PremierInvestor.net Newsletter Wednesday 05-05-2004 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: The Word-of-the-Day Watch List: Quiet Consolidation 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) =============================================================== 05-05-2004 High Low Volume Advance/Decline DJIA 10310.95 - 6.25 10348.35 10291.08 1.82 bln 1416/1393 NASDAQ 1957.26 + 6.78 1967.33 1948.51 1.56 bln 1649/1401 S&P 100 547.19 + 0.04 549.28 546.11 Totals 3065/2794 S&P 500 1121.53 + 1.98 1125.07 1117.86 RUS 2000 570.06 + 0.42 573.28 568.92 DJ TRANS 2923.01 + 7.38 2933.20 2897.65 VIX 15.77 - 0.78 16.55 15.64 VXO 16.23 - 0.13 17.16 16.06 VXN 24.34 - 0.80 25.41 24.17 Total Volume 3,746M Total UpVol 2,083M Total DnVol 1,582M 52wk Highs 132 52wk Lows 214 TRIN 0.83 PUT/CALL 0.89 =============================================================== =========== Market Wrap =========== The Word-of-the-Day Linda Piazza Caution and defensive posturing appeared to direct trading behavior Wednesday. Some recently beaten-down sectors such as the SOX gained, and one recently gaining sector, the oil services sector, fell. That decline occurred after the Banc of America downgraded the sector. The SOX added 0.88 percent, and the OSX, the Philadelphia Oil Service Index, declined 1.77 percent. While the Nasdaq, the SPX, and Russell 2000 managed positive closes, the gains proved modest at 0.35percent, 0.18 percent and 0.07 percent, respectively, while the Dow lost an equally cautious 0.06 percent. On the NYSE, advancers and decliners matched almost exactly, with only 5 more issues advancing than declining, while the Nasdaq displayed slightly better breadth, with the advancing/declining ratio at 17/14. Volume proved tepid at 1.4 billion for the NYSE-traded issues and 1.6 billion for the Nasdaq-traded ones. Numerous factors produced the caution. One analyst noted the positioning of many stocks or indices within consolidation patterns. Another noted that 59 percent of stocks trade above their 200-dma's, a neutral rating. Besides these technical considerations, caution continued ahead of Thursday's decisions by the Bank of England and the ECB, any proclamations that might come out of China later in the week, and Friday's U.S. jobs numbers. Also, many Asian bourses remained closed Wednesday, so traders had to gauge global sentiment without the help of the Chinese and Japanese markets in overnight trading. China remained silent this week after last week's measures meant to cool its overheating economy. Some market watchers had postulated that last week's order (or suggestion, according to the Chinese government) to banks to cease lending activities until May 1 signaled their intention to raise rates over the May holidays this week. That prompted a sell-off in global bourses last week, but so far, news sources have not carried any information about rate hikes. Miners, plunging after China's measures appeared especially intended to dampen the commodities industries, began rebounding this week. In overnight trading, Australian miner Rio Tinto Group, billed as the third largest miner in the world, also eased concerns by commenting that China's demand for iron ore remained strong, with that comment reassuring some markets. BHP Billiton, billed as the largest mining company in the world, closed the day 2 percent higher. Still, trading in the mining stocks remained cautious ahead of this week's rate decision by the Bank of England and the ECB. The daily chart of the XAU illustrates the effect on the gold and silver miners. Annotated Chart of XAU: European markets began the day trading cautiously, with banks headed down in the U.K. and up in the eurozone. After the release of the eurozone services industry index number, showing a modest rise to 54.5 in April from March's 54.4, European stocks began bouncing off their flat-line levels and climbing guardedly higher. Increased export demand balanced languishing consumer demand on that eurozone number. About the time that European bourses began those tepid gains, our futures began gaining, too, but the pre-market action of the futures could best be described as cautious or choppy. "Cautious" was the correct description for the market open, too, with the Russell 2000, Dow, Nasdaq, and SPX all opening near the flat-line levels. Those technicians who watch the first five minutes of trading for market guidance had narrow ranges upon which to base their calculations for the day's action. Banks garnered much of the attention in the UK, Europe and the U.S. In the UK, a unit of the Royal Bank of Scotland's purchase of Charter Financial sent banking stocks lower. In the eurozone, German banks gained after Dresdner Bank reported its first net profit after five quarters of losses. Other eurozone