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Daily Newsletter, Wednesday, 06/29/2005

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Table of Contents

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

Market Wrap

Revised GDP, Oil and Oracle of little help

Revised GDP, Oil and Oracle of little help

It was one of those days when the MARKET seemed to have a mind of its own. It felt like a Triple-Witch expiration as the major indices traded either side of unchanged as the second quarter draws to a close tomorrow afternoon.

Advancers edged out decliners at both major exchanges, and volumes were on the light side. With one day left in the month's trade, NYSE volume has been running 1.8 billion shares per day, while NASDAQ has been turning 1.71 billion. That's a 3% decline in volume for the NYSE compared to May, while NASDAQ shows a 3% increase in average daily volume since May's 1.66 billion (lowest since October 2004).

Still, compared to last year at this time when NYSE volume averaged just 1.30 billion per day and NASDAQ was averaging 1.58 billion per day, volumes seem brisk.

The major indices bid at the open after the U.S. Government said Q1 Gross Domestic Product increased 3.8% to $11.1 trillion on an annual basis. The 3.8% revision was up from last month's 3.5% estimate. 


Brisk spending on housing projects, more investment by business in equipment and software, and a trade deficit that was less of a drag on economic growth all played a role in the higher first-quarter GDP reading.

August Crude Oil futures (cl05q) fell 94 cents, or -1.62% to settle at $57.26 after the EIA said weekly crude oil inventories rose by 1.1 million barrels. The build reversed a three-week trend of draws. At the bottom of today's Option's Market Monitor I put together a consolidated table of the EIA's recent weekly inventory reports for crude oil, gasoline and distillate inventories, as well as a link to the EIA's web page where more complete data can be found. 

At 12:01:19 PM EDT I showed an updated table of these data. What I found informative when looking at this data overtime is just how responsive the market is to what is going on NEAR TERM with crude oil inventories. Then, when we hear that traders are already concerned with what is going on with heating oil inventories (part of distillates) you and I can look back at inventory levels found for distillates, and see how refiners are really starting to ramp up supplies to meet the pending winter demand. Since May 6, distillate inventories are up 10.5% to 113 million barrels. 

Stocks making headlines included Oracle (ORCL) $13.57 +5.76%, DuPont (DD) $44.63 -0.68%, American Intl. Group (AIG) $58.48 +5.99%, Monsanto (MON) $63.00 -7.13%, General Mills (GIS) $47.21 -6.71% and Motorola (MOT) $18.53 +0.98%. 

Oracle rose almost 6% after reporting upbeat quarterly earnings with gains in its applications segment due to its acquisition of PeopleSoft in early 2005 (18-month hostile pursuit). 

DuPont, on the other hand, saw its share price fall only slightly after the Environmental Protection Agency (EPA) reported that a controversial chemical used by DuPont to make the nonstick substance Teflon poses more of a cancer risk than indicated. DD, a Dow component, is currently near its lowest levels of the year and there is an ominous bearish H&S formation on a daily chart with a neckline at $47 (currently at 44.63). 

Shares of AIG rose 6% and closed at a three-month high after the company said Q1 net income rose 44% year over year. Shares of AIG are still about 20% below trading levels when accounting investigations began in February.

As far as the downside is concerned, General Mills Inc. posted fourth-quarter earnings that actually rose 65%, however, analyst expectations were not met as consumers might be finding breakfast substitutes. Shares of GIS fell 6.7%. 

Monsanto fell over 7% after the seed and agricultural products supplier posted sharply lower earnings for the fiscal third quarter and issued a fourth-quarter forecast that remained below analysts' forecasts. A change in accounting would narrow its expected free cash flow to a negative $400 million in 2005, compared with a previous estimate of negative $900 million.

Initial Public Offerings found a bullish reception today. Neustar (NSR) rose $4 from its IPO price of $22, and this telecom services firm wasn't the best IPO of the day. DSW Inc. (DSW) closed at 24.10, up from its $19 IPO price as traders marked up this retailer and stomped out thoughts of a weak IPO market. 

Note: Retail Ventures (RVI) $13.59 +5.59% is DSW's parent company and has doubled from its November low. Today we know why.

U.S. Market Watch - 06/29/05 Close


The AMEX Gold Bugs ($HUI.X) were today's percentage gainer among sectors. Jim Brown mentioned some end of quarter "window dressing" and wouldn't you know it.... today's HUI.X gains get this index back in the green for the quarter! 

Check this out. Of the asset classes represented in the "Beetle's Balanced Benchmark," only the Dow Diamonds (DIA) now show a loss.

Balanced Benchmark - 06/29/05 Close


Markets are going to be closed on Monday in observance of Independence Day, and for those that need to feed their "fix" for some type of market action, you should review your retirement account and look at rebalancing your portfolio.

