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Daily Newsletter, Wednesday, 12/22/2004

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PremierInvestor.net Newsletter               Wednesday 12-22-2004
                                                   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: Higher Highs
Watch List:  Electronics to Financials and more


===============================================================
MARKET WRAP  (view in courier font for table alignment)
===============================================================
      12-22-2004           High     Low     Volume   Adv/Dcl
DJIA    10815.89 + 56.46 10822.68 10739.19 1.75 bln 1694/1129
NASDAQ   2157.03 +  6.12  2163.48  2145.18 1.80 bln 1676/1376
S&P 100   575.34 +  1.98   576.04   571.85   Totals 3370/2505
S&P 500  1209.57 +  4.12  1211.42  1203.81
SOX       424.05 -  0.35   427.13   422.39
RUS 2000  648.46 +  2.26   649.75   645.68
DJ TRANS 3790.62 -  1.47  3803.75  3786.24
VIX        11.45 -  0.10    11.71    11.37
VXO (VIX-O)11.81 +  0.29    12.18    11.58
VXN        17.15 +  0.21    17.38    16.44
Total Volume 3,556M
Total UpVol  2,191M
Total DnVol  1,306M
Total Adv  3370
Total Dcl  2505
52wk Highs  390 
52wk Lows    19
TRIN       0.82
PUT/CALL   0.91
===============================================================

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

	Higher Highs
Jonathan Levinson

The Dow and SPX hit new highs for the year as the Nasdaq trailed 
behind.  An unexpected rise in oil inventories saw crude oil drop 
sharply, a move that was credited by some reporters for the 
higher high in the Dow and SPX.

Breadth was positive, with advancing volume nearly doubling 
declining volume on the NYSE and the Nasdaq.  Volatility remains 
very low, with the VXO going out at 11.81 and the QQV dropping 
another 1.46% to close at 15.48


Daily Dow Chart


The Dow blasted higher in a move that kicked off at 10AM, 
reaching a 42 month high at 10822.68 before 11AM and held for a 
minor correction to 10786 before resuming its upward march to 
close the day at 10815.89.  Support below is at 10780, 10740, 
10640 and 10575.  While the daily oscillators are vulnerable to a 
bearish divergent downphase, that will only occur if the Dow 
reverses hard from here.  The more likely scenario would see a 
minor pullback to one of the supports I've drawn as the bull flag 
breakout in the Dow continues to play out.  A move below 10430-
10440 support would invalidate that bullish scenario.

Daily S&P 500 Chart


The SPX reached a new year high at 1211.42 on the 10AM runup, and 
the pullback bounced from a double intraday bottom at 1207 to 
stall out at 1210, closing the day at 1209.57.  Support from 
1205-07 is followed by 1189-92 and 1172.  As with the Dow, the 
daily cycle oscillators suggest caution, but only the bears can 
drill the price below the 1172 level from here.


	Daily Nasdaq Chart


The Nasdaq missed the party, touching a high of 2163.48 on the 
morning pop, below its Dec. 15th high of 2171.27.  The afternoon 
bounce was weaker as well, failing below 2158 to close at 2157. 
The bearish divergence is steeper for the Nasdaq as well, but the 
question remains as to whether it's a bearish divergence or a 
corrective bullish consolidation.  Provided that 2070 doesn't get 
violated on a closing basis, it should prove to be the latter.


	Weekly TNX Chart



The Mortgage Bankers Association reported that the Mortgage Index 
was flat at 689.3 for the week ended December 17, following the 
previous week's 1% decline.  The Refinancing Index rose 5.7% to 
1958.2 following the previous week's 2% decline, while the 
Purchase Index declined 3.6% to 471.1 following the prior week's 
0.4% decline.  

The sideways drift of the ten year note yield (TNX) in recent 
weeks has the weekly cycle upphase faltering.  Provided that the 
4.0%-4.02% rising wedge support line doesn't fail, the upphase 
should begin to get traction on a break above 4.26% resistance, 
above which 4.4% is the next significant confluence.  For the 
day, TNX rose 3.3 bps to close at 4.201%.  Interested readers can 
follow the daily action of the TNX in my nightly Futures Wraps.


