PremierInvestor.net Newsletter Thursday 09-25-2003 section 1 of 2 Copyright 2003, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.PremierInvestor.net/htmlemail/i25c_1.asp ================================================================= In section one: Market Wrap: Rationalize This Watch List: NFLX, EASI, URBN, BVF and more! Market Sentiment: Bear Sightings on Wall Street. ================================================================= MARKET WRAP (view in courier font for table alignment) ================================================================= 09-25-2003 High Low Volume Advance/Decline DJIA 9343.96 - 81.60 9458.49 9342.98 1.86 bln 1016/2170 NASDAQ 1817.20 - 26.50 1856.22 1817.20 1.98 bln 814/2393 S&P 100 502.62 - 2.84 508.96 502.61 Totals 1830/4563 S&P 500 1003.26 - 6.12 1015.97 1003.26 W5000 9726.36 - 81.30 9848.08 9726.22 RUS 2000 495.05 - 12.81 509.34 495.05 DJ TRANS 2697.12 - 48.80 2749.87 2697.12 VIX 22.26 + 1.04 22.27 21.04 VXN 30.65 + 1.29 30.72 29.16 Total Volume 4,202M Total UpVol 910M Total DnVol 3,202M 52wk Highs 298 52wk Lows 28 TRIN 1.20 NAZTRIN 1.71 PUT/CALL 0.84 ================================================================= =========== Market Wrap =========== Rationalize This I wrote after the rebound on Tuesday that I was having trouble rationalizing the market rally based on the historical calendar trends but was prepared to tough it out if necessary. Finally, a historical trend returned and we are staring at a serious rationalization problem for the bulls. The shoe is now on the other foot. Dow Chart Nasdaq Chart There was not a flurry but a flood of economic reports today and the general outlook was not exciting. The mixed picture began with a throwaway Jobless Claims report. I say throwaway because the analysts were quick to claim the hurricane wild card as throwing the numbers into doubt. I agree with that analysis. With ten states boarding up windows in advance and cleaning up debris in the aftermath there was no way the new Jobless Claims were going to be relative. This brings into question the high number at 381,000 with more than ten states closing up shop. What would it have been without the storm? The aftermath cleanup and lack of power could keep the numbers down for the next two weeks. If we do see a rebound over 400K next week then we are in trouble because the non-storm numbers would have been even higher. The bulls should have looked at this number as a gift. The Chicago Fed National Activity Index fell below zero once again at -0.28 after peeking only slightly into positive territory last month at +0.05. This was the lowest reading since May at -0.34. The indicator is composed of 85 components and 53 showed below average growth. 49 dropped between July and August and of those that improved 14 still did not show growth. If it were not for the housing market the nation would be sinking in economic quicksand. Employment data continues to pressure the recovery and there is no jobs recovery in sight. This continues to pressure the manufacturing sector and until this broad based sector recovers we will continue to wander. Also pointing to this continuing employment problem was the Help Wanted Index, which fell to 37 and only 2 points away from the current cycle low. If the HWI is a leading indicator for hiring then the jobs picture is not looking up. Companies are continuing to be pressed to cut costs and wages and very high insurance and benefit rates are an easy target for those cuts. Until demand begins to ramp up to the point where the existing staff cannot handle it I do not expect any gains in these numbers. In contrast to the HWI the Mass Layoff numbers for August were significantly improved at 133,839 compared to 226,435 in July. This is a significant improvement but still a large number of layoffs. This is the lowest number since March at 113,026. It could have been impacted by the blackout and by cyclical end of summer vacations as well. The government layoffs were the highest since the program began in 1995. I checked August of 2002 and that was also a multi month low which began to escalate rapidly into the 225,000 peak in Jan-2003. The August-2003 number was also higher than the Aug-2002 level. Based on the historical trend I do not put too much faith in the drop. Proving the weak demand picture was the drop in Durable Goods Orders by -0.9% in August. Shipments fell substantially more at -2.9%. This was the first decrease since April. Were it not for the jump of +2.9% in primary metals the drop would have been even more substantial. Six of the seven components fell with aircraft and motor vehicles falling by -6.6%. Communications fell by -4.8% and computers -2.3%. Does this look like we are rushing into the 4Q recovery? The most positive events of the day were the jump in New Home and Existing Home sales. New Home sales rose to 1.15 million annualized and the second highest number on record. Existing Home sales rose to 6.47 million, which was a new record. The gain in these numbers is purely based on the