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Daily Newsletter, Tuesday, 05/11/2004

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PremierInvestor.net Newsletter                  Tuesday 05-11-2004
                                                    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:      Nervous Bargain Hunters
Watch List:       Requisite Bounce
Market Sentiment: Quick Fix

=================================================================
MARKET WRAP  (view in courier font for table alignment)
=================================================================
      05-11-2004           High     Low     Volume   Adv/Dcl
DJIA    10019.47 + 29.50 10038.35  9974.05 1.87 bln 2648/ 683
NASDAQ   1931.35 + 35.30  1931.48  1909.50 1.72 bln 2234/ 960
S&P 100   536.00 +  3.32   536.17   532.68   Totals 4882/3643
S&P 500  1095.45 +  8.33  1095.69  1087.12 
W5000   10648.22 + 99.30 10650.29 10549.07
SOX       470.15 + 11.30   470.25   458.90
RUS 2000  548.67 + 10.81   548.69   537.86
DJ TRANS 2836.17 + 26.20  2843.33  2810.81
VIX        18.57 -  1.20    19.28    17.94
VXO (VIX-O)18.49 -  1.25    19.14    18.13
VXN        27.75 -  0.16    27.90    26.84 
Total Volume 3,944M
Total UpVol  3,260M
Total DnVol    634M
Total Adv  5421
Total Dcl  1982
52wk Highs   32
52wk Lows   452
TRIN       1.07
NAZTRIN    0.48
PUT/CALL   1.11
=================================================================

===========
Market Wrap
===========

Nervous Bargain Hunters
by Jim Brown

Buyers returned at the open on Tuesday but they were unable
to force any material gains in the Dow. Tech stocks and the
small caps saw the strongest buying but it was very cautious.
Resistance levels from Friday held on the big caps but the
SOX soared +2% led mostly by Intel. 

Dow Chart - Daily

 
Nasdaq Chart - Daily

 

After several seriously negative days in the markets traders
rested from their selling and waited to see if anybody was
going to buy the dip. Some bargain hunters did stick their
toe in the water but the sharks were still circling and 
none ventured a dive into the waves. Resistance held and 
buyers were content to close the day in the green and 
chalked it up as a win. 

Economics were mixed with Retail Sales and Manufacturing
slowing but employment indicators rising. Retail Sales fell
to a gain of only +0.3% for the week as higher gasoline prices
continued to pressure consumers. This number included the
Mothers Day week and indicates the lack of a real buying
surge for the holiday. 

The Job Opening and Labor Turnover Survey for March jumped
+10.9% compared to only +4.3% in February. This is a stale
report since the April employment report already told us
there was a jump in hiring. It did confirm from a separate
source that +441,000 workers were hired in March. This is
a different survey base than the Employment Report but both
reached the same conclusion. This bodes well for the coming
months. 

A slight bump in the economic road appeared in the Richmond
Fed Manufacturing Survey, which fell to 13 from 30 in April.
This is a significant drop and a four-month low. It also
represents the first drop since November in manufacturing
activity. New Orders fell to 17 from 28 and Shipments to
13 from 30. Order backlog also fell as well as the six-month
outlook. Anything over zero is considered an expansion of
manufacturing activity but a drop of this magnitude is not
a good sign. Inflation rose slightly with prices paid rising
faster than prices received. This report suggests profits
will be squeezed and hiring will be weak in the area. This
could be somewhat market positive because it suggests the 
Fed was right in delaying a rate hike because economic growth
is still stumbling along. 

Also leaning on the markets was the price of oil rising
over $40 per barrel. OPEC was said to be considering a new
target price for oil above the current $22-$28 level. This
was not good news for the market as consumers watched gas
prices rise well over $2 in some areas. 

In news after the bell Cisco announced earnings that beat
the street by a penny and announced guidance that was not
met with excitement. The company said revenues could rise
only +3% to +5% for the quarter. They also said earnings
were helped more than they expected from an extra week in
the first quarter. (strike one) They also benefited from
buying back $3 billion in stock over the quarter which 
reduced their outstanding shares by 131 million and 
increased the earnings per share. This is an IBM trick 
from years past. (strike two) Cisco also said inventory 
levels rose +20% from the prior quarter and in excess of
their targets while their book to bill remained "about one"
according to Chambers. (strike three) The stock dropped in
after hours on the "moderate" outlook from Chambers. He
reinforced the idea that they would see growth equal to
GDP growth in the markets they served. Investors were not
excited with this limited view after seeing many other
techs reporting +15% to 25% growth prospects despite being
cautious. Cisco's problem is one of scale. Once you become
so large it is tough to continue to grow at the rate of
the small cap competitors. This is just one more reason 
why Option Investor never recommends holding options over
earnings announcements. It was actually a decent report
but the market did not like it.  

