PremierInvestor.net Newsletter Thursday 06-24-2004 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: Pause To Reflect Market Sentiment: Traders Still Cautious Watch List: Orderly Retreat ================================================================= MARKET WRAP (view in courier font for table alignment) ================================================================= 06-24-2004 High Low Volume Adv/Dcl DJIA 10443.81 - 35.80 10487.46 10433.56 1.72 bln 1662/1566 NASDAQ 2015.57 - 5.40 2032.21 2013.78 1.69 bln 1623/1473 S&P 100 555.71 - 2.09 558.77 555.30 Totals 3285/3039 S&P 500 1140.62 - 3.44 1146.34 1139.94 W5000 11104.21 - 28.10 11159.24 11098.64 SOX 470.73 - 5.60 479.42 469.24 RUS 2000 579.05 - 1.10 583.06 578.92 DJ TRANS 3127.26 - 12.00 3144.88 3124.30 VIX 14.81 + 0.83 14.97 14.16 VXO (VIX-O)14.39 + 0.76 14.64 13.95 VXN 19.36 + 0.38 19.61 19.07 Total Volume 3,681M Total UpVol 1,492M Total DnVol 2,086M Total Adv 3774 Total Dcl 3429 52wk Highs 363 52wk Lows 81 TRIN 1.19 NAZTRIN 1.30 PUT/CALL 0.66 ================================================================= =========== Market Wrap =========== Pause To Reflect by Jim Brown After a very strong breakout on Wednesday the markets paused to reflect today and managed a very orderly profit taking session. The Dow tried twice to move higher and grab the brass ring at 10500 but fell about a dozen points short on the attempt. Considering the two day rally off the lows it is not surprising traders paused to wonder not only how they reached these levels but why given the current events. Dow Chart Nasdaq Chart Sox Chart The economic reports produced another mixed picture of conflicting signals sending ten year bond yields back down to 4.64%. The Jobless Claims crept up once again to near the 350K level with a notch at 349,000 for last week. There were comments from analysts that Reagan's funeral prevented workers from applying for benefits in the prior week thus shifting more applications into this week. Sounds reasonable to me but we will have to wait for next Thursday's release to see if they were right. The Help Wanted Index for May rose to 39 from 38 in April. Considering the recent gains in employment those same analysts are suggesting that this indicator is no longer valid instead of accepting that new employment may have slowed as we move into summer. Had it soared to 45 or so you can bet they would have been pounding the table to raise the estimates for the June nonfarm payrolls due out next Friday. The tea-leaf readers want the surveys to conform to their economic outlook not change their outlook to match the indicators. Since this indicator is based on newspaper advertising it is probably outdated with the onslaught of online job shops. Outdated yes but not yet insignificant. Another surprise came from a big drop in Durable Goods of -1.6% for May when consensus estimates were for a gain of +1.1%. This marks the second consecutive month that Durable Goods have fallen with the April drop at -2.6%. This two month drop of -4.2% sent the bond market soaring on the outside chance the Fed will see the economy as still too soft to raise rates. While I think that possibility is far too remote to consider the ten-year yields did drop to a five week low and with only four days remaining to the Fed decision. The drop in Durable Goods suggests one of the key points in the economic recovery, business spending, may be slowing once again. This is a very broad indicator and a continued slowdown in most components is troubling to say the least. I think this has a good chance of coming back to bite us very soon if the Jobs report next Friday shows a letup in hiring. The blowout number for the day was New Home Sales which soared to 1,369,000 units and more than 200,000 more than estimates. This is a May number and it was the largest one month increase since April 1993. I am sure readers remember I have written about this before and we expected the late spring numbers to explode. Once the rate increase was more or less guaranteed builders would provide higher incentives to attract buyers and those buyers still on the fence would bite the bullet and take the plunge trying to get in while they could still afford it. We have seen repeated reports that ARM loans have exploded as buyers try to reduce pmts as much as possible to offset rising rates and to leverage the largest amount of house they could buy on current incomes. With housing prices rising +15% or more a year in many areas the window of opportunity for a favorable purchase is closing. I have a son that owns a mortgage loan business and his closings have risen substantially in just the last month. Also, remember that New Home Sales are counted when the contract is signed and deposit made and not when they are closed. The jump in sales is simply a rushed decision to buy and lock in loan rates and it may be well ahead of the actual date of possession. Builders are now racing to build the homes they have already sold. Builders have been offering a capped rate mortgage for closings up to 12 months away