PremierInvestor.net Newsletter Wednesday 01-07-2004 section 1 of 2 Copyright (c) 2004, 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: Techs Lead Again 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) ================================================================= MARKET WRAP (view in courier font for table alignment) ================================================================= 01-07-2004 High Low Volume Advance/Decline DJIA 10529.03 - 9.63 10539.46 10466.29 2.23 bln 1502/1359 NASDAQ 2077.68 + 20.31 2078.09 2047.02 2.27 bln 1819/1282 S&P 100 559.31 + 1.56 559.31 554.35 Totals 3321/2641 S&P 500 1126.33 + 2.66 1126.33 1116.45 RUS 2000 574.62 + 4.73 574.62 567.84 DJ TRANS 3034.06 - 3.20 3038.90 2999.97 VIX 15.50 - 1.23 16.75 15.50 VXO 14.85 - 0.49 16.14 14.75 VXN 21.91 - 0.85 23.01 21.81 Total Volume 4,903M Total UpVol 2,859M Total DnVol 1,958M 52wk Highs 812 52wk Lows 13 TRIN 0.86 PUT/CALL 0.69 ================================================================= =========== Market Wrap =========== Techs Lead Again by James Brown The Santa Claus rally has morphed effortlessly into a strong "January effect" and the trend from mid-December remains unbroken. Charging to the forefront was the NASDAQ composite, which closed at 29-month highs (best since August 2001) on the backs of strong gains for the networking and disk drive sectors. Lending strength to the Dow and the NASDAQ 100 was component Intel, which jumped 3.3% on an upgrade. Bonds rallied as well after comments from US Treasury Secretary John Snow rallied the dollar, if only for the day. Market internals were mostly bullish. The NYSE saw 15 advancers for every 13 decliners. On the NASDAQ there were 18 winners for every 13 losers. Up volume outpaced down volume and overall volume remained relatively strong with more than 2 billion shares trading on each exchange. Disk drives and networking stocks saw the heaviest buying today but airline stocks also turned in a good performance. Out performers also included defense issues, biotech stocks and broker-dealers. I did note that European bourses were mostly negative as was the NIKKEI but the Hang Seng posted another triple-digit gain. Profit taking also slowed crude oil, which slipped 8 cents to $33.62 a barrel and February gold futures, which dropped 90 cents to $422.30 an ounce. Chart of the DJIA: Chart of the NASDAQ: Intel was one of the market leaders today and shares added $1.09 or 3.3 percent to close at $33.99. The move was powered by positive comments from an analyst at Sanford Bernstein. The firm upgraded the stock from "market perform" to "out perform" and raised their 2004 earnings estimates from $1.20 to $1.27 and its price target to $42. They believe that seasonal price swings in chips will lead to a better than expected first half in 2004. Combine these comments with growing expectations for semiconductor sales to soar 17% to 20% in 2004 and it's easy to see why investors are moving money into the group. On a side note, Intel announced this morning that it would be investing $200 million into a fund designed to "accelerate" digital home innovation. Another tech stock leader today and responsible for the strong gains in the NWX networking index is Nortel Networks (NT). Shares of NT soared 19 percent on volume of 138 million shares (average volume is just 17 million). Driving the rally was an announcement that Verizon Communications (VZ) had chosen NT to equip them for VoIP (Voice over IP), the next big thing in telecom this year. Dollar amounts were not disclosed but the huge move today is clear evidence that the markets are excited about VoIP and happy to see businesses spending money again. The news prompted Merrill Lynch, Smith Barney and UBS to upgrade shares of NT. The markets were also encouraged by positive comments from personal products producer Procter & Gamble (PG) who announced that Q2 earnings (quarter ending Dec. 31st) would be above current analyst estimates by high as 4 cents a share. The surge in profits is due to the early flu season and higher sales of cold remedies in their Vicks and NyQuil lines. Current consensus is for net profit of $1.26 a share and PG will announce their results on January 28th. Disappointing investors today was software company JDA Software (JDAS) who warned that last quarter's earnings would miss. Estimates had been for $0.10/share and now the company expects to break-even or maybe hit $0.01/share due an inability to close some deals before the quarter ended. The stock fell 16.5% to close just above its simple 200-dma. Earnings are expected around January 20th. Meanwhile