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Daily Newsletter, Monday, 03/03/2008

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Table of Contents

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

Market Wrap

Stocks Mixed After Weak Economic Data

Stocks started the week out mixed to lower on Monday after January construction spending and February manufacturing figures showed the U.S. economy sputtered in the latter part of 2007 and early in the first quarter of this year.

Investors braced themselves for steep declines at the open as Asian markets exhibited weakness with Japan's Nikkei-225 ($NIKK) falling 4.49% and Hong Kong's Hang Seng ($HSI.X) shedding 3.07% on the heels of Friday's declines here at home.

Economic data released at 10:00 AM EST had the Commerce Department reporting that construction spending fell by 1.7% in January, which was below economists forecast for a 0.60% decline. December's previously reported 1.10% decline was revised lower to -1.3%.

But buyers stood their ground when at the same time, the Institute for Supply Management's index of U.S. manufacturing activity came in at 48.3 for February (January was 50.7). While the figure showed contraction (levels above 50.0 signal expansion), the 48.3 measure was slightly above the 48.0 forecast.

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A breakdown of the ISM Manufacturing Index showed the prices index eased modestly to 75.5 from 76.0 a month earlier, but the expansionary 75.5 measure was enough to keep a firm bid in commodities with the CRB Index (CRY) carrying gains to close at another 52-week and multi-year high.

Other sub-index measures showed the employment index falling to 46.0 from January's 47.1, new orders edging lower to 49.1 from 49.5, production falling to 50.7 from 55.2 and inventories falling to a 45.4 measure from 49.1.

Closing U.S. Market Watch -

After last week's plunge to multi-year lows, the U.S. Dollar Index (DXY) showed some stability, more than likely due to short-covering.

Gold and silver as depicted by the StreetTracks Gold (GLD) $97.41 +1.27% (approximately $974.10 spot) and iShares Silver (SLV) $201.65 (approximately $20.16 spot) continued to shine.

The AMEX Gold Bugs Index ($HUI.X) 501.65 +3.20% was today's sector winner and psychological resistance of 500.00 found little traction among sellers.

First sign of any weakness in my opinion on the HUI.X would be a close back below its 01/14/08 close of 481.00.

AMEX Gold Bugs Index ($HUI.X) - Daily Intervals

The HUI.X looked like it might be showing signs of a reversal on Friday as the major averages saw selling. As soon as the broader markets see some abatement of selling, the HUI.X powers higher still. I've been showing both gold and silver commodity's charts with similar "bull fit 38.2%" retracement and an Andrews Pitchfork (modified schiff) that some "wave traders" will use.

iShares Silver Trust (SLV) - Daily Intervals

Silver as depicted by the iShares Silver Trust (SLV) $201.63 +2.51% has been playing "catch up" to gold over the longer-term. So much so that last week I had to stack, or copy the Andrews Pitchfork (modified schiff) to give wave traders further upside targets. As tough as it is for me to suggest new long positions, it is outlandish to even suggest short positions. It has been for months as overhead supply is nonexistent.

Homebuilders and financials were among today's sector losers after mortgage lender Thornburg Mortgage (NYSE:TMA) $4.32 -51.46% said it hasn't yet been able to meet a new wave of margin calls worth at least $270 million and that it is facing a shortage of cash, which could hurt its ability to meet any future margin calls.

S&P 500 Index ($SPX.X) - 10-point box

On Tuesday and Wednesday of last week, the S&P 500 Index (SPX.X) tested its bearish resistance trend, but quickly fell back below heavy 1,350 March put/call open interest, which would be a "Max Pain" theory level for quarterly expiration (03/20/08 is Triple Witching expiration).

A break at 1,310 would be quite bearish and set the stage for a test of the January lows.

Dow Industrials ($INDU) - 50-point box

Not unlike the SPX, the Dow Industrials ($INDU) found sellers at its bearish resistance trend and sellers stood their ground below 12,800 resistance.

