PremierInvestor.net Newsletter Tuesday 10-21-2003 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: Eight Days and Counting Watch List: NSM, QCOM, IGT, TXN and more! Market Sentiment: Where'd the Rally Go? ================================================================= MARKET WRAP (view in courier font for table alignment) ================================================================= 10-14-2003 High Low Volume Advance/Decline DJIA 9747.64 - 30.30 9784.31 9736.68 1.84 bln 1736/1373 NASDAQ 1940.90 + 15.80 1952.48 1922.78 1.71 bln 1818/1345 S&P 100 521.76 + 0.33 523.23 520.17 Totals 3554/2718 S&P 500 1046.03 + 1.35 1048.57 1042.50 W5000 10164.76 + 24.50 10185.54 10125.44 RUS 2000 525.53 + 4.09 526.42 521.44 DJ TRANS 2864.86 + 8.01 2872.36 2854.72 VIX 16.55 - 0.49 17.23 16.19 VXO (VIX-O)17.82 - 0.34 18.77 17.43 VXN 24.35 - 0.43 25.07 23.86 Total Volume 3,798M Total UpVol 2,327M Total DnVol 1,411M 52wk Highs 526 52wk Lows 19 TRIN 1.03 NAZTRIN 0.68 PUT/CALL 0.70 ================================================================= =========== Market Wrap =========== Eight Days and Counting The Dow closed down for the day on weakness in SBC and T and the Nasdaq closed up on strength in semiconductors. If you average the broader markets you get one more day very close to the highs for the year with only eight trading days left in October. This is more amazing than AMZN beating earnings. Dow Chart Nasdaq Chart What a day. For day traders it was several hours of sheer boredom interspersed randomly with several minutes of total confusion. The end result was a one-point gain on the S&P. I could have gone to the movies and saved the brain damage. The Dow opened down after AT&T and SBC shared their results with the world and told us that nobody is phoning home. Heck, according to them many more homes don't have a phone to call. SBC said it lost -323,000 land lines in the last quarter and it may have to review its dividend policy. SBC missed estimates by two cents. Not all the news was bad. They added +365,000 DSL lines and +745,000 wireless lines at its Cingular unit. Those new customers required more expensive infrastructure so costs rose during the quarter. AT&T announced a charge of $125 million after disclosing that two employees concealed charges during 2001 and 2002. AT&T did slow the rate of its decline suggesting that the worst was over. AT&T reported earnings of 53 cents, more than double the same quarter last year. Revenue fell -8.1% for the quarter. AT&T claims lower expenses from several years of restructuring were the reason for the better earnings. Unfortunately AT&T saw revenue drop in its business segment by -6.2%. They said they saw no signs of a recovery in capital spending by businesses. T fell -1.07 in regular trading. Both T and SBC are Dow components and kept the index in the red for the day with the aid of CAT, BA, GM and Citigroup. GM was hurt by earnings from Daimler Chrysler that posted a loss of nearly $1.8 billion for the quarter. The U.S. unit posted a profit on the strength of prior cost cutting and restructuring efforts. The massive loss weighed on the sector after DCX said competition was still very intense and they would do what was necessary to sell cars. The Mercedes unit sales were flat. Last week Harley Davidson was also lowering future production growth. Is this a sign of the current economic times or those to come? AMTD and SCH reported earnings and while the earnings were not exciting the statistics were. SCH said trading volumes were up slightly but that new account numbers were still disappointing. New accounts fell -23% at Schwab. AMTD said trading volume in October was down about -10% from September levels. Schwab CFO said they are not expecting investors to continue to ramp up. Both companies were downbeat about the lack of new investor enthusiasm. Etrade also reported last week that new account openings were falling. If all three of the top brokers say investor participation is waning then it could be a sign there is still some doubt the market rebound is going to stick. Others think that the lack of new investors is related to unemployment, falling wages and lack of investing income. JCOM dropped -10.39 after raising its guidance to $1.03 for the year. Analysts had already built in aggressive growth and were expecting $1.00 to $1.19 per share. The -20% drop knocked the stock back to $33 and a level where brokers are falling all over themselves to recommend it with a $50 price target. JCOM sports a compound annualized growth rate over 50% and better than 40% free cash flow. Never heard of them? Heard of eFax? That