Option Investor
Newsletter

Daily Newsletter, Monday, 01/03/2005

HAVING TROUBLE PRINTING?
Printer friendly version
PremierInvestor.net Newsletter                   Monday 01-03-2005
                                                    section 1 of 2
Copyright (c) 2005, 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: Volume returns  
Watch List: Retail, drugs and more  


===============================================================
MARKET WRAP  (view in courier font for table alignment)
===============================================================
      01-03-2005           High     Low     Volume   Adv/Dcl
DJIA    10729.43 - 53.58 10867.39 10710.07 1.89 bln  646/2170
NASDAQ   2152.15 - 23.29  2191.60  2148.72 2.19 bln  931/2175
S&P 100   572.33 -  2.96   579.11   571.48   Totals 1577/4345
S&P 500  1202.08 -  9.84  1217.90  1200.30
SOX       424.26 -  9.05   437.54   423.60
RUS 2000  640.44 - 11.13   654.30   639.43
DJ TRANS 3760.37 - 37.68  3817.40  3755.65 
VIX        14.08 +  0.79    14.23    13.25
VXO (VIX-O)14.20 +  0.62    14.29    13.46
VXN        19.50 +  0.92    19.78    18.80
Total Volume 4,091M
Total UpVol  1,034M
Total DnVol  2,937M
Total Adv  1577
Total Dcl  4345
52wk Highs  134 
52wk Lows    22
TRIN       1.34
PUT/CALL   0.78 
===============================================================

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

Volume returns
Jonathan Levinson

The big guns returned to the market today after last week's 
siesta, with the Nasdaq trading 2.076B shares and the NYSE 1.5B 
shares.  With increased volume came increased selling, and the 
indices closed just above their session lows.



Daily Dow Chart


The Dow got hit for a 54 point loss, declining just .5% to close 
at 10729.  The relatively mild damage looks worse on the daily 
chart, however, where a gravestone doji printed below the lower 
rising bear wedge trendline.  The session low was 10710, but a 
quick bounce to the 10729 close confirmed 10720 support above the 
10640 line.  The Dow fared far better than its peers, but even 
so, today's action resulted in bearish divergent daily cycle sell 
signals.  If bulls fail to regain at least the 10800 level 
tomorrow, these sell signals should strengthen.  The implied 
target of the broken bear wedge is as low as 10425.


Daily S&P 500 Chart


The SPX got hit harder than the Dow on a percentage basis, losing 
.81% or 9.84 points to close at 1202.  The bear wedge break that 
occurred on the Dow also printed here and did so on higher 
volume, potentially targeting the December lows.  The bearish 
divergence on the daily cycle oscillators is present here as 
well, and suggests a potentially steep decline from here if 1210-
1215 resistance holds.  While it's easy to overlook the "higher 
volume" component of today's action, it's an important point:  
last week's gains took place on significantly lighter, mostly 
retail volume.  The heavy hitters returned today, and sold the 
indices below rising trendline support in place for most of last 
month.  Unless they decide to turn the ship around very soon, the 
bias, which is confirmed by the bearish chart pattern and the 
bearish oscillator divergences, will shift to the downside. 



Daily Nasdaq Chart


The Nasdaq took the hardest lumps of its peers, losing 1.07% to 
close at 2152.1.  The bear wedge break is the least pronounced 
here however, but the fact remains that the Nasdaq closed 3 
points off its low of the day, below the lower bear wedge support 
line.  Next support is at 2125, followed by the December lows.  
Note that the daily cycle oscillators are ambiguous here within 
their bearish divergences, and a break back above even the 2160 
line would go a long way to restoring last month's uptrend.  In 
other words, the bears are not out of the woods just yet. 


Weekly TNX Chart


Bonds reacted positively to the big miss in November construction 
spending and the slightly better-than-expected ISM data released 
at 10AM (see details below).  Bonds rose from their session lows 
at and continued the advance for most of the day, with ten year 
note yields closing higher by 0.7 bps at 4.219% after reaching an 
earlier high of 4.261%.  4.26% remains key resistance, 4.14%-
4.16% support.  On the three-year weekly chart, with the most 
recent candle based entirely on today's activity, a weekly cycle 
upphase continues to play out correctively.  A failure to exceed 
4.44% resistance this month would likely spell the end of the 
current upphase from a lower price and oscillator high.  Such an 
outcome would give us a high likelihood of a break below 4.02% 
support, which could set the stage for a bear wedge break to 
target last year's lows.  While my gut is expecting higher, 
rather than lower yields, the chart pattern here appears more 
much more bearish than bullish for the TNX below 4.44%.


