PremierInvestor.net Newsletter Wednesday 02-18-2004 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: Lots of News for a Slow Day Watch List: DO, TYC, SGR, MU 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) =============================================================== 02-18-2004 High Low Volume Advance/Decline DJIA 10671.99 - 42.89 10720.51 10646.96 1.76 bln 1075/1774 NASDAQ 2076.47 - 3.88 2088.51 2072.19 1.76 bln 1271/1811 S&P 100 568.33 - 2.91 571.57 567.56 Totals 2346/3585 S&P 500 1151.82 - 5.17 1157.40 1149.42 RUS 2000 591.48 - 3.00 595.41 590.40 DJ TRANS 2901.08 - 19.66 2920.83 2890.49 VIX 15.59 + 0.19 15.76 15.30 VXO 15.74 + 0.18 16.14 15.29 VXN 23.73 - 0.14 24.22 23.49 Total Volume 3,884M Total UpVol 1,466M Total DnVol 2,367M 52wk Highs 608 52wk Lows 14 TRIN 1.11 PUT/CALL 0.78 =============================================================== =========== Market Wrap =========== Lots of News for a Slow Day by James Brown The major averages closed in the red again for the third day in four sessions. It would appear to be plain old profit taking after yesterday's market-wide rally. Investors shrugged off negative housing data and focused on headlines in the technology and biotech sectors. The Dow Jones Industrials lost nearly 43 points to close at 10,671 as 23 of its 30 components turned lower. The NASDAQ dropped less than four points to 2076 and the S&P 500 dropped 5 to 1151. The best performers today were the biotech stocks, semiconductors, hardware and software. Meanwhile selling was heaviest in gold stocks, natural gas and oil services. Influencing gold was the U.S. dollar, which hit a new all-time low against the euro in early trading before strongly rebounding. Sending the dollar higher were comments that the Bank of Japan would continue to intervene as the yen near a three-year high against the dollar and comments from French President Chirac that hinted at possible intervention or similar strategies to stem the rise of the euro against the dollar. Overall stocks only posted mild losses but market internals were bearish. Declining stocks outpaced advancers 17 to 10 on the NYSE and 3 to 2 on the NASDAQ. Down volume surpassed up volume by 2 to 1 on the NYSE and 10 to 7 on the NASDAQ. The good news is probably the bullish pattern of higher lows on the major averages. The DJIA dropped toward the 10640 level and bounced. The S&P 500 followed suit with a bounce from its intraday low near 1149. The NASDAQ also managed a decent bounce in the last two hours of trading. Chart of the DJIA: Chart of the S&P 500: Chart of the NASDAQ Composite: Today's main economic data was the housing starts number. The Commerce Department reported an 8% drop to a seasonally adjusted rate of 1.9 million homes in January. Wall Street was expected a dip so the report was largely ignored. Granted this was the lowest level since August but the housing starts have been very strong and hit a 20-year high in December. Also noteworthy was the 4.9% jump in mortgage applications for last week. The Mortgage Bankers Association of America provided the breakdown with a 2.9% jump in applications for home purchases and a 6.4% jump in refinancings applications. Homebuilders initially traded lower on the news but eventually climbed higher throughout the day eliminating most of their losses. While hardcore traders seem to feel the trading session turned out rather boring there were a number of stories making headlines. Grabbing the spotlight early on was Rambus (RMBS). Shares of RMBS added more than $9.00 to jump 35% near 3-year highs at $34.93 after an administrative law judge with the FTC dismissed an antitrust case against the company. The judge produced a 330-page decision on the case where prosecutors were trying to prove that RMBS violated antitrust laws by helping set industry standards for memory chips while simultaneously pursuing patents for their designs. One analyst estimated that this decision could help RMBS garner $3 billion a year in royalty payments. Almost topping RMBS' gain was Irish drug company Elan (ELN). Shares of ELN rallied 34% and its marketing partner Biogen Idec (BIIB) added 20% after ELN announced that it would pursue FDA approval for its multiple sclerosis (MS) drug Antegren a year ahead of schedule. The two drug makers are halfway through a two-year clinical study of Antegren and based on the one-year results they decided to go ahead with the approval process. MS treatments are a multi-billion a year business and the handful of companies that compete in this niche traded lower. Going the opposite direction was Dobson Communications (DCEL), a mobile phone service provider for rural areas. Shares of DCEL dropped 36.6% on 29 times its average volume after reporting fourth-quarter earnings that were much weaker than expected. The average analyst estimate was for a loss of 5 cents a share. DCEL turned in a loss of 53 cents a share compared to a profit of 28 cents a share last year. The truly big surprise today was El Paso (EP), the largest U.S. natural gas pipeline operator. Shares of EP fell almost 18% after the company sliced its proven natural gas reserves