PremierInvestor.net Newsletter Wednesday 01-12-2005 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: January's "Early Warning System" Watch List: Natural Gas to Semis =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 01-12-2005 High Low Volume Adv/Dcl DJIA 10617.78 + 61.56 10622.88 10499.47 1.95 bln 1612/1208 NASDAQ 2092.53 + 12.91 2093.44 2066.79 2.26 bln 1593/1434 S&P 100 567.31 + 2.63 567.54 561.96 Totals 3205/2642 S&P 500 1187.70 + 4.71 1187.98 1175.64 SOX 401.83 + 5.64 404.65 395.06 RUS 2000 613.19 + 1.66 613.70 604.64 DJ TRANS 3587.18 - 57.08 3645.37 3557.90 VIX 12.56 - 0.63 13.94 12.54 VXO (VIX-O)12.79 - 0.24 13.78 12.77 VXN 19.28 - 0.39 19.70 18.995 Total Volume 4,221M Total UpVol 2,794M Total DnVol 1,349M Total Adv 3205 Total Dcl 2642 52wk Highs 126 52wk Lows 62 TRIN 0.86 PUT/CALL 0.93 =============================================================== =========== Market Wrap =========== January's "Early Warning System" Jane Fox The Stock Traders's Almanac states that January's First Five Days of trading is an "Early Warning System" for the rest of the year. It goes like this - if the First Five Days of January are up then there is an 85.3% chance the rest of the year will be up also. Since the first five days of January this year were not up, they were down, is the Early Warning System giving us an early warning that we have bearish year ahead? Since 1950 the first five days in January were down 20 times and of those 20 times 10 were followed by a yearly bear market. This is a 50% accuracy rate, which I guess is OK but I'm not too encouraged by 50% odds but it gets better. Since 1950 there have been 13 post election years and 8 of those have posted a First Five Day loss. Of those 8 years, 6 were followed by a yearly bear market, a 75% accuracy record. Now I like those odds a lot better. I recently read an article in the Wall Street Journal that was pooh pawing using history as way to invest. I quote, "Jeffery Saut, chief investment strategist for Raymond James, says people who invest according to such information are 'fooled by randomness.' While historical patterns are often mathematically intriguing, the market has a helter-skelter tendency to move in ways that defy strategists' complex models." What kind of nonsense is that? The game of trading and investing is a game of probabilities and your edge is that you have probability on your side. If you didn’t have probability on your side how in heavens name could you trade or invest. If you trade a particular pattern and know that it has a 75% accuracy rate you will you play it - you would be fool not to. Don't you need history to determine that you had a 75% chance of winning? Many say trading (investing) is like gambling and I used to really bristle at being compared to a gambler but over the years I have begun to realize that it is true. But what I also came to realize was the reason I bristled was that I was comparing a trader (myself) to your garden variety gambler that frequents the casinos only on vacation and expects to lose. Nothing could be further from the truth. Professional traders should not be compared the vacation gambler they should be compared to the professional gambler, the one that knows the rules and knows the odd and plays the odds, plays the probabilities. Anyone who thinks trading or investing is anything else is fooling themselves. Now you may say: I am an investor in for the long term so that doesn’t apply to me. Sorry but it does. If you knew the market had a "history" of returning -5% annually per year would you have your money in the market. No. You invest for the long term because the market has a "history" of returning 10% annually. Isn’t that just playing the odds, playing the probabilities? Ok I'll get off my soap box and move on to the numbers. THE NUMBERS Many people were expecting the declining dollar would stimulate demand for U.S. products overseas and decrease the U.S. trade imbalance. Unfortunately a global slowdown has cooled demand for products and the 8:30 news of a new record trade imbalance was not received well by the market. It started to drop as soon as had had enough and began to fight back. Unfortunately though they were not able to muster the troops enough to reach new daily highs before the lunch hour doldrums set in. So many were expecting the trend for the last few weeks - a market selloff in the last 1/2 hour - was a sure thing. Well the selloff didn't happen as a matter of fact the opposite took place as the market started another rally and this time it reached and exceeded daily highs. This in turn was fueled by short sellers (the ones betting on the selloff) having to cover their butts... err positions. The DOW fell 67 points in the morning but finished up 61.63 to close at 10617.85. The S&P 500 added 4.71 to 1187.70 and the Nasdaq Composite Index jumped 12.91 to 2092.53. The NYSE traded 1.6 million shares traded, 1,933 stocks rose and 1,395 fell. On the Nasdaq Stock Market, where volume was 2.2 billion, 1,639 stocks advanced and 1,475 declined Securities and Exchange Commission Chairman William Donaldson is reconsidering a proposal to overhaul the way stocks are traded in the U.S., a proposal opposed by the New York Stock Exchange. At issue is whether investors should always be guaranteed