PremierInvestor.net Newsletter Thursday 01-08-2004 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: Resistance Targets Hit Watch List: KRB, S, GPT, STR and more! Market Sentiment: Will Investors Sell The News? ================================================================= MARKET WRAP (view in courier font for table alignment) ================================================================= 01-08-2004 High Low Volume Advance/Decline DJIA 10592.44 + 63.40 10592.59 10530.07 2.52 bln 2000/1233 NASDAQ 2100.25 + 22.60 2100.25 2078.05 2.67 bln 1981/1262 S&P 100 562.88 + 3.57 562.88 559.02 Totals 3981/2495 S&P 500 1131.92 + 5.59 1131.92 1124.91 W5000 11009.62 + 52.50 11009.62 10943.02 RUS 2000 579.62 + 5.00 580.22 574.62 DJ TRANS 3029.70 - 4.40 3037.44 3022.89 VIX 15.61 + 0.11 15.68 15.32 VXO (VIX-O)14.46 - 0.39 15.39 14.42 VXN 21.89 - 0.02 22.16 21.36 Total Volume 5,497M Total UpVol 3,836M Total DnVol 1,615M 52wk Highs 1118 52wk Lows 11 TRIN 0.81 NAZTRIN 0.72 PUT/CALL 0.65 ================================================================= =========== Market Wrap =========== Resistance Targets Hit It was not pretty but after a day of strong volume and numerous direction changes the indexes edged up at the end of the day to close exactly at those very strong resistance levels I have been discussing for the last three weeks. The Dow was the only laggard with a close at 10592 missing my 10600 resistance target by -8 points. The Nasdaq closed exactly on the 2100 level and the Wilshire 5000 closed +8 points over my 11000 target. Friday should be a very exciting day. Dow Chart - Weekly Nasdaq Chart Weekly Economically the day was a draw with the real fireworks held for Friday's open with the December Jobs Report. The Jobless Claims today came in at 353,000 and slightly over the consensus of 350,000. No brain damage there as 350K is the average for the last four weeks. This inline report was actually an upside surprise as the whisper number was for a lot more. This is the first post holiday week, although still a partial, and analysts thought it possible for a surge to appear. Next week is the real number with no holidays to skew the figures. Continuing claims continue to fall and this is pumping up expectations for the Jobs Report on Friday. A drop in Jobless Claims means layoffs are slowing but a drop in continuing claims means there are people either finding work or dropping out of the system as their claim periods expire. Analysts are hoping it is due to hiring. The Wholesale Trade numbers rose slightly in November with Sales up +0.3% and Inventories up +0.5%. This was the lowest sales increase in three months and well below the +2.0% gain in October. Inventories remained the same at the +0.5% level. The inventory to sales ratio remained a its historic low of 1.18 for the second consecutive month. While the rate of growth has slowed it was still positive and continues to predict a rapid inventory rebuild cycle ahead. Consumer Credit fell to $4B in November from $8.3B in Oct and $11.3B in September. Normally this would be a negative occurrence but October was revised up to $8.3B from only $900 million. Talk about a missed estimate there! The gain was almost exclusively in the non revolving component from strong auto purchases. Credit card debt fell for the first time since June. Looks like consumers were getting ready for the shopping season by making space on their cards. Retail Sales rose +4.2% in December according to the ICSC survey. Drug stores and Wholesale Clubs sported the biggest gains at +8.0% for each component. There were some real discrepancies to this in the news today. Major chains warned that sales were weak and earnings would suffer while others raised earnings guidance. It was a very confusing sector. Kohls (KSS) warned and dropped -$3.70 to 41.80 after cutting estimates to 69 cents from prior expectations in the 92 cent range. KSS said same store sales FELL -1.2% for the last five weeks. They aggressively managed inventory and slashed prices to give away merchandise rather than carry it over into January. Competitors claimed they "bought" the business by selling so cheaply. Other retailers warning were TAL, ANF, GPS and WMT. Retailers raising guidance were ANN, BBY, PSUN and HOTT. Wal-Mart said same store sales rose +4.3% as a surge in late holiday traffic saved them from a dismal month. However they warned that earnings would come in at the low end of their previously forecasted range. Despite the weaker than expected performance WMT still sold $33.66 billion for the five weeks ended Jan-2nd. Pretty amazing volume and their one month revenue is more