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Daily Newsletter, Thursday, 04/21/2005

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Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Market Wrap

DOW

+ 206.24

10,218.60

Nasdaq

+ 48.65

1,962.41

S&P 500

+ 22.45

1,159.95

Just a few trading days ago we were talking about fears of a "Black Monday".  We'll that has quickly faded from our memory and now its time to jump on the "Yeah Baby Thursday" bandwagon. 

We got a bona-fide, everybody stop selling and start buying no matter what country you live in, type of rally today.  After the Chinese water torture sell-offs and fake-outs we've been having for the last few months, this was a nice refresher.

Even better, there's a good reason to believe that this wasn't another one of those one day wonders.  In fact, I'm going on record and calling out the bottom.  Yup, you heard it here first, it is officially time to cut loose your shorting mentality and get ready for another leg up on the market.

While after such a big day today, we might soon be due for a breather in the next trading day or two, but a real trend change is at hand.  I'm recommending a buy here on the INDU, SPX and NDX indices with a stop out on a close below today's low.   Looking for short term retracements back up to the 200 DMA as short term targets, but really, this has the making of a decent rally that could actually last a few months.  Given the past divergence between the S&P 500 and the Nasdaq, we'd also favor the technology weighted QQQQ as the ETF to focus on as the scared money starts to rotate back into sectors that are going to be able to juice their returns. 

Now, let me show you some different sets of data that make this such a compelling case for my long call, including a close look at the current market sentiment by a few different measures.

Let's start with the average investor out there.  This last weekend, after Friday's horrific close to an awful week, the 20 something financial journalists got their panties in a bunch and started screaming louder then a teenage girl meeting her favorite rock star.

Just look at some of the headlines we took in on the weekend:

"Stocks plunge on IBM fears"
"Stock market in freefall as markets close"
"Wall St. suffers worst day in two years"
"Stock Broker Quits, Gets Job Pumping Gas."

Ok, maybe the stock brokers aren't reduced to flipping burgers at McDonalds, but last Friday it sure felt close.

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And this is the culmination of an overwhelming bearish sentiment that had been increasing in volume for several weeks.   The AAII (American Association of Individual Investors) has a weekly poll that gauges bullish and bearish opinion and has reached the lowest level of bullish opinion in 13 years.  This is after only a 5% correction in the S&P 500.  Now if every Tom, Dick and Harry is so convinced that the market has such a bad outlook, who is left to sell?  Secondly, historical data shows that this group has never been right when the sentiment is at such extremes.   No doubt, they will mark yet another low point in the market this time. 

Even so, I like to get some "back up" data to support my thesis, so I'll point you to a few more facts.  First, odd-lot short sales, (these are typically small retail traders who are selling short and are also wrong when they all are behaving the same), recorded an all time high last Friday.

Second, the put/call ratio has made 3 extreme highs, including an intra-day record as far as we know, with major bets being made on the put side, both on individual equities and on the OEX index. 

Third, looking at assets in the Rydex funds (these are leveraged funds that are used by market timers) shows major bets having been made on the short side and an overall withdrawal of assets on 30 out of 33 of their long funds.

The overall conclusion I arrive at is that we've reached an extreme point of view from most all market sentiment measures and combined with a great price action reversal, today is the day to change our intermediate bias from short to long. 

I leave you with the chart of the QQQQ.  Please print it out and come back and look at it 3 months from now.
 


 

New Plays

Most Recent Plays

TABLE-->
New Plays
Long Plays
Short Plays
ESIO None

New Long Plays

Electro Sci. Ind. - ESIO - close: 17.93 chg: +1.01 stop: 16.79

Company Description:
Electro Scientific Industries, Inc. (ESI) is a pioneer and leading supplier of world-class production laser systems that help its microelectronics customers achieve compelling yield and productivity gains. The company's industry-leading, application-specific products enhance electronic-device performance in three key sectors -- semiconductors, components and electronic interconnect -- by enabling precision fine-tuning of device microfeatures in high-volume manufacturing environments. Founded in 1944, ESI is headquartered in Portland, Ore. (source: company press release)

Why We Like It:
We like ESIO as a technical bounce play. The stock is very oversold after two months of steady declines. Now shares are bouncing from strong support. Today's gain pushed ESIO above technical resistance at its 10-dma. Technical oscillators like the RSI and stochastics have turned positive and its MACD is nearing a new buy signal. The P&F chart is currently bearish but we believe the broad market rally will continue and help lift shares of ESIO toward the $20.00 level. We are suggesting longs at current prices but readers have a choice. You could look for a possible dip back toward $17.50. Or you could look for more confirmation and only go long if ESIO trades over $18.25-18.50. Our target is $20.00 and our time frame is about six weeks.

