The major indexes surged higher on Monday despite warnings out of Citigroup (NYSE:C) $47.72 +2.24% and Switzerland-based UBS AG (NYSE:UBS) $54.94 +3.17% that significant loan-related losses in the third-quarter would impact results.
After a modestly higher open for the major indexes and the thought that both money center banks may be overstating write-downs in order to begin 2008 with a clean slate, buyers built bullish momentum towards the close with advancers easily outnumbering decliners throughout the session.
While near-term bullish leadership at the big board took a rest last week with the NYSE's 5-day NH/NL ratio reversing into a column of "O," at 01:00 PM EDT the 213 new highs began to surpass a recent NH benchmark of 210 found at the conclusion of the September 19th session, when the NYSE new high tally reached 210.
The last time we witnessed 260 new highs at the big board was July 19th when 259 stocks managed to trade a new 52-week higher compared to a then-mounting 110 new lows.
The number of new highs at the NASDAQ ended just shy of the 201 found on September 19th.
It would currently take respective 64% and 66% for the NYSE and NASDAQ 5-day NH/NL ratios to reverse back up into a column of "X."
Shares of Dow Industrials (INDU) 14,087.55 +1.38% component and S&P 100 Index (OEX.X) 723.78 +1.30% heavyweight Citigroup (C) opened lower at $45.89 then darted to a morning low of $46.68 after the banking giant said it estimated third-quarter profits will decline about 60% to roughly $2.2 billion. The largest U.S. bank said it would likely write down about $1.4 billion of its $57 billion portfolio of highly leveraged loans, lose about $1.3 billion on the value of securities backed by subprime loans, and lose $600 million in fixed-income credit trading. Citigroup also said consumer credit costs rose $2.6 billion, mostly due to a boost in loan-loss reserves.
"Looking ahead to the fourth quarter, while we obviously cannot predict market movement or other unforeseeable events that may affect our business, we expect to return to a more normal earnings environment as the year progresses," CEO Chuck Prince said in a recorded call.
As traders and investors digested the quarterly update out of Citigroup, one of the firm's analysts raised his rating on several home-builders (CTX $27.92 +5.08%, DHI $13.46 +5.07%, LEN $23.27 +2.73%, PHM $14.79 +8.67% and RYL $22.56 +5.27%) to "buy" from "hold" on signs the worst may behind the industry.
Citigroup (NYSE:C) - $1 Box Scale
From an institutional perspective, shares of Citigroup (C) $47.72 +2.24% were little changed on Monday. The point and figure chart remains bearish and below trend, with a bearish vertical count of $36 still intact. A trade at $44 would be further bearish and break important near-term support at the $45.00 level. A trade at $50 would be viewed as bullish and have demand (X) starting to outstrip supply (O), and also have the stock breaking above it bearish resistance trend.
I would strongly suggest market participants have alerts set at $50 and $44 as trades at either of these levels will likely have GREAT impact on INDU/SPX/SPY/OEX direction!
UBS AG (UBS) $54.94 +3.17% actually gapped higher to open at $54.43 after the banker said it would write down $3.4 billion in the third quarter because of problems in U.S. subprime mortgages. For the first time in nine years, UBS said it will likely post a pretax loss, which the bank estimated at $690 million.
UBS AG (NYSE:UBS) - $1 Box Scale
After achieving, then exceeding a bearish vertical count of $52 in late August, shares of UBS generated a reversing higher double top buy signal at $55 on September 19th.
According to Dorsey/Wright & Associates, their banking sector bullish % (BPBANK) is currently "bull alert" status at 40% having reversed up from "bear confirmed" at a very oversold measure of 22% in early August (number 8 on a PnF chart).
Several sessions ago I received an email question from a reader wondering about the market/economy with all the "bad news" regarding the credit crunch and subprime issues.
Today's news out of Citigroup and UBS provides a GREAT test for a VOTE from market participants going forward. Is it "good news," or "bad news?"
