PremierInvestor.net Newsletter Monday 07-12-2004 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: Doji Day Watch List: Software Still Weak =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 07-12-2004 High Low Volume Advance/Decline DJIA 10238.22 + 25.00 10257.10 10162.18 1.34 bln 1519/1271 NASDAQ 1936.92 - 9.41 1941.24 1921.40 1.49 bln 1253/1763 S&P 100 543.70 + 1.07 544.52 539.74 Totals 2772/3034 S&P 500 1114.35 + 1.54 1116.11 1106.71 RUS 2000 562.24 - 1.49 564.56 558.29 DJ TRANS 3091.62 + 3.65 3093.18 3066.66 VIX 14.96 - 0.82 15.61 14.61 VXO 16.07 + 0.58 17.13 15.80 VXN 21.73 - 0.62 22.51 21.48 Total Volume 3,114M Total UpVol 1,173M Total DnVol 1,894M 52wk Highs 92 52wk Lows 178 TRIN 1.48 PUT/CALL 1.17 =============================================================== =========== Market Wrap =========== Doji Day Jonathan Levinson Both the Dow and the Nasdaq test last week's lows, the Dow holding and the Nasdaq falling below, and both reversed to the upside to close near the upper end of their day ranges. It was truly a tale of two markets, with the Dow posting a key outside upside reversal day, breaking Friday's low but closing above Friday's high. The Nasdaq, however, despite the doji bottom still closed below Friday's range, adhering to what is turning out to be a precipitous daily downtrend off the end-of-June window-dressing high. Volume was at the lower end of "light" on both exchanges (see data above), and volatility was wild, with the VXO and QQV diverging higher as the VIX and VXN moved lower, the first taste of this month's op-ex week antics. Morgan Stanley was out predicting a retest of the May lows, despite Abby Joseph Cohen's reiteration of her previous almost perfectly-timed contrarian bullish recommendation from the previous week. Weekly Dow Chart The Dow tested the rising weekly support line with today's low at 10162. It's very early in the week to be assessing the current 1-day old weekly candle, but today's intraday doji bottom behaved exactly as one would expect for a support line that wants to hold. While the weekly cycle oscillators are a mixed bag, they did not decline last week, and the case can be made for a weekly cycle upphase trying to form from a higher price and oscillator low. As is so often the case with key trendlines, the move that breaks them is often a high volume, high drama gapper, and given that this one has been in place since the March 2003 lows, I would expect no less. As has been occurring with increasing regularity lately, the oscillators are in an ambiguous state waiting for price to resolve the dilemma. A weekly close below Dow 10150 or above 10200 will likely determine direction to the downside or upside, respectively- that is the range that I'll be watching this week. A closing break above 10400 would set the stage for a retest of the year high at 10795. Daily Dow Chart Today's print was a very bullish candle. A close higher within the range would have left a bullish hammer, but the bullish doji star closing above Friday's candle body is bullish enough for me. The move was strong enough to bury most of the sellers since Wednesday and gave the first suggestion of an upturn in the 10- day stochastic from a higher price and oscillator low. 10260- 10300 is key resistance, but the overhang from the June top from 10330-10350 should prove to be very stiff resistance. Weekly Nasdaq Chart The cycle ambiguity in the weekly Dow is apparent in the weekly Nasdaq as well, but the price is a little more generous in providing clues. The 10 week stochastic points up while the Macd points uncertainly south, but the price, holding as it is below the 1970 level, suggests a failure below the rising support line off the October 2002 low. The Nasdaq has been full of false breaks, and we'll want to see a high volume close below the rising support line this week to confirm the bearish break. Support from the previous weekly low coincides with lower Bollinger support at 1884, while resistance at the apex of the broken pennant is up to 1990. Daily Nasdaq Chart The Nasdaq tried but just couldn't get it together, anchored by weakness in the SOX. I've drawn the most bullish interpretation I see here, that of a falling wedge, but note that it's unsupported by the oscillator picture which remains overwhelmingly bearish. The divergence between the Dow and the Nasdaq is extreme- one of these two charts is going to the get with the program, and one is leading the way. Historically, that's tended to be the Naz, but in this case I'm not at all confident of that. In any event, the cycle points lower for the time being, with a low for the move printed today at 1920 with next support conveniently located at 1900. Resistance is at 1940, followed by 1960 and 1990. If my wistful bull wedge interpretation is correct, then an upside break would have an implied target as high as 2050. Weekly TNX Chart Bonds rose today, with the ten year note yield (TNX) closing lower by 2.3 bps at 4.443%. The weekly cycles are on clear sell signals following the double top at the year highs at 4.88%. Support from last week is