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Ask The Trader
Wednesday, January 03, 2001

Analyzing a Utility and a Recreation Stock

If I could get your opinion on Keyspan Corporation please?

Keyspan (KSE), the natural gas company based in the Northeast, has seen its share price appreciate 82% for the year 2000. This was due in no small part to soaring natural gas prices and falling temperatures within its servicing region. The company is currently planning a "substantial" rate increase to cover the surging price of gas, which could certainly help its operating margins going forward. Turning to the chart, we can see that KSE has just emerged from a cup and handle formation. The recent pullback has alleviated an overbought condition as indicated by the stochastic. If KSE holds at its current level, it could go to the $47 level according to the depth of its cup formation. I would watch the CBOE Natural Gas Index (XNG.X) to confirm strength in the sector before jumping in at these lofty levels.

Does Carnival look good at these levels? Could you comment please?

The recreation stocks are a fickle bunch. They react strongly to interest rate changes. As interest rates rise, consumers cut back on spending, and the first items that many cut back on are luxury items, which includes tropical vacations. Looking at a weekly chart of CCL, we see that the stock suffered a blow on June 20th when four brokerage houses simultaneously downgraded the stock. Since then, CCL has set sail for higher prices, although the waters have been rough at times. It now appears that CCL could retest the bottom of its prior consolidation range at $40, provided it can hold at current support levels of $28.25. A lower interest rate environment could certainly stimulate more customers to don cheesy Hawaiian shirts and sip Pina Coladas poolside, but the real driver of this stock could be lower oil prices. With one of the industry's highest operating costs dropping, Carnival might just be able to show higher profits in the year 2001.

Good Luck and Have a Profitable Trading Day

Craig Seidler
Assistant Editor


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