PremierInvestor.net Newsletter Wednesday 06-16-2004 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: Stocks Snooze Despite Strong Economic Data Watch List: Snooze Fest 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) =============================================================== 06-16-2004 High Low Volume Advance/Decline DJIA 10379.58 - 0.85 10393.42 10355.51 1.43 bln 1580/1634 NASDAQ 1998.23 + 2.63 2002.07 1990.57 1.38 bln 1228/1384 S&P 100 553.43 + 0.64 554.38 552.07 Totals 2808/3018 S&P 500 1133.56 + 1.55 1135.28 1130.55 RUS 2000 570.07 + 2.15 570.15 566.64 DJ TRANS 3059.24 + 19.40 3059.24 3035.21 VIX 14.79 - 0.26 15.22 14.48 VXO 14.66 - 0.34 15.35 14.48 VXN 20.39 - 0.49 21.38 20.13 Total Volume 3,038M Total UpVol 1,470M Total DnVol 1,485M 52wk Highs 184 52wk Lows 103 TRIN 1.15 PUT/CALL 0.69 =============================================================== =========== Market Wrap =========== Stocks Snooze Despite Strong Economic Data by James Brown Wednesday's market action can be summed up in one word: boring. The major averages traded sideways with the Dow Jones Industrials in a 40-point range, the NASDAQ in a 12-point range and the S&P 500 index in a 5-point range for the day. Some traders expressed frustration that today's economic reports, which showed the economy was improving, couldn't get a rally going. Others were surprised that sabotage in Iraq failed to spike oil prices. The overall feeling among professional investors is that there is little impetus for people to buy stocks ahead of the June 30th FOMC meeting and Iraq handover. There were a handful of economic reports out today. Traders were looking for a lead on the interest-rate sensitive homebuilders when the housing starts and building permit data came out. The Commerce Department reported that May's housing starts slipped 0.7% to an adjusted rate of 1.97 million from April's 1.98 million. This was ahead of economists' forecasts. Meanwhile builder permits surged to new 31-year highs. Economists were expecting builder permits to slip due to higher interest rates but they came in up 3% at an adjusted rate of 2.077 million permits. Unfortunately, the DJUSHB home construction index closed lower by 1% despite the positive news for the sector. The Federal Reserve was busy today with its report on May industrial output and capacity utilization. Economists were forecasting that output would rise 0.8%. U.S. factories and mines actually pushed out a 1.1% gain to 116.9 on the Fed's output index, which was the biggest one-month surge in six years. The capacity numbers were also a surprise. Economists were looking for capacity utilization to jump from 77.1% to 77.4% in May. The Fed reported that utilization hit 77.8%, the best number since May 2001. This afternoon the Federal Reserve released its Beige book report, named for the color of its outside cover. The report unveiled that retail sales in most districts were "generally positive". The Beige book also confirmed that manufacturing activity rose across all twelve districts in April and May. The report stated that inflation was tame, business was up and the labor market was improving as business continued to hire at a stronger pace. For the full report click here: link Counteracting all this positive economic news has been a new wave of violence in Iraq. President Bush reiterated today that the next few weeks would be tough as our enemies in Iraq stepped up the intensity level ahead of the June 30th handover. Terrorists have been targeting Iraqi leaders in the new government as well as kidnapping Westerners. Last Saturday Iraq's Deputy Foreign Minister was gunned down in Baghdad. On Sunday one of Iraq's education ministers was shot dead. Today Iraq's security chief for its northern oil fields was murdered in the city of Kirkuk. Today also marked the second explosion on one of Iraq's major pipelines in its port city of Basra. The latest bomb is said to have caused a large amount of damage and will shut down all exports for the next seven to ten days. The shutdown is estimated to cost the Iraqi people $60 million a day in crude oil sales. Most market pundits were surprised that the oil export shutdown in Iraq, which had grown to 1.6 million barrels a day, did not send oil futures higher. July contracts for crude actually slipped lower midday but rebounded to close up 23 cents to $37.65 a barrel. Saudi officials asked non-OPEC members to raise production to offset the Iraq closure but most experts believe it's just talk. The vast majority of oil producers, OPEC or not, are already pumping at or near maximum production levels. The situation was not lost on oil and oil service stocks. The OIX oil index rose 1.43% as it neared new three-year highs. The OSX oil services index soared 2.68% to become the best performing sector on the session. The XNG natural gas index also rose more than 1% to hit new three-year highs. Oil stocks weren't the only ones moving higher. Defense stocks, represented by the DFX index hit new all-time highs. Plus, biotech stocks (BTK.X) gained 1.44%. The BTK broke through its simple 200-dma and closed above the psychological, round-number 500 level. Overall market internals were mixed to positive. Advancing