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Daily Newsletter, Monday, 08/15/2005

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Table of Contents

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

Market Wrap

Opex Kickoff

The US Dollar rose as equities, treasuries and commodities declined following the 8:30 release of the Empire State Index. Equities reversed, however, led by the Nasdaq which broke and closed above Friday's highs. It was by far the strongest of its peers, nearly doubly their percentage gains for the day.

Volume was weak, and volume breadth took its time going positive, finishing the day with 1.47 advancing shares for each declining on the NYSE, and 1.84:1 on the Nasdaq. Most of the gains were made in the hour between 11:30AM and 12:30PM, with a slow sideways range following from there. Volatility declined, and other than the action at the middle of the session, option-expiration Monday was slow, sideways and true-to-form.

Daily Dow Chart

The Dow broke to a new low that blew off in a doji spike. The high printed at 10655, below Friday's high, and despite the bullish intraday action, the day yielded a lower low and lower high. Surprisingly, the 10-day stochastic stalled anyway, showing a bullish kiss. A move above 10685 should be enough to confirm a new daily cycle upphase, while a closing break below the 10560 support (today's low was 10557) would restore the downphase.

Daily S&P 500 Chart

The SPX printed an inside day, bouncing from a higher low at 1226 and failing at lower high of 1236. The daily cycle indicators remain in their downphase, but any strength tomorrow should result in the same bullish kiss as appears on the Dow. Bears need to see a break of 1224 to kick off the next leg down, but as was seen last week, there has been no shortage of bids at that level so far. Above 1239, the daily cycle should turn back up.

Daily Nasdaq Chart

Despite its notable strength today, the Nasdaq remains in a clear daily cycle downphase. However, today's bounce took out Friday's high easily, and restored the index above its 22 day EMA. A higher low was printed at 2147, and the high was 2174. The challenge for bears is clear enough, with rising support from the April low at 2150. A close above 2185 should be enough to reverse the current downphase.

Daily TNX Chart

The Treasury auctioned $34 billion in 13-week and 26-week bills today. Foreign central banks purchased a respectable $7.5 billion of the total, with new high-yields being set for the year. The 13-week bills had a high-yield of 3.47% and generated a bid-to-cover ratio of 2.31, while the 26-week bills had a high-yield of 3.705%, with a bid-to-cover of 2.3.

At 9AM, the Treasury reported that June capital flows roses from $55.7 billion in May to $71.2 billion in June, with foreign central banks purchasing $17.2 billion of US assets. Foreign purchases of US treasuries reached a 2-year low of $7.9 billion, down from $27.6 billion in May. Foreigners bought a record $52.2 billion of US corporate bonds, but sold $24.8 billion in short-term treasuries.

Ten year note yields (TNX) bounced in the wake of the of Empire State index (see below), but it was far to weak to overcome the daily cycle sell signals printed on Friday's steep drop. For the day, TNX gained 3.2 bps to close at 4.27%.

Daily Chart of Crude oil

The financial press reported that oil prices were weaker as US refineries began recovering from recent outages. But the drop was reversed in the morning as prices recovered to a high of 66.975, spending the remainder of the session in light negative territory after last week's 7%+ gain. The jump was attributed to the usual combination of supply concerns, exacerbated by tensions in Iran last week as that country broke the seals on nuclear installations. During the day, various snips from different media outlets noted that oil was coming down, etc., as the oil bears cheered each pullback. On the daily chart, we see September futures in a trending overbought upphase as the price melted up last week. Bears need to see a break below former 62.00-62.50 support, followed by a test of the secondary rising trendline at 60.50. Only a break below the primary trend at 53 would threaten the upward bias. However, longs will want to be snugging up their stops in view of the 10-day stochastic, which finished on an ominous bearish kiss.

For the day, September crude oil finished lower by .55 at 66.30, off an afternoon low of 65.375.

It was a characteristically quiet Monday for economic data, with the New York Empire State Manufacturing Index released at 8:30. The Index declined from 23.9 in July to 23 for August, exceeding expectations for a reading of 18.9. The "new orders" component set a high for the year at 33.8, and the "employment" component rose from 1.4 in July to 10.2 in the current month. However, "prices paid" rose from 21.6 in July to 29.00.

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In corporate news, Lowe (LOW) reported that it earned $838 million, or $1.05 per share on sales of $11.93 billion in Q2, up from last year's $700 million or 87 cents on sales of $10.17 billion in the year-ago quarter. Estimates were for EPS of $1.02 and sales of $11.81 billion. The company expects full year EPS of $3.31-$3.37, and total sales to increase 16%, compared with the current consensus of 17% growth and EPS of $3.29. For the month of July, same-store sales rose 6.5%. LOW finished higher by 1.09% at 65.90.

