Option Investor
Newsletter

Daily Newsletter, Sunday, 09/26/2004

HAVING TROUBLE PRINTING?
Printer friendly version
PremierInvestor.net Newsletter          Weekend Edition 09-26-2004
                                                    section 1 of 3
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: October Approaching         
Market Sentiment: End of the Quarter
Watch List: Tech to Specialty Retail

=================================================================
MARKET WRAP  (view in courier font for table alignment)
=================================================================
        WE 9-24         WE 9-17         WE 9-10         WE 9-03 
DOW    10047.24 -237.22   10284 - 28.61   10313 + 52.87 + 65.19 
Nasdaq  1879.48 - 30.61 1910.09 + 15.78 1894.31 + 49.83 - 17.61 
S&P-100  534.37 - 11.43  545.80 +  2.45  546.25 +  5.19 +  0.18 
S&P-500 1110.11 - 18.47 1128.58 +  4.66 1123.92 + 10.29 +  5.86 
W5000  10838.30 -155.02   10993 + 57.00   10936 +115.44 + 65.86 
SOX      382.55 -  5.95  388.50 +  4.89  383.61 + 25.77 - 24.50 
RUT      565.97 -  7.20  573.17 +  3.26  569.91 + 13.67 +  4.57 
TRAN    3202.11 - 55.28 3257.39 + 24.00 3224.38 + 82.53 + 33.05 
VXO       14.14           13.55           13.49           13.91 
VXN       21.10           20.13           19.56           21.06 
=================================================================

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

October Approaching
by Jim Brown

Tough week for the markets but not as bad as it could
have been. The Dow lost -2.3% and was the weakest link.
Techs had one horrible day but held their ground for the
rest of the week losing only -1.5%. The key was not how
much the indexes lost but where they closed. All closed
very near the lows for the week as September draws to a
close with no major market events. Will October be as
kind?

Dow Chart

 
Nasdaq Chart

 
SPX Chart

 
Crude Oil Chart

 


The markets attempted an oversold relief rally on Friday
but conflicting economics and higher oil prices spoiled
the rebound. The Durable Goods Orders headline number
fell -0.5% and much worse than the +0.1% gain expected.
However, don't believe all you see. The headline number
was skewed significantly by a sharp drop in aircraft
orders. Ex-aircraft, which is a highly volatile sector,
the growth in durable goods orders was +2.3%. This is a
very strong gain and was led by strong numbers in critical
sectors. Computers saw a +4.1% jump and communications
equipment rose +6.8%. Overall shipments are up +13.4%
year over year and that represents the strongest sustained
growth in the last ten years. The May/June dip has been
erased and we appear to have growing order strength. 

The Existing Home Sales fell slightly to 6.54 million 
units and this was inline with estimates. Analysts had
expected this drop due to the higher mortgage rates in
May/June, which created a shopping lull. With rates making
a new attempt at five month lows we could see a fall 
bounce but the major buying trend has passed. Analysts
want the levels to remain firm but nobody is expecting
a new high any time soon. 

The above economics were far less important to traders
on Friday than the rising price of oil. Crude closed at
another new high at $48.80 despite announcement of oil
draw downs from the SPR. The coming hurricane was cited
as a new event risk as well as new pipeline sabotage in
Iraq. This may be the stated reasons for the continued
push higher but we know it is really event risk speculation
in front of the election. Bloomberg cited a survey showing
a record number of analysts (59) expected oil to hit $50
next week. The real question is not will we hit it but
what will happen when we do? Is this going to be some
kind of electric fence that will repel prices back to 
$40 almost instantly? I seriously doubt it. I do believe
we will see some profit taking but the key is really the
conditions. Just hitting a $50 price does not change the
hurricane status, IRAQ terror attacks, election risk or
long term global demand. In the short term passing on
$50 oil in the form of higher gas prices will slow 
consumer demand but a month from now that negativity 
will ease as we become immune to $2 gas and the demand
will pick up again. 

Several brokers are suggesting that oil stocks have
reached extreme valuation levels and traders should
lighten up. I miss the reasoning here. Yes oil stocks
are high and some are nearly vertical but until the
production/demand equation reverses there is still
long term upside. Oil stocks tend to trade based on
the price of the underlying commodity and that should
not surprise anyone. I definitely think we will see
some price dips ahead once the election is over but
they will only be temporary. I view them as a buying
opportunity for the next leg up. Ed Hyman the chairman
of ISI Group, named top economist for 24 consecutive
years, said oil was the only sector he was considering
at present. His forecast for 2005 oil prices is $45 to
$55. He claims the emerging economies currently are 
expanding rapidly and are very energy intensive. The 
top seven expanding countries are approaching a 
combined GDP of $7 trillion and together are about 
equal to the U.S. but growing much more rapidly at 
nearly a +13% pace. Thus a continued increase in 
demand for oil. He also predicted the risk of 
deflation would increase before year end. 