Boeing (NYSE:BA) $80.67 -2.56% gapped lower at the open to trade as low as $79.25 on news that it had lost a $35 billion Air Force contract.

United Technologies (NYSE:UTX) $69.40 -1.57% made an unsolicited offer to buy Diebold (NYSE:DBD) $38.84 +61.02% for $2.63 billion in cash. Diebold, which is a big player in the automatic teller machine, security system arena said later in the day that it was "not the right time" for the UTX offer. That suggested UTX might have to sweeten its bid.

DIA and SPY Montage - Daily Intervals

Neither the DIA, or SPY have seen a CLOSE below their conventional 19.1% retracement since the January lows, but strength is needed as both the QQQQ and iShares Russell 2000 (IWM) $68.20 -0.66% remain a drag.

IWM and QQQQ Montage - Daily Intervals

A late session "rally" in the small caps had the IWM recapturing the $68.14 level by the close, but growing concern for QQQQ/NDX heavyweight Apple's (AAPL) iPhone sales had the most-heavily weighted component falling back below its 1/23/08 low of $126.14.
 


 

New Plays

Most Recent Plays

Click here to email James
New Plays
Long Plays
Short Plays
None None

Play Editor's Note: I haven't read tonight's wrap yet so hopefully I'm not contradicting anyone. Short-term it looks like stocks want to bounce but it's probably just another opportunity to set up shorts. I'm looking at potential shorts in the homebuilders, maybe the XHB, IYR or ITB. Plus, I'm also looking at potential shorts on the MDY midcap spdr and the IWM smallcap ishares.


New Long Plays

None today.
 

New Short Plays

None today.
 

Play Updates

Updates On Latest Picks

Click here to email James

Long Play Updates

Cypress Semiconductor - CY - close: 22.19 chg: +0.45 stop: 21.75

Shares of CY are showing signs of life with a 2% rebound today. This is impressive considering the potentially negative news out earlier this afternoon. There were a couple of news articles discussing CY's 10-K filing issued this morning. In the 10-K CY claims that they have listed about $68 million in auction-rate securities at "long-term investments" since they can't sell them in the current marketplace. The stock market didn't seem to mind as CY closed near its highs for the session. Nimble, aggressive traders might want to jump into CY early if the stock can trade over $22.55 and its short-term trend of lower highs. We're certainly considering an adjustment to our entry point. Currently we are suggesting readers buy CY at $23.51. If we are triggered at $23.51 our short-term target is the $27.00-27.50 range near its 200-dma. We'll have to watch out for potential resistance at its descending 50-dma.

Picked on February xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume: 7.5 million

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FMC Corp. - FMC - close: 57.47 chg: +0.86 stop: 54.85

FMC displayed relative strength on Monday. This actually looks like a potential entry point for new positions but you may want to consider a new stop loss closer to $56.00. Shares of FMC have already hit our initial target in the $59.75-60.00 zone. Our second, longer-term target is the $64.00-65.00 range. The Point & Figure chart is bullish with a triple-top breakout and a $66 target.

Picked on February 19 at $56.17 *triggered/gap open
Change since picked: + 1.30
Earnings Date 04/30/08 (unconfirmed)
Average Daily Volume: 718 thousand

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General Moly - GMO - close: 11.06 change: +0.37 stop: 9.49

After Friday's steep decline GMO delivered a nice bounce today adding 3.4%. We remain bullish on the stock. If you're interested in new positions here consider a tighter stop loss near $10.00 or $10.50. We have two targets. Our first target is the $12.40-12.50 zone near its December highs. Our second, more aggressive target is the $13.90-14.00 range. We are starting with an aggressive (wide) stop. FYI: GMO has relatively high short interest at 7.7% of the 33.7 million-share float, which is about 7 days worth of short interest.