bounce in rates. As I have said before a bounce in rates after a period of sustained lows always prompts a race to buy houses and lock in the rates before they go higher. Everybody in America understands that rates are going up very soon and they are not going to wait around for 7% or higher to buy. Once the rates really begin to rise the housing market may not die but the rate of sales will slow significantly. The housing market is the main supporter of the economy currently and with consumer spending slowing we will continue to depend on housing to keep it moving. It is up to the Fed to understand this keep rates as low as possible for as long as possible. Friday we will get the final Q2 GDP revision and the consensus is for it to be unchanged at +3.1%. The last revision surprised to the upside from +2.9% to +3.1%. If the final revision goes the other way and breaks back under 3.0% then the estimates of +3.9% for the 3Q will be called into question. Remember, after tax corporate profits fell by -3.4% in the 2Q GDP. Spending rose +3.8% while profits fell. The 3Q GDP is going to be a very important milestone for the markets. The markets are expecting +19% earnings for the S&P in the 3Q according to First Call. For the last few days there has been an increase in the rate of warnings and the market is paying attention. 181 S&P companies have added or raised their dividend since January. The markets have bought the earnings expectations and the dividend increases since March. Just like playing poker, once the last bet is placed it is time to show the cards. It is time to see if the recovery began to gain speed in the 3Q or was it just more cutting costs and laying off workers that produced the earnings. Federal Signal, FSS, cut estimates due to falling spending by governments and private business. AO Smith, AOS, cut its estimates by more than half. Darden Restaurants cut estimates saying recent promotions had failed to attract additional customers. Viacom, VIAb, cut estimates saying growth had slowed and was not likely to reach prior forecasts. Other companies warning today included AZZ, BSG, NEWP, PCIS, PHHM, PSTA and TUP. Not all the news was bad with raised guidance from BBY, CYBE, MKC, MUR and RAD. It was just the ratio of warnings to upgrades that bothered investors. BBY better get all the glory it can with its raised guidance today because Dell went public with the new products announcement. They are planning to offer flat screen TVs, hand held computers and an online music service. They plan on hitting the consumer market before the holidays and with the Dell momentum it is due to be a big push. Dell said it was conceivable that Dell could rise to the number one position in home electronics very quickly. Whoa! Big claims from Michael Dell and I am sure Gateway was paying rapt attention. Still there are some big targets out there that are ripe for the Dell marketing machine. Sony, Mitsubishi and Panasonic are the top three and Michael Dell is walking onto a field full of goliaths. This just happens to be where he is most at home. Dell has slugged it out to Compaq, Hewlett Packard and IBM and came out on top. The market was controlled by these giants when he started just like Sony and the others control the home electronics market today. Dell also took aim at Apple with the entry into the music business with the Dell Digital Jukebox and the Dell Music Store. Going head to head with the Ipod, RNWK and ROXI. Go get them Michael! Electronics retailers BBY and CC closed down for the day but then who didn't? Speaking of category killers Sony announced an entry into the digital recorder business with a competitive product to TIVO. The entry was expected eventually and the impact to Tivo's business could be huge. The market has been restricted to only a couple players in the field and the margins have been high. Fortunately more competition will knock those prices down to a reasonable level. Not just a category killer but a category eliminator the digital camera has knocked Eastman Kodak down for the count. EK announced this morning that they were cutting their dividend to 50 cents from $1.80 and said they were no longer going to try and grow the film business. They conceded that Fuji was winning the film battle and said they were going to focus their energy on the digital revolution after decades of being the leading film producer. Another revolution is taking place at the NYSE. The lead director and head of the compensation committee, Carl McCall, announced his resignation and rumors are flying that there are more resignations in the wings. Unlike the earthquake on the NYSE there was a real 7.8-8.0 magnitude earthquake in northern Japan at 2:50 PM our time today. This is a major quake and Tsunami warnings were in effect for Japan, Russia, Guam, Mariana Islands and Wake Island. Tsunami watches were in effect for Hawaii, Taiwan and the Philippines. The earthquake occurred at 4:50 Japan time and only a few hours before the Nikkei was scheduled to begin trading. After trading