PremierInvestor.net Newsletter Wednesday 02-04-2004 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: Investors React to CSCO's Earnings Watch List: KKD, FRNT, RFMD, ANF 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) =============================================================== 02-04-2004 High Low Volume Advance/Decline DJIA 10470.74 - 34.44 10524.22 10447.18 2.02 bln 705/2132 NASDAQ 2014.14 - 52.07 2044.68 2013.92 2.24 bln 689/2405 S&P 100 558.87 - 4.49 563.36 558.11 Totals 1394/4537 S&P 500 1126.52 - 9.51 1136.03 1124.74 RUS 2000 564.03 - 15.12 579.15 564.03 DJ TRANS 2822.11 - 29.28 2853.88 2815.66 VIX 17.87 + 0.53 18.06 17.46 VXO 17.58 + 0.52 18.10 17.25 VXN 26.65 + 0.35 26.89 25.99 Total Volume 4,772M Total UpVol 859M Total DnVol 3,858M 52wk Highs 270 52wk Lows 19 TRIN 1.06 PUT/CALL 0.81 =============================================================== =========== Market Wrap =========== Investors React to CSCO's Earnings by James Brown The NASDAQ has almost wiped out its 2004 gains after investors used CSCO's earnings report last night as another excuse to take profits. What started out as a tech-specific decline quickly widened into a market-wide sell-off. Wall Street completely ignored the two positive economic reports out this morning and chose to rotate money out of tech and cyclicals and into more defensive consumer staples and drug stocks. The only two sector indices that closed in the green today were the RLX retail index and the DRG drug index. The NASDAQ composite lost 52 points or 2.52% to close at 2014. Today's close marks a 6.4% pull back from its high and a test of the 2000 level is almost guaranteed. Meanwhile the Dow Industrials dropped 34 points to close at 10,470 after bouncing twice intraday near the 10,450 level. The S&P 500 index lost almost 10 points to close at 1126. Its short-term trend also looks bearish and a breakdown under the 1120 level may portend a move toward its 50-dma near 1100. Foreign stock exchanges were generally negative, which didn't inspire any investor confidence here. Noteworthy was Japan's NIKKEI index, which fell almost 200 points to 10,447. Renewed concerns over their banking system's bad loans may have been the catalyst to sell and the constant drop in the dollar against the yen doesn't help Japan's exporters. Across the Atlantic rumors surfaced that the Bank of England may actually raise interest rates by 25 basis points while speculation continues for a potential rate cut by the European Central Bank. Here in the U.S. tech stocks took a beating after CSCO's CEO John Chambers said many of their customers remain cautious on capex spending and hiring. Shares of CSCO gapped lower and closed down 8.8% on massive volume of 190 million shares. This lead the NWX networking index to a 5.18% loss. Riding its coattails were the semiconductors, software and hardware sectors. Noteworthy was the 3% drop in the SOX, which broke round-number price support at the 500 level. Shares of Intel reversed yesterday's decent gain for a 4.27% loss. Investors also took money out of homebuilders, biotech, and broker-dealers. Market internals were very bearish. Declining stocks outnumbered advancing stocks 3-to-1 on the NYSE and almost 4-to-1 on the NASDAQ. New highs were the lowest I've seen in a very long time at 164 between both exchanges. Down volume completely overwhelmed up volume 3-to-1 on the NYSE and 6.5-to-1 on the NASDAQ. Overall volume was strong with more than 2 billion shares trading on each exchange. The charts below show the DJIA just above support at 10,400 but in a very clear short-term down trend of lower highs. Meanwhile the NASDAQ has broken its 50-dma and is quickly approaching the 2000 mark. I've also listed the SOX to show its long-term rising trend and the breakdown today through the 500 level. Chart of the DJIA: Chart of the NASDAQ: Chart of the SOX: The big economic report released today was the ISM services index. Economists were looking for a jump to 60.0 from December's 58.0 reading. What we got was a spike to 65.7 in January; a very strong report. Compounding the good news was the factory order numbers released by the Commerce Department. Estimates were for a gain of 0.5% for December's factory orders. The result was a much stronger 1.1% gain. Making the report even brighter was an upward revision for November's factory orders from -1.5% to a -0.9%. Unfortunately, no one was buying the economic news. John Chamber's comments were a great excuse to sell. If that wasn't enough CIENA issued an earnings warning last night that put further pressure on tech and telecom stocks. Shares of CIEN sank nearly 18% to close under its 200-dma at $5.99 after management lowered their first-quarter revenue guidance to $66.4 million. Last month the company had forecasted revenues would be $70.6 million, which was still below analysts' estimates of $76 million. CIEN blamed the