PremierInvestor.net Newsletter Monday 08-09-2004 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: The Day After Watch List: A Full Radar Tonight =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 08-09-2004 High Low Volume Advance/Decline DJIA 9814.66 - 0.67 9858.68 9811.12 1.30 bln 1284/1530 NASDAQ 1774.64 - 2.25 1787.44 1774.48 1.25 bln 1209/1777 S&P 100 522.42 + 0.59 524.73 521.83 Totals 2493/3307 S&P 500 1065.22 + 1.25 1069.46 1063.97 RUS 2000 518.38 - 1.27 522.56 518.15 DJ TRANS 2970.08 + 4.00 2987.32 2962.52 VIX 18.89 - 0.45 19.97 18.63 VXO 18.37 + 1.87 19.76 18.06 VXN 27.45 + 0.00 28.38 27.18 Total Volume 2,816M Total UpVol 1,369M Total DnVol 1,379M 52wk Highs 31 52wk Lows 443 TRIN 0.88 PUT/CALL 0.93 =============================================================== =========== Market Wrap =========== The Day After Jonathan Levinson The dust from Friday had a chance to settle today, with equities rising weakly throughout the session and bonds, metals and foreign currencies pulling back. Friday was a big day, with news released today from the Chicago Mercantile Exchange confirming that Friday saw record volume for Eurodollar future contracts and the second largest volume ever overall. The CBOT reported record volume for 10-year treasury note options and its third highest overall volume ever. The weak rise reversed at the close with the SPX closing slightly positive and the Dow and Nasdaq finishing slightly negative. Volatility fell sharply for the OEX (as reflected in the VXO), aided not just by the absence of a sharp continuation drop but by the absence of almost any action whatsoever. Volume was lighter, and the action looked and felt corrective. I would have guessed at a larger bounce following Friday's drop, and the intraday oscillators rose from very bullish configurations. But the price refused to cooperate and the only thing that ran was the clock. Weekly Dow Chart The 10200-10250 level about which I was writing last week and the rising weekly trendline held back last week's high, and bears successfully ran the fumble to lower descending support on the attempted weekly bull flag. 9800 support held, but the bounce today, even before it reversed, was weak and entirely uninspiring. The weekly cycle oscillators resolved their ambiguity to the downside, following the Nasdaq's lead, and new lows for the year were set. However, the drop in price got ahead of the 10-week stochastic and while a downphase is in place, a reversal from here would result in a bullish oscillator divergence against the higher stochastic low. That being said, the weekly price and oscillator trend is down, and the only source of strength is in the intraday cycles. Round number resistance at 9900 and at the Fibonacci levels of 10020 and 10150 are the levels to watch on any bounce. Daily Dow Chart The Dow held a miniscule gain through the session and almost squeaked through with a small bullish harami. It was not to be, however, and a small doji printed on the Dow's failure at the highs and fractional closing loss. The drop last week wiped out the daily cycle upphase that had until then been delivering slow but steady gains. Barring a strong snapback rally tomorrow, the 10-day stochastic will complete its bearish rollover and signal a new daily downphase from a much lower price and oscillator high. This action confirms what the weekly chart above is telling us, as the weekly cycle downphase crushes the daily cycle's upward attempts. A move above 9900 would likely be insufficient to avert the bearish cross on the 10-day stochastic, while a break above 10175-10200, in addition to baffling bulls and bears alike, would reverse the current downphase, leaving a steep bullish stochastic divergence and possibly threatening the weekly downphase as well. That's obviously the less likely scenario. More likely is a consolidation of the recent losses, a possible bounce to a lower high below 10200, and a continuation of the downward influence of the weekly cycle downphase. Weekly Nasdaq Chart The Nasdaq cracked last week as well, plunging to new lows for the year. The Fibonacci and confluence support at 1760 remains key support below which the bullish interpretation of this year's decline off the highs will be invalidated. As with the Dow, the weekly cycle has resolved itself into a clear downphase, the plunge breaking the prior week's lows and reversing all of its gains with a bearish engulfing candle for the week. The weekly cycle wants more downside, and the Fibonacci levels line up well price confluence on the way down. Any bounce from here would be corrective within this timeframe, but with the decline still availing itself of a bull-flag interpretation, bears need to be vigilant for any