is one of their products. I have watched them soar from $8 to $48 over the last 10 months and kept saying I would buy them on a pullback. Looks like it is time. The 100DMA is just over $30 and I would love to see it there. The 800lb gorilla left for the week is MSFT on Thursday after the close. There was a big press splash today on the release of the new Office product. MSFT is launching a $150 million ad campaign hoping that consumers will part with up to $499 for the full version. MSFT has 400 million users of its Office products and generated $9.2 billion in revenue over the last year. The last Office suite had the slowest acceptance rate of any release. This suggests that consumers may not rush out and buy a new copy when their Office-2000/XP still works just because the new one is available. MSFT saw a huge ramp into the 2000 product due to Y2K but while the computers may have increased in speed on a factor of ten over the last four years the ways you write a letter, work with a spreadsheet or receive email have remained the same. I doubt MSFT will starve if consumers do not rush out to stand in line to buy the new software. MSFT announces later in the earnings cycle this quarter and there is a sneaking suspicion that they might not be as bullish as everyone hopes. The lack of a PC upgrade cycle and the slow IT recovery could be hurting them. Also, the vastly increased speed of servers means fewer are needed now than in the past and that means fewer expensive licenses. Intel said the higher volume of laptops was driving their profits but laptops typically come preloaded with a MSFT bundle at a discount to list. Plus, laptops do not feed the onsite network and require fewer network fees. Also, in order to use the new features of the Office product, corporations must purchase a new server product that retails for $5,619 per server. With the SUNW Office clone at $79.95 per copy along with the free OpenOffice product this will not be a slam-dunk sale for MSFT. Last night the Semiconductor Book-to-Bill number for September was announced at 0.95 and now 13 consecutive month at less than breakeven. Orders climbed +3.9% in September and was the second consecutive rise after four down months. This is encouraging but hardly something to shout about. On a year over year basis orders are still down -8.5% and shipments are down -23%. The 0.95 number was only a slight improvement over the 0.92 in August. This could be the start of a trend but it is not a blast off. Once the BTB passes breakeven, more orders than shipments, then we will have something to be excited about. There was some good news in a VLSI survey showed that global chip fabrication plants were reaching 90% capacity and may need to upgrade equipment soon. A large amount of chip capacity was taken offline or converted to other uses when the tech bubble collapsed. The only economic report today was the weekly Retail Sales and they came in flat. The Bank of Tokyo was quick to lower the forecast for October once again. The yo-yo outlook has gone from +4.5%-5.0% to only 3.0% at present. The Nasdaq rose on the strength of TXN earnings but overall the broader market strength was flat. 92% of companies who reported earnings last week were meeting or beating estimates. That number has dropped to about 66% this week as the quality of companies reporting diminishes and the number of smaller companies reporting increases. The blue chips are slowly dwindling with MSFT the remaining figurehead of note on Thursday. This quality fade is still not critical as 66% is a very respectable level. The Dow has now traded for nine days in the 9700 range with a brief sprint to 9848 and a brief dip to 9650. Throughout all this the price magnet remains 9750 and that is exactly where it closed today. The lack of gains on strong earnings news is seen by many as positive. They feel that is shows a lack of unbridled bullish enthusiasm and more of a cautious optimism. The main point seen as positive is the lack of a drop. Given some high profile misses and the October time frame it is seen as remarkable by some. The Nasdaq price magnet is 1940. It has traded within 30 points of that level since October 9th and ended there again today. The TXN news offset the weak book-to-bill numbers and the SOX is only a couple points away from a new high. The Nasdaq will face another challenge tomorrow. AMZN announced earnings tonight and beat estimates by a penny. This was the first non holiday quarter that AMZN has posted a profit and it squeaked out a $52 million gain on revenue of $1.13 billion. It dropped in after hours to $58 after trading