PremierInvestor.net Newsletter Wednesday 12-24-2003 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: Mad Bulls Take Day Off Trading Ideas ! Holiday Schedule notice PremierInvestor's Trading Ideas section will continue on Tuesday, December 30th, 2003. Have a happy holiday! ================================================================= MARKET WRAP (view in courier font for table alignment) ================================================================= 12-24-2003 High Low DJIA 10305.12 -32.81 10341.48 10305.12 NASDAQ 1969.23 - 5.55 1974.31 1964.88 S&P 100 542.01 - 1.41 543.42 541.71 S&P 500 1094.04 - 1.98 1096.02 1092.73 RUS 2000 552.35 - 2.68 555.03 552.23 DJ TRANS 2990.15 -16.46 3007.27 2985.08 VIX 16.65 + 0.16 16.77 16.66 VXO 16.12 + 0.55 16.25 15.69 VXN 23.33 - 0.16 23.77 23.09 TRIN 1.34 PUT/CALL 0.70 ================================================================= =========== Market Wrap =========== Mad Bulls Take Day Off Jonathan Levinson With volume barely exceeding 600M Nasdaq shares and 500M on the NYSE, there was little to see and little to do. The Dow had a weak session, with the Transports breaking below 3000 on a closing basis. The absence of a significant selloff was impressive in light of news of a mad-cow disease outbreak (no, that's cows, not bulls), as well as disappointing durable goods orders and new home sales. Traders didn't do much of anything today, and if that trend continues, Friday could see more or the same. Volatility set more lows today, with the VXO spending a good part of the session below 16. Despite this, we saw no new highs out of the indices, and if it were a higher volume, full session, it would have looked like preliminary confirmation of a top on the Dow and SPX. Daily chart of the Dow The daily chart of the Dow looks like a correction waiting to happen, bullish or bearish. Support at 10300 held today, and below that, 10280 and 10200 are the next trendline resistance areas to watch. First price confluence is way below at 10000, followed by 9880. Upside resistance begins at 10350 until 10400. Suffice it to say that without volume, those upper limits are very unlikely to be tested this year. Daily chart of the Nasdaq The Nasdaq was stronger than the Dow today, but it has a lot of ground to make up after lagging so badly this month. The daily cycles are in an upphase, nowhere near as toppy as on the Dow. Support at 1935, 1900 and 1880 are the key levels to watch, below which any decline should accelerate. It was announced overnight that a single case of Mad Cow Disease had been identified in Washington State. With further tests pending, the major importers of US beef issued import bans, including Japan, South Korea, Russia, Taiwan, Malaysia, Singapore, Australia and others, while the US ordered a recall of at least 10,000 pounds of meat. Almost as rapid was UBS analyst David Palmer's defense of MCD and other industry-sensitive stocks, as he went on record to say that "If the stocks open as weak as we expect, then we believe this could provide an even more compelling entry point for McDonald's," Palmer said. "We would also view this positively for Wendy's (which already has tremendous near-term momentum. In addition, we believe the likely beef cost decrease could prove particularly propitious for Brinker, which has significant exposure to rising beef costs in 2004." MCD closed lower by 5.22%, and cattle futures closed limit down. Little mention was made of a Senate Agriculture subcommittee discussion of America's vulnerability to terrorism targeting the food chain. For more on this connection, see http://www.newsmax.com/archives/articles/2003/11/19/165032.shtml. In economic news, the Mortgage Bankers Association (MBA) released the Weekly Mortgage Applications Survey for the week ending December 19. Its Market Composite Index of mortgage loan applications, which comprises mortgage and refi applications, decreased by 6.8% to 631.2 on a seasonally adjusted basis from 677.2 in the previous week. On an unadjusted basis, the Index decreased by 7.7 percent compared with last week and was down 34.7 percent compared with the same week one year earlier. This decline occurred despite a decrease in the average contract interest rate for a 30 year fixed mortgage from 5.71% to 5.62%. At 8:30 it was announced that durable goods orders for November dropped 3.1%, the largest drop since September 2002 and well below expectations for a .6% increase. This drop follows four months of consecutive rises, however. October's durable goods orders were revised higher to a 4 percent gain. Orders for computers and other electronics sank 10.8 percent, including a 40 percent