Circuit City, the No 2 consumer electronics retailer, announced more bad news with total December sales falling 1 percent and same-store sales falling 2 percent. The company continues to fall behind larger rival Best Buy despite a three- year restructuring program to make them more competitive. Traders following the story can look for BBY to report on their own December sales tomorrow. Elsewhere in the business world today the financial media was abuzz with conjecture that Andrew Fastow, the former CFO for Enron Corp, and his wife Lea would cop a guilty plea. Prosecutors are hot after Jeff Skilling and Ken Lay and the rumor mill is suggesting that the Fastow's would plea bargain for lighter sentences in exchange for their testimony. Plus, word was circulating on Wall Street that NY State Attorney General Elliot Spitzer would sue former NYSE head Dick Grasso for part of his outlandish $140 million pay package. Tomorrow investors will get to see just how strong the 2003 holiday season was when retailers turn in their December same- store sales figures in the morning. Economists will also be looking for the weekly jobless claim numbers. Last week's figures were lower than expected so current estimates are for a small rise to 345,000. Thursday night will be the official launch of earnings season with Dow component Alcoa (AA) who is estimated to earn 34 cents, up from 16 cents last year. Meanwhile the real event this week has yet to occur with the December jobs report due out on Friday. Economists are looking for a gain of 148,000 new jobs, up from 57,000 in November. Unemployment is expected to hold steady at 5.9 percent. Barring any huge surprises in the Friday jobs report don't be surprised to see the current trends remain intact. Investors are holding on to their positions until earnings season hits full swing next week. That's when we can worry about any "sell the news" reactions. ================= 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 --------------------------------- JPM JP Morgan Chase & Co 37.81 +0.34 NOC Northrop Grumman Corp 96.30 +0.69 PCAR Paccar Inc 88.88 +1.38 KMI Kinder Morgan Inc 59.65 +0.34 ASD American Standard Cos 101.96 +0.63 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- LQU Quilmes Industl Q.S.A. 18.45 +0.54 CLE Claires Stores Inc 19.93 +0.40 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- SNPS Synopsys Inc 36.01 +0.27 GRMN Garmin Ltd 57.79 +0.12 BDK Black & Decker 52.80 +1.53 DLTR Dollar Tree Stores 31.91 +0.05 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- UVN Univision Communications 38.59 +0.35 DHR Danaher Corp 88.70 -0.80 INTU Intuit Inc 49.00 -1.41 CHIR Chiron Corp 52.60 -1.96 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- MTB M&T Bank Corp 96.92 -0.17 ENH Endurance Specialty Hldg 32.11 -0.12 CNO Conseco Inc 21.07 -0.01 ================================================================= 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 01-07-2004 section 2 of 2 Copyright (c) 2004, 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 Bullish Play Updates: MXO, NXTL, NVDA, PLCM Active Trader (Non-tech) New Bearish Plays: ELAB Bullish Play Updates: ACE, CIT, MRO Bearish Play Updates: GES, MHS Closed Bearish Plays: ANF ================================================================== Net Bulls (NB) Tech Stock section ================================================================== ============ PLAY UPDATES ============ -------------------- Bullish Play Updates -------------------- Maxtor Corp - MXO - close: 12.25 change: +0.28 stop: 11.25 *new* Product of the year! Maxtor's OneTouch external harddrive was named product of the year by CRN Test Center. Good news like that never hurts. The hard drive/disk drive sector continues to out perform and MXO is following suit. The breakout over the $12.00 level is very encouraging. However, if you prefer to initiate positions on a dip, look for a bounce above the 11.75 level. Meanwhile, we're going to raise our stop loss to 11.25. Picked on Jan 4th at $11.68 Gain since picked: +0.57 Earnings Date 01/20/04 (confirmed) Average Daily Volume: 4.5 million --- Nextel Comms - NXTL - close: 29.09 change: -0.09 stop: 28.00*new* After Monday's surge to just below $29, NXTL has been creeping ever closer to the top of that February 2001 gap near $29.50. For all practical purposes, we could say that mark was achieved this morning with the early trade at $29.37, before the stock retreated fractionally. Like many other areas of the market, NXTL is starting look extended up here and prudent traders should be looking to harvest gains