PremierInvestor.net Newsletter Wednesday 05-19-2004 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: Despite Being Primed, the Pump Runs Dry Watch List: Spectacular Failure 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) =============================================================== 05-19-2004 High Low Volume Advance/Decline DJIA 9937.71 - 30.80 10093.21 9933.11 1.88 bln 1472/1365 NASDAQ 1898.17 + 0.35 1936.04 1898.16 1.79 bln 1613/1449 S&P 100 532.28 - 1.54 540.70 532.28 Totals 3085/2814 S&P 500 1088.68 - 2.81 1105.93 1088.49 RUS 2000 540.86 - 1.70 552.75 540.01 DJ TRANS 2836.71 - 5.65 2885.16 2830.92 VIX 18.93 - 0.40 18.93 17.58 VXO 19.37 - 0.45 19.48 17.60 VXN 26.09 - 1.66 27.19 24.75 Total Volume 4,169M Total UpVol 2,161M Total DnVol 1,930M 52wk Highs 74 52wk Lows 184 TRIN 1.00 PUT/CALL 0.80 =============================================================== =========== Market Wrap =========== Despite Being Primed, the Pump Runs Dry Linda Piazza With the NYMEX crude contract easing back toward $40.00 as U.S. markets opened, the pump was primed for market gains. Asian markets had realized those gains, also helped by tech strength and reassurances out of China. Despite a cautionary statement from a Merrill Lynch analyst that Hewlett Packard's (HPQ) revenue gains came to the detriment of pricing, HPQ's earnings resulted in tech gains in overseas markets, helped along by news out of the semi-related stocks. Samsung Electronics posted a 5.6 percent gain after forecasting a computer memory-chip shortage this year. STMicrolectronics (STM) predicted that 2004's industry sales would expand by 30 percent. European chip-equipment companies benefited from the higher-than- expected sales from Applied Materials (AMAT) although Wednesday morning saw UBS Warburg downgrading AMAT and the semi-production industry to a neutral rating. In addition, China reassured markets made jittery at the thought of a rate hike and a possible hard landing. Vice Premier Huang Ju said that preliminary results of some measures were already being felt. Another report showed that foreign investments in China had slowed, also easing fears that China would be forced to raise rates to cool its economy. Around the globe, metals rebounded. The Nikkei and DAX climbed back above their 200- dma's. Our futures climbed, too, and the upside promised by the pre- market futures levels was soon delivered. The Russell 2000 gapped up to 545 on the open, headed up to a 10:15 high of 552.75. The SPX soared in the first five minutes of trade, reaching 1,100 by the 9:45 five-minute candle. The Nasdaq opened at 1,917.58, gapping above 1,900 on its way to an early morning high of 1,936.04. Within the first five minutes of trade, the DOW had climbed above 10,000 on its way to an early morning high of 10,093. The pump might have been primed, but it was about to run dry. Midmorning, the American Petroleum Institute (API) released figures for crude, gas, and distillate stocks, noting that inventories increased for that period, with petroleum deliveries rising 4.8 percent over the same month last year. The Energy Department disputed the figures, saying that crude stocks fell by 1.1 million barrels. John Felmy, chief economist for the API, discussed the rise in crude oil prices with a reporter from Marketwatch.com, mentioning the record prices in crude oil and gasoline and near-record levels for diesel fuel. His comments urge caution against pinning too many hopes on the informal OPEC meeting to begin this weekend, as he suggested that there isn't a lot of excess production capacity. Only Saudi Arabia has the ability to increase production, he noted, and that increase would not be a large one. OPEC raised its demand forecast, and Felmy noted the strong growth in China and U.S. was keeping demand high. Felmy also remarked that history shows that U.S. consumers don't change behavior until they perceive an increase to be permanent, at which time they change driving habits, choose different cars, and make lifestyle changes. That hasn't happened yet, according to Felmy, but with many speaking of $40.00 as being a floor for crude oil prices rather than the ceiling that it once was, consumers may begin that critical shift in thinking that Felmy mentions. The process may have begun, with Continental Airlines announcing a hike in fares and possible wage and job cuts to offset the increasing cost of fuels. A late-day headline announced that American and United matched Continental's planned fare hikes. Many indices had already seen their highs of the day. As they were hitting those highs, crude oil was hitting its low of the day, punching below $40.00 to $39.90 before rebounding. Annotated 5-minute Chart of Light, Sweet Crude Oil: The effect of that test of $40.00 and the subsequent bounce was obvious on the five-minute chart of the Dow Jones Transportation Index. Annotated 5-Minute Chart of the TRAN: By the end of the day, the SPX had lost 0.26 percent; the Russell 2000, 0.31 percent; the Dow, 0.31 percent; the TRAN, 0.20 percent, and the NDX, 0.08 percent. The Nasdaq eked out a 0.02 percent gain, but closed beneath 1900. Breadth patterns showed advancers leading the decliners by an 18:15 ratio on the NYSE and a 17:15 ratio on the Nasdaq, with total volume at 1.5 billion on the NYSE and 1.8 billion on the Nasdaq. Volume had reportedly been low during