in order to lock in buyers. The builder will eat the difference and add it to the cost of sales. Regardless of the current rate of sales you can bet builders will start fewer homes next winter with the prospects of rates being 2% higher in summer 2005. Keep control of the inventory and you control prices. It was not the economic reports that had the most impact on the markets at the open. It was news from Iraq as we draw nearer to the June-30th changeover. Overnight attacks killed 69 and injured over 300 in Iraq as terrorists try to further complicate the change in power. With six days left you can expect this carnage to continue with attacks against the new regime more than likely as the clock ticks down. Where a change in U.S. Presidents normally focuses on accomplishments in the first 100 days of office the major goal for the incoming Iraq regime will be staying alive for 100 days. If today's attacks are any indication the body count over the next week could be huge. Still the markets managed to hold their gains until about 1:PM and the eventual sell off was minimal. The Dow tried very hard to attack the 10500 level but could only manage 10487. Very respectable in my opinion. The closing drop to 10450 is still a level not seen in over two months until yesterday. The resistance explosion on Wednesday came on the back of a very big buy program that triggered massive short covering. Seems there were many traders short in front of the Fed/Iraq events and for good reason. Somebody pulled the buy program trigger at exactly the right time to upset that apple cart with a massive move over the 10430 resistance level. If you recall my comments from Tuesday night this event was not unexpected. We closed just below 10400 on Tuesday and I speculated that a +100 point move would not be unreasonable and I saw a bullish bias building. The 10500 level was my target. "Should we see a Dow move over 10430 we could see an acceleration of buying that just might overcome the resistance areas to the 10500 level." (Tuesday) The 10486 high on Wednesday and 10487 high on Thursday was close enough for me. The Nasdaq rebound far exceeded my expectations and it continued today with a spike to 2032, well over the top of the recent range and over the 2020 resistance. It makes you appreciate how strong the Wednesday short covering really was. The A/D volume was 5:1 in favor of advancers and the new 52-week highs were the strongest since April 12th. The spike came after an upward creep to that prior resistance so the spring was compressed and ready to go. The two-day rebound on the Nasdaq saw very little profit taking with only a -5 point day but we did slip back under the 2020 resistance level. We are poised to go either way. The SOX lead the Nasdaq bounce and it also led the decline today with a -5.61 drop beginning right at 1:PM. The SOX is resting on 470 support and well under strong resistance at 490. There could be another opportunity for a bounce here but odds are better for a sideways move into next week. For Friday we have the final Q1 GDP, which is expected to be +4.4% and inline with the last revision. After the bad Durable Goods today it could move the market if we see a substantial downward revision. Consumer Sentiment is also due Friday at 95.5 and inline with the initial June number at 95.2. This is one indicator that could see a jump. With the Iraq prisoner problem behind us and no material economic challenges in the rate/job market consumers should be happy and enjoying the summer sun. We also see Existing Home Sales where the consensus is for a decline to 6.53M units. After the New Home number today that may be low. For Friday I am not expecting any major upward move. With the potential for an escalation in violence in Iraq as the days tick away there is more potential for profit taking ahead of weekend event risk than for another rally. With the Fed meeting in two days those making bets should have already made them or the cautious ones might wait until Monday. We are watching the countdown on multiple time bombs and as the fuses grow short the potential for gains diminishes. My best target for a resumption of any summer rally is next Thursday. I would look at any dips before the 30th as buying opportunities. Enter Passively, Exit Aggressively. Jim Brown Editor =============================== Market Sentiment =============================== Traders Still Cautious -J. Brown "No" was the answer to yesterday's question if there would be any follow through on Wednesday's technical breakout. The long-await rush of money that is supposed to be sitting on the sidelines failed to appear. Investors remain cautious and for good reason. News out of Iraq this morning was deadly. A new series of attacks and car bombs left 100 some people dead and hundreds wounded as we approach the June 30th deadline. Stocks traded mostly sideways through out the session before a last hour sell-off. Yet for the most part stocks held on to the majority of their gains from the previous two sessions. Today's big winners, aside for a