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Daily Newsletter, Monday, 04/14/2008

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Table of Contents

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

Market Wrap

Higher Gasoline Fuels Retail Sales; Wachovia Shares Sink

Stocks put in a mixed-to-lower trade to start the week as investors mull over earnings reports amid weaker economic reports and a weaker-than-expected earnings report out of Wachovia.

Economic data released prior to today's opening bell had the Commerce Department reporting that higher gasoline prices had retail sales rising by 0.2% in March, while sales excluding automobiles rose 0.1%. Economists were looking for total retail sales to be unchanged from February's upwardly revised 0.4% decline, with sales (ex-autos) rising 0.1% from February's upwardly revised 0.1% decline.

A look inside the numbers had gasoline sales providing the bulk of the increase with a 1.1% jump, while sales at department and general merchandise stores fell by 0.6% in March.

In other economic news (10:00 AM EDT), the Commerce Department said that inventories held by business on shelves and backlots increased by 0.6% to $1.46 trillion in February after a larger 0.9% gain in January. Year-over-year, business inventories are up 5.2%.

February to January Business Inventories (Table)

As inventories rose 0.6% month-over-month, sales fell by 1.1% to $1.142 trillion. While sales were down for the month of February, they were up 6.7% from year-ago.

Banks were weak and with the S&P Bank Index (BIX.X) 223.48 -4.54% trading sharply lower after Wachovia (NYSE:WB) $25.55 -8.12% said it will raise $7 billion in fresh capital by selling $3.5 billion in common at $24/share and $3.5 billion in preferred stock with a 7.5% dividend that convert into stock at a 30% premium.

Wachovia (WB) - Daily Intervals

Additionally, the bank said it will look to save another $2 billion a year by cutting its dividend 41% to $0.375/share from $0.64/share. The bank said it posted a 1Q net loss of $350 million, or $-0.20/share caused by $2 billion in market-disruption losses and sinking credit quality. Wall Street was looking for the bank to post a profit of $0.40/share.

Wachovia was atop today's list of most actives, churning just more than 172.5 million shares, which is well above its 50-day average volume of 35.8 million shares.

Wachovia's Chief Executive Ken Thompson said that the fresh capital will be enough to cover the bank's needs and more through 2009 even if Wachovia's worst-case scenario for the housing market proves true.

Wachovia's earnings report creates further angst for the financial sector with Dow Industrial components JP Morgan (NYSE:JPM) $41.50 -2.42% and Citigroup (NYSE:C) $22.51 -3.63% set to release their recent quarterly results on Wednesday (4/16) and Friday (4/18).

Financial SPDRs (AMEX:XLF) - Daily Intervals

Also attributing to weakness in the financial sector as depicted by the Financial Select SPDR (AMEX:XLF) $24.54 -2.34%, which approaches its January 22nd relative low was comments out of Lehman analyst Jason Goldberg regarding Bank of America (NYSE:BAC) $35.58 -3.68%. Mr. Goldberg said he expects Bank of America's 1Q earnings to continue to be weighed down by collateralized debt obligation-related write-downs (CDO), as well as a heightened loan loss provision.

Bank of America (BAC), which was recently added as a component to the Dow Industrials is slated to release its recently completed quarterly results next Monday (04/21).

Other notable financial names slated to release their recently completed quarterly results this week had Well Fargo (NYSE:WFC) $27.20 -2.75% shedding $0.77 ahead of Wednesday's earnings, while Merrill Lynch (NYSE:MER) $42.88 -1.83% edged down $0.80 with earnings slated for Thursday.

The XLF was the fourth-most heavily traded security behind Wachovia (WB), the S&P Depository Receipts (SPY) $132.93 -0.33% and General Electric (NYSE:GE) $31.75 -0.93%, which nears its recent 52-week low close of $31.70 from 03/10/08.

DIA and SPY Chart Montage - Daily Intervals

While component weightings for the Dow Diamonds (DIA) and S&P Dep. Receipts (SPY) are much different, their daily interval bar charts look very similar.

Energy names in both indices continue to provide the bulk of these two major averages gains with Exxon/Mobil (NYSE:XOM) $89.70 +1.21% gaining $1.08 on the session, while Chevron (NYSE:CVX) $89.30 +0.56% added $0.50/share.

May Crude Oil futures (cl08k) settled at a new record, finishing up $1.62, or 1.42% at $111.76 on supply disruption concerns.

American Depository Receipts (ADRs) of Brazil's Petroleo Brasileiro (NYSE:PBR) $122.18 +8.26% reversed earlier session losses from $110.92 on heavy volume of just over 36.6 million shares (50-day Avg. Volume= 8.12 million) on reports that an offshore find by the state oil company in partnership with BG Group and Repsol (NYSE:REP) $43.33 +17.04% may be the world's biggest discovery in 30 years.

