Option Investor
Newsletter

Daily Newsletter, Monday, 07/19/2004

HAVING TROUBLE PRINTING?
Printer friendly version
PremierInvestor.net Newsletter                   Monday 07-19-2004
                                                    section 1 of 2
Copyright (c) 2004, All rights reserved.
Redistribution in any form is strictly prohibited.

The entire newsletter is best viewed in COURIER 10 for alignment
=================================================================

In section one:

Market Wrap:  Work Horses of the Big Caps
Watch List:   $1 Stores, Oil and more!

===============================================================
MARKET WRAP  (view in courier font for table alignment)
===============================================================
     07-19-2004            High     Low     Volume Advance/Decline
DJIA    10994.06 - 45.72 10148.63 10063.31 1.58 bln   1465/1343
NASDAQ   1883.83 +  0.68  1893.80  1870.14 1.72 bln   1258/1805
S&P 100   536.29 +  0.39   538.61   533.94   Totals   2723/3343
S&P 500  1100.90 -  0.49  1105.52  1096.55
RUS 2000  554.73 -  0.75   556.75   551.14
DJ TRANS 3105.13 + 16.13  3117.65  3089.62
VIX        15.17 +  0.83    15.83    14.86
VXO        14.95 -  0.40    15.94    14.72
VXN        22.21 +  1.27    22.47    21.55
Total Volume 3,660M
Total UpVol  1,542M
Total DnVol  2,070M
52wk Highs     145
52wk Lows      296
TRIN          1.15
PUT/CALL      0.70
===============================================================

===========
Market Wrap
===========

Work Horses of the Big Caps
Linda Piazza

Two work horses of the big caps, MMM and MSFT, pulled the
opposite direction Monday morning, plowing index prices first one
direction and then the other.

Futures had been drifting before the open, ready to be hitched to
one work horse or the other.  The Nikkei had been closed for a
national holiday.  At least in part due to Motorola's decision to
trim its chip-unit IPO by one third, chip-related stocks had
struggled in Asia.  Without the Nikkei against which to take
direction, both European markets and U.S. futures had drifted
first one direction and then another in the overnight session.
Pharmaceutical stocks had been a focus in European trading, with
Bayer, Roche and Schering all dropping in response to news
related to their companies.

MMM reported before the bell, with the company's Q3 outlook
coming in below expectations.  That soured investors on other
reassuring news within the earnings report.  Investors punished
the stock, gapping it lower at the open.  Four other work horses
among the big caps--BA, MO, JNJ and WMT--had at first helped MSFT
plow toward the bullish side of the field, furrowing indices up
to test resistance, but then BA and JNJ pulled the opposite
direction, lending their weight to MMM's decline.  After another
zig and zag toward the bullish and bearish sides of the field,
the day ended with MMM lower by 5.45 percent, leading the Dow
losers; BA lower by 0.95 percent; JNJ lower by 0.70 percent; MSFT
higher by 1.71 percent; MO higher by 0.33 percent and WMT higher
by 0.21 percent.  MSFT's strength helped the Nasdaq manage a
0.68-point higher close, but it couldn't rescue the Dow or the
SPX.

MSFT had benefited from positive analysts' comments ahead of its
Thursday earnings report, with a Goldman Sachs analyst citing
strength in the PC and server markets as his reason for believing
MSFT might produce more upside than estimates suggested.  WMT had
confirmed that initial back-to-school sales had been strong
enough to maintain its same-store sales estimates of 2-4 percent
for July.  BA had at first seen modest gains as an exec for that
company made encouraging statements about the outlook for the
industry at an air show in England.  JNJ moved higher and then
drove lower despite an upgrade by CIBC World Markets.  The firm
had speculated that Boston Scientific's recall of its stents last
week might help JNJ regain market share.