timing of a single, albeit large, order for the shortfall. Speaking of timing, Oracle (ORCL) has upped its bid to buy PeopleSoft (PSFT) for the second time. This morning ORCL raised its bid to $26.00 a share in cash (about $9.4 billion) for PSFT. In ORCL's press release Oracle's Chairman and CFO, said, "Given PeopleSoft's current prospects, including its recent downward revisions to earnings guidance for the first quarter, we believe our offer presents compelling value to PeopleSoft's stockholders." Their offer is an 18.8% premium over yesterday's closing price for PSFT but some doubt whether or not the government would approve of such an acquisition. If ORCL doesn't buy PSFT then they might start shopping around for another target. If they do get PSFT, then we could see rivals begin looking for acquisitions to stay competitive. Today's market declines are likely to weigh on investor sentiment more than usual because traders are already apprehensive about Friday's non-farm payrolls report. If jobs fail to materialize there could be a rush for the exits. Many have rationalized that last month's gain of just 1,000 jobs was an abnormality and comments from the government have sustained this belief. However, two months of no job growth starts to look like a trend. We also have the G7 meeting on Friday and Wall Street has already assumed that the dollar's decline will take center stage. There is hope that tomorrow could see a bounce. Thursday will see dozens and dozens of companies report their fourth quarter earnings. If we get enough positive surprises it might turn things around. Of course this goes against the recent trend of sell the news no matter how good the numbers are. We'll also have to contend with an earnings warning by Medtronic (MDT) who warned tonight after the close. MDT had previously guided revenues in the $2.15-2.23 billion range and actually suggested they might surpass it. Naturally analysts pegged their estimates at the top of the range. This evening MDT is reporting that revenues will be closer to $2.195 billion, a 15% rise from the same period a year ago. The stock was trading lower after hours and rivals GDT and STJ are likely to trade lower as well. Thursday also brings the initial jobless claims and a host of same-store sales figures for January. Overall the January sales numbers should be positive. Retailers should have easier year over year comparisons since last January the country was holding its breath as we prepared for the Iraq war. Unfortunately, apparel retailers may under perform the pack as steep markdowns and snowy weather on the east coast reduce margins and traffic. ================================================================== 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 --------------------------------- Krispy Kreme Doughnuts - KKD - close: 35.12 change: -0.52 WHAT TO WATCH: The fad seems to be wearing off in the wake of the Atkins diet popularity and KKD has been in a persistent downtrend since early November. The last bounce attempt failed miserably below the 50-dma and KKD is now threatening to break below $35 for the first time since last June. Use a trigger under support and target a drop to $32 or perhaps even to stronger support at $30. --- Frontier Airlines - FRNT - close: 9.28 change: -0.48 WHAT TO WATCH: We pointed out the weakness in FRNT a couple weeks ago, looking for a rollover and break to new recent lows. That played out nicely and with the stock being further pressured by breakdowns in both the XAL index and the Dow Transports, FRNT looks headed for stronger support down in the $7.50 area. Even last Friday's earnings report couldn't provide support with the stock coming to rest on Monday near new multi-month lows. Use a trigger under today's close and target $7.50. --- RF Micro Devices Inc. - RFMD - close: 9.24 change: -0.25 WHAT TO WATCH: Investors clearly didn't like what they heard from RFMD's earnings report on 1/21 and they've been hitting the sell button ever since. Critical support at $9 appears in danger of breaking and if it does, the stock could be headed down to strong support near $7.00. Along the way, there's the potential for support at the 200-dma and then again near $8.00, but if the $9.00 level is traded, then a PnF Sell signal will be issued, inviting a drop all the way to $5.50. Use a trigger at $9.00 and target a drop to $7.00 --- Abercrombie & Fitch - ANF - close: 26.56 change: +0.66 WHAT TO WATCH: It has been a pretty dismal couple months for ANF investors, as the stock has continued to languish after December's rash of downgrades. But optimism is clearly building for a better report on February 17th, as the stock broke above the bottom of that December gap on Monday on rising volume. Use an entry trigger above today's high and target a rally up to the 200-dma. =================== On the RADAR Screen =================== JDAS $15.25 - The