Hyman also compared 2004 to 1994 as many others have
also done. 1993/2003 were the beginning years of a
recovery with a strong move higher ending in January.
In 1994 the Fed raised rates six times for a whopping
+2.50% jump in rates to 5.50% at year-end. Two of the
increases were 50 points and the last one was 75 points.
The markets refused to die although they did not move
higher. In 1995 the economy caught fire and the market
exploded. While Ed thinks the 93/03 94/04 comparison 
is very similar he does not think 2005 will follow the
same pattern. His concern was due to the price of oil 
depressing the economy/market. With his expected price
of oil at $45-$55 his economic projections are weak. 
At $55 oil he felt the GDP would run at only a +2% 
growth rate. At $45 oil he said a +4% growth rate
was possible. This puts the focus right back on oil 
prices as the most critical piece of the 2005 picture. 
Remember Ed was voted the economist of the year for 24
consecutive years. We should assume he knows what he 
is doing. 

Dow comparison chart 1993-1995 to 2003-2005

 


The major indexes changed sides on Friday with the Dow
closing in positive territory and the Nasdaq losing
ground. No surprise here with the Dow in oversold status
from the -2.3% drop for the week. We should have seen
some profit taking by the shorts. The Dow has been
trending down since its recent 10363 high on Sept-7th
and closed at 10046 on Friday. This is only 15 points
above its low for the week and represents a low level
of confidence that next week will be any better. Given
the -320 point drop in the last two weeks you would
have expected the bulls to put up a better fight this
close to 10000. The challenge remains fear of earnings
warnings from Dow components with next week the last
week in the quarter. 

The Nasdaq has dropped -2.3% in the last three days 
from the 1925 high set on the 21st. Friday's close at
1880 was the lowest close since Sept-10th and the low
for the week. This definitely does not bode well for 
next week. The Nasdaq has seen four rallies of +9% or
more since December and each was followed by a lower
low. This appears to me to be the impact of earnings
deceleration in front of the election. Funds are using
each rally in the longer term decline to lighten up
from the gains made in 2003. The 1880 close today
represents the same support levels we saw in Oct/Nov
of 2003. Nasdaq 1750-1785 represents very strong support
from last September and from the August 04 dip. If we
are going to see an October dip event that would be my
worst case target. 

The SOX has been a rock all week but on Friday it began
to crumble. The SOX lost traction at 395 and dropped 
-2.85% back to the 380 support level we saw last week.
Much of that loss came in a sell program that hit at
11:20 and knocked off -12 points in one swift drop.
Should that 380 support level break it could be a 
quick return to 350. 

SOX Chart

 


Next week is the end of the quarter and funds may need
to square positions and possibly mark up some stocks
but September is not known as a big month for this 
trend. Funds want to be in cash for the normal October
dip and they tend to not shuffle the portfolio much at
the end of September. October is the typical portfolio
reshuffle month and investors typically dig a little
deeper and fire off an extra check to the funds in
anticipation of the October dip/rebound. In this market
managers are probably losing sleep and hair trying to
make the right decision for the next three weeks. 

On Friday the airwaves were full of speculation on 
bonds. Rumors abound of several hedge funds that bet
on interest rates moving higher once the Fed began its
current cycle. As you know they have done just the 
opposite and are currently just above five month lows.
Those that bet rates will rise are in serious pain and
the rumor is the current bond rally has been fueled by
funds covering shorts. Must be tough to know rates will
eventually rise because the Fed will guarantee it but
not have enough money or guts to ride the trade to
conclusion. I know from experience how painful that
is on similar stock trades but with billions at stake
in bonds and the outcome guaranteed it must be extremely
frustrating. Word to the wise, if you have not refinanced
to take advantage of the low rates now is the time. 

The earnings cycle is nearly upon us. Two more weeks
and Alcoa will kick off the reporting cycle on Oct-7th.
This makes the coming week an active week for warnings
as time before earnings expires. As of Friday we have
seen 612 warnings for Q3 which is nearly twice the 356
for this time last year. Negative guidance is running 
3:1 over positive guidance. 143 companies have warned
in the last 17 days of trading. 54 of those have used
the hurricane excuse. That should increase as it gives
companies a free pass for some investors as a random
event rather than a company problem. The current storm
heading towards the east coast will only intensify this
trend if it does as expected and moves up the coast line
instead of moving inland. This will allow it to retain
its strength and inconvenience the maximum number of 
people.

The tech sector has experienced the most warnings by far.
90% of the semiconductor sector has warned according to
Thompson Financial. The major reason is a sudden drop in
orders across the board that impacted almost every sub
sector of the chip market. This is the result of a global
IT slow down and while everybody is expecting it to pickup
in 2005 there is currently no confirmation. The next 30-45
days is the order window for early 2005 and we should have
that guidance soon. Thompson cited the various warnings 
this week and noted the outlook for Q3 earnings growth 
fell -0.5% to +14.3% from +14.8% the prior week. This is
still strong growth historically but investors have grown 
accustomed to +20% to +25% or even more over the last 
year. The tech sector has seen outflows from tech funds
for 30 of the last 31 weeks. 