The pulling power of the declining big caps plowed indices down
to new relative lows by midday.  Out of the BIX, TRAN, SOX, Dow,
Nasdaq, Russell 2000, OEX and SPX, only the BIX and TRAN avoided
those new recent lows hit about 12:30, hitting their lows earlier
in the day.  Surprisingly, given the closing values of the
indices, the Nasdaq saw more decliners than advancers, with the
adv:dec ratio at 13:18.  Down volume exceeded up volume on that
exchange, too, as it did on the NYSE.  The pattern of advancers
to decliners showed an opposite result on the NYSE, however, with
advancers leading by a 17:15 ratio.  New highs far exceeded new
lows on the NYSE, while new lows far exceeded new highs on the
Nasdaq.

That comparative strength on the part of the BIX was followed by
a break above the BIX June 24 high and a close at a closing level
not seen since March.

Annotated Daily Chart of the BIX:



While many have waited for the SOX to lead the indices higher,
the BIX was quietly showing strength ahead of Greenspan's
testimony tomorrow.  As is clear from the chart, the BIX has not
yet dropped below its 200-sma and now appears ready to challenge
a trendline it violated in April.  Those wanting market guidance
might watch the BIX's challenge of that trendline, if it occurs,
with a break back above the trendline perhaps suggesting that the
BIX can help pull other indices higher, especially if the SOX
cooperates and does its part to help the tech-related indices,
while a downturn at that trendline might suggest that today's BIX
breakout was a false one.

The SOX closed modestly higher, but did not contribute much
strength.  It has, however, approached the bottom of its
descending regression channel.  A 100-week moving average just
below 400, at 399.81, might lend support the expected round-
number support near 400 as well as the bottom-of-the-channel
support, producing a technical bounce.  Now that the SOX has
dropped below the 38.2 percent retracement of the 2003 rally, it
has vulnerability down to about 384-385, the 50 percent
retracement level, so a dip that low would not be unexpected and
would not undo the bullishness of the 2003 rally.  A retracement
to a 50 percent level is deeper than bulls might like but still
not uncommon.  A drop below that 50 percent retracement level
becomes bearish, however.

On a SOX bounce, if one should occur, resistance might now be
expected at that 424-426 level, the 38.2 percent retracement of
the rally, as well as at the midline of the descending regression
channel and then the 50-dma, far overhead now.  A move above the
50-dma suggests a test of the top of the descending channel.

Annotated Daily Chart of the SOX:



While it's not uncommon to see a 50 percent retracement of a
rally, a retracement the SOX has not yet made, the SOX does need
to bounce soon to avoid falling out of the descending regression
channel.  Such a fall would suggest that the channel is not a
bull flag, but something more ominous.  A SOX fall out of the
regression channel would hint that other indices could also fall
out of their respective regression channels.

The Nasdaq also approached the bottom of its descending
regression channel, and also produced a modest gain.

Annotated Daily Chart of the Nasdaq:



The Nasdaq sprang up from its low, but the declining MACD
suggests that it still could have vulnerability down to the 1850
level, the bottom of its descending regression channel.  The
Nasdaq, however, has moved into a zone on its weekly chart where
it's difficult to pinpoint likely support if that technical level
at the bottom of the regression channel doesn't hold.  The 1860-
1880 level looks like one possibility, but the 38.2 percent
retracement lies all the way down at the 1756 level.  While that
level seems heart-stoppingly low, bulls can be cheered by the
realization that the Nasdaq, unlike the SOX, has not yet retraced
even 38.2 percent of the rally off the late 2002 low.  As
troubling as the retreat has been this year, the pattern doesn't
yet look bearish on a weekly chart.  Weekly MACD dips just below
the signal line, however, so that a strong bounce is needed to
turn it higher again.

One further comfort comes from a study of the Nasdaq's weekly
chart.  The 200-week moving average (simple) crosses at 1869.39,
with that average lending credence to the historical support
shown from the 1860-1880 level, and with the Nasdaq now close to
that level.  That suggests a possibility that the Nasdaq might
steady somewhere from the current level down to the bottom of its
descending regression channel, although it doesn't suggest the
strength of any bounce.