as high as $61 during the day. AMZN only guided analysts to $5.75-$6.25 billion for 2004 and analysts had already expected $6.1 billion. While that is not much of a difference it was seen as conservative guidance and not exciting enough to justify the recent +200% gain in the stock. However, remember EBAY? The outlook was not exciting and it took a tumble but has nearly recovered the loss through Tuesday. Something I have been reporting but over looked by the public is the foreign exchange gains. This quarter more than 50% of AMZN profits were due to the weak dollar and gains in currency exchange. Without the gains AMZN earnings would have only been +0.05 cents. Is this relative to investors? AMZN traded down -$2 in after hours and Nasdaq futures are down only slightly (-3.00) at 8:PM. Several readers have asked if it was time to back up the truck and buy puts based on the VIX at 16.55. Historically anything under 17.50 is a trigger point for a huge put buying opportunity. However, the VIX you see quoted in print these days is NOT the VIX that you have watched for the last decade. On Sept-22nd the CBOE changed the way the VIX is calculated to be based on SPX options and not OEX options. They also changed the calculation method to include more strikes and added some complicated math. The bottom line is the current VIX at 16.55 cannot be compared to the old VIX. The new calculation has taken some of the volatility out of the indicator in anticipation of offering options on it in the near future. Now the good news. The old VIX, now called the VXO for VIX Old hit 17.43 today. Hit, not closed under 17.50. The close was 17.82 and in my book that is close enough for government work. Do you back up the truck? No, because the VXO is only one indicator of market sentiment. It is showing that there is no fear in the market and almost nobody expects the market to drop. When these conditions exist it can take several days for a market event or it can take weeks. There is not a trip wire that gets pulled and suddenly the bottom falls out. We may see a market reaction as there are normally some sell programs that are triggered on a close under 17.50 but then again this is not a normal market and we did not close under 17.50. That number is not magic. It could be 17.82 or 16.82 that draws sellers but 17.50 does tend to act like a target. The key to remember is it may not be immediate. There have been times when it stayed at relatively low levels for days. The last time we saw it this low (17.43) was July-20, 1998. It traded in the 16.43-17.80 range for about eight days before blasting off to a high of 60.63 in October. Sure, sure but this is different! Is it? Jul-20th was the 3rd week of an earnings month and the market was at new highs. OK, it was not October but the other two conditions should make you think twice. Never ignore the VXO. Never say it can't happen. VIX/DOW Charts The overnight futures are tame at 8:30 with just a small drop. There are several hundred companies still to report this week with MSFT the spotlight on Thursday. The only economic report tomorrow is Weekly Mortgage Applications and not a market mover. We will be left to fixate on earnings and see how the crowd reacts to the AMZN news. Volume was low again today and there is still no conviction on either side. Something big is about to happen and there are no clues in sight. Or is there? You decide. 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 --------------------------------- National Semiconductor - NSM - close: 39.28 change: +0.71 WHAT TO WATCH: Not for the timid, NSM has been tearing up the charts for the past couple months now, greatly outpacing the strength in the Semiconductor index (SOX.X), which itself broke to new highs today. Use a breakout above $40 to trigger new entries and look for a run to the $45-46 area. --- Qualcomm Inc. - QCOM - close: 45.33 change: +0.83 WHAT TO WATCH: The company at the core of the CDMA technology is on the cusp of another breakout and the entry setup couldn't be more perfect. If QCOM can clear $46, then it has a solid shot at hitting the $50 level ahead of earnings in early November. --- International Game Technology - IGT - close: 31.42 change: +0.66 WHAT TO WATCH: While the weekly chart may give you vertigo, IGT's daily chart is a thing of beauty, as the stock is once again breaking out to new all-time highs. Today's close was a new closing high, but we'd prefer to use a trade above $31.50 (the 10/13 intraday high) for an entry trigger. Look for a rally to the $35 area ahead of earnings on November 4th. --- Texas Instruments - TXN - close: 