the best price when buying or selling shares. The SEC backs the idea that brokers and markets should be required to get the best price available for a stock, regardless of where it is trading, or match the better price. The rule is being criticized by some who argue that getting the best price often takes so long that, on big trades involving multiple transactions, the price of a stock can be driven up or down quickly to their disadvantage. The rule gives the NYSE an advantage because it often posts the best price for its listed stocks. But because the NYSE isn't an automated marketplace, its human-based floor-trading system can take slightly longer to execute trades than it would take in an electronic marketplace such as the Nasdaq Stock Market. So why is the NYSE opposed to the SEC's proposal? NYSE Chief Executive Officer John Thain believes that the rule could jeopardize his plan to automate the Big Board and allow for more electronic trading. To implement the best-price rule "would make it very difficult" for his new model to work and would "also make it very difficult to have the continuous auction process that exists today on the floor of the exchange." The NYSE wants its cake and eat it too because at the same time the NYSE is trying to automate they will still retain their human-based floor-trading by the elite floor-trading firms known as specialists and the SEC proposal would diminish the role of these specialists. Can't have that happen how can we? But fears of the unknown and unintended consequences are taking a toll on Mr. Donaldson so he is backing off somewhat and is considering an alternative approach that would guarantee price protection as long as it could be filed automatically and without human intervention. ECONOMIC REPORTS Although analysts expected to see a rebound from the slow holiday period, applications for home loans dropped last week due to a decrease in purchasing activity that offset an increase in refinancing activity. At 7:00EST this morning the Mortgage Bankers Association (MBA) released its weekly report on the seasonally adjusted index of mortgage application activity. It showed the index declined 3% to 587.8. This was after a 10% decline the week before and also the lowest level the index has seen since the week ended June 25, 2004, when the index was at 575.0. Some are saying this is due to a slight increase in mortgage rates, which averaged 5.7% last week (for the 30-year fixed) up from 5.67% the week before. However when you look under the hood you see that rates are comparable to where they were several months ago when the index was substantially higher. For example, the week ending November 12th, 2004, fixed 30-year mortgage rates were the same and the MBA's market index stood at 758.3. Drilling down into the report we find the gauge of loan requests for home purchases, the purchase index, hit 13% its lowest level in over a year. This, of course, is raising concerns that the housing market may be slowing down or even - heaven forbid - starting to decline. But please consider that this is weekly data and subject to swings that are not always indicative of a trend change but it does make you want to keep your eye on this weekly report and any further drop will likely instigate additional concern about the strength of the housing market. The Commerce Department's 8:30EST release of the November International Trade Balance caught a lot of economists by surprise who had been anticipating a pull back in the November deficit because of a decline in the price of oil. But quite the opposite happened when it was revealed that the U.S. trade gap climbed to a new record showing the fall in the price of oil was more than offset by an increase in demand for foreign oil while sales of U.S. goods and services overseas fell for the first time in five months. Although economists had forecast the deficit would narrow to $53.60 billion, the U.S. deficit in international trade of goods and services grew 7.7% to $60.3 billion. The trade deficit through November totaled $561.3 billion, well above the previous annual record of $496.5 billion set in 2003. Imports overall increased 1.3% to $155.85 billion during November and exports fell 2.3% to $66.5 billion, the first decline in five months reflecting a drop in shipments of U.S. autos and auto parts, civilian aircraft, telecommunications equipment and industrial machinery. At 10:30 the U.S. Department of Energy release of the weekly Crude Oil/Gasoline/Distillate inventories reported that the U.S. supply of crude oil declined by 3 million barrels last week to 288.8 million barrels. This is 7% higher than a year ago. The supply of distillate fuel, including heating oil, diesel and jet fuel, rose by 1.9 million barrels, though inventories are 8% below a year ago at 123 million barrels. The last on the economic report docket was the 2:00EST Treasury Department's release of its monthly budget. The Treasury Department said the shortfall between receipts and outlays in the month of December 2004 was a narrower-than-expected $3.44 billion and well below the $17.64 billion budget gap recorded in December 2003. Analysts were expecting a $4.50 billion shortfall. THE CHARTS SPX DAILY CHART Last Wednesday January 5th I wrote in the Market Wrap that