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Daily Newsletter, Monday, 10/09/2006

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Table of Contents

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

Market Wrap

Lets Give Them Something To Talk About ...

The major indices ended Monday's session relatively unchanged, while the bond market's closure in observance of Columbus day gave equity traders little to key off of in a notably light volume trade at both the big board and NASDAQ.

After a couple of weeks of strong gains that had traders feeling like they were experiencing a rendition of heavy metal rocker Ozzy Osbourne's "Crazy Train," Monday's session was more analogous to Bonnie Raitt singing "Lets Give Them Something To Talk About" and a more tranquil trade was found.

After seeing a surge in bullish leadership last week with 293 stocks hitting new 52-week highs at the NYSE on Thursday, 188 stocks were pressed to new highs today. NASDAQ's 141 new highs came close to matching Thursday's 143, the highest number I've seen since a May 5th count of 265.

Today's session started out mixed to lower with decliners having the upper hand over advancers on reports out of North Korea that its government had performed a successful underground test of a nuclear missile this weekend.

The United Nations Security Council swiftly condemned North Korea's claim, and prepared to weigh proposals for new sanctions against the Pyongyang regime in a closed-door session.

John Bolton, the U.S. ambassador to the United Nations said, "The entire discussion, in which all 15 council members participated, took only 30 minutes," with all members condemning North Korea's claim.

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Intelligence experts were uncertain about the strength of the weapon. A U.S. intelligence official told the New York Times that the blast was a sub-kiloton explosion and that experts hadn't yet determined whether it was a nuclear explosion. Some experts say a one-kiloton explosion would be extremely small for a nuclear explosion.

Russia's defense minister, Sergei Ivanov, told the Itar-Tass news agency that Moscow believes the blast was in the 5-to 15 kiloton range.

The PHLX Defense Sector ($DFX.X) 308.47 +0.48% rose 1.48 points, with Lockheed Martin (NYSE:LMT) $88.58 +1.37% closing at an all-time high.

Despite the underground rumblings in North Korea and assumptions that OPEC is plotting its first output cut in nearly 2 years, November Crude Oil (cl06x) settled up 20 cents, or +0.33% at $59.96 after trading as high as $61.30 late in the afternoon.

Cooler temperatures in much of the north east underpinned a bid in heating oil with the November contract (ho06x) settling up more than 3.5 cents, or +2.11% at $1.7297.

The S&P Retail Index (RLX.X) 492.00 +1.06% closed at a new all-time high as market participants remained constructive on the sector with November Unleaded Gasoline futures (hu06x) falling just more than a penny, or -0.62% to settle $1.4949.

Restaurateur Cheesecake Factory (NASDAQ:CAKE) $27.58 -0.39% opened sharply lower, but rallied by the close after trading as low as $25.69 intra-day. The company said total Q3 same-store sales fell 1.6% from year-earlier levels, with sales at Cheesecake Factory restaurants falling 2.1% and sales at its Grand Lux Cafes rising 6.7%.

U.S. Market Watch - 10/09/06 Close

Homebuilders as depicted by the Dow Jones Home Construction Index ($DJUSHB) 664.94 +2.41% were atop today's list of sector winners in my U.S. Market Watch. The index continues to trade sideways for a second-straight week, but holds support at a trying to curl higher 21-day SMA (650.50).

Shares of NVIDIA (NASDAQ:NVDA) $32.92 +6.43% surged nearly $2.00/share on renewed rumors that chip giant Intel (NASDAQ:INTC) $20.62 -0.04% may be set to acquire the maker of graphic processors. In late July, Intel rival Advanced Micro Devices (NYSE:AMD) $23.00 -4.20% announced its intentions to buy ATI Technologies (NASDAQ:ATYT) for $5.4 billion, which also makes chipsets for graphic and multimedia processing products.

The AMEX Biotechnology Index (BTK.X) 712.45 +0.76% extended recent gains after last Monday's break above its 200-day SMA (677.27). The Biotechnology HOLDRs (AMEX:BBH) $189.57 +1.58% were nearly twice as strong as the BTK.X with component Shire (NASDAQ:SHPGY) $57.20 +15.78% (not a component of the BTK.X) gaining on news that New River Pharmaceuticals (NASDAQ:NRPH) $42.32 +61.46% said it had received conditional approval from U.S. regulators to market its new hyperactivity drug NRP104, which was licensed to Shire in 2005.