When evaluating the S&P earnings growth at +14.3% you 
need to realize that the energy sector is a major part 
of the S&P. Currently energy makes up about 8% of the 
S&P and earnings for the S&P energy stocks are up +33.6%
for the year. Remember this when you see the talking
heads continually listing the S&P estimates. Without
energy it would be significantly lower and probably 
in single digits.

Next week it starts out slow economically but picks
up beginning with Wednesday's GDP and a heavy schedule 
on Thursday and Friday. Earnings warnings will be the
focus beginning on Monday and of course oil at $50 will
attract attention. The terrorist countdown to the 
election stands at 37 days and counting. The Dow at 
Friday's 10040 close is nearing strong support at 9900
and a likely stopping point for any further weakness.
The Nasdaq has risk to 1755-1785 and that would be my 
worst-case range unless we see a serious external event
like an attack. It is the end of the quarter so 
volatility should increase. Other than that it should
be a normal market week with long periods of boredom 
interspersed with periods of panic. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown


================================================
Market Sentiment
================================================

 End of the Quarter
- J. Brown

The end of the third quarter approaches.  That means investors 
can expect more earnings warnings as we near the October earnings 
reporting cycle.  It also means we can expect some end of the 
quarter window dressing by money managers.  While the end of 
September does see some window dressing as funds buy the recent 
winners and dump their losers to make their statements look good 
the extent of the window dressing tends to be muted compared to 
the other three quarters.  Still if you're interested in watching 
the short-term pop higher keep an eye on oil/energy stocks, 
defense, Internets, telecoms and utilities.  The rest of the 
market is likely to trade sluggishly.  

The end of September, according to the Stock Trader's Almanac, 
tends to be weak.  That should be no surprise.  We've already had 
hundreds of earnings warnings for the third quarter.  I know the 
term "hundreds" seem pretty high but we only hear about the big 
ones.  This past week alone the major earnings warnings came from 
consumer non-durable giants Colgate and rival Unilever.   If the 
economy is so strong these companies should be doing well but 
rising material costs and advertising are affecting the bottom 
line.  Plus, we've had even more tech stock/semiconductor sector 
earnings warnings.  Yes, the end of September tends to be weak 
because we can expect even more earnings warnings ahead of us.  

I'm sort of counting on the next couple of weeks to be bearish.  
Our play list is dominated by bearish strategies as the three 
major indices all start to falter from overbought levels with new 
MACD sell signals.  That's right the Dow Industrials, the NASDAQ 
Composite and the S&P 500 are all showing MACD sell signal as 
they trend lower from resistance.  It looks like a good spot to 
consider shorts.  If we can see a decent consolidation lower it 
will provide a great entry point into what should be a positive 
fourth quarter.  Of course if everyone is looking for the same 
dip it may not show up and/or it may not be a very big dip.  

Hopefully with crude oil prices nearing $50 a barrel we can get 
some additional weakness in stocks.  At least that's my short-
term expectation.  Then as October earnings begin to hit we can 
rotate from bearish plays into bullish ones.  

Next week has a number of economic reports but the ones Wall 
Street will really be watching are the Tuesday consumer 
confidence numbers, the Wednesday GDP numbers, and the Friday ISM 
manufacturing index and Michigan consumer sentiment index.  

Keep an eye on oil too.  With another hurricane off the east 
coast and oil traders pricing in a terrorist event to try and 
disrupt the Presidential election we could see crude push past 
the $50 mark easier than we might expect. 


-----------------------------------------------------------------

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9230
Current     : 10047

Moving Averages:
(Simple)

 10-dma: 10224
 50-dma: 10113 
200-dma: 10294



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  990
Current     : 1110

Moving Averages:
(Simple)

 10-dma: 1121
 50-dma: 1100
200-dma: 1117



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1399

Moving Averages:
(Simple)

 10-dma: 1419
 50-dma: 1380
200-dma: 1440



-----------------------------------------------------------------

CBOE Market Volatility Index (VIX) = 14.28 -0.52
CBOE Mkt Volatility old VIX  (VXO) = 14.19 -0.68
Nasdaq Volatility Index (VXN)      = 21.10 -0.07


-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume

The CBOE data was unavailable this weekend.  
We'll update this on Tuesday.


-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          63.0    + 0.3   Bear Correction
NASDAQ-100    44.0    + 0     Bull Alert      
Dow Indust.   56.6    + 0     Bear Correction
S&P 500       61.4    + 0.4   Bear Correction
S&P 100       59.0    + 1     Bear Correction


Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


-----------------------------------------------------------------

 5-dma: 1.21
10-dma: 1.10
21-dma: 1.13
55-dma: 1.19


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.