surge in gold, were the housing stocks. The May New Home Sales numbers unveiled a 15% jump in sales to a new record. This sparked a fire under the homebuilders but the flames began to cool midday and most builders significantly tempered their gains by the close. This is good news because reaffirms that the economy is strong, consumers are still strong and a wave of new home sales usually means more retail sales as Americans rush out to buy new merchandise for their new homes. Once again market pundits are suggesting that we will continue to trade sideways until the end of next week. I know you're tired of hearing about it but Wall Street remains focused on the June 30th interest rate decision, the Iraq handover and the July 2nd June payrolls report. After that is the long July 4th holiday. If the holiday proves to be uneventful then we can move unhindered into the Q2 earnings season. A couple of noteworthy items to cool any bullish cravings you might have. The volatility indices (VIX, VXO, VXN), while moving higher today, remain near their lows and at bearish levels. Meanwhile, the ARMS index and a few of its key moving averages are also approaching bearish levels. Now we know these can always get more oversold but traders need to be careful when considering new bullish positions. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8871 Current : 10443 Moving Averages: (Simple) 10-dma: 10387 50-dma: 10253 200-dma: 10139 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 962 Current : 1140 Moving Averages: (Simple) 10-dma: 1134 50-dma: 1119 200-dma: 1096 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1180 Current : 1488 Moving Averages: (Simple) 10-dma: 1473 50-dma: 1447 200-dma: 1438 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 14.81 +0.83 CBOE Mkt Volatility old VIX (VXO) = 14.39 +0.76 Nasdaq Volatility Index (VXN) = 19.36 +0.38 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.66 861,415 572,208 Equity Only 0.49 698,962 341,775 OEX 1.20 14,827 17,831 QQQ 0.27 137,077 36,783 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 67.0 + 1 Bear Confirmed NASDAQ-100 43.0 + 2 BULL ALERT Dow Indust. 66.7 - 3 Bear Confirmed S&P 500 64.4 + 0 Bear Confirmed S&P 100 63.0 + 0 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: 0.91 10-dma: 0.97 21-dma: 0.93 55-dma: 1.04 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 1357 1585 Decliners 1465 1457 New Highs 161 89 New Lows 30 28 Up Volume 725M 751M Down Vol. 976M 848M Total Vol. 1726M 1674M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 06/15/04 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 Commercial traders remain net bearish but they have added to their long positions. Small traders have also added to their long positions but it's the jump in their shorts that is most noteworthy. Commercials Long Short Net % Of OI 05/25/04 400,713 420,764 (20,051) (2.4%) 06/01/04 406,665 421,681 (15,016) (1.8%) 06/08/04 397,294 452,904 (55,610) (6.5%) 06/15/04 428,905 444,197 (15,292) (1.8%) 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 05/25/04 136,086 79,060 57,026 26.5% 06/01/04 137,100 79,583 57,517 26.5% 06/08/04 158,373 92,794 65,579 26.1% 06/15/04 169,595 115,336 54,259 19.0% 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 Hmm... what are commercial traders trying to tell us. Their short positions have grown steadily over the past four weeks. Likewise the small traders' long positions have grown each week for the last four weeks. Commercials Long Short Net % Of OI 05/25/04 353,722 336,406 17,316 2.5% 06/01/04 325,865 325,274 591 0.0% 06/08/04 367,191 409,246 (42,055) (5.4%) 06/15/04 440,867 522,546 (81,679) (8.5%) 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 05/25/04 91,515 100,759 ( 9,244) ( 4.8%) 06/01/04 111,484 90,625 20,859 10.3% 06/08/04 140,191 84,649 55,542 24.7% 06/15/04 216,759 147,247 69,512 19.1% 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 remain bullish on the NASDAQ but their confidence is waning. Likewise small traders are staying true to their nature and doing the opposite with a decrease in shorts. Commercials Long Short Net % of OI 05/25/04 59,891 37,630 22,261 22.8% 06/01/04 59,944 34,784 25,160 26.6% 06/08/04 64,747 41,178 23,569 22.3% 06/15/04 78,542 54,341 24,201 18.2% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 05/25/04 10,184 20,653 (10,469) (33.9%) 06/01/04 9,755 30,025 (20,270) (51.0%) 06/08/04 9,716 29,594 (19,878) (50.6%) 06/15/04 15,794 35,880 (20,086) (38.9%) Most bearish reading of the year: (20,270) - 06/01/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Hmm.. we have some interesting moves here. Commercial traders have gone from net bearish to net bullish while small traders have oved from net bullish to net bearish on the Dow Jones. You know who normally wins these conflicts - it's the commercials. Commercials Long Short Net % of OI 05/25/04 23,578 24,632 (1,045) (2.2%) 06/01/04 23,397 24,393 ( 996) (2.0%) 06/08/04 24,636 25,821 (1,185) (2.3%) 06/15/04 30,438 24,766 5,672 10.3% 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 05/25/04 