PremierInvestor.net Newsletter Monday 05-10-2004 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: Dow 10K, S&P 1100, Naz 1900 Fall Watch List: Broken Support =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 05-10-2004 High Low Volume Advance/Decline DJIA 9990.02 -127.32 10116.28 9932.74 2.29 bln 317/2634 NASDAQ 1896.07 - 21.89 1907.98 1880.32 1.86 bln 697/2443 S&P 100 532.68 - 4.67 537.35 528.74 Totals 1014/5077 S&P 500 1087.12 - 11.58 1098.70 1079.63 RUS 2000 537.86 - 10.70 548.56 533.51 DJ TRANS 2810.01 - 36.17 2842.53 2789.03 VIX 19.77 + 1.64 20.20 18.99 VXO 19.74 + 0.67 21.29 19.43 VXN 27.91 + 2.41 28.15 26.75 Total Volume 4,800M Total UpVol 953M Total DnVol 3,768M 52wk Highs 32 52wk Lows 1181 TRIN 0.84 PUT/CALL 1.28 =============================================================== =========== Market Wrap =========== Dow 10K, S&P 1100, Naz 1900 Fall Jonathan Levinson The selling began after the cash close on Friday and resumed in the futures last night. The markets gapped lower at the open, ran to their lows just before noon and then bounced, moving sideways in a range for the duration of the session. Volatility was sharply higher as premium increased in the options market, while bonds traded mixed to lower. Today's close was the lowest close of the year for the indices. Despite the 1%+ losses on the Dow, SPX and Nasdaq, bellwethers such as GE and MSFT finished in the green. Whether this was a legitimate heads-up on a market turn to come, or mere tape- painting by mutual funds and the Fed's 23 dealers using the 6B in repo money added today, remains to be seen. The intraday indices were oversold and trying to turn up off the lows at the close, and whether it's a deadcat bounce or a 30 minute cycle upphase, a bounce is due in all the intraday timeframes. The trouble for bulls is not the intraday cycles, however, but rather the longer ones, the daily, weekly and monthly, all of which are in synchronous downphases. Daily Dow Chart The Dow violated trendline support at 10180 and never looked back, falling below confluence and psychological support at 10K and closing below it. There's confluence support from 9930 to 9800 accumulated over the years, and I don't expect the bears to have an easy go of further downside in that range. But price never reacts to support the same way twice, at least not predictably, and I'm not inclined to blindly trust these levels for bullish trades. The longer cycles remain firmly down, and the daily shows no sign of having bottomed yet. If, however, a meaningful bounce can launch off the intraday cycles (not shown), as those shorter oscillators are suggesting, and the move is sufficient to turn the daily cycles up from here, there will be a bullish oscillator divergence and the move should have good upside force. Monthly Dow Chart I've zoomed out to a three year monthly view of the Dow to show the 3-crows bearish pattern as well as the sell signal on the 10 month stochastic. The issue for me on this monthly timeframe is whether the bulls can put together a sufficiently strong daily cycle upphase to retest either broken bear wedge apex or the descending trendline at 10650ish. If this is a significant top forming, a "return to the scene of the crime" distribution rally would not be out of the ordinary. However, for the moment, the combination of the daily, weekly (not shown) and monthly downphases is producing extreme weakness, and for the moment the trend on these longer timeframes remains down. Daily Nasdaq Chart The Nasdaq closed at 1896. It would be premature to conclude that 1900 is history, particularly given the potential for a bullish oscillator divergence on the daily chart. Support came at a low of 1880, but the selling was sufficiently constant to prevent any of the clear, directional moonshots that we've come to expect since 2003 on tests of critical support. Below 1880, there's support at 1845. As with the Dow, a strong intraday upphase based on the 30 and 60 minute charts, due to commence imminently, could set up a strong launch on the daily. A failure to bounce tomorrow would constitute a "crash" in the 30 minute timeframe as the market trends lower. Given the weakness in the daily, weekly and monthly oscillators, traders trying to play that countertrend bounce need to be close with their stops and nimble, as the afternoon chop today showed us. Monthly Nasdaq Chart The monthly Nasdaq chart is more difficult to read because of the higher peak in spring 2000. But again, the monthly cycles are rolling over. A strong daily cycle upphase could whip the price back up to the year highs as a distribution