Bonds actually gained some ground despite $24 billion in
supply coming to market today in 3yr notes from the quarterly
refunding. Wednesday and Thursday will see another $30 billion
in 5yr and 10yr notes. The bid to cover ratio for the 3yr 
notes was 2.08, slightly below the 2.27 from February but 
well above last years 1.80 average. The 3yr notes are seen 
to be the preferred issue this week and they went at 3.199%.
Some of the money raised from stock sales over the last couple
days could have ended up in the bond market where safe returns
over the next couple years are assured. Traders were happy to 
see the decent bid numbers because short interest is at an all
time high in anticipation of the Fed beginning a rate hike 
program that some think will end up like 1994.

The markets rallied at the open but the Dow never got very
far away from the flat line. Only a buy program at the close
kept the Dow above 10000 for the day. Resistance remains
10025 from Monday afternoon. With the 200dma at 10005 we
are fighting a real technical battle for control. There 
was no real urge to buy stocks today but the bargain 
hunters were able to keep the Dow from disaster.

The Nasdaq was the strongest index of the big four with a
gain of +35 (+1.86%) but the Nasdaq gain was on the strength
in the SOX and the Russell. The SOX gained +11 (+2.45%)
led by Intel to near the 470 level. The SOX has moved up
for seven days since hitting a low at 435 the first trading
day in May. The Russell gained +11 (+2%) to bump back into
range of the 550 level. The Russell washed out on Monday
to 534 intraday and managed to post an impressive rebound
back over its 200dma at 544 today. It was definitely a
200dma day with the major indexes either crossing or closing
very close to that technical level. The Nasdaq closed at
the high of the day just below 1931 but there is very strong
resistance between 1930-1965. The one-day rebound, however
strong, should not be seen as the beginning of a trend. 

SOX Chart - Daily

 
Russell Chart - Daily

 

The futures took a serious hit after the Cisco earnings but
there is a lot of darkness before morning. Anything is still
possible. They recovered most of their losses when the Nikkei 
reversed a week long trend with a +150 point gain early in the
session. The challenge is finding a catalyst to produce any
further rally. Despite the rebounds today we are still very
oversold according to some and still over valued according
to others. We have seen money flowing out of funds and there
are serious geopolitical events unfolding. There is no reason
to aggressively buy stocks. That does not mean the bargain
hunters will not supply a steady bid for the stocks they
want. As long as there is no reason to sell it is entirely
possible we could remain in a range over Dow 10K while these
events unfold. It is just not likely. 

Internally today was an exact opposite of Monday. Volume
was moderate and about a billion shares less than yesterday
but advancing beat declining volume by 5:1. New 52-week
lows at 452 were less than of half yesterday's level at
1181. Monday was the most negative internals since Oct-2002
and the new 52-week highs were the lowest since July-2002
at only 32. That was the same number we had today. While
internals were better they were far from good. Today could
be seen as a holiday for sellers more than a return of the
buyers. 

The key point for me is simply support held. Make no mistake
this is strong support at these levels. It should have held
on the first test and it did. Whether we rebound from here
or not the odds are good that this support will be tested 
again. Considering the strength of the multiple 200dma averages 
and the various interactions of the various indexes it could
be tested several times before it either holds or breaks for
the final time. One thing for sure a break of these levels
could produce a significant downward move while any rebound
could face quite a challenge for a considerable period of 
time, maybe until after the election. 

The current drop could be the election premium being priced
into the market as I have discussed before. Pollster John 
Zogby predicted today that Kerry would win the election. 
According to his website Kerry is ahead 47% to 44% in a
two man race. According to Zogby there are very few voters
still undecided and those usually break in favor of the
challenger. Kerry is ahead on economic issues 54% to 35%
and 57% to 36% on Iraq. Bush is still way ahead on terrorism
at 64% to 30% but the Iraq problem is increasingly negative
for Bush. According to Zogby, the election is now Kerry's to
lose. 

