PremierInvestor.net Newsletter Wednesday 06-30-2004 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: Watch List: No Surprise 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) =============================================================== 06-30-2004 High Low Volume Advance/Decline DJIA 10435.48 + 22.05 10471.24 10375.67 1.82 bln 2033/ 794 NASDAQ 2047.79 + 12.86 2055.65 2031.88 1.74 bln 1873/1197 S&P 100 553.87 + 1.36 556.05 550.88 Totals 3906/1991 S&P 500 1140.84 + 4.64 1144.22 1133.62 RUS 2000 591.52 + 3.69 591.53 587.73 DJ TRANS 3204.31 + 19.60 3204.80 3161.96 VIX 14.34 - 1.13 15.73 14.25 VXO 13.97 - 1.40 15.97 13.81 VXN 19.37 - 0.78 20.52 19.09 Total Volume 3,902M Total UpVol 2,610M Total DnVol 1,067M 52wk Highs 321 52wk Lows 81 TRIN 0.80 PUT/CALL 0.78 =============================================================== =========== Market Wrap =========== Two Down, One to Go by James Brown The second of this week's three big events has passed and for the most part stocks remain stuck inside their trading range. In what has been described as the most telegraphed interest rate move of all time the FOMC raised rates by 1/4 point, just as expected. A choppy session turned bullish in the afternoon as money came in off the sidelines to do a little end of quarter window dressing. The Dow Industrials, the NASDAQ Composite and the S&P 500 index all ended the month and the quarter in the green. Have investors left early for the fourth of July holiday or are we merely stuck in the summer doldrums? The markets have been focused on this one week for weeks now and we're just not seeing much conviction either way. Monday's surprise transfer of power in Iraq was great news but stocks failed to hold their gains. Yesterday the markets didn't do much because investors were focused on today's FOMC decision on interest rates. Everyone expected the Federal Reserve to raise rates by 1/4 point to 1.25% so the focus was actually on the Fed's language in their decision. Bulls got what they wanted with the "measured pace" comments still in there but traders continued to sit on the sidelines. There was an afternoon rally of what most were calling some last minute window dressing but stocks began to fade from their highs in the last 30 minutes. No one really expected a lot of action in stocks ahead of the 2:15 PM ET interest rate decision but U.S. stocks should have been somewhat primed for a bullish session. The lack of headline-grabbing news out of Iraq on a day that many expected terrorists to strike despite the early transfer was a sigh of relief. Maybe it was the losses overseas that weighed on stocks here. European bourses didn't do so well with the French, German and English exchanges all trading lower. In contrast the Hang Seng index in Hong Kong managed a 169-point gain to 12,285. Its Asian counterpart in Japan, the NIKKEI, closed relatively unchanged. The rise in crude oil didn't help matters. Light sweet crude soared 4% or $1.39 to $37.05 a barrel, significantly erasing a good chunk of this week's losses. Industry experts were expecting U.S. crude inventories to rise. The markets were surprised to hear that the Energy Dept. reported a decline of 500K barrels while the API data reported a 4.2 million barrel decline. Combine this surprise with new comments from Saudi Arabia about no new production hikes and it's no small wonder that oil shot higher today. Before the Fed decision was released today investors got to hear the Chicago Purchasing Managers Index or PMI report. Yesterday Jim mentioned that we've seen a number of economic reports indicating growth wasn't as strong as expected and thus the Fed was likely to keep their rate hike and language market friendly. The PMI proved to be just another report supporting this message. Last month, in May, the Chicago PMI shot toward 16-year highs at 68%. This month analysts were expecting a decline to 65.2% but were surprised to hear the PMI drop to 56.4%, the slowest reading in eight months. Fortunately it's still a positive reading, with anything over 50 indicating growth, and odds are good the Fed probably had a heads up on what the data looked like before we did. The big event today was the decision on interest rates. This is a link to view the announcement but I've posted their comments here: http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040630/default.htm The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 1-1/4 percent. The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. The evidence accumulated over the intermeeting period indicates that output is continuing to expand at a solid pace and labor market conditions have improved. Although incoming inflation data are somewhat elevated, a portion of the increase in recent months appears to have been due to transitory factors. The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal. With underlying inflation still expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability. The underlining and the bold lettering is mine not the Fed's. Bulls were happy to see the "measured pace" comments, which should soothe fears that the Fed is behind the curve. More critical traders point to the "nonetheless" comment as the Fed's trump card to raise rates as fast as they need to should inflation get out of hand. Most analysts are interpreting the "transitory factors" in the recent rise of inflation as higher fuel costs, which are expected to abate somewhat. All in all the 1/4-point hike is the first jump in rates since May 2000 and pulls the Fed funds rate up off 40-year lows. As mentioned earlier stocks did turn positive in the afternoon after the announcement. Market internals were also bullish. Advancing stocks outnumbered decliners 20 to 8 on the NYSE and almost 19 to 12 on the NASDAQ. Up volume was more than twice the down volume numbers and overall volume came in at a relatively healthy (for this time of year) 3.5 billion shares for both exchanges. Several sectors look poised for a breakout. The NWX networking index and the BTK biotech index both rallied to new relative highs and closed just under their simple 100-dma's. The Dow Jones Transportation index turned in a bullish close back over the 3200 level. The Dow Industrials added 22 points to close at 10,435 but the index began to fail at its intraday high of 10,471 in the afternoon under recent resistance near 10,480. The S&P 500 index climbed almost 5 points to 1140 but it too remains stuck in its trading range. The NASDAQ looks a lot more bullish with a new two-month high but it failed to hold the breakout over resistance at 2050 as it sank in the last half hour. Still we shouldn't complain. The Dow climbed 2.4% in June and the NASDAQ added more than 3% for the month. Year-to-date the NASDAQ is up 2.2%, the S&P 500 index is up 2.6% while the Dow Industrials are down 0.2%. Chart of the Dow Industrials: Chart of the NASDAQ Composite: Chart of the S&P 500 index: Wednesday was not without its stock-specific stories. Research In Motion (RIMM) announced earnings last night after the closing bell on Tuesday and beat estimates by 4 cents per share. RIMM also raised its earnings and revenue estimates for the next quarter to 32-37 cents and $290-310 million, respectively, compared to prior forecasts of 24-29 cents in earnings and $270 million in revenues. Shares of RIMM soared more than 15% today to close at $68.45, a new all-time high. Meanwhile Lexar Media (LEXR) was moving the opposite direction. The stock lost 16.6% to close at $6.68 after the company warned last night that its Q2 results would be less than expected. LEXR now expects June quarter revenues in the $155-160 million range compared to analysts' estimates at $186 million. Dow-component and NDX-component Microsoft (MSFT) also made headlines today. A Washington appeals court voted 6-0 to uphold a district court's decision on the Department of Justice's antitrust settlement. The settlement, reached two years ago by MSFT and the Justice Dept., was appealed by the state of Massachusetts and a couple of trade groups. Today's decision should end the six-year antitrust saga for MSFT in the U.S. but the company is currently appealing a recent decision in Europe. Shares of MSFT added 6 cents to close at $28.56. Looking ahead to tomorrow I'd like to be bullish but the late-day action this afternoon is discouraging. To echo Jim's comments yesterday, if the NASDAQ continues to plod higher then the rest of the market should follow. Fortunately, the Stock Trader's Almanac by Hirsch has a few things to say about the month of July. First of all the first day of trading in July has been up 13 out of the last 15 years. The beginning of July tends to see a lot of retirement money inflows that should buoy stocks. The month of July is the best month in the third quarter. Unfortunately it happens to be the first month in the NASDAQ's worst four months of the year and election year July's don't seem to alleviate this trend. Another positive factor for stocks is the historical trend for the S&P 500 to rise 8% in the first six months once the Fed begins a tightening cycle. This is due to the improving economic conditions and rising corporate earnings. Now how this figure meshes with the market's typically tepid performance in the third quarter is a question I can't answer. Tomorrow does bring a few more economic reports. Before the opening bell will be the weekly initial jobless claims. After the open we'll get the construction spending numbers, the ISM index and the auto and truck sales figures. The ISM index is the one to watch but it will probably be overshadowed by Wall Street's focus on Friday's non-farm payrolls report. Short-term I would continue to be cautious. The volatility indices all took a dive today with the VXO falling 9% back toward its lows and the VIX and VXN are right on its heels. Regular readers