at 4.41%, with resistance to 4.5%. Today's action looked and felt corrective against the weekly cycle downphase, but there's also support from last autumn down to the 4.2% level. This uncertainty is reflected in the narrow range since the drop two weeks' ago, and while the weekly oscillators suggest that it will break to the downside, treasury bulls have had a long wait so far. There were no significant economic data released today, with the market news dominated by earnings reports, up- and downgrades. Crude oil futures began the day strongly, scoping 5 week highs and trading above the widely-watched 40 level in the morning. Despite the Fed's dismissal of this year's commodity inflation as being fleeting, oil and the CRB have been returning to their previous highs. A story made the rounds concerning the impact of higher gasoline prices on WMT's clientele, stating the obvious point that consumers are feeling the pinch. Reuters reported that despite the high production accomplished by OPEC this year, strong demand has left little capacity to absorb supply problems. The article cited the problems at YUKOS, a strike in Nigeria, sabotage attacks in Iraq and fires in Norway. The promised 500,000 bpd increase in formal quotas by Saudi Arabia has done little quell rising prices. The article noted that OPEC has been producing above its official limits and that Saudi Arabia intends to hold production at 9.1M bpd, the third month at this high level. The $42 price seen earlier this year represented a 21 year high. A late session reversal pulled oil futures back below the 40 level to close 1.58% lower at 39.33, helped along by a more than 4.41% decline in natural gas futures. It's an obvious point that high oil prices will put the squeeze on every level of the economy. Demand for oil is inelastic, for the most part, and higher prices mean that consumers and businesses have less to spend on everything else. Unsurprisingly, the decline in oil futures coincided with the upward spike in equities in the afternoon. Over the weekend, the Wall Street Journal ran a story on the US budget deficit, discussing the well-worn but still-pertinent issue of the negative impact of deficits on the economy in general and taxpayers in particular. It also raised the spectre of a fall in foreign purchases of treasury debt. This issue strikes a chord as the US Dollar Index hangs at 5 month lows following the more than 25% decline since its high at the beginning of 2002. The following chart from the WSJ contextualizes the current budget deficit and the financing thereof: Chart of WSJ Fiscal Picture Against this backdrop was a general malaise for techs ahead of the INTC report due after the bell tomorrow. A NY Times story over the weekend highlighted what the author feels to be overly optimistic positioning by tech companies as reflected in the impressive year-over-year inventory builds taking place at Dell (61% y-o-y increase), Seagate (+60%), Foundry Networks (+48%), Cisco (+47%), TXN (+30%), Intel (+29%), Sun (+25%) and Micron (+21%). The point of the article was that demand is lagging far behind the supply being accumulated by these producers, making the industry vulnerable as a whole. NVLS reported Q2 earnings of 37.M or 25 cents per share, missing estimates by a penny. Excluding charges associated with its of Angstron Systems, the company earned $43.9M or 29 cents per share. Sales rose 41.5% in Q2 to $338.2M from $239.1M in Q2 2003, beating estimates of $331.3M. The company cited strong demand in its press release. AMAT CEO Mike Splinter held forth at the Semicon West industry conference in San Francisco: "We aren't alarmed by any early indicators." Merrill Lynch was out with a downgrade for the semiconductor sector, stating that the stocks (over 30 of them) "offer no upside from current levels" and cited inventory builds as a major factor in contributing to its opinion. That view was countered by Bear Stearns, who said that despite pockets of weakness in the sector, it still maintains a favorable view of the sector. Later in the session, the Semiconductor Equipment and Materials International Group announced that the leading chip equipment manufacturers surveyed in their most recent study anticipate a sales increase 63% to $36.2B in 2004. CEO Stanley Myers said that "The outlook is for growth to be sustained next year, although not at levels as high as this year. SEMI members generally believe the peak of this market cycle will occur in the second quarter of 2005." Out of the numerous conflicting signals as to the fundamentals, the market was the final arbiter with the PHLX semiconductor index (SOX) declining 2.21% to 441.18 for the day. After the bell, LSI warned that its Q2 revenue would miss estimates due to "softer-than-anticipated demand for semiconductors in storage components and video game console markets." The company lowered estimates from 455M-470M to 448M. Domino's Pizza, the largest pizza chain in the US, is set to price 24M shares tonight in the $15-$17 range in a bid to raise 408M for its IPO under ticker symbol DPZ on the NYSE. A $54M