9,623 6,614 3,009 18.5% 06/01/04 9,000 6,021 2,979 19.8% 06/08/04 8,325 6,431 1,894 12.8% 06/15/04 13,942 20,953 (7,011) (20.1%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ================================================================== 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 --------------------------------- Orderly Retreat Garmin Ltd. - GRMN - close: 34.40 change: +1.04 WHAT TO WATCH: Rather than breaking down, shares of GRMN put in a higher low last week and today surged through the 50-dma for the first time since breaking that average in January. A break over key resistance near $35.40 looks like a solid entry point, with an upside move near $38.50 and then possibly to $40 being the likely bullish objective. --- Toll Brothers Inc. - TOL - close: 42.84 change: +1.07 WHAT TO WATCH: With the FOMC meeting next week on interest rates, Housing stocks are poised either to soar or plunge on the decision and from the looks of today's price action, up is the direction of least resistance. TOL surged through resistance at $42.50 today and despite a significant intraday pullback, still held onto that breakout at the close. Entries look favorable on a slight pullback to test the $42 support and then a run towards the $48 highs appears likely. Note the PnF chart is already bullish with an upside target of $55. --- Lennar Corp. - LEN - close: 45.49 change: +1.20 WHAT TO WATCH: Another housing stock that is turning bullish is LEN, with the stock pushing through the 50-dma today and ending the session just shy of a new PnF Buy signal. Use a trigger at $47, which would be a move over the 200-dma and sufficient for that PnF Buy signal. While there's likely to be some near-term resistance near $48, the first real obstacle will be found in the $50-51 area. --- Check Point Software - CHKP - close: 25.50 change: -0.27 WHAT TO WATCH: CHKP has been wedging up against resistance in the $26 area for the past few weeks and this appears to be just the final stage of the assault on this resistance level. Use a trigger over $26.25 and then look for a strong rally towards resistance near $30. =================== On the RADAR Screen =================== CHIC $21.50 - It may look a bit extended on the daily chart, but the weekly shows just how significant this week's breakout over the $20 level is. Let's be patient and look for a pullback to test that breakout level and consider new entries on the rebound from that support. Target a longer-term upside move to the $25 area. APPB $23.41 - Playing out just as we expected, APPB broke down under the $23.50 support level today and with the breakdown coming on strong volume, we thought it would be worthwhile to highlight the stock again tonight. Entries look favorable, either on a break below today's low or on a failed bounce below the $24 level. WMB $12.23 - Making regular appearances in this space throughout its bullish rise, WMB looks ripe for another breakout move, as it is once again testing key resistance near $12.40. Use a trigger over that level and target strong resistance near $15. ================================================================= 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 ) 2003 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Thursday 06-24-2004 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: SHW Closed Plays: SEE NOTE 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 Adjustments ================================================================= SHW - non-tech long - raise stop from $38.65 to $39.50 ================================================================= Closed Plays ================================================================= HOTT and RMBS were both stopped out today. Due to technology difficulties, we will be sending out the dropped write-ups in the Weekend Emails.. ================== 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 HBC HSBC Holding 74.30 +0.62 BAC Bank of America 85.44 +0.67 MER Merrill Lynch 54.99 +0.69 CHA China Telecom 33.92 +0.94 UNP Union Pacific 58.81 +0.81 BSC Bear Stearns 84.77 +1.22 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- ATYT ATI Technologies 18.33 +1.54 KFY Korn Ferry Intl 19.65 +1.02 DGIN Digital Insight 19.62 +1.02 SSRI Silver Standard Resource 12.73 +1.06 BW Brush Engineered 19.72 +1.18 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- ZBRA Zebra Technologies 82.84 +1.69 ADS Alliance Data 41.16 +1.28 KBH KB Home 70.08 +1.75 NCEN New Century Financial 49.34 +1.75 KWK Quicksilver Resources 65.65 +1.65 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- APOL Apollo Group 85.85 -4.77 RDN Radian Group 45.85 -1.75 ALD Allied Capital 24.25 -2.70 COCO Corinthian Colleges 22.51 -2.55 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- PSYS Psychiatric Solutions 25.67 -1.58 RMK Aramark Worldwide 27.78 -0.37 ================================================================= 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 2003 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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