PremierInvestor.net Newsletter Monday 10-18-2004 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: Flagpole Rally Watch List: Bounces, Breakouts and Flags =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 10-18-2004 High Low Volume Adv/Dcl DJIA 9956.32 + 22.94 9960.15 9861.63 1.68 bln 1495/1290 NASDAQ 1936.52 + 25.02 1936.52 1904.50 1.49 bln 1782/1207 S&P 100 535.18 + 3.38 535.48 529.94 Totals 3277/2497 S&P 500 1114.02 + 5.32 1114.46 1103.33 SOX 384.35 + 2.98 384.37 374.67 RUS 2000 572.03 + 2.61 573.19 565.97 DJ TRANS 3382.71 + 30.03 3384.27 3332.75 VIX 14.71 - 0.33 16.16 14.64 VXO (VIX-O)14.69 - 1.20 16.27 14.69 VXN 20.72 - 1.08 22.96 20.61 Total Volume 3,181M Total UpVol 2,070M Total DnVol 1,014M Total Adv 3277 Total Dcl 2497 52wk Highs 192 52wk Lows 103 TRIN 0.59 PUT/CALL 0.77 =============================================================== =========== Market Wrap =========== Flagpole Rally Jonathan Levinson What started as a now-routine thrashing of the Dow and SPX, this time following bad news from MMM, whipsawed into a strong bullish reversal before noon. Price ran vertically higher through multiple resistance lines, reversing a synchronous set of intraday downphases from what appeared to be a nearly perfect bearish intraday setup. Merrill Lynch's Walter Murphy had been out this morning, forecasting that the Dow would blow the roof off this year in a terminal upside move to the 11000-11500 level. Murphy expects the Dow to decline from there in 2005, and that the 4th quarter rally would mark the end of the rally from the 2002 lows. He also noted that in every election year since 1932, the incumbent has lost the election where the Dow has lost 0.5% or more in October. This seemed like the usual fluff, but the sudden upward launch in the indices lent it credence. The bulls are still pretty far from being in control, however, as a quick look at the daily charts will reveal. Daily Dow Chart The Dow posted a bullish doji hammer today, with the daily print coming close to a key outside reversal. The Dow was below Friday's low when the burst of buying hit, with the Dow closing just north of 9950 resistance. A daily cycle downphase still in effect, but with a potential bullish stochastic divergence. If the bulls can close the Dow back above the rising trendline at 10080, the resulting daily cycle upphase will launch from a higher stochastic high against the lower price low. This is generally a setup for a powerful move, in this case to the upside, and would target the 100200 and 10250-60 confluences. Daily S&P 500 Chart The SPX printed a similar pattern, but bounced from a nominally higher low from Friday. The bullish doji hammer broke Friday's high and targets 1122 trendline resistance next. Because last week's selling wasn't as extreme as it was for the Dow, the SPX's potential bullish oscillator divergence isn't as sharp. But it's still there, and bulls will be gunning for a close above 1128 resistance to make good on it. Daily Nasdaq Chart The Nasdaq has been consistently stronger than its peers for the past two weeks, and today's candle underlines the point. The bounce took place from above unbroken rising daily support, and blew past last week's closing highs. The daily cycle downphase is the weakest of its peers. Next resistance is at 1950, followed by 1980. A close above 1950 should be enough to end the daily cycle downphase and print the first tentative daily cycle buy signals. Weekly TNX Chart FNM announced its intention to more aggressively court subprime borrowers, with CEO Franklin Raines announcing a 3 pronged strategy to encourage these mortgages. This follows data in recent weeks showing a stall in mortgage activity as reported by the Mortgage Bankers Association, despite the recent declines in bond yields. Later in the session, the National Association of Home Builders announced a bounce in builder confidence, wit its Housing Market Index (HMI) rising 5 points to 72, more than offsetting September's 4 point decline. The Current Sales index rose 5 points to 78, and Expected Sales rose 9 points to 84. As can be seen in the weekly chart of the ten year note yield (TNX), rates have been in a downtrend since the June high but have recently found support at the 3.9%-4% level. This attempt to put in a higher low for the yield is potentially bearish for bonds, provided that TNX doesn't break lower rising bear wedge support at 3.885%. A weekly cycle upphase is trying to form, and yield bulls/bond bears should be in business on a break above the 4.35% level. For the day, the TNX closed unchanged at 4.053%. Weekly chart of Crude oil Crude oil declined from a record high of 55.5 this morning to a session low of 53.10 in the afternoon on the Nymex. Aside from technical factors, analysts speculated that weakness in oil was attributable to the drag that the rally has been exerting across all asset classes. The selling in base metals and the equity indices last week were cited in support of this hypothesis. Greenspan's comments last week underlined the obvious deleterious effects of high energy prices on the economy, and today's downward action in oil prices was attributed to