settlement was reached in a sex discrimination suit between the U.S. Equal Employment Opportunity Commission (EEOC) and MWD filed on behalf of a class of female officers and women eligible for officer promotion in the firm's Institutional Equity Division. The settlement, made without admission of liability, includes at least $2M to fund diversity programs to enhance the compensation and promotional opportunities for female employees at MWD and $12M in payment of the original complainant, bond trader Allison Schieffelin. EEOC Chair Cari M. Dominguez said that "We are pleased that Morgan Stanley worked cooperatively with us to resolve this litigation. With this settlement, Morgan Stanley has taken an important leadership step in adopting progressive programs to promote diversity that should serve as a model for the financial services industry." For tomorrow, we await the 8:30 release of the May trade balance estimated at -48.3B, and at 2PM the treasury budget estimated at 16.3B. The pace of earnings reports will pick up as well- INTC reports after the bell at 5:30PM, as does JNPR and JNJ, though the time of the release for JNJ has not been listed. With the Nasdaq printing as clear a bearish picture as the Dow's potentially bullish one, I'm keeping my mind open. I believe that the easy money has been made on the current leg of this decline. While the daily Dow is not printing buy signals here and gave bulls a beautiful doji, it did so on light volume. Nevertheless, I believe that in the short term bears are pressing their bets at these levels. The charts do not indicate that it's time to buy, but pressure is increasing with each downward tick. A break to new lows from here could get very ugly, and with earnings season ahead of us that's a distinct possibility. Until some clarity emerges, however, I counsel patience and caution. The weekly oscillators are uncertain and the daily charts are mixed. The worst trades are those that you enter in frustration after missing an entry. Don't force your positions and wait, if necessary, for the market to come to you. It's much easier to set a stop loss and manage a position when you've gotten a good entry, close to support or resistance. I believe that we're closer to daily support than resistance, but would personally prefer to wait until the oscillators are more certain. ================================================================== 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 --------------------------------- Software Still Weak Oracle Corp - ORCL - close: 11.09 change: +0.06 WHAT TO WATCH: Software stocks were hammered hard in the last two weeks under a series of earnings warnings. Shares of ORCL, a giant in the field, actually broke support at the $11.00 mark. Yet once again the move appears to be a bear trap. Short-term technicals like the RSI and stochastics are edging higher and ORCL is definitely short-term oversold. A bounce back to the top of the trading range near $11.80-12.00 would not be a surprise. --- Esterline Tech - ESL - close: 30.14 change: +0.20 WHAT TO WATCH: Defense stocks have been very strong this quarter and ESL is a great example. The stock has soared from the $23 range toward resistance at $30.00 in the last several weeks. What makes ESL's relative strength even more impressive is Wall Street's reaction or lack thereof to news last week that ESL would pay $145 million in cash for privately held Leach Holding Corp. ESL is currently at a new closing all-time high. We might consider aggressive bullish positions but use a stop under today's low near the 10-dma. --- Midway Games - MWY - close: 9.90 change: -0.10 WHAT TO WATCH: Uh-oh! Shares of this video game maker have fallen sharply in the past couple of weeks and the consolidation between $10.00 and its simple 50-dma appears to be nothing but a speed bump on the way down. Today's late afternoon drop back under the $10.00 level has MWY poised to make a run toward its simple 100-dma near the $9.00 mark. More aggressive traders might try for a drop toward potential support at $8.00. Wall Street expects MWY to report earnings on or about July 28th. --- Ciber Inc - CBR - close: 6.97 change: -0.20 WHAT TO WATCH: Look out below! CBR is in free fall. Shares of this software stock are down about four weeks in a row and picking up speed. Today's close under the $7.00 mark looks bad. Of course you know what typically happens when something looks like a sure thing - it goes the opposite direction. Bears can look for an oversold bounce back to the $7.40-7.50 level as a potential entry point. A potential target would be the $5.50 area above P&F support. FYI the P&F target is actually $2.50. Earnings are expected on July 28th. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- NCR $51.81 +4.79 - NCR soared more than 10% today and broke through heavy resistance at the $50.00 mark after pre-announcing stronger than expected earnings. A dip back toward $50 might be buyable. CQB $19.88 -0.29 - Heads up! CQB looks ready to drop after failing again at its simple 200-dma. Its MACD is in a sell signal and we're seeing some bearish crossovers in its short-term technicals. We would target a drop toward the $18.50-18.30 range. ================================================================= 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 Monday 07-12-2004 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 Loss Updates: QLGC, BORL, FRED, IMOS Closed Plays: SHW, ASKJ Split Announcement: RNT 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 Updates ================================================================== QLGC - tech stock short - Don't forget that QLGC is due to report earnings on Wednesday, July 14th. We will be closing this play on Tuesday afternoon. We do not suggest holding over the announcement. --- BORL - tech stock short - Good news! BORL dropped another 2.87% and closed near its low for the session. We are lowering our stop from $7.83 to $7.51. --- FRED - non-tech stock short - (change entry to $19.75) We have been TRIGGERED with today's drop in FRED. The stock gapped down to open at $19.75. This was under our entry point at $19.99 and thus becomes our new entry. No change in our stop at $21.51 but keep a sharp eye on the $21.00 level, which we can use as an early warning. --- IMOS - high risk/reward short - Lower stop from $8.00 to $7.26 ================================================================== Closed Plays ================================================================== Closed Bullish Plays -------------------- Sherwin Williams - SHW - close: 40.37 change: -0.28 stop: 39.99 It was a valiant fight at the $40.00 mark but bears finally pushed through support this afternoon. After piercing the $40.00 mark and stopping us out SHW rebounded sharply back above support but momentum stalled and volume remained light. All in all this play closed at breakeven. Bulls may want to keep SHW on their watch list for a bounce from the simple 100-dma. Picked on June 20 at $39.96 Gain since picked: + 0.41 Earnings Date 07/22/04 (confirmed) Average Daily Volume: 777 thousand Closed Bearish Plays -------------------- Ask Jeeves - ASKJ - close: 32.75 change: +0.37 stop: 33.01 Most of the major Internet stocks tried to bounce today as the NASDAQ rebounded from the 1920 level and ASKJ managed to pierce resistance at the $33.00 level to hit $33.09 this afternoon. That was enough to hit our stop loss at $33.01. ASKJ continues to have overhead resistance at $33, $34 and the $35 levels and interested traders can keep an eye on it. Picked on July 08 at $31.59 Gain since picked: + 1.16 Earnings Date 07/28/04 (confirmed) Average Daily Volume: 3.9 million ================================================================== Stock Splits ================================================================== Announcements ------------- RNT declares another 3-for-2 split This afternoon Aaron Rents, Inc (NYSE:RNT) announced that its Board of Directors had approved a 3-for-2 stock split of its common stock in the form of a 50% stock dividend. According to the press release shareholders will received 1/2 new share for each share held. The distribution date will be August 16th, 2004 to shareholders on record as of August 2nd. Post-split RNT will have approximately 41.2 million shares of its common stock outstanding. RNT last split 3-for-2 in August of 2003. About the company: Aaron Rents, Inc., based in Atlanta, currently has over 945 Company- operated and franchised stores in the United States, Puerto Rico, and Canada for the rental and sale of residential and office furniture, accessories, consumer electronics and household appliances. The Company also manufactures furniture, bedding and accessories at 10 facilities in four states. (source: company press release) ================================================================== 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 NTT Nippon Tel & Tel (ADS) 26.36 +0.53 BAC Bank of America Corp 84.74 +0.83 IBM Internat Business Mach 84.84 +0.95 FNM Fannie Mae 70.23 +0.55 AIG American Internat Group 70.57 +0.60 WM Washington Mutual Inc 38.72 +0.54 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- CALM Cal-Maine Foods Inc 15.62 +1.53 IPSU Imperial Sugar Company 14.65 +1.03 KEYW Essex Corp 9.80 +1.07 BNSO Bonso Electronics Int'l 8.99 +3.69 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- STI Suntrust Banks Inc 65.54 +1.16 MTB M&T Bank Corp 91.36 +3.46 NCR NCR Corp 41.72 +4.70 CBH Commerce Bancorp Inc NJ 55.20 +1.06 LUK Leucadia Natl Corp 50.01 +1.08 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- ZMH Zimmer Holdings 82.60 -2.61 CAH Cardinal Health Inc 47.49 -1.45 AGN Allergan Inc 82.10 -3.08 MCHP Microchip Technology Inc 26.29 -2.00 CME Chi Mercantile Exchange 134.95 -3.78 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- CP Candian Pacific Ltd 24.52 -0.05 OSG Overseas Shipholding Grp 42.50 -1.18 SOR Source Capital Inc 64.25 -1.60 ENSI Energysouth Inc 39.18 -0.58 VIDE Video Display Corp 23.91 -3.96 ================================================================= 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.
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