-----------------------------------------------------------------

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1546      1439
Decliners    1239      1515

New Highs     122        58
New Lows       34        38

Up Volume    778M      374M
Down Vol.    725M      922M

Total Vol.  1531M     1329M
M = millions


-----------------------------------------------------------------

Commitments Of Traders Report: 09/21/04

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

The latest COT data shows a big drop in positions for both 
commercials and small traders but commercials remain slightly
net bearish and small traders remain net bullish.

Commercials   Long      Short      Net     % Of OI
08/31/04      406,637   416,778   (10,141)   (1.2%)
09/07/04      415,952   426,342   (10,390)   (1.2%)
09/14/04      442,049   469,982   (27,933)   (3.0%)
09/21/04      404,746   425,560   (20,814)   (2.5%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   23,977  - 12/09/03

Small Traders Long      Short      Net     % of OI
08/31/04      144,120   114,343    29,777    11.5%
09/07/04      157,732   130,817    26,915     9.3%
09/14/04      167,310   126,513    40,797    13.9%
09/21/04      134,943   108,036    26,907    11.1%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

The passing of the quadruple-witching Friday cut a large
chunk of open positions among long and shorts, big and small.
Yet the remain positions still open have sent commercials to 
their most bearish bias in weeks and the small trader to their
most bullish.

Commercials   Long      Short      Net     % Of OI 
08/31/04      372,071   543,100   (171,029)  (18.7%)
09/07/04      371,111   600,593   (229,482)  (23.6%)
09/14/04      377,643   586,139   (208,496)  (21.6%)
09/21/04      213,014   397,844   (184,830)  (30.2%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
08/31/04      258,624     77,036   181,588    54.0%
09/07/04      286,194     80,075   206,119    56.2%
09/14/04      289,155     81,314   207,841    56.1%
09/21/04      256,315     60,275   196,040    61.9%

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Wow!  It looks like last week's option expiration has 
produced some major shifts.  There is a huge drop in open
positions that have produced dramatic changes in bias. 
Commercials are now strongly bullish and small traders are
incredibly bearish.  To be honest I'm not sure how much
I trust these numbers. 


Commercials   Long      Short      Net     % of OI 
08/31/04       48,167     43,411     4,756    5.2%
09/07/04       51,814     44,179     7,635    7.9%
09/14/04       64,282     59,808     4,474    3.6%
09/21/04       54,530     30,827    23,703   27.7%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  25,160   - 06/01/04

Small Traders  Long     Short      Net     % of OI
08/31/04       14,635    10,572     4,063    16.1%
09/07/04       16,817    12,561     4,256    14.5%
09/14/04       36,372    28,584     7,788    12.0%
09/21/04        7,417    25,821   (18,404)  (55.3%)

Most bearish reading of the year: (20,270) - 06/01/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

The Dow Jones futures show the same dramatic drop in open
positions with the recent option/futures expiration.  However,
the DJ futures do not show a big switch in bias.  

Commercials   Long      Short      Net     % of OI
08/31/04       29,143    24,147    4,996       9.3%
09/07/04       29,128    24,011    5,117       9.6%
09/14/04       41,951    34,486    7,465       9.7%
09/21/04       30,816    27,200    3,616       6.2%
 
Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
08/31/04        4,929     7,122   (2,193)   (18.2%)
09/07/04        5,041     8,656   (3,615)   (26.4%)
09/14/04        8,121    14,425   (6,304)   (27.9%)
09/21/04        4,467     6,748   (2,281)   (20.3%)

Most bearish reading of the year: (12,106) -  3/09/04
Most bullish reading of the year:   8,523  -  8/26/03

 

==================================================================
WATCH LIST
==================================================================

The PremierInvestor.net watch list is not designed to be read
as full fledged stock picks.  Rather we would prefer to offer
it as an extra tool in today's investor toolbox.  Think of it
as a radar screen with your own radar operator pointing out
interesting developments, technical patterns or potential plays
that you may or may not have seen on your own.  Due to time
constraints we do glance at the news but rarely do we have
time to fully read pertinent news stories, due background
research and other necessary screens that investors should do
before making a decision.  A common exercise is to read the
entry, glance at the sector and other stocks in that industry
and then compare what's happening in the stock to what's
happening in the broader market indices.  We hope you enjoy
the Watch List and that it proves to be a useful tool for your
own trading success.

STOCKS WORTH WATCHING
---------------------------------

 InterActiveCorp - IACI - close: 21.23 change: -0.37

WHAT TO WATCH: We strongly considered adding IACI to the play 
list this weekend as a bearish play.  The recent bounce was 
quickly met with renewed selling pressure and its MACD indicator 
is very close to a new sell signal.  The P&F chart is extremely 
bearish with a $9.00 price target.  Plus the stock just broke 
down to new relative lows.  Our main concern was that the $20.00 
mark might act as round-number, psychological support then again 
maybe it won't.