drop in communication equipment orders. A quick drop in equity futures on the report's release was stayed by the release of the initial claims data a few moments later. Initial jobless claims dropped in the latest week to an expected 353,000 new claims, bringing the 4 week moving average of initial claims to 361,750 and continuing claims down 38,000 to 3,269,000, the lowest level since September 2001. These are still high absolute numbers, but represent a marked improvement over the 400K+ readings that dominated a few months ago. I've attached a chart of initial claims from the Office of Workforce Security: Chart of initial jobless claims In other news, Italy's largest food group, Parmalat, filed for bankruptcy protection under an emergency government decree, following allegations of fraud and accounting irregularities estimated above $10B. The Commerce Department reported that new home sales dropped 2.4% to a seasonally adjusted annual rate of 1.08 million, the slowest sales pace since May. There were 363,000 new homes on the market rose to 363,000, the highest in more than seven years. New home sales came in at 1.08M, vs. expectations of 1.12 million. The median sales price was up 15.5% year-over-year to a record $209,200, another indication of the effects of the Fed's reflationary efforts. News of an explosion at the Baghdad Hotel was met with a yawn, as was the majority of the news today. While the markets did move, there was little conviction in either direction. Until traders and volume return, we can expect more of the same, barring more significant external news. Here's my prayer for an uneventful holiday season. See you on Friday. ================= Trading Ideas ================= ! Holiday Schedule notice PremierInvestor's Trading Ideas section will continue on Tuesday, December 30th, 2003. Have a happy holiday! ================================================================= 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 (c) 2003 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form
PremierInvestor.net Newsletter Wednesday 12-24-2003 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 ================================================================= In section two: Tech Stocks New Bullish Plays: NVDA Bullish Play Updates: NXTL Active Trader (Non-tech) Bullish Play Updates: DHI, CIT, MRO Bearish Play Updates: ANF High Risk/Reward Bearish Play Updates: NTES ================================================================== Net Bulls (NB) Tech Stock section ================================================================== ========= NEW PLAYS ========= ----------------- New Bullish Plays ----------------- NVIDIA Corp. - NVDA - close: 21.80 change: -0.16 stop: 19.90 Company Description: NVIDIA Corporation designs, develops and markets 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every type of desktop personal computer user. Used in a wide variety of application including games, the Internet and industrial design, the company's products were the first to incorporate a 128-bit multi-texturing graphics architecture. This design approach delivers to users a highly immersive, interactive 3D experience with compelling visual quality and stunning effects at real-time frame rates. NVDA sells its products to major PC manufacturers such as Compaq, Dell, Gateway, Hewlett-Packard and IBM. Why we like it: Following better than expected earnings in early November, shares of NVDA shot sharply higher, from near the $18 area to near $22 on a large gap move. Since then the stock has been consolidating that powerful move between $19.50-22.00, while waiting for the longer-term moving averages to catch up. At the same time, the Semiconductor index (SOX.X) has undergone some much needed consolidation, finding very strong support near $475 and it is just about to break back above the $500 level that has been a price magnet since late October. Over the past couple months, NVDA has formed a nice double bottom near $19.50, and a break above near-term resistance at $22.25 would confirm that formation. The PnF chart is already bullish, with the Buy signal generated in early November pointing to a bullish price objective of $36. That bullishness will be confirmed with a trade at $23, which would create a fresh PnF Buy signal. Rarely do we get a stock that is so clearly poised right at such a clear inflection point, but we're not going to pass up the opportunity. When NVDA breaks above our $22.25 trigger, momentum traders can initiate positions, looking for a rally up to the $25-26 resistance area. Those with a more cautious approach will want to look for a pullback to the $22 support level