Agilent (A) reported that Q3 earnings rose 4% from $100 million or 20 cents per share to $104 million or 21 cents in the current quarter, missing estimates by a nickel. Revenue declined from $1.89 in the year-ago quarter to $1.69 billion, missing its expected $1.7-$1.8 billion range. However, the company affirmed Q4 estimates of 33-38 cents on revenue of $1.79-$1.89 billion. It also announced that it will be cutting 1300 jobs and restructuring, including spinoffs and a $4 billion stock buyback that are expected to reduce infrastructure costs by $450 million per year. The transactions are expected to complete by mid-fiscal 2006.

Philips Electronics (PHG) announced that it would be buying A's 47% position in Lumileds Lighting for $950 million cash, which would bring its holdings to 96.5%. The WSJ reported that Kohlberg Kravis Roberts & Co. and Silver Lake Partners will be buying A's semiconductor business for an estimated $2.6 billion. The proceeds of this nearly $3.6 billion in new liquidity are expected to be spent on its stock buyback.

Agilent finished higher by 3.88 or 14.69% at 30.29. PHG gained .56% to close at 26.97.

Delta Airlines (DAL) got slammed in premarket trading on news that the company has begun to arrange financing in preparation for a bankruptcy filing. According to a New York Times report, DAL was speaking with GE's Commercial Finance Unit, one of its creditors. DAL lost 21 cents or 13.04% to close at 1.40, while GE gained .02 to finish at 34.27.

The National Association of Home Builders-Wells Fargo announced that their Housing Market Index declined from 70 in July to 67 in the current month. The diffusion index indicates optimism amongst home builders on readings above 50, and so this month's reading indicates that they are slightly less optimistic than in the previous month. This is notable in light of the fact that bond yields have risen considerably since July. Marketwatch reported that the Index for current sales dropped to 72 from 76, a more than 12 month low. Buyers traffic fell from 55 to 50, while the index for future sales held at 77.

The Fed cleared some of the mist later in the day, reporting that US banks eased lending standards and terms during the past 3 months, helping to bolster demand from buyers.

It's set to be a heavy week for economic data, with the CPI, Housing Starts and Building Permits, Industrial Production and Capacity Utilization scheduled for tomorrow, followed by the PPI on Wednesday, then Initial Claims, Leading Economic Indicators and the Philadelphia Fed on Thursday. For tomorrow, the overbought intraday cycles will be dueling with the stalling daily cycle downphases. A break above or today's range should break the deadlock, but with op-ex week manipulations thrown into the mix, the potential for false moves and whipsaws will be greater than usual.
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
None None

New Long Plays

None today.
 

New Short Plays

None today.
 

Play Updates

Updates On Latest Picks

Long Play Updates

LM Ericsson - ERICY - close: 36.85 chg: +0.07 stop: 33.24

Another day, another new yearly high for ERICY. This one wasn't too spectacular but the stock continues to show strength. We see no change from our weekend update. We wouldn't suggest new positions until ERICY dips. Our target is $39.50-40.00.

Picked on August 03 at $35.19
Change since picked: + 1.66
Earnings Date 07/21/05 (confirmed)
Average Daily Volume: 1.9 million
 

Short Play Updates

Assured Guaranty - AGO - close: 22.23 chg: -0.12 stop: 24.05

There is no change from our weekend update for AGO. The stock failed to rally with the broader market today, which is a good sign. We've been expecting an oversold bounce back toward the 10-dma. Our target is $20.50-20.00.

Picked on August 10 at $22.39
Change since picked: - 0.16
Earnings Date 08/04/05 (confirmed)
Average Daily Volume: 229 thousand

---

A.S.V.Inc - ASVI - close: 47.40 chg: +0.45 stop: 49.01

Not much change from our weekend update. ASVI did bounce with the markets. Remember the stock is due to split 2-for-1 on August 25th. Our pre-split target is the 200-dma (currently near 40.85). We are not suggesting new positions at this time.

Picked on July 28 at $45.87
Change since picked: + 1.53
Earnings Date 07/28/05 (confirmed)
Average Daily Volume: 120 thousand

---

ATI Tech. - ATYT - close: 11.94 change: +0.14 stop: 13.01

One cent! AYT dipped to $11.51 this morning before bouncing higher with the semiconductor sector. Our target has been $11.50-11.20. Currently ATYT is still trading under a sharp, two-week trend of lower highs. If the stock breaks out over $12.00 more conservative traders may want to try and lock in some profits early.

Picked on July 17 at $12.83
Change since picked: - 0.89
Earnings Date 09/22/05 (unconfirmed)
Average Daily Volume: 5.9 million

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Anheuser Busch - BUD - cls: 44.60 chg: +0.30 stop: 46.25

BUD's rebound higher today from its recent consolidation is arguably a bullish sign. If there is any follow through on today's bounce we'd expect BUD to test the $45.50 region near its 50-dma. A failed rally under the 50-dma could be used as a new bearish entry point. Our mid-October target is the $40.25-40.00 range.

Picked on July 28 at $44.77
Change since picked: - 0.17
Earnings Date 07/27/05 (confirmed)
Average Daily Volume: 2.3 million

---

D.R.Horton - DHI - close: 36.11 change: +0.25 stop: 40.01

DHI dipped toward our target and round-number support at the $35.00 level today but bulls bought the dip at $35.21. If there is any follow through to today's rebound traders should expect bounce back toward the 37.50 region. Thus, more conservative traders may want to lock in some profits now. Our target remains the $35.00-34.50 range.