I established the "Beetles Balanced Benchmark" a couple of years ago, to not only demonstrate how an investment portfolio could seek out enhanced returns, while reducing risk, but to also give us a view of just where money has been moving.

Cash flowed into the greenback this quarter with the U.S. Dollar Index (dx00y) currently up 6.02% since 03/31/05 (P/L % from 03/31/05 benchmarking). It had been thought that dollar strength was "doom" for equities, but history has shown that that's not always the case. The latest quarter is a pretty good example. Yes, dollar strength can make U.S. exports less price competitive overseas, but dollar strength can also have foreign capital moving to the U.S. when market participants find U.S. assets more attractive than others around the globe! This can be driven my monetary policy, economics, etc. etc.

Still, we may have seen some negative impact of the stronger dollar on the Dow Diamonds (DIA), which contains some of the "who is who" of multinationals! 

Longer-dated Treasury maturities as depicted by the TLT vastly outperformed the "safer" shorter-dated maturities (SHY) and intermediate-term IEF. While the P/L % column does NOT account for the impact of dividends, those "junk bonds" as represented by the PHF (has generated $0.075 per month, per share) have also faired well.

Mid-caps as depicted by the IJH have been the top performer in our equity class, and the mighty small-caps (IWM) made a valiant comeback after a 5.66% decline in the first quarter.

By rebalancing your longer-term holding, it will FORCE YOU to "take some profits" in those areas that have seen "outperformance," and place those assets into areas that have "underperformed" and may hold some newly created "value."

Now... August Crude Oil futures (cl05q) is not an asset class that is actually represented as being "held" in the BBB, but had we bought this contract on March 31, we'd be break-even on that contract. I should clarify here that on March 31, the Continuous Contract ($WTIC) closed at $55.40 and it closed today at $57.26, which was down 94 cents. So, oil has probably had a negative impact as a "tax" on the economy, and risen 3.3% since March 31.

Wow! A quarter's time seems like "long-term investing" doesn't it? 

Since our visit last Wednesday, what do you think the supply/demand situation looks like as it relates to buy/sell signals on the PnF charts and bullish % readings for the major indices?

For the NASDAQ-100 (NDX / QQQQ) there has been no net change and is still reading "bull confirmed" at 56% for its bullish % ($BPNDX). We've been stuck at this percentage since June 16.

What surprises me a bit is that the much broader NASDAQ Composite Bullish % ($BPCOMPQ) has risen further to 46.60%, its highest reading since reversing up on June 15 at 44.23%. This is a "bullish sign" in my opinion and would represent "bullish divergence" at this point. We're still seeing some newly generated point and figure buy signals being generated, despite some price pullback. 

Think about this for a minute. What was one of the MAJOR critiques that analysts had about the "euphoria" of technology stock gains in the late 1990s, early 2000s? 

I remember, and rightfully so, the critique was that the gains were represented by just a FEW of the tech heavyweights. What technicians were talking about was the PRICE gains were not BROAD, but were NARROW, as investors focused on just a FEW stocks for gains. When the bubble went "pop" in the FEW favorites, that's when all heck broke loose to the downside.

I think it still "healthy" that were seeing the building, or net gain of PnF chart buy signals on a BROADER scale as depicted by the NASDAQ Composite Bullish % ($BPCOMPQ), while the narrower NASDAQ-100 Bullish % (%BPNDX) just sits here. 

I don't, have time to look at all 100 stocks of the NDX/QQQQ each and every day. You don't either, but we can envision that there's some backfilling having taken place the past couple of weeks for the NDX/QQQQ.

Hey... about 1% more than perhaps a bull would have liked. Right? Strengthening internals are great, but you can't buy fireworks for the 4th if you're long the QQQQ and PRICE is falling.

NASDAQ-100 Tracker (QQQQ) - 1% box chart


I don't want traders to get in the habit of lowering stops on a long position and in recent Market Wraps, I thought we should expect a 4% pullback in the QQQQ/NDX.X. Well, late last week, on what I (Jeff Bailey) feel was some "fear of tariffs against China" we did see the QQQQ fall to $36.74 on our somewhat unconventional technique of measuring supply (0) and demand (X) on a 1% box chart. If you're stopped on a long, then you're stopped on a long, but I'd still be aware of what the INTERNALS are saying. Especially if your BEARISH the QQQQ.

Yes, I'm bullish the QQQQ right now (see Market Monitor profiles) and while it may be a "Jeff's just trying to convince himself the QQQQ is bullish" one thing I did not mention in the past was the possibility of a 5% pullback to the Feb/March (3/4) relative lows, if market participants were to compensate for a recent 11% gain from the bottom, compared to a "then" gain of 9% from the August (8) rebound lows.

