PremierInvestor.net Newsletter Wednesday 03-10-2004 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: Markets Implode on Anniversary Watch List: ADBE, KKD, FLML, ABT 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) =============================================================== 03-10-2004 High Low Volume Advance/Decline DJIA 10296.89 -160.07 10473.86 10284.67 1.99 bln 622/2242 NASDAQ 1964.15 - 31.01 2007.25 1963.13 2.13 bln 690/2362 S&P 100 552.80 - 8.10 561.38 552.01 Totals 1312/4604 S&P 500 1123.89 - 16.69 1141.45 1122.53 RUS 2000 575.01 - 10.94 589.78 574.56 DJ TRANS 2788.48 - 45.82 2838.08 2786.61 VIX 18.67 + 2.07 18.07 16.11 VXO 18.80 + 2.43 19.23 16.75 VXN 26.05 + 1.35 26.07 24.41 Total Volume 4,626M Total UpVol 833M Total DnVol 3,690M 52wk Highs 335 52wk Lows 22 TRIN 2.46 PUT/CALL 0.91 =============================================================== =========== Market Wrap =========== Markets Implode on Anniversary by James Brown Ka-BOOM! The major stock indices have stretched this week's declines to three in a row. Both the Dow and the NASDAQ are negative for the year and that noise you heard was all three indices, including the S&P 500, breaking major support today. All of this comes on the March 10th anniversary of the NASDAQ's all-time closing high at 5048 back in 2000. It also happens to be near the one-year anniversary of the market's bottom in March 2003. The S&P closed at 800.73 on March 11th, 2003, dipped to an intraday low of 788.90 the next day but rebounded sharply as the Iraq war began. This week's decline has been very wide spread affecting every sector with virtually zero pockets of strength. Those industries hit hardest today were gold, oil services, drugs, broker-dealers, semiconductors, internets, airlines and homebuilders. The hardware group did try and buck the trend but eventually succumbed to the sell-off as it picked up speed this afternoon. Strengthening the PC makers was a survey from International Data Corp, which revealed that global PC shipments are expected to climb by more than 10% in 2004 and 2005 and shipment value is expected to rise more than 5% over the next two years. U.S. markets weren't the only ones in the red. Asian stocks were lower as the Japanese NIKKEI lost almost 99 points to close at 11,433 and the Chinese Hang Seng lost 183 points to close at 13,214. The British FTSE managed to close positive at 4545 with a 3-point gain. Meanwhile the German DAX slid more than 42 points to 4044. What bulls should find disturbing about today's breakdown are the internals. Both the NYSE and the NASDAQ reported that declining stocks outnumbered advancing issues by nearly 3-to-1. This was the weakest advance/decline reading since October 2002. New 52- week highs have withered to just 178 between the two exchanges. Furthermore the down volume trampled up volume by more than 6-to- 1 on the NYSE and close to 3-to-1 on the NASDAQ. Volume breached more than 2 billion shares on both exchanges and was growing as the sell-off gained speed into the afternoon. The 160-point drop in the Dow Industrials to 10,296 crashed through what should have been support at 10,400. The next hope for support is the simple 100-dma near the 10,200 level. Coincidentally the 10,200 level also happens to be a 5% correction from the recent top and traders trying to pick a bottom might help support the markets there. Personally, I wouldn't be surprised to see the Industrials retest the 10,000 level before the end of March. Chart of the Dow Industrials: The tech-heavy NASDAQ Composite looks a lot worse. The NASDAQ has lost about 90 points (4.3%) in the last four sessions and closed near its low for the day. The breakdown under the 2000 level was bad enough on Tuesday but today's decline really confirms the move and will play havoc on investor sentiment. Optimistic traders can hope that the NASDAQ might find support near 1935, which would be a 10% correction from its 2150 highs but I would agree with Jim's assessment that the next true support level is probably the 1900 level. Any rally back towards 2000 is probably going to be seen as a chance to short the market since broken support tends to become resistance. Chart of the NASDAQ Composite: The S&P 500 index lost 1.46% today and closed under its simple 50-dma for the first time since last November. The good news is that the S&P 500 is still green for 2004 but those gains are in danger of vanishing. The sell-off today managed to pause as the SPX approached its late January support near 1120. Whether or not this level will hold is the real question. The bad