---

Sharper Image - SHRP - close: 22.09 change: +1.24

WHAT TO WATCH: SHRP is showing uncommon strength these past few 
weeks and now the stock is breaking out over its simple 50-dma 
and challenging the bottom of its gap down from early August.  If 
SHRP can move into the gap it has a chance to fill the gap and 
trade to $25.00.  Momentum traders may want to consider longs 
over $22.26 (Friday's high).  We'd prefer to watch for a dip 
towards $21.00 and buy a bounce. 




---

Lam Research - LRCX - close: 21.66 change: -0.68

WHAT TO WATCH: The SOX semiconductor index has rolled over again 
and the sector is likely to be hit by some window "undressing" as 
fund managers dump their losers before the end of the quarter.  
We would look for LRCX to trade back towards the bottom of its 
trading range near $19.90-20.00.  Nimble traders can probably 
scalp that move.  If you don't like to go short watch for a 
bounce and consider a long from $20.00.




---

Hibbett Sporting Goods - HIBB - close: 19.76 change: +1.03

WHAT TO WATCH: Here's another fill the gap candidate.  Watch for 
HIBB to breakout over the $20.00 mark and then consider riding 
the stock toward the top of its gap near $22.00.  The risk here 
is that HIBB may encounter resistance at its exponential 200-dma 
near $20.50 and its simple 100-dma near $21.75.  Fortunately for 
the bulls the P&F chart has turned bullish with a $24 target.





=================================================================
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) 2001-2004  PremierInvestor.net. and
The Premier Investor Network.
Do not duplicate or redistribute in any form.

PremierInvestor.net Newsletter          Weekend Edition 09-26-2004
                                                    section 2 of 3
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:

Tech Stocks
  
  New Bearish Plays: PHTN
  Bearish Play Updates:  ARB, IMN


Active Trader (Non-tech)

  Bullish Play Updates:  SPN, UCL
  Bearish Play Updates:  SMRT, PSSI, LSCP, ETM, FRX, AMLN
  Closed Bearish Plays:  DPH


==================================================================
Net Bulls (NB) Tech Stock section
==================================================================

=========
NEW PLAYS
=========

  -----------------
  New Bearish Plays
  -----------------

Photon Dynamics - PHTN - close: 20.37 change: -1.04 stop: 22.05

Company Description:
Photon Dynamics, Inc. is a leading global supplier of integrated 
yield management solutions for the flat panel display market. 
Photon Dynamics develops systems that enable manufacturers to 
collect and analyze data from the production line, and quickly 
diagnose and repair process-related defects, thereby allowing 
manufacturers to decrease material costs and improve throughput.
(source: company press release)

Why We Like It:
Trouble has been brewing for the semiconductor sector and the 
flat-panel/flat-screen tv business for a while.  Almost 90 
percent of the semiconductor sector has warned and that's taken a 
toll on investor confidence and the share price for almost all 
the stocks in the group.  Plus there are rising concerns over the 
flat-panel business.  Business is good but margins may be falling 
as some expect a glut in certain markets.  That appears to be a 
double-whammy for PHTN who's business involves both chips and 
flat panels.  We like the trend of lower highs and now shares are 
breaking down to new lows on above average volume.  It sounds 
like a recipe for a short to us.  Technical oscillators are 
bearish and its MACD just produced a new sell signal.  The P&F 
chart is very bearish with a $10 price target.  

Now we're a bit early with our entry point but we don't want PHTN 
to get away from us.  We'd be willing to open plays here at 
$20.37 but we highly recommend waiting for a breakdown under the 
$20.00 level for most traders.  Our initial target will be the 
$16-15 region.  

Annotated chart:



Picked on September 26 at $20.37
Gain since picked:        - 0.00
Earnings Date           07/21/04 (confirmed)
Average Daily Volume:        518 thousand




============
PLAY UPDATES
============

  --------------------
  Bearish Play Updates
  --------------------

Arbitron Inc - ARB - close: 36.68 change: -0.39 stop: 38.51

So far so good.  ARB has continued to sink after breaking down 
through support at $38.00 several days ago.  The new short-term 
trend of lower highs is encouraging.  ARB tried to bounce from 
the simple 40-dma on Wednesday-Thursday but didn't get very far.  
This week we're looking for ARB to test and then break down 
through its simple 50-dma and the $36.00 level.  Remember our 
target is the $34.50-34.00 region, which is the bottom of the gap 
up in August.

Annotated Chart:


Picked on September 17 at $37.95
Gain since picked:        - 1.27
Earnings Date           07/22/04 (confirmed)
Average Daily Volume:        288 thousand



---


Imation - IMN - close: 35.75 change: +0.10 stop: 37.01

IMN appears to be going nowhere fast.  The stock has churned 
sideways for the last two weeks.  Currently the pattern is 
neutral with higher lows and lower highs so the coming breakout 
could go either way.  The technical oscillators are mixed with 
the MACD indicator in a new sell signal.  However, the prevailing 
short-term trend is bullish.  Yet the stock hasn't confidently 
broken into the gap from July either.  So you can see there are a 
lot of mixed signals and technical readings.  We're going to give 
IMN a few more days to see which way the stock breaks.  Traders 
looking for new positions may do best by waiting for breakdown to 
signal the direction. 