into this strength. With our eventual goal so close, we're once again tightening our stop to $28, which will be below the 10-dma ($27.96) by tomorrow. One more upward surge will likely give us our exit point in the $29.50-30.00 target area, while a pullback from here will still stop us out with a very nice gain. Obviously, this close to our target, we are not advocating new positions. Picked on November 26th at $25.27 Change since picked +3.82 Earnings Date 2/19/04 (unconfirmed) Average Daily Volume = 12.9 mln --- NVIDIA Corp. - NVDA - close: 25.02 change: +0.22 stop: 23.50 As amazing as Tuesday's ramp to the $25 level was, today's session offered much of the same for our NVDA play. Following some slight weakness early in the session, the stock rallied to close over $25, ending just slightly below the intraday high. NVDA has now reached our first target for a rally to $25 and amazingly, it looks like there might be enough gas left to run up to stronger resistance in the $26-27 area. So at the risk of being greedy, we're going to take a chance and go for it. With our stop already tightened to $23.50, our worst-case result is a modest gain from our $22.25 entry trigger. Holding positions for higher levels from here is definitely a more aggressive strategy, but appears warranted in light of the stock's strength and the Semiconductor index (SOX.X) looking like it wants to take a serious run at the $535 level. More conservative traders should harvest gains near current levels, locking in a better than 10% gain from our specified entry trigger. Picked on December 24th at $21.80 Change since picked +3.22 Earnings Date 2/05/04 (unconfirmed) Average Daily Volume = 5.43 mln --- Polycom, Inc. - PLCM - cls: 21.26 change: +0.62 stop: 20.00*new* Once the bulls pushed shares of PLCM through the $20 level on Monday, the stock has enjoyed a strong buying party. The opening surge on Monday pushed the stock through that $20 trigger (as well as the 50-dma) and traders that took our suggested entry have watched the trade go nicely in their favor. It was encouraging to see how effortlessly price rose through the $20.75-21.00 area on Wednesday, as that zone had the potential to offer some strong resistance. With volume continuing to be quite strong, PLCM looks destined to test its December highs just above $22, quite possibly tomorrow. Use a rally above $22 to harvest gains on open positions and book a quick 10% gain. Due to the proximity of $22 resistance we are not recommending new positions at this time. Raise stops to $20.00, just below the 50-dma ($20.02) and Tuesday's intraday low. Picked on December 31st at $19.52 Change since picked +1.74 Earnings Date 1/28/04 (unconfirmed) Average Daily Volume = 1.52 mln ================================================================== Stock Bottom / Active Trader (AT) section ================================================================== ========= NEW PLAYS ========= ----------------- New Bearish Plays ----------------- Eon Labs Inc. - ELAB - close: 45.65 change: -1.32 stop: 49.50 Company Description: Eon Labs, Inc. is a generic pharmaceutical company engaged in developing, licensing, manufacturing, selling and distributing a range of prescription pharmaceutical products primarily in the United States. The company focuses on drugs in a range of solid oral dosage forms, utilizing both immediate and sustained release delivery, in tablet, multiple layer tablet, film-coated tablet and capsule forms. ELAB does not depend on any single drug or therapeutic category for a majority of its sales. Why we like it: If you need proof that the generic drug manufacturers are eating big pharma's lunch, all you have to do is compare the price charts of a couple stocks from each sub-sector. A perfect example of the strong growth in the generics space is ELAB. After more than tripling in price from the December-2002 lows to the December-2003 highs, a bit of profit taking was clearly due and that explains the orderly consolidation through the end of last month. But in the last three days, the selling volume is picking up and price is declining at a much more rapid pace. This suggests that investors are acknowledging that the stock has risen too far, too fast and that earnings do not yet justify such a lofty price. The key factor suggesting there is more downside to come was the way in which price action sliced through the 50- dma ($49.06) yesterday and then continued to fall today. Looking at the daily chart, a fall to the $40 support level looks entirely reasonable. Throwing a retracement bracket into the mix gives us a slightly