This administration change uncertainty is very damaging to
the stock market as each candidate is reaching the point
where they will say and do anything to win votes. Nothing
is sacred and administration policies 12 months from now
are anybody's guess. For many institutions this is the time
for caution in their investments. For many with big profits
still on the table from the 2003 bull market it may be time
to exit stocks and find safety in bonds at the current 
levels. Earning a safe 3%-4% for the next 12-18 months may
be starting to look appealing. 

For traders the biggest economic reports left this week are
the PPI and CPI on Thursday and Friday. This may provide a
better clue to the current inflation rate. Lately there have
been many analyses of the CPI making the rounds which show
how the government "adjusts" the numbers to produce "real"
inflation. This suggests we will not find any inflation 
this week and I doubt the reports will really influence
the market. There may be a lot of volatility as they are
announced but like the election numbers most traders already
have their minds made up. They are just waiting for a signal
to make their next move. 

SPX Chart - Weekly

 

I think the next move for us is still to sell the rallies.
Overhead resistance is very strong on the Dow at 10200 to
10300 and I do not foresee a breakout. Resistance on the
Nasdaq is still 1930-1965 and despite the strength in the
SOX I would be surprised to see higher Nasdaq numbers. SPX
1078 (200dma) is the strongest major support of all the 
indexes since most technical trading programs key in one 
way or another off the SPX. A break under 1078 could quickly
test the 38% retracement level of the March 2000 high to
the Oct-2002 low at 1067. The 50% retracement level at 1160
held for two months and prevented an upside breakout. I am not
as confident about 1067 being support but it should at least
be a speed bump if tested. Until the trend changes be very
careful about buying the dip.  
 
Enter Passively, Exit Aggressively. 

Jim Brown
Editor


=================================================================
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
---------------------------------

Requisite Bounce

Tractor Supply Company - TSCO - close: 36.43 change: +1.86

WHAT TO WATCH: After building a broad topping formation for the 
past several months, TSCO broke down hard last Friday, finally 
taking out the 200-dma as support and then following through with 
yesterday's drop almost to the $33 level.  Today's rebound is 
setting up a great bearish entry point on a rollover near the $38 
level.  Note that the PnF chart is now on a Sell signal with a 
downside target of $31.




---

International Paper. - IP - close: 39.22 change: +0.55

WHAT TO WATCH: After last week's breakdown below $40 support, IP 
fell all the way to $38 yesterday before beginning a solid 
rebound.  This isn't a call to entertain bullish ideas though, as 
the stock is on a PnF Sell signal with a target of $35.  Look for 
the current rebound to roll over in the $40-41 area as the setup 
for new bearish entries.  Then look for the decline to continue 
down towards that $35 target.  Use a tight stop at $42, which is 
just over the 50-dma.




---

Pulte Homes Inc. - PHM - close: 46.19 change: +0.59

WHAT TO WATCH: After the selloff of the past couple weeks, PHM is 
trying to rebound along with the rest of the Housing sector.  But 
instead of buying the dips, the appropriate strategy has now 
changed to selling the rebounds.  Look for the stock to run into 
strong resistance near the $48 level, with the 100-dma just 
overhead.  Then look for a decline down towards the 200-dma, 
currently near $43.50.




---

Apache Corp. - APA - close: 40.86 change: +1.12

WHAT TO WATCH: After getting hammered lower on thoughts of 
improved supply conditions in the Oil patch yesterday, APA put in 
a strong rebound today from its year-long rising trendline near 
$40.  This looks like a good point for aggressive bullish 
entries, targeting a quick rise back to the $43-44 resistance 
level.  Use a tight stop at $39 though, as a trade at that level 
would be a new PnF Sell signal.





===================
On the RADAR Screen
===================

ORCL $11.63 - Is the rebound finally getting started?  We've 
looked at ORCL as a potential rebound play from the $11 level on 
a couple of occasions recently, so this listing is rather 
redundant.  But if the rebound is getting started, this may be 
our last chance to get on board.  A mild dip back below $11.50 
can be used for entry, while the more conservative approach will 
now be on a breakout over $11.75.  Target a rally to the 200-dma, 
just over $12.50

OHB $15.27 - Housing stocks across the board are looking weak and 
we've listed OHB here as it is less well known.  The stock broke 
down in a big way in late April, then again late last week and 
appears headed for strong support near $10.  Either a failed 
rebound below $18 or a breakdown under $15 can be used for entry.  
One note of caution about volume -- the stock has a very low ADV, 
so bear that in mind when considering it as a play.