Picked on February 20 at $10.55 *triggered
Change since picked: + 0.51
Earnings Date 03/31/08 (unconfirmed)
Average Daily Volume: 665 thousand
 

Short Play Updates

AXA - AXA - close: 33.69 change: +0.03 stop: 36.11

European markets were generally down about 1% on Monday. AXA managed to recover from its morning lows and post a fractional gain. The trend remains negative and readers can look for a failed rally in the $34.50-35.00 zone as a new entry point for shorts. Our target is the $31.00-30.00 zone. AXA is based in Europe so we can expect shares to gap open, up or down, everyday when trading begins in New York.

Picked on February 29 at $34.25 *gap down
Change since picked: - 0.56
Earnings Date 02/28/08 (confirmed)
Average Daily Volume: 1.1 million

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Blue Coat Sys. - BCSI - close: 22.82 change: -0.66 stop: 26.26

Nothing goes down in a straight line for very long but BCSI just posted its sixth loss in a row. It's probably time for an oversold bounce. Meanwhile we did not see any news surface from the company's presentation at a conference today. A failed rally in the $25.00-25.50 zone could be a new entry point for shorts. Our target is the $20.25-20.00 zone. There is potential support at the January low near $22.00-21.80 but if BCSI breaks lower we think it's going to $20. FYI: The most recent data puts short interest at 14.5% of the 36.2 million-share float. That is not a very big float and a relatively high amount of short interest, which raises the risk of a short squeeze.

Picked on February 29 at $23.75 *triggered
Change since picked: - 0.93
Earnings Date 02/21/08 (confirmed)
Average Daily Volume: 1.3 million

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Cintas Corp. - CTAS - close: 28.99 chg: +0.21 stop: 31.15

CTAS rebounded from its new lows but the rally was fading into the closing bell. We remain bearish here. Today looks like a failed rally at $29.50, which we suggested was a new entry point for shorts. Our short-term target is the $27.00-26.00 range. More aggressive traders may want to aim lower. The P&F chart is bearish with a $24 target. FYI: The most recent data puts short interest at 1.7% of the 131 million-share float. That is a short ratio of 1.5 (about 1.5 days worth of average volume to cover).

Picked on February 15 at $29.75 *triggered
Change since picked: - 0.76
Earnings Date 03/20/08 (unconfirmed)
Average Daily Volume: 1.5 million

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Dean Foods - DF - close: 21.71 chg: +0.19 stop: 24.05

DF gapped open higher today after an analyst firm upgraded the stock before the open. The rally quickly ran out of steam but DF still managed a 0.8% gain. The trend remains bearish but we are not suggesting new positions. Our target is the $20.25-20.00 range. FYI: The move under $24.00 has produced a new quadruple bottom breakdown sell signal. The P&F chart target is $18.00. Our biggest risk is a short squeeze. The most recent data puts short interest at 7.7% of the 127 million-share float or about 9 days worth of short interest, which is significant.

Picked on February 20 at $23.95 *triggered
Change since picked: - 2.24
Earnings Date 02/13/08 (confirmed)
Average Daily Volume: 1.6 million

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Dish Network - DISH - close: 30.00 chg: +0.35 stop: 30.26

DISH continues to trade sideways. If we don't see some follow through lower soon we'll drop DISH as a candidate. Speaking of dropped it looks like one analyst firm dropped their coverage on DISH. Normally this is bearish as firms prefer to stop covering a stock instead of actually downgrading them. This way they don't spoil any relationships with the company in hopes of doing (or retaining) business with them down the road. We have been waiting for a breakdown under $29.00 with a suggested entry point for shorts at $28.75. If we are triggered at $28.75 then our target is the $26.00-25.00 zone. FYI: The latest data put short interest at 2.3% of the 202 million-share float.

Picked on February xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/28/08 (unconfirmed)
Average Daily Volume: 2.6 million

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Granite Const. - GVA - close: 28.75 change: -1.44 stop: 32.55

The selling in GVA continued into Monday. The stock sank another 4.7% and did so on strong volume, which is definitely bearish. Shares broke support near $30.00 and hit our trigger to short it at $29.85. Now that the play is open our target is the $25.50-25.00 zone. FYI: Readers need to be aware that the most recent data puts short interest at 8.8% of the 38.9 million-share float. That is about five days worth of short interest and raises the risk of a short squeeze.