top, but such could also set up a reverse head and shoulders below 2100 or a simple bull flag breakout. I cite these setups despite the sell signal on the 10 month stochastic and the anticipated signal on the Macd to show both sides of the coin. Bulls see this move as a correction of the 2003 rally, while bears see the 2003 rally as a correction of the 2000-2002 decline. While the intraday cycles want a bounce tomorrow, the top of that bounce is going to determine a lot for the Dow and Nasdaq. A lower high suggests a weak daily cycle, which suggests that the weekly is also bearish, which suggests that the monthly is indeed in a new bearish phase. A higher high could launch a daily cycle rally that could challenge the breakdown, if not the year highs. Weekly chart of the OEX:VXO ratio Another perspective on the current downleg is by viewing the ratio of the S&P-100, the OEX, to its corresponding volatility index, the VXO (the old VIX). By measuring the OEX:VXO ratio, we can chart the OEX' price trend relative to option volatility. As we know, option volatility tends to rise when price declines, and vice versa. By placing this relationship on a single chart, we can view the general trend, which here is in a clear downphase on the weekly chart. We see that the OEX:VXO is at a confluence level at current levels, which should provide support for the OEX/ resistance for the VXO. Next support is in the 18 area. Weekly chart of the QQQ:QQV ratio The QQQ:$QQV ratio is also locked in a weekly downtrend and also in a support zone. It's worth noting, as with the OEX:VXO, that this ratio has not reached these levels of oscillator weakness since 2002, indicating that the force of the drop in price/increase in volatility exceeds any we've seen in 2 years. Weekly chart of NYSE New highs-new lows Here's one last perspective on the recent action. The chart of new highs minus new lows for the NYSE is a simple snapshot of breadth. The internal damage appears to be far worse than the price declines would otherwise indicate. It was a quiet news day overall, with no major economic news to report and the markets trading on their own. Before the bell, it was announced that C would incur a $1.6B charge to settle litigation with Worldcom shareholders without admission of liability. C closed lower by 2.8% at 45.41. Combined with general rate-hike-related malaise, banks were weak, with the $BKX closing lower by 1.6%. President Bush made a statement at the Pentagon after receiving a briefing from his national security team, coming out strongly in defense of Secretary of Defense Rumsfeld: "You are courageously leading our nation in the war against terror, you are doing a superb job, you are a strong secretary of defense and our nation owes you a debt of gratitude." He warned that that there remain hardships and sacrifices to come, and that the US will continue to aggressively oppose militants in Iraq. The statement was no doubt in response to the fireworks from Rumsfeld's appearance before the Senate Armed Services Committee on Friday, but also came on the heels of a scathing editorial in The Army Times, a Gannett Co. Inc. (GCI) newspaper that reports on the U.S. military. The editorial asserted that both Rumsfeld and Joint Chiefs Chairman Myers are guilty of professional negligence in the affair. Crude futures were weak and led the CRB lower, with the move being credited to news that Saudi Arabia said OPEC should raise its production quota by 1.5 million barrels per day. Saudi Arabian Oil Minister Ali al-Naimi said that OPEC should increase its production target by over 6% when it meets on June 3. "We [...] do not want to see prices rise to the level that they negatively affect the growth of the international economy or the demand for oil. It is apparent that demand, especially that of Asia, has and will continue to increase in the second half of this year." The Federal Reserve fined one of its primary dealers, UBS, $100M for its business dealings with Cuba, Iran, Libya and Yugoslavia. The Fed's 3 page order asserted that "certain former officers and employees of UBS engaged in intentional acts aimed at concealing" bank transactions with these countries. UBS agreed to pay the fine without admitting to any of the allegations. IBM announced new software for corporate desktops to provide open-source alternatives to Microsoft Office. The company said that the new server-managed software package would permit users to deploy business applications and data on desktops, laptops, and hand-held computers, and is designed to support Microsoft Windows, Unix, Linux and other operating systems