than most retailers sell all year. Hard to grow in double digits when the numbers are already so large. Still despite the various warnings and misses 74% of retailers hit their Dec estimates. Another warning came from Ryland Group that cratered the entire homebuilding sector. RYL said it was disappointed in its fourth quarter sales due to new orders declining for the period. While earnings are still expected to be at record levels it was not a major blow for the company but any sales weakness in new homes produces fear in the sector. RYL is still predicting earnings of $9.50 for 2004. (PE 7.7) They ended the year with an order backlog of 5,841 units worth $1.4 billion in sales. You would have thought they declared bankruptcy from the hit to the stock. RYL dropped -$10 on the news to $72.91. KBH fell -2.83, CTX -5.42, HOV -3.90. The transportation sector took a hit after JBLU was cut by JP Morgan saying it no longer believes the carrier can gain in 2004 due to increased competition and lower traffic than previously expected. With falling seat traffic and increased competition the airline sector is facing an all out price war to attract flyers. The code orange alert and the constant cancellation of flights due to security concerns is going to slow any recovery. American Airlines is going head to head with JBLU by offering a free trip promotion in areas served by both carriers. The telecommunication sector got another boost on Thursday from Nokia after they raised their estimates for the quarter. The sector was hot after Nortel soared earlier in the week on news of a new network build out contract. Even Lucent soared from $2.85 to nearly $4.00 on the positive sector news. LU and NT alone have accounted for more than 20% of the NYSE volume over the last two days with combined volume of more than 400 million shares on Thursday. IBM was a focus of the day and traded up only slightly at $93 after new rumors surfaced that they would miss their revenue estimates. IBM has failed to take part in the rally over the last month on earnings fears. After the close IBM announced that the SEC had issued a Wells notice to IBM and was ready to recommend action for securities fraud in the handling of its relationship with Dollar General. IBM paid $11 million for some equipment that was replaced at DG and the accounting for that purchase and sale placed DG in a favorable position. The SEC alleges that IBM aided DG in a fraudulent transaction to pump up DG's books. HPQ was back in the news with the Nasdaq claiming they were going to be the first NYSE company to double list on both exchanges. Carly Fiorina declined to comment in an on air interview but the floor of the NYSE was a hotbed of concern all day. Analysts feel that any material movement to "list" on the Nasdaq could divert order flow from the NYSE and limit the usefulness of the market makers thereby jeopardizing the current specialist system. Others dismissed the Nasdaq claim saying that most NYSE stocks were already traded electronically on ICNs with no material volume drain. UBS raised their 12 month S&P target to 1200 from 1150 on expectations for better earnings in 2004. With markets at two year highs that is a gutsy call but then 1200 is not much higher than we are now. The S&P closed at 1130 and well below strong resistance at 1160-1175. If we do see some profit taking soon there are several estimates (not mine) that any dip will see 1000-1010. That would put the 1200 UBS estimate +20% off the lows. Without that dip the 1200 target would only be a +6% gain for the year. Currently more than 90% of the S&P are trading over their 200 dma. You have to go back to 1983 for the last time this happened. The indexes closed right at very strong resistance and right in front of the December Jobs report. Talk about asking for trouble. The consensus estimate for jobs is now +127,000. The whisper number last week was for something in the +50,000 range but in less than a week that has changed significantly. I am hearing numbers as high as +250,000. This bullishness has no basis in fact. It is simple hype on top of hype but then considering the recent market action it is right in line. Needless to say the good news is already priced into the market. I went back to last year to see if there were any trends to the hiring patterns. In Dec 2002 jobs lost dropped to -156,000 from November's loss of -81,000. December was largest drop in 2002 since the -165K loss in Feb-2002. You cannot compare 2001 because that was the recession period. Also, comparing 2002 to 2003 is difficult considering the strong rebound in the economy in the last six months. Still