SMTC $23.21 - Bullish plays are definitely counter-trend right 
now, but the Semiconductors seem to be leading this rebound.  
SMTC put in a convincing double bottom near $20.50 and is seeing 
strong buying volume on this bounce.  Use an entry trigger at 
$23.50 (just over the 100-dma) and target a rally back to strong 
resistance near $26.  Watch for potential resistance near the $25 
level.


===============================
Market Sentiment
===============================

Quick Fix
Jonathan Levinson
 
Sentiment and breadth were awful at Monday's close, but the 
oversold bounce in the indices today helped to repair the damage 
to the markets' internals.
 
OEX volatility, the VXO, was lower by 6.33% or 1.25 to close at 
18.49.  Similarly, the VIX fell 6.07%, though the VXN and QQV 
were only fractionally lower.  Note that the QQQ and Nasdaq were 
considerably stronger than the Dow and S&P, and yet volatility 
fell much further for the Dow/S&P options than for those that 
were Nasdaq/QQQ related.  This divergence is worth watching, as 
it suggests that the options markets were far more fearful than 
the price advance suggests.  I believe that  fear of CSCO's 
earnings report released after the closing bell contributed to 
that effect.
 
New highs minus new lows rose strongly for both the NYSE and the 
Nasdaq, while the put to call ratio remained very high at 1.28.  
The NYSE, Nasdaq and Amex advancers minus decliners also rose 
sharply within their daily downtrends, again correcting part of 
yesterday's damage.
 
Economic news due tomorrow inclues the Balance of trade, 
estimated at -$43B, Export prices excluding agriculture and 
import prices excluding oil for April and the April Treasury 
Budget, estimated at $15.5B.


-----------------------------------------------------------------

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8416
Current     : 10016

Moving Averages:
(Simple)

 10-dma: 10215
 50-dma: 10337
200-dma: 10009



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  912
Current     : 1095

Moving Averages:
(Simple)

 10-dma: 1109
 50-dma: 1124
200-dma: 1077



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1103
Current     : 1421

Moving Averages:
(Simple)

 10-dma: 1419
 50-dma: 1442
200-dma: 1414


-----------------------------------------------------------------

CBOE Market Volatility Index (VIX) = 18.57 -1.20
CBOE Mkt Volatility old VIX  (VXO) = 18.55 -1.19
Nasdaq Volatility Index (VXN)      = 27.75 -0.16

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume

Total          1.11        799,195       885,934
Equity Only    0.92        603,030       556,511
OEX            0.54         55,501        29,810
QQQ            5.90         44,221       260,900


-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          64.0    - 5     Bear Confirmed
NASDAQ-100    33.0    - 7     Bear Confirmed
Dow Indust.   70.0    - 7     Bear Confirmed
S&P 500       59.8    - 6     Bear Confirmed
S&P 100       64.0    - 3     Bear Confirmed



Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


-----------------------------------------------------------------

 5-dma: 0.90
10-dma: 1.09
21-dma: 0.96
55-dma: 1.13


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.


-----------------------------------------------------------------

Market Internals

            -NYSE-   -NASDAQ-
Advancers    2282      2209
Decliners     614       889

New Highs      19        38
New Lows      263        60

Up Volume   1422M     1406M
Down Vol.    384M      199M

Total Vol.  1836M     1614M
M = millions


-----------------------------------------------------------------

Commitments Of Traders Report: 05/04/04

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

Commercials reduced their longs and increased shorts slightly, 
while small traders added to longs and covered shorts.


Commercials   Long      Short      Net     % Of OI
04/12/04      412,827   419,910   ( 7,083)   (0.9%)
04/20/04      409,729   421,456   (11,727)   (1.4%)
04/27/04      406,927   416,244   ( 9,317)   (1.1%)
05/04/04      397,964   417,175   (19,211)   (2.4%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   23,977  - 12/09/03

Small Traders Long      Short      Net     % of OI
04/12/04      135,840    89,090    46,750    20.8%
04/20/04      136,699    92,982    43,717    19.0%
04/27/04      133,775    90,535    43,240    19.3%
05/04/04      137,112    80,201    56,911    21.6%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Commercials added to longs and maintained their shorts, 
while small traders significantly reduced their long 
positions and added to shorts.


