PremierInvestor.net Newsletter Monday 05-03-2004 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: Waiting for the Fed Watch List: ISIL, HOV, SNDK, SLVN =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 05-03-2004 High Low Volume Advance/Decline DJIA 10314.00 + 88.43 10329.05 10227.13 1.94 bln 1722/1118 NASDAQ 1938.72 + 18.57 1954.62 1926.09 1.99 bln 1367/1389 S&P 100 545.85 + 4.97 546.95 540.88 Totals 3089/2507 S&P 500 1117.49 + 10.19 1118.72 1107.30 RUS 2000 565.48 + 5.68 568.38 559.80 DJ TRANS 2923.48 + 36.66 2923.21 2885.60 VIX 16.62 - 0.57 17.72 16.61 VXO 16.63 - 0.93 17.69 16.61 VXN 25.72 - 0.01 26.24 25.35 Total Volume 4,284M Total UpVol 2,671M Total DnVol 1,558M 52wk Highs 88 52wk Lows 232 TRIN 0.74 PUT/CALL 0.81 =============================================================== =========== Market Wrap =========== Waiting for the Fed Jonathan Levinson Monday kicked off on a positive note after Friday afternoon's deep selloff in the futures. The Semiconductor Industry Association (SIA) announced that March chip sales had risen to $16.8B, up 4.4% from April's level on increased demand for computers and communications devices. Optimistic projections were included in the release, with the SIA saying that 25% growth for the year is looking "more and more likely." The SOX was leading the markets to the upside (though it later gave back all its gains and closed in the red), the indices were recovering from their deeply oversold condition from Friday afternoon, and all looked rosy for a relief rally, or at least a tradeable bounce. There was more good news for the markets at 10AM, with March construction spending increasing by 1.5% (estimates were for 0.5%) to a record $944.1 billion seasonally adjusted annual rate. February's reading was revised upward to a 0.4% gain from a 0.1% decline. Spending rose 7.9 percent in the past 12 months. While the jump was in large part attributable to public sector (read: non-productive) spending, that fact was not part of the headlines, which bullhorned the high overall reading. Private, nonresidential projects dropped by 0.2%, and residential spending came in above unchanged. Also at 10AM was the release of the Institute for Supply Management's Factory activity report for April, which registered 62.4, missing estimates by 3 pennies and down a hair from the 62.5 reading for March. This makes it sixth consecutive months during which the index has held above 60. The combined effect of the 10AM reports was a fleeting spike, followed by a drop that stopped at a higher low 20 minutes later as the indices followed through on the anticipated technical bounce generated by the oversold 30 and 60 minute cycle oscillators from Friday's steep decline. Daily INDU candles The Dow closed higher by 88.43 points or .86% at 10314. As noted in the Market and Futures Monitors, the bounce was anticipated based on the deeply oversold 30 and 60 minute cycles, but the daily cycle downphase was not interrupted by today's gains. Bollinger support has crept lower to 10220, which is also price confluence above the more significant trendline support at 10150. As is so often the case ahead of a major event such as tomorrow's Fed announcement, the price is stuck beneath resistance and above support, with the oscillators assuming an ambiguous configuration. This jibes well with the pennant that has developed, which tends to be a continuation pattern but can break in either direction. The daily cycle oscillators favor further downside, but a move above 10365 on a closing basis would abort the downphase. Resistance above is at 10330, followed by 10365 and 10460. Daily COMPX candles The Nasdaq rose 18.5 points or .96% to close at 1938.7. It is set up more ambiguously than the Dow, having printed an inside day following Friday's wide-ranging selloff. This harami pattern is often bullish, and the unfilled opening gap higher from the open is a very encouraging pattern for bulls. However, the long upper doji shadow above the candle body is a rejection of higher prices, and the futures dipped following the 4PM cash close. Once, again the stage is set for Greenspan to break the deadlock. As with the Dow, the cycle configuration suggests lower prices, but support is in play and a directional move will lead the oscillators whichever way traders choose to take it following the 2:15 announcement. Support is at 1933, followed by 1920 and 1900, while resistance is at 1940, 1965, followed by 1982 and 1995. In corporate news, JPM and ONE named the board of directors to lead the company upon completion of their $60 billion merger. Shareholders from the two banks will vote on May 25. James Dimon, CEO of ONE and JPM's William Harrison will serve on the board, Harrison as Chairman. Google Inc. filed its "love-in" letter from the founders with the SEC last week, in which lofty proclamations and promises reminiscent of the New-Economy dotcom bubble from the late-'90s were offset by a tip-of-the-hat to Warren Buffett. The founders received praise from the Oracle himself over the weekend. Buffett did not go so far as to recommend the IPO, but was reportedly flattered by the attention from Google's founders. There was further news this morning to the effect that Google had canned Goldman