UBS is certainly suggesting that DEMAND (X) is getting the upper hand on SUPPLY (O) and that would remain "true" as long as the stock does NOT trade $50.00.
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Conversely, C has yet to hint that DEMAND (X) is outstripping supply (O) and that would remain "true" as long as the stock does NOT trade $50.00..
I now have an UPSIDE alert set on C at $50.00 and a DOWNSIDE alert set on UBS at $50.00.
That's $50/$50 and with today's news and guidance going forward, market participants (bulls and bears) can make the decision..
My feel, based on observation is that the MARKET may have determined that things aren't as bad as some have thought as all of our major market bullish percent remain in a column of X.
Again, this could be further tested going forward with C and UBS.
U.S. Market Watch - 10/01/2007 Close
Major equity indexes here in the U.S. had the INDU/DIA, OEX, COMPX, NDX/QQQQ closing at either all-time, or new 52-week highs.
Sector action did show the MSH.X, XCI.X, SWH, IIX.X, IXTCX and HUI.X also closing at new 52-week highs.
The StreetTracks Gold Trust (NYSE:GLD) $73.90 ($739.90) also closed at a new 52-week high.
I should note that the U.S. Dollar Index (CEC:DXY) 77.94 would show a fractional advance of 0.20, or +0.26% from Friday's close of 77.74.
With the BIG and NARROW indexes (INDU, OEX and NDX) closing at new 52-week highs, bulls look for bullishness to broaden out in the S&P 500 (SPX.X) 1,547.07 +1.32%.
S&P 500 Index (SPX.X) - Daily Intervals
The S&P 500 Index (SPX.X) showed impressive strength again today and shorts look like they've "conceded" a test of the July highs.
S&P 500 Index (SPX.X) - Daily Intervals
With the BIG and NARROW INDU, OEX and NDX at new highs, I'm also going to show the SPX with its institutionally traded MONTHLY Pivot retracement. The MONTHLY S2 (support 2), S1 (support 1), Pivot (mid-point of September), R1 (resistance 1) and R2 (resistance 2) are mathematically derived levels that institutional computers will often times be set to trade.
These levels can be helpful when a security, or basket of stocks break to new highs, or new lows.
Buyers certainly look to be in control above 1,525.
On September 19, the institutionally monitored S&P 500 Bullish % (BPSPX) from Dorsey/Wright & Associates achieved "bull confirmed" status with 60.77%, or 304 of the 500 components showing buy signals when the SPX itself traded September's MONTHLY R1.
Today, we see that level find further buying, despite the "news" out of Citigroup (C).
At tonight's close, Dorsey/Wright's S&P 500 Bullish % (BPSPX) saw an additional
gain to 63.38% from Friday's 62.37%.
New Long Plays
Intel - INTC - cls: 26.37 change: +0.51 stop: 25.39
Why We Like It:
Picked on October xx at $xx.xx <-- see TRIGGER
TASER Intl. - TASR - cls: 16.20 change: +0.51 stop: 14.99
Why We Like It:
Picked on October 01 at $16.20
New Short Plays
Long Play Updates
Boyd Gaming - BYD - cls: 43.50 chg: +0.65 stop: 41.55
Market strength allowed BYD to recover some of Friday's losses. The stock posted a 1.5% rebound. The bounce could be used as a new entry point to buy the stock but if you're opening new positions here we'd suggest a stop just under $42.00. Our target is the $44.90-46.00 range.
Picked on September 04 at $41.55
Coach Inc. - COH - cls: 47.07 change: -0.20 stop: 45.99
Today's under performance by COH would be a good reason to just drop the stock. The new bearish signal in the daily chart's MACD doesn't help matters. However, traders did buy the dip near $46.00 this morning. We're going to stick with the play since any market follow through on today's widespread rally should help lift COH past resistance near $48.00. More conservative traders may want to go ahead and abandon COH right here. Our target is the $51.85-52.00 range. More aggressive traders could aim for the April highs near $54.00. The P&F chart points to a $63 target. We do not want to hold over the late October earnings report.