Picked on April 21 at $17.93
Change since picked: + 0.00
Earnings Date 03/22/05 (confirmed)
Average Daily Volume: 181 thousand
 

New Short Plays

None today
 

In Play Updates and Reviews

Long Play Updates

Knightsbridge Tankers - VLCCF - cls: 42.10 chg: +0.35 stop: 37.90

No change from our previous update on 04/19/05.

Picked on April 19 at $40.31
Change since picked: + 1.79
Earnings Date 05/05/05 (unconfirmed)
Average Daily Volume: 366 thousand
 

Short Play Updates

BEA Systems - BEAS - close: 7.21 chg: +0.06 stop: 7.81 *new*

Good news! Shares of BEAS failed to truly participate in the market rally on Thursday. Yet bears are still in danger if the markets continue to rebound tomorrow. Conservative players may want to exit early for a small profit. Our target is the $7.00 level. We are lowering our stop loss to $7.81.

Picked on April 15 at $ 7.68
Change since picked: - 0.47
Earnings Date 05/18/05 (unconfirmed)
Average Daily Volume: 7.6 million

---

Boston Scientific - BSX - cls: 29.29 chg: +0.54 stop: 31.51

BSX under performed the markets today as well in spite of its 1.8 percent bounce. Readers can use a failed rally under $30.00 as a new bearish entry point but we would hesitate on initiating new bearish positions if the broader indices continue to bounce.

Picked on April 19 at $29.05
Change since picked: + 0.24
Earnings Date 04/19/05 (confirmed)
Average Daily Volume: 5.4 million

---

Flextronics - FLEX - close: 11.28 chg: +0.54 stop: 11.76

The market rally was too much for shorts in FLEX and the stock finally saw some buying interest. Shares broke back above the $11.00 mark, which had been short-term resistance. We are not suggesting new bearish plays at this time. More conservative types may want to exit early to salvage a small profit. We are keeping the play open to see if FLEX will fail near the $11.50 level.

Picked on March 16 at $11.95
Change since picked: - 0.67
Earnings Date 04/28/05 (confirmed)
Average Daily Volume: 5.5 million

---

Greenbrier Co - GBX - close: 32.34 chg: +0.56 stop: 34.25*new*

Alert! Traders need to be careful here. The Dow Transportation index soared with a 3.46 percent gain on Thursday. The TRAN index also broke through technical resistance at its 200-dma. This could be bad news for bears in transport stocks. Shares of GBX popped higher at the open but failed under the $34.00 level. The pull back from its early highs is encouraging but bears remain in danger. We are not suggesting new bearish positions. More conservative traders may want to exit early right here to avoid any further erosion in the play. We are lowering the stop loss a bit to $34.25.

Picked on April 11 at $33.20
Change since picked: - 0.86
Earnings Date 03/30/05 (confirmed)
Average Daily Volume: 123 thousand

---

Lowes Companies - LOW - cls: 52.28 change: +0.78 stop: 54.01

LOW may have added 1.5 percent on Thursday but this under performed the broader indices. The stock remains stuck in its down trend but if the markets rally again tomorrow we would expect a bigger oversold bounce in LOW. Watch for resistance at the simple 10-dma near $53.25. We would not suggest new bearish positions at this time.

Picked on April 10 at $54.81
Change since picked: - 2.53
Earnings Date 05/16/05 (unconfirmed)
Average Daily Volume: 3.0 million

---

Catalina Mktg - POS - close: 24.08 chg: -1.44 stop: 25.25

No change from our previous update on 04/20/05. Our trigger to go short is $23.80.

Picked on April xx at $xx.xx <-- see TRIGGER
Change since picked: - 0.00
Earnings Date 05/18/05 (unconfirmed)
Average Daily Volume: 468 thousand

---

Sina Corp - SINA - close: 27.41 chg: +0.31 stop: 30.51

More good news! SINA under performed the market today and has not reacted much to the positive Yahoo and Ebay earnings news. Nor do we see any after hours reaction to the positive Google news tonight. Continue to look for resistance at the 200-dma. No other changes from our previous update on 04/19/05 and 04/17/05. Our target is the $25.00 level.