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Brazil's head of the government's oil and fuel market regulator Haroldo Lima told reporters the find, known as Carioca, could contain 33 billion barrels of oil equivalent, five times the recent giant Tupi discovery. That would further boost Brazil's prospects as an important world oil province and the source of new crude in the Americas.

International Business Machines (NYSE:IBM) $117.28 +1.10% crept back above its 80.9% retracement (10/11/07 high to 1/11/08 low) ahead of Wednesday's earnings.

Having witnessed the sharp decline in shares of GE last week, I'd strongly suggest IBM bulls take some profits even though the firm offered bullish guidance earlier this year at the $110 level.

IBM is the most heavily weighted component in the PRICE-weighted Dow Industrials index of 30 stocks. (Top 10: IBM, XOM, CVX, MMM, BA, CAT, PG, UTX, JNJ and KO).

IWM and QQQQ Montage - Daily Intervals

Buyers stood their ground to the close in the iShares Russell 2000 (IWM) at my 19.1% conventional retracement, but not unlike the DIA and SPY have slipped back below their 50-day SMA.

Big caps at the NASDAQ as depicted by the QQQQ once again slip back below their 19.1% conventional, but exhibit some sign of relative price strength with a close above their more intermediate-term 50-day SMA of $43.82.

Aggressive bulls can play both at current level, while more conservative bulls will look for DIA and SPY to trade their upward trends (currently $118.70 and $128.80).

Additional stock-specific news had Blockbuster (NYSE:BBI) $2.81 -10.22% making a $1.billion offer for Circuit City Stores (NYSE:CC) $4.97 +27.43% for at least $6 a share, a 54% premium to Friday's close. Blockbuster projects a 1Q profit and says its turnaround is generating results.

Industrial manufacturer Eaton Corp. (NYSE:ETN) $80.03 +1.38% reported earnings of $247 million, or $1.64 a share, in the first quarter of 2008 as acquisitions helped drive net sales up 12% amid continuing strong international sales. The company raised its full-year earnings outlook saying it now see 2Q net of $1.80-$1.90, or $1.90-$2.00 a share excluding charges and full year 2008 EPS to $7.30-$7.80 per share.

One today's Treasury auctions had the U.S. Treasury awarding $22.00 billion in three-month bills at a high rate of 1.060%.

The Treasury said it received bids totaling $63.63 billion and accepted $22.00 billion, including $1.57 billion of noncompetitive tenders. The dollar price was 99.732056 and the investment rate, or bond-equivalent return, was 1.078%.

The Treasury also sold $25.0 million of bills to foreign and international monetary authority accounts on a noncompetitive bidding basis.

The bid-to-cover ratio, an indication of demand, was 2.89, Treasury said.

Tenders submitted at the high yield were allotted 98.78%.

The median rate was 1.050%; that is, 50% of the amount of accepted competitive bids were tendered at or below that rate.

Of the competitive bids accepted, 5% were tendered at or below the rate of 0.990%.

The 13-week Treasury Yield ($IRX.X) did see a low trade of 1.00%, but finished down 8.5 basis points at 1.075%.

The Federal Reserve purchased $4.89 billion in bills for its own account in Monday's three- and six-month bill auctions. When the auction was announced, the Fed held $7.61 billion of maturing bills.

The bills awarded to the Federal Reserve are in addition to the public offering amount.

Accepted indirect bids for the three-month bill were 54.9% of the total competitive amount, up from 25.5% in last week's three-month auction.

The high rate was up from 1.450% at the previous three-month bill auction.

The high rate was the lowest since the rate of 1.05% on May 24, 2004.

The issue is dated April 17 and matures on July 17, 2008.
 

New Plays

Most Recent Plays

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New Plays
Long Plays
Short Plays
None None

New Long Plays

None today.
 

New Short Plays

None today.
 

Play Updates

Updates On Latest Picks

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Long Play Updates

DuPont - DD - close: 48.80 chg: -0.53 stop: 47.45

Monday saw DD pull back toward the bottom of its recent trading range. At this time we would look for a dip or a bounce near $48.00 as a new bullish entry point. Our target is the $52.50-54.00 zone. We don't want to hold over the late April earnings report. FYI: The Point & Figure chart has a bullish triple-top breakout buy signal and a $63 target.

