Email Version, Section 1, Monday 02/26/01
The SplitTrader.com Newsletter Monday 02/26/2001 1 of 1
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In This Newsletter:
Market Commentary - Anticipation
Definition of the Day
Monday's Split Announcements - CNL
Tuesday's Play-of-the-Day - ELY
According to the classic Carly Simon song, anticipation is
something that is making us wait, but market participants are not
waiting. The bulls, desperate for any positive news to justify
buying stocks, have concentrated on the possibility that the Fed
will announce a rate cut sometime this week.
The anticipatory rally began in earnest on Friday when Wayne
Angell, a respected Fed analyst and the chief economist at Bear
Stearns, claimed there is a 60% chance that the Fed will cut rates
well before their next meeting scheduled for March 20th. The
bounce rally really took off today when Mr. Angell raised the
probability for an early rate cut to 80% during today's trading.
The Dow Jones Industrials (INDU) rallied impressively late in the
day and closed up 202.25 points and closed at 10,642.12. The
closing price was the high print of the day. This fact bodes well
for a continuation of the rally in the early going tomorrow.
Some of the Dow's bigger winners included Home Depot (NYSE:HD),
which gained $3.74 to $43.75; General Electric (NYSE:GE), which
tacked on $1.80 to $47.98; and Citigroup (NYSE:C), which posted a
solid increase of $2.10 to $50.30.
There were some notable winners on the broader NYSE. Wellpoint
Health Networks (NYSE:WLP) is quickly approaching $100.00 with a
gain of $5.96 to $97.75. Oil services leader Schlumberger
(NYSE:SLB) bounced nicely with a gain of $4.64 to $64.65. Lowe's
Companies (NYSE:LOW), the second leading home building supplies
company behind Home Depot (NYSE:HD), picked up $4.33 to $58.91.
The broader NYSE saw decent volume of 1.08 million shares traded.
Market breadth was impressive with 21 advancers for every nine
The Nasdaq Composite Index (COMPX) staged a similarly impressive
rally that saw the index gain 45.99 points. The COMPX closed at
2,308.50. This price was just slightly below the high print of
the day. The fact that the Nasdaq closed above the recent
resistance level of 2,300 is a good indication that the rally
could continue tomorrow.
The Nasdaq enjoyed an active day with 1.79 billion shares traded.
Advancers compared favorable with decliners by a ratio of 24 to
Microsoft (Nasdaq:MSFT) was an important contributor to both the
INDU and the COMPX with a gain of $2.81 to $59.56. Today, during
opening arguments before the seven-judge panel of the U.S. Court
of Appeals, Microsoft began its efforts to reverse trial court
findings that it broke antitrust laws and should be split in two.
The Nasdaq was also helped by Veritas Software (Nasdaq:VRTS),
which picked up $6.56 to $68.94. CIENA Corp (Nasdaq:CIEN) also
did its part to stabilize the Nasdaq with a gain of $2.75 to
$77.25. I2 Technologies (Nasdaq:ITWO) enjoyed a rally to $35.50,
an increase of $5.94.
Some of the most impressive gains by individual issues on both the
NYSE and the Nasdaq came from the Biotechnology sector. The
Biotechnology Index (BTK) gained a whopping 39 points and closed
at 611.54. Two current Splittrader plays participated in this
rally among biotechnology and medical supply stocks. Becton,
Dickinson and Co. (NYSE:BDX) rallied $1.36 to $36.56 and Biovail
(NYSE:BVF) gained $1.44 to $45.61.
Another sizable gainer among individual sectors was The Amex
Securities Broker/Dealer Index (BDX), which soared 20.08 points to
545.82. The rally was understandable due to the potential
positive effects that a rate cut would have on this financial
sector. The PHLX Bank Index (BKX) was similarly impressive for
the same reason, with a gain of 25.37 points to 894.81.
Bringing up the rear of most watched indices was the PHLX
Semiconductor Index (SOX), which was down a disappointing 8.50
points and closed at 599.85. The decline can be attributed to
growing concerns that Intel's (Nasdaq:INTC) plans to spend $7.5
billion in capital spending are somewhat optimistic in light of
the weakening economic climate. Intel is the leading
semiconductor company and any reduction in capital spending would
reduce the trickle down effect enjoyed by many semiconductor
equipment companies. KLA-Tencor (Nasdaq:KLAC) lost $1.06 to
$42.31 and Novellus Systems (Nasdaq:NVLS) dropped $1.75 to $43.63.
Two widely held stocks moved today due to growing speculation that
AT&T (NYSE:T) will likely sell its 25.5% stake in AOL Time Warner
(NYSE:AOL) in the open market. AT&T appears to be unimpressed
with AOL's offer of between $9 and $10 billion for the equity
position. Both stocks rallied on the report. AOL picked up $2.82
to close at $46.12, while AT&T gained $0.89 to close at $21.84.