with Mac support to be added later. Being a satisfied user of the free "OpenOffice" suite, I find it encouraging to see open source competition for this critical software space. I believe that end-users are the ultimate beneficiaries of competition, both in terms of price and quality. XMSR was very weak throughout the session on news of its Friday filing for the resale of 10M shares owned by GM at a warrant strike price of $3.18 exercised in April 2004. XMSR finished lower by 6.05% at 21.62. For tomorrow, I'm keeping an open mind. On the one hand, it would be reasonable to expect the oversold bounce mandated by the 60, 30 and short cycle oscillators. On the other hand, the internals look so awful and the daily, weekly and month stochastics are so uniformly bearish that if there were to be an intraday trending move or "crash" in the intraday cycles, it would not be surprising here. Bellwethers such as GE and MSFT were strong and finished green despite the broader market destruction, either because they were being used to prop the indices price-wise, or because funds and traders were loading up in anticipation of that short cycle bounce. Crashes, even on the 30 and 60 minute timeframes, are less common events as oscillators tend not to trend in oversold or overbought. The odds favor a bounce here. If it doesn't occur, then bears need to be sufficiently nimble and flexible to let their stops take them out of it. Don't get caught the wrong side, whichever side that turns out to be. ================================================================== 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 --------------------------------- Broken Support Juniper Networks - JNPR - close: 22.25 change: -0.84 WHAT TO WATCH: With old support apparently becoming resistance, shares of JNPR rolled over last week from the $24 level, which just happens to be the bottom of the January gap. The stock appears headed to lower levels, first to $20 and then to $18. Aggressive traders can enter on a break under the $21.50 level, while the more conservative approach will be to wait for a breakdown below the 200-dma. Target strong support near $18. --- SanDisk Corp. - SNDK - close: 23.34 change: -0.11 WHAT TO WATCH: Despite broad losses in the Technology market on Monday, the Semiconductor sector actually managed a minor gain. That reality was probably responsible for helping SNDK to bounce from its low, right at the key $23 support. With weakness still the primary theme, we're looking for SNDK to break down later this week. Use a trigger under $23 and target a drop to strong support near $20. --- D R Horton Inc. - DHI - close: 25.57 change: -1.36 WHAT TO WATCH: So much for support at the 200-dma! When we looked at DHI as a bearish play a couple weeks ago, we were expecting the 200-dma to be a downside target. Well, that has been soundly smashed and now DHI is on the verge of yet another breakdown. Look for a break below $24.50 as the trigger for new bearish positions and target a drop to next support in the vicinity of $21.50-22.00. --- Intersil Corp. - ISIL - close: 19.36 change: -0.28 WHAT TO WATCH: Given the weakness throughout the world of Technology over the past week, shares of ISIL have done a remarkable job of holding at support near $19. Despite that resilience, the fact that the stock has been unable to make any upward progress suggests that it isn't as strong as it might appear on the surface. Should support fail, it could be a quick trip down to next support near $16. Use a trigger at $18.90 and target the top of the April 2003 gap near $16.40. =================== On the RADAR Screen =================== GNSS $14.48 - Despite the rebound in the Semiconductor sector, GNSS just continued to deteriorate, rolling over without even challenging the 200-dma resistance. Key support now is at $14.00 and once that breaks, we're looking at next support near the $12 level. Use the break under $14 as the trigger to play the downside. SPW $42.17 - That breakdown we've been watching for is drawing nearer by the day, as SPW finds itself pressured by the weakness in the overall market. Key support resides at $41.50 and when broken, it will make a convenient point to trigger new bearish entries. Look for that breakdown to lick off a decline down towards the $35 support level. TDW $25.81 - Despite continued strength in the price of Crude Oil, shares of TDW can't escape the sellers and the stock is right on the verge of another major breakdown. Use a trigger under $25.50 and target the 2002 lows just over $23. ================================================================= 