estimate by more than 40%. Proven reserves are the estimated quantities that a company believes is recoverable from its current fields. Why they're called "proven reserves" when they're estimating the amount of fuel they can extract from the ground sounds like a mystery to me. EP said their earnings would be affected by a $1 billion pre-tax charge for its fourth quarter. If you recall it was just last month that Royal Dutch-Shell Group reduced its proven reserve estimates by 20 percent. Yup, you can almost hear the herd of lawyers stampeding towards El Paso's Houston headquarters with briefcases brimming with shareholder lawsuits. Speaking of lawsuits IBM traded lower today (-0.95%) after a federal judge ruled against Big Blue in a pension lawsuit on behalf of 140,000 older employees. In the 1990's IBM moved to a "cash balance" pension plan; which the judge felt didn't accurately give older employees their share of benefits. The decision could cost IBM $6 billion in retroactive benefits but the company plans to appeal. While we're on the topic of legal issues the SEC finally reached an agreement with Wall Street's top five specialist firms to fork over $240 million. Bear Wagner, which is part of Bear Stearns, FleetBoston Financial, La Branche, Speer Leeds Kellogg, which is part of Goldman Sachs, and Van de Moolen are the five firms which will divulge a total of $155 million in perceived ill-gotten gains and another $85 million in penalties to settle allegations that the firms jumped in ahead of its customers while processing their orders. As is typical with these types of SEC settlements none of the firms will either admit or deny any wrongdoing and hope this settlement will reduce the number of civil lawsuits from investors. All of the above are certainly big stories but the ones investors were most eager to hear occurred after the closing bell. The semiconductor sector was able to maintain its gains today because traders were eager to hear from Applied Materials (AMAT) and Broadcom (BRCM). Last night BRCM announced that it would hold a conference call today after the closing bell to discuss their "stronger business outlook". This was highly unusual and shares of BRCM added 7.3% on the session in anticipation of the event. Even though the first quarter is only half over BRCM's CFO raised their first-quarter revenue forecasts from +10% to an estimated +16-18% as rising demand for broadband and wireless communication chips exceed previous estimates. BRCM wouldn't offer any guidance past the first quarter but did say that the second quarter should be strong. BRCM's announcement is certainly bullish for the chip sector but the one-two punch that could really drive the SOX tomorrow is AMAT's earnings. The largest chip equipment maker on the planet announced net income, minus one-time charges, of 12 cents a share. This is 4 cents above the 8-cent analyst estimates and significantly better than its breakeven results from last year. New orders for the quarter rose 32%. Furthermore AMAT's CFO said new orders will likely rise 30% in the second quarter and they will probably beat analysts' estimates. This of course will force a round of upward revisions for the company as the analyst community readjusts their forecasts. The company expects Q2 earnings in the 17-19 cent range, which is well above current estimates at 11 cents a share and sales were likely to rise 20% from Q1 levels. AMAT was trading higher after hours and it could lead the SOX to a new relative high, which in turn should lead the NASDAQ higher. Fortunately none of tomorrow's economic reports are expected to be a surprise and we only have a handful of earnings to worry about. So what's on our plate for Thursday? The Philly Fed manufacturing survey will probably be the big report tomorrow. Estimates are for a small dip from January's reading. The PPI was supposed to report tomorrow but a new industry classification system has caused a delay in the report. Thursday will also bring the Leading economic indicators index and the weekly jobless claims. After Thursday's close will be the semi book-to- bill report. Everything looks pretty good and as long a Wal-Mart doesn't surprise us with any negative comments in their earnings report before the open tomorrow I believe we'll challenge these short-term resistance levels. ================================================================== 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 --------------------------------- Diamond Offshore Drilling, Inc. - DO - close: 24.33 change: -0.40 WHAT TO WATCH: When we looked at DO last week, the stock appeared ready to break out over the $23.50 resistance level and that's precisely what happened, with the stock surging up to the $25 level yesterday. It looks like the expected pullback is now under way, which will pave the way for new entries on a successful test of the $23.00-23.50 area as newfound support. After entry, look for upside continuation to the $27.50 resistance level. --- Tyco International, Ltd. - TYC - close: 28.80 change: -0.45 WHAT TO WATCH: Another recent visitor to our Watch List was TYC, as the