following the initial breakout. In the event of a more substantial pullback, there should be solid support found near $21, near the convergence of the 10-dma ($21.12), 20-dma ($20.91) and 30-dma ($20.76). Set stops initially at $19.90, just under the December 16th intraday low. Over the next few days, the 50-dma ($19.72) will rise to help protect that stop. Annotated Chart of NVDA: Picked on December 24th at $21.80 Change since picked +0.00 Earnings Date 2/05/04 (unconfirmed) Average Daily Volume = 6.09 mln ============ PLAY UPDATES ============ -------------------- Bullish Play Updates -------------------- Nextel Comms - NXTL - close: 26.86 change: -0.14 stop: 25.50 The quiet consolidation pattern that NXTL has been in for the past couple weeks broke on Thursday, with the stock blasting through the top of its rising channel to set a new 52-week high. That breakout was somewhat reminiscent of the breakout above the channel on December 1st. But there's an important difference this time around. NXTL has now broken solidly above resistance left behind after the plunge in February 2001, and more importantly, Friday's price action held above the top of that channel, rather than dropping back inside, as we saw in early December. Slight pullbacks into the $26.00-26.50 area can be used for new entries, while momentum traders can consider new positions on a breakout over $27.10. We're still looking for a continued rally up towards the top of the gap from 2001 near $30. Maintain stops at $25.50. Picked on November 26th at $25.27 Change since picked +1.59 Earnings Date 2/18/04 (unconfirmed) Average Daily Volume = 14.3 mln ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== ============ PLAY UPDATES ============ -------------------- Bullish Play Updates -------------------- D.R. Horton Inc. - DHI - close: 43.67 change: -0.48 stop: 40.00 The initial rebound off the 50-dma support continued up near the $44 level and got our DHI play off to a good start. But with volume drying up as the holiday draws near, there just hasn't been enough enthusiasm to keep the rally driving higher, especially this close to the stock's all-time highs near $45. Today's action saw the stock dip to the midline of its rising channel just above $43 and rebound slightly, helped along by additional support offered by the 10-dma ($43.26) and the 20-dma ($43.10). Another dip near the $43 level looks like a decent entry point, although we do need to beware of the daily oscillators, which are starting to tip over. If they give bearish crosses on Friday or early next week, then a deeper pullback may be in order, with support near the 50-dma ($41.32) likely to be tested. Maintain stops at $40 for now. Picked on December 17th at $42.69 Change since picked +0.98 Earnings Date 1/15/04 (unconfirmed) Average Daily Volume = 1.41 mln -- CIT Group - CIT - close: 34.35 change: -0.04 stop: 33.05 U.S. heavy construction equipment manufacturers have been reporting increased sales, with analysts suggesting that federal tax changes and aging construction equipment have prompted those improving sales figures. Doubt about the sustainability of the sales remains, however, with some of those sales tied to the strong residential housing sector. Heavy equipment companies such as CAT, CNH, and DE failed to benefit from those increased sales, and CIT, which finances equipment, also failed to benefit benefit. We had speculated late last week that CIT might not yet have completed its consolidation and that speculation turned out to be true. CIT settled into a symmetrical triangle within its rising regression channel. MACD turned down along a descending trendline and stochastics also turned down into a full bearish roll. RSI squiggles along at a neutral 55-ish reading. So far, CIT's price chart follows the same pattern it did in mid November, with the resolution of that pattern being another push higher. In November, CIT first reached down and touched its 30- dma, in black on the chart, and CIT may do that again. We're keeping our stop just below the rising 50-dma, currently at $33.06, but conservative traders might raise stops to a point just under the 30-dma and the bottom of the rising channel. Because of the continued consolidation just above the 30-dma and the rising channel, new entries are possible at the current level. Annotated Chart for CIT: Picked on Dec 12 at 34.05 Change since picked: +0.30 Earnings Date: 01/22/03 (unconfirmed) Average Daily Volume: 879 thousand ----- Marathon Oil - MRO - close: 32.55 change: +0.39 stop: 31.49*new* After three days consolidating just above $32.00, MRO moved up again on Wednesday. Although the holiday saw light volume on the exchanges, MRO managed to trade far more than half its average daily volume, predicting that volume might have been strong on a non-holiday trading day. Perhaps helping MRO was the conciliatory stature taken by the Libyan government this week, with Libya perhaps posturing for a lifting of U.S. sanctions. Libya apparently wants U.S. oil companies to return to their abandoned operations in Libya. MRO was active in Libya before the imposition of the sanctions and the company has been trying to extend its exploration permits, set to expire in 2005. MACD remained bullish, and RSI and stochastics have begun to trend at levels indicating overbought conditions, as often happens with a strongly trending market. MRO has far outstripped its rising moving averages, however. Wednesday's upper shadow indicates that it might hesitate here while those averages play catch-up. Dips down to and bounces from the rising 10-dma could still be used as entries, but they're risky entries since the first target is just overhead at $33.75. We're raising our stop to $31.49, just below that rising 10-dma. Annotated Chart for MRO: Picked on Dec 05 at 30.22 Change since picked: +2.33 Earnings Date: 01/27/04 (confirmed) Average Daily Volume: 1.2 million -------------------- Bearish Play Updates -------------------- Abercrombie & Fitch - ANF - cls: 24.07 chng: -0.10 stp: 25.25 After numerous forays both sides of the $24 level in the past couple weeks, it is clear that this level is now acting more as a price magnet than either support or resistance. With volume getting lighter by the day, it is getting harder to read much of anything into the price action and Wednesday's session was particularly bad. ANF traded less than 15% of its ADV, with price confined to less than a 30-cent range. ANF did end with a slight loss on the day, and it is encouraging to see the 10-dma ($24.38) still acting as consistent resistance. But viewed on an intraday basis, we can see that the stock is just building a neutral wedge over the past couple weeks and that pattern could break in either direction. So long as resistance holds, we maintain our downside bias, and look for failed rally attempts below the 10-dma to provide new entries. Momentum traders will still need to see a break below $23 before playing, but that will likely have to wait until next week for at least a token improvement in the volume patterns. Continue to monitor the Retail index (RLX.X) for weakness, as the current price action suggests a rollover into next week, which should help to pressure ANF. Maintain stops at $25.25 Picked on December 14th at $24.59 Change since picked -0.52 Earnings Date 2/17/04 (unconfirmed) Average Daily Volume = 2.31 mln ================================================================== HIGH RISK/HIGH REWARD (HR) section ================================================================== ============ PLAY UPDATES ============ -------------------- Bearish Play Updates -------------------- Netease.com - NTES - close: 38.17 change: +1.29 stop: 39.51 The planned or recent introduction of IPO's such as Tom.com and Ctrip.com (CTRP) has focused attention again on the performance of the Chinese Internet-related companies such as NTES, SINA, SOHU, and CHINA. All moved higher from their opening levels on Wednesday, including NTES. Particularly worrisome to this play is the fact that NTES rose after spending a few days testing the 50 percent retracement of this year's rally. That Fib level serves as a typical turnaround point in many reversals. Volume proved average for a holiday-shortened trading period. The rise was strong enough to turn RSI back up again, and stochastics made a bullish kiss from within territory indicating oversold conditions. Stochastics haven't yet been tugged out of that territory and MACD remains flat, but the turnaround at significant possible support can't be ignored, either. We've positioned our stop close overhead, so will be stopped out of this position quickly should NTES try to rise. Because our worries about that 50 percent retracement levels have been validated by the last week's trading, those seeking new entries should wait for a roll down below that level, setting a trigger just below Friday's $35.26 intraday low as a trigger for the entry. Annotated Chart for NTES: Picked on Dec 10 at 38.96 Change since picked: -0.79 Earnings Date: 10/28/03 (confirmed) Average Daily Volume: 4.6 million ================================================================= 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 (c) 2003 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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