Picked on September 19 at $48.70 *gap higher
Cisco Systems - CSCO - cls: 32.99 change: -0.14 stop: 30.90
Large cap tech stocks have been leading the rally yet CSCO was strangely absent from the rally today. The stock traded flat and looks poised to dip. We would watch for a dip back toward the $32.50-32.00 range as a potential entry point to jump in. FYI: CSCO is due to present at two different investor/analyst conferences this week on October 1st and the 2nd. Our target on CSCO is the $34.75-35.00 range.
Picked on September 26 at $32.65
Global Ind. - GLBL - cls: 25.52 chg: -0.24 stop: 24.65 *new*
Oil service stocks rallied in the face of a crude oil pull back. Yet shares of GLBL slept through any sector strength and actually lost 0.9%. This relative weakness is a warning signal. We're raising our stop loss to $24.65. Expect a dip back toward $25.25-25.00. Our target is the $28.00-29.00 range.
Picked on September 06 at $24.65
NET Services - NETC - cls: 17.38 change: +0.80 stop: 15.60*new*
NETC rallied just over 4.8% and closed over potential resistance near $17.00. More conservative traders may want to consider an early exit now with shares up more than 10% from our picked price. We're raising our stop loss to $15.60. Today's intraday high was $17.50 and any follow through tomorrow could push the stock to our target. Our target is the $17.75-18.00 range. The P&F chart is bullish with a $21 target. FYI: We can't find a third quarter earnings date yet but the company has a history of reporting in late October or early November. We don't want to hold over the earnings report.
Picked on September 24 at $15.60
NVIDIA - NVDA - close: 37.77 change: +1.53 stop: 33.75
Tech stocks have been leading the rallies. Shares of NVDA did their part with a 4.2% gain and another new high. The SOX semiconductor index is nearing a bullish breakout of its own and if the SOX does breakout it could give NVDA a little extra push higher. Our target for NVDA is the $39.00-40.00 range. We do not want to hold over the early November earnings report. FYI: The Point & Figure chart is bullish with a $55 target.
Picked on September 26 at $36.15
Sirius Satellite Radio - SIRI- cls: 3.49 change: +0.00 stop: 3.19
Unfortunately, SIRI did not participate in the market rally today. Shares were drifting sideways and closed unchanged. We don't see any changes from our previous comments. Here's a reprint of our Sunday comments:
The stock appears to have built a pretty significant bottom over the April-August time frame. The breakout in early September looks pretty bullish and shares have already retested broken resistance at its 200-dma as new support. We have two concerns. Our market outlook is flat to down this week. Second, there has been a lot of new talk about the proposed merger between SIRI and XMSR never getting completed. Thus far the recent comments on the merger have not derailed the rally in SIRI but future headlines could send the stock moving sharply lower and thus remains a risk. We are using a wide (aggressive) stop loss and SIRI is facing some resistance near $3.60. Our target is the $3.95-4.00 range.
Picked on September 30 at $ 3.49
Westwood One - WON - cls: 2.76 chg: +0.01 stop: 2.24
Traders stepped in and bought the dip in WON twice near $2.65 today. More aggressive traders might want to buy this dip and just cinch up their stop loss. We're going to stick to our plan for now. Our plan is to buy a dip into the $2.60-2.50 range. However, what we want to do is actually buy a rebound back out of this zone. So wait for WON to dip toward $2.50 and then we're suggesting readers buy it on a rebound back above $2.60. We're suggesting a stop under the recent lows but conservative traders might consider a stop under $2.50. If triggered we're going to target a rebound into the $3.25-3.50 range.
