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Daily Newsletter, Monday, 09/11/2006

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Table of Contents

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

Market Wrap

Weak Open Finds Mixed 9/11 Anniversary Close

Stocks opened lower in the U.S., led by a drop in Asian stocks after Japan's government said core private-sector machinery orders fell 16.7% in July after an 8.5% decline in June. The 16.7% decline was much sharper than the -7.5% month-over-month decline forecasted by economists.

Japan's Nikkei-225 fell 286 points, or -1.78% to close at 15,794.38.

The news out of Japan, combined with Great Britain saying producer price inputs fell 1.2% month-over-month versus economists' consensus for a modest 0.1% decline, sent gold sharply lower.

While the FTSE-100 slid 28.5 points, or -0.48% at its close of 5,850.80, the StreetTracks Gold (NYSE:GLD) $58.50 -3.52%, which mirrors spot gold prices (~585.00), plunged to close below its rising 200-day SMA ($58.75) as traders and investors shunned the yellow metal as they weigh the impact of cooling global economic growth rates and inflationary pressures on a broader scale.

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Energy prices were weak again today, but finished well off their midday lows. October Crude Oil futures (cl06v) settled down $0.64, or -0.97% at $65.61 having just undercut the $65.00 per barrel level during today's floor traded session.

Lending to oil's weakness was talk that Iran may freeze uranium enrichment, while OPEC said it would keep its production quota unchanged at 28 million barrels per day.

Multiple moments of silence were observed on the floors of many exchanges during the morning session as traders from around the world honored those who lost their lives on September 11, 2001.

U.S. Market Watch - 09/11/06 Close

Energy-related stocks as well as mining issues did have a negative impact for some of the major indices such as the NYSE Composite ($NYA.X), which finished in the red at 8,262.17. While I don't provide a lot of focus for the AMEX Composite (XAX.X), there are many lesser followed energy and mining names listed on this exchange, which fell 18.73 points, or -0.94% to 1,958.76.

This morning, I thought to myself ... "Will traders really let the majors finish in negative territory, on what should be a patriotic type of session?"

While stocks did seem to recover from their session lows by mid-session with Fed Governor Kohn and St. Louis Fed President Poole speaking, I didn't hear either Federal Reserve representative say much we haven't heard the past couple of months.

If anything, buyers seemed to keep their hands at their sides, honoring those that lost their lives on September 11, 2001, and then began showing the backs of their hands as the S&P 500 Index (SPX.X) clawed its way back to a fraction gain, with the S&P Depository Receipts (AMEX:SPY) $130.41 +0.09% rebounding from the $129.50 level.

S&P Depository Receipts (SPY) - Daily Intervals

Having come close to challenging a multi-year high close of $132.62 earlier this month, buyers have been standing their ground at the $129.50 level after the mid-August break higher above that level.

There wasn't any real "stock specific" news that might give insight into the economy today, and while oil's decline can arguably be tied to some slowing global economic reports, from feverish levels, the geopolitical premiums that are nearly quantitatively impossible to figure out are also coming into play.

Chip maker Texas Instruments (NYSE:TXN) $31.78 +2.51% did reclaims is rather flat 200-day SMA ($31.56) in today's session, but slipped to $31.43 in tonight's after-hours trade when the company gave its mid-quarter (Q3) update.

Company officials said they are now forecasting Q3 sales in the range of $3.71 billion to $3.87 billion, compared with previous estimate of $3.63 billion to $3.95 billion. Semiconductor revenue is expected to account for $3.53 billion to $3.67 billion of the total, the same range as before. The company expects EPS of $0.44-$0.46 versus its previous outlook of 42c-48c. Analysts had projected Q3 earnings of $0.45 a share on revenue of $3.8 billion.

While a drubbing in the energy sectors didn't help the S&P 500 (SPX.X) today, let alone the month of September, I think traders and investors will be keying in on some earnings reports and outlooks from the likes of Goldman Sachs (NYSE:GS) $151.00 +0.80% and Bear Stearns (NYSE:BSC) $129.36 +0.28% this week, as well as Best Buy (NYSE:BBY) $47.77 +3.15%.

S&P Industry Weightings - As of 09/08/06

Financials "dwarf" other industry/sector groups when it comes to how the S&P 500 is weighted.