stock has been steadily working its way higher over the past 11 months. After breaking out over the $28.50 resistance level, it looks like TYC is ready to come back and test the $27.50 level as new support. Target entries on a rebound from that level and then look for the rally to continue up towards the $35 area, which is both the site of strong historical resistance, as well as the 200-week moving average. --- Shaw Group Inc. - SGR - close: 12.38 change: +0.36 WHAT TO WATCH: After stalling out near the $14 level, SGR has pulled back to strong support and has started out the week with a bang, rebounding strongly from the 200-dma. It looks like the stock is headed back for a retest of the upper boundary of the range of the past few months near $14 and a breakout over the 50- dma should be a good trigger for new entries. --- Micron Technology Inc. - MU - close: 16.42 change: +0.38 WHAT TO WATCH: Following its breakout over the $15.50 resistance level last month, MU has been consolidating near its highs in a constructive manner, preparing for the next leg up. The stock is trading much better than the overall Semiconductor sector and a breakout over $17 should kick off a rally up towards strong resistance near $20. Use a trigger of $17.10. --- =================== On the RADAR Screen =================== CTIC $8.82 - There's something wrong with CTIC, as the stock continues to work its way lower, moving opposite to the overall Biotechnology sector. Today's break of the $9.00 support level and the 50-dma looks quite bearish, especially with the increase in volume. Entries look good on a failed rebound near $9.00, with a downside target of $7.50-8.00. CELG $40.04 - CELG is another Biotechnology stock that is exhibiting significant relative weakness and it is coming up on an important test of support. Should the 200-dma be violated, CELG looks like it should fall to $35 and possibly as low as $32. Use a trigger of $38.50, which is below both the 200-dma and the mid-January reaction low. TGT $42.29 - After several failed attempts over the past several months, TGT finally achieved the breakout over $42 that we've been expecting. Price may be a bit extended right here, but a mild pullback to confirm support in the $40.50-41.00 area looks good for bullish entries. Target a rally up to the $45-46 area, the site of the stock's 2002 highs. ================== 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 MWD Morgan Stanley 61.60 +1.01 UTX United Technologies Corp 97.36 +1.83 BRG BG Plc 28.11 +0.63 GDW Golden West Financial 108.05 +1.01 ETR Entergy Corp 59.47 +1.13 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- ELN Elan Corp Plc 11.80 +3.00 OI Owens Illinois Inc 13.82 +2.49 PRV Province Healthcare Co 16.99 +1.06 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- BIIB Biogen Idec Inc 53.23 +8.97 ERTS Electronic Arts Inc 46.66 +1.76 BRCM Broadcom Corp CI A 42.46 +2.90 NTAP Network Appliance Inc 23.63 +1.36 CMX Caremark Rx Inc 32.00 +1.40 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- TEVA Teca Pharm Ind 64.71 -2.49 A Agilent Technologies 35.98 -1.51 OMC Omnicom Group Inc 80.16 -1.76 MHS Medco Health Solutions 31.85 -3.35 MRH Montpelier Re 35.65 -2.10 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- NVS Novartis Ag (ADS) 46.16 -0.86 SAP SAP Ag (ADS) 42.59 -0.74 KIM Kimco Realty Corp 46.30 -0.50 ================================================================= 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 02-18-2004 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: TSS, ANN, LIN, ARA Net Bulls (Tech Stocks) New Bullish plays: VTSS Stock Splits Announcements: ASFI, CEC, COCO ================================================================== Stop Loss Adjustments ================================================================== TSS - no change, still untriggered ANN - non-tech long raise stop from 41.40 to 42.25 LIN - non-tech long raise stop from 29.99 to 31.00 ARA - non-tech long raise stop from 31.99 to 32.50 ================================================================== Net Bulls (NB) Tech Stock section ================================================================== --------- New Plays --------- New Bullish Plays ----------------- Vitesse Semicon. - VTSS - close: 9.05 change: +0.57 stop: 8.10 Company Description: Vitesse Semiconductor Corporation is a designer and manufacturer of silicon solutions and optical devices used in the networking, communications and storage industries worldwide. It works to specifically address the requirements of system designers and original equipment manufacturers (OEMs) by providing high- performance, integrated products that are ideally suited for use in enterprise, access, metro and core applications. The company has a wide variety of products that are primarily sold into four areas of the communications infrastructure: storage, enterprise, metro and long haul. VTSS' products include physical media devices; physical layer devices; framing, mapping and other overhead processing functions; network processors and traffic managers; switches; enterprise local area network (LAN) products, and storage