the damage already wrought by the rally. In theory, any rally in energy should eventually choke itself off, though I'd be very skeptical of any attempt to correlate daily market gyrations with macro- fundamental factors such as that. For the day, November crude close at 53.725, +.05. In corporate news, MMM announced its Q3 results, earning 775M or 97 cents per share compared with 663M or 83 cents in Q3 2003 but missing estimates of 98 cents. The company expects to earn $3.68-$3.69 per share for 2004 and anticipates an increase in sales of 7% from 2003. Profits rose, but the miss was the first in seven quarters, with the company attributing part of this quarter's strength to weakness in the US Dollar. In particular, the company's chairman and CEO, James McNerney, said, "We are optimistic about the strength of our diverse business and technology portfolio, but remain cautious on the global economy." Given the diversified nature of MMM's business, the company's outlook and results were seen as a shot across the bow of the indices today, and both the stock and the Dow led the indices lower for most of the morning. MMM closed lower by 2.41% at 76.10. Air conditioner, bathroom and vehicle control system maker ASD missed estimates with Q3 earnings of 156M or 71 cents per share on sales of 2.396B. Net of one time revenues, however, earnings were 65 cents, missing consensus estimates of 67 cents. The company narrowed its range for 2004 earnings, expecting earnings of per share from the previous projection of $2.17-$2.27 per share to $2.21-$2.25. ASD lost 4.55% to close at 36.46. Printer supplier LXK beat estimates, announcing Q3 earnings of 156.1M or $1.17 per share, up from 79 cents in Q3 2003. This amount was increased by a non-recurring tax benefit without which earnings were $1.02 per share, 4 cents higher than consensus estimates. Revenue was 1.27B, 200M less than forecast. LXK lost .75% to close at 81.78. Toymaker HAS characterized its 2003 earnings as "disappointing", earning 45 cents per share (up from 38 cents in Q3 2003) but on decreased revenue of 947.3M from 971.1M last year. Estimates had been for 51 cents on revenue of 992M. MAT beat by a penny with earnings of 61 cents but revenue missed forecasts for 1.76B, coming in at 1.67B. Sales were lower by 9%, with Barbie sales falling 13% and Fisher-Price rising by 7%. HAS got smoked for 6.5%, closing lower at 17.26. There was action among the miners today, with South African miner HMY announcing that it would be submitting an 8.1B stock-based takeover of GFI. This would represent a 29% premium over the past 30-days' price of GFI. The proposal, which is contingent on the proposed IAG-GFI merger being scuttled, would see the issuance of 1.275 new HMY shares for each GFI share. GFI's largest shareholder, Norilsk Nickel (NILSY) supports the deal. GFI closed lower by 4.35% at 14.29, IAG closed lower by 8.93% at 7.24, and HMY lost 8.44% to close at 11.50. Homebuilder and mortgage banker NVR beat expectations, reporting Q3 earnings of 147.7M or $19.04 per share, rising from 109.4M or 12.55 in Q3 2003 and beating estimates of $16.91. Revenue was higher by 19%, new orders by 9%. The company expects a 22%-24% increase in earnings for 2004. NVR closed higher by 2.27% at 559.40. After the bell, IBM announced earnings that beat estimates by 3 cents at $1.17 per share and meeting estimates of 23.4B in revenues. The EPS number excludes an 11 cent or 320M pension fund dispute. IBM had closed higher by 1.26% and added another 1.61% afterhours, trading 87.30 as of this writing. TXN was slightly lower afterhours at 21.05 after topping estimates of 27 cents EPS with 32 cents. TXN's profit represented an alltime high, doubling Q3 2003's result while revenue increased 28% over last year. As was the case with MMM, the company noted challenges in the current environment but expressed confidence as to its measures, including tightening expenses and reducing production. JDAS also took off despite missing by a penny, adding 5.88% as of this writing to trade 11.70. Q3 revenue for JDAS was down from 11 cents per share in Q3 2003 to 6 cents, with earnings falling to 1.6M from 3.4M. The company cited delays in software licenses. With earnings season upon us, the markets should continue to deliver knee-jerk reactions in both directions. What was a bearish market mover in MMM this morning was treated as bullish for TXN afterhours. What appeared as a common thread was an acknowledgement of challenging conditions and a less optimistic outlook going forward. Boosts from the foreign exchange differential, cost cutting or layoffs may increase short term profitability, but they grow increasingly difficult to repeat. As Henry Ford would have pointed out, companies cannot profit endlessly in an environment of wage deflation. Cost-cutting increases competition between companies and is ultimately a double-edged sword. For tomorrow, the key question will be whether today's big moves will hold. The upside action in equities had an impulsive feel to it. If bulls can hold within the flag atop today's flagpole rally, then the daily cycle downphases will convert to the upside, led