Weekly chart of Crude oil


The Energy Department reported today that crude oil inventories 
rose by 2.1M barrels, catching analysts off guard on their 
expectation of an 800K barrel decline.  Gasoline inventories rose 
1.8M barrels against expectations for inventories to remain 
unchanged.  Distillate supplies rose 600K barrels vs. 
expectations for a 1.13M barrel decline.  The American Petroleum 
Institute confirmed the increases in supply, reporting increases 
of 2.9M, 4.2M and 315K barrels for crude oil, gasoline and 
distillate supplies respectively.

Crude oil futures got slammed on the news, dropping from an 
intraday high of 45.95 to a low of 43.65 before bouncing to a 
range in the low 44's.  On the one-year daily chart, the move 
kicked off what might prove to be the right shoulder of a head 
and shoulders top with a horizontal neckline at 40 or a hunchback 
neckline at 41.  Using the 40 neckline, the implied target would 
be as low as 25. While I would be personally surprised to see 
levels even approaching 25, that's the implied target of the 
formation.  A move above 50 would invalidate the pattern, but 46 
is a confluence that has acted as support and resistance this 
year, and the failure 5 cents below it fit well with a  
relatively symmetrical h&s pattern.  For the day, crude oil 
closed lower by 3.17% at 44.30.


The big news of the day landed overnight as FNM announced the 
resignation of CEO Franklin Raines and CFO J.T. Howard, as well 
as a number of smaller management changes, following last week's 
announcement that the SEC would require to amend prior accounting 
"errors".  Those errors allegedly resulted in the overstatement 
of $9B worth of past profit.  FNM owns 25% of current US 
mortgages and is the countries largest GSE.  It's currently 
defendant to a number of class action suits and under criminal 
investigation by the Justice Department, investigation by the SEC 
and an ongoing probe by its regulator, the Office of Federal 
Housing Enterprise Oversight (OFHEO).  The company also announced 
the dismissal of FPMG as its auditors.

Raines was replaced by interim CEO Daniel Mudd and Howard was 
replaced by Robert Levin.

The Washington Post reported that the OFHEO alleges that FNM 
"systematically manipulated accounting estimates, ignored 
accounting requirements it had lobbied unsuccessfully against and 
operated with weak internal controls that helped obscure the 
other problems."  The OFHEO has been aggressive in its call for 
Raines' removal, blaming him for promoting a corporate culture 
that prioritized "stable" earnings rather than accurate 
disclosure.  The OFHEO stated last night that FNM is 
"significantly undercapitalized". To get an idea of the potential 
enormity of that statement, consider that FNM has outstanding 
debts to bondholders totally 957B and guarantees the principal 

and interest on 1.9T of mortgage-backed securities.  These are 
significant percentages of the total amount of US debt in 
circulation, a particularly worrisome situation as the media 
began to utter names like "Enron" and "Worldcom" in the same 
breath as "Fannie Mae".  Others however, note that FNM aptly 
qualifies for the phrase "too big to fail".

To make up for the 9B shortfall, FNM would likely have to sell 
part of its portfolio, issue new stock or reduce its dividend.  
Traders following this story will recall that FNM had previously 
been ordered by the OFHEO to increase its capital reserves by 5B 
no later than mid-2005.

What's important for traders to note is that while the situation 
continues to unfold, it is not a new one.  Bears have been 
discussing FNM and FRE for years, and for years the sky has not 
fallen.  Given the size and breadth of FNM's commitments, the 
issue is, if anything, as political as it is financial.  
Regardless of the financial outcome, the departure of Raines, a 
self-made man, a Rhodes scholar and former director of the Office 
of Management and Budget, raises all the old issues of corporate 
governance and ethics that continue to plague our markets.

FNM gapped higher at the open and traded a high of 73.81, bounced 
from a low of 71.61 and settled into a range around 72 to close 
+2.32% at 71.98.