Annotated Chart:


Picked on September 15 at $35.15 
Gain since picked:        + 0.60
Earnings Date           07/21/04 (confirmed)
Average Daily Volume:        352 thousand



==================================================================
Stock Bottom / Active Trader (AT) section
==================================================================


============
PLAY UPDATES
============

  --------------------
  Bullish Play Updates
  --------------------


 Superior Energy - SPN - close: 12.19 chg: +0.29 stop: 11.35     

The rising price of crude oil has inspired more strength in the 
oil sector despite some experts calls that the group is getting 
overbought.  SPN continues to build on its trend of higher lows 
and higher highs.  Friday's 2.4 percent rally on very strong 
volume sent the stock to a new 2 1/2 year high.  This looks like 
a new entry point for bullish positions as we target a move to 
$13.50-14.00.  No change in our stop loss at $11.35.

Annotated Chart:


Picked on September 01 at $11.74 
Gain since picked:        + 0.45
Earnings Date           08/03/04 (confirmed)
Average Daily Volume:        355 thousand



---

Unocal Corp - UCL - close: 41.86 change: +0.93 stop: 39.75*new*

UCL is another oil industry play.  This stock broke out over 
major resistance at $40.00 a few days ago and has continued to 
rally on strong volume.  Friday witnessed UCL surge another 2.2 
percent to hit new 4 1/2 year highs.  As crude oil closes at new 
all-time highs we could easily see this trend continue.  Watch 
out for some profit taking in crude as it hits $50.00. Yet we 
don't expect the profit taking to last very long.  Traders 
looking for new positions in UCL may consider a dip to $41.00.  
We're raising our stop loss to $39.75.  Our target remains $44-
45.

Annotated Chart:


Picked on September 19 at $40.27 
Gain since picked:        + 1.59
Earnings Date           08/02/04 (confirmed)
Average Daily Volume:        1.3 million 



  --------------------
  Bearish Play Updates
  --------------------

Amylin Pharma - AMLN - close: 20.00 change: -0.06 stop: 22.01

AMLN is one of our new bearish plays we added this past 
Wednesday.  The weakness in the DRG sector combined with AMLN's 
failed rally at $22 and its simple 200-dma along with AMLN's 
bearish technicals and P&F chart all added up to a convincing 
short play.  The stock has continued to sink albeit slowly.  Now 
comes the real test at round-number, psychological support at 
$20.00.  If AMLN bounces here we'll look for resistance near 
$21.00.  Traders can plan new entries on a failed rally near 
$21.00 or a new low under $20.00 (or Friday's low of $19.88).  
Our initial target is $18.00 with a secondary target at $17.

Annotated Chart:


Picked on September 22 at $20.30 
Gain since picked:        - 0.30
Earnings Date           11/02/04 (unconfirmed)
Average Daily Volume:        821 thousand



---

Forest Labs - FRX - close: 44.79 change: +0.76 stop: 45.33

Uh-oh!  Danger!  FRX has reversed its recent drop through the 
$44.00 level and is now poised to breakout over the $45.00 mark.  
The technical picture remains mixed but the two-day bounce has 
certainly put a bullish tint to the picture.  We would be super 
careful about current positions and we would not consider new 
bearish plays until FRX traded back under the $44.00 mark.  Our 
stop isn't that far from here at $45.33.  

Annotated Chart:


Picked on September 22 at $43.49 
Gain since picked:        + 1.30
Earnings Date           10/19/04 (unconfirmed)
Average Daily Volume:        2.6 million 



---


Entercom Comm. - ETM - close: 33.30 change: -0.25 stop: 33.75*new*

Too bad all stocks aren't this cooperative.  ETM broke down a 
couple of weeks ago and has continued to melt under a daily trend 
of lower highs.  The stock is very close to our profit 
target/exit point at $32.00.  We are not suggesting new positions 
at this time.  Instead readers can prepare to exit.  If ETM hits 
$32.00 on an intraday basis we'll close the play.  In the 
meantime we need to protect a good chunk of the current move 
down.  We'll adjust our stop loss to $33.75.  

Annotated Chart:


Picked on September 08 at $37.00 
Gain since picked:        - 3.70
Earnings Date           08/03/04 (confirmed)
Average Daily Volume:        463 thousand



---

LaserScope - LSCP - close: 20.01 change: +0.01 stop: 22.01

LSCP is one of our recently added short plays.  The stock looks 
overbought from its August lows and shares have stumbled at $22.00 
resistance.  Now the technical picture is bearish and its MACD is 
producing a sell signal.  The stock was started with a "buy" rating by 
a little-known analyst firm on Thursday and shares barely moved.  We 
did see an uptick on Friday morning but again the rally faded.  
Friday's action looks like a failed rally at the $21 level and its 10 
and 21-dma's.  Traders can use it as a new entry point or look for 
another drop under $19.85.  Our short-term target remains $17.50.  