by the Nasdaq. However, a return to today's lows will do so minus most of the shorts who got blown out of their positions today, and will therefore have that much less support as prices fall. ================================================================== 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 --------------------------------- Veritas Software - VRTS - close: 20.53 change: +0.93 WHAT TO WATCH: We've been keeping an eye on VRTS for weeks. The breakout over resistance near the bottom of the July gap was significant. The stock has traded mostly sideways since but is struggling with its simple 100-dma. Given the Thursday-Friday decline last week VRTS appears to be building a bull-flag pattern. If that's the case then traders may want to open bullish positions on a move over $21.00. Be aware that earnings are expected on Oct. 26th. --- RARE Hospitality Intl - RARE - close: 30.61 change: +1.61 WHAT TO WATCH: Does someone know something the rest of us doesn't? RARE surged for a 5.5 percent rally to breakout over major resistance at $29.00-29.50 on above average volume. These are new all-time highs for RARE. The company is due to report earnings on Oct. 20th. This is a new triple-top breakout buy signal on its P&F chart. --- Union Pacific - UNP - close: 61.07 change: +0.58 WHAT TO WATCH: The Dow Transportation index is at five-year highs. Part of the transports momentum is coming from strength in the railroads. UNP has climbing steadily for 2 1/2 months. We like how UNP has dipped back to test support at broken resistance in the $60.00 level and its simple 200-dma. The bounce today looks like a bullish entry point but earnings are expected on Oct. 21st and we don't want to hold over the event. Watch to see how investors react to UNP's Q3 results. --- Noven Pharmaceuticals - NOVN - close: 23.07 change: +1.30 WHAT TO WATCH: After months of building a base between $18 and $22 it looks like NOVN is ready to start a new trend higher. The stock broke out above resistance with a 6 percent gain on above average volume. We don't see any specific news to account for the move but we do see that volume has been rising during last week's rally. Earnings are due out on Nov. 9th. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- STX $14.00 +0.77 - Today's 5.8 percent rally was backed by strong volume. Watch for a move over $14.50 and its simple and exponential 200-dma's. SHW $42.20 +0.58 - SHW is bouncing from the near the bottom of its long-term rising channel. This could be an entry point but watch for earnings. R $48.53 +0.89 - Lots of relative strength here. ISG $29.65 -1.05 - Uh-oh! This looks like a significant breakdown. ISG has broken below its trendline of higher lows. ================================================================= 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 10-18-2004 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, SWIR, BG, MLNM Stock Splits Announcements: 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 - Remember - We are going to exit MACR on Tuesday afternoon ahead of its Wednesday earnings report - unless MACR hits our target at $23.50 first, then we'll exit at $23.50. With today's breakout over $23 odds are in our favor. SWIR - tech stock short - Entry point! SWIR dropped through our TRIGGER at $15.45 on Monday to open the play for us. More conservative traders may want to look for a move under today's low at $14.89 as a new entry. BG - non-tech long - Wow! BG surged 3.55 percent on Monday with huge volume backing the move higher. MLNM - high risk short - Watch out! MLNM rallied back above the $12.00 mark. ================================================================== Stock Splits ================================================================== 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 AIG American Intl Group 59.68 +1.83 JNJ Johnson & Johnson 57.32 +0.74 IBM Intl Business Machines 85.92 +1.07 TGT Target Corp 47.75 +0.86 ALL Allstate Corp 48.06 +0.67 MER Merrill Lynch 52.22 +0.59 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- SEM Select Medical Corp 17.40 +3.18 VTIV Ventiv Health Inc 17.95 +1.10 ELOS Syneron Medical Ltd 19.10 +1.45 ISON Isonics Corp 5.48 +2.11 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- PGR Progressive Corp 88.85 +2.41 AAPL Apple Computer 47.75 +2.25 PH Parker Hannifin 63.41 +1.08 MEDI MedImmune 28.13 +1.81 BG Bunge Ltd 43.45 +1.49 CHKP Check Point Software 21.10 +3.18 ADS Alliance Data 44.36 +1.11 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- MMM 3M Co 76.10 -1.88 LMT Lockheed Martin 52.72 -1.13 WY Weyerhauser 61.55 -1.03 MMC Marsh & Mclennan 25.57 -3.63 HIG Hartford Fincl Services 54.35 -1.95 SRE Sempra Energy 33.15 -3.19 ASD American Standard Cos 36.46 -1.74 ISG Intl Steel Group 29.65 -1.05 BGG Briggs & Stratton 71.26 -7.34 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ----------------------------------------- PDS Precision Drilling 57.30 -2.24 ETP Energy Transfer Partners 49.30 -0.85 ================================================================= 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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