the morning's climb, sounding a warning that the climb might not be supported. Weak sectors included the HMO, the Morgan Stanley Healthcare Index; the XAL, the Airline Index; the DJUSHB, the Dow Jones US Home Construction Index, and the BTK, the Biotechnology Index. Not all sectors lost ground, however. The SOX gained 0.97 percent; the INX, the CBOE Internet Index, 1.19 percent; and the NWX, the AMEX Networking Index, 1.78 percent. Other gainers included telecoms, gold, iron and steel, and the XBD, the Securities Broker Dealer Index. HPQ, credited along with AMAT with sending techs higher across the globe in overnight trading, closed higher by 3.63 percent, but AMAT tumbled 1.11 percent. The day's trading pattern left troubling long upper shadows on many candles. If those candles had been formed at the top of a rise, they would have been dubbed shooting stars and would have been possible reversal signals, but their formation in the midst of a consolidation zone eliminates some of the bearish implications. It was just last Wednesday that I discussed hammers formed in the midst of the same consolidation patterns, and the way that their bullishness was erased by their positions within those patterns. Let's look at how much damage the day's trading produced, beginning with the S&P 500. Annotated Daily Chart of the SPX: The SPX remains above its 200-dma, still mired in the congestion zone that has captured it throughout much of April. While Wednesday's candle does not have the same bearish implications that it would if produced at the top of the climb, it may nevertheless be suggesting another test of the 200-dma. Although the MACD histogram grows less negative, also watch the value of the MACD lines, as they're on the verge of moving lower and erasing the bullish price/MACD divergence that has been present. Annotated Daily Chart of the Nasdaq: Despite gains made in the SOX and several other tech sectors, the Nasdaq's daily candle was not a bullish one, and may be predicting another test of support. Annotated Daily Chart of the Dow: The Dow's chart shows some of the same characteristics seen on others. The day's candle was anything but bullish, but was produced from within a consolidation zone and so might only be a part of the normal back-and-forth of such a zone. As was true on other charts, the bullish price/MACD divergence, so cheering to bullish traders, could be erased with a strong downdraft or even several more days of lower prices. Annotated Chart of the Russell 2000: The Russell 2000's pattern looks somewhat better formed than that seen on other charts, and its formation is that of a possible "b" distribution formation. Unlike what is seen on several other charts, no bullish price/MACD divergence exists on this chart. Even a likely "b" distribution pattern must be watched for a downside or upside break, however. All these charts show indices mired in congestion zones that may or may not break this week. With OPEC holding an informal meeting beginning this weekend and with option expiration week rapidly drawing to a close, the effort to hold indices steady may continue through the end of the week. Determining when breakdowns or upside breaks will have occurred has been made more difficult by the broadening or spiky nature of some of the consolidation patterns. Watch for MACD levels to dip on some indices, erasing that bullish price/MACD divergence, as one guide to market behavior. For guidance, market watchers might also pay special attention to the price of crude, watching for new highs or a downturn below $40.00 again, a move that might spike a relief rally. In addition, keep an eye on the yields for the benchmark Ten-Year Treasury Note. After piercing the neckline of a reverse H&S formation, yields fell below that line again, but are now headed higher again. Another pullback might ease pressure on equities, while a push above that neckline and then above recent highs might apply more pressure. Annotated Daily Chart of the TNX: From this vantage point ahead of tomorrow's open, it appears that monumental efforts have been made to hold indices above key support and may continue to be made. If fund flows are negative this week, as Jim postulated they might be based on his observations of selling patterns today, then those efforts might be swamped, but that remains to be seen. In after-hours news, Intuit and Brocade both traded lower after releasing earnings reports, with Intuit beating expectations but saying that it would lose 6-10 cents per share in Q4, a greater- than-expected predicted loss. Brocade met expectations according to early reports but announced that it would reduce its work force. Economic reports due Thursday include the usual weekly initial claims, with forecasts ranging from 326-330,000, with the previous number at 331,000. That number will be released at 8:30 EST. The Conference Board releases the April's Leading Indicators at 10:00 EST according to one report and earlier according to another, with estimates for the expected gain ranging from 0.1 percent to 0.2 percent. The prior number stood at 0.3 percent. Since most of the data comprising this report's data base has been previously announced, this number doesn't usually prove to be market moving. Perhaps of more interest will be May's Philadelphia Fed report to be released at noon, with the forecasts I've seen