news is that today's drop in the markets was finally echoed by a surge in the volatility indices. In the recent past the market declines saw spikes in volatility but each time the spike only proved to be a new lower high. This time the VIX and the VXO (old VIX) have produced a new higher high, breaking the descending trendline. There are a lot of traders, both big and small, that follow the VIX/VXO, which has not been much help lately. Today's rally in the VIX shows a sharp increase in investor fear that suggests this pull back is "for real" this time. Chart of the S&P 500: Chart of the VIX/VXO: Wednesday's only major economic report was the January trade deficit numbers. Economists had been expecting the trade gap to shrink in January to $41.9 billion. Unfortunately the Commerce Department announced that the trade gap hit a new record high at $43.1 billion, above last March's $43 billion. One of the main culprits were meat and chicken exports, which shouldn't be a surprise. Exporters are still dealing with the mad cow scare and the recent bouts of bird flu that prompted bans on U.S. poultry. The export numbers showed beef and chicken products dropped 40% to their lowest levels since November 1993. The trade gap report undermined investor sentiment, which was already weak given the two days of profit taking and the technical breakdown in the NASDAQ yesterday. A sign that traders' attitudes have changed was the reaction to positive news. Rockwell Automation Inc (ROK) issued a positive earnings pre-announcement saying its March quarter would be higher than expected. Analysts consensus estimates were 33 cents a share and ROK now expects earnings in the 35 to 38 cent range as sales in the first two months of the year have beaten forecasts. ROK gapped higher at the open but eventually faded into the afternoon painting a discouraging failed-rally pattern and closing under its simple 200-dma. Investor reaction was even worse for Danaher Corp (DHR). DHR raised its Q1 earnings guidance to 81-86 cents a share above its prior guidance of 76-81 cents and above consensus estimates at 80 cents. Shares of DHR quickly shot higher at the open and traded above its simple 10-dma briefly before promptly falling on strong volume to a new five-week low at its 100-dma (87.99). There is some support at the $88.00 level but given the trajectory of this afternoon's sell-off traders are probably betting on a test of the $85 level. It's not hard to imagine that if investors are reacting this poorly to good news how would they react to bad news? Just look to shares of Krispy Kreme Doughnuts (KKD) to answer that one. The stock dropped $3.94 to $34.22 on more than seven times the average volume after reporting earnings that were in line with analysts' estimates at 26 cents a share. Revenues were up more than 35% but margin pressures cratered investor confidence. KKD said operating margins at company-owned stores plummeted from 20.3% to 17.4%. JP Morgan reiterated their "under weight" on the stock and investors decided to exit. Other notable decliners today were BRL, THC and GLBC. Barr Pharmaceuticals, previously Barr Labs (BRL), dropped more than $5 to $73.90 after management failed to raise their earnings forecast at the company's analyst conference today. Tenet Healthcare (THC) dropped more than 14% to $10.06, a five-year low, as investors fled over concerns that the company is running out of cash. Meanwhile shares of Global Crossing (GLBC) collapsed for an $11 loss or 38% to $17.78 as investors reacted to its first earnings report after returning from Chapter 11 bankruptcy. Tomorrow should prove interesting. Markets don't usually move in a straight line for very long. Even though the indices looks terrible right now it wouldn't surprise me to see an oversold bounce tomorrow, especially at the 10,200 level for the Dow. I'd like to think that Tech Data Corp's (TECD) positive earnings report tonight after the bell might inspire some sort of rebound in the tech sector but that could be wishful thinking on my part. The next two days are overflowing with economic reports. Tomorrow will bring the weekly initial jobless claims, import/export prices, the February retail sales numbers, and the natural gas inventory report. The big report on Friday will be the preliminary Michigan sentiment number unless of course the government chooses to surprise us by publishing the long-awaited PPI index. On top of it all Greenspan will be speaking at two separate engagements but don't expect him to say anything about monetary policy. Overall it looks pretty ugly out