NASDAQ-100 Tracker (QQQQ) - Daily Intervals


Here's the QQQQ on a daily interval bar chart, with a conventional use of retracement. The BEST WAY to get Stochastics and MACD to kick higher is PRICE action. Oils recent decline should improve bullish psychology, and there may be some hesitancy among bulls ahead of tomorrow's FOMC decision on interest rates. Everyone "expects" a 25 basis point hike. For me, I think a BULLISH response will be signaled if the QQQQ can get a close above $37.26.

Late last week I made some observations in the Market Monitor on "why" I thought the QQQQ was then having trouble above the $38.00 level. It's showing up again, but now lower at an e-mini NASDAQ futures comparitive to QQQQ $37.26.

Here.... look at this. 

e-mini NASDAQ futures (nq05u) - Daily Intervals


FUTURES traders tend to trade LEVELS more than anything (oscillators, moving averages, etc) and often times a DAILY settlement will provide the trigger for the building of a bias (bullish or bearish). After writing last Wednesday's Market Wrap, it was really eating at me as to "why" the QQQQ couldn't get a break back above $38.25 going, as it kept getting PUSHED back below $38.00. After doing some work with retracement on the e-mini futures contract, it became apparent that there was determined selling, where each futures settlement AFTER 06/07 kept finding selling, despite some strong looking intra-day gains. That determination means something! 

Now look at what has been taking place. Yes, buyers where we might expect it. Are they getting ready for another run at the highs? Has this been just a rest and needed digesting of gains from the May lows? This contract hasn't been able to settle above 1,521.75 since settling below on June 24 (Friday).

Do BUYERS need to wait for a settlement before going long? No! Somebody's buying in order to keep it from going to 0.00 right? There's nothing wrong with buying 1/4, or 1/2 of a position and then LOOKING for a CONFIRMATION of strength with a settlement above the recent couple of session's highs.

Watch your NH/NL indications! They can give you a feel for any resumption of BULLISH leadership, which has also been taking a "rest" on the NASDAQ.

I say we're going higher and haven't seen this year's highs at this point. I'll back it up with a bullish stop just below the recent lows. 

On a Wednesday-to-Wednesday basis, the S&P 500 Bullish % ($BPSPX) has slipped to 64.40% bullish from 66.20% bullish. Not a major concern that sellers (supply) is getting the upper-hand over buyers, but here we've got some NYSE and NASDAQ blend of stocks. Perhaps my more bullish "NASDAQ" thought right now.

I tell you what though. An "unhealthy market" isn't often found when you've got the brokers hitting all-time highs.

 
 



New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
None AMZN
FORD

New Long Plays

None today.

New Short Plays

Amazon.com - AMZN - close: 33.35 chg: -0.36 stop: 34.81

Company Description:
Amazon.com, Inc., a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com seeks to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as beauty, health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, DVDs, electronics and office, toys and baby, and home and garden. (source: company press release or website)

Why We Like It:
The Internet stocks, save for Google (GOOG), appear to be melting under the summer sun. AMZN and YHOO are breaking down and we see no impetus for investors to buy them ahead of their Q2 earnings report. AMZN has been struggling under resistance near the $37.00 level for months - ever since the gap down in early February. Now after its last test of resistance at $37.00 in early June the stock has been sinking under a steady trend of lower highs. This pattern finally blossomed into a breakdown below short-term support in the $34.00 region (and its 50-dma). We are going to target the April low at $30.60. Currently the bearish Point & Figure chart for AMZN points to a $16.00 target. More conservative traders may want to exit near $31.00 where you'll find AMZN's 200-week moving average. The biggest risk we see to bears, and there are a few of them with the latest data putting short interest at 12 percent of the float, would be surprisingly bullish earnings results from AMZN's rivals like GOOG and YHOO. GOOG isn't expect to report earnings until July 21st but YHOO is due out around July 19th. Both earnings dates are unconfirmed. 

Picked on June 29 at $33.35
Change since picked: + 0.00
Earnings Date 07/21/05 (unconfirmed)
Average Daily Volume: 6.0 million 

---

Forward Ind. - FORD - close: 17.23 chg: -0.70 stop: 18.95

Company Description:
Forward Industries, Inc. designs and distributes custom carrying case solutions primarily for cellular phones and home medical diagnostic equipment. The Company sells its products directly to original equipment manufacturers and also markets a line of Carry Solutions under the "Motorola" brand name. (source: company press release or website)

Why We Like It:
If you are looking for some excitement then checkout shares of FORD. The stock has been a momentum powerhouse over the last six months leaving a wake of injured bears in its path. Yet now after topping out near the $23.00 level the stock is breaking down. FORD broke round-number, psychological support at the $20.00 level on big volume a few days ago. Now the stock has broken technical support at its simple 50-dma. Plus the stock has broken previous resistance, now support at the $17.50 level. The P&F chart also shows a bearish reversal and now points to an $11.00 price target for FORD. The two biggest risks we can see are the following. First, we cannot find an earnings due date for FORD. The last report was on April 21st, which would suggest the next report might be due out around July 21st. We always want to avoid surprises and do not plan on holding over FORD's earnings report if we can find it. The second biggest risk here is a short squeeze. The latest data puts short interest at 29.8 percent of its 6.0 million share float. As you know when you short a stock your risk is technically unlimited. We can put a stop loss in to try and protect ourselves but it's no guarantee we'll be filled at our stop price. Therefore we suggest that readers consider this play carefully. We are going to suggest positions here at $17.23 with a target in the $14.50-14.00 range, which would equate to a 50 percent retracement of its January to June run up. More conservative traders may want to use a tighter stop loss and exit near the $15.00 level or avoid the play altogether.

Picked on June 29 at $17.23
Change since picked: + 0.00
Earnings Date 07/21/05 (unconfirmed)
Average Daily Volume: thousand

Play Updates

Updates On Latest Picks

Long Play Updates

CB Rich. Ellis Grp - CBG - cls: 43.14 chg: -0.86 stop: 39.99 

No change from our previous update. Our target is the $44.50-45.00 range.

Picked on June 20 at $41.40
Change since picked: + 1.74
Earnings Date 08/01/05 (unconfirmed)
Average Daily Volume: 466 thousand

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Cameco - CCJ - close: 44.78 chg: +0.14 stop: 41.47

No change from Monday's update. CCJ looks poised to breakout over the $45.00 level. 

Picked on June 27 at $44.14
Change since picked: + 0.70
Earnings Date 07/28/05 (unconfirmed)
Average Daily Volume: 989 thousand

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Caremark - CMX - close: 44.34 chg: +0.13 stop: 42.45 

No change from our weekend update.

Picked on May 09 at $43.30
Change since picked: + 1.04
Earnings Date 05/03/05 (confirmed)
Average Daily Volume: 2.6 million 

---

Deckers Outdoor - DECK - cls: 25.00 chg: -0.05 stop: 23.95 

More conservative traders might want to wait for DECK to trade over $25.20 before initiating new bullish positions here. 

Picked on June 22 at $25.88
Change since picked: - 0.88
Earnings Date 07/21/05 (unconfirmed)
Average Daily Volume: 753 thousand

Short Play Updates

Lear Corp - LEA - close: 37.01 chg: +0.13 stop: 38.51

Yesterday's bounce appears to be struggling with technical resistance at its 40 and 50-dma's still overhead. Any failed rally under $38.00 could be a new bearish entry point. Our target is the $31.00-30.00 range.

Picked on June 26 at $36.37
Change since picked: + 0.64
Earnings Date 07/29/05 (unconfirmed)
Average Daily Volume: 1.4 million 

---

Rogers Corp - ROG - close: 40.67 change: -0.08 stop: 43.01 

ROG continues to consolidate above round-number support at the $40.00 level. Conservative traders may actually want to consider taking some profits here. We noticed a spike in volume near the afternoon bounce today and there's still a chance of an oversold bounce back toward the 200-dma. 

Picked on June 20 at $42.40
Change since picked: - 1.73
Earnings Date 07/18/05 (unconfirmed)
Average Daily Volume: 94 thousand

Closed Long Plays

ExxonMobil - XOM - close: 58.44 change: -0.65 stop: 57.99 

Another decline in oil was felt in shares of XOM, which lost 1.1 percent. Shares of XOM actually dipped to $57.94 intraday and that stopped us out at $57.99. We remain longer-term bullish on oil-related equities but we'll wait for what looks like the current consolidation to finish. 

Picked on June 09 at $58.44
Change since picked: + 0.00
Earnings Date 07/28/05 (unconfirmed)
Average Daily Volume: 20.9 million 

Closed Short Plays

Playtex - PYX - close: 10.75 change: +0.33 stop: 10.75

Hmm... an unexpected surge higher pushed PYX through resistance at the $10.40 level and its simple 50-dma. Volume came in above average on the gain. The stock hit a high of $10.76 and closed at our stop loss of $10.75 ending the play. Watch for PYX to have additional resistance near the $11.00 level, which has stymied bulls for the last couple of months. 

Picked on June 26 at $10.17
Change since picked: + 0.58
Earnings Date 08/01/05 (unconfirmed)
Average Daily Volume: 466 thousand

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.

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
Copyright Option Investor Inc, 2005
All rights reserved

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.

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

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