down -192 points last night and expected to trade down again on our loss the earthquake could accelerate this drop. The markets today were ugly. They did not start out that way but ended up in a world of pain. The initial dip was a continuation of yesterday's drop but the indexes fought off a strong wave of program selling to rebound back into positive territory at midday. The Dow and Nasdaq both stalled just below a 38% retracement of the big drop and lingered in positive territory just long enough to sucker in any bulls that thought the dip was over. The high of the day was about 12:15 and the bleed began once again. The big drop came at 3:30 when the Dow broke 9400 for the last time. It closed at 9344, Nasdaq 1819 and S&P just barely over the psychological 1000 level at 1003. Some blamed it on the earthquake, others on end of quarter portfolio rebalancing. Wasn't that what they used as a reason for the bounce on Tuesday? Either way it was nasty and the Emini futures closed well under 1000 at 997.75. This does not bode well for Friday. The biggest losers were the tech stocks and the small caps. The very indexes that saw the biggest gains in recent months. The Russell dropped nearly -13 points today and is down -4.8% for the week. The Nasdaq fell -26 but is down -5% for the week. These are not good numbers for the bulls. It represents a definite selling of the winners. The markets have not had two consecutive quarters of gains in several years and some analysts think that funds are willing to forego the 4Q and lock in substantial profits now to protect their year. Most believe the markets will finish higher for the year but not much higher. The general consensus is around 10,000. This creates risk for the funds. With many stocks up +50% to even +100% since the October and March lows the funds are faced with a risk reward scenario of a potential +7% gain for the rest of the year or the potential for a much larger drop if the selling becomes widespread. Techs and small caps have already dropped -5% this week. What does the future hold? OPEC is cutting production on oil to drive prices back up. The economic recovery is starting to show signs of weakness and job growth is nonexistent. The Fed is not likely to cut rates again even though they feel the risks of deflation outweigh the risks of inflation. Japan is tanking and after today its economy could suffer even more depending on the earthquake damage. The dollar/yen battle is continuing and bonds are slowly climbing which indicates doubt about the future. 3Q earnings will begin to appear in seven days and only First Call is really optimistic. Investors are becoming more cautious. The bottom line is more risk than reward for funds which have to perform to please their investors. The competition for dollars is going to be fierce in January as investors unhappy with their returns for 2003 start looking for another place to park money. Those that lock in +30%, 50% or even 60% gains over the next couple weeks could win the bragging rights contest in January if the 4Q fails to move up substantially. That brings us right back to the historical trends scenario once again. Funny, I did not get a single piece of bullish hate mail today. With the Dow down -342 points from Friday's highs there is little to be bullish about. That is only -3.5% for the Dow but it is a chink in the bullish armor. I have no claims to a crystal ball for forecasting the potential lows for October if the decline continues but I can guarantee it will not be straight down. The most likely serious support is 9000-9100 and that is where I expect the eventual battle for control to be fought. It you take traditional market metrics for gains and eventual pullbacks the numbers are scary but even the bears do not expect traditional numbers to repeat. A simple 38% retracement would see a Dow drop to near 8800 where a 25% retracement of the gains from March would stop around 9100. You draw your own conclusions but with -342 points in a week and we are not even in October yet anything is possible. For Friday the GDP and the earthquake will rule. However with the -342 point drop there could be come profit taking from shorts eager to put an X in the win column for a change. Monday marks a new round of economic reports for the week with a new ISM, Factory Orders and Nonfarm Payrolls being closely watched for signs of weakness. That should be a great start for October. Stay tuned. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor ================================================================== 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 --------------------------------- Netflix, Inc. - NFLX - close: 34.81 change: -3.19 WHAT TO WATCH: NFLX has had quite the run in recent months and it looks like it is time to pay the piper. Profit taking has been hitting all sectors of the market and NFLXD finally got hit over the past two days, losing more than 8% on Thursday on above average volume. The $36 level should now be resistance and new bearish entries at that point look favorable to hit $30, the site of the 50-dma. --- Engineered Support Systems - EASI - close: 59.75 change: -3.16 WHAT TO WATCH: It wasn't that long ago that we had EASI on our bearish play list, but we were a bit early to the profit-taking game and that play didn't work out. But the stock is back in the sights of the bears, and got hit for a 5% loss today. Use a trigger below $58 for new entries and look for a sharp decline to ensue. Below that level, there's very little in the way of support until reaching the 50-dma just over $51 and then the bottom of the gap near $47.50. --- Urban Outfitters, Inc. - URBN - close: 26.25 change: +1.16 WHAT TO WATCH: Just to show we haven't completely given up on the bulls, we found this bullish retailer that is breaking out to new highs today. what is particularly impressive is the stock just split its shares 2-for-1 and still the buyers haven't had enough. Look for a pullback near the $25 level as a viable entry point into this apparently unstoppable stock. --- Biovail Corp. - BVF - close: 37.10 change: -1.50 WHAT TO WATCH: BVF has made a couple of decent rebound attempts from the 200-dma over the past couple months, but this time the bulls seem to have run out of luck. The stock has been selling off sharply over the past several sessions on rising volume and on Thursday broke below the 200-dma and never looked back. There may be some support found in the $34.50-36.50 area, but the die appears to have been cast. Use failed rallies to initiate new bearish positions, looking for an eventual decline to the $30 level. =================== On the RADAR Screen =================== FAST $39.31 - That's what this stock is doing, breaking down fast! Profit taking has finally arrived on Wall Street and stocks with the most gains have the most to lose. FAST gained more than 50% from the March lows and with the break under $40 today it looks like the stock is headed for solid support near $36. Look for a rebound off the 50-dma to provide a decent entry when that rebound fails below the 30-dma. LLY $58.72 - It isn't a fast mover, but LLY has been in an established downtrend for the past few weeks and is showing no signs of strength. Look to enter on a failed rebound below $60 and target a move to the $54-55 area. HEPH $26.77 - Showing all the signs of a blowoff top, shares of HEPH are coming down hard. With today's break of the $27.50 support level, the stock appears destined for next support at $22. A failed rebound below $29 can be used for new entries, as can a break below $26.50. Due to the volatile action, this one should be reserved for aggressive traders. =============================== Market Sentiment =============================== Bear Sightings on Wall Street. -J Brown Skittish investors ran for cover after a somewhat turbulent session in the markets. Early morning news from Dow component Eastman Kodak (EK) put traders on the defensive. The company said they were slashing their cash dividend from a semiannual payment of 90 cents a share to 25 cents in an effort to use the $1.3 billion in savings for digital technology investments. This was the first cut in its dividend in over 100 years and the stock lost 18% by the close making it the biggest loser in the $Industrials. Bulls tried to battle back midday to push the markets into the green but their bravery faded again. This week has been haunted by concerns that stocks are now too richly valued after such an incredible rally from this year's lows. We warned readers a few weeks ago that valuation downgrades would be the next cycle of headlines to pull stocks backwards and that's what we're witnessing. Not necessarily a valuation call, but on Tuesday Smith Barney cut their outlook on the defense sector and reduced several stocks to neutral or sell. Today we saw a similar performance from Bank of America who cut their forecast on the defense sector and downgrading several related stocks. Morgan Stanley even chimed in with a downgrade of the industry to "neutral". Looking overseas for strength was no help. The dollar may have stalled its flight against the yen but Asian exchanges were lower again today with the NIKKEI leading the way. European stocks were mixed with a small bounce in the German DAX after yesterday's big drop. Looking closer to home we see the Dow Jones Industrials and the NASDAQ composite making new short-term relative lows. The INDU has actually pulled back to its simple 50-dma. The weakness was certainly wide spread and there were several averages breaking support like the RUT, which closed below its 500 level. Market internals were strongly negative with declining stocks out numbering advancers 19 to 8 on the NYSE and 23 to 8 on the NASDAQ. Down volume was more than twice up volume on the NYSE and swamped up volume 4-to-1 on the NASDAQ. This sudden weakness actually smells like the real thing (not just a dip) as the volatility indices have finally spiked higher indicating growing investor fear. Speaking of fear, the news that inspectors found weapons grade uranium in Iran could come back to haunt us. Iran has until October 31st to prove to the Intl Atomic Energy Agency that it does not have a secret nuclear weapons program. Should they fail to do so, the volatile world stage could get even more so. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9686 52-week Low : 7197 Current : 9343 Moving Averages: (Simple) 10-dma: 9521 50-dma: 9338 200-dma: 8683 S&P 500 ($SPX) 52-week High: 1040 52-week Low : 768 Current : 1003 Moving Averages: (Simple) 10-dma: 1022 50-dma: 1001 200-dma: 930 Nasdaq-100 ($NDX) 52-week High: 1406 52-week Low : 795 Current : 1325 Moving Averages: (Simple) 10-dma: 1367 50-dma: 1304 200-dma: 1142 ----------------------------------------------------------------- Ah.. finally we're starting to see some movement here. With the markets actually feeling some selling pressure the new VIX is up strongly in the last two sessions. The VXN has also responded but both "indices" are under bearish resistance. If the market indices drop through their next level of support then the VIX and VXN could break out higher. CBOE Market Volatility Index (VIX) = 22.26 +1.04 Nasdaq Volatility Index (VXN) = 30.65 +1.29 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.84 670,213 565,114 Equity Only 0.69 533,492 372,277 OEX 0.69 32,507 22,478 QQQ 1.35 43,165 58,691 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.8 + 0 Bull Confirmed NASDAQ-100 79.0 - 2 Bear Correction Dow Indust. 80.0 - 3 Bull Correction S&P 500 81.0 - 1 Bull Confirmed S&P 100 84.0 - 2 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 1.47 10-Day Arms Index 1.21 21-Day Arms Index 1.13 55-Day Arms Index 1.05 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 870 795 Decliners 1945 2307 New Highs 48 86 New Lows 12 3 Up Volume 506M 378M Down Vol. 1318M 1641M Total Vol. 1857M 2031M M = millions ----------------------------------------------------------------- ! The COT Website has NOT updated their data since 09/09/03. Commitments Of Traders Report: 09/09/03 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 No change in sentiment for the commercial traders here. Meanwhile small traders forked out a little more cash to increase both their long and short positions. Commercials Long Short Net % Of OI 08/19/03 404,665 455,381 (50,716) (5.9%) 08/26/03 410,378 472,987 (62,609) (7.1%) 09/02/03 417,973 482,392 (64,419) (7.2%) 09/09/03 418,958 486,209 (67,251) (7.4%) 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 08/19/03 162,034 87,064 74,970 30.1% 08/26/03 170,424 76,967 93,457 37.8% 09/02/03 169,030 75,748 93,282 38.1% 09/09/03 176,401 81,444 94,957 36.8% 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 Commercial traders in the e-minis continue to pump up their long positions. The last numbers show the most bullish posture in quote sometime. Meanwhile the small trader has rotated a little bit of money from short back to long. Commercials Long Short Net % Of OI 08/19/03 296,971 235,779 61,192 11.5% 08/26/03 338,766 234,841 103,925 18.1% 09/02/03 347,724 224,011 123,713 21.6% 09/09/03 370,909 237,610 133,299 21.9% Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 08/19/03 90,428 125,980 (35,552) (16.4%) 08/26/03 52,131 120,853 (68,722) (39.3%) 09/02/03 56,709 134,094 (77,385) (40.6%) 09/09/03 59,692 130,270 (70,578) (37.1%) Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders are increasing their bets on the NDX but they're still beating more heavily on a move lower. Small Traders are also active with larger net positions but they're still beating on the bulls. Commercials Long Short Net % of OI 08/19/03 32,107 53,665 (21,558) (25.1%) 08/26/03 33,991 55,849 (21,858) (24.3%) 09/02/03 37,002 55,379 (18,377) (19.9%) 09/09/03 44,677 62,369 (17,692) (16.5%) Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 08/19/03 25,607 10,134 15,473 43.3% 08/26/03 26,108 8,864 17,244 49.3% 09/02/03 23,168 10,561 12,607 37.4% 09/09/03 28,788 13,370 15,418 36.6% 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 No change in investor sentiment for the professional traders here. There is little change for the small trader but they have bumped up their long positions a tad. Commercials Long Short Net % of OI 08/19/03 21,088 18,984 2,104 5.3% 08/26/03 24,586 10,386 14,200 40.6% 09/02/03 25,462 10,447 15,015 41.8% 09/09/03 25,807 10,756 15,051 41.2% 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 08/19/03 15,717 9,143 6,574 26.4% 08/26/03 14,115 5,592 8,523 43.2% 09/02/03 6,629 13,402 (6,773) (33.8%) 09/09/03 7,429 13,796 (6,367) (30.0%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ================================================================= 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. 