Weekly chart of Crude oil


Crude oil got cheaper today, gapping down and sinking lower below 
42 throughout the day to trade a low of 41.275.  The financial 
press attributed the drop to a milder-than-expected winter, but 
given the bounce in the US Dollar and the corollary declines in 
precious metals and commodities across the board, I find that a 
dubious connection at best.  The move brought February crude 
futures back to yet another retest of the sloping head and 
shoulders neckline I've been discussing for the past few weeks, 
and a break of this level would imply a pattern target in the mid 
20's for oil.  Once again, I find that a difficult price to 
imagine, but this is one of the clearer head and shoulders tops 
I've seen.  The daily cycle oscillators have rolled over into a 
new downphase, and if 40.00 support fails, next support comes in 
the 38 area.  For the day, crude oil closed lower by 3.16% at 
42.075 on an upside spike in the final minutes of the afternoon 
session.

There was positive retail news today, as WMT announced that 
December's food and general merchandise sales exceeded its 
expectations last week and is forecasting a 3% increase in sales 
for the month over 2003's levels.  This represented an 
improvement over its previous forecast in the middle of the 1%-3% 
range.  WMT noted a big increase in gift card redemptions in the 
final week of December over 2003's figures.  For the day, WMT 
rose 1.1% to close at 53.40.

Walgreen (WAG) announced its Q1 results, exceeding estimates by 2 
cents at 31 cents EPS for the quarter (excluding a 15M pretax, 
one time gain from litigation settlements). WAG attributed the 
good results to strong prescription and general merchandise sales 
as well as higher gross margins.  Q1 earnings were $332.7M or 32 
cents per share, up from 254.9M or 25 cents during the previous 
year, a 30.4% increase.  Sales were higher by 13.4% to 9.89B.  
WAG blasted higher, gaining 5% to close at 40.29.

The last-minute/end-of-December surge in reported sales prompted 
one analyst, Greenwich Capital Markets' Steve Stanley to conclude 
that procrastination may be the biggest trend in retail this 
year.  In a separate report, Goldman Sachs, Harris Interactive 
and Nielsen/Netratings' eSpending Report found that online 
shopping by US consumers rose from a total value of 18.5B in 2003 
to 23.2B in 2004, with clothing, toys, video games and 
electronics the top categories.  The S&P Retail Index, the RLX, 
closed lower by .41% at 460.09.

Colin Powell and Florida Governor Jeb Bush are leading a 
delegation to Thailand, Indonesia and possibly Sri Lanka, three 
of the nations hardest hit by the tsunami in the Indian Ocean.  
Powell said that the problem now is not money, with 2B in 
international aid including 350M pledged by the US, but rather 
its responsible distribution and use. Powell acknowledged that 
the true extent of the damage was not initially appreciated, and 
stated that the reconstruction effort could last years.  
Associated Press reported that aid agencies currently place the 
death toll around 140,000 and expect it to rise to 150,000.

Despite Powell's comments, the President enlisted the assistance 
of his father and Bill Clinton to appeal directly to the public 
for additional relief aid and donations.  As well, Reuters 
reported that the President is referring to the 350M as an 
"initial commitment," holding out the promise of more to follow.

At 10AM the market received its lone economic reports, November 
construction spending and the December ISM manufacturing index.  
Construction spending declined for the first time in 10 months, 
losing 0.4% on a seasonally-adjusted basis and falling well short 
of expectations of a 0.5% gain.  Private building spending 
declined .6%, the largest drop since January 2002, while spending 
on home construction declined .4%, the largest drop in almost 3 
years.

The Institute of Supply Management reported that its 
manufacturing index rose to 58.6% in December from its 57.8% 
reading in November.  Expectations were for 58.5%.  The 
employment component fell to 52.7% from 57.6%, while new orders 
rose from 61.5% to 67.4%.  The employment index fell from 57.6% 
to 52.7%.  Readings above 50% indicate expansion.

In other news the US' largest futures exchange, the Chicago 
Mercantile Exchange, reported its 5th consecutive record volume 
year in 2004 above 787M contracts.  Average daily volume rose 26% 
to 3.1+ million contracts.

For tomorrow, we have another light menu of economic reports, 
with auto sales and truck sales being reported, as well as 
factory orders for November.  Volume was back to normal levels 
today after last week's light holiday trade, and so far the bias 
has been to the downside.  With last week's strength on mostly 
light/retail volume, I believe that there's a good chance that 
the market was tipping its hand today.  If so, given the very 
bullish sentiment readings and extremely low volatility, there's 
a great deal of potential downside once the upward trend 
reverses.  For that to occur, bears will want to see the 
resistance levels noted above hold for any retest tomorrow, more 
support levels broken and more technical damage to rule out the 
possibility that today was yet another fleeting downside 
correction in the autumn's ongoing rally.  With December's rising 
support lines broken, however, bears have taken a promising first 
step. 
 

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

Cost Plus - CPWM - close: 30.80 change: -1.33

WHAT TO WATCH: CPWM has been consolidating under resistance at 
$33.00 for weeks.  Now the short-term trend of lower highs is 
blossoming into a steeper decline.  Watch for a drop under 
support at $30.00 or $29.00 as a new bearish entry point.  Volume 
is rising and its MACD is nearing a new sell signal. 




