PremierInvestor.net Newsletter Monday 04-26-2004 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: Stocks Suffer Monday Blues Watch List: MYGN, PDLI, POWI, KLAC =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 04-26-2004 High Low Volume Advance/Decline DJIA 10444.73 - 28.11 10512.79 10418.12 1.57 bln 1121/1705 NASDAQ 2036.77 - 13.00 2059.08 2031.75 1.68 bln 1283/1786 S&P 100 554.62 - 2.18 559.15 553.29 Totals 2404/3491 S&P 500 1135.53 - 5.07 1145.08 1132.91 RUS 2000 589.45 - 1.26 596.41 588.67 DJ TRANS 2970.21 - 31.50 3020.81 2966.25 VIX 14.77 + 0.76 15.22 14.39 VXO 14.89 + 0.67 15.26 13.91 VXN 21.83 + 1.15 22.39 21.28 Total Volume 105.2M Total UpVol 38.0M Total DnVol 65.7M 52wk Highs 224 52wk Lows 114 TRIN 3.20 PUT/CALL 0.66 =============================================================== =========== Market Wrap =========== Stocks Suffer Monday Blues by James Brown Stocks edged lower on Monday after their bullish start faded quickly into a sluggish session. Sparking the early morning strength was big news in the biotech sector and a big contract win for Dow-component Boeing. Unfortunately, a red-hot new home sales number rekindled investors' inflation fears and caution overruled optimism. This is still a big earnings week for Wall Street but the next round of economic reports could hog the spotlight. The Commerce Department released the new home sales numbers for March about 10 o'clock ET and the results were very strong. Sales rose nearly 9% to a seasonably adjusted rate of 1.23 million. This broke the previous record of 1.2 million from last June. Investors chose to interpret the news as yet another potential catalyst for the Federal Reserve to hike rates sooner than expected. I know this subject has been beaten to death so I won't belabor the issue but a 1/4-point or 1/2-point rise is not going to kill the economic rebound. However, with the next Fed meeting on Tuesday, May 4th this will remain a staple for analysts and media to discuss ad nauseam. Investor sentiment also took a blow when UBS announced its monthly Index of Investor Optimism for April slipped 12 points from 85 to 73. This was the lowest level since October and continues a steep decline from its recent high in January at 108. Speaking of sentiment the volatility indices, usually seen as a measure of investor fear and confidence, shot higher today with the VIX adding 5.4%, the VXO adding 5% and the VXN jumping 5.5%. These may seem like big moves considering the generally mild losses in the major indices but all of them were near multi-year lows and remain so. Global markets were mixed today. The Japanese NIKKEI added 43 points to close at 12,163 while its Chinese counterpart, the Hang Seng index, lost 251 points to close at 12,132. European stocks were also muddy. The English FTSE was virtually unchanged at 4571. The German DAX jumped 22 points to 4125 while the French CAC lost 25 to 3785. Here at home the Dow Industrials slipped 28 points to 10,444. The NASDAQ Composite fell 13 to 2036 and the S&P 500 index dropped 5 points to 1135. The worst performers were semiconductors, homebuilders, healthcare stocks and tech-related issues. The best performers were biotechs, defense, energy and gold, although gold stocks retreated strongly from their highs of the session. Gold futures have rallied for three days in a row now but gold bugs appear to be struggling to get the precious metal back above the $400 an ounce level. Noteworthy has been the action in the U.S. dollar. The greenback hit a new relative high this morning and pierced its simple 200-dma before falling back into its recent trading range. If the dollar turns south then we should see the rise in gold continue. Likewise if the dollar breaks out then gold will most likely sink lower again. I also want to mention some of the energy stocks. Some of the larger players like CVX and COP closed at or near new highs. Fueling the move was a jump in crude prices that closed just under $37 a barrel. The suicide boat attacks in Iraq two days ago have renewed fears over supply disruptions and considering the growing global demand oil prices will probably remain relatively high. Market internals ended the session with a bearish tone. Declining stocks out paced advancers 17 to 11 on the NYSE and almost 18 to 13 on the NASDAQ. Likewise down volume swamped up volume almost 2 to 1 on the NYSE and 5 to 3 on the NASDAQ. Chart of the Dow Industrials: Chart of the NASDAQ Composite: Monday's big story was OSI Pharmaceuticals (OSIP) and its Tarceva treatment for lung cancer. OSIP has been co-developing Tarceva with Genentech (DNA) and Roche, a Swiss healthcare company. OSIP announced this morning before the opening bell that its Phase III trials for Tarceva had hits its primary and secondary "end points" for improving survival in non-small cell lung cancer patients. Investor reaction was overwhelming. OSIP closed at $38.14 on Friday and opened Monday morning at $84.60. Intraday the stock soared to $98.70 and closed up more than 140% at $91.10. OSIP's good fortune also boosted shares of DNA, which gapped higher and ended at $131.99, up 11.6%. What you may find interesting is that OSIP hasn't even released the clinical trial data yet. That's not expected to happen until the June meeting of American Society of Clinical Oncologists. A few analysts are skeptical and believe the reaction could be overdone. Merrill Lynch chose to downgrade the stock from "buy" to "neutral". If the drug is eventually approved it could launch in early 2005 and may hit sales of more than $900 million in the U.S. of which half go to Genentech. We are always super cautious about shorting biotech stocks for reactions like today's jump in OSIP can be extremely hazardous to your financial health. Another big story today was a drug merger in France between Aventis (AVE) and