daily cycle reversal to the upside that could rise sufficiently to challenge the 1920 level. There's strong resistance from 1840 to 1890, however, and the powerful moves have so far been to the downside. Daily Nasdaq Chart The Nasdaq's small loss resulted in weak doji as well- it would have been a gravestone doji had the upper range been higher, but there was insufficient strength to result in so strong a reversal. Volume was considerably lower than we saw on Friday's breakaway downside gapper, and as with the Dow, barring a very strong rally tomorrow, it's only a matter of time before last week's steep drop reflects itself in an equally steep stochastic downphase. In retrospect, the daily cycle upphase lasted just long enough to generate confirmation signals before it fell apart. While my personal feeling is that the vast majority of news doesn't disrupt the cycles for long, in this case the overarching weekly downphase helped to exacerbate the damage done by Friday's employment report. Furthermore, the decline was already in progress before Friday- the drop only continued it, breaking the prior week's lows. Weekly TNX Chart Last week's rally in bonds followed through on the previous week's bullish reversal. On the ten year note yield (TNX) chart, that action is reflected as a bearish gravestone doji top in the yield 2 weeks ago, followed by last week's precipitous plunge in the TNX. Today, the TNX closed higher by 2.7 bps at 4.244% as part of what looked and felt like a corrective move across most markets, but it's difficult and imprudent to judge the week's candle after only one day out of 5's trades. Resistance above is at 4.34%, 4.4%, 4.48%, 4.5% and 4.65%, while support is at 4.18% and 4.0%-4.02%. A break of that lower support of 4% could turn out to be a bear wedge breakdown that would project an implied target at the 2003 lows for the TNX (2003 highs for 10- year treasury bonds). The weekly cycle oscillators so far suggest that such would be an overly-optimistic target for the current move, but it remains a possibility. The Commerce Department announced at 10AM that U.S. wholesale inventories increased by 1.1% in June while sales were flat. May inventories were revised up to 1.4% from 1.2% and sales were revised down to 0.3% from the 0.5% previously reported. The inventory-to-sales ratio rose from 1.13 in May to 1.15 in June, the highest reading since February 2004. In June, inventories of durable goods increased 1.4% after a 1.9% increase in May, whiles sales of durable goods rose 0.5% in June from May's flat reading. The buildup of inventories against flat or declining sales suggests an excess of optimism of companies producing more supply than required by existing demand, and the market responded negatively to the news on its initial release. If the trend continues, we would expect to see softness in future industrial production and capacity utilization readings. Oil was once again strong and in the news throughout the session, with supply concerns dominating. News of a Shiite Muslim uprising targeting two pipelines that combine to deliver all of Iraq's 1.9M bpd of exports was reported, and crude oil prices spent the session above the 44 level and broke briefly above 45. Iraq announced that it would halt production at the Southern Oil Company in Basra because of threats from al-Sadr's Mehdi Army militia, and that such halt would remain in effect until the threat is over. News that Russian YUKOS' deadline to pay transport fees is set to expire on August 10th, and the consequent expectation of uninterrupted supply of oil and refined products by rail from that day forward didn't help. This positive spin reported by Reuters was countered by negative interpretations of the same news to the effect that production would interrupted in the interim due to the state-owned railway's refusal to deliver oil for YUKOS on credit. Further worries about the upcoming Venezuelan election and possible challenges to Hugo Chavez also made the news and were interpreted negatively for supply/positively for price. The overriding concern, however, appears to be the fact that OPEC is currently pumping at its highest levels since 1979. OPEC accounts for half the global supply of crude oil, and while there's talk of the cartel's willingness to consider increasing production by 1 to 1.5M bpd at its September 15th meeting, there is so far no evidence of weakness in the crude rally that today challenged the $45 level. It continues to appear that business risk, terrorist threats, consumer demand and geopolitical instability all mitigate in favor of higher oil, and the results continue to be seen in the ongoing extension of the oil rally. Weekly chart of Crude oil Bear Stearns analyst