While there were some percentage gainers to talk about in today's session, there were also some percentage losers.

Powerwave Technologies (NASDAQ:PWAV) $6.42 -17.69% plunged more than $1.00/share after the wireless solutions provider warned that its Q3 revenues would fall shy of prior guidance. The company cited difficulties in implementing a new enterprise resource planning system in Europe. Powerwave adjusted its Q3 revenue guidance to a range of $155-$160 million from $200-210 million.

Matria Healthcare (NASDAQ:MATR) $25.58 -11.18% traded weak on speculation that health insurer UnitedHealth (NYSE:UNH) $50.72 -1.51% ended its contract with the company. Matria and UnitedHealth officials said they were unable to comment on the status of the contract.

I would also note that broker UBS cut its rating on three pharmacy benefit managers to "neutral" from "buy." UBS downgraded Express Scripts (NASDAQ:ESRX) $68.96 -6.70%, Caremark Rx Inc. (NYSE:CMX) $51.19 -4.13% and Medco Health Solutions (NYSE:MHS) $55.75 -2.38%, citing a tentative agreement by a drug price list publisher to trim average wholesale prices by 5%.

UBS's Ricky Goldwasser said in a research note that the change could push pharmacy-benefit managers' per-share earnings lower by 9% to 13%. But if it is assumed that three-quarters of their contracts contain provisions protecting wholesale pricing, the negative impact might only be in the 2-4% range.

Mergers .... What about love, love, love?

Again.... there wasn't much to talk about with regard to the major indices today, but a merger Monday did find some action.

Shares of CNS Inc. (NASDAQ:CNXS) $36.72 +28.57% jumped more than $8.00/share after GlaxoSmithKline (NYSE:GSK) said it wanted to boost its consumer operations with a $566 million acquisition of CNS.

PNC Financial Services (NYSE:PNC) $70.40 -4.34% fell from a 52-week high set last week after the company said it agreed to purchase Mid-Atlantic banking concern Mercantile Bankshares (NASDAQ:MRBK) $44.90 +22.07% for nearly $6 billion in a stock-and-cash deal designed to extend PNC's reach across the Eastern seaboard.

Meanwhile, the Dolan family, who developed Cablevision (NYSE:CVC) $26.50 +10.73% into one of the nation's largest cable-television cable systems operators, confirmed reports of an offer to take the company private. The family said that they would offer $27 in cash for each CVC share. The family currently owns 22.5% of the company's stock, but has 74% voting power through a special class of shares.

In tonight's extended session, shares of Google (NASDAQ:GOOG) $429.00 +2.02% edged higher to $431.75 after the Internet search giant said it was buying privately held YouTube for $1.65 billion in an all-stock deal. YouTube's site features volumes of copyrighted material, such as DVDs, which some feel may have had the company sued into bankruptcy. However, YouTube's founders have spent months cozying up with major media executives in an effort to convince them that YouTube could help them make more money by helping them connect with the growing number of people who spend most of their free time on the Internet. This morning, YouTube announced new partnerships with Universal Music Group, CBS Corp. and Sony BMG Music Entertainment, similar to the arrangement announced last month with Warner Music Group.

The truce with Universal Music Group is thought to be a major breakthrough because the world's largest record company had threatened to sue YouTube for copyright infringement less than a month ago.

Several other suitors, including Microsoft (NASDAQ:MSFT) $27.72 -0.53%, Yahoo! Inc. (NASDAQ:YHOO) $25.03 -1.72% and News Corp. (NYSE:NWS) $20.95 +1.01% had reportedly discussed interest in YouTube and may still be looking at other YouTube-like startups.

"Good buy," was a "goodbye" instead

In Monday's Market Wrap, I thought a pullback to SPX 1,322.50 would be a "good buy," a pullback to 1,318 a "great buy" and 1,311 a "best buy!"

Market participants evidently thought the prior 52-week high of 1,326.70 was support-enough to their liking and sent the SPX on its way to another multi-year high.

Here's the SPX daily interval bar I showed in Monday's wrap, where the "pink" retracement is still the MONTHLY Pivot retracement shown in that wrap, but with the start of a new week we get new WEEKLY Pivot Levels.