Commercials   Long      Short      Net     % Of OI 
04/12/04      261,889   341,163    (79,274)  (13.1%)
04/20/04      275,985   355,555    (79,570)  (10.1%)
04/27/04      291,365   370,549    (79,184)  (12.0%)
05/04/04      316,840   370,781    (53,941)  ( 7.8%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
04/12/04      172,473     52,274   120,199    53.5%
04/20/04      186,799     69,137   117,662    46.0%
04/27/04      175,788     69,613   106,175    43.3%
05/04/04      119,308     74,407    44,901    23.2%

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Commercial traders increased their long positions and short 
positions, but the net addition to longs was sufficient to set a
 new high bullish reading of the year for the second week in a 
row.  Small Traders added slightly to longs and more heavily to 
shorts, setting a new most bearish reading of the year - 


Commercials   Long      Short      Net     % of OI 
04/12/04       54,144     34,432    19,712   22.3%
04/20/04       54,852     35,964    18,888   20.8%
04/27/04       54,196     33,948    20,248   23.0%
05/04/04       56,931     35,209    21,722   23.6%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  21,722   - 05/04/04

Small Traders  Long     Short      Net     % of OI
04/12/04        8,297    20,746   (12,449)  (42.9%)
04/20/04        8,538    19,431   (10,893)  (39.0%)
04/27/04        9,008    20,347   (11,339)  (38.6%)
05/04/04       10,247    24,764   (14,517)  (41.5%)

Most bearish reading of the year: (14,517) - 05/04/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Commercial traders added slightly to longs and maintained their 
short positions, while small traders added slightly to longs and
covered shorts.


Commercials   Long      Short      Net     % of OI
04/12/04       23,501    22,748      753       1.6%
04/20/04       24,156    22,009    2,147       4.7%
04/27/04       23,676    22,009    1,667       3.6%
05/04/04       24,296    22,181    2,115       4.6%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
04/12/04        6,136     7,450   (1,314)    (9.7%)
04/20/04        5,997     9,631   (3,634)   (23.3%)
04/27/04        5,998     8,868   (2,870)   (19.3%)
05/04/04        6,262     8,155   (1,893)   ( 9.2%)

Most bearish reading of the year: (12,106) -  3/09/04
Most bullish reading of the year:   8,523  -  8/26/03

-----------------------------------------------------------------


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Do not duplicate or redistribute in any form.



PremierInvestor.net Newsletter                  Tuesday 05-11-2004
                                                    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 Adjustments: None
Stock Splits:     MOGN, PCBC
Trading Ideas:    See Note


=================================================================
Stop Loss Adjustments
=================================================================

None


=================================================================
Stock Splits
=================================================================

Announcements
-------------

MOGN bottles up a 2-for-1 stock split

MGI Pharma Inc (NASDAQ:MOGN) announced mid session today that its Board 
of Directors had approved a 2-for-1 stock split of its common shares.

The payable date is June 9th, 2004 to shareholders on record as of June 
2nd.  After the split there will be approximately 70.4 million shares 
outstanding.

About the company:
MGI PHARMA, INC. is an oncology-focused biopharmaceutical company that 
acquires, develops and commercializes proprietary products that address 
the unmet needs of cancer patients. MGI PHARMA has a portfolio of 
proprietary pharmaceuticals, and intends to become a leader in 
oncology. MGI PHARMA markets Aloxi(TM) (palonosetron hydrochloride) 
injection, SalagenŽ Tablets (pilocarpine hydrochloride) and HexalenŽ 
(altretamine) capsules in the United States. The Company directly 
markets its products in the U.S. and collaborates with partners in 
international markets. For more information about MGI PHARMA, please 
visit www.mgipharma.com.

---

Pacific Capital sets 4-for-3 stock split

Pacific Capital Bancorp  (NASDAQ:PCBC) announced an hour before the 
opening bell this morning that its Board of Directors had approved a 4-
for-3 stock split.

The payable date is June 8th, 2004 to shareholders on record as of May 
25th.  On a post split basis, PCBC will have approximately 45 million 
shares, thus increasing the total shares outstanding by 33 percent.

About the company:
Pacific Capital Bancorp is the parent company of Pacific Capital Bank, 
N.A., a nationally chartered bank that operates 45 branches under the 
brand names of Santa Barbara Bank & Trust, First National Bank of 
Central California, South Valley National Bank, San Benito Bank, and 
Pacific Capital Bank.


==================
  Trading Ideas
==================

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