some analysts are suggesting caution in front of Friday's report. Obviously nobody is listening to them. The Nasdaq edged up to touch 2100 after the close as the final trades settled. This is very strong resistance as 2099 was the high for all of 2002. Moving over this level should be hard but not impossible considering the already extended conditions. The Nasdaq NDX Bullish Percent is back to 80 and the level where it has paused for the last six months of 2003. Nasdaq Weekly Chart Nasdaq 100 Bullish Percent Nasdaq 100 Bullish Percent PNF I am not suggesting the Nasdaq cannot move up from here but it will be defying gravity and some very strong resistance to do so. The Dow did not reach its key resistance level at 10600 but came very close ending at 10592. The index broke out over the down trend line from Jan-2000 currently a 10550 and pulled within 8 points of 10600. The resistance band from 10600 to 10650 represents the highs from late 2001 and all of 2002. This is very strong resistance considering the current extended conditions. Dow Weekly Chart DJIA Bullish Percent DJIA Bullish Percent PNF While the Dow and Nasdaq are the most followed indexes the broadest market indicator is the Wilshire 5000, $TMW.X or $WLSH depending on your chart service. This index succeeded in touching the key 11000 level intraday and then edged over that level after the close when market on close orders were settled. First, this is very bullish if it can continue its upward progress. It is at the top of its uptrend resistance as well as its horizontal resistance and a breakout here could attract even more buyers. The 11000 level was the high for all of 2002. Are you seeing a common theme here? Dow, Compx and Wilshire are all at 2002 resistance highs. Wilshire 5000 Weekly Here comes the hard part. Back in mid December I predicted the Wilshire would hit 11000 the first week in January. That happened on Thursday and that brought us to a critical point in the markets. You know I have been suggesting the highs for January would be made this week. So far so good. Now we are at that critical point and those resistance highs will either hold or they will be broken. If they hold then normal historical trends would still be in play. If they are broken with the indexes at this already extended level it would be very bullish. I am not the only one expecting a buying opportunity in January. If we move up from here it could mean that buying opportunity is not going to appear and those waiting on the sidelines could begin rushing in to chase prices even higher. Those who have been shorting this rising resistance all week will be squeezed even harder and this already extended market could take off like a rocket. While I personally do not expect a strong gain from here there are those who feel the market is just getting its second wind. Volatility has collapsed with the VXO setting a new multi year low of 14.42 and showing a complete lack of fear in the market. The bullish percent on the NDX is 80% and 86% on the Dow. Traders point to the rapidly increasing volume on the NYSE as proof that the rally is real. Let me quickly point out that 500 million shares on Wednesday and 400 million shares today have been in Lucent and Nortel alone. Take 500 million off the totals for both days and you still have strong volume but far from convincing. Still while almost every indicator is grossly oversold the buyers just keep coming. The internals are extremely positive with 1131 new 52-week highs on Thursday. Only one day this week has been under 1000 new highs and even at 814 it was still bullish. So how do we rationalize this situation? We are at very strong resistance but the market does not seem to care. Resistance levels have been failing for weeks. Even key resistance has buckled. Does that mean this resistance will as well? Nobody knows but the answer is clear. The bulls are stampeding and nothing is stopping them. Even the cautious TV commentators that were suggesting restraint just last week are now tripping over their tongues to praise the market internals. It seems the world has converted to a buy only mentality and until something happens to shock everyone back to reality the sky is the limit. What is it going to take to break the spell? With estimates for market gains for 2004 at +10% to +12% we are already up +5% in the first five days. What is left? Are we going to spend the next 355 days covering that 5-7% left or raise the targets? We all know, whether we want to admit it or not, that this cannot go on forever. Eventually something will happen to break the spell and return us to normal market conditions