Picked on April 13 at $28.52
Change since picked: - 1.11
Earnings Date 05/05/05 (confirmed)
Average Daily Volume: 3.5 million

---

Westlake Chem. - WLK - close: 27.41 chg: +0.32 stop: 30.01

No change from our previous update on 04/20/05. We are not suggesting new bearish plays. Our target is the $25.50-25.00 range.

Picked on April 08 at $29.19
Change since picked: - 1.78
Earnings Date 05/04/05 (confirmed)
Average Daily Volume: 207 thousand

---

West Marine - WMAR - close: 20.14 chg: +0.11 stop: 21.01

Good news. WMAR did not participate (much) in today's market rally. The stock under performed the major indices and continues to look weak. However, we are not suggesting new bearish plays at this time. More conservative traders may want to tighten their stops toward the $20.50 level.

Picked on March 17 at $21.20
Change since picked: - 1.04
Earnings Date 04/28/05 (confirmed)
Average Daily Volume: 155 thousand

---

XM Satellite Radio - XMSR - cls: 27.51 chg: +0.69 stop: 30.01*new*

This is not much of a surprise here. XMSR was pretty oversold and due for a bounce. Look for more resistance at $28.00 and at the 10-dma near $28.60. More conservative traders may want to strongly consider exiting here for a profit. We are lowering our stop loss to $30.01. No change from previous update on 04/17/05. Our target is the $26.00-25.00 range.

Picked on April 10 at $30.67
Change since picked: - 3.16
Earnings Date 04/27/05 (confirmed)
Average Daily Volume: 5.2 million
 

Closed Long Plays

None
 

Closed Short Plays

Anheuser Busch - BUD - close: 48.04 chg: +2.94 stop: 47.01

BUD bears were blindsided by Buffett today. Anheuser Busch learned that the Oracle of Omaha had become a "significant" shareholder in the company's stock. BUD was only too happy to issue a press release regarding the news to soothe their ailing stock price. Investors reaction seems to be overdone and probably exacerbated by the broad market bounce today. We have been stopped out at $47.01 for a small "profit".

Picked on February 7 at $48.32
Gain since picked: - 0.28
Earnings Date 04/27/05 (confirmed)
Average Daily Volume: 2.4 million
 


Play Updates

In Play Updates and Reviews

Long Play Updates

Knightsbridge Tankers - VLCCF - cls: 42.10 chg: +0.35 stop: 37.90

No change from our previous update on 04/19/05.

Picked on April 19 at $40.31
Change since picked: + 1.79
Earnings Date 05/05/05 (unconfirmed)
Average Daily Volume: 366 thousand
 

Short Play Updates

BEA Systems - BEAS - close: 7.21 chg: +0.06 stop: 7.81 *new*

Good news! Shares of BEAS failed to truly participate in the market rally on Thursday. Yet bears are still in danger if the markets continue to rebound tomorrow. Conservative players may want to exit early for a small profit. Our target is the $7.00 level. We are lowering our stop loss to $7.81.

Picked on April 15 at $ 7.68
Change since picked: - 0.47
Earnings Date 05/18/05 (unconfirmed)
Average Daily Volume: 7.6 million

---

Boston Scientific - BSX - cls: 29.29 chg: +0.54 stop: 31.51

BSX under performed the markets today as well in spite of its 1.8 percent bounce. Readers can use a failed rally under $30.00 as a new bearish entry point but we would hesitate on initiating new bearish positions if the broader indices continue to bounce.

Picked on April 19 at $29.05
Change since picked: + 0.24
Earnings Date 04/19/05 (confirmed)
Average Daily Volume: 5.4 million

---

Flextronics - FLEX - close: 11.28 chg: +0.54 stop: 11.76

The market rally was too much for shorts in FLEX and the stock finally saw some buying interest. Shares broke back above the $11.00 mark, which had been short-term resistance. We are not suggesting new bearish plays at this time. More conservative types may want to exit early to salvage a small profit. We are keeping the play open to see if FLEX will fail near the $11.50 level.