Annotated Chart:


Picked on September 22 at $19.85 
Gain since picked:        + 0.15
Earnings Date           07/28/04 (confirmed)
Average Daily Volume:        477 thousand



---


PSS World Medical - PSSI - cls: 9.98 chg: -0.07 stop: 10.75*new*

We didn't have to wait very long before PSSI broke down through 
support at $10.50 and hit our trigger to go short at $10.44.  
This occurred last Monday.  Since then PSSI has continued to sink 
breaking support at its simple 50-dma and now round-number, 
psychological support at the $10.00 level.  It's not too late to 
consider shorts with our initial target at $9.00.  We are going 
to lower our stop loss to $10.75.  

Annotated Chart:


Picked on September 20 at $10.44
Gain since picked:        - 0.46
Earnings Date           07/28/04 (confirmed)
Average Daily Volume:        734 thousand





---

Stein Mart - SMRT - close: 15.00 change: +0.38 stop: 15.51*new*

Heads up!  SMRT is still trying to bounce after touching its 
exponential 200-dma on Monday.  Currently the stock is still 
sinking under a trend of lower highs but we don't like the 2.5 
percent rally on Friday and the bullish tilt to its MACD.  We're 
going to lower our stop loss to $15.51.  We would be very 
cautious about new positions.  A drop under $14.50 might be 
tempting but SMRT would be facing support at the 200-dma's again 
soon.  The more we look at SMRT the more we're beginning to think 
this is a short-term bottom.  The low on Monday just happens to 
be a 38.2 percent Fibonacci retracement of its big run up (see 
chart).  We reiterate our caution here and reluctance to open new 
plays.  

Annotated Chart:


Picked on September 15 at $14.93 
Gain since picked:        + 0.07
Earnings Date           08/19/04 (confirmed)
Average Daily Volume:        384 thousand



============
CLOSED PLAYS
============

  --------------------
  Closed Bearish Plays
  --------------------

Delphi Corp - DPH - close: 9.07 change: +0.04 stop: 9.41

We've been trying for a couple of weeks on DPH but the stock 
won't produce any sort of follow through on the breakdown under 
$9.00.  Instead shares are working on a short-term trend of 
higher lows.  Yes, there is still resistance at the $9.20 level 
and traders with bearish positions may want to cinch their stop 
down to just above this level.  We may reconsider bearish 
positions again if DPH closes under $8.80. 

Picked on September 15 at $ 8.89
Gain since picked:        + 0.18
Earnings Date           07/16/04 (confirmed)
Average Daily Volume:        1.3 million 



=================================================================
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) 2001-2004  PremierInvestor.net. and
The Premier Investor Network.
Do not duplicate or redistribute in any form.

PremierInvestor.net Newsletter          Weekend Edition 09-26-2004
                                                    section 3 of 3
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 three:

Market Watch for Week of September 27th, 2004
   - Major Earnings
   - Stock Splits
   - Economic Reports

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 Watch for the week of August 23rd
==========================================

-----------------
Earnings Calendar
-----------------

Symbol  Co               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

AULT Ault Inc             Mon, Sep 27  AFTER THE MARKET     n/a
EXR  Extra Space Storage  Mon, Sep 27  BEFORE THE BELL      0.16
TENT Total Entertainment  Mon, Sep 27  AFTER THE MARKET     0.04
WAG  Walgreens            Mon, Sep 27   ---- N/A ----       0.31

------------------------- TUESDAY ------------------------------

BSET Bassett Furniture    Tue, Sep 28  AFTER THE MARKET     0.18
EMMS Emmis Communications Tue, Sep 28  BEFORE THE BELL      0.20
ICLR ICON (ADS)           Tue, Sep 28   ---- N/A ----       0.52
LNDC Landec Corp          Tue, Sep 28  AFTER THE MARKET    -0.03
TONS Novamerican Steel    Tue, Sep 28   ---- N/A ----       n/a
PBG  Pepsi Bottling Grp   Tue, Sep 28  BEFORE THE BELL      0.70
RMCF Rocky Mtn Chocolate  Tue, Sep 28   ---- N/A ----       n/a
SLR  Solectron            Tue, Sep 28  AFTER THE MARKET     0.04

------------------------ WEDNESDAY -----------------------------

ARRO Arrow Intl           Wed, Sep 29  AFTER THE MARKET     0.34
BLUD Immucor              Wed, Sep 29  BEFORE THE BELL      0.14
LNR  LNR Property         Wed, Sep 29   ---- N/A ----       0.41
MU   Micron Technology    Wed, Sep 29   ---- N/A ----       0.21
NEOG Neogen               Wed, Sep 29  BEFORE THE BELL      0.18
RECN Resources Connect.   Wed, Sep 29  AFTER THE MARKET     0.32

------------------------- THUSDAY -----------------------------

ATU  Actuant Corp         Thr, Sep 30  BEFORE THE BELL      0.51
CMN  Cantel Medical       Thr, Sep 30   ---- N/A ----       0.27
CMGI CMGI                 Thr, Sep 30  AFTER THE MARKET     n/a
LENS Concord Camera       Thr, Sep 30  BEFORE THE BELL     -0.05
STZ  Constellation Brands Thr, Sep 30  AFTER THE MARKET     0.70
FDO  Family Dollar Store  Thr, Sep 30  BEFORE THE BELL      0.26
FGP  Ferrellgas Partners  Thr, Sep 30  During the market   -0.90
OXM  Oxford Industries    Thr, Sep 30  AFTER THE MARKET     0.38
PEP  PepsiCo              Thr, Sep 30  BEFORE THE BELL      0.65
RIMM Research In Motion   Thr, Sep 30  AFTER THE MARKET     0.43
WNI  Weider Nutrition     Thr, Sep 30  BEFORE THE BELL      0.06

------------------------- FRIDAY -------------------------------

- No Major Earnings Announcements -



----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

AMWD    American Woodmark         2:1      Sep  24th   Sep  27th
LM      Legg Mason Inc            3:2      Sep  24th   Sep  27th
CATY    Cathay General Bancorp    2:1      Sep  28th   Sep  29th
WST     West Pharma               2:1      Sep  29th   Sep  30th
NPBC    National Penn             5:4      Sep  30th   Oct   1st
WBNK    Waccamaw Bank             2:1      Sep  30th   Oct   1st
ANSS    ANSYS Inc                 2:1      Oct   4th   Oct   5th
MIK     Michaels Stores           2:1      Oct  12th   Oct  13th

--------------------------
Economic Reports This Week
--------------------------

It's the last week of the quarter so many investors will be watching
for heavy mutual fund window dressing.  There are a number of 
economic reports out this week with the big one being the ISM
index on Friday.  We also have an uptick in earnings announcements.

==============================================================
                       -For-           
----------------
Monday, 09/27/04
----------------
New Home Sales for August   Estimate: 1150K   

-----------------
Tuesday, 09/28/04
-----------------
Consumer Confidence for September   Estimate: 100.0
Fed Governor Hoenig speaks on Monetary policy

-------------------
Wednesday, 09/29/04
-------------------
Q2 GDP - final reading   Estimate: 3.0%
Q2 Chain Deflater - final reading
Fed Governor McTeer speaks at a Banking conference

------------------
Thursday, 09/30/04
------------------
Weekly Initial Jobless Claims   Last week: 350K
Help Wanted Index for August  
Chicago PMI for September   Estimate: 58.0  Last: 57.3
Personal Income for August
Personal Spending for August

----------------
Friday, 10/01/04
----------------
ISM Mfg Index for September   Estimate: 58.3   Last: 59.0
Michigan Sentiment for September   Estimate: 96.5  Last 95.8
Construction Spending for August   Estimate: +0.3%
Auto & Truck Sales for September
Group of Seven Finance Ministers meet in Wash. DC.
Fed Governor Geithner speaks on Banking
Fed Governor Stern speaks on Banking

Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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

IBM     Intl Business Machines     84.43     +0.55
CVX     ChevronTexaco              52.83     +0.51
DOW     Dow Chemical               42.67     +0.94
TGT     Target Corp                46.22     +1.06
MET     Metlife Inc                37.66     +0.54
PRU     Prudential Financial       47.28     +0.64

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

JLG     JLG Industries             16.25     +1.87
DHB     DHB Industries             13.51     +2.28
DTSI    Digital Theater Systems    18.68     +2.13
CACH    Cache Inc                  14.36     +1.23
EPEX    Edge Petroleum             15.96     +1.11

---------------------------------------
Breakout to Upside (Stocks over $20)
---------------------------------------
  
HAL     Halliburton Co             33.58     +1.34
STJ     St. Jude Medical           73.43     +2.23
AGN     Allergan Inc               77.89     +2.21
XTO     XTO Energy Inc             32.59     +1.19
PD      Phelps Dodge               90.48     +3.50
TDS     Telephone Data Sys         84.84     +2.29
CME     Chicago Mercantile Exchg  157.62     +4.58

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

FNM     Fannie Mae                 65.51     -1.64
IMCL    ImClone Systems            50.35     -3.81
TWP     Trex Co                    44.55     -1.63
PSRC    PalmSource Inc             20.59     -4.47
PHTN    Photon Dynamics Inc        20.37     -1.04

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

TSRA    Tessera Technologies       22.10     -1.73
ISRG    Intuitive Surgical         26.07     -1.35
HIG     Hartford Financial         63.10     -0.15
BGG     Briggs & Stratton          79.84     -1.25


=================================================================
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) 2001-2004  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