---

Equifax Inc - EFX - close: 28.66 change: +0.56 

WHAT TO WATCH: EFX broke out from a six-week trading range under 
resistance at $28.50 with big volume today. We don't see any 
specific news to account for the rally but technicals are 
certainly improving.  Watch for a bounce from the $28.50 level as 
a possible entry point for bullish plays.  The P&F chart shows a 
triple-top breakout buy signal with a $45 target.




---

Walgreen - WAG - close: 40.38 change: +2.01

WHAT TO WATCH: Drug-retailer Walgreens saw its stock gap higher 
and added 5.2 percent on huge volume after reporting better than 
expected earnings this morning before the bell.  The breakout 
from its two-month trading range is very good news for the bulls.  
Shares still have long-term resistance near $40.70 so be careful 
going long here.  Consider waiting for a bounce from $39.50 as it 
fills the gap or a move over $40.70.  The P&F chart points to a 
$54 target.




---

Southwestern Energy - SWN - close: 47.10 change: -3.59

WHAT TO WATCH: Energy and oil stocks took a big hit on Monday as 
the OIX lost 2.75 percent and the OSX fell 3.6 percent.  SWN out 
did them both with a 7 percent loss on heavy volume.  SWN's 
breakdown broke through support at its 50-dma and the $48 level.  
The move produced a new sell signal on its P&F chart with a $40 
target. Aggressive traders may want to go short now.  Others may 
want to wait and see SWN break the $45 level and its rising 100-
dma before considering shorts.





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

SYK $48.25 +0.0 - SYK was on our watch list this weekend for a 
breakout over $50.00 and shares did that this morning but the 
rally failed.  Look for a bounce from its 200-dma back over $50.

TLAB $9.18 +0.59 - An upgrade to an "out perform" sent TLAB to a 
6.8 percent rally and a breakout over resistance at $8.80.  The 
next level of resistance looks like the $10.00-10.25 region.

WWCA $30.78 +1.48 - WWCA gapped up above major resistance at the 
$30.00 mark on Monday.  Volume was very big following an upgrade 
to "buy" from Merrill Lynch this morning.
 

=================================================================
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 2005  PremierInvestor.net. and
The Premier Investor Network.
Do not duplicate or redistribute in any form.

PremierInvestor.net Newsletter                   Monday 01-03-2005
                                                    section 2 of 2
Copyright (c) 2005, 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: None    

Stock Splits
  Announcements:  None      

Active Trader (Non-tech Stocks)
  Closed Bullish Plays: KFY

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

None


==================================================================
Active Trader (AT) Non-Tech Stock section
==================================================================

============
Closed Plays
============

  Closed Bullish Plays
  --------------------

Korn/Ferry Intl - KFY - close: 19.81 change: -0.94 stop: 19.75     

The disappointing jobs data from the ISM index this morning lead 
investors to dump staffing stocks like KFY.  Shares fell 4.5 
percent on heavy volume to break support at the $20.00 mark.  We 
were stopped out at $19.75.  The ISM report doesn't bode well for 
Friday's jobs report.

Picked on December 12 at $21.30 
Gain since picked:       - 1.49
Earnings Date          12/08/04 (confirmed)
Average Daily Volume:       345 million 




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

Value Plays With Bullish Signals
---------------------------------
Ticker  Company Name               Close     Change

GS      Goldman Sachs             104.95     +0.91
AMX     America Movil              53.45     +1.10
SLM     Sallie Mae                 54.65     +1.26
PGR     Progressive Corp           87.55     +2.71
KMRT    Kmart Holding             100.10     +1.15
EFX     Equifax Inc                28.66     +0.56

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

AIQ     Alliance Imaging           12.35     +1.10
FXEN    FX Energy                  12.80     +1.12
RJET    Republic Airways           14.57     +1.30
PRFT    Perficient Inc              9.29     +2.73
WGAT    Woldgate Comm.              6.18     +1.19
CFCI    CFC Intl Inc               17.00     +1.31

---------------------------------------
Breakout to Upside (Stocks over $20)
---------------------------------------
  
GOOG    Google                    202.71     +9.92
WAG     Walgreen Co                40.38     +2.01
NIHD    NII Holdings Inc           49.08     +1.63
WWCA    Western Wireless           30.78     +1.48
PKOH    Park-Ohio Holdings         26.94     +1.13

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

FDC     First Data Corp            41.05     -1.49
NEM     Newmont Mining             42.36     -2.05
GD      General Dynamics          102.02     -2.58
BR      Burlington Resources       40.87     -2.63
BMET    Biomet Inc                 41.60     -1.79
LLL     L-3 Communications         71.53     -1.71
EOG     EOG Resources              66.55     -4.81
MUR     Murphy Oil Corp            76.65     -3.80

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

SBUX    Starbucks                  61.14     -1.22
XL      XL Capital                 76.50     -1.15
KMI     Kinder Morgan              70.58     -2.55
HET     Harrah's Entertainment     65.62     -1.27
CME     Chicago Mercantile Exchg  217.91     -10.79
LNCR    Lincare Holdings           41.41     -1.24

=================================================================
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) 2005  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