ranging from 30.5-33 against April's 32.5. It's difficult to know what catalyst might break the indices out of their current consolidation zones, but due to the spiky, broadening nature of those zones and to this being opex week, enter trades with care, making sure that the risks taken or contracts entered are account-appropriate ones. ================================================================== 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 --------------------------------- Spectacular Failure Impax Laboratories Inc. - IPXL - close: 20.38 change: +0.15 WHAT TO WATCH: It wasn't a pretty day in the Biotech sector on Wednesday, and shares of IPXL put in a very bearish looking daily candle, with the intraday rally completely reversed by the close, dropping price right back to critical support. A break below yesterday's low can be used for aggressive entries, with stops placed just above the top of yesterday's gap. Once IPXL decisively takes out support at $20, look for a downside move to the 200-dma, currently just over $17. --- Taro Pharmaceutical Ind. - TARO - close: 43.10 change: -1.10 WHAT TO WATCH: After a precipitous drop last month, TARO has been trying to solidify support near $43. But that attempt appears to be failing and the stock is in danger of breaking down again. We want to use a trigger at $41 (just under last month's low) and then target a move down to the $37 level, which is also the site of the 200 week moving average. --- Western Wireless Corp. - WWCA- - close: 26.03 change: +1.22 WHAT TO WATCH: Price action in the Technology arena has certainly been bearish of late, but that isn't stopping the bulls from bidding up the price of WWCA. Investors cheered the company's recent earnings report and the stock gapped higher in response. After a bit of healthy consolidation, WWCA made another bullish move today, closing at its best level in more than 2 months. A test of the recent highs at $27.40 appears to be on the menu as early as next week. Use a trigger of $27.50 and target a rally up to resistance near $30. --- Amgen Inc. - AMGN - close: 37.97 change: +1.69 WHAT TO WATCH: Following several failed attempts to challenge the 50-dma resistance, AMGN finally succumbed to the weakness in the Biotechnology sector today, breaking below the $56 support level for the first time in over a year. Volume is on the rise and it looks like a serious breakdown is in progress. Aggressive traders can enter on continued weakness, while the more conservative approach would be to short a failed rebound at the $56 level, which should now be solid resistance. While there's likely to be some support found near $53, a more likely stopping point to this decline appears to be the $49-50 support zone. =================== On the RADAR Screen =================== AA $29.56 - After a month-long downtrend without a sign of respite, AA investors jumped at the opportunity when the stock surged higher this morning. Based on the afternoon selloff though, it looks like that could have been an effective bull trap. Should the stock break below the $28.50 level, it will be a clear sign that there's more weakness ahead. Trigger on a trade under that support and target a drop to next support near $26. SINA $30.00 - With the rebound in Asian markets, SINA is trying to get a bullish move going. Over the past couple weeks, the stock has put in a pretty convincing rounded bottom formation and today's early rally looked pretty impressive before the afternoon fade. Use a trigger over today's high and then look for an initial move to the 50-dma. MCHP $30.15 - At first glance, there's not much in MCHP's chart to get excited about. But then we took notice of the fact that each of the dips appear to be getting bought at the short-term rising trendline, currently near $28 and also on the 50-dma. That gives us a nice target to shoot for, looking to buy another dip near that trendline in anticipation of a rally back towards $32 resistance. ================== 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 FTE France Telecom (ADS) 23.16 +0.56 IBM Internat Business Mach 87.05 +0.99 PTR Petrochina Co Ltd (ADS) 44.12 +1.49 MWD Morgan Stanley 52.00 +0.68 UBS UBS Ag Ord. Shares 70.91 +1.01 BCS Barclays Plc (ADR) 36.08 +0.58 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- TLK P T Telekom Indonesia 17.20 +1.57 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- CEO Cnooc Ltd (ADR) 38.28 +1.52 INFY Infosys Technologies (ADS) 79.95 +1.55 ITU Banco Itau S A (ADR) 39.20 +1.04 RIMM Research In Motion Ltd 104.09 +4.11 PD Phelps Dodge Corp 64.82 +1.02 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- ERTS Electronic Arts Inc 47.98 -1.62 AHC Aerada Hess Corp 70.22 -1.81 RJR RJ Reynolds Tobbaco Hldg 57.10 -1.01 TCB TCF Financial Corp 51.30 -1.44 ROST Ross Stores Inc 24.50 -1.15 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- FMS Fresenius Med Care Ag 23.35 -0.38 ================================================================= 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 05-19-2004 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: ENZN Net Bulls (Tech Stocks) Closed Bearish Plays: ISIL Active Trader (Non-tech Stocks) New Bearish Plays: IP Closed Bearish Plays: IGT ================================================================= Stop Loss Adjustments ================================================================= ENZN - Non-tech Short - We have been triggered at $13.95 today. ================================================================= Net Bulls (NB) Tech Stock section ================================================================= ============ Closed Plays ============ Closed Bearish Plays -------------------- Intersil Corp. - ISIL - close: 20.30 change: +0.68 stop: 20.20 With the strong Asian market performance, it was not a great surprise to see the strong open to the U.S. markets and by the time the closing bell faded away, the SOX was testing $470 resistance and our ISIL play had been stopped out. In truth, ISIL's move really got started with yesterday's strong rally back to test the 20-dma and $20 resistance. At that point, it could have been either a bearish entry point or a warning to get out. Unfortunately we guessed wrong, but that's what stops are for. With buying volume running strong, ISIL looks headed higher from here, so we're more than happy to stand aside. Picked on May 12th at $18.67 Change since picked +1.63 Earnings Date 4/21/04 (confirmed) Average Daily Volume = 2.24 mln ================================================================= Active Trader (AT) Non-Tech Stock section ================================================================= --------- New Plays --------- New Bearish Plays ----------------- International Paper - IP - close: 40.25 change: +0.09 stop: 42.50 Company Description: International Paper Company (IP) is a global forest products, paper and packaging company that is complemented by an extensive distribution system, with primary markets and manufacturing operations in the United States, Canada, Europe, the Pacific Rim and South America. At year-end 2003, the Company also owned or managed approximately 8.3 million acres of forestlands in the United States, mostly in the South, approximately 1.5 million acres in Brazil and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Canada and Russia. Through Carter Holt Harvey, a company that is approximately 50.5% owned by IP, the Company operates five mills producing pulp, paper, packaging and tissue products, 23 converting and packaging plants and 72 wood products manufacturing and distribution facilities, primarily in New Zealand and Australia. In New Zealand, Carter Holt Harvey owns or leases approximately 795,000 acres of forestlands. Why we like it: Enjoying the strength in the overall market through the end of last year, IP had a nice run. But that run came to an end with the top posted in early January. That top was confirmed with the lower high in late February and then the point was really driven home with the sharp selloff from yet another lower high in late April. The clincher was the early May breakdown under key support near $40 and after that breakdown, we just wanted to see an oversold bounce that would let us in as that rally began to fail. The break below the $39 level served up a fresh PnF Sell signal to go along with the pre-existing Sell signal and bearish price target of $35. While we can look at the recent rebound off the $38 level and see that there's certainly some support there, the combination of the PnF chart and strong resistance now in the vicinity of $41 is enough to tempt us into a bearish play, targeting strong support in the $35-36 area. Note how the 50-dma ($41.23) is closing in on the 200-dma ($40.88) and when those averages cross it will increase the downward pressure on the stock. Entries look favorable here in the $40-41 area, and aggressive traders might try to get a slightly better entry on a failed push up near the 50-dma. But note that the daily Stochastics have already rolled bearish, so we don't want to dally too long trying to get the perfect entry. We should expect to see some support in the $38-39 area on the way back down, but we really won't be confronted with strong support until the stock reaches $37, the site of the November lows. A drop to that level can be used for conservative exits, while those willing to go for the gusto can hold on for a trip down to our $35 target. Initial stops will be placed at $42.50, just over the 100-dma. Annotated Chart of IP: Picked on May 19th at $40.25 Change since picked +0.00 Earnings Date 4/23/04 (confirmed) Average Daily Volume = 2.87 mln ============ Closed Plays ============ Closed Bearish Plays -------------------- Intl. Game Tech. - IGT - cls: 38.00 chng: -0.40 stop: 38.80 After spending the past two weeks building a bottom formation on declining volume, IGT finally busted a bullish move this morning, helped along by the strong opening to the market day. The stock soared to above $39, but the bloom faded quickly, with the stock then heading steadily southward for the remainder of the day, closing well below the open of the day and well inside the recent consolidation range. Unfortunately, the initial surge was enough to trigger our stop, which had been placed just over near resistance. We'll take our lumps and drop the play tonight, even though the afternoon selloff gives the stock a freshly bearish hue. Picked on April 28th at $38.89 Change since picked -0.89 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 3.22 mln ================================================================= 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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