27.28 change: +1.61 WHAT TO WATCH: Following a positive reception of its earnings report last night, shares of TXN gapped sharply higher this morning. The stock wasn't able to hold onto its intraday gains, but today's breakout looks constructive. Ideally, we'll see the gap filled in and then a resumption of the rally towards the $32 area. Traders looking to enter on strength will want to target a breakout over $28, while bargain hunters can look for a dip and rebound from the $26 area to signal an entry point. =================== On the RADAR Screen =================== MGAM $35.18 - That's right, we actually managed to find a solid bearish candidate. MGAM has not been acting like a winner lately, as it has really started to pick up some downside momentum in the past week. A sharp increase in selling volume dropped MGAM right to $35 support, but if this trend continues, $30 at the bottom of the September gap looks like a viable target. MHK $70.00 - Beating earnings estimates last week wasn't enough to keep MHK afloat, especially after the company lowered its guidance. Last Friday saw a sharp selloff to the $70 level, but a rebound yesterday had the bears looking timid. Not so today, as they took back all of Monday's gains and a breakdown appears imminent. Entries near current levels look favorable, with $65 being the logical first target. MMC $46.40 - The breakdown we've been expecting for the past several weeks finally arrived on Tuesday, following the company's less than stellar earnings report. MMC broke under its 200-dma and now appears headed for that $42 level. Use a failed rebound below the 200-dma or a break under $45.50 as an entry strategy, looking for a quick gain as selling volume builds. =============================== Market Sentiment =============================== Where'd the Rally Go? - J. Brown Gosh! It seemed like only yesterday evening we were all excited for a continuation of the afternoon rally and investors had Dow 10,000 in their eyes. Oh wait! It was just yesterday. The strong Texas Instrument earnings had the technology bulls grinning but the rally was disconnected by some disappointing telecom numbers. Dow component AT&T (T) lost 5 percent after their earnings report unveiled an 8.1 percent drop in revenues. Another Dow component SBC Communications (SBC) slid almost 2 percent after missing estimates by 2 cents with net income of 37 cents a share. Together the two of them keep the Dow in the red. Yet believe it or not the markets generally had a good day. At one point nearly every sector was green except for two or three stragglers, which were only fractionally lower. As expected the session was driven by earnings news before, during and after the close. A couple of major announcers after the closing bell today were AMGN and AMZN. AMGN's numbers were pretty good and should give the BTK, which was up 3 percent today, more fuel to run higher tomorrow. AMZN also turned in good numbers depending on which ones you want to believe. Estimates had been for 10 cents but the whisper number was evidently 12 cents. The company turned in 11 cents but this was before items. Take out all the charges and AMZN only earned net income at 4 cents a share. Shares were down in after hours but it will be interesting to see if the profit taking lasts longer than tomorrow. AMZN guided higher for the holiday quarter estimating sales near $1.91 billion versus 1.78 billion a year ago. Regarding investor sentiment there was a lot of talk made about the volatility indices or fear index. The NASDAQ's VXN dropped to a new all-time low at 24.35 but this index really isn't old enough for traders to trust it yet. The new VIX, based off the S&P 500, fell to a new low at 16.55. Yet again this index is only a few weeks old and investors are unsure how to read it. The old VIX, now the VXO, dropped to 17.82. This is an extreme level of fearlessness and practically yelling that we're near a market top. The last time the old VIX was at this level was mid July in 1999. Within two or three days the markets rolled over and dropped for three weeks straight. The S&P 500 lost about 100 points in the down turn after the VIX's signal. I'm not saying the markets are going to roll over tomorrow but this rally's days may be numbered in the single digits. Don't worry. As Jim mentioned in his weekend wrap a good-sized consolidation would only set us up for a buying opportunity into the traditional holiday ramp up. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9850 52-week Low : 7197 Current : 9747 Moving Averages: (Simple) 10-dma: 9740 50-dma: 9504 200-dma: 8786 S&P 500 ($SPX) 52-week High: 1053 52-week Low : 768 Current : 1046 Moving Averages: (Simple) 10-dma: 1042 50-dma: 1017 200-dma: 941 Nasdaq-100 ($NDX) 52-week High: 1439 52-week Low : 795 Current : 1422 Moving Averages: (Simple) 10-dma: 1408 50-dma: 1350 200-dma: 1174 ----------------------------------------------------------------- The NASDAQ's VXN dropped to a new all-time low at 24.35 but this index really isn't old enough for traders to trust it yet. The new VIX, based off the S&P 500, fell to a new low at 16.55. Yet again this index is only a few weeks old and investors are unsure how to read it. The old VIX, now the VXO, dropped to 17.82. This is an extreme level of fearlessness and practically yelling that we're near a market top. CBOE Market Volatility Index (VIX) = 16.55 -0.49 Nasdaq Volatility Index (VXN) = 24.35 -0.43 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.70 773,759 540,023 Equity Only 0.59 648,197 380,941 OEX 1.00 12,693 12,673 QQQ 2.10 33,143 69,700 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.8 + 0 Bull Confirmed NASDAQ-100 78.0 + 0 Bear Correction Dow Indust. 83.3 + 0 Bull Correction S&P 500 81.0 + 0 Bull Confirmed S&P 100 79.0 + 0 Bull Correction 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-dma: 1.12 10-dma: 1.07 21-dma: 1.16 55-dma: 1.07 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 1544 1784 Decliners 1258 1283 New Highs 170 1021 New Lows 7 25 Up Volume 967M 1214M Down Vol. 829M 496M Total Vol. 1810M 1727M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/14/03 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 Unfortunately we're still not seeing much change in sentiment for the Commercials in the big S&P futures. They remain slightly net short. Small traders aren't making many moves either and they remain net long. Commercials Long Short Net % Of OI 09/23/03 395,123 397,858 ( 2,735) (0.0%) 09/30/03 395,713 397,577 ( 1,864) (0.0%) 10/07/03 390,232 402,964 (12,732) (1.6%) 10/14/03 391,972 410,299 (18,327) (2.3%) 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 09/23/03 139,482 87,981 51,501 22.6% 09/30/03 144,681 96,801 47,880 19.8% 10/07/03 138,644 88,018 50,626 22.3% 10/14/03 133,940 86,418 47,522 21.6% 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 It's the same story here. Commercials increased their positions in both longs and shorts but remains slightly net short. Small traders trimmed some short positions and opened 30K more long contracts just in time for the late week weakness. Commercials Long Short Net % Of OI 09/23/03 109,417 204,026 ( 94,609) (30.2%) 09/30/03 163,828 218,991 ( 55,163) (14.4%) 10/07/03 212,273 225,377 ( 13,104) ( 3.0%) 10/14/03 221,897 233,066 ( 11,169) ( 2.5%) 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 09/23/03 175,750 62,558 113,192 47.5% 09/30/03 131,698 65,259 66,439 33.8% 10/07/03 134,990 63,560 71,430 36.0% 10/14/03 161,208 59,213 101,995 46.3% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Sorry...no big changes for the Commercial traders here either. They remain net short while the Small Trader remains net long. Commercials Long Short Net % of OI 09/23/03 32,648 42,565 ( 9,917) (13.2%) 09/30/03 33,571 42,993 ( 9,422) (12.3%) 10/07/03 33,253 40,861 ( 7,608) (10.3%) 10/14/03 34,639 41,880 ( 7,241) ( 9.5%) 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 09/23/03 17,862 9,880 7,982 28.8% 09/30/03 19,803 9,917 9,886 33.3% 10/07/03 18,182 9,688 8,494 30.5% 10/14/03 16,822 9,046 7,776 30.1% 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 one seems willing to make any big bets. Commercials have been stuck in the same range for weeks now and remain net long the DJ futures. Small traders took some money out of their long and dumped some of it into shorts but not much. Commercials Long Short Net % of OI 09/23/03 15,911 9,123 6,788 27.1% 09/30/03 16,561 8,932 7,629 31.5% 10/07/03 16,277 9,528 6,749 26.2% 10/14/03 16,595 9,433 7,162 27.5% 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 09/23/03 7,505 7,779 ( 274) ( 1.8%) 09/30/03 7,578 8,125 ( 547) ( 3.5%) 10/07/03 7,392 7,910 ( 518) ( 3.4%) 10/14/03 6,427 8,495 (2,068) (13.9%) 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. 