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 05-10-2004 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 ================================================================= Stop Loss Updates: IGT, SINA Closed Plays: AAP, URBN Split Announcement: CEDC 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 ================================================================== IGT - short Adjust from $40.00 down to $38.80 --- SINA - short Adjust from $31.43 to$30.05 ================================================================== Closed Plays ================================================================== Closed Bullish Plays -------------------- Advance Auto Parts - AAP - close: 40.50 change: -1.28 stop: 41.00 Friday's breakdown in shares of AAP looked ominous, as we noted over the weekend. The negative tone on which last week ended continued this morning, with the stock gapping down and drilling almost to the $40 level before any hint of support appeared. There wasn't much of a bounce, and with our $41 stop triggered early in the day, there's no excuse to keep the play open at this point. AAP's breakout over the $43 level has now clearly failed and with selling volume on the rise, we should now look for the stock to continue down until it can find more substantial support. Better to be out and watching from the sidelines. Picked on April 21st at $42.90 Change since picked -2.40 Earnings Date 5/19/04 (confirmed) Average Daily Volume = 562 K --- Urban Outfitters - URBN - close: 45.70 change: -0.61 stop: 45.00 As discussed over the weekend, URBN ended last week resting right on critical support, just over the 50-dma. It was either going to bounce or fail and if it failed, it would spell the end of this bullish play. With the market opening in the red, URBN's fate was sealed right from the opening bell. The stock gapped open below the 50-dma and then plunged all the way to $44.24 before rebounding, but even that rebound couldn't get the stock back over the 50-dma. Obviously we're dropping the play tonight, as the pattern of finding support just over the 50-dma has now been soundly broken. For traders that didn't exit the play today, any rebound should be looked at as a gift, offering another chance at a favorable exit. Picked on April 21st at $47.13 Change since picked -1.43 Earnings Date 3/11/04 (confirmed) Average Daily Volume = 604 K ================================================================== Stock Splits ================================================================== Announcements ------------- CEDC distributes a 3-for-2 stock split Central European Distribution (NASDAQ:CEDC) announced a few hours before the opening bell this morning that its Board of Directors had approved a 3-for-2 stock split. The payable date is May 28th, 2004 to shareholders on record as of May 17th. On a post split basis, CEDC will have approximately 16.2 million shares of common stock outstanding. About the company: CEDC is one of the leading importers of beers, wines and spirits, as well as the largest distributor of domestic vodka on a nationwide basis in Poland. The Company operates nine distribution centers and 58 satellite branches throughout Poland. It distributes many of the world's leading brands, including brands such as Johnnie Walker Scotch, Stock Brandy, Jose Cuervo Tequila, Sutter Home, Torres, Mondavi and Concha y Toro wines, Corona, Beck's, Foster's, Grolsch, Budweiser Budvar and Guinness Stout beers. ================================================================== 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 SLM SLM Corp 38.14 +0.51 LEH Lehman Bros Hldg 71.97 +0.74 BSC Bear Stearns Companies 77.72 +1.10 RYAAY Ryanair Hldgs Plc (ADR) 30.94 +0.71 BLL Ball Corp 62.66 +1.33 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- None --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- None ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- C Citigroup 45.41 -1.31 TM Toyota Motor Corp (ADS) 66.71 -2.99 NTT Nippon Tel & Tel (ADS) 21.81 -2.19 PTR Petrochina Co Ltd (ADS) 43.48 -2.62 JPM JP Morgan Chase & Co 35.41 -1.07 UBS UBS Ag. Ord Shares 68.89 -2.17 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- LLY Eli Lilly & Company 74.38 -1.17 COP Conocophillips 71.78 -1.36 CAH Cardinal Health Inc 74.20 -1.34 CSR Credit Suisse Group 34.54 -0.36 MAR Marriott Internat Inc A 46.02 -0.67 TKP Technip-coflexip (ADS(IPO))30.42 -3.12 WC Wellchoice Empire Blue 40.34 -2.07 ================================================================= 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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