with alternating up and down cycles. On Friday the Jobs Report is officially expected to show +127,000 new jobs. The whisper numbers are up to +250,000. What if we only grew +50,000 jobs? That is probably not drastic enough to matter. What if we lost jobs? Does the market care. I think that is the key. The market did not care that Gateway warned or Wal-Mart sales are slowing. It did not care that RYL sold fewer homes or the ISM Services index fell. Remember the bubble? Nobody cared about the fundamentals. Buy stocks they are going up. Once the Dow closed over 10,000 in mid December Pandora's box was opened and the investing fever was loosed again. If the Dow is over 10,000 the market must be ok. Buy stocks. Those that did not buy in December are chasing prices in January. I do not know where it is going to end but every feeding frenzy always ends. I can't in good conscience tell you to go long. That decision is up to you. I can only suggest that if you do go long you take out enough insurance to protect yourself. Fortunately with volatility at multiyear lows that put insurance is very cheap. I had a vision today, more of a flashback of a video clip they run on CNBC periodically. You know the one where they show the running of the bulls in Spain. Those in front of the herd are running for their lives and having a great time. Those unable to stay ahead or slipping on the cobblestones get trampled or gored. There are always a greater majority safely on the sidelines watching as the scene plays out. Tonight I am short at Wilshire 11000. If the herd runs by me I will become a watcher from the safety of the sidelines. I refuse to chase after the herd because I do not want to meet it head on when it changes direction. Enter Passively, Exit Aggressively. Jim Brown ================================================================== 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 --------------------------------- MBNA Corporation - KRB - close: 26.34 change: +0.52 WHAT TO WATCH: Aided by the strength in the broad markets, shares of KRB finally broke from their recent consolidation yesterday and added to those gains with a 2% advance on Thursday. That brings the stock right up to the site of its all-time highs, setting the stage for another breakout. Use an entry trigger just above today's highs and target the $30 level. --- Sears Roebuck Company - S - close: 46.19 change: +1.21 WHAT TO WATCH: With a slight decline in same store sales, S failed to inspire the bulls on Thursday and the stock looks primed for another rollover. Look for the declining 30-dma to provide solid resistance and enter on a rollover below that average. There will be some support found in the $43-44 area and then we can target the $40 level near the 200-dma. --- GreenPoint Financial - GPT - close: 36.80 change: +0.79 WHAT TO WATCH: Financial stocks are breaking out all over, and GPT joined the party today, clearing the $36 resistance that has held since last summer. Ideal entries will come on a pullback and rebound from the 436 area, confirming new support at old resistance. Target a continued rally up to $40. --- Questar Corp. - STR - close: 35.76 change: +0.74 WHAT TO WATCH: Welcome to the bull market in natural resource stocks! STR is a major player in the Natural Gas market and with the price of Natural Gas soaring over $7.00 today, STR broke out to another new all-time high. Pullback entries in the $34-35 area would be ideal, but momentum traders can also play above today's intraday high. Target a near-term move to the $40 level =================== On the RADAR Screen =================== GTK $51.25 - Breakouts are, well, breaking out all over. GTK caught a solid rally over the course of the week and today's close over $51 represents another all-time high. Look for possible resistance at the top of the rising channel ($52.50), but then the stock looks poised to break out towards the $55 level. AIN $34.50 - Are you noticing the theme here? AIN busted out to new all-time highs on Thursday and it looks like there is more in store, judging by the strong buying volume. The stock is a bit of a slowpoke, but we should be able to ride it up to the $37-38 area. AMT $12.86 - Wireless stocks were all the rage on Thursday and that was enough to propel AMT - involved in the antenna and tower side of the business - to its best levels since the fall of 2001. A retest of broken resistance in the $11.50-12.00 area will make for the best entry point. Target a move to $15. =============================== Market Sentiment =============================== Will Investors Sell The News? - J. Brown Thursday was a banner