Goldman Sachs (NYSE:GS) reports their earnings before tomorrow morning's opening bell with consensus at $3.10/share.

Best Buy (NYSE:BBY) $47.77 +3.15% finished off its session highs of $48.59 as it struggles with a trending lower 50-day SMA ($47.23). It too will report earnings before tomorrow's opening bell with consensus at $0.44/share. Close attention will be given to any OUTLOOK into the holiday shopping season, and any near-term trends that may, or may NOT be developing from a decline in gasoline prices.

Then on Thursday, before the market opens, Bear Stearns (NYSE:BSC) is slated to release its quarterly financials. Current consensus among analysts is for the broker to report earnings of $2.95 per share.

After taking a vacation last week, I updated myself, other traders, and investors in the OptionInvestor.com Market Monitor as to the status of various sector bullish % with Dorsey/Wright's Sector Bell Curve.

Dorsey/Wright's WALL street sector bullish % (BPWALL) is currently in "bear alert" status at 68.29% (bear alert is when a bullish % falls from above 70% to below 70%) having recent reached a very "overbought" (above 70%) measure of 80%.

Dorsey's RETA iling sector bullish % (BPRETA) is currently in "bear correction" status at 40%, having just reversed up from near-oversold (30% or lower is considered longer-term oversold) readings of 34%.

Securities Broker/Dealer Index - Daily Intervals

Institutional traders as well as "retail traders" should be returning from their summer vacations. Volumes at the NYSE have been VERY brisk relative to last summer, roughly 500 million shares per day on average more volume this summer at the big board than last summer and I'm looking for some "bullish confirmation" in this week's earnings from the likes of Goldman Sachs and Bear Stearns to create a "go long the brokers" on a move above the 212 level, which in my opinion, should trigger some broader bullishness for financials in general, and lift the SPX/SPY to new 52-week highs by year's end.
 

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

Akamai Tech. - AKAM - close: 43.39 chg: +2.24 stop: 38.44

The rally in AKAM really began to pick up steam today. Shares spent a little time under resistance at the $42.00 level and then broke out higher. We suggested that readers use a trigger at $42.05 to open positions so the play is now open. Volume on today's bullish breakout was very strong, which is another positive sign. The buy signal on the MACD looks a lot stronger today. Our target is the $47.50-50.00 range. Please note that AKAM is due to hold an analyst meeting this week on Wednesday, September 13th from 8:00 a.m. to 2:00 p.m. ET. Reaction to the meeting could produce volatility so protect yourself.

Picked on September 11 at $42.05
Change since picked: + 1.34
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume: 3.8 million

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Brookfield Asset Mgt. - BAM - cls: 44.03 chg: +0.10 stop: 42.95

BAM showed some weakness on Monday morning but traders bought the dip near $43.00 and the stock managed to rebound back into the green by the closing bell. This sharp intraday rebound looks like a bullish reversal worth considering as a new entry point to go long the stock however more conservative traders might want to wait for a move past the 10-dma (near 44.74) before opening positions.

Picked on August 22 at $44.82
Change since picked: - 0.79
Earnings Date 08/03/06 (confirmed)
Average Daily Volume: 393 thousand

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eBay Inc. - EBAY - close: 28.08 chg: -0.43 stop: 26.95 *new*

Hmm... EBAY failed to join the NASDAQ in closing in the green on Monday. The relative weakness today should make traders cautious. We're going to raise our stop loss to $26.95. Our target is the $28.95-29.25 range. More aggressive traders may want to aim higher. We're not suggesting new positions at this time.

Picked on August 24 at $26.25
Change since picked: + 1.83
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 19.6 million

---

Elk Corp. - ELK - close: 27.75 change: -0.23 stop: 26.90 *new*

ELK's upward momentum is still struggling. This is the second time in three days that ELK's morning rebound has stalled midday. We're going to raise our stop loss to $26.90. We're not suggesting new positions at this time.

Picked on August 22 at $27.10
Change since picked: + 0.65
Earnings Date 08/17/06 (confirmed)
Average Daily Volume: 245 thousand

---

Knight Cap. Grp - NITE - cls: 17.10 chg: +0.11 stop: 15.95

NITE tried to bounce but shares failed to push past the 10-dma, directly overhead. The overall trend looks bullish but short-term some of the technical indicators have turned bearish. We're going to try and reduce our risk by raising the stop loss to $16.39. We'd probably wait for a move over $17.50 before considering new bullish positions. Our target is the $19.85-20.00 range.