and serial backplane products. Why we like it: While the Semiconductor index (SOX.X) continues to languish after the recent bout of profit taking, VTSS is flexing its muscles again today, breaking out from its month-long consolidation in the $7.75-9.00 area. The stock has really made some dramatic strides up the chart since bottoming in October of 2002 below $1. That's right, in just the past 15 months, VTSS has vaulted higher to the tune of 1100%! You might think we're nuts for considering a bullish play on a stock that has moved so far already, but the chart suggests that the bulls aren't done yet. The PnF chart recently completed an Ascending Triple Top breakout and with price well above the bearish resistance line, it looks like full bull ahead. Of course, it doesn't hurt that today's breakout came on volume nearly double the ADV. Gazing at the price chart, we can see that the stock will have to confront resistance at the $10 level, but the way VTSS has been working through each resistance level, we're thinking that may just provide consolidation before continuing upwards to stronger resistance in the $11.00-11.50 area. And if the SOX can shake off its lethargy and rejoin the bullish party, a continued bullish run to the $12.50-13.00 area is not out of the question. If we view the recent price action as a consolidation flag following the rally from $6.00 to $9.00, that would give us a vertical price objective of $12, assuming an equal move for the stock after today's nascent breakout. Since the breakout has already occurred, we're not going to use a trigger for the play. Aggressive traders can enter on a break over today's $9.19 high, although the better entry strategy looks like a pullback and rebound from the $8.50 area. In addition to historical support near that level, we have both the 10-dma ($8.50) and 20-dma ($8.40) reinforcing support at that level. We'll use an initial stop of $7.95, which is just below Friday's intraday low, as well as the 30-dma ($7.98) Should VTSS continue today's breakout without pause, then we'll look to adjust our stop upwards to just below Friday's intraday low. Annotated Chart of VTSS: Picked on February 18th at $9.05 Change since picked +0.00 Earnings Date 1/22/04 (confirmed) Average Daily Volume = 5.92 mln ================================================================== Stock Splits ================================================================== Announcements ------------- ASFI declares a 2-for-1 stock split Midday on Wednesday Asta Funding Inc (NASDAQ:ASFI) reported that its Board of Directors had approved a 2-for-1 stock split of its common stock. The split, payable as a 100% stock dividend, will be payable on March 23rd, 2004 to shareholders on record as of March 9th. Post- split ASFI will have 13.3 million shares outstanding. The cash dividend of 6 cents will be halved to 3 cents per share and paid post-split on May 1st to shareholders on record as of March 31st. This is ASFI's first stock split. About the company: Based in Englewood Cliffs, NJ, Asta Funding, Inc., is a leading consumer receivables asset management company that specializes in the purchase, management and liquidation of performing and non- performing consumer receivables. (Source: Company Press Release) --- CEC dishes out a 3-for-2 split After market close today, Texas-based CEC Entertainment Inc (NYSE:CEC) reported that its Board of Directors had approved a 3- for-2 stock split of its common stock. The split announcement was reported amid CEC's Q4 financial statements and has a payable date of March 15th, 2004 to shareholders on record by February 25th. Fractional shares will be paid in cash. This would be CEC's first stock split since their 3-for-2 split in 1999. About the company: CEC Entertainment, Inc. operates a system of 468 Chuck E. Cheese's restaurants in 48 states, of which 420 are owned and operated by the Company. --- COCO graduates with a 2-for-1 stock split Prior to this morning's opening bell Corinthian Colleges Inc. (NASDAQ:COCO) announced that its Board of Directors had approved a 2-for-1 stock split of its common stock to be enacted as a stock dividend. The payable date for the split is March 23rd, 2004 for shareholders on record as of March 4th. About the company: Corinthian Colleges, Inc. is one of the largest post-secondary education companies in North America, and serves the large and growing segment of the population seeking to acquire career- oriented education to become more qualified and marketable in today's increasingly demanding workplace. Corinthian's colleges offer master's, bachelor's and associate's degrees and diploma programs in a variety of fields, with a concentration on careers in healthcare, business, criminal justice and technology. Corinthian operates 84 colleges and two continuing education centers in 21 states in the U.S., and 46 colleges and 15 corporate training centers in seven Canadian provinces. (Source: Company Press Release) ================================================================= 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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