day for the U.S. stock markets. A better than expected earnings report from Taiwan Semiconductor (TSM) and a very strong earnings report from mobile-phone maker Nokia (NOK) helped set the mood. The strong profit and revenue numbers from these tech companies was enough for investors to ignore the worse than expect initial jobless claims. Economists had been expecting a small rise but instead received an increase of 14,000 to 353,000 initial claims. This number wasn't totally out of the ballpark and the markets shrugged it off. Today was all about tech and telecom stocks extending their lead and the markets trying to follow. Overseas investment firm UBS got into the act by raising their 12-month target on the S&P 500 to 1200 from 1150. Overall the market internals were strongly bullish. The NYSE saw 17 winners for every 11 losers. The NASDAQ's advance decline ratio came in at 19 to 11. New highs totaled 684 to just 8 new lows. Up volume overwhelmed down volume 17 to 7 on the NYSE and 18 to 8 on the NASDAQ. Yes, it was a pretty strong day the bulls and Dow component Alcoa (AA) opened earnings season after tonight's closing bell by beating the estimates by 5 cents with a net income of 39 cents a share. However, the major indices continue to look very extended and tomorrow's December jobs report would be the perfect excuse to sell the news, especially if the results are merely inline. Heaven forbid should the number disappoint. Current estimates are for an increase of 150,000 new jobs in December, up from 57,000 in November. On a side note news that that IBM has received a "Wells Notice" from the SEC could influence investor sentiment. A Wells notice means the SEC is considering civil action against the company for securities law violations. Trade carefully and protect your profits! ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10592 52-week Low : 7416 Current : 10592 Moving Averages: (Simple) 10-dma: 10457 50-dma: 9998 200-dma: 9294 S&P 500 ($SPX) 52-week High: 1131 52-week Low : 788 Current : 1131 Moving Averages: (Simple) 10-dma: 1113 50-dma: 1069 200-dma: 997 Nasdaq-100 ($NDX) 52-week High: 1530 52-week Low : 795 Current : 1530 Moving Averages: (Simple) 10-dma: 1480 50-dma: 1428 200-dma: 1285 ----------------------------------------------------------------- Holy Cow, Batman! The volatility in the markets has crashed as the VXO has fallen from over 18 to close under 15 for the first time in years. The VXN has fallen to another all-time low. Bears are probably groaning as readings this low "normally" suggest a market top, but then the market has not been very normal for months. These volatility indices remain signals of caution for anyone willing to listen. CBOE Market Volatility Index (VIX) = 15.61 +0.11 CBOE Mkt Volatility old VIX (VXO) = 14.46 -0.39 Nasdaq Volatility Index (VXN) = 21.89 -0.02 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.65 1,160,572 753,665 Equity Only 0.52 970,355 500,507 OEX 1.00 36,216 36,247 QQQ 4.38 23,541 103,143 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 77.7 + 1 Bull Confirmed NASDAQ-100 80.0 + 1 Bull Confirmed Dow Indust. 86.7 + 0 Bull Confirmed S&P 500 86.8 + 1 Bull Confirmed S&P 100 85.0 + 1 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-dma: 0.86 10-dma: 0.87 21-dma: 0.92 55-dma: 1.06 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 1726 1925 Decliners 1113 1180 New Highs 364 320 New Lows 8 0 Up Volume 1746M 1806M Down Vol. 727M 821M Total Vol. 1486M 2648M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 12/22/03 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 Was it a one-week blip? The surge in long positions by commercial traders have evaporated. Was a sudden change of heart or did they just get caught up in the holiday spirit? Of course there was an equally strong disappearing act in commercial short positions so maybe they're just confused. Small traders have really cut back on their shorts and in effect become extremely bullish. Commercials Long Short Net % Of OI 12/02/03 394,531 414,223 19,692 2.4% 12/09/03 396,882 420,859 23,977 2.9% 12/16/03 448,103 460,670 12,567 1.4% 12/22/03 400,066 405,240 (5,174) (0.6%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 12/02/03 154,788 85,776 69,012 28.7% 12/09/03 172,178 99,484 72,694 26.8% 12/16/03 172,947 113,704 59,243 20.7% 12/22/03 147,537 81,596 65,941 28.8% 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 Wow! The disappearing act in the full contracts (above) is nothing compared to the drop in contracts below. Commercial traders really reduced their outstanding long positions in the e-mini's and that's not a bullish development. Right