On a lighter note, at 8:30, the Commerce Department announced the 
final Q3 GDP results, which came in at 4% vs. the 3.9% previously 
reported.  The 4% expansion of the economy for Q3 exceeded 
estimates for an unrevised 3.9% and Q2's 3.3% growth rate. The 
core personal consumption expenditure index (PCE), which nets out 
food and energy costs and is the Fed's preferred measure of 
inflation, rose at a .9% annual rate vs. the .7% expected, the 
smallest rise since last year's .9% increase, which was a 32 year 
low.  Corporate profits were low as well, however, with domestic 
profits decreasing by 59.3B in Q3 compared with an increase of 
28.3B in Q2.  That 59.3B decline was comprised of a 68.7B drop in 
profits of domestic financial corporations (which dropped 7.9B in 
Q2) and a 9.4B rise in profits of non-financial corporations 
(which had increased by 36.2B in Q2).  The personal savings rate 
declined to a low of .5% in Q3, down from 1.3% in Q2 and 1.0% in 
Q1.

In other news, Marketwatch reported that SNE has won injunctions 
against 2 Hong Kong companies allegedly engaged in producing 
counterfeit PlayStation products.  However, SNE declined to 
comment on a report in the Financial Times to the effect that 
investigations have revealed significant networks such 
counterfeiters- one story covered a container that left one such 
sub-contracting factory, entered a prison in Shenzen, China 
loaded with parts and remained for several days, long enough for 
the inmates to assemble them.  The issue of intellectual property 
between the West and East remains critical and unresolved.  SNE 
lost .66% to close at 37.80.

MSFT lost an appeal in the European Union to delay an order 
requiring it to immediately release a stripped-down version of 
Windows and amend its business practices.  The EU's Court of 
First Instance had upheld the European Commission's sanctions 
imposed on MSFT in March, and today's failed appeal leaves the 
original decision intact, along with the finding that MSFT had 
abused its monopoly.  MSFT's General Counsel Brad Smith said that 
the company would comply with the decision.  Consumer groups 
applauded the decision, and the fact that MSFT will now be 
required to share its protocols and offer a version of Windows 
that contains no multimedia apps, deemed to prejudice competitors 
such as RealNetworks.  The fine upheld totals 497M euro.  For the 
day. MSFT closed lower by .37% at 26.97.

For tomorrow, there's a full slate of economic reports as the
markets prepare for the long weekend.  At 8:30AM, we get 
November Durable Orders, Personal Income and Personal Spending, 
as well as initial claims for the week ended 12/18.  At 9:45 it's 
Michigan Sentiment for December and at 10AM, November New Home 
Sales.  Volume should continue to thin out ahead of the weekend, 
and with the headlines reporting the bullish new highs, we can 
expect retail traders to adopt that as the theme.  After today's 
dismal intraday downphases following Tuesday's strong rise, the 
environment should remain decidedly unfriendly for bears even in 
the shortest timeframes, at least above today's lows.  

As I watch the hail outside my window, I'd like to take the
opportunity to wish everyone a warm and happy, healthy and 
prosperous holiday season.


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

Electronics Boutique - ELBO - close: 40.76 change: +0.93

WHAT TO WATCH: We strongly considered adding ELBO to the play 
list tonight as a bullish play.  Shares have been consolidating 
sideways the last few weeks with support near $37 and resistance 
at $40.00.  ELBO broke through the $40 level today as its MACD 
indicator nears a new buy signal.  The P&F chart is bullish with 
a $58 target but we would probably pick the $44-45 region as a 
short-term target.




---

Providian Financial - PVN - close: 16.32 change: +0.35

WHAT TO WATCH: PVN looks like an attractive candidate with its 
consistent long-term up trend and bullish technicals including a 
new MACD buy signal . Today's move over four-week old resistance 
at $16.25 could be a new bullish entry point.  We hesitate to 
play it because it would need to be a three or four-month 
investment given its current rate of climb to make it worthwhile.  
Short-term traders could use the 100-dma as support.  Long-term 
traders could put their stop under the 200-dma.