Near-term institutional computer resistance (which pivot levels are derived) would now be MONTHLY R1 (1,353.78) and a level that until broken remains horizontal resistance. However, with overhead supply scarce, a break much above 1,354, which the SPX lends its way to 1,360 (WEEKLY R1), and somewhat correlative WEEKLY R2/MONTHLY R2 of 1,370-1,371 and ascending bullish resistance trend.

S&P 500 Index (SPX.X) - Daily Intervals

The first sign of any weakness from a pivot level would be the WEEKLY Pivot (blue retracement) at 1,343.49. Last WEEK's trade did find the SPX's WEEKLY R1 (Resistance 1) being tested, so a pivot level trader should think of that as "what inventory there was, has been depleted" from a sell-bias perspective. Yes, there will be longs that are selling as they took profits at last week's WEEKLY R1 (1,346.69), but market makers and specialists that have had to "short to the market" in order to provide liquidity, should be looking to replenish some inventory back near WEEKLY Pivot.

Once again this week, we can see how the prior 52-week high of 1,326.70 finds "overlap" with the newly defined WEEKLY (blue) pivot retracement level of 1,327.

NASDAQ Composite (COMPX) - Daily Intervals

One item that was "troubling" me from a bull's perspective last week was that breadth (advance/decline) as well as new highs seemed rather narrow and something bulls wanted, if not needed to see broaden out. NARROW bullish leadership in a rapidly advancing market is a warning sign. Last week the very broad NASDAQ Composite (COMPX) saw bullish leadership ramp up with as many as 143 stocks hitting new 52-week highs, which was improved from 114 found on 09/15 and 117 found on 09/20.

With the COMPX not yet breaking to multi-year highs, conventional use of retracement still helpful with price action looking strong as the COMPX now retraces more than 80.9% of its April to July decline.
 

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

ACADIA - ACAD - close: 9.27 chg: +0.42 stop: 8.39 *new*

ACAD displayed plenty of relative strength on Monday with a 4.7% gain. We did not see any specific news fueling the move but we're not complaining. Shares now look poised to challenge and hopefully breakout past its exponential 200-dma near $9.45. We remain bullish and we're adjusting our stop loss to $8.39. Our target is the $9.95-10.00 range. FYI: The P&F chart remains bearish and looks like it will be for a while.

Picked on October 05 at $ 8.85
Change since picked: + 0.42
Earnings Date 11/10/06 (unconfirmed)
Average Daily Volume: 225 thousand

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TD Ameritrade - AMTD - close: 19.13 change: -0.07 stop: 18.23

AMTD tried to bounce on Monday but the stock rolled over under the $19.50 level. This show of weakness may be a sign of trouble. Thus far the stock is still holding onto its bullish pattern of higher lows and it's still holding above its 200-dma but the momentum indicators are hinting at trouble given today's trading. We remain bullish but traders might want to tighten their stops. Our target is the $21.00 mark. We do expect some resistance near $20.00, at least on the initial test. We don't want to hold over the October 24th earnings report. FYI: The P&F chart is bullish with a $29 target.

Picked on October 04 at $19.26
Change since picked: - 0.13
Earnings Date 10/24/06 (confirmed)
Average Daily Volume: 5.3 million

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Anheuser-Busch - BUD - close: 46.99 change: -0.09 stop: 46.85

We are still sitting on the sidelines with BUD. We're waiting for the stock to breakout through the top of its trading range near the $48.00 level. Our trigger is at $48.21. If triggered our target is the $49.90-51.00 range.

Picked on October xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume: 2.6 million

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IAC/InterActive - IACI - close: 29.45 change: -0.20 stop: 28.69

IACI traded flat to down on Monday. The stock looks poised to move towards the $29 level and its 10-dma. Wait and watch for a bounce near the $29.00 region as a new entry point to go long. Normally we would expect resistance at the $30.00 level but if you look at the stock's weekly chart you can see that the line of resistance is about $31.50. We're setting a target in the $31.40-31.50 range. We do not want to hold over the late October earnings report.