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PremierInvestor.net Newsletter Thursday 09-25-2003 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 ================================================================= Play of the Day: Wasting No Time Stop Loss Update: UTSI 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 ) =============== UTStarcom, Inc. - UTSI - cls: 32.99 chng: -2.09 stop: 37.00*new* Company Description: UTStarcom, Inc. is a global provider of wireless and wireline access and Internet protocol (IP) switching solutions. The company designs, manufactures, sells and installs an integrated suite of future-ready access network and next-generation switching solutions. It enables wireless and wireline operators in fast- growth markets worldwide to offer voice, data and Internet access services rapidly and cost effectively by utilizing their existing infrastructure. UTSI's products provide a seamless migration from wireline to wireless, from narrowband to broadband and from circuit- to packet-based networks by employing next-generation network technology. Why we like it: Technology stocks have been on fire lately, as though we're right back in 1999. But the party had to come to an end sometime, and this week seems as good a time as any. Actually, UTSI began to weaken in early September, with the first downdraft culminating with a weak rebound from the $34 level. That rebound ran its course and the stock rolled over just below $38.50 and based on the past two days closing at the low of the day and selling volume on the rise, it looks like another downward move is in the offing. The PnF chart has already cast its vote with a big Sell signal in early September that now gives us a bearish price target of $24. That may be a bit aggressive with the bullish support line at $25, but a drop to next support at $30 and possibly to the 200-dma near $28 certainly seems likely. Note that a trade at $34 would reinforce the bearish picture with another PnF Sell signal. We'll use a trigger at $34.99 and advocate a couple of possible entry strategies. A breakdown below the trigger can be used for aggressive entries, while those with a more patient approach can wait for a successive rebound and rollover below the $36-37 resistance area. The recent consolidation/rebound found a local high at $38.45, so our stop will initially be placed at $38.50. A rally through that level would be a clear sign that we are premature in looking for a substantial breakdown. More conservative momentum traders may want to wait for a drop through the $34 level and that new PnF Sell signal before playing. Our initial target will be for a move down to the $30 support level, with an outside chance of continuation down to the 200-dma, currently $27.88. Why This is our Play of the Day UTSI came to rest right above critical support yesterday and the setup for new bearish plays looked too good to pass up. Sure enough, it looks like we may have caught a runner here, as the stock broke below $35 (satisfying our trigger) shortly after the open and didn't stop for breath until reaching the $32 level a few minutes later. You had to be quick on the trigger to catch that initial entry, but following that initial rebound, there were a couple of opportunities to enter on a rollover from the vicinity of $34. An afternoon rebound attempt following the company's reaffirmed Q3 guidance was only good for another bounce to $34 and subsequent rollover into the close. Rollovers in the $34-35 area look good for new entries from here, with the $30 level being the logical first target. Based on the heavy selling volume (four times the ADV) on Thursday, it looks like UTSI could go for the gusto and achieve our aggressive target of $28, right at the 200- dma. Annotated Chart of UTSI: Picked on September 24th at $35.08 Change since picked -2.09 Earnings Date 10/23/03 (confirmed) Average Daily Volume = 3.55 mln ================================================================= Stop Loss Updates ================================================================= UTSI - short play Adjust from $38.50 down to $37.00 ================== 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 GDW Golden West Financial 90.26 +1.01 FTN First Tennessee Ntl 42.65 +1.01 MDC M.D.C. Holdings 53.15 +0.67 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- ABMD Abiomed Inc 8.70 +1.86 HBIO Harvard Bioscience 8.13 +1.18 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- URBN Urban Outfitters 26.25 +1.16 CREE CREE Inc 21.04 +1.68 TRB Tribune Co 47.01 +1.14 NCR NCR Corp 32.50 +2.81 WDFC WD-40 Co 32.29 +3.54 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- UTSI UTStarcom Inc 32.99 -2.09 NUE Nucor Corp 45.69 -1.41 SYNT Syntel Inc 25.05 -3.82 NOC Northrop Grumman 84.92 -1.08 BMY Bristol-Myers Squibb 25.80 -1.20 EK Eastman Kodak 22.15 -4.84 BVF Biovail Corp 37.10 -1.50 LLL L-3 Communications 42.35 -2.15 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- HEPH Hollis-Eden Pharmaceutical 26.77 -2.18 FAST Fastenal Co 39.40 -1.86 NFLX Netflix Inc 34.81 -3.19 GPRO Gen Probe Inc 57.01 -6.52 EASI Engineered Support 59.75 -3.16 TECUA Tecumseh Products 38.85 -1.65 NCOG NCO Group Inc 23.75 -1.55 ================================================================= 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. 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