It's time to say goodbye to eToys (Nasdaq:ETYS). This former high
flyer of the dot-com world, which peaked in October of 1999 at
$86.00 a share, closed today at $.094 after announcing plans to
file for bankruptcy. It's amazing that the stock has any value
because the company said that the stock is now worthless and the
it plans to cease operations in March. eToys once sported an
unbelievable market capitalization of roughly $1.5 billion. The
Company is one of the first high profile dot-coms to go out of
business. It is unlikely to be the last. Those of you who want
to go out and start buying one of the slew of former $100+ dot-
coms that are now trading below $5.00 would be advised to take a
close look at the balance sheets of these stocks.
We are encouraged by the action we have seen among some of the
stocks in our Current Play list today. International Gaming
Technology (NYSE:IGT) continues to display fantastic relative
strength as this stock made another 52-week high today. Callaway
Golf (NYSE:ELY) also made a new high today and could be ready to
drive higher. A rate cut would likely help three more of our
plays, Polaris Industries (NYSE:PII), Lockheed Martin (LMT) and
Granite Construction (NYSE:GVA).
Speaking of a rate cut, anticipation of a between meetings rate
cut has helped to improve the technical picture for the Nasdaq
(COMPX). The index is bouncing off a severely oversold condition
according to the Relative Strength Index (RSI). Whether this is
just a bounce or the beginning of a more sustainable rally remains
to be seen. The MACD is still negative but it has certainly
flattened its descent. If the Nasdaq can rally for a couple of
more days this important technical indicator will issue a buy
signal. If this does occur, we could see a sustained advance to
at least the 2500 resistance and possibly even to the 2750
resistance. All bets are off if the Fed does not cut rates this
week. We would definitely want to have some cash on hand if the
Nasdaq fails to hold the 2150 support.
The Dow Industrials (INDU) came very close to a clear oversold
signal according to the RSI on Friday. The Industrials Index
would directly benefit from a Fed rate cut this week, due to its
preponderance of financial, cyclical and retail issues. A move
above 10,700 tomorrow could carry the Dow to resistance of 11,000
(yes that number yet again) by the end of the week. Just like the
Nasdaq, it is important to watch the Dow's MACD, which is
currently still negative. A buy signal according to this
indicator may cause a more sustainable rally. The bear market
will continue if the Dow fails to hold support at 10,250.
Good Luck! And may all of your trades be winning ones!
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Definition of the Day
- Decimalization -
Decimalization is the conversion of all securities industry
systems to a decimal system, away from fractional pricing.
For the complete definition, please go to:
Monday's Split Announcements
Monday, February 26, 2001, After the Bell
Cleco Board Authorizes 2-for-1 Stock Split
After the closing bell, the Board of Directors of Cleco Corp.
(NYSE:CNL) announced their approval of a 2-for-1 stock split,
pending shareholder approval to increase the authorized shares
from 50 million to 100 million. Voting will occur at the Annual
Meeting of Shareholders scheduled for April 27, 2001. It is
expected that a payable date will be determined at that time.
For the complete announcement, please go to:
Tuesday's Expirations by Payable Date
Trading Split-Adjusted on 2/28:
Gildan Activewear (GIL) splits 2:1
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market updates, plays, education and daily commentaries by
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Play of the Day (For Tuesday)
Monday, February 26, 2001
ELY - Callaway Golf $24.70 +$0.71
Callaway Golf (ELY) is a leading designer and manufacturer of
high quality, premium priced, golf clubs. The company's golf
clubs have been favorably received by both professional and
weekend golfers on the basis of performance and ease of use. In
addition to a strong product line, greater efficiencies in golf-
club manufacturing have kept ELY's profit margins on the upswing.
These efficiencies are expected to translate into a 40% increase
in earnings this year. In turn, this has created plenty of upside
momentum for the stock. Clearly the stock is a momentum play now
that higher levels are being confirmed by an expansion in volume.
Friday, ELY soared to a new 52-week high of $24 on excellent
volume of 701,300 shares. A move above this level in the upcoming
week could be a good signal for momentum traders to resume their
buying. That said, we'll look for potential entry points to arise
when ELY pushes though $24 on good daily volume above the 3-month
average of 480,000 shares. Support will reside at $22.50, propped
by recent highs and the 10-dma of 22.41. ELY's strong uptrend is
bolstered by good readings in the MACD and OBV indicators, which
suggests that a continued sustainable move is likely. We'll set
our stops at $20 for downside protection.
Since reporting its annual financial results a month ago,
Callaway has moved ahead $4.50, or 24 percent, to Monday's close
of $24.70. What's more, over the past seven months, Callaway has
more than doubled in price from its July 2000 low of $11.88. We
think that Callaway still has the legs to run further. The
stock's long-term and intermediate uptrends are bolstered by a
strong MACD and positive On-Balance Volume, which suggests that
Callaway could go higher. To that end, with yesterday's $0.71
advance, Callaway has broken $24, a resistance level it had been
trying to pass through for the past three trading sessions. As
for the downside, Callaway appears to have support at its 10-day
moving average of $22.78, followed by its most recent
consolidation base of $22.00. Traders considering a position in
Callaway should look for strong volume, 200,000 shares or more
traded by noon EST, on a move through yesterday's intra-day high
of $24.81 before placing their trades.
Picked on February 25th @ $23.99
Change since picked +0.71
Stop Loss @ $20.00
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