stocks outnumbered decliners 3-to-2 on the NYSE and 8- to-7 on the NASDAQ. Up volume outweighed down volume on the NYSE but it was reversed on the NASDAQ. Overall volume was extremely low at less than 2.8 billion shares on both exchanges. Chart of the Dow Industrials: Chart of the NASDAQ Composite: There were several high profile earnings announcements in the last 24 hours. At the top of the list was software giant Oracle (ORCL). ORCL reported last night and beat estimates by a penny while edging past revenue expectations. Wall Street's reaction was mostly positive with a handful of brokers reiterating their "buy" rating for the stock. Unfortunately, ORCL proved to be a drag on the NASDAQ and the GSO software index as the stock sunk more than 3% to close at $11.35. Comments out today reflected concerns over some of its licensing revenues, which were softer than expected. Wall Street firm Bear Stearns (BSC) announced earnings this morning and beat analysts' estimates of $2.23 by 26 cents. Revenues jumped almost 18% from $1.5 billion to $1.72 billion, bypassing estimates at $1.57 billion. BSC said its fixed-income and bond trading business helped push results past the street's expectations. The company also announced that it has received a notice from the SEC that the regulators were considering action against BSC for its involvement in the mutual fund scandal. Shares of BSC gapped lower but managed to close positive by 72 cents at $80.15. Consumer electronics retailer Best Buy Co (BBY) reported earnings of 34 cents per share, which bested estimates by a penny. Revenues climbed more than 17% to hit $5.47 billion, also above estimates. Overall the quarter reflected a 65% jump in earnings over the same period a year ago lead by strong sales of digital cameras and flat-panel TVs. Analysts raised concerns over BBY's "reward zone" plan for loyal customer discounts and this lead to BBY's 2% decline to $52. Wednesday's big winner was Cyberonics (CYBX). The stock soared 78% to close at $34.81 after an FDA advisory panel voted 5-2 in favor of CYBX's VNS system as a treatment for depression. The VNS system, already in use for some epilepsy patients, is a medical device surgically implanted to send electrical current to the vagus nerve. The FDA normally follows decisions made by its advisory panels and Wall Street expects this to open up the massive depression market for CYBX. Contributing to the 78% jump in price was CYBX's small 16.6 million share float and the stocks high short interest, which was close to 20% of the float. A few after hours headlines that traders will want to follow come from Ford and Jabil Circuit. Ford Motor Co (F) raised its Q2 earnings forecast to 45-50 cents per share based on strong growth in its financing arm. Consensus estimates were at 42 cents per share. Meanwhile Jabil Circuit (JBL) reported its Q3 earnings that were inline with estimates at 26 cents per share. Unfortunately, the company issued Q4 guidance that was below analysts' estimates and the stock sank 10% in after hours trading. The late Wednesday news above might produce a bifurcated market tomorrow. Blue chips could creep higher on the Ford news while tech stocks are likely to sink on the JBL news. All the while Wall Street will be wading through more economic data. Thursday brings the weekly initial jobless claims, the leading economic indicators for May, the Philly fed survey and the Semi Book-to- Bill report. Yet overshadowing them all will be the delayed May Producer Price Index (PPI). If that's not enough we're also expected to hear from Federal Reserve governor Moskow as he speaks on the economy. Hopefully the upward drift we saw in stocks Wednesday afternoon will blossom into a new surge higher tomorrow but don't bet on it. Friday is options expiration and stocks will probably gravitate to their nearest strike price. One thing that continues to concern us are the volatility indices. The lower they creep the closer we get to our next sell-off. ================================================================== 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 --------------------------------- Snooze Fest Chesapeake Energy Corp. - CHK - close: 14.40 change: +0.47 WHAT TO WATCH: With the Natural Gas index (XNG.X) breaking out to new highs, CHK is really gaining some traction, blasting sharply higher over the past couple days and ending today at new multi- year closing highs. Trigger entries on a break over $14.50 and target a move to the $16.00-16.50 area, the site of next significant resistance. --- MicroStrategy Inc. - MSTR - close: 41.25 change: -2.86 WHAT TO WATCH: Long gone is the incredible strength MSTR showed throughout 2003, as the stock has been in a persistent decline since the middle of March. After rolling over just below the 50- dma a couple weeks ago, the stock has been dropping back towards key support at $43, which was brutally smashed on very strong volume today. This looks like the beginning of the next leg down for the stock. Entries look favorable either on a break below $41 or a failed rebound near $43. Target an initial drop to $37.50 and then possible down to $35. --- QLogic Corp. - QLGC - close: 26.03 change: -1.60 