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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PremierInvestor.net Newsletter Tuesday 10-21-2003 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 ================================================================= Play of the Day: Inside Inside Day 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 ) =============== Factset Research - FDS - close: 44.48 change: -0.42 - stop: 46.01 Company Description: FactSet Research Systems Inc. is a leading provider of global financial and economic information, including fundamental data on tens of thousands of companies worldwide. Combining more than 200 databases into its own dedicated online service, the Company also provides the tools to download, combine and manipulate the data for investment analysis. The Company, headquartered in Greenwich, Connecticut, was formed in 1978 and now conducts operations from seventeen locations worldwide including Boston, New York, Chicago, San Mateo, London, Tokyo, Hong Kong, Sydney and Frankfurt. (Source: Company Press Release.) Why we like it: In early September, FDS reported Q4 earnings that beat estimates. Revenues rose from 51.7 million in the year-ago period to $57.6 million in Q4. However, that earnings release was followed by downgrades from CSFB and Morgan Stanley. FDS had reached an all- time high early in September and then declined slightly. It had been headed up to test that all-time high again when earnings were released and the downgrades hit. Falling to support near $43.00, FDS bounced, but then began rounding over into a shape that looks suspiciously like the right shoulder of a head-and- shoulder formation. While price was declining, that decline created a P&F sell signal with a downside target of $43.00, which accounts for the bounce from that level in late September. Now FDS trades in an O column again, and a trade below $43.00 will create a new P&F sell signal. It will also confirm the H&S formation by falling below the neckline. Two entries suggest themselves. Since many H&S patterns form a second right shoulder, it's possible that FDS will again bounce and then roll down through the neckline. The 21-dma has been capping recent rises, so entries on bounces and rollovers from that moving average would be appropriate. It's also possible that FDS will fall through the neckline without first bouncing into a second right shoulder, offering momentum entries on a move below $43.00. Why This is our Play of the Day Friday's sharp selloff seemed like it might be a bit overdone in the near-term and that view certainly seemed to play out on Monday, as FDS rebounded back over $44 to trade a perfect inside day. But then Tuesday's session traded completely inside of that inside day, giving us a "double inside day" to work with. Traders that want to play the formation can look to enter short on a break below yesterday's intraday low ($44.10) or Friday's intraday low ($43.55) in an attempt to get in a bit earlier than the clear breakdown, which comes on a trade below $43. Failed rebounds below the converged 10-dma ($45.50) and 20-dma ($45.57) can be used for more aggressive entries. Remember, the break of $43 also constitutes a bearish H&S breakdown. While there is some possible support near $41, we're looking for a decline to the vicinity of the 200-dma (currently $37.93). Annotated Chart of FDS: Picked on October 18th at $43.65 Change since picked: +0.83 Earnings Date: 12/16/03 (confirmed) Average Daily Volume: 346 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 WYE Wyeth 45.80 +1.20 COF Capital One Financial 61.78 +0.72 DGX Quest Diagnostic 62.80 +2.30 CTX Centex Corp 91.83 +1.83 MME Mid-Atlantic Medical 55.60 +0.88 RYL The Ryland Group 83.55 +1.93 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- NCI Navigant Consluting Inc 14.83 +1.25 WNC Wabash National Corp 19.73 +1.01 RETK Retek Inc 10.25 +1.57 AWA America West Holdings 13.30 +2.15 GVHR Gevity Hr Inc 17.96 +1.59 PSEM Pericom Semiconductor 11.75 +1.26 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- TXN Texas Instruments 27.28 +1.61 SLB Schlumberger Ltd 51.36 +1.52 ADI Analog Devices Inc 44.86 +1.84 CNI Canadian Natl Railway 56.20 +1.42 TIF Tiffany & Co 44.57 +1.47 COH Coach Inc 33.87 +2.43 PD Phelps Dodge Corp 57.80 +1.18 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- MMC Marsh & Mclennan Cos 46.40 -1.98 MEL Mellon Financial 29.83 -2.62 MHK Mohawk Industries 70.00 -1.76 AVY Avery Dennison Corp 50.28 -2.22 EAT Brinker Intl 29.60 -4.21 KMX Carmax Inc 31.05 -1.32 JCOM J2 Global Communications 33.45 -10.39 MHC Manufactured Home Comm 38.00 -2.74 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- ROST Ross Stores Inc 51.85 -1.33 CTSH Cognizant Tech 42.15 -1.73 NTES Netease.com 59.50 -8.05 SINA Sina Corp 37.70 -3.76 MGAM Multimedia Games Inc 35.18 -2.82 TJX TJX Companies 20.98 -0.22 NMGA Neiman Marcus 46.50 -0.76 ================================================================= 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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