on cue, the small traders cut back on their short positions. Commercials Long Short Net % Of OI 12/02/03 283,199 268,833 14,366 2.6% 12/09/03 294,006 288,385 5,621 1.0% 12/16/03 330,273 361,316 (31,043) (4.5%) 12/22/03 128,801 213,021 (84,220) (24.6%) 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 12/02/03 119,555 77,609 41,946 21.3% 12/09/03 142,173 76,171 66,002 30.2% 12/16/03 177,193 73,694 103,499 41.3% 12/22/03 125,248 43,482 81,766 48.5% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 We see the same contract evaporation in the NDX futures as well. Commercial long contracts lost 1/3 of their number but short contracts were cut in half. That actually sounds bullish. Commercials Long Short Net % of OI 12/02/03 35,569 48,552 (12,983) (15.4%) 12/09/03 39,612 51,443 (11,831) (13.0%) 12/16/03 61,343 73,153 (11,810) ( 8.8% 12/22/03 40,277 36,452 3,825 5.0% 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 12/02/03 21,594 9,429 12,165 39.2% 12/09/03 25,842 10,228 15,614 43.3% 12/16/03 28,676 15,197 13,479 30.7% 12/22/03 22,656 14,544 8,112 21.8% 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 This time it is the small traders that drastically reduced their short contracts. They probably got tired of losing money. Commercials followed suit. Commercials Long Short Net % of OI 12/02/03 21,128 12,379 8,749 26.1% 12/09/03 20,378 11,934 8,444 26.1% 12/16/03 23,509 13,880 9,629 25.8% 12/22/03 14,088 9,998 4,090 17.0% 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 12/02/03 6,667 9,302 (2,635) (16.5%) 12/09/03 6,858 12,006 (5,148) (27.3%) 12/16/03 9,497 19,633 (10,136) (34.8%) 12/22/03 6,915 8,983 ( 2,068) (13.0%) Most bearish reading of the year: (10,136) - 12/16/03 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 01-08-2004 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 ================================================================= Play of the Day: Consolidation Over Stop Adjustments: ACE, CIT, MRO Closed Plays: NXTL, NVDA, PLCM Stock Splits: RMCF 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 (Bullish) =============== ACE Ltd - ACE - close: 41.93 change: +0.73 stop: 40.50 Company Description: ACE Limited is the Bermuda-based holding company of the ACE Group of Companies, one of the world's leading providers of insurance and reinsurance. The ACE Group provides a diversified range of products and services to clients through operations in nearly 50 countries around the world.(source: company press release) Why we like it: 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. Why This is our Play of the Day After pulling back from the spiky foray over $42 a week ago, ACE has been trading in a subdued manner in preparation for the next directional move. That move appears to have gotten started today, with the stock rebounding smartly off the 10-dma ($41.32) to gain 1.77% and close at its best level since the Spring of 2002. Traders that haven't yet established a position can look to enter on a breakout over $42.05 tomorrow. The consolidation over the past week allowed the daily Stochastics (5,3,3) to pull back and today's rally created a bullish cross. If today's bullish move is to be believed, then ACE is just beginning the next upward leg, that should push it up to the $44 resistance area, which is the site of the 2002 highs. Raise stops to $40.50 tonight, which is just below the bottom of the past two week's trading range. Annotated Chart of ACE: Picked on December 22nd at $40.05 Gain since picked: +2.29 Earnings Date 01/27/04 (unconfirmed) Average Daily Volume: 1.31 mln ================================================================= Stop Loss Adjustments ================================================================= ACE - long Adjust from $39.00 up to $40.50 CIT - long Adjust from $35.00 up to $35.75 MRO - long Adjust from $32.90 up to $33.25 ================================================================= Closed Plays ================================================================= Closed Bullish Plays -------------------- Nextel Comms - NXTL - close: 28.78 change: -0.31 stop: 28.00 Our NXTL play ran up and touched the $29 level on Tuesday and after two days of trying to build on those gains, finally saw some weakness today, falling back to close near its low of the day. This weakness is disconcerting due to the strong gains in the overall NASDAQ the past two days and particularly the strength in other Wireless stocks today. Our profit target was for a move up to $29.50-30.00 to fill the gap from February 2001 and we're going to call today's intraday high of $29.34 close enough. With gains of more than 13% from