Picked on August 22 at $17.36
Change since picked: - 0.26
Earnings Date 07/18/06 (confirmed)
Average Daily Volume: 1.5 million

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United Tech. - UTX - close: 62.91 chg: -0.43 stop: 61.99

UTX failed to bounce Monday afternoon with the rest of the Dow components. The relative weakness is a caution sign but the stock did hold at the simple 10-dma. A bounce from here can be used as a new bullish entry point. Our target is the $66 level. More aggressive traders may want to aim higher. Be aware that some of UTX's management will be speaking at a conference on September 15th.

Picked on September 10 at $63.34
Change since picked: - 0.43
Earnings Date 10/17/06 (unconfirmed)
Average Daily Volume: 3.5 million
 

Short Play Updates

Black Box - BBOX - close: 37.03 change: -0.01 stop: 40.06

We do not see any changes from our weekend update. BBOX continues to under perform the NASDAQ. We are not suggesting new plays at this time but a failed rally under $38.50 could be used as a new entry point. Our target is the $35.25-35.00 range. The Point & Figure chart has produced a bearish triangle breakdown pattern with a $17 target. These patterns are some of the most successful P&F patterns we can trade.

Picked on August 27 at $38.25
Change since picked: - 1.22
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume: 243 thousand

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Hormel Foods - HRL - close: 36.16 chg: -0.06 stop: 37.05

There is no change from our weekend update on HRL. The stock consolidated sideways on Monday and failed to bounce with most of the market on Monday afternoon. Our target is the $35.00-34.50 range, which is above potential support at the rising 200-dma.

Picked on August 31 at $36.65
Change since picked: - 0.49
Earnings Date 11/23/06 (unconfirmed)
Average Daily Volume: 331 thousand

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Portfol.Recov.Assoc. - PRAA - cls: 39.30 chg: -0.02 stop: 41.05

PRAA continues to consolidate sideways and remains inside its bearish trend of lower highs. The sideways consolidation and the very low volume over the last couple of days suggests a move is coming. More conservative traders may want to tighten their stops. Our target remains the $36.00 level. The P&F chart points to a $32 target.

Picked on August 24 at $39.49
Change since picked: - 0.19
Earnings Date 08/02/06 (confirmed)
Average Daily Volume: 166 thousand

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Patterson-UTI - PTEN - cls: 24.43 change: -0.85 stop: 27.01

The sell-off in oil stocks picked speed on Monday after crude oil futures slipped for their sixth loss in a row. Shares of PTEN fell another 3.3% on strong volume following Friday's bearish breakdown. Our target is the $22.75-22.50 range. Meanwhile the P&F chart points to a $20 target. Remember, our biggest risk is probably any escalation between the West and Iran but currently that conflict is in a lull.

Picked on September 10 at $25.28
Change since picked: - 0.85
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume: 2.8 million
 

Closed Long Plays

Mittal Steel - MT - close: 32.25 chg: -1.38 stop: 32.49

We are dropping MT as a bullish candidate. Commodity stocks and material-related stocks were real under performers on Monday. The steel industry was hit with some heavy selling and MT fell 4.1% and broke down under a cloud of significant moving averages. We had been waiting for a breakout over resistance at $35.00 but it never occurred. Our suggested trigger was at $35.25.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/01/06 (unconfirmed)
Average Daily Volume: 3.2 million
 

Closed Short Plays

BCE Inc. - BCE - close: 24.45 change: -0.18 stop: 25.26

We have been stopped out of BCE at $25.42. The stock displayed a lot of volatility today with a gap open higher at $25.42 and then a spike toward the $27.00 region. The only news we could find that might explain the move was a press release from Telesat, which is a subsidiary of BCE. The Telesat news was that its President and CEO would retire after 34 years of service. We don't know about you but it would be pretty depressing to see the stock soar 8% on news of your retirement. The breakout over resistance near $25.25 is very bullish and probably sparked a lot of short covering.

Picked on September 03 at $24.73
Change since picked: - 0.28
Earnings Date 11/01/06 (unconfirmed)
Average Daily Volume: 225 thousand
 

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

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