know that interpreting the VIX is more art than science but these levels still scream "danger, the market is near a short-term top". ================================================================== 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 --------------------------------- No Surprise Tenet Healthcare - THC - close: 13.41 change: +0.59 WHAT TO WATCH: We've been watching THC here lately, talking about buying the recent dip to the bottom of the rising channel. But the stock made an unexpected jump today, breaking out over 5 months of resistance and the 200-dma. This looks like a good spot for momentum entries, targeting a rise towards the $16 level. More conservative traders could look to buy a bounce from what should be solid support now near $12.90. --- Maxim Integrated Products - MXIM - close: 52.42 change: +0.21 WHAT TO WATCH: Ever since posting a double bottom near the $44 level last month, shares of MXIM have been making steady upward progress and the stock almost broke out again today. Use a trigger over today's high for entries and look for a longer-term rally towards the $60 resistance level. Note that some resistance will likely be found in the $55-56 area. Use a tight stop just under the $51 level, which defines the bottom of the most recent consolidation pattern. --- Southwest Airlines - LUV - close: 16.77 change: -0.04 WHAT TO WATCH: The rally in the Dow Transports hasn't been lost on Airline stocks and LUV staged a major breakout through the 200-dma last week. Since then, the stock has been consolidating near its recent highs in preparation for the next bullish move. The current weakness looks like an inviting entry point, with an upside target of $18.00-18.50. Use a tight stop just under $16.50, just in case the pattern breaks to the downside. --- FLIR Systems Inc. - FLIR - close: 54.90 change: +0.59 WHAT TO WATCH: We've had our eye on FLIR lately and this week's breakout over the $54 level certainly looks encouraging. But due to the light volume accompanying the move, we're more inclined to buy a pullback near the $52 support level. Traders willing to buy a breakout over yesterday's high should only do so if it comes with a substantial increase in volume. =================== On the RADAR Screen =================== JBLU $29.41 - JBLU is another Airline stock that is posting a healthy pattern of higher lows and higher highs. After last week's breakout to new multi-month highs, the current pullback looks like an attractive entry opportunity. Target entries in the $28.50-29.00 area and look for a longer-term upward move towards strong resistance at $35. NTES $41.34 - Chinese Internet stocks continue to act poorly and NTES is once again on the verge of a significant breakdown. Use a trigger below $40 and target a quick move down to solid support near $36. ISIL $21.66 - After basing for over a month, ISIL managed to push through the top of its descending channel and then the 50-dma. Showing they mean business, the bulls managed a solid breakout over $21.50 resistance. Entries look good on either a breakout over the 100-dma or on a slight pullback near $21. Target a move towards strong resistance at $24. ================== 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 PTR Petrochina Co Ltd (ADS) 46.41 +0.77 CVX Chevrontexaco Corp 94.16 +0.72 SI Siemens Aktien 72.52 +0.87 UTX United Technologies Corp 91.52 +0.99 UNH Unitedhealth Group Inc 62.28 +0.87 COP Conocophillips 76.31 +0.66 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- TKLC Tekelec 18.17 +1.17 VICR Vicor Corp 18.27 +1.03 INET INET Technologies Inc 12.47 +1.77 JUPM Jupitermedia Corp 14.17 +1.01 ASTE Astec Industries 18.83 +1.20 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- WLP Wellpoint Health Network 112.02 +2.02 GIS General Mills Inc 47.57 +1.45 GILD Gilead Sciences Inc 67.00 +1.48 CNI Canadian Natl Railway 43.56 +1.21 ATH Anthem Inc 89.55 +2.13 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- FRX Forest Laboratories Inc 56.63 -1.02 GLH Gallaher Group Plc (ADS) 48.32 -1.03 AZO Autozone Inc 80.22 -8.00 CBH Commerce Bacorp Inc NJ 55.10 -6.05 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- YPF YPF Sociedad Anonima 39.00 -0.25 ROST Ross Stores Inc 26.76 -0.38 AAP Advance Auto Parts Inc 44.11 -1.11 CMI Cummins Inc 62.49 -0.44 ORLY O'Reilly Automotive Inc 45.20 -0.98 ================================================================= 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 06-30-2004 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: BRCM, ELX, SHW, SOHU High Risk/Reward New Bearish Plays: IMOS Closed Bullish Plays: MACE Closed Bearish Plays: NPSP ================================================================== Stop Loss Adjustments ================================================================== BRCM - long Adjust from $43.50 up to $44.40 --- ELX - tech stock short - Lower stop from $15.76 to $15.55 --- SHW - non-tech long - Raise stop from $39.50 to $39.99 --- SOHU - high-risk/reward short - Lower stop from $23.25 to $22.01 ================================================================== High Risk/Reward (HR) Stock section ================================================================== --------- New Plays --------- New Bearish Plays ----------------- ChimMOS Tech. - IMOS - close: 6.97 change: -0.78 stop: 8.50 Company Description: ChipMOS Technologies (Bermuda) Ltd. is an independent provider of semiconductor testing and assembly services. The company provides a range of back-end testing services, including engineering testing, wafer probing and final testing for memory and mixed signal semiconductors. It also offers a broad selection of leadframe-based and organic substrate-based package assembly services for memory and mixed signal semiconductors. IMOS' advanced leadframe-based packages include thin small outline packages, and its advanced organic substrate-based packages include mini-ball grid array packages. In addition, the company provides testing and assembly services for liquid crystal display (LCD) driver semiconductors and other flat panel display driver semiconductors by employing tape carrier packages, chip- on-film and chip-on-glass technologies. Why we like it: With the solid upward action from the Semiconductor index (SOX.X) over the past week, the extreme weakness in shares of IMOS is a huge sign that something is very wrong. With the SOX inching upwards today to the tune of almost 1%, IMOS plunged more than 10% on very heavy volume. The company released its latest Financial statement today and something in that release seems to have been the catalyst for the move, although the technical picture was already looking pretty abysmal. IMOS has been steadily marching lower from its January highs, leaving a pattern of lower highs and lower lows in its wake. This latest failed bounce looks particularly ominous, as it failed just under the converging 50-dma ($8.34) and 200-dma ($8.42) with the bearish crossover of those two key averages taking place today. The PnF chart shows a pretty grim picture as well, with last month's Sell signal producing a downside target of $2.50. That may be a bit much to hope for, but a break of near support in the $6.00-6.50 area should easily open the door for a plunge down to next support near $4.00. With today's drop of 10%, clearly this is a higher risk play. We're going to use an entry trigger at $6.50, which is just under the lows from a couple weeks ago. Aggressive traders can enter on the initial break of support, but must be prepared for the potential of at least one more rebound attempt. Looking at the weekly chart, we can see several points of support late last year in the $6.00-6.50 area, so more conservative traders will either want to wait for the break below $6.00 before playing, or target a failed rebound for entry. If looking for a rebound entry, the $7.25-7.50 area looks viable with the 10-dma ($7.33) right in the middle, but remember that we can't take that rebound entry until AFTER the stock trades below our $6.50 trigger. We want to give the stock plenty of room to move in the near-term, so we're setting a liberal initial stop at $8.50, which is just above both the 50-dma and 200-dma. Annotated Chart of IMOS: Picked on June 30th at $6.97 Change since picked +0.00 Earnings Date 5/14/04 (confirmed) Average Daily Volume = 297 K ============ Closed Plays ============ Closed Bullish Plays -------------------- Mace Security - MACE - close: 5.58 change: +0.10 stop: 5.35 There's no way to put a pretty face on it, MACE just hasn't done as we expected. After the initial news related drop a couple weeks ago, the bulls made a feeble attempt at getting a rebound going, but clearly they've failed with the recent rollover. The stock now looks like it will break below the lows near $5.40 and we want to be long gone before that happens. Use any hint of a rebound to exit open positions and look to deploy the cash in more promising plays. Picked on June 13th at $6.05 Change since picked -0.47 Earnings Date N/A Average Daily Volume = 4.92 mln Closed Bearish Plays -------------------- NPS Pharm. - NPSP - close: 20.98 change: +0.29 stop: 22.00 Following its short-lived breakdown below $20, our NPSP play bounced back near the $21 level and has spent the past 2 weeks consolidating in what is looking more and more like a bullish price pattern. Resistance at the 20-dma appears to be weakening and an upside breakout could be explosive. We're going to avoid that possibility by just dropping the play tonight for lack of performance. Use any intraday weakness tomorrow to achieve a better exit point from open positions. Picked on June 13th at $20.68 Change since picked +0.30 Earnings Date 5/06/04 (confirmed) Average Daily Volume = 1.08 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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