David Strine was bearish on airlines today, describing the sector as "broken" with oil above $40 per barrel. The Amex Airline Index, XAL, was weaker through much of the session as the broader indices rose but managed to close higher by 20 cents at 401. Strine felt that the index at current levels would require oil at $30 to be attractively valued. The XAL is down nearly 30% since its end of June highs. Just after noon, it was reported that DAL would be dipping into its cash reserves to pay certain current obligations, with 2004 cash flow being compromised by lower yields and higher fuel prices. DAL closed lower by 28 cents or 6.81% as of this writing at 3.83, while NYMEX September crude oil futures were trading 44.80 as of this writing, with an intraday spike high of 45.25, a new contract record. There was trouble for UALAQ as well, with United's pilots union promising to resist any move that would threaten its pilots' pensions. Captain Mark Bathurst, chairman of the pilots' union, said that any such move could "potentially plunge labor relations at United into years of hostility and chaos," countering bankrupt UAL's effort to cut pension payments in an attempt to bolster its cashflow. UALAQ closed lower by .05 or 4.35% at 1.10. Google announced that it would be adding an additional 1.06M shares to its IPO for a total of 25.7M shares to be offered at an estimated $108-$135 for estimated proceeds of max. $3.47B. These additional shares are to come from insiders of the company. The Company also announced that 2.7M shares with a maximum value of $365M are to be issued under a settlement with YHOO pursuant to which YHOO will dismiss its patent suit against Google and Google will license several of YHOO's patents. YHOO closed lower by 1.23% at 25.70. For tomorrow, all eyes will be on the 2:15 FOMC rate announcement, with the consensus expecting a 25 bp increase in the overnight rate to 1.5%. While the fates of most consumers continue to be tied most directly to the market rates which have declined since the April highs, the Fed's response to recent economic data and, I imagine, asset prices most acutely highlighted by the rally in oil will be closely watched across all markets. On the one hand, the recent wave of accommodation and stimulus from the Fed has arguably spurred inflation reflected in, among other things, housing, oil and other asset prices. On the other hand, as Friday's bleak employment report emphasized, the productivity gains on which the Fed has been focused have occurred while bypassing the key US labor market, exposing the economy to the vulnerability of high levels of consumer debt and a lack of wage inflation with which to offset it. The first order of business tomorrow will be the 8:30 release of preliminary non-farm productivity for Q2, estimated at 2% from Q1's 3.8% reading. While at other points over the past year we've seen disappointments in the economic data catching a bid in the markets, presumably due to speculation that it would attract further stimulus from the Fed, recent reactions have seen a return to the more conventional behavior of buying good news and selling bad. With Q2 productivity obviously a key report in the Fed's crosshairs, there's the potential for wild swings not just at the 2:15PM FOMC announcement but also for the 8:30 data. However, the Fed's open market operations of the past 2 sessions do not suggest any great caution or fear on the part of the Fed, with a net drain on Friday and a very slight add announced this morning. Based on this action, if forced to guess, I would think that the 8:30 data will be inline with expectations. Guessing aside, last week's move resolved a great deal of uncertainty (ie. weekly timeframe) to the downside. Today's bounce was so weak that I could almost believe it to be a stealth accumulation move toward a run higher. However, the weekly and daily cycles are both oriented bearishly here, and the widely expected intraday bounce was of such a small range as to have only been worthwhile on a scalp basis. Until either the upper resistance levels discussed above are broken or a surprise daily cycle upside reversal occurs, bounces to resistance should be sold. While there's great bullish potential in catching the bottom of a drop as steep as the one we saw last week, bullish stochastic divergences and all, the risks of fighting the trend and catching falling knives are the stuff of traders' clichis. The trend is your friend, and any countertrend trades need to be kept on a tight leash. ================================================================== 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 --------------------------------- A Full Radar Tonight McDonalds - MCD - close: 26.16 