Picked on October 04 at $29.73
Change since picked: - 0.28
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume: 2.2 million

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Intl. Game Tech. - IGT - close: 42.75 chg: +0.42 stop: 39.95

IGT is still showing relative strength. The stock added almost 1% to set a new multi-year closing high. IGT looks poised to breakout over short-term resistance at the $43.00 level. Our target is the $44.00-45.00 range. We do not want to hold over the early November earnings report.

Picked on September 17 at $40.26
Change since picked: + 2.49
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume: 2.2 million

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Ingersoll-Rand - IR - close: 40.23 chg: +0.03 stop: 37.99

We do not see any changes from our weekend comments on IR. The stock continues to look bullish. We do not want to hold over the October 27th earnings report so our short-term target is the $43.00-43.50 range. We'll raise our stop loss once we see IR push past potential overhead resistance at its 200-dma near 40.75.

Picked on October 08 at $40.20
Change since picked: + 0.03
Earnings Date 10/27/06 (confirmed)
Average Daily Volume: 2.8 million

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Kinetic Concepts - KCI - cls: 32.88 chg: -0.47 stop: 30.99

KCI spent Monday's session consolidating sideways. If you are the optimistic type then it was encouraging to see traders buying the dips near $32.80 all day long. Traders still have a choice to go long here or wait for a potential dip back towards the $32.00 region. We don't see any changes from our weekend comments on KCI. We think KCI can trade toward the late May lows, which as broken support will probably act as resistance and this area also coincides with the 200-dma. We'll set a target in the $37.50-38.00 range. Be advised that the $35.00 mark might offer some resistance as well at least on the initial test of that level. We do not want to hold over the late October earnings report.

Picked on October 08 at $33.35
Change since picked: - 0.47
Earnings Date 10/30/06 (unconfirmed)
Average Daily Volume: 1.4 million

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Acc. Home Lenders - LEND - cls: 36.88 chg: +0.35 stop: 34.95

The rally in LEND looks ready to launch. Traders bought the intraday dip near the $36.00 level this morning and LEND was creeping closer toward resistance at the $37 level all afternoon. More aggressive traders may want to open positions right here. We want to see the breakout occur. That's why we're suggesting a trigger to go long at $37.16. If triggered our target is the $42.00-42.50 range. Please note that there is potential resistance at the bottom of its gap down at $38.71, and potential resistance at $40.00. The P&F chart is positive with a $50 target. We do not want to hold over the late October earnings report.

Picked on October xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume: 759 thousand

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McAfee - MFE - close: 25.54 chg: +0.04 stop: 23.99

The GSO software index closed with a minor loss on Monday and this relative weakness in the sector might have slowed the rally in MFE today. Shares rallied toward the $26 level but gave back almost all of its gains. We remain bullish. Our target is the $27.25-27.50 range. We do not want to hold over the late October earnings report.

Picked on October 05 at $25.20
Change since picked: + 0.34
Earnings Date 10/26/06 (unconfirmed)
Average Daily Volume: 1.9 million

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PDL BioPharma - PDLI - close: 20.45 chg: +0.27 stop: 18.69

PDLI continues to help lead the rally in biotech stocks. The BTK biotech index added 0.7% while PDLI rose another 1.33% following last week's breakout over resistance at the $20.00 mark. We remain optimistic and would continue to open new long positions with PDLI above $20.00 or maybe on a bounce from the $20.00 or $19.50 levels. More conservative traders might want to consider tightening their stop loss. Our target is the $22.25-22.50 range. We do not want to hold over the early November earnings report.

Picked on October 05 at $20.11
Change since picked: + 0.34
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume: 1.3 million

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Swift Transport. - SWFT - cls: 25.66 chg: +0.67 stop: 23.88*new*

SWFT displayed a lot of relative strength today. The stock's 2.68% rally out performed the major indices and the Dow Jones transportation average. We couldn't find any specific news to account for today's strength but if you study the chart you'll notice that this is the second day in a row that traders bought the dip near $24.70. We would not suggest new positions at this time as the stock is butting up against likely resistance at the $26.00 level and its 200-dma. We are raising our stop loss to breakeven at $23.88. Our target is the $26.75-27.00 range.

Picked on October 03 at $23.88
Change since picked: + 1.78
Earnings Date 10/25/06 (confirmed)
Average Daily Volume: 1.4 million
 

Short Play Updates

None
 

Closed Long Plays

None
 

Closed Short Plays

None
 

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

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