Picked on September xx at $xx.xx <-- see TRIGGER
Wyndham Worldwide - WYN - cls: 32.78 change: +0.02 stop: 30.89
We are a little surprised that WYN did not show more strength today. However, looking at the intraday chart we see that bulls were buying the stock near dips toward the $32.50 region. Our target is the $33.90-35.70 range. One concern is potential resistance at the 100-dma and 20-dma that are near the $34.00 level.
Picked on September 19 at $32.15
Zoltek - ZOLT - cls: 45.09 change: +1.46 stop: 39.95
Shares of ZOLT managed to out perform the major indices with a 3.3% rally and a close over the $45.00 mark. Readers might want to use this as a new bullish entry point and just tighten your stop. Our target is the $$49.00-50.00 range. The P&F chart is bullish with a $51 target.
Picked on September 24 at $43.06
Short Play Updates
Commscope - CTV - cls: 51.90 change: +1.66 stop: 54.26
CTV just erased last week's losses with a 3.3% gain today. Furthermore today's rally was fueled by above average volume. More conservative traders may want to tighten their stops toward $53.50 or $53.00. We're not suggesting new positions at this time. Our target is the $47.00-45.00 range but we'll be watching for potential support at the rising 200-dma. The P&F chart points to a $43 target. CTV was supposed to present at an investor/analyst conference in New York today but we didn't see or hear any news from the meeting.
Picked on September 24 at $51.75
Insteel Industries - IIIN - cls: 15.84 chg: +0.49 stop: 16.35
Monday's widespread market rally lifted IIIN to a 3.19% gain but volume remained light. A breakout over $16.00 would be bullish but readers can watch for another failed rally under $16 as a new entry point for shorts. More conservative traders might try placing their stop just above $16.00. We do not want to hold over the October 18th earnings report. FYI: It is important to note that the most recent data lists short interest at 23% of the stock's small 14.2 million-share float. That is a high degree of short interest and combined with the small float is a recipe for a short squeeze. Our stop loss may not save us from significant losses. More conservative traders may want to pass on this play.
Picked on September 30 at $15.35
Microchip - MCHP - cls: 36.92 change: +0.60 stop: 37.36
The SOX semiconductor index is hinting at a bullish breakout soon. If the SOX can trade over the 512 level then we'd be bullish on semiconductors. A rally in the SOX could lift MCHP to breakout over resistance near $37.50. We're going to stick to our plan for now and wait for a breakdown under support near $36.00. At the moment we're suggesting a trigger for shorts in MCHP at $35.79. If triggered at $35.79 our target is the $33.00-32.50 range. We did note that the P&F chart is still bullish and it will take a new decline under $35.00 to reverse that pattern.
Picked on September xx at $xx.xx <-- see TRIGGER
Supervalu - SVU - cls: 36.62 change: -2.39 stop: 40.01 *new*
It looks like we were not the only ones looking at SVU with bearish eyes. A Bank of America analyst started coverage on the stock with a "sell" rating this morning. The stock reacted by gapping lower at $38.05 and then plunging to $35.54. The bad news is that today's gap open gives us a less than ideal entry point at $38.05. The new relative low is encouraging but don't be surprised to see an oversold bounce. We're adjusting our stop loss to $40.01 and more conservative traders may want to place their stop closer to $39.50. We're aiming for $35.25-35.00.
Picked on September 30 at $38.05 *gap down
Closed Long Plays
Closed Short Plays
Media General - MEG - cls: 29.99 change: +2.48 stop: 28.05
Positive comments from Citigroup (see tonight's wrap) sparked some short covering across the markets. Shares of MEG already had a high degree of short interest and the bears got squeezed today. MEG broke through resistance and posted a 9% gain. Fortunately, we were still on the sidelines. It had been our plan to wait for a breakdown under support near $27.00. Our trigger to open plays was $26.45. Given today's move in MEG we're dropping it as a bearish candidate. The play was never opened.
Picked on September xx at $xx.xx <-- see TRIGGER
Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.
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