1 low, if not a move to the 38.2
percent retracement near 928-930.

An upside violation of the descending trendline is likely to push
the SPX back into its ascending regression channel, suggesting a
test of the previous SPX highs, if not of the rising midline
resistance.  Today's candle hints that we'll see a test of
downside support before we witness an upside breakout, but
there's nothing on the indicators that reliably confirms the
potential reversal signal given by the daily candle.  Since the
SPX again closed above its 21-dma, we must juggle this sign of
strength against the daily candle's hint of weakness.

As is often true, the OEX daily chart shows many of the same
formations.

Daily Chart of the OEX:


The OEX daily chart sports a small-bodied red candle sitting near
the top of the previous day's big white candle, a potential
reversal signal.  The candle's upper shadow tested but could not
move above resistance marked on the chart.  As with the SPX, both
versions of the bottom supporting red trendlines now coincide, so
that a downside violation of one will be a downside violation of
both.

Today's candle's shape and position suggest a test of support
before an upside breakout, but as with the SPX, indicators show
mixed evidence.  They don't reliably corroborate the potential
reversal.  That potential reversal signal is also undercut by its
occurrence during consolidation rather than at the top of the
rally.  Even if tomorrow's trading results in a red candle that
confirms the potential reversal signal, that reversal could hold
for only a day or two.  If those intersecting supporting
trendlines are violated to the downside, this suggests a test of
the 25 percent rally retracement at the July 1 low near 484 or
perhaps even a test of the 38.2 percent retracement.

As with the SPX, an upside break suggests a test of previous
recent highs.  Like the SPX, the OEX again closed above its 21-
dma.

On Friday, the Dow Jones Industrials broke out above the top of
its descending trendline.  Today's candle questions that
breakout, however.

Daily Chart of the DJX, as a proxy for DJI:


Like the two S&P's, today's DJX candle was a near-doji printed at
the top of the previous day's big white candle.  This would be a
potential reversal signal if it came after a sustained upward
movement, but has less significance when it comes during
consolidation.  It still might portend at least a day or two's
reversal, enough to push the DJX back into its consolidation
pattern.  It might be easier to argue, too, that the DJX has been
in an uptrend since early July, forming a pattern of higher highs
and higher lows, so perhaps this formation has more significance
than it did for the two S&P's.

As with the S&P's, nothing on the indicators signals conclusive
evidence of anything but the facts we already know:  this market
has been consolidating.  The DJX has seen a minor breakout above
its descending trendline, but perhaps not a convincing breakout.
It, like the other two markets already discussed, may be
signaling a need for at least one more trip down toward support.

Throwing that conclusion into doubt, however, is the recent
performance of the Dow Jones Industrial's sister index, the TRAN.
The TRAN has been achieving a series of higher highs and today
closed over 2600 for the first time since early July 2000.  The
TRAN often leads its sister index, suggesting that perhaps the
DJI's upside breakout was real.  If it's not, and if the DJI does
not hold onto gains and then best its June highs, we may be
seeing divergence between the two indices, a bearish sign.

Despite the DJX's possible upside breakout above the descending
trendline, the NDX's daily chart looks the most bullish of the
indices depicted in this article.

Daily chart of the NDX:


The NDX still maintains its ascending regression channel.
Instead of squiggling around between 50 and 60, the RSI pulses up
and down in a normal manner. It's been pulsing upward over the
last week as the NDX traveled up to test resistance.  That
resistance consists of the midline resistance of its regression
channel as well as the resistance implied by a possible bull
flag.

Today's candle was a doji, indicating indecision and creating a
possible reversal signal that requires completion by tomorrow's
action.  As with the other indices, this possible reversal signal
forms within a consolidation band, and so might not be as
significant as it would be if it had formed at the top of a
sustained upward movement.

Oscillators give mixed messages with stochastics still cycling up
but with ADX easing further, indicating a further weakening of
the former trend.  That sometimes happens with bull flag
formations, so we can't give that easing of the ADX too much
weight just yet.  However, in late June, at about the same time
that ADX began descending, MACD broke below its pattern of higher
lows, perhaps also a confirmation of impending weakness.  RSI and
stochastics tops have been showing bearish divergence with the
price highs, too.  That's been going on some time, however,
without higher price highs being impacted, so we can't and
shouldn't make our trading decisions on this information alone.
Those divergences should, however, make us cautious.

Developments during the day and after hours didn't seem to affect
market participants strongly, either, giving few clues as to
market direction.  Citigroup (C) and JP Morgan (JPM) ended flat
today after reaching a settlement with the SEC over the
investigation into Enron-related charges.  After-hours releases
included earnings announcements from Sprint (FON) and Barrick
Gold (ABX).  Excluding onetime costs and gains, FON earned a
better-than-expected 35 cents per share, two cents ahead of
expectations and four cents ahead of year-ago levels.  Sales fell
8 percent from the year-ago period.  Meeting expectations, the
PCS unit lost 9 cents a share, up from its 17-cent loss in the
year-ago period, while adding more customers than expected.
Sales rose in the PCS unit.  At 11 cents per share, ABX's Q2
income matched that of last year's second quarter, beating
expectations for 6 cents per year. It seems unlikely that these
announcements will guide the markets one direction or the other.