there. The last three sessions have broken major support in numerous sectors and an untold number of stocks. This could be the beginning of the Q1 correction we were expecting about 7 or 8 weeks ago. Watch those stop losses and think twice about initiating any new bullish positions. ================================================================== 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 --------------------------------- Adobe Systems Inc. - ADBE - close: 35.05 change: -1.04 WHAT TO WATCH: After clinging to support near $36 on several drops over the past couple months, ADBE finally broke down on Monday, ending just above $35. With earnings slated for March 18th, any continuation play will have to be a quick one, but a break under today's low should be good for a drop to the $32 area. --- Krispy Kreme Doughnuts Inc. - KKD - close: 34.22 change: -3.94 WHAT TO WATCH: Shares of KKD got taken apart on Wednesday in the wake of the company's earnings report, as investors fretted over declining store margins. With the stock down over 10% today, it feels like a chase for aggressive bears. That said, if price drops under $33.65, it would break the February lows and could have the $30 level in play. --- Flamel Technologies SA - FLML - close: 23.61 change: -1.39 WHAT TO WATCH: Rolling over again earlier this week, FLML broke its 200-dma with conviction and is once again targeting a test of critical support at $23. A breakdown below that level will have the $20 support level in play. Use a trigger under $23. --- Abbott Laboratories - ABT - close: 41.45 change: -0.95 WHAT TO WATCH: Pressured by the weakness in the rest of the market, ABT smashed through its 200-dma and key support near $43 yesterday and kept on falling today, as selling volume continued to rise. Should the stock break $41, the bears will be targeting the August lows near $38. Use a trigger under $41. --- =================== On the RADAR Screen =================== FD $51.50 - We've been waiting for some serious profit taking to occur to give us a setup for a bullish play on FD and it looks like that's occurring this week. Let the stock come down near the $50 level and then look for bullish entries on a rebound from the 50-dma. THC $10.06 - Following its plunge in late January, THC has been pinned to the mat near $12, but that tight range broke in a big way on Wednesday, with the stock plunging more than 14% to end just over the $10 level. This is definitely only for the aggressive bears out there, but with the stock now trading at its lowest level since 1995, things are getting uglier by the day. Use a trigger under today's low and look for a break of the all- time lows just under $9.00. HON $32.96 - Breaking down from its broad topping formation yesterday, HON extended its losses on rising volume today and looks headed for strong support at $30. Aggressive traders might consider chasing the stock lower with a break under $32.50, but the better entry would be on a failed rebound under $34 resistance, using a stop just over last week's $35.50 high. ================== 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 TOT Total Sa (ADS) 93.61 +0.72 DEO Diageo Plc (Ads) 54.76 +0.55 COF Capital One Financial Cp 73.84 +1.03 TRB Tribune Co 50.50 +0.51 HNZ H.J. Heinz Co 38.95 +0.87 DGX Quest Diagnostics Inc 82.57 +1.04 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- None --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- PG Procter & Gamble Co 105.53 +3.04 AVP Avon Products Inc 73.59 +1.84 WWY William Wrigley Jr Co 59.63 +1.69 HSY Hershey Foods Corp 85.45 +1.45 MON Monsanto Co 35.71 +1.05 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- UTX United Technologies Corp 87.10 -1.65 SPY Standard & Poors Dep Rec 112.58 -1.92 SAP Sap Ag (ADS) 38.58 -1.42 D Dupont E I Nemours & Co 41.95 -1.43 BMY Bristol-Myers Squibb Co 26.07 -1.13 RTP Rio Tinto Plc (ADR) 98.65 -6.35 EMR Emerson Electric Co 61.80 -1.65 CAT Caterpillar Inc 73.51 -2.89 STI Suntrust Banks Inc 70.40 -1.68 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- ONE Bank One Corp 54.88 -0.84 WB Wachovia Corp 48.56 -0.29 VZ Verizon Communications 38.27 -0.93 NSANY Nissan Motor Co Ltd (ADR) 21.68 -0.56 KRB MBNA Corp 28.09 -0.54 ERICY LM Ericsson Telephone Co 28.31 -1.20 SYMC Symantec Corp 41.63 -1.61 UBB Unibanco Uniao De Bancos 24.00 -0.76 BSC Bear Stearns Companies 88.10 -0.94 LNC Lincoln National Corp 47.07 -0.92 ================================================================= 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 03-10-2004 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: None Net Bulls (Tech Stocks) New Bearish Plays: CCMP Closed Bearish Plays: CSCO Active Trader (Non-tech Stocks) New Bullish plays: New Bearish Plays: BBY Closed Bullish Plays: XMSR High Risk/Reward Closed Bearish Plays: NETE ================================================================= Stop Loss Adjustments ================================================================= None ================================================================= Net Bulls (NB) Tech Stock section ================================================================= --------- New Plays --------- New Bearish Plays ----------------- Cabot Microelec. - CCMP - close: 40.85 change: -1.59 stop: 44.00 Company Description: Cabot Microelectronics is a supplier of high performance polishing slurries used in the manufacture of advanced integrated circuit (IC) devices, within a process called chemical mechanical planarization (CMP). CMP is a polishing process used by IC device manufacturers to flatten many of the multiple layers of material that are built upon silicon wafers and necessary in the production of advanced ICs. CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with fewer defects. Why we like it: Shortly after the Semiconductor index (SOX.X) hit its January highs, CCMP reversed from the $58 level, plunging precipitously on the heels of its earnings report. That drop didn't end until the stock reached support near $42 and since then the stock has been consolidating in a continuation flag pattern between $42-46. That trading pattern has demonstrated the stock's weakness relative to the SOX and it appeared only time separated the stock from another breakdown. The meltdown in the SOX this week has certainly put pressure on the stock and with the SOX losing another 2% on Wednesday, CCMP finally broke through the bottom of its recent consolidation pattern. Not only does this break near- term support, but it issues a fresh PnF Sell signal, and suggests the stock is now headed towards its bearish price target of $33. That is interesting as it brings the 2002 lows in the $32-33 area into play as a viable downside target. While today's breakdown looks bearish, we need to exercise just a bit of caution due to the possibility of support being found near $38, the site of the lows from last March. That support appears tenuous though and at a minimum, CCMP should work its way down to the $35 level. The SOX is currently right at key support at $475 and the potential for a bounce there could spill over into shares of CCMP and produce a bounce back to test resistance in the $42- 43 area before the decline continues. For that reason, our preferred entry strategy would be on a failed bounce in that area. Traders looking to enter on further weakness will want to confirm sector weakness with the SOX continuing its breakdown. If entering on the breakdown, we'd suggest using a trigger of $40.50, which is just below today's intraday low. We're setting our stop initially at $44, which is just over yesterday's intraday high, as well as the 20-dma at $43.96. Annotated Chart of CCMP: Picked on March 10th at $40.85 Change since picked +0.00 Earnings Date 1/22/04 (confirmed) Average Daily Volume = 822 K ============ Closed Plays ============ Closed Bearish Plays -------------------- Cisco Systems - CSCO - close: 22.21 change: +0.09 stop: 24.00 CSCO has yet to make a serious attempt at breaking its prevailing downtrend, but today's price action should make bears rather nervous. All the major sectors of the market ended in the red and yet CSCO managed to close in positive territory. This hints that perhaps the downward move is at a near-term bottom. With the heavy selling in the rest of the market, CSCO should have at least taken out the $22 support on an intraday basis, and since it didn't we're going to err on the side of caution and harvest the small gains that exist in the play. We'll look for a possible failed rebound under resistance to potentially take another shot at a breakdown. Picked on February 22nd at $23.19 Change since picked -0.98 Earnings Date 5/11/04 (confirmed) Average Daily Volume = 52.2 mln ================================================================= Active Trader (AT) Non-Tech Stock section ================================================================= --------- New Plays --------- New Bearish Plays ----------------- Best Buy Company - BBY - close: 48.50 change: -2.14 stop: 52.75 Company Description: Best Buy Co., Inc. is a specialty retailer of consumer electronics, home office equipment, entertainment software and appliances. The