I thought the SPX chart was pretty bearish. It had broken the 50EMA, broken out of a regression channel and was sporting a huge MACD divergence. Well it just may have resolved all the bearishness and started a recovery. But the challenge now is to determine what a recovery looks like. Well first of all take a look at the magenta box on the chart. Can you see how the lower regression line was broken then tested on January 10th for validity? So that would be our first hint - a break above the lower line on the regression channel. Secondly you will want to see a break and a retest of the 50EMA. Thirdly you will want the MACD (I use 8,18,6) to cross back up and then back above the 0 line. Then the big challenge will be to make new yearly highs. Possible - yes it is. Easy - not in your life is anything in the stock market easy. DOW DAILY CHART I feel that the negative MACD divergence has worked its self out on this chart as well but we will have to see the MACD make a bullish and get above the 0 line before we can say the MACD is once again bullish. In the same vane as the SPX, this market also needs to climb above the 50EMA before the bulls can go back in the water. New yearly highs would be nice as well. I have left the red trendline on the chart as a reminder of the Stock Trader's Almanac theory called the Incredible January Barometer, which I reviewed in the January 5th Market Wrap. The magenta line is a small revision to that theory. NASDAQ DAILY CHART The bearish wedge and the negative MACD divergence were just too much for this market and when it succumbed to the pressure it did it in a big way. However, I do feel that all this bearishness may be behind us and like with the other markets it will have to prove it to me. First of all MACD has to make a bullish cross then print above the 0 line. Secondly the NAZ has to break the 50EMA and complete a successful retest. Then on to new yearly highs? - well we'll see. RUSSELL 2000 DAILY CHART Here we see the same bearish wedge and negative MACD divergence that showed up in the NASDAQ chart and once again I feel that maybe all the bearishness has worked its self out but this chart has a little more work to do than its bigger brethren. For one the MACD has a lot further to go before it is once again above the 0 line. Next this market has reached a 68% retracement of its rally from October lows while the NAZ has only retraced 50% and the SPX and the DOW have both only retraced 38%. This market was hit a lot harder this year than the bigger cap markets for sure. After the bell Apple Computer Inc. (AAPL) posted a quarterly profit that more than quadrupled due to skyrocketing sales of its iPod digital music players and strong demand for its PowerBook notebook PCs. AAPL traded to a high of 74.90 in after hours. Thursday's economic releases begin with the usual 8:30 release of jobless claims, accompanied by the release of December's Advance Retail Sales ex-auto, and December's Import Price Index. They continue with natural gas inventories at 10:30 and the 4:30 Money Supply release. Earnings Thursday include before the bell MI and MTG and after-the-bell reports by tech stocks CREE, DGII, RMBS, SUNW and TMTA, giving investors a look at demand for display components, network access and communications devices, chips, servers and microprocessors. Remember play the probabilities. Jane Fox ================================================================= 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 --------------------------------- Williams Cos - WMB - close: 15.99 change: +0.27 WHAT TO WATCH: We came very close to adding WMB to the PremierInvestor play list as a bullish candidate. The stock has been digesting its November gains for about six weeks now and looks ready to break its trend of lower highs. Watch for a move over $16.25 or $16.50 as a potential entry point. We would target a multi-week move to $20 but its P&F chart actually points to a $34 target. --- Teekay Shipping - TK - close: 42.62 change: +0.55 WHAT TO WATCH: TK reached very oversold levels after falling from $55 in late November to $40 just a few days ago. We like the bounce from round-number support at $40, bolstered by its 200- dma. Technicals have turned bullish and its MACD has produced a new buy signal. Our only concern is TK's earnings report on Jan 19th. We normally don't like to hold over an earnings report. Any brave bulls can probably target a move into the $45-47.50 region. --- QLogic Corp - QLGC - close: 37.15 change: +0.74 WHAT TO WATCH: QLGC has rebounded pretty strongly the last couple of sessions with two brokers upgrading the stock to a "buy" in the last two days. Shares are nearing resistance at the $37.50 mark and bulls can use a breakout as a new entry point. We would target a quick move to $40.00. Watch for earnings on Jan. 19th. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- PHRM $38.68 -1.32 - PHRM is breaking significant support at the $40.00 mark. We would look for shares to test support near $35.75. ASKJ $28.00 +2.71 - ASKJ turned in a very strong day but remains stuck under resistance at its 100-dma and 200-ema near $28. CLSR $21.00 +2.30 - Technical traders may want to check out the breakout in CLSR over the $20 mark and its 200-dma. GLBC $18.50 +1.46 - We're also noticing strength in Global Crossing. A move over the $20.00 level might be a momentum entry point. ========================================================== 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 Wednesday 01-12-2005 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: VSEA, PDCO, USB, EP Active Trader (Non-tech Stocks) New Bullish plays: BA, RTN 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 ================================================================== VSEA - tech short - No surprises here. VSEA rallied sharply after the positive INTC news. Watch the $32 level for resistance. PDCO - non-tech long - PDCO creeps to a new all-time high. USB - non-tech long - We were a bit worried when USB traded under the $30.00 level today but shares rebounded and now it looks like a potential bullish entry point. EP - non-tech long - Be ready. We're still untriggered as we wait for EP to trade at $10.61 but the stock appears to be coiling for a move higher. ================================================================== Active Trader (AT) Non-Tech Stock section ================================================================== --------- New Plays --------- New Bullish Plays ----------------- Boeing - BA - close: 51.94 change: +1.12 stop: 49.95 Company Description: With a heritage that mirrors the first 100 years of flight, The Boeing Company provides products and services to customers in 145 countries. Boeing has been the premier manufacturer of commercial jetliners for more than 40 years and is a global market leader in military aircraft, satellites, missile defense, human space flight, and launch systems and services. Total company revenues for 2003 were $50.5 billion. (source: company website) Why We Like It: Recent news that the U.S. and the E.U. plan to back away from a legal fight over alleged subsidies for Boeing and its European rival Airbus should be good news for BA. Bulls will be quick to note that shares have been consolidating near support at the $50 mark and its rising 200-dma. We believe that after a month of trending lower in December shares of BA look poised to make another run towards the $55.00-55.50 region. The MACD indicator is nearing a new buy signal and short-term technicals are already positive. We want to go long now and target a move to the $55.00 mark. We do not plan to hold over its early February earnings announcement. Annotated chart: Picked on January 12 at $51.94 Gain since picked: + 0.00 Earnings Date 02/02/05 (confirmed) Average Daily Volume: 3.2 million --- Raytheon Co - RTN - close: 37.25 change: +0.71 stop: 36.25 Company Description: Raytheon Company, with 2003 sales of $18.1 billion, is an industry leader in defense and government electronics, space, information technology, technical services, and business and special mission aircraft. With headquarters in Waltham, Mass., Raytheon employs more than 78,000 people worldwide. (source: company press release) Why We Like It: Defense stocks have been somewhat beat up the last few weeks as investors worried about cuts in defense spending. Yet it seems the sell-off was only temporary. The DFI defense index is rebounding from very consistent technical support at its rising 100-dma. This has helped RTN form a new short-term bottom above the $36 level and now shares of the stock are beginning to break higher again. The MACD indicator is improving and short-term technicals are already bullish. There is some resistance at $38.00 but we suspect that RTN could make it to $40.00 by its early February earnings report. Annotated chart: Picked on January 12 at $37.25 Gain since picked: + 0.00 Earnings Date 02/03/05 (confirmed) Average Daily Volume: 1.7 million ================================================================== Stock Splits ================================================================== Announcements ------------- ================== 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 TOT Total Sa 105.85 +0.77 CVX ChevronTexaco 52.49 +1.09 XOM ExxonMobil 50.59 +0.74 UTX United Technologies 101.94 +1.78 BA Boeing Co 51.94 +1.12 LMT Lockheed Martin 55.80 +0.70 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- BTRX Barrier Therapeutics 19.05 +1.22 GLBC Global Crossing 18.50 +1.46 RATE Bankrate Inc 18.80 +1.72 IIG Imergent Inc 15.70 +1.02 NEOF Neoforma Inc 8.13 +1.16 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- HCA HCA Inc 43.70 +4.02 GENZ Genzyme Corp 59.91 +2.85 TLM Talisman Energy 28.80 +1.72 WAT Waters Corp 48.50 +1.34 PHS Pacificare Health 59.82 +1.27 DBD Diebold Inc 57.04 +1.89 TRI Triad Hospitals 39.84 +2.94 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- UPS United Parcel Service 77.18 -6.12 CME Chicago Merc. Exchnge 207.10 -5.34 ACS Affiliated Computer 56.06 -1.65 NCR NCR Corp 64.73 -2.46 MTG MGIC Investment 66.00 -1.11 TS Tenaris 45.21 -1.08 OMX Officemax Inc 28.88 -1.42 CBL CBL & Associates 67.68 -1.77 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ----------------------------------------- CHRW C.H.Robinson Worldwide 53.42 -1.79 SNDA Shanda Interactive 37.21 -3.74 PETC Petco Animal Supplies 37.63 -1.27 ================================================================= 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.
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