Nor is it likely that tomorrow's economic releases will tell us
much.  Tomorrow's economic release includes only July consumer
confidence, due at 10 am ET, with a market consensus of 85, up
from June's 83.5. As Jim noted this weekend in his Wrap, this
consumer confidence number compiled by the Conference Board does
not normally move the markets.  Economists consider small changes
in the number to be noise, with one source noting that only a
change of 5 points or more would be considered significant.  Two
components compose this number:  the expectations component and
the current conditions component.  The expectations component
composes 60 percent and is considered a better leading indicator.

It's not until later in the week that economic releases heat up
again.  Let's hope we're not doomed to endure another day or two
of no-show market performances until then.

Linda Piazza


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


Hovnanian Ent. - HOV - close: 50.76 change: -1.07 stop: 54.01

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:
Considering the strong rise in the broad market on Friday, the
anemic 0.57% advance in the Home Builders index ($DJUSHB) once
again highlights the waning strength in the group.  With bond
yields continuing to move higher, the odds of continued strength
in the Housing sector seem slim.  HOV is certainly showing the
weakness we've been looking for, with only a few feeble bounce
attempts throughout last week, and it took a pretty strong surge
from the lows just to close the stock in positive territory.  The
stock continues to find resistance in the $53.00-53.50 area, and
appears to be rolling over below the 10-dma (currently $53.45).
Another failed rally below this measure of solid resistance can
still be used for new entry points in anticipation of that elusive
breakdown under the $50 support level. Note that we've lowered our
stop to $54.01, just below break even and just above what held as
resistance all last week.  We're still targeting a drop into the
$45-46 area and with a month still to go before the company
releases earnings, that goal is still looking quite achievable.
Keep a sharp eye on Treasuries, as strong buying that reverses the
recent trend might be enough to give more than a fleeting rebound
to the Housing sector.

Why This is our Play of the Day
After months of jawboning about how they would work to keep
interest rates low even if it meant buying long term bonds, the
Fed seems to have been cast aside by bond traders, as just another
impotent government functionary.  Beginning the week with another
strong upward push, the 10-Year Treasury Note ended at 4.284%, its
highest close since last August.  That just put another nail in
the coffin of the recent Housing and Refinancing boom and the
$DJUSHB index slumped to close just above recent support. Our HOV
play started showing its relative weakness again though slipping
back to just above $50 with a better than 2% loss on the day. With
the 10-dma ($52.58) bearish down on the price action as solid
resistance and the $53.50 area having capped each rally attempt
over the past week, it looks like we're finally going to get that
elusive breakdown under the $50 level.  That ought to open the
door for a move down to our $45-46 target area, for a very
favorable exit point.  Traders still looking for an entry have a
couple choices -- either enter on a failed rebound below the 10-
dma or take a momentum position on a breakdown below the $50
level.  Keep stops set at $54.01 until the $50 level gives way.

Annotated Chart of HOV:




Picked on July 9th at    $54.25
Change since picked       -3.49
Earnings Date           08/27/03 (unconfirmed)
Average Daily Volume =  1.01 mln





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DISCLAIMER
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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:
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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 07-28-2003
                                                   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
=================================================================

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

VZ      Verizon Communications     35.98     +0.94
UTX     United Technologies        76.66     +1.02
CD      Cendant Corp               18.79     +0.55
THC     Tenet Healthcare           13.28     +0.91
RCL     Royal Caribbean Cruises    28.78     +1.93
SPW     SPX Corp                   46.20     +1.55

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

THER    Therasense Inc             15.04     +1.69
CRS     Carpenter Technol          18.40     +1.06
IDBE    ID Biomedical              12.07     +1.19
RHT     Right Mgmt Consultants     14.32     +1.37
HEPH    Hollis-Eden Pharma         18.40     +1.45
ULBI    Ultralife Batteries        12.16     +1.09

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

T       AT&T Corp                  22.20     +1.79
NOC     Northrop Gruman            92.36     +5.26
STX     Seagate Tech               20.48     +1.59
LLL     L-3 Communications         49.51     +2.10
HCR     Manor Care Inc             28.76     +1.39
TRI     Triad Hospitals            28.53     +2.96
AEOS    American Eagle Outfitters  21.40     +1.05

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

NBR     Nabors Industries          34.75     -1.20
BLK     Blackrock Inc              43.77     -1.38
BRP     Brasil Telecom Partic Sa   34.44     -1.46
ROG     Rogers Corp                29.53     -1.06

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

IVGN   Invitrogen Corp             51.49     -2.27




=================================================================
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.

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.

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