---

Citigroup Inc - C - close: 48.31 change: +1.12

WHAT TO WATCH: C is no stranger to the watch list.  We've been 
highlighting the stock for a breakout over major resistance at 
$48.00 and that's exactly what happened today.  The new all-time 
highs in the BKX and BIX banking indices bodes well for the 
entire financial sector and the markets in general.  We also like 
C's P&F chart with its bounce from support and new buy signal 
with a $59 (long-term) target.  Traders can use today's rally as 
a new entry point.  Our eight-week target would be $52




---

Concord Communications - CCRD - close: 10.58 change: +1.10

WHAT TO WATCH: We cannot find any news to account for CCRD's 11.6 
percent rally today.  Volume was very strong up about 150 percent 
more than normal.  More importantly CCRD has bust through major 
resistance at the $10.00 mark and its simple and exponential 200-
dma's.  The P&F chart shows a new buy signal with a $16 target.





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

CLE $21.05 +0.90 - CLE surged more than 4.4 percent and it looks 
like this could be the beginning of a decent rebound attempt.

AM $27.91 +0.56 - After seven weeks of consolidating sideways 
under resistance at $28.00 shares of AM look ready to break out.

PLCE $35.99 +1.41 - PLCE has been rallying higher with rising 
volume.  The recent strength has pushed through resistance at $34 
and produced a new MACD buy signal.
 

==========================================================
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 12-22-2004
                                                   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: PDCO, STJ, BMS, USB

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

PDCO - non-tech long play -
  PDCO added another 1.44 percent and broke out over
  resistance at the $43.00 level.
 
 
STJ - non-tech long play -
  STJ is looking strong with another 1.5 percent gain and
  another all-time high. 
 
BMS - non-tech long play -
  BMS added another 0.9 percent to breakout over the $29.00
  level on volume that was about four times the average, which
  is very bullish.
 
 
USB - non-tech long play -
  Newly added USB long play added another 2 percent on very
  strong volume


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

C       Citigroup                  48.31     +1.12
FRE     Freddie Mac                72.44     +0.64
MWD     Morgan Stanley             55.08     +0.58
WYE     Wyeth                      42.36     +0.58
KMB     Kimberly Clark             65.30     +0.56
ALL     Allstate Corp              51.25     +0.70

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

HOTT    Hot Topic                  17.16     +1.34
INTV    Intervoice-Brite Inc       14.02     +1.19
UTG     Reaves Utility             19.98     +1.28
ZICA    Zi Corp                     6.74     +1.44
CCRD    Concord Communications     10.58     +1.10
PROX    Proxim Corp                 5.27     +1.09

---------------------------------------
Breakout to Upside (Stocks over $20)
---------------------------------------
  
SBUX    Starbucks                  61.14     +2.18
TMX     Telefonos De Mexico        37.47     +1.31
GRMN    Garmin Ltd                 59.98     +1.75
ENDP    Endo Pharmaceuticals       21.20     +1.49
PENN    Penn National Gaming       59.87     +4.25
GPRO    Gen Probe Inc              45.00     +1.16
FDS     Factset Research           56.33     +2.67

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

ABC     AmerisourceBergen          57.09     -4.92
FFH     Fairfax Financial         164.44     -2.23
IVC     Invacare Corp              46.25     -1.16
IMGC    Intermagnetics             25.03     -1.70
ROG     Rogers Corp                42.35     -1.05
MPX     Marine Products            24.07     -3.18

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

SUN     Sunoco Inc                 81.85     -1.03
SNA     Snap-On Inc                33.40     -0.53


=================================================================
To stop receiving this PremierInvestor.net Newsletter,
send email to Contact Support
=================================================================
DISCLAIMER
=================================================================

This newsletter is a publication dedicated to the education
of stock traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock but an information resource to aid the investor
in making an informed decision regarding trading in stocks. It
is possible at this or some subsequent date, the editors and
staff of PremierInvestor.net may own, buy or sell securities
presented. All investors should consult a qualified professional
before trading in any security. The information provided has
been obtained from sources deemed reliable but is not
guaranteed as to accuracy or completeness. PremierInvestor.net
staff makes every effort to provide timely information to its
subscribers but cannot guarantee specific delivery times due to
factors beyond our control.

Please read our disclaimer at:
http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html

*****************************************************************
ADVERTISING INFORMATION

For more information on advertising in PremierInvestor.net
Newsletter, or any Premier Investor Network newsletter please
contact Contact Support.

*****************************************************************

Copyright (c) 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.

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