Picked on April 02 at $48.84
Change since picked: - 0.04
Earnings Date 04/22/08 (unconfirmed)
Average Daily Volume: 7.2 million

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Energen - EGN - close: 67.62 chg: +1.12 stop: 63.45

Oil and natural gas stocks continue to rally and EGN added 1.6%. Volume continues to be low but we're not going to complain. Our short-term target is the $69.50-70.00 zone. If we have time we'll consider a secondary, more aggressive target above $70. The P&F chart is bullish and the upside target just jumped from $77 to $80. We do not want to hold over the late April earnings report.

Picked on April 07 at $64.65 *triggered
Change since picked: + 2.97
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume: 657 thousand

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Gerdau S.A. - GGB - close: 35.01 chg: -0.93 stop: 34.64

Weakness across foreign exchanges might be responsible for GGB's decline today but the 2.5% drop seems a bit overdone and could be suggesting GGB is not as strong as it looks. If GGB does not bounce from here we fully expect to be stopped out tomorrow morning. Technically this dip looks like a new entry point for bullish positions but you may want to wait for signs of a bounce first. Our first target is the $39.75-40.00 range. We'll place a secondary, higher-risk target at $42.00. The P&F chart is bullish with a $57 target. We do not want to hold over the early May earnings report (unconfirmed).

Picked on April 10 at $36.84
Change since picked: - 1.83
Earnings Date 05/03/08 (unconfirmed)
Average Daily Volume: 3.1 million

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Corning Inc. - GLW - close: 24.98 chg: +0.12 stop: 23.90

The relative strength in GLW today is encouraging but if we don't see the stock rally past today's high near $25.25 tomorrow we're going to consider an early exit. We can always exit and just hop back in if GLW starts to rally again. Our concern is the short-term sell signal and the new MACD sell signal formed today. Odds are still pretty good that GLW will benefit as consumers spend their tax rebates and stimulus checks on flat panel items but this boost could take months to play out. Our first target is the $27.00 level. Our second target is the $29.00 level. We do not want to hold over the late April earnings report. FYI: Last week's move over $26.00 has produced a brand new Point & Figure chart buy signal with a $39 target.

Picked on March 25 at $25.14
Change since picked: - 0.16
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume: 14.7 million

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iShares Telecom - IYZ - close: 23.24 chg: -0.12 stop: 22.89

Another decline for the IYZ has us thinking it may be time to cut our losses and run. Shares should have support near $23.00 but we're not sure we want to stick around to find out. We're not suggesting new positions at this time. We have two targets. Our 1st target is the $25.85-26.00 range. Our second target is the $27.85-28.00 zone.

Picked on March 25 at $23.50 *triggered
Change since picked: - 0.26
Earnings Date 00/00/00
Average Daily Volume: 429 thousand

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Coal ETF - KOL - close: 41.64 change: +0.45 stop: 38.69

Coal stocks continue to show relative strength. We're going to keep our suggested entry point in the $40.00-39.50 zone but more patient or more conservative traders might want to wait for a dip into the $39.50-39.00 zone instead. We're upping our stop loss to $38.85 to reduce our risk but it raises the chance that we'll be stopped out on an intraday spike. If triggered at $40.00 our target is the $44.75-45.00 range.

Picked on April xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume: 240 thousand

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Agribusiness ETF - MOO - close: 59.23 chg: +0.33 stop: 54.75

Commodity-related stocks continued to rally and MOO is nearing resistance around $60.00. On a technical basis a breakout over $60.00 could be used as a new entry point. At this time we don't want to chase it. We are sticking with our plan and suggesting readers wait for a dip into the $56.00-55.00 zone. However, we are raising our stop loss to $54.75. If triggered our target is the $59.85-60.00 range. The Point & Figure chart is bullish with a $72 target.

Picked on April xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume: 1.0 million

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Nintendo Co - NTDOY - close: 69.25 chg: +2.10 stop: 63.95

In spite of weakness in overseas markets Nintendo out performed with a 3.1% gain. The stock has rallied to a new ten-week high. More conservative traders might want to consider upping their stop loss closer to the $65.00 level. Our target is the $74.00-75.00 zone. Keep in mind that NTDOY is traded as an ADR here in the United States and shares will gap open up or down every day as they adjust to trading overseas. FYI: Some quote services might ask you to use the symbol NTDOY.PK to pull up data on NTDOY.

Picked on April 07 at $68.50 *triggered/gap open
Change since picked: + 0.75
Earnings Date 00/00/08 (unconfirmed)
Average Daily Volume: 312 thousand

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Teleflex Inc. - TFX - close: 49.30 chg: -0.70 stop: 49.49

It's not looking good for TFX. Shares lost 1.4% and have broken their two-week trend of higher lows. Volume was very light on today's move. If we don't see some sign of a bounce tomorrow we'll drop TFX as a bullish candidate. Right now We are suggesting a trigger to go long at $51.05. Our short-term target is the $54.75-55.00 range, which should intersect with the stock's longer-term trendline of lower highs. The long-term trend is still bearish. We're just trying to play the oversold bounce. We do not want to hold over the late April earnings report.