change: -0.18 WHAT TO WATCH: Dow-component and fast-food giant MCD slipped another 0.68 percent and confirmed the breakdown under its simple 200-dma on Monday. This drop came in spite of news that its July same-store sales rose 6.4 percent, which was above analysts' estimates. Technicals are negative but its P&F chart remains in a very strong buy signal. Furthermore MCD has a trendline of support built of higher lows dating back to December 2003. The stock has rebounded from previous dips under the 200-dma in May and July so we could see it happen again. Look for a bounce from $26.00 for bullish positions or a breakdown under $25.50 for bearish ones. --- MedImmune - MEDI - close: 21.85 change: -0.31 WHAT TO WATCH: MEDI has been stuck in a trading range between $22 and $26 since February 2004. In the last month this trading range has narrowed to $22-24. Now the short-term trend of lower highs has pushed MEDI to break support at the $22.00 mark. The close under this level is very bearish. This looks like an entry point for a drop toward very long-term support at $20.00. --- Alaska Air - ALK - close: 18.88 change: -0.41 WHAT TO WATCH: The airline stocks are back to their losing ways again and several stocks in the group are breaking down to new lows. ALK has recently broken support near $19.00-19.50 and has hit new one-year lows. Bears can look for a drop toward the bottom of its long-term channel near $16.00. An alternative entry to current levels would be a failed rally near $20.00. --- Chattem - CHTT - close: 27.12 change: -0.39 WHAT TO WATCH: Look out below! CHTT has broken through various levels of support at $28.00, its 50-dma, and its 100-dma. The stock looks poised to drop toward the $24.00 level, which coincidentally happens to be near the exponential 200-dma. Its P&F chart has posted a "high-pole" warning. Look for more weakness in the BTK biotech index, which appears to be headed toward the 440 level. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- AFFX $25.02 -0.20 - We're still bearish on AFFX. There wasn't much of a bounce today and shares are closer to breaking support at $25.00. CPWM $29.98 +0.28 - We're still bearish on CPWM. We recommended that readers look for a new low as an entry point. CPWM turned in a failed rally under $31.00 instead. A trigger under $29.65 still works. NVLS $24.86 -0.04 - The chip sector still looks weak. This is NVLS' second close under the $25.00 mark in as many days. This looks like a bearish entry point. LAD $21.17 -0.60 - Lithia Motors has fallen another 2.75% to hit new nine-month lows. Its technicals are bearish and its MAD is in a new "sell" signal. Look for a drop to its October lows near $19.75. IST $25.65 +0.91 - This steel/iron producer continues to defy gravity for yet another day. The stock is up more than 150% from its May lows and up 1200% from its January 2003 lows. The company just reported strong earnings today. Sooner or later there will be some profit taking. NWAC $7.53 -0.29 - Airline stock looks very weak. NWAC produced a nice failed rally near the $8.00 level today. This looks like an entry point to short the stock toward the $5.00 region. ================================================================= 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 08-09-2004 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: RSAS, CCBL 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 ================================================================== RSAS - tech stock long - RSAS continues to sink towards the simple and exponential 200-dma's. We're looking for a bounce from $16.60. Our stop remains at $16.50. --- CCBL - tech stock short - Lower stop from $8.26 to 8.06 ================================================================== 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 TOT Total SA (ADS) 96.12 +0.67 SC Shell Transport & Trading 43.52 +0.54 CVX Chevrontexaco 94.63 +0.81 BP BP Plc 55.54 +0.59 COP Conocophillips 75.09 +1.17 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- BID Sotheby's Holding 15.99 +1.79 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- CME Chicago Merc Exchange 135.42 +5.54 SPW SPX Corp 38.00 +1.35 GAS Nicor Inc 33.73 +1.05 PRA Proassurance Inc 31.79 +1.59 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- AGN Allergan Inc 69.32 +1.90 COH Coach Inc 36.12 +1.38 ATK Alliant Techsystem Inc 57.79 -2.14 SMG Scotts Co CI A 56.55 -1.31 WOOF VCA Antech(ipo) 37.49 -1.15 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- MKL Markel Corp 281.30 -4.60 JWA John Wiley & Sons 31.00 -1.53 ================================================================= 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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