banks gained, too, with Credit Suisse saying that it remained optimistic about this year. Germany's Schroeder reportedly urged that German banks should consolidate soon. The FTSE 100, CAC 40, and DAX all closed higher, with the FTSE gaining 0.49 percent; the CAC 40, 0.77 percent; and the DAX, 0.79 percent. The DAX recovered the 4000 level again, closing at 4022.10. In the U.S., Charter Financial surged, jumping from a close Tuesday at $35.95 to an open at $44.00. The stock closed at $43.86, up 22 percent. Although I don't believe that either the BIX or the BKX includes CF as a component, both banking-related indexes posted gains in early trading. Here caution and defensive posturing soon asserted itself, also, as these indices traded in a narrow range. Annotated Chart of the BIX: Perhaps that caution toward banking stocks could be partially attributed to the Mortgage Bankers Association's release of the composite index of mortgage loan applications. For the week ended April 30, mortgage loans rose a healthy 4.4 percent, with purchase and refinance indices rising 4.1 and 4.7 percent, respectively. Adjustable-rate mortgages fell, however, and the refinance proportion of the mortgage activity stayed steady. A look at stocks that might be impacted by a slowdown in refinancing showed stocks such as Sears (S), Whirlpool (WHR), Lowe's (LOW), and HomeDepot (HD) displaying mixed trading patterns, so that it was difficult to make any judgments about the reception of the Mortgage Bankers Association's numbers. Those stocks tended to show either small-range days or else small-bodied candles with long shadows or wicks, perhaps confirming the indecision, but that conclusion may be a bit of a stretch. At 10:00 EST, the Institute for Supply Management released its index of U.S. services industries, showing April's number rising to 68.4 from March's 65.8. Estimates for this number had ranged from 60-69 according to one report and a narrower 63-65 according to another. One market strategist commented that the ISM number, while increasing, demonstrated a loss in momentum. The ISM attributed the rise to increased consumer spending due to job gains and tax refunds, and corporate investments that led to increased demand in the services sector. The prices-paid component rose to 68.6 percent from the previous 65.7 percent, while the new orders and employment components rose more modestly. With our economy deemed a services-based economy, the markets spent a few minutes digesting the number and the various components and then began climbing. Market watchers soon tempered their enthusiasm. Indices quickly settled into symmetrical triangles on their five-minute charts, suggesting that the breakouts would not come until later. The indices began breaking through the bottom support of those triangles about midday, with the Dow one of the first to break through that support and the S&P 500 one of the last. However, caution can attach itself to selling behavior as well as to buying behavior, and the indices didn't retreat far. They soon rose to test those broken supporting trendlines. The SPX was the first to retest that trendline, too, and the only one among the Dow, Russell 2000, Nasdaq, and SPX to do so, showing that it was performing strongly relative to the others. The Russell never closely approached that former supporting trendline on the five-minute chart, and, by the end of the day, even the SPX had produced a possible intraday, unconfirmed H&S just below that trendline. Other market watchers differed in the relative ratings of the indices, labeling the Nasdaq as the strongest- performing index and attributing that behavior to Banc of America's upgrade of Dell to a buy rating from its former neutral rating. Dell closed higher by 1.13 percent. Earnings reports produced mixed results, contributing to the hesitation and uncertainty, with CVS gaining 1.35 percent after its Q1 report showed the company beating estimates by three cents. Big gainers included Cypress Semiconductor (CY), gaining 5.83 percent after raising forecasts for Q2 earnings but not revenue; IMPAX Laboratories (IPXL), soaring 17.61 percent after reporting its first-ever quarterly profit; Mace Security (MACE), gaining a whopping 80.48 percent after reporting a 300 percent gain in revenue from one unit; Hong Kong's telecom firm PacificNet (PACT), heading up 29.74 percent after raising its Q2 outlook and approving a stock buy-back plan; and RF Monolithics (RFMI), climbing 7.62 percent after the manufacturer of radio frequency components raised its Q3 outlook. Other gainers in the news included Coke (KO), gaining 1.63 percent after naming E. Neville Isdell its new chairman and CEO. Brokerage and insurance services firm Prudential Financial (PRU) headed down 1.75 percent after reporting 74 cents per share, beating estimates by a penny, but other stocks fell harder. Decliners balanced the advancers, with optical- components manufacturer Bookham Technology (BKHM) plummeting 33.11 percent after reporting a Q1 loss; Gric Communications (GRIC), a mobile and remote worker software-maker, diving 44.51 percent after reporting a Q1 loss and saying it likely would not make a profit all year, thereby collecting a downgrade from Needham & Co.; Ligand Pharmaceuticals (LGND), dropping 15.51 percent after reporting a bigger-than-expected Q1 loss, although that loss was narrower than the year-ago period; online travel services company Orbitz (ORBZ), dropping 7.33 percent after lowering expectations for Q2 revenue; and perhaps of particular interest to those watching the homebuilders, Palm Harbor Homes (PHHM), falling 12.27 percent after announcing a plan to reduce debt and raise money for general corporate purposes by selling convertible notes. Without guidance from Asian markets in overnight trading, with remaining uncertainty about the timing of U.S. rate hikes and rate hike decisions due in Europe and the U.K., with big advancers competing with big decliners, and, most important of all, with uncertainty over the jobs number due this Friday, perhaps it was foreseeable that markets would display uncertainty. That indecision proves evident from a study of the index charts. The Russell 2000 trades within a formation that some deem bearish, but it hasn't yet broken to either the upside or the downside. Annotated Chart for the Russell 2000: The Nasdaq remains mired in a large triangular formation. Annotated Daily Chart for the Nasdaq: The SPX sports its own triangle. Although these triangular formations are generally considered continuation patterns, and so suggest that the breakout will likely come to the upside, it's possible to look at the SPX pattern from another and less neutral-to-bullish perspective, adding to the confusion. Annotated Chart for the SPX: The Dow's chart displays the same indecision as seen on other index charts. Annotated Chart for the Dow: Caution ruled the trading pattern on Wednesday and indecision colors these charts. As painful as it might be for active traders to wait for markets to break out of these consolidation patterns, I don't believe we'll know which direction the markets are headed until they do so. I also caution that trading can become more volatile and less conducive to technical analysis as the triangles narrow toward their apexes. When will those breakouts occur? Not until a catalyst occurs. Wednesday afternoon through Thursday morning, retailers report their same-store sales figures. Among retailers reporting Wednesday afternoon, Men's Wearhouse (MW) reported April same- store sales up 10.4 percent, American Eagle (AEOS) reported sales up 8.3 percent, Hot Topic (HOTT) SSS rose 0.7 percent, and West Marine (WMAR) SSS rose 7.6 percent. Somehow it seems unlikely that same- store sales would provide the catalyst that would finally break indices out of their months-long consolidation patterns, however. More likely catalysts would include some of the possibilities mentioned earlier: a surprise decision Thursday morning by the ECB, a pronouncement out of China, or a new development in the Nikkei, opening for the first time in three days. Even those seem unlikely catalysts as the global economic community awaits those U.S. jobs numbers on Friday. That's the more likely catalyst. A small possibility exists that tomorrow's U.S. economic numbers could produce movement in the U.S. markets, but caution and indecision may keep market participants from reacting to these reports. Economic reports for tomorrow include the Q1 Productivity number to be released before the market opens, with estimates ranging from a 3.0-4.0% rise after last quarter's 2.6% rise. Although with inflationary worries rising, some attention will be paid to unit labor cost index component, the GDP's Employment Cost Index last week already broke the bad news that costs were increasing faster than expected. Most do not consider Thursday's number market moving because the GDP gives an advance look at this component. In addition, initial claims will be released ahead of the market open, with at least one forecast at 344,000, a drop from the previous 346,500. Since this number can be volatile, market watchers will probably give more weight to the non-farm payrolls to be released Friday. While "caution" was the word-of-the-day for Wednesday's trading, perhaps "patience" should be Thursday's. Those consolidation patterns near their breakout points, but by the nature of those patterns, we must remain patient until they do. ================================================================== 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 --------------------------------- Quiet Consolidation Brown Shoe Company - BWS - close: 39.55 change: +2.30 WHAT TO WATCH: After trading in a broad consolidation range for the past few months, shares of BWS got a big boost this morning from a Merrill Lynch upgrade. That sent the stock soaring to the top of its recent range, and it looks like a breakout could be arriving shortly. Use a trigger at $40, just over the recent highs and target a rally towards the $45 level ahead of the company's earnings announcement on May 19th. --- Enzon Pharmaceuticals Inc. - ENZN - close: 14.16 change: -0.81 WHAT TO WATCH: Since dropping back from its failed rally near the $18 level in early March, shares of ENZN have been repeatedly testing what has become key support at $14 and the tests are becoming more frequent. The company released earnings tonight after the close and investor reaction in the morning could unleash the next directional move. Clearly this is a higher risk play, as the action could be volatile. Look for a break below $14 as a trigger and then target a drop towards strong support at $12. Keep an eye on price action near the 200-dma though, as it could provide near-term support. --- Nextel Partners Inc. - NXTP - close: 25.11 change: +0.37 WHAT TO WATCH: After running out of steam in early January, NXTP fell back into a healthy consolidation in the $12-14 area, tracing out a clear H&S bottom formation in the process. The stock broke above the neckline ($14) of that pattern today on very strong volume and this looks like a solid rally in progress. A slight pullback to test the neckline would be preferable for new entries, but a breakout over $15.25 (the site of the January highs) should work too. Target a rally to next strong resistance near $17. --- International Paper - IP - close: 39.91 change: -0.42 WHAT TO WATCH: The steady deterioration in shares of IP looks poised to take a turn for the worse, with the stock once again dipping below the $40 level today. Should support near that level give way, the stock will likely head down to test strong support near $36.50. Use an entry trigger at $39.50, just below today's intraday low. =================== On the RADAR Screen =================== ORCL $11.40 - Do you feel lucky? ORCL has recently been driven down to key support near $11 with the weakness in the overall market. So, is this a buyable double bottom? We think so, although this is a risky play, as we're attempting to pick a bottom in a recently weak stock. Entries look good near current levels, but use a tight stop just under $11. Target a rally back to the vicinity of the 200-dma. SBUX $39.82 - Is SBUX finally ready to break out? The stock has been consolidating near its highs for over a month and it looks like the bulls are finally ready to make another run to the upside. Use a trigger over $40 and target a rally towards the $45 level. Keep in mind that SBUX is normally a slow-moving stock, so be prepared to exercise a good deal of patience. ================== 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) 97.05 +1.60 SC Shell Transport & Trading 44.10 +0.87 RD Royal Dutch Petrol 50.95 +1.05 GSK Glaxosmithkline Plc (ADR) 43.50 +0.78 E Eni Spa (ADS) 106.15 +2.05 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- VSH Vishay Intertechnology 19.18 +1.19 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- UBS UBS Ag Ord. Shares 74.53 +1.39 COP Conocophillips 75.21 +1.30 HIG Hartford Fncl Srvcs Grp 64.35 +2.74 MTB M&T Bank Corp 88.48 +2.00 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- DOV Dover Corp 39.05 -1.11 SII Smith Internat Inc 53.05 -2.34 PTEN Patterson-UTO Energy Inc 34.25 -1.64 DDR Developers Diversified 32.36 -1.01 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- None ================================================================= 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 05-05-2004 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 Active Trader (Non-tech Stocks) Closed Bullish Plays: BJS High Risk/Reward New Bullish plays: VRSN Stock Splits Announcements: FELE ================================================================== Stop Loss Adjustments ================================================================== None ================================================================== Active Trader (AT) Non-Tech Stock section ================================================================== ============ Closed Plays ============ Closed Bullish Plays -------------------- BJ Services - BJS - close: 44.15 change: -0.41 stop: 42.50 The continued rise in the price of Crude Oil wasn't enough to save our BJS play. Instead of rising, the stock fell back from its recent breakout attempt, consolidated for a few days near the $44 level, while finding support along the 20-dma. It looked like the stock was going to cooperate and head higher from that support test until the open this morning when the stock plunged sharply lower on a BofA downgrade. The stock dropped to $42.35 before beginning a strong oversold rebound. Unfortunately, it was too late for us, as the opening drop triggered our stop. Traders that didn't exit the play on the touch of the $42.50 level should look at this rebound as a gift and use the current strength to exit the play. Picked on April 28th at $46.04 Change since picked -1.91 Earnings Date 4/27/04 (confirmed) Average Daily Volume = 2.01 mln ================================================================== High Risk/Reward (HR) Stock section ================================================================== --------- New Plays --------- New Bullish Plays ----------------- Verisign Inc. - VRSN - close: 17.40 change: +0.54 stop: 15.90 Company Description: VeriSign is the leading provider of Internet trust services and digital certificate solutions needed by Web sites, enterprises and individuals in order to conduct secure electronic commerce and communications over IP networks. VRSN has used its secure online infrastructure to issue over 100,000 of its Website digital certificates and over 3.5 million of its digital certificates for individuals. The company also offers the VeriSign Onsite service, which allows an organization to leverage the company's trusted service infrastructure to develop and deploy customized digital certificate services for use by an organization's employees, customers and business partners. To date, over 300 enterprises have subscribed to the OnSite service and VRSN has strategic relationships with industry leaders including Cisco, Microsoft ,RSA, Security Dynamics, and VISA. Why we like it: After topping out near the $21 level in early January, VRSN began a long downward slide that brought the stock all the way down to strong support near $15 by the end of March. Since then the stock has been consolidating in an every tightening wedge formation and it looks like a breakout is just around the corner. Turning to the PnF chart, we can see that the initial bounce from $15 and subsequent higher bounces have been successful tests of the bullish support line, which currently rests at $15.50. There is a descending trendline connecting the highs over the past month and that line currently rests at $17.50 and the strong rebound so far this week suggests a bullish resolution to this consolidation pattern. A breakout over $17.62 will break the near-term trend of lower highs and a push through the early April high ($17.83) will strengthen that bullish move. But the real key will be whether the stock can break out over $18, creating a new PnF Buy signal, which will bring with it a tentative bullish price target of $23.50. We want to make the stock prove its strength before playing, so we're going to use an entry trigger at $18. Entries on the initial breakout look favorable, but it appears likely that we'll get at least one more pullback to test broken resistance near $17.50 and that would set up a more attractive entry point. Once through resistance, we'll look for the stock to make a run back towards strong resistance at $20. Note that there is likely to be some mild resistance at the $19 level, so expect at least a minor pullback on the first test of that level. Initial stops should be placed at $15.90, just under the 200-dma, as well as the rising trendline that forms the bottom of the consolidation pattern. Annotated Chart of VRSN: Picked on May 5th at $17.40 Change since picked +0.00 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 2.31 mln ================================================================== Stock Splits ================================================================== Announcements ------------- FELE electrifies shares with a 2-for-1 split Franklin Electric Co (NASDAQ:FELE) announced at lunchtime today that its Board of Directors had approved a 2-for-1 stock split of its common stock in the form of a 50% stock dividend. The payable date is June 15th, 2004 to shareholders on record as of May 28th. On a post split basis, FELE will have approximately 22 million shares of common stock outstanding. About the company: Franklin Electric, a technical leader in electric motors, drives and controls, is the world's largest manufacturer of submersible water and fueling systems motors, a manufacturer of underground fueling systems hardware and flexible piping systems and a leader in engineered industrial motor products. ================================================================= 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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