Picked on April xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/30/08 (unconfirmed)
Average Daily Volume: 319 thousand

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Terra Ind. - TRA - close: 46.28 chg: +1.48 stop: 39.74

TRA and the rest of the fertilizer-related stocks continue to rally. We don't want to chase it here. We are suggesting readers buy a dip in the $42.50-42.00 zone. If triggered our target is the $49.00-50.00 range. FYI: The latest data puts short interest at more than 20% of the 88.8 million-share float. We do not want to hold over the late April earnings report. This industry has seen a lot of volatility so watch your stops carefully!

Picked on April xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/23/08 (unconfirmed)
Average Daily Volume: 4.1 million
 

Short Play Updates

Cognizant Tech - CTSH - cls: 26.97 chg: +0.44 stop: 30.26

Almost! CTSH dipped to $26.32 this morning before bouncing back. Our first target is the $26.25-26.00 zone. The stock does look short-term oversold and due for a bounce. We're not suggesting new shorts at this time. Our second, more aggressive target is the $24.25-24.00 range. The P&F chart is bearish with an $18 target. More aggressive traders may want to aim for the $22.00-20.00 region.

Picked on March 30 at $29.18
Change since picked: - 2.21
Earnings Date 05/01/08 (unconfirmed)
Average Daily Volume: 5.1 million

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Dell Inc. - DELL - close: 18.24 chg: -0.26 stop: 19.55

DELL continues to sink and shares hit new multi-year lows today. In the news today it was reported that DELL sold $1.5 billion in five-year, ten-year and 30-year notes. Meanwhile we're suggesting a stop loss at $19.55 but you could try a stop closer to $19.25 or $19.05. The P&F chart already points to a $7.00 target and the move under $18.50 has produced a new triple-bottom breakdown sell signal on the P&F chart. We're going to be aggressive and list two targets. Our first target is the $16.00 mark. Our second target is the $13.50 mark

Picked on April 10 at $18.77
Change since picked: - 0.53
Earnings Date 05/29/08 (unconfirmed)
Average Daily Volume: 29.3 million

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Freddie Mac - FRE - close: 23.10 chg: -0.39 stop: 27.55

The Wachovia (WB) earnings miss this morning pushed financials lower and FRE lost 1.6%. If the sector can produce a bounce FRE should find new resistance near $25.00. More conservative traders might want to consider a tighter stop loss. Our first target is the $20.50-20.00 zone.

Picked on April 09 at $24.90 *triggered
Change since picked: - 1.80
Earnings Date 06/12/08 (unconfirmed)
Average Daily Volume: 20.8 million

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Longs Drug Stores - LDG - cls: 37.69 chg: -0.66 stop: 40.16

LDG dropped at the open and spent the remainder of the day oscillating sideways. LDG has already hit our target at $38.25 and Friday's trading looks like a new entry point for shorts. Our second target is the $35.25-35.00 zone. The P&F chart is bearish with a $29.00 target.

Picked on March 30 at $41.30 /1st target hit 38.25
Change since picked: - 3.61
Earnings Date 05/15/08 (unconfirmed)
Average Daily Volume: 596 thousand

---

Financial Sector SPDR - XLF - close: 24.54 chg: -0.59 stop: 26.51

Wachovia bank's earnings miss launched a sell-off in financials. The XLF closed with a 2.3% loss and the MACD's new sell signal is looking stronger. We're suggesting shorts now with the XLF under $26.00. We'll try and limit our risk with a stop loss at $26.51. Aggressive traders could put their stop above $27.00 and more conservative traders put their stop closer to $26.00. We're setting two targets. Our first target is the $22.50 mark. Our second target is the $21.00 mark.

Picked on April 13 at $25.13
Change since picked: - 0.59
Earnings Date 00/00/00
Average Daily Volume: 139 million
 

Closed Long Plays

Hormel Foods - HRL - close: 40.20 change: -0.77 stop: 40.65

We've been stopped out of HRL. Worse than that the stock gapped open lower at $38.48 while our stop was at $40.65. The fuel behind today's move was an analyst downgrade. HRL recouped some of its losses but the play has been closed for us.

Picked on March 31 at $41.83 gap open / stopped/gap down
Change since picked: - 1.63
Earnings Date 05/22/08 (unconfirmed)
Average Daily Volume: 513 thousand
 

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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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.

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