Sachs for talking to Kleiner Perkins, one of Google's large investors. The theme here continues to be one of the rejection of "old ideas" and "old banking relationships" in Google's quest for innovation, based on the assumption that old is bad and new is good. While I prefer Google to all other search engines and have for years, respecting both the product and the obvious talent that created it, I had thought that the Dotbomb collapse that helped tank the Naz in 2000 had also refuted the "we are the world" tech-bubble mentality that embraces innovation for its own sake. I strongly urge traders to recall history. Be it tulips in Holland, electronics in the 1960's, routers or websites in the 1990's, the old rules of human emotion married to market supply and demand always apply. A new world is not being heralded by the Google IPO, though another bubblemania milestone may well be. The management of Taser International (TASR), the stock has killed countless bears and bulls alike, was talking up its shares this morning in response to a Barron's article that questioned its valuation. The company, assuming the role of investment bankers, stated that it believes that it merits a forward p/e ratio of "more than 50", with such a multiple being appropriate for such a "rapidly growing" company. It cited taser programs initiated by 25% of law enforcement agencies, while reportedly only 6.2% of officers actually have taser guns. I personally didn't see the article, but I suspect that Taser, whose ordinary course of business is NOT the valuation and pricing of securities, didn't include a discussion of rising bond yields or other such factors that might otherwise impact the markets or even its stock. TASR was lower by 1.10 at 31.24 as of this writing. Warren Buffett was also on the wire announcing that he had increased his purchases of foreign currencies in recent months, based on concerns about the US current account deficit. In March, he had announced that his fund had invested $12B in foreign currencies, seeing little in the way of bargains among US assets. These comments from the world's second richest investor contrasted with John Snow's bullish comments on the US economy early this afternoon, in which he cited encouraging economic trends and predicted a "long period of good above potential growth." Just prior to the 4PM close SEBL announced that founder and CEO Tom Siebel would be passing the torch to J. Michael Lawrie, former group executive for worldwide sales and distribution at IBM. Siebel will stay on as non-executive chairman. Shares rose sharply on the news, the stock trading 10.60 as of this writing.] Tomorrow will be a quiet day for economic data, as we await Factory Orders for March scheduled for release at 10AM, estimated at 2.4%, which is significantly higher than the previous .3% in February. However, all eyes will be on the Federal Reserve's Open Market Committee announcement at 2:15PM. Observers appear divided on what the Fed will or will not do, citing signs of economic strength and more particularly the uptick in employment. On the other hand, capacity utilization has been holding stubbornly nearly the 75% mark, with the April 16th reading coming in at 76.4, and this is a number to which the Fed has paid close attention in the past. I'm not eager to guess at what the Fed will or will not do next, but I would be surprised to see anything substantial announced in either direction. We have spent a few years now watching the Bank of Japan jawbone the markets and then fail to deliver as traders frontrunning the promised action do the Central Bank's work for it. I'm thinking that the Fed will be following that example tomorrow. The US consumer remains saddled with historic levels of debt, and interest rates remain at multidecade lows. Despite the uptick in the employment numbers, there's anything but wage inflation in the US, and higher interest rates continue to pose a serious threat to debt-saddled consumers. The fear of the Fed (and the market's acknowledgement of the asset inflation that Bernanke and Greenspan have so vigorously denied) has already led to a very substantial correction in the bond market, with the TNX up nearly 100 bps in the past month. Whether the Fed hikes the overnight rate by 25 bps tomorrow is a minor question, and I believe the markets will be listening more closely to the bias statement. Will the Fed continue to be generous with its open market operations? Will it pick up the slack left by the deceleration of Asian central bank purchases of US debt? Will it act to reign in the inflation it's been denying, evident in the multidecade highs in the CRB, the bond and real estate markets, and even the prices paid component of the ISM which reached a high not seen since 1979? I believe that we've seen a fear of a tighter Fed bias getting baked into the markets for the past month, and it will take strong words from the Fed to substantially spook bonds or even equities tomorrow. My guess is for gentler words, perhaps the abandonment of the "patient for a substantial period" language, and some sort of relief rally- and with that said, the stage is now set for a major dislocation to prove me wrong. The markets are poised for a decisive move in either direction here. The COMPX broke a 5 day losing streak today but is still locked within a steep shorter-term downtrend. The Dow hasn't sustained nearly the same degree of damage as the Nasdaq, but both are near rising support on the daily and are not particularly oversold on their key daily cycles. There is thus ample evidence on both sides of the trade, and the Fed is in the unenviable position of having to talk up the economy while justifying the low rates on which it has been maintained. We have seen weak economic data result in bond and equity rallies due to the expectation of further Fed stimulation. On a trading basis, I expect this confusion to result in the usual whipsaws and headfakes immediately preceding and then following the 2:15 announcement. Even the most nimble traders will want to keep a safe distance until the froth has been shaken out. My preference here is for countertrend longs at rising pennant support, with active stops/short entries just below. Just as a bounce from support could be ferocious, so could the plunge if it fails. ================================================================== 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 --------------------------------- Intersil Corp. - ISIL - close: 19.29 change: -0.62 WHAT TO WATCH: With earnings in late April failing to provide the necessary bullish catalyst, Semiconductor stocks continue to fall towards strong support. ISIL broke below key support near $20.50 late last week and even the broad market bounce today couldn't slow the selling, with the stock falling below the $19 level at one point. ISIL looks destined for a test of strong support near $16.50 and any failed bounce below the 10-dma looks good for new bearish entries. --- Hovnanian Enterprises Inc. - HOV - close: 36.24 change: +0.27 WHAT TO WATCH: Despite a slight bounce in the Housing sector on Monday, shares of HOV are still precariously perched on key support near $35. Last week's break of the 200-dma looks ominous and with the FOMC meeting sure to rock interest rate sensitive issues tomorrow, this looks like a good point to be eyeing a breakdown play in the stock. Use a trigger at $35 (just under last week's lows) and target a drop to the $31-32 area. --- SanDisk Corp. - SNDK - close: 23.58 change: +0.43 WHAT TO WATCH: Today's feeble oversold bounce did little to relieve the bearish look of SNDK's chart and Friday's break below $24 still looks ominous. Bearish continuation entries look favorable on a rollover in the $24-25 area, with the logical target being strong support at $20. --- Sylvan Learning Systems - SLVN - close: 37.09 change: +1.87 WHAT TO WATCH: It looks like the post earnings drop in shares of SLVN has run its course with today's strong 5% rebound pushing the stock back up near its all-time highs from a couple weeks ago. Use an entry trigger at $38.25 and target a rally into the $41-42 area. --- =================== On the RADAR Screen =================== TECH $40.79 - Buyers helped TECH to claw its way back from Friday's break of the 100-dma and the strength of the rebound suggests a potential breakout attempt. Use a trigger over the $42.60 area and then look for a rally towards strong resistance at $50. KMRT $43.12 - There's no denying that KMRT had a strong rally throughout the February-April timeframe, but it feels like a case of too much too soon. The price action looks like a top has been built and now we just need to see the breakdown get underway. Use a trigger at $41.75and target a drop back to $38 and then possibly $36. TRID $12.73 - Investors in TRID got a one-day reprieve from the selling after the company reported earnings, but since then the downtrend has only picked up speed as volume continues to rise. Key support at the March lows appears likely to be tested later this week, now that the 200-dma has been soundly broken. Use a trigger under $11.60 and target a drop to next strong support near $9. ================================================================= 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 Monday 05-03-2004 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: MNT, LNCR (See Note) 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 ================================================================== MNT - long Adjust from $29.99 up to $30.45. LNCR - Triggered LNCR was Triggered when it hit 35.01 today, stop remains at 33.75. ================================================================== 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 XOM Exxon Mobil Corp 43.68 +1.13 TOT Total Sa (ADS) 94.05 +1.93 SC Shell Transport & Trading 42.69 +0.62 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- None --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- CAH Cardinal Health Inc 75.72 +2.47 OMC Omnicom Group Inc 81.54 +2.03 ADBE Adobe Systems Inc 44.00 +2.50 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- IACI Interactivecorp 31.06 -1.19 TEVA Teva Pharm Ind 60.35 -1.20 MBT Mobile Telesys OJSC (ADS) 101.20 -6.76 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- ABT Abbott Laboratories 42.32 -1.70 ================================================================= 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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