A sustained Nasdaq move above 1900, accompanied by a strong
bounce on the SOX, might cheer Nasdaq bulls enough to send it
retest the 1920-1926 zone, and then the midline resistance on its
descending regression channel if the 1920-1926 zone can be safely
negotiated.  Unlike the SOX, however, the Nasdaq's moving
averages group closely together overhead in the 1980 level,
appearing to fence off the Nasdaq if it should attempt a test of
that zone.  It will need to break above those averages before it
can test the top resistance of its regression channel.  As those
averages are configured now, that appears to be a difficult task,
and the pressure of those overhead moving averages might even
turn the Nasdaq back from a lower level.

The Russell 2000 also produced a possible reversal signal in
Monday's trading, suggesting that it might rise to retest 552.75
or even the converging 200- and 50-dma's.  MACD now suggests that
the Russell 2000 may find it difficult to press through those
averages, but market participants would need to take a look at
conditions again as those averages were tested.

Annotated Daily Chart of the Russell 2000:



The Russell 2000's bounce was produced as it touched top support
of May's congestion zone.  On further dips, support might be
found anywhere within that zone, with 535, 540, and 549 appearing
to offer possible support.

The Dow, like many other indices, has moved into the lower half
of its descending regression channel, below the midline support.
MACD suggests that it could test the bottom of its descending
regression channel, but May's congestion zone might also slow its
descent.

Annotated Daily Chart of the Dow:



Although the Dow's daily candle showed a lower shadow, a sign
that the Dow had tested support and risen from that support, the
candle did not produce the same type of reversal signal seen on
some other indices, creating more doubt about the Dow's ability
to climb than exists with respect to the other indices, but that
could be changed by earnings reports tomorrow.  The SPX did
produce a possible reversal signal, however, a doji at potential
support.

Annotated Daily Chart of the SPX:



As the chart annotations suggest, bulls hoping for a completion
of the reversal signal want first to see an open above Monday's
close.  Then they want to see a push higher, through the 200-sma
and the midline of the descending regression channel.

Is that move likely to happen?  After the cash close, YM, NQ and
ES futures dropped, reacting to after-hours earnings
announcements.  Although Corning (GLW) rose in after-hours
trading on results that beat expectations, Flextronics (FLEX)
dropped after it failed to meet expectations.  Corning's bullish
outlook for the coming quarter couldn't offset FLEX's 4 cps and
financial target disappointments.  J2 Global Communications
(JCOM) also reported after the bell, with that stock rising in
after-hours trading.  At the time this report was prepared, GLW
had last traded at $12.07, up from the $11.27 close; FLEX had
last traded at $12.65, down from the close at $14.06; and JCOM
had last traded at 24.46, up modestly from the close at $26.40.

To help gauge whether markets can build on potential reversal
signals or will continue lower, watch how the futures trade in
relationship to the Nikkei's trading pattern tonight.  The Nikkei
will be reacting for the first time to Friday's declines and
today's follow-through on some indices.  Friday, the Nikkei
tested its 50-dma at 11,348.66, bouncing above it, but the Nikkei
verges on a confirmation of a H&S on its daily chart, too, with
MACD evidence mixed.  If the Nikkei should plunge through its 50-
dma and then the 11,250 support level, watch to see whether our
futures show weakness, too, or do not react to Nikkei weakness.
Conversely, if the Nikkei continues Friday's bounce from its 50-
dma, watch to see if our futures show strength, too, or are not
able to capitalize on strength in the Nikkei.

If our futures dip despite Nikkei strength or fall with a Nikkei
decline, our markets are in danger of opening lower, not
following through on bounce potential.  If futures do not react
to weakness in the Nikkei or are able to bounce with the Nikkei,
it's possible that markets will attempt an early bounce, but
trading might remain cautious in the morning and early afternoon
hours.  While Monday might have been light on economic
developments and earnings report, Tuesday's offering includes the
much-watched Greenspan testimony on the economy and Fed policy
before the Senate Banking Committee.  That testimony begins at
2:30, with all eyes focused on his speech as it's released just
prior to his testimony and all ears focused on the Q&A session
that follows.