WHAT TO WATCH: Following its break to fresh 52-week lows, QLGC staged an impressive rebound right to the 50-dma before rolling over once again. Buyers tried to support the stock near $28, but that attempt failed miserably, with the stock smashing to new 52- week closing lows today. This looks like the beginning of the next major breakdown and the $20 level looms as a viable target, as bears set their sights on the 2002 lows. --- RSA Security - RSAS - close: 20.07 change: -0.32 WHAT TO WATCH: Rising right to resistance near $19.25 on Monday, RSAS caught a serious updraft yesterday, blasting above $20 on strong volume. Today's mild consolidation session looks constructive as well. We'd be hesitant to chase the stock higher, but a pullback and rebound in the vicinity of $19 looks like a good bullish entry point ahead of an expected rally towards next resistance in the $22-23 area. =================== On the RADAR Screen =================== APA $42.70 - The strength in the Natural Gas sector sent shares of APA higher today, resulting in a breakout over solid resistance at $42 and the 50-dma. With weekly Stochastics looking bullish again, this looks like a good spot to play the upside, seeking a rally back to test the April highs near $46. SINA $39.60 - While it may seem a bit risky due to the size of the rebound already seen off the May lows, SINA looks ready to launch its next upward leg. Trigger entries on a breakout over last week's highs just over $42, which can be viewed as a confirmed H&S bottom formation. While the initial target should be for a move into the $46-48 area, the H&S formation suggests an upside target in the vicinity of $58. WMB $11.94 - While the stock had a rather muted session today, WMB is holding just under key resistance in the $12.30-12.40 area after a very strong rally from the $8.50 area since late February. A breakout to new recent highs can be used for bullish entries in anticipation of another strong upward leg to next resistance in the $14-15 area. ================== Trading Ideas ================== This section contains stocks that meet criteria which may make them of interest to long and short side traders. These are not recommendations, nor have they been reviewed by PremierInvestor editors for investment potential. However, each of them has technical and fundamental characteristics that make them worthy of further review by traders and investors looking for fresh ideas. New stocks will appear daily following the market close. Value Plays With Bullish Signals --------------------------------- Ticker Company Name Close Change XOM Exxon Mobil Corporation 44.73 +0.65 SC Shell Transport & Trading 44.96 +0.75 RD Royal Dutch Petrol 51.33 +0.91 GSK Glaxosmithkline Plc (ADR) 42.48 +0.53 MWD Morgan Stanley 52.14 +1.01 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- NRD Noranda Inc 17.49 +1.43 ODSY Odyssey Healthcare Inc 19.47 +1.75 ALVR Alvarion Ltd 12.10 +1.54 HLEX Healthextras Inc 16.84 +1.39 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- SLB Schlumberger Ltd 62.23 +2.31 BTY British Telecommun Plc 35.81 +1.10 SOTR Southtrust Corp 34.68 +1.36 AAPL Apple Computer Inc 32.74 +2.05 BNN Brascan Corporation 27.25 +1.23 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- BBY Best Buy Co Inc 52.04 -1.04 SYMC Symantec Corp 40.77 -1.65 RIO Companhia Vale Do Rio Doce 44.00 -1.35 ADBE Adobe Systems Inc 44.66 -1.03 KRI Knight-Ridder Inc 73.70 -1.02 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- BG Bunge Ltd 35.98 -1.00 KCI Kinetic Concepts Inc 47.86 -2.34 KWD Kellwood Co 41.04 -2.63 ================================================================= 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 06-16-2004 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: TTEC Net Bulls (Tech Stocks) New Bullish plays: BRCM Active Trader (Non-tech Stocks) New Bearish Plays: LEN ================================================================== Stop Loss Adjustments ================================================================== TTEC - tech stock long - Raise stop from $7.49 to $7.85 ================================================================== Net Bulls (NB) Tech Stock section ================================================================== --------- New Plays --------- New Bullish Plays ----------------- Broadcom Corp. - BRCM - close: 43.79 change: +0.95 stop: 41.00 Company Description: Sitting in the sweet spot between the Broadband and Semiconductor sectors, BRCM is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. These integrated circuits permit the cost-effective delivery of high-speed, high-bandwidth networking using existing communications infrastructures that were not originally designed for the transmission of broadband digital content. Using proprietary technologies, the company designs, develops and supplies integrated circuits for several markets including digital cable set top boxes, cable modems, high-speed office networks, home networking, and digital subscriber lines. Why we like it: In bold defiance of the weakness we've been seeing in the Semiconductor sector (SOX.X), BRCM has been continuing to test resistance at the $44 level and the recent pattern of higher lows suggests