lower target though, as the 50% retracement of the past year's rally comes in at $37.30, very close to the 200-dma at $37.67. The PnF chart is on a clear Sell signal, but we need to beware of the bullish support line, which comes in at $43. Recall that the first test of bullish support is often painful for the bears. That just means that we don't want to chase the stock lower, but want to wait for a failed bounce to provide entry. Following such a precipitous drop, it is hard to gauge where an oversold rebound might rollover, but the $48-49 area seems logical, as it is the site of some historical resistance, which is reinforced by the 50-dma. That entry can be followed by a fairly tight stop at $49.50, just over that 50-dma, as well as yesterday's intraday high. We'll set $40 as the initial target and then evaluate the potential for a drop near the 200-dma as that initial target draws near. Annotated Chart of ELAB: Picked on January 7th at $45.65 Change since picked +0.00 Earnings Date 2/19/04 (unconfirmed) Average Daily Volume = 256 K ============ PLAY UPDATES ============ -------------------- Bullish Play Updates -------------------- ACE Ltd - ACE - close: 41.20 change: -0.18 stop: 39.00 Once again ACE leaves us a little perplexed. The markets have been pretty strong the last few sessions but shares of this insurance stock have churned sideways in a very narrow range. The IUX insurance index looks poised to climb higher into this weekend. If ACE doesn't follow its peers we're likely to close it. Time is money and we'd like to be playing something that's moving. Picked on Dec 22nd at $40.05 Gain since picked: +1.15 Earnings Date 01/27/04 (unconfirmed) Average Daily Volume: 1.3 million --- CIT Group - CIT - close: 36.67 change: -0.18 stop: 35.00 Early this week, CIT confirmed that it would release Q4 earnings before the bell on January 22, so we'll be particularly watchful as that date approaches. That still gives us plenty of time to profit from this play. With various financial stocks and heavy-equipment stocks such as DE, CAT, CMI, and CNH turning in mixed performances on Wednesday, CIT showed the effects of the uncertainty in both groups. CIT printed a harami or inside-day candle. Those who follow the inside-day technique know that a move below Wednesday's low of the day offers a supposed sell signal and a move above Wednesday's high of the day offers a supposed buy signal. Friday and Monday's candles also completed an inside-day configuration with the resolution being a move to the upside on Tuesday, but we can't be sure the same upside resolution will be repeated. Today's inside day candle reached down to the midline support and bounced from that level, offering one sign of strength. Volume decreased, as is appropriate for a consolidation day and one in which CIT closed lower. MACD remains strong while other oscillators trend in territory indicating overbought conditions, as is typical behavior for a strongly trending market. CIT certainly has been strongly trending. Over the last two weeks, its climb has been nearly vertical. It will soon be time for CIT to retreat to reestablish support at its rising moving averages, but perhaps that retreat won't occur until after our $37.50 target is hit. We would not suggest new entries at this time since CIT is so near our target. Annotated Chart for CIT: Picked on Dec 12 at 34.05 Change since picked: +2.67 Earnings Date: 01/22/03 (confirmed) Average Daily Volume: 879 thousand --- Marathon Oil - MRO - close: 33.95 change: -0.14 stop: 32.90 Monday, the Bush administration announced that it would retain the U.S. sanctions against Libya, although the administration promised that it would initiate actions to improve relations with the country if Libya's government rid itself of weapons of mass destruction. MRO investors looked on the bright side and sent the stock higher. On Wednesday, however, with the oil majors the worst-performing stocks in European trading, the stage was set for a decline in MRO, too. Citigroup Smith Barney had downgraded BP and Shell Trading and Transport. Early in the day, it looked as if MRO might complete yet another of its many reversal signals, but MRO managed to close above the midpoint of Monday's tall white candle. The signal was not completed. Wednesday's near-doji could be tagged another possible reversal signal of its own, but these reversal signals have not been a productive means of watching MRO over the last weeks. The 10-dma climbs and now measures $33.24, and we're keeping our stop at $32.90, just below that moving average. New entries prove difficult to suggest. One type of entry might be on a pullback to and bounce from the 10-dma, but that puts MRO back below the important resistance between $33.73-33.87. Momentum entries on a move above Tuesday's high, with strong volume confirmation, might be offered, but MRO's move has been nearly parabolic over the last weeks, making those entries risky. At some point, MRO must come down to retest its left-behind moving averages. Entries at this level look risky and should be taken only by aggressive traders who understand the risk and who can honor their stops. Annotated Chart for MRO: Picked on Dec 05 at 30.22 Change since picked: +3.73 Earnings Date: 01/27/04 (confirmed) Average Daily Volume: 1.2 million -------------------- Bearish Play Updates -------------------- Guess?, Inc. - GES - close: 11.97 change: -0.03 stop: 13.00 This first full trading week of 2004 has certainly provided plenty of excitement for GES traders. Our anticipated breakdown came on Monday, with the stock falling almost to $11 before finding support at the 100-dma. That support was enough to launch the stock all the way back to $12 on Tuesday, a rebound that extended as high as $12.48 this morning. Fortunately, GES ran out of steam and rolled over at the 10-dma ($12.27) before coming back to rest at $11.97. That's a lot of volatility for the stock to come back and end 3 cents below last Friday's closing level. Daily oscillators are trying to make bullish reversals just as they have consistently attempted for the past 3 weeks to no avail. But it appears that price action is obeying the bears' whims and should continue to find resistance below the 20-dma (now at $12.89). Use a failed rebound below that level to initiate new positions, looking for strong resistance now at $12.75 to turn back any subsequent rally attempts. Maintain stops at $13.00. After Tuesday's bounce from the 100-dma, we should be prepared for another rebound attempt near the 100-dma (currently $11.25) or at $11 before price action finally weakens towards our $10 target. Picked on December 31st at $12.07 Change since picked -0.10 Earnings Date N/A Average Daily Volume = 232 K --- MedcoHealth Solutions - MHS - close: 33.97 chg: +1.32 stop: 34.51 Well, if you were considering an entry point on a failed rally MHS may be forming one now. Then again that could be wishful thinking on our part. We added this play to the list on Sunday with a TRIGGER to go short at $32.94. That trigger was hit on Monday and the stock continued to sell on Tuesday. Unfortunately, those losses have evaporated with a 4% gain today. The frustrating part is we can't find any catalyst to support the move. Currently, MHS is still trading below the $34 level and its simple 10-dma. Conservative traders may want to tighten their stop. We're going to keep ours at $34.51 in case there is an early morning pop before any profit taking brings it back down. Looking at the chart you can see that MHS did this sort of one-day rally before failing at resistance just a couple of weeks ago. However, we would NOT suggest any new plays until MHS trades back below the $33 level. Picked on Jan 5th at $32.94 Gain since picked: +1.03 Earnings Date 00/00/00 (unconfirmed) Average Daily Volume: 1.6 million ============ CLOSED PLAYS ============ -------------------- Closed Bearish Plays -------------------- Abercrombie & Fitch - ANF - cls: 24.90 chng: +0.45 stp: 25.05 More than three weeks of torture were brought to a close this morning, as ANF pushed just slightly above $25, just enough to trigger our resting stop. Twice in the process of this play, the stock has declined near $23, only to bounce back quite strongly into its $24-25 trading range. On Monday, the stock gapped down in response to a reduced rating from Lehman, but rebounded from the morning lows to close at its intraday highs. That rebound emboldened the bulls to buy the dip and the resulting rally took us out of the play. While an argument could be made that our stop was just a bit too tight, a look at the oscillators shows an emerging bullish pattern and we could see a bona fide breakout materialize later this week. If not stopped out today, we would recommend using any price weakness on Thursday to exit the play before that breakout occurs. Picked on December 14th at $24.59 Change since picked +0.31 Earnings Date 2/17/04 (unconfirmed) Average Daily Volume = 2.23 mln ================================================================= 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) 2004 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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