Picked on August 07 at $38.45
Change since picked: - 2.34
Earnings Date 07/21/05 (confirmed)
Average Daily Volume: 2.9 million

---

Hansen Natural - HANS - close: 44.09 chg: +0.24 stop: 47.51

HANS' initial strength this morning quickly failed but shares reluctantly followed the market higher after the early morning dip. Overall HANS remains under its simple 50-dma. If the market bounces tomorrow watch for the $45.00 level to act as resistance for HANS. A failed rally near $45 could be used as a new entry point. Our target is the $38.00-37.50 range.

Picked on August 10 at $43.37
Change since picked: + 0.74
Earnings Date 02/16/05 (unconfirmed)
Average Daily Volume: 1.1 million

---

Intl Game Tech. - IGT - cls: 27.12 chg: -0.02 stop: 29.01

We see no changes from our weekend update. Our target is the $24.50-24.00 range.

Picked on July 21 at $27.21
Change since picked: - 0.09
Earnings Date 07/21/05 (confirmed)
Average Daily Volume: 2.3 million

---

Juniper Networks - JNPR - cls: 23.49 chg: -0.09 stop: 25.11

JNPR under performed the NASDAQ and its peers in the networking sector today. We see no changes from our weekend update. Our target is the $21.50-21.00 range.

Picked on July 21 at $23.90
Change since picked: - 0.41
Earnings Date 07/19/05 (confirmed)
Average Daily Volume: 7.5 million

---

LifePoint Hosp. - LPNT - cls: 45.71 chg: +0.11 stop: 47.26

The tug-of-war continues in shares of LPNT. The stock dipped to $45.12 this morning but couldn't break support there. The market's bounce helped push LPNT back into the green. We remain on the sidelines with a suggested trigger at $44.95.

Picked on August xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/27/05 (confirmed)
Average Daily Volume = 686 thousand

---

O M I Corp - OMM - close: 17.02 change: -0.18 stop: 18.55

So far so good. OMM continues to decline after Thursday's failed rally under the $18.00 level and its exponential 200-dma. We see no changes from this weekend's play description. Our target is the $15.25-15.00 range.

Picked on August 14 at $17.20
Change since picked: - 0.18
Earnings Date 07/25/05 (confirmed)
Average Daily Volume: 1.4 million

---

PAR Tech - PTC - close: 28.69 chg: -1.66 stop: 32.01

Thankfully we did not have to wait long for PTC to show its true colors and reverse course after last week's oversold bounce. PTC is a new play and we had a suggested trigger to short the stock at $29.40, which could be a breakdown from its bear-flag pattern. The stock lost 5.4% today and traded through our trigger opening the play. Our target is the $25.25-25.00 range but more conservative traders may want to target the 100-dma near 26.35.

Picked on August 15 at $29.40
Change since picked: - 0.71
Earnings Date 07/27/05 (confirmed)
Average Daily Volume: 159 thousand

---

Royal Caribbean - RCL - cls: 44.78 chg: -0.13 stop: 48.01

There is no change from our weekend play update. RCL hit a new relative low this morning. Our target is the $41.25-41.00 range.

Picked on July 27 at $45.50
Change since picked: - 0.72
Earnings Date 07/27/05 (confirmed)
Average Daily Volume: 1.3 million

---

Xilinx - XLNX - close: 26.94 chg: +0.01 stop: 29.01

XLNX hit a new one-month low today, dipping below its mid-July low but shares rebounded as a strong bounce in semis lent XLNX some support. The two-week trend of lower highs and lower lows remains intact. Our target is the $26.10-26.00 range.

Picked on August 04 at $27.91
Change since picked: - 0.97
Earnings Date 07/21/05 (confirmed)
Average Daily Volume: 6.1 million

---

Yellow Roadway - YELL - close: 51.94 chg: -0.34 stop: 55.01

We are encouraged to see YELL under performing the market and its peers in the transportation sector today. The decline under the $52.00 level looks like a new entry point for shorts. Our target is the $48.50-48.00 range.

Picked on August 08 at $51.77
Change since picked: + 0.17
Earnings Date 07/28/05 (confirmed)
Average Daily Volume: 1.4 million
 

Closed Long Plays

None
 

Closed Short Plays

Triad Hosp. - TRI - close: 46.37 chg: -0.49 stop: 49.51

Target achieved. Actually shares of TRI traded to our target of $45.50-45.00 and kept going until investors bought the dip at $44.91. We're closing the play per our game plan. Those still holding shorts should expect a bounce as today's candlestick looks like a one-day bullish reversal pattern.

Picked on July 25 at $49.20
Change since picked: - 2.83
Earnings Date 07/25/05 (confirmed)
Average Daily Volume: 967 thousand
 

Today's Newsletter Notes: Market Wrap by Jonathan Levinson 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 Jonathan Levinson 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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