that a breakout is coming sooner, rather than later. After dropping to test the bottom of its 5-month range near $36.50 in late May, the stock soared back near the $42-43 area and has been building a pattern of higher lows and higher highs since then. The stock's strength is also seen on the PnF chart, with a fresh Buy signal last month that currently carries with it a bullish price target of $56. Once clear of the $44 resistance level, there will be one possible resistance point to deal with at $45 and then it should be clear sailing to the $49-50 resistance area, which held numerous tests throughout 2001 and early 2002. Each time the stock has neared the $44 level in recent months, the bears have knocked it back, giving us a clean level to use for a trigger. We'll use the $44 level as a trigger for entry, and aggressive traders can enter on the initial breakout, while those with a more conservative approach will want to wait for a subsequent pullback to test the $42.50-43.00 area as newfound support. With strong resistance in the $49-50 area, we'll suggest harvesting gains in that area when reached. The PnF chart says that further upside from there is possible, but it appears unlikely without a significant pullback from that resistance level first. Looking at the chart below, we can see that the ascending trendline connecting the lows over the past few weeks should offer support on any pullback, with the 20-dma ($41.72) reinforcing that support. We'll set our stop initially at $41, under that rising trendline and the June 3rd intraday low of $41.05. Annotated Chart of BRCM: Picked on June 16th at $43.79 Change since picked +0.00 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 8.09 mln ================================================================== Active Trader (AT) Non-Tech Stock section ================================================================== --------- New Plays --------- New Bearish Plays ----------------- Lennar Corp. - LEN - close: 42.90 change: -0.68 stop: 46.50 Company Description: Lennar Corporation has two core businesses, homebuilding and financial services. The company's homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through its unconsolidated partnerships. Its financial services subsidiaries provide mortgage financing, title insurance, closing services and insurance agency services for both buyers of its homes and others, and sell the loans they originate in the secondary mortgage market. Why we like it: After running to new all-time highs in mid-March, shares of LEN tipped over into the current downtrend at just about the same time that bonds began to sell off and yields began to rise. There's a direct connection between the action of the Housing stocks and interest rates. With the Fed's next decision on interest rated just 2 weeks away, we could be setting up for some real fireworks in the sector. It appears investors have been preparing themselves for a tightening of Fed policy on interest rates, and that can be seen in the persistent downtrend that has developed in LEN over the past 3 months. The Dow Jones Home Building index ($DJUSHB) has been in a similar trend, and it is on the verge of dropping to challenge its May (and January) lows in the $530-540 area. Turning to LEN's PnF chart, we can see how bearish the supply/demand dynamic has become. The selloff from the March highs created a large Sell signal, bringing with it a downside target of $27. With the bullish support line all the way down at $35, clearly the stock still has quite a ways to fall. The most recent rally attempt stalled out just over the $46 level and in the end the 200-dma ($45.88) won out as resistance. Yesterday's earnings report did little to dissuade the bears from their vendetta on the stock, as price slid back under the $43 level on nearly triple the average daily volume today. That $46 area is now going to be stiff resistance, with the 50-dma ($46.17) about to cross down through the 200-dma and with strong historical resistance now in the $46.00-46.50 area. We want to force LEN to prove itself to us by breaking down to new recent lows, so we're going to use an entry trigger at $41, just under the mid-May low. Note that the trade at $41 will create a fresh PnF Sell signal, reinforcing the bearish picture there as well. Aggressive traders can enter on the initial breakdown, while the more conservative traders can wait for a subsequent failed rebound in the $42-43 area. While there are some points of mild support at higher levels, we're setting our sights on solid support in the $36-37 area as our initial target. If the stock really gains some downside momentum, then we can look for a decline near the $35 bullish support line, although at that point, we should be looking to aggressively harvest gains before the expected rebound. Our stop will initially be placed at $46.50, just over the top of the most recent failed rebound, as well as both the 200-dma and the 50-dma. Annotated Chart of LEN: Picked on June 16th at $42.90 Change since picked +0.00 Earnings Date 6/15/04 (confirmed) Average Daily Volume = 1.94 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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