Picked on March 03 at $29.85 *triggered
Change since picked: - 0.10
Earnings Date 02/13/08 (confirmed)
Average Daily Volume: 760 thousand

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Starbucks - SBUX - close: 17.85 chg: -0.13 stop: 18.76

It's normally not a good sign with top management resigns for personal reasons. SBUX announced today that the president of their U.S. division has resigned to spend more time with her family. While that is a great reason to quit and something we all aspire to do usually Wall Street sees a move like this as a warning sign. Of course shares of SBUX have been "warning" investors for months. The stock is flirting with a breakdown to new lows. We're suggesting readers short SBUX with a trigger to open positions at $17.49. If triggered our target is the $15.05-15.00 zone. More aggressive traders could aim lower since the P&F chart already points to a $3.00 target. FYI: The most recent data puts short interest at 3.4% of the 703 million-share float, which is about 2 days worth of short interest.

Picked on February xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/30/08 (unconfirmed)
Average Daily Volume: 16.5 million

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Sepracor - SEPR - close: 21.30 change: -0.17 stop: 23.61

SEPR was actually upgraded today but you wouldn't know it from looking at the stock price. The news had little affect on shares, which continued to hit new lows. We are suggesting shorts with SEPR under $22.00. Readers can choose to open positions now or look for another failed rally under the $22.00-22.25 zone. Our target is the $18.00-17.50 region. FYI: Readers need to know that the most recent data puts short interest at 7.2% of the 110.5 million-share float. That is more than 3.5 days of short interest.

Picked on February 29 at $21.47
Change since picked: - 0.17
Earnings Date 02/29/08 (confirmed)
Average Daily Volume: 2.2 million

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SanDisk - SNDK - close: 23.05 change: -0.50 stop: 26.15

SNDK continues to sink. The stock lost another 2.2% today. You could argue that SNDK is a little short-term oversold. If we see a bounce look for the $24-25 zone to act as overhead resistance. A failed rally in that region can be used as a new entry for shorts. Our target is the $20.15-20.00 zone. The $20.00 level has been significant support in the past. FYI: The P&F chart just produced a brand new triple-bottom breakdown sell signal.

Picked on February 29 at $23.99 *triggered
Change since picked: - 0.94
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume: 8.9 million

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Safeway Inc. - SWY - close: 28.45 change: -0.29 stop: 30.51

Shares of rival SVU soared 7% today after the company raised its earnings guidance. This did little to stop the bleeding in shares of SWY, which lost another 1%. We don't see any changes from our weekend comments on SWY. We are suggesting shorts here under $29.00 but a failed rally anywhere under $30.00 could work as a new entry point. There appears to be some support near $26.00 so we are suggesting a target in the $26.50-26.00 zone. The P&F chart is bearish with a $22.00 target. We do want to point out that on the P&F chart SWY is at the trendline of support. Normally, a stock will see a sharp rebound when it hits this trendline on the P&F chart. The February 22nd-26th bounce might have been that rebound but it wasn't enough to register on the P&F chart. Meanwhile the latest data puts short interest at 3.9% of the 437 million-share float, which is about 4 days worth of short interest.

Picked on February 29 at $28.74
Change since picked: - 0.29
Earnings Date 02/21/08 (confirmed)
Average Daily Volume: 4.9 million

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United Parcel Ser. - UPS - cls: 70.61 chg: +0.37 stop: 74.05

UPS initially spiked lower to $69.41 but recovered by the closing bell. This is an impressive rebound given a new high in oil near $104 a barrel. Lack of real movement lower is cooling our enthusiasm for shorts in UPS. The stock just isn't moving very fast. Right now we're considering a tighter stop loss around $73.05. Our target is the $66.00-65.00 zone.

Picked on February 10 at $70.58
Change since picked: + 0.03
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume: 5.4 million
 

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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