French rival Sinofi-Synthelabo (SNY). The move was strongly encouraged by the French government who feared they would lose AVE to Swiss-based Novartis (NVS) when AVE rejected a hostile bid by SNY earlier this year in January. If AVE and SNY had failed to merge many believed that SNY would become a takeover candidate from drug giants Pfizer or GlaxoSmithKline. The new deal, announced on Sunday, was a larger all cash offer and would create the world's third-largest drug producer. SNY will pay close to $65 billion, which is a 14% increase from its previous offer. Unfortunately, it was only a 4% premium from AVE's close on Friday and both AVE and SNY traded down on the news. Closer to home was news that Dow-component Boeing (BA) had secured its first contract for its new 7E7 airliner. And what a contract! Japan's All Nippon Airways ordered 50 of the new planes, the first new model from BA since 1990. The value of the deal is said to be worth $6 billion at the list price of $120 million per plane but it's widely known that major airliners tend to negotiate significant discounts. It's a major win for BA who has been fighting with archrival Airbus. BA hopes to win more deals from airliners seeking to cut costs since the E in the 7E7 stands for efficiency. The new passenger jet is said to have larger windows and wider aisles but will be made with lighter materials and use new, better fuel-efficient engines. Fuel is the second biggest expense next to labor for the airline industry so a projected 15% to 20% reduction in fuel is a huge cost savings. BA was the Dow's best performer up 1.86% to $43.24. There were a handful of other Dow components making headlines. Wal-Mart (WMT) failed at its descending trendline of resistance and dropped 1.4% to $58.14 after announcing that its April same- store sales would be at the low end of its 4-6% forecasts. General Motors (GM) also failed at resistance at the $50.00 mark despite gapping higher on an upgrade and positive analyst comments from Lehman Brothers. LEH raised its outlook on GM, Ford and DaimlerChrysler. MSFT was also a drag on the Dow with a 1% decline. The move was probably just profit taking after Friday's huge rally. You may have heard that MSFT signed a multi-year deal with JDAS to develop the .Net platform but odds are this news was overshadowed by MSFT's investment in Google. Wall Street has gone Google-crazy and it doesn't matter where you look people are talking about when the search engine company will finally IPO. Personally I'm getting tired of hearing about Google's potential IPO since regular every day investors will probably have little chance of securing any shares prior to its first trade. If you're curious why the financial media is buzzing over Google's IPO plans you'd have to turn to a decades-old regulation stating that privately held companies with more than 500 security holders and more than $10 million in assets have to open their books within 120 days of the end of their fiscal year when they surpass these thresholds (source: the Associated Press). Evidently Google has issued stock options to a large chunk of their 1,000- plus employees and the deadline to file their annual report is this Thursday. Of course the Wall Street Journal reported this afternoon that Google had chosen CSFB and Morgan Stanley to lead the underwriting for an IPO. While that settles the question of "if" they will IPO Wall Street is still salivating for the "when". There was additional merger news after the closing bell, which could sent healthcare stocks higher Tuesday. UnitedHealth Group (UNH), a healthcare insurer, announced it would buy Oxford Health Plans (OHP) for close to $5 billion in cash and stock. The news leaked out within the last 30 minutes of trading and shares of OHP spiked higher on the news. Since we're talking about insurance stocks the group could also get a boost from Chubb's positive earnings report after the bell this evening. Estimates were for $1.42 a share and Chubb reported $1.61. The company said they were on their way to meeting or beating its full-year estimates but traders might not react well to its revenue numbers, which were just shy of expectations. Tech investors will also be eager to note that chip stock Silicon Labs (SLAB) reported earnings after the bell that were 4 cents better than expectations. Revenues soared more than 78% to $113.6 million; which was also above estimates. The company followed up by guiding higher on its second quarter revenues. Hopefully this will be a positive catalyst for the SOX semiconductor sector tomorrow. The SOX was one of today's worst performers and broke down below its simple 200-dma while closing just above support near the 470 level. Tomorrow will be pretty busy on the earnings front. A few of the larger companies that report before the opening bell tomorrow are: DuPont (DD), ImClone (IMCL), Level-3 Communications (LLL), PACCAR (PCAR), R.J.Reynolds (RJR) and Verizon (VZ). Wall Street will also digest the latest Consumer Confidence numbers for April and the Existing Home sales numbers. ================================================================== 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 --------------------------------- Myriad Genetics Inc. - MYGN - close: 19.14 change: +1.35 WHAT TO WATCH: We've been looking at MYGN as a potential breakout candidate in recent weeks and Friday's earnings report seems to have provided the necessary catalyst, helped along by additional bullish news in the Biotechnology sector. The stock broke out over $19 on Monday and looks headed for a test of next resistance near $21.50 enroute to a test of major resistance at $25. Dips near $18 will provide optimal entries, although aggressive traders can chase the stock higher above today's $19.50 intraday high. --- Protein Design Labs, Inc. - PDLI - close: 26.93 change: +0.96 WHAT TO WATCH: We've been looking at PDLI in recent weeks in the expectation that the stock would break out and continue higher ahead of its May 4th earnings report. Things certainly seem to be tracking in line with our expectations, with the stock breaking out on Monday and hitting fresh 2-year highs. Entries near $26 still look favorable for a quick bullish play towards the key $30 level. Just make sure to exit any open positions ahead of the company's earnings report. --- Power Integrations Inc. - POWI - close: 27.95 change: -1.49 WHAT TO WATCH: After a valiant attempt at a rebound from its recent lows, POWI once again failed at 200-dma resistance and has been dropping sharply over the past few days. Price is approaching key support just above $27 and if it breaks, POWI is likely to pay a visit to next strong support in the $22-24 area. Use a trigger under $27. --- KLA-Tencor Corp. - KLAC - close: 45.16 change: -1.43 WHAT TO WATCH: Investors that bought the bottom of the post- earnings drop in KLAC were in for a rude awakening this morning as the stock sold off hard in sympathy with the rest of the Semiconductor sector. Look for a break under $44 before considering entries and then target a drop to next strong support near $40. Look for continued weakness in the SOX to confirm the viability of the play before entering. --- =================== On the RADAR Screen =================== FLML $30.78 - After trading in a tight consolidation pattern, FLML delivered a nice little breakout over the $30 level on Monday and is looking strong. But it isn't today's breakout that concerns us, as the company is due to release its quarterly earnings on Thursday. That report could provide the catalyst to break the stock over stronger resistance near $32 for a test first of $35 and then $38 resistance. Wait for the post-earnings breakout move and then climb aboard. BJS $45.00 - With the price of crude oil holding near its recent highs, shares of BJS are wedging up near all-time highs as well. Unfortunately, we can't consider a play on the stock here, due to earnings about to be released tomorrow. But a post-earnings breakout over the $46 level could get things moving towards the $50 level. CREE $20.10 - To the consternation of the bulls, CREE's earnings report did nothing to slow the stock's slide and Monday's close right at the key $20 support level looks ominous. Use a trigger under $20 and target a drop into the $17-18 area, which should be very strong support. ================================================================= 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. 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PremierInvestor.net Newsletter Monday 04-26-2004 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 ================================================================= Stop Loss Updates: URBN Closed Plays: IMAX Split Announcement: KIND 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) ================================================================== Stop Loss Updates ================================================================== URBN - long Adjust from $44.00 up to $45.00 ================================================================== Closed Plays ================================================================== Closed Bearish Plays -------------------- IMAX Corp. - IMAX - close: 5.51 change: +0.33 stop: 5.40 It looks like IMAX finally found a viable bottom last week, as the strength of the stock's rebound over the past 3 sessions demonstrates. After scaling the 10-dma on Friday, the stock pushed through its 20-dma today and hit our stop in the process. The clue as to the strength of this rally is evident after today's session, with the stock seeing heavy buying as volume more than doubled the ADV. Fortunately, we had tightened our stop close to break even, so the damage is minimal. Picked on April 14th at $5.25 Change since picked +0.31 Earnings Date N/A Average Daily Volume = 644 K ================================================================== Stock Splits ================================================================== Announcements ------------- KIND nurses a 2-for-1 split This evening after Monday's closing bell Kindred Healthcare, Inc. (NASDAQ:KIND) announced its Q1 earnings results and with that announcement a 2-for-1 stock split. The split, approved by the Board of Directors, will take the form of a 100% stock dividend. This dividend is payable on May 27th, 2004 to shareholders on record as of May 10th. About the company: Kindred Healthcare, Inc. is a national healthcare services company operating hospitals, nursing centers, institutional pharmacies and a contract rehabilitation services business. (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 TOT Total Sa (ADS) 95.56 +0.61 CMCSK Comcast Corp CI A Spcl 28.65 +0.91 CVX Chevrontexaco Corp 92.25 +0.56 MWD Morgan Stanley 53.66 +0.63 DEO Diageo Plc (ADS) 56.17 +0.69 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- BVF Biovail Corp 18.50 +1.51 ABGX Abgenix Inc 17.70 +3.00 DNDN Dendreon Corp 15.69 +1.58 REGN Regeneron Pharm Inc 15.30 +1.71 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- DNA Genetech Inc 131.99 +13.77 NVS Novartis Ag (ADS) 44.67 +2.24 HSY Hershey Foods Corp 90.09 +2.53 TXU TXU Corp 33.53 +3.90 CHIR Chiron Corp 47.30 +1.87 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- SNY Sanofi-synthelabo (ADS) 30.79 -2.04 WY Weyerhaeuser Co 64.14 -2.45 IGT Internat Game Tech 39.27 -2.38 AOC AON Corp 26.49 -1.33 VAR Varian Medical Systems Inc 87.87 -4.26 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- BDX Becton Dickinson & Co 51.34 -1.47 ================================================================= 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.
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