Chain store sales appear first on the day's agenda, however, with
ICSC/UBSW releasing the figures at 7:45 EST.  June's housing
starts and building permits come next at 8:30, with May's numbers
at 1.97M and 2.08M, respectively.  Redbook retail sales will be
released at 8:55, with the last reporting period showing a 0.5
percent drop.

Important earnings announcements include MO and TASR before the
bell, and MOT, SUNW and TXN after the bell.  Motorola figured in
the performance of the overseas markets last night, sending some
tech stocks down when the company decided to reduce the offering
of the IPO for its chip unit by one third, as mentioned earlier.
CIBC reduced its rating on Motorola Monday, citing its lessening
outlook for operational profitability in the handset market.
Motorola wasn't alone, however, as TXN also received a downgrade,
this one to an equal-weight rating from its previous overweight
rating by Lehman Brothers.  Lehman cited softness in the wireless
industry.   Both stocks closed lower Monday.

Keep crude prices on your radar screen, too, as crude futures
rose Monday to test the $42.00 level again, reaching a few cents
above the early June high. As has been discussed several times on
this page, rising crude prices pressure the markets.

On the short-term, markets still appear vulnerable despite the
reversal signals produced on many indices Monday.  Most markets
appear ready to attempt bounces, but those bounces may be
undercut by overnight developments.  If they occur, they may
produces climbs up to recently broken support, to establish
whether that support will now serve as resistance.  A failure to
hold as resistance could send markets higher.  If recently broken
support holds as resistance, indices may roll down again through
their descending regression channels.  Some may choose to watch
the SPX as their bellwether index, watching to see if it can
climb above the 200-sma and the midline of its descending
regression channel or whether it rolls over and tumbles down
through that channel.

Long term, matters don't look dire just yet, but most of us trade
short- to intermediate-term.  On those time frames, remember that
most indices still trade within consolidation formations, most of
those being descending regression channels.  Trading may remain
choppy until there's a breakout, one direction or the other.


==================================================================
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
---------------------------------

$1 Stores, Oil and more!

Novellus Systems - NVLS - close: 27.41 change: +0.12

WHAT TO WATCH: Weakness in the semiconductor sector continues.
Traders appeared to be using today's intraday strength to
initiate new shorts.  NVLS has resistance near $28.00 and rolled
over under this level Monday afternoon.  The breakdown under $28
produced a new triple-bottom breakdown sell signal on its P&F
chart with a $19.00 target.  We would consider new bearish
positions at current levels with an initial target of round-
number psychological support at $25.00.




---

99 cent Only Stores - NDN - close: 14.33 change: -0.18

WHAT TO WATCH: NDN issued a profit warning in June that shook the
sector.  NDN dropped from the $20 level to $14 in one day.  Since
then NDN has been consolidating sideways between $14-16.  Now the
stock looks ready to break support at the $14.00 level.  Should
this occur traders might use bearish positions to target a drop
to the $11-10 range.  Tomorrow's earnings report, out before the
opening bell, could be just the catalyst to spark a move.




---

Ultra Petroleum - UPL - close: 43.71 change: +1.96

WHAT TO WATCH: UPL has been consistently setting new highs for
weeks as the oil stocks soar on rising crude prices and demand.
We would not suggest new positions here but wait for a dip back
to the $40.00 level and then consider buying a bounce.  Its P&F
chart is very bullish moving from a bearish sell signal to a
triple-top breakout buy signal with a $74 target all in the last
couple of months.  We can't find an earnings date for UPL but we
suspect the company could announce next week near the end of
July.