our picked price, let's harvest those gains and head off in search of new plays. Picked on November 26th at $25.27 Change since picked +3.51 Earnings Date 2/19/04 (unconfirmed) Average Daily Volume = 12.9 mln --- NVIDIA Corp. - NVDA - close: 25.11 change: +0.09 stop: 23.50 With the Semiconductor index (SOX.X) staging another strong rally and breaking out to new 52-week highs, the anemic performance of our NVDA play causes some concern. We had originally been targeting the $25 level and recently advised conservative traders to lock in profits as the stock seemed to be stalled near that level. We kept the play active in hopes that perhaps a rally to the $26-27 area would be in the works, but following today's lack of participation in the SOX rally, we're going to err on the side of caution and close the play here with a solid gain. Aggressive traders can hold on for that upper target to be reached, but must keep a tight stop on the play -- we're recommending no lower than $24.30, just below yesterday's intraday low. Picked on December 24th at $21.80 Change since picked +3.31 Earnings Date 2/05/04 (unconfirmed) Average Daily Volume = 5.43 mln --- Polycom, Inc. - PLCM - cls: 22.90 change: +1.64 stop: 20.00 Exceeding our wildest expectations, PLCM broke out with a vengeance on Thursday, tallying up a 7.7% gain and decisively breaking out over its December highs. With the stock ending near the high of the day and on very strong volume, it is certainly possible to argue for just raising the stop and holding for higher levels. But with the NASDAQ closing at 2100, the site of very strong resistance, exiting here and booking a nearly 15% gain is definitely the more prudent course of action. Today's rally puts the stock right in the midst of very strong resistance from 2001-2002 and it appears likely that there will be at least a mild retracement before continuing higher. Let's err on the side of caution and take the money and run. Picked on December 31st at $19.52 Change since picked +3.38 Earnings Date 1/28/04 (unconfirmed) Average Daily Volume = 1.52 mln ================================================================= Stock Splits ================================================================= Announcements ------------- RMCF sweetens up shares with a 3-for-2 stock split During today's trading session, Rocky Mountain Chocolate Co (NASDAQ:RMCF) announced that its Board of Directors has approved a 3-for-2 stock split of its common shares outstanding. The payable date for the stock split is set for February 1st, 2004 to shareholders on record as of January 20th. On a post split basis, RMCF will have approximately 3.8 million common shares outstanding. About the company: Rocky Mountain Chocolate Factory, Inc., headquartered in Durango, Colorado, is an international franchiser of gourmet chocolate and confection stores and a manufacturer of an extensive line of premium chocolates and other confectionery products. The Company and its franchisees currently operate 256 stores in 39 states, Canada, Guam and the United Arab Emirates. The Company's common stock is listed on The Nasdaq National Market under the symbol "RMCF." (Source: Company Press Release) ================== 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 WB Wachovia Corp 47.25 +0.58 VZ Verizon Communications 37.12 +0.56 MWD Morgan Stanley 58.37 +0.57 JPM JPMorgan 38.67 +0.65 BLS Bellsouth Corp 29.80 +0.52 BAY Bayer Aktien 31.44 +1.03 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- ALA Alcatel 15.75 +1.63 CHU China Unicom Ltd 11.55 +1.06 AV Avaya Inc 14.76 +1.09 AMT American Tower 12.86 +1.18 ANDW Andrew Corp 17.50 +4.30 WFII Wireless Facilities 18.15 +2.73 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- NOK Nokia Corp 20.47 +2.50 HPQ Hewlett-Packard Co 24.69 +1.33 TXN Texas Instruments 31.85 +1.90 QCOM Qualcomm Inc 58.95 +3.19 STM STMicroElectronics 29.72 +1.44 ERICY LM Ericcson 21.11 +2.71 HIG Hartford Financial Srvcs 62.09 +1.14 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- LLY Eli Lilly & Co 68.10 -1.72 KSS Kohl's Corp 41.80 -3.70 CFC Countrywide Financial 70.95 -2.05 CHIR Chiron Corp 50.75 -1.95 ADBE Adobe Systems 38.00 -1.44 LEN Lennar Corp 89.46 -3.81 TIF Tiffany & Co 42.00 -1.06 CTX Centex Corp 99.38 -5.42 BRL Barr Labs 73.07 -1.57 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- DNA Genentech Inc 90.72 -2.45 MLEA Millea Holdings 66.19 -1.40 JBSS John Sanfilippo & Son 47.53 -5.43 ASVI A.S.V.Inc 32.48 -6.62 ================================================================= 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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