company operates retail stores and commercial Websites as part of continuing operations under the brand names Best Buy (BestBuy.com), Future Shop (FutureShop.ca) and Magnolia Hi-Fi (MagnoliaHiFi.com). BBY has two reportable operating segments, Domestic and International. Domestic includes United States Best Buy and Magnolia Hi-Fi stores. International consists of Future Shop stores operating in Canada, as well as Canadian Best Buy stores. Why we like it: We've had our eye on BBY for several weeks now and the stock has made more than one appearance on the Watch List, as we've been waiting for a definitive resolution of its trading range between $50-55. Today we got our answer, as BBY succumbed to the weakness in the rest of the market, plunging through the 200-dma ($50.32) and ending at its low of the day, right at the December low of $48.50. In addition to the break of the 200-dma, the key is the action on the PnF chart. BBY issued a new Sell signal and now has a tentative bearish price target of $43, which is just above the bullish support line at $41. Volume on today's drop was strong, more than doubling the ADV and suggesting that this is the beginning of a move with some conviction. Looking at the daily price chart, we can see that BBY is right at the bottom of a consolidation flag that has been building since early December and a confirmed break below $48.50 should have downside potential at least to the $42 level. Because today's decline paused right at the December lows, we're going to use a trigger of $48, hopefully avoiding any chance of a bear trap. Aggressive traders can enter on the initial breakdown, but given the stock's nearly $6 slide in the past 6 sessions, it feels like an oversold bounce could be in the works. That means the lower risk entry will be on a rollover below the $51 level, with the 200-dma now acting as key resistance. Once below $48, we can expect to see mild support at $46 and then again at $44 on the way down to our $42 target. Should the selling really get out of hand, a drop to test the August lows at $40 could be in the cards, but we'll evaluate that potential as price approaches our $42 target. Set stops initially at $52.75, which is just above all of the shorter-term moving averages, all of which are clustered in the $51.66 (10-dma) to $52.61 (20-dma) range. Annotated Chart of BBY: Picked on March 10th at $48.50 Change since picked +0.00 Earnings Date 1/31/04 (confirmed) Average Daily Volume = 3.73 mln ============ Closed Plays ============ Closed Bullish Plays -------------------- XM Sat. Radio - XMSR - cls: 25.18 chng: -0.39 stop: 24.50 Looking solid on Monday with its ability to buck the selling trend in the rest of the market, XMSR seems to have lost its way and is joining the bearish trend of the overall market. Yesterday's drop was well contained, as the stock held over the 10-dma, but today's dip to test the 50-dma causes some concern. Adding to those concerns are fresh sell signals on Stochastics and MACD and it appears that more weakness is in the immediate future. Rather than wait for our stop to be hit, we're going to exit the play tonight. Use any rebound on Thursday to gain a more favorable exit. Picked on February 25th at $23.95 Change since picked +1.23 Earnings Date 2/12/04 (confirmed) Average Daily Volume = 6.76 mln ================================================================= High Risk/Reward (HR) Stock section ================================================================= ============ Closed Plays ============ Closed Bearish Plays -------------------- Netegrity, Inc. - NETE - cls: 8.54 chng: +0.20 stop: 9.40 While it has definitely gone in our direction, NETE has not been the play we had hoped for. The stock has continued to post a pattern of lower highs, but support at the $8.25 level has been stubbornly defended and the end of day rebound looks discouraging. In light of the weakness in the rest of the market so far this week, the stock really should have broken down and the fact it didn't hints that perhaps we've seen the bottom for the move. It seems prudent to harvest our gains and funnel cash into more promising plays. Aggressive traders might hold for a breakdown under support, but stops should be breakeven or better in case of a strong oversold bounce. Picked on February 4th at $9.16 Change since picked -0.62 Earnings Date 1/26/04 (confirmed) Average Daily Volume = 754 K ================================================================= 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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