---

Endo Pharmaceuticals - ENDP - close: 20.39 change: -0.76

WHAT TO WATCH: ENDP recently announced earnings and raised
guidance but investor reaction has not been very positive.
Shares are once again under the simple 200-dma and look poised to
breakdown under support at the $20.00 mark.  Its P&F chart looks
bearish with the stock teetering on the edge of a cliff with a
$14.00 price target.  We would consider bearish positions on a
drop through the $20 mark but we'd target the $17-16 range.





-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------

DQE $19.61 +0.16 - This electric utility appears to be building a
base under resistance at $20.00.  We'd consider longs on a
breakout.

SWY $25.16 +0.16 - Yet another energy stock, this one oil-
related, hitting new highs.

ANDW $15.17 -0.09 - ANDW is right at round-number, psychological
and P&F chart support near $15.00.  The stock is very oversold
here but we'd still consider bearish plays.  Look for a bounce
and failed rally under $16 or a drop through today's low.  The
P&F chart points to an $8 target.  We would target $12.  Watch
out for earnings on July 26th.

AMTD $9.39 -0.32 - AMT is breaking down to new lows as investors
rotate out of the stock ahead of its earnings report tomorrow.
Expectations are not high given that trading volumes have been so
low.

AMD $12.55 -0.09 - We're still bearish and suggest a target of
$10.00-10.50.

AMAT $16.77 +0.12 - We remain bearish here as well.  Consider a
trigger under $16.50.


=================================================================
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 07-19-2004
                                                    section 2 of 2
Copyright (c) 2004, All rights reserved.
Redistribution in any form is strictly prohibited.

The entire newsletter is best viewed in COURIER 10 for alignment
=================================================================

Stop Loss Updates:   KCS, FRED, FLML, SINA

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
==================================================================

KCS - non-tech long play -
 No change in stop above breakeven.
 KCS does not look good and we're suggesting
 readers exit now with the new MACD sell signal.

---

FRED - non-tech short play -
 Lower stop from $20.21 to $19.66.
 Short-term traders can prepared to exit at our
 initial target of $17.50.

---

FLML - high risk/reward short -
 FLML's 11.7 percent drop is prompting us to
 lower our stop loss from $22.06 to $20.06

---

SINA - high risk/reward short -
 SINA's 9.28 percent drop on strong volume looks
 great.  Lower stop from $28.01 to $26.20.


==================================================================
  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

WFC     Wells Fargo & Co New       58.45    +0.54
BAC     Bank Of America Corp       85.38    +0.91
IBM     Internat Business Mach     85.30    +1.02
PTR     Petrochina Co Ltd          49.56    +1.58
FNM     Fannie Mae                 73.85    +0.73


---------------------------------------
Breakout to Upside (Stocks $5 to $20)
---------------------------------------

STX     Seagate Tech Hldgs         13.85    +1.15
SWFT    Swift Transportation Co    19.75    +1.30
SSNC    SS&C Technologies          16.85    +1.50


---------------------------------------
Breakout to Upside (Stocks over $20)
---------------------------------------

CMA     Comerica Inc               57.66    +1.43
BDK     Black & Decker Corp        67.49    +7.17
SWK     Stanley Worksthe           44.60    +2.07
SEIC    SEI Investments Company    30.85    +1.42
UPL     Ultra Petroleum Corp       43.71    +1.96


-------------------------------------------
Breakout to Downside (Stocks over $20)
-------------------------------------------

MMM     3M Company                 83.05    -4.79
EBAY    eBay Inc                   78.50    -1.86
LOW     Lowe's Companies           48.70    -1.62
BSX     Boston Scientific Corp     36.15    -1.25
BBY     Best Buy Co Inc            46.31    -1.26


-----------------------------------------
Recently Overbought With Bearish Signals (Stocks over $20)
-------------------------------------------

STSA    Sterling Financial Cp Wa   31.95    -0.17
CASH    First Midwest Financial    23.17    -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.





DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives