PremierInvestor.net Newsletter Wednesday 10-13-2004 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: Oil Slick Watch List: Industrials to Retailers and more =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 10-13-2004 High Low Volume Adv/Dcl DJIA 10002.33 - 74.85 10127.17 9957.79 1.89 bln 821/1997 NASDAQ 1920.53 - 4.64 1948.01 1914.46 1.77 bln 1156/1838 S&P 100 535.48 - 3.74 541.94 533.55 Totals 1977/3835 S&P 500 1113.65 - 8.19 1127.01 1109.63 SOX 393.25 + 6.89 399.67 386.36 RUS 2000 569.42 - 7.29 580.74 568.51 DJ TRANS 3282.43 - 56.55 3359.80 3272.60 VIX 15.42 + 0.37 15.63 13.92 VXO (VIX-O)16.25 + 1.08 16.70 14.99 VXN 22.13 + 1.20 22.94 20.52 Total Volume 3,660M Total UpVol 1,393M Total DnVol 2,174M Total Adv 1977 Total Dcl 3835 52wk Highs 80 52wk Lows 62 TRIN 0.97 PUT/CALL 1.07 =============================================================== =========== Market Wrap =========== Oil Slick Jonathan Levinson Bulls lost their footing as oil staged a dramatic intraday reversal from lows below the 52 level, giving up gains across the indices and diving to mid-afternoon lows. A hesitant rangebound bounce ensued, with equities finishing the day in light negative territory. The rejections at both the day highs and lows lined up with solid volume on the indices, as the market delivered enough to confound bulls and bears alike. Volatility increased overall, with the NDX volatility index (QQV) rising 4.75% to close at 21.15, while the OEX equivalent (VXO) tacked on a whopping 21.27%. While it's tempting to ignore external factors such as options expiration week and just focus on the charts, I don't believe that this factor can be safely ignored in assessing the volatility data. With op-ex week nearing its crescendo, I'm inclined to take not just the volatility indices but even the index price charts with a grain of salt. Daily Dow Chart The Dow managed to close above 10,002.33 after keeping traders on the edge of their seats until the final second. While the headline number may have closed above the 10K line, there's simply nothing bullish about the day's candle print. The rejection at the high left an upper doji shadow, and what followed was the first daily close below the rising pennant support line since the August lows. The bounce from above 9950 left a bullish lower shadow as well, but the close below the rising support line on strong volume has all the makings of a downside breakout. Below 9990, next support is at 9940-50, below which there's light support at 9860 before the stronger line at 9800. Daily S&P 500 Chart The SPX went out at 1113.64%. Like the Dow, it too printed the first sell signals of a daily cycle downphase. This downphase launched from lower oscillator highs as indicated on the chart, which, combined with the higher price high gives bears a confirmed bearish divergence. It closed below the rising support line at 1119, and if bulls fail to regain the line tomorrow, we should see a retest of 1110 on the way to 1104 and 1096 support. Daily Nasdaq Chart Relative to its peers, the Nasdaq is a beacon of strength on the daily chart, with both the rising support line from August and even yesterday's lows holding firm. I suspect that the widespread angst over the oil rally is sparing the tech-centric Nasdaq, though I don't expect to see the Naz diverge from its peers for long. It too is sporting a bearish oscillator divergence and fresh sell signals today. Below its closing support line at 1920, there's trendline support at 1912 and confluence support at 1895, followed by 1880 and 1840-45. Weekly TNX Chart Bonds traded in a world of their own again today, with ten year treasuries gapping lower at the open and then rising for the remainder of the day to take out yesterday's high. For the day, ten year note yields (TNX) declined 2.4 bps or .59% to close at 4.078%. On the weekly chart, this week's TNX decline occurs in the context of an attempted weekly cycle upphase from a higher price low. However, the rise off the 2003 yield low/treasury high is taking the shape of a broad bearish rising wedge which, if 3.9% support fails, projects back to the 3.05% lows. Traders will be watching the 3.9%-4.25% range. While the weekly cycle favors an upside move, a break of either level should be directional. Weekly chart of Crude oil Crude oil opened very weak, extending yesterday's key downside reversal and breaking below 52 after posting a record high at $54.45 yesterday. This reversal followed the International Energy Agency's comments yesterday to the effect that oil demand will grow by 2.71M bpd this year, the largest increase in 24 years, but that demand should slow to a 1.45M bpd increase in 2005. The IEA also noted that China is seeking to reduce its consumption of oil via conservation and alternative sources of energy. The fact that oil has become overbought on multiple timeframes following the nearly vertical price climbs in recent sessions no doubt contributed to the morning weakness as well. The weakness was not to last, however, and the bearish arguments sound hollow. Supply remains tight and the market sensitive to supply disruptions. Currently, more than a quarter of production from the Gulf of Mexico is still trying to recover from Hurricane Ivan, and the Nigerian labor disputes have yet to be resolved. Perhaps more significantly, however, the steep weekly uptrend on the 3 year chart, with the price of crude nearly tripling during this period, has yet to be seriously tested by this week's pullback. These bullish factors reasserted themselves in the early afternoon, with Nymex crude bouncing from a session low of 51.475 to close at 53.625. Oil traders will be watching the tomorrow's releases of this week's inventory updates from the Energy Department and the American Petroleum Institute, delayed because of the Columbus Day holiday. The API released its “October Monthly Statistical Report” today, notably reporting that US production in September is 15% below its September 2003 level to 4.85M bpd, its lowest monthly level in 50 years. The report attributed the drop to Hurricane Ivan, with refinery activity on the Louisiana Gulf Coast falling to 65% of capacity. This was exacerbated by the utilization rate holding above 90%. This remains the “story” for oil- high inelastic demand causing prices to remain vulnerable to any disruption in supply. It was a quiet day for economic reports, with the real action commencing tomorrow with the August trade balance, September export prices ex-agriculture and import price ex-oil, as well as initial claims for the week ending October 9th. The most significant data released today was from the Mortgage Bankers Association, which announced that overall demand for US Mortgages fell, with applications dropping 9.2% last week. The Purchase Index, which measures mortgage applications for new homes, fell 4.9%. The Refi Index dropped 14.2%. This is generally volatile data from week to week, but the decline in mortgage activity occurred alongside a decline in rates- usually, we would expect to see the reverse. Blue chips got a boost in the premarket from MCD, which reported that Q3 earnings rose 42% on a pro forma basis. The company reported earnings of 61 cents per share, blowing away analyst forecasts of 49 cents per share, with sales at namesake restaurants rising 7.3% in September and 5.8% for the quarter. MCD supersized its gains, closing higher by 4.61% to close at 28.82. HDI announced record quarterly earnings, with Q3 net income up more than 20% to 77 cents per share, beating average analyst expectations by 2 cents. Revenue rose nearly 15% from 1.13B to 1.3B in Q3 on sales of $996.6M. The company cited higher gross margins resulting from US Dollar weakness and improved operational efficiency. However, projections for slower sales and a drop in US retail sales of motorcycles dominated, with the stock getting hit for a 1.71% loss to close at 58.72. The company noted that 2003 saw a surge in sales for Harley Davidson's Centennial anniversary, which contributed to this year's relative drop. HMT came in with good news, reporting a reduction of its quarterly net loss from 35 cents per share in Q3 2003 to 17 cents per share or $47M. The hotel owner cited increased revenues resulting from a hike in room rates. The stock bucked the broader market, rising .41% to close at 14.54. After the bell, NVLS announced Q3 earnings of 45 cents per share on sales of 415.9M which amounted to 38 cents per share net of one-time benefits, meeting analyst expectations. NVLS got clocked on the announcement, dropping 3.24% afterhours from its close of 26.88 (an intraday gain of 1.28% preceding the news). This amounted to a paragon of strength compared with SNDK, which was down 16.03% as of this writing at 23.68 after the company announced a 5 cent miss for Q3, with net earnings of 29 cents on sales of 408M from 281M one year ago. QLGC was lower by 1.06% at 29.80 afterhours after beating expectations of 36 cents by 4 cents, while AAPL was up 7.99% at 41.35 after blowing away expectations for 18 cents on 2.15B revenue with earnings of 27 cents on 2.35B in revenue. For tomorrow, as if the technical picture wasn't cloudy enough, there's the array of economic data noted above, scheduled for release at 8:30. While the financial press correlated the sudden dollar drop in the afternoon with the spike higher in oil, I'm far from convinced that the oil move prompted the dollar's dive. In fact, the forex market is by far the larger market. Whether it was speculation or sudden inspiration as to the contents of tomorrow morning's economic data, we can only guess. The indicators are pointing south, but they were yesterday morning before the enormous runup that reversed today. With op-ex week in full-swing, technical signals are less reliable than usual. For the time being, however, the bears appear to be in control of the Dow and SPX with the Nasdaq trailing behind, while the bulls remain in control of crude oil. ================================================================= 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 --------------------------------- Trinity Industries - TRN - close: 29.14 change: -0.99 WHAT TO WATCH: Uh-oh! This industrial production company (who makes things like railway cars) is suddenly seeing some strong profit taking. TRN was a steady climber from its August lows through early October. Yet now shares are breaking down. The MACD is in a new sell signal and TRN just broke down under round- number support at $30 and its simple 200-dma. Over the past year TRN has been trading in a very wide descending channel. The recent peak was near the top of the channel. Bears can target a drop toward $25. --- HCA Inc - HCA - close: 36.18 change: -1.19 WHAT TO WATCH: We strongly considered adding HCA to the play list tonight as a short candidate. The failed rally at its simple 10- dma near $37.70 looks like a very strong reversal. Plus, the move was fueled by huge volume several times over the average. The whole move was started by HCA's earnings warning this morning. Given the new 11-month low we are expecting to see some follow through. The P&F chart points to a $29 target. --- MAY Dept Stores - MAY - close: 24.29 change: -0.21 WHAT TO WATCH: Some of the retail stocks have been suffering lately and MAY is now down about six days in a row. The stock is nearing the bottom of its trading range near $24.00. Bulls can watch for a bounce but given the overall trend traders may want to watch for a drop under support. Such a decline would send MAY to new one-year lows. The P&F chart is very bearish with an $11 target. --- Coach Inc - COH - close: 39.90 change: -0.58 WHAT TO WATCH: COH is another retailer that has been suffering lately. In the last two sessions COH has broken down under technical support at its simple 50 and 200-dma and the exponential 200-dma, plus the $40.00 mark and all of this on rising volume. The decline looks like a bearish entry point to short the stock with a $36.00-35.50 target. The P&F chart is bearish with a $27 target. Be sure to plan any trade knowing that COH is due to report earnings on October 26th. --- PETsMART - PETM - close: 29.95 change: +0.79 WHAT TO WATCH: If you're looking for a bullish candidate keep an eye on PETM. Shares have recently bounced from technical support at its simple 200-dma and the stock appears to be forming a bottom or a base of support between $28 and $30. In the last couple of sessions PETM has managed to rally toward the $30 mark and its simple 100-dma. Consider using a move over $30.50 as an entry point to go long and target the June highs under $34. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- BEAS $7.43 +0.06 - BEAS saw some follow through on yesterday's rebound from the bottom of its rising channel. We're still bullish and think BEAS can trade to the top of its channel. DLTR $25.29 -0.18 - DLTR looks vulnerable to more selling here with two failed rallies near $26.11 in three days. EC $26.96 -0.13 - EC has been falling on very strong volume. It bounced today but we would watch for a new low under $26.50. ALVR $14.98 +1.47 - ALVR soared to a new seven-month high on huge volume. Consider buying a dip. DJ $42.74 +1.44 - DJ has surged higher in the last two sessions and today's 3.4% gain is a breakout to new two-month highs. ========================================================== To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright 2004 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Wednesday 10-13-2004 section 2 of 2 Copyright (c) 2004, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section two: Stop Loss Adjustments: MACR, MLNM Active Trader (Non-tech Stocks) New Bearish Plays: TIF Stock Splits Announcements: None 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 Adjustments ================================================================== MACR - tech stock long - Heads up! MACR bucked the market weakness today and added another 2.12 percent. The stock is poised to breakout over resistance at $23.00. Remember that our exit/profit target is the $23.50-24.00 range. MLNM - high risk short - Entry point! MLNM fell 2.5 percent today and broke down to a new relative low and under its simple 50-dma. Shares actually hit $11.99 late in the session, which happened to be our trigger to short the stock. ================================================================== Active Trader (AT) Non-Tech Stock section ================================================================== --------- New Plays --------- New Bearish Plays ----------------- Tiffany & Co - TIF - close: 29.00 change: -0.76 stop: 31.51 Company Description: Tiffany & Co. operates jewelry and specialty retail stores and manufactures products through its subsidiary corporations. Its principal subsidiary is Tiffany and Company ("Tiffany"). Founded in 1837, Tiffany now operates more than 140 TIFFANY & CO. retail stores and boutiques in the Americas, Asia-Pacific and Europe and engages in direct selling through Internet, catalog and business gift operations. The Company's Specialty Retail operations include consolidated results from retail ventures operated by subsidiaries other than Tiffany under separate trademarks or trade names. Worldwide sales were $2.0 billion in 2003. (source: company press release) Why We Like It: We like TIF as a short because it's a great relative strength play. Correction - it's a great lack of relative strength play. The stock has been sinking under a long-term trend of lower highs for months. The September peak was a failed rally under its simple 50-dma and the stock has slowly consolidated lower under the trendline (see chart) until four days ago when the stock hit a new relative low on above average volume. We don't know why TIF is dropping other than concerns over retail in general and thoughts that jewelry may not do well with the economy slowing. Technically the MACD is in a new sell signal and the P&F chart is bearish. Let us offer at least two caveats. First the stock is long-term oversold (but in contrast the trend is your friend, right?). Second, the P&F chart's bearish target has already been achieved but then again they're just targets and they can be exceeded. We're patient so we're going to target a drop towards $25.00-24.00 but we're not going to hold over the November earnings report. Annotated Chart: Picked on October 13 at $29.00 Gain since picked: - 0.00 Earnings Date 11/11/04 (unconfirmed) Average Daily Volume: 1.3 million ================================================================== Stock Splits ================================================================== Announcements ------------- None ================== 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 FNM Fannie Mae 68.77 +0.51 MCD McDonald's Corp 28.86 +1.31 STI Suntrust Banks 69.49 +0.54 XL XL Capital Ltd 73.94 +0.60 AXS Axis Capital 25.89 +0.68 RE Everest Re Group 76.50 +1.29 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- ALVR Alvarion Ltd 14.98 +1.47 JUPM JupiterMedia 19.88 +2.82 ENER Energy Conversion Devices 18.40 +2.27 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- INFY Infosys Tech. 60.38 +1.49 STJ St. Jude Medical 76.06 +1.06 DJ Dow Jones & Co 42.74 +1.44 ADS Alliance Data 42.10 +1.41 LNCR Lincare Holdings 36.99 +5.68 PETC Petco Animal Supplies 36.02 +2.02 OZRK Bank of the Ozarks 31.10 +1.33 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- COP ConocoPhillips 83.01 -2.39 SLB Schlumberger Ltd 65.22 -1.35 ACN Accenture Ltd 23.93 -2.65 GCI Gannett Co 81.90 -1.35 HCA HCA Inc 36.18 -1.19 DE Deere & Co 59.57 -2.62 PD Phelps Dodge 83.10 -8.64 AU Anglogold Ashanti 36.17 -1.10 N Inco Ltd 35.26 -2.24 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ----------------------------------------- OXY Occidental Petroleum 54.91 -2.04 PBR Petroleo Brasileiro 35.03 -1.43 SYMC Symantec 53.00 -2.38 APC Anadarko Petroleum 66.92 -1.21 APA Apache Corp 50.58 -1.06 UNP Union Pacific 60.33 -1.18 KMG Kerr-Mcgee 56.71 -1.97 NUE Nucor 88.61 -4.49 ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright (c) 2004 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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