Picked on March 16 at $11.95
Change since picked: - 0.67
Earnings Date 04/28/05 (confirmed)
Average Daily Volume: 5.5 million

---

Greenbrier Co - GBX - close: 32.34 chg: +0.56 stop: 34.25*new*

Alert! Traders need to be careful here. The Dow Transportation index soared with a 3.46 percent gain on Thursday. The TRAN index also broke through technical resistance at its 200-dma. This could be bad news for bears in transport stocks. Shares of GBX popped higher at the open but failed under the $34.00 level. The pull back from its early highs is encouraging but bears remain in danger. We are not suggesting new bearish positions. More conservative traders may want to exit early right here to avoid any further erosion in the play. We are lowering the stop loss a bit to $34.25.

Picked on April 11 at $33.20
Change since picked: - 0.86
Earnings Date 03/30/05 (confirmed)
Average Daily Volume: 123 thousand

---

Lowes Companies - LOW - cls: 52.28 change: +0.78 stop: 54.01

LOW may have added 1.5 percent on Thursday but this under performed the broader indices. The stock remains stuck in its down trend but if the markets rally again tomorrow we would expect a bigger oversold bounce in LOW. Watch for resistance at the simple 10-dma near $53.25. We would not suggest new bearish positions at this time.

Picked on April 10 at $54.81
Change since picked: - 2.53
Earnings Date 05/16/05 (unconfirmed)
Average Daily Volume: 3.0 million

---

Catalina Mktg - POS - close: 24.08 chg: -1.44 stop: 25.25

No change from our previous update on 04/20/05. Our trigger to go short is $23.80.

Picked on April xx at $xx.xx <-- see TRIGGER
Change since picked: - 0.00
Earnings Date 05/18/05 (unconfirmed)
Average Daily Volume: 468 thousand

---

Sina Corp - SINA - close: 27.41 chg: +0.31 stop: 30.51

More good news! SINA under performed the market today and has not reacted much to the positive Yahoo and Ebay earnings news. Nor do we see any after hours reaction to the positive Google news tonight. Continue to look for resistance at the 200-dma. No other changes from our previous update on 04/19/05 and 04/17/05. Our target is the $25.00 level.

Picked on April 13 at $28.52
Change since picked: - 1.11
Earnings Date 05/05/05 (confirmed)
Average Daily Volume: 3.5 million

---

Westlake Chem. - WLK - close: 27.41 chg: +0.32 stop: 30.01

No change from our previous update on 04/20/05. We are not suggesting new bearish plays. Our target is the $25.50-25.00 range.

Picked on April 08 at $29.19
Change since picked: - 1.78
Earnings Date 05/04/05 (confirmed)
Average Daily Volume: 207 thousand

---

West Marine - WMAR - close: 20.14 chg: +0.11 stop: 21.01

Good news. WMAR did not participate (much) in today's market rally. The stock under performed the major indices and continues to look weak. However, we are not suggesting new bearish plays at this time. More conservative traders may want to tighten their stops toward the $20.50 level.

Picked on March 17 at $21.20
Change since picked: - 1.04
Earnings Date 04/28/05 (confirmed)
Average Daily Volume: 155 thousand

---

XM Satellite Radio - XMSR - cls: 27.51 chg: +0.69 stop: 30.01*new*

This is not much of a surprise here. XMSR was pretty oversold and due for a bounce. Look for more resistance at $28.00 and at the 10-dma near $28.60. More conservative traders may want to strongly consider exiting here for a profit. We are lowering our stop loss to $30.01. No change from previous update on 04/17/05. Our target is the $26.00-25.00 range.

Picked on April 10 at $30.67
Change since picked: - 3.16
Earnings Date 04/27/05 (confirmed)
Average Daily Volume: 5.2 million
 

Closed Long Plays

None
 

Closed Short Plays

Anheuser Busch - BUD - close: 48.04 chg: +2.94 stop: 47.01

BUD bears were blindsided by Buffett today. Anheuser Busch learned that the Oracle of Omaha had become a "significant" shareholder in the company's stock. BUD was only too happy to issue a press release regarding the news to soothe their ailing stock price. Investors reaction seems to be overdone and probably exacerbated by the broad market bounce today. We have been stopped out at $47.01 for a small "profit".

Picked on February 7 at $48.32
Gain since picked: - 0.28
Earnings Date 04/27/05 (confirmed)
Average Daily Volume: 2.4 million
 

Today's Newsletter Notes: all plays and content by the Option Investor staff.

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