initial excitement over JDAS' earnings report failed right at the 50-dma and since then the stock has been trending steadily downwards. In early January, the 200-dma provided support, but if it fails this time, it could be a quick trip down to next support in the vicinity of $13.50. Use a trigger under the 200-dma and then watch for potential support at $14.50 on the way to that $13.50 target. GSS $5.37 - Strength in the US Dollar has continued to pressure the price of gold and gold stocks in the wake of last week's FOMC meeting. GSS is at a critical level here, resting just above strong support at $5.00. A break below that level looks like a good point to enter a quick bearish play, looking for a drop to the 200-dma at $4.18. AFFX $31.95 - Voting with their wallets, investors have shown their approval for AFFX's earnings report late last week, delivering a strong breakout over the $30 resistance level and price is continuing to rise on solid volume. Aggressive traders can chase the stock higher from here, looking for a continued rally to resistance in the $35-36 area. ================== 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 GSK Glaxosmithkline Plc (ADR) 45.10 +0.61 NOC Nothrop Grumman Corp 99.25 +1.25 GD General Dynamics Corp 93.44 +1.52 K Kellogg Co 37.81 +0.61 CSG Cadbury Schwepps Plc 30.99 +0.52 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- TOM Tommy Hilfiger Corp 14.35 +1.62 TRMS Trimeris Inc 18.39 +1.77 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- CL Colgate-Palmolive Co 53.84 +1.99 AVP Avon Products Inc 68.32 +3.01 GPT Greenpoint Financial Cp 44.72 +4.39 CHRW C. H. Robinson Worldwide 40.09 +1.47 FSH Fisher Scientific Int 48.70 +3.95 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- TM Toyota Motor Corp (ADS) 64.73 -2.90 DELL Dell Inc 32.39 -1.31 CSCO Cisco Systems Inc 24.08 -2.33 AEE Ameren Corp 46.25 -1.32 GP Georgia-Pacific Corp 26.79 -1.04 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- MON Monsanto Co 29.98 -0.39 CF Charter One Financial 35.21 -0.74 RSE Rouse Company The 48.45 -1.07 VTR Ventas 24.20 -0.65 CBL CBL & Assoc Properties 55.75 -5.52 ================================================================= 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 2004 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Wednesday 02-04-2004 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: Stop Loss Adjustments: VC Net Bulls (Tech Stocks) New Bearish Plays: SMTC Active Trader (Non-tech Stocks) Closed Bullish Plays: IPG High Risk/Reward New Bearish Plays: NETE Closed Bullish Plays: PVN ================================================================== STOP LOSS ADJUSTMENTS ================================================================== VC - Short Play Lowering Stop from 11.40 to 11.01 ================================================================== Net Bulls (NB) Tech Stock section ================================================================== --------- New Plays --------- New Bearish Plays ----------------- Semtech Corp. - SMTC - close: 22.50 change: -1.92 stop: 24.10 Company Description: Semtech Corporation is a supplier of analog and mixed-signal semiconductors. The company operates in two business segments, Standard Semiconductor Products and Rectifier, Assembly and Other Products. The Standard Semiconductor Products segment makes up the vast majority of overall sales and includes the power management, protection, test and measurement, advanced communications and human input device product lines. The Rectifier, Assembly and Other Products segment includes the SMTC's line of assembly and rectifier devices. Why we like it: It has been a long time coming, but the Semiconductor sector (SOX.X) is finally giving up the strength that helped to propel the NASDAQ to its lofty heights of less than weeks ago. On Wednesday, the SOX finally cracked the $500 support level and broke its 100-dma for the first time since last April. Weakness is found in many Chip stocks right now and SMTC certainly stood out today, with its near 8% slide. That drop came on very heavy volume as well (nearly double the ADV) and the stock closed below its own 100-dma ($22.56). Investors clearly adopted a Sell attitude in the wake of CSCO's earnings report last night that hit the Networking and Semiconductor sectors the hardest, and it appears they've opted to sell SMTC ahead of its earnings report on February 24th. Note that the stock will remain above its longer-term trendline so long as it doesn't break $18 and it will require a drop below $20 to generate a PnF Sell signal. So all we're doing is playing the pullback to strong support, not looking for a major breakdown. That still gives us plenty of room to play with following today's close at $22.50. We'll use a trigger of $22.40, just under today's low and play for a drop to strong support at $20, which will be reinforced by the 200-dma at $19.62. Should SMTC rebound from here, then there will be no play -- we only want to play on a continued breakdown. Aggressive entries can be taken on the initial break, while more cautious traders may want to wait for a subsequent rebound and rollover below today's intraday resistance at $23. Our stop will initially be placed at $24.10, which is just above both the 50-dma ($23.77) and today's intraday high. Look for continued weakness in the SOX to confirm bearish entries in SMTC. Annotated Chart of SMTC: Picked on February 4th at $22.50 Change since picked +0.00 Earnings Date 2/24/04 (confirmed) Average Daily Volume = 1.14 mln ================================================================== Active Trader (AT) Non-Tech Stock section ================================================================== ============ Closed Plays ============ Closed Bullish Plays -------------------- Interpublic Group - IPG - close: 16.41 chg: -0.30 stop: 15.99 There appears to be zero post-Super Bowl buzz for IPG and the stock continues to churn sideways. Given the markets recent weakness we're opting to cut our losses early and close the play. Picked on January 18 at $16.98 Gain since picked: - 0.57 Earnings Date 03/09/04 (confirmed) Average Daily Volume: 3.6 million ================================================================== High Risk/Reward (HR) Stock section ================================================================== --------- New Plays --------- New Bearish Plays ----------------- Netegrity, Inc. - NETE - close: 9.16 change: -0.42 stop: 10.50 Company Description: Netegrity, Inc. is an access and identity management company that delivers a single, secure and personalized point of entry to the enterprise and a single point of administration for enterprise- wide Web-based services for companies seeking to optimize online business relationships. Unlike alternative approaches, Netegrity's application infrastructure is designed to accommodate the most heterogeneous of computing environments. With its vast network of partners, Netegrity is securely managing e-business solutions for over 660 customers worldwide, including Aetna, American Express, Bank One, E*TRADE, General Electric, the Internal Revenue Service and Wells Fargo. Why we like it: Investors clearly weren't pleased with NETE's earnings report last week, as they pummeled the stock from $14 down to just above $9 in the two days following that report. But the dip buyers took a shot at buying that apparent support and over the past two days have been paying the price for their boldness. NETE popped up to just below $10.50 yesterday and the bears took advantage of the rebound off last week's lows and sold throughout the day and into today's session. The key event on Wednesday was the stock's break below last week's lows, as well as a violation of the 200- dma ($9.30). This support break exacerbates an already ugly- looking PnF chart, which has a Sell signal pointing to a $4.50 bearish price target. That is probably an overly bearish target, so we'll set our sights a bit higher at next support at $8.00. In order to make the stock prove continued weakness, we'll set our entry target at $9.00, just under today's low and then target an initial drop to $8.00. But we'll leave the possibility out there for a continued drop below that level to stronger support near $7.00. Clearly, the way things are going, the best entry will be on the initial breakdown, as today's drop really constitutes the technical break. But more cautious traders may get lucky and get a more favorable entry on a subsequent rebound and rollover below $10. We're setting a fairly wide initial stop at $10.50 (just over yesterday's high), but once NETE closes below $9.00, we'll look to aggressively tighten it. Annotated Chart of NETE: Picked on February 4th at $9.16 Change since picked +0.00 Earnings Date 1/26/04 (confirmed) Average Daily Volume = 671 K ============ Closed Plays ============ Closed Bullish Plays -------------------- Providian Financial - PVN - cls: 12.45 chng: -0.60 stop: 12.25 While it hasn't tripped our stop just yet, it is clear that the pending breakout we saw in shares of PVN over the weekend simply isn't going to materialize. We were looking for a breakout over $14 to trigger the play to active status, and the selling pressure this week has sent the stock the other way on increasing volume. The final straw was today's gap down and subsequent 4.5% less to end right at the low of the day and right on the supportive 20-dma. Rather than wait for our stop to be tripped (probably tomorrow), the prudent choice is just to drop the play tonight so that we can focus on better plays. Picked on February 1st at $13.69 Change since picked -1.24 Earnings Date 4/20/04 (unconfirmed) Average Daily Volume = 2.54 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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