Email Version, Section 1, Wednesday 03/07/2001
The SplitTrader.com Newsletter Wednesday 03/07/2001 1 of 1
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In This Newsletter:
Market Commentary - Dear Abbey Keeps the Rally Rolling
Definition of the Day
Wednesday's Split Announcements - None
Thursday's Play-of-the-Day - WFT
Dear Abbey Keeps the Rally Rolling
Abbey Joseph Cohen gave her two-cents on the state of the stock
market today, and traders liked what they heard. Before the
opening bell, Goldman Sachs' doyenne of stocks gave credence to
the perception stocks have bottomed, saying "we believe that
attractive equity valuation has been restored."
With that pleasant thought in mind, Cohen raised her portfolio
equity weighting to 70 percent from 65 percent, which was the
first time time in nearly a year she has changed her portfolio
weightings. Then, to add fuel to the bullish tinders, Cohen
reiterated her year-end target of 1,650 for the S&P 500 Index
(SPX) and 13,000 for the Dow Jones Industrial Average (INDU).
Not surprisingly, Cohen's perceived prognostication powers did
wonders for the broader and blue-chip markets. The SPX closed up
8.09 points, or 0.65 percent, to 1,261.89. With today's advance,
the SPX posted its longest winning streak in nearly six weeks.
What's more, the index is firmly removed from bear-market
territory now that its trading at only a 17 percent discount to
its March 2000 closing high of 1,527.
Doing the SPX one better, though, was the INDU. The blue-chip
average advanced 138.38 points, or 1.31 percent, to 10,729.60,
marking the fourth consecutive advance for this Methuselah-laden
The INDU was propelled higher today by retailing stalwarts Home
Depot (NYSE:HD) and Walmart (NYSE:WMT) rose $2.34 and $1.15,
respectively. Also, helping the cause were Nasdaq carpetbaggers
Intel (Nasdaq:INTC) and Microsoft (Nasdaq:MSFT), each added more
than a $1.00 apiece to their respective share price.
Of course, as we all know, Intel and Microsoft pull double-duty,
meaning this dynamic duo has a say in the new economy as well as
the old. To that end, the Intel and Microsoft advance helped the
Nasdaq Composite Index (COMPX) to overcome a free-fall in
communications chip maker Broadcom Corp. (Nasdaq:BRCM), which
tanked $7.63 to $40.25 after cutting its quarterly earnings and
sales outlook. Nevertheless, the COMPX finished the day up 19.49
points, or 0.88 percent, to 2,223.92 -- its third consecutive
Technically, the picture is finally starting to improve (improve
being a relative term, of course) on the COMPX. For the second
day in a row, the tech-heavy index was able to trade above its
downward trend started in early February. Whether this means
anything or not is still open to interpretation. The last time
the COMPX had such an outliner it reversed course the next day.
Chart of the NASDAQ Composite:
As for stock news, WorldCom (Nasdaq:WCOM) rose $0.50 to $17.19
after the Wall Street Journal reported the second-largest U.S.
long-distance company may be a takeover candidate. According to
the latest scuttlebutt, WorldCom CEO Bernard Ebbers might be
interested in selling the company for the right price, which is
reportedly $35 a share -- a 100 percent premium to Wednesday's
Poor Bernie might have become a little jaded with the telephony
long-distance business after having to pony up millions of
dollars in a margin call on WorldCom stock a few months back.
Still, this financial setback does not excuse him for suffering
from a delusion known in economic parlance as the "endowment
effect," which means the propensity to believe something is worth
more than it actually is because you own it. If Bernie is
waiting for someone to pay $35 a share, or $100 billion, for this
commodity business, he's certainly in no hurry to sell.
Another stock making noise today was Yahoo (Nasdaq:YHOO). The
Internet portal king traded all of seven minutes during regular
hours on Wednesday before its stock was halted after the company
announced it had backed out of an appearance at an Internet
conference. At the time Yahoo said it would issue a postclose
press release, which it did, and the news wasn't good.
According to the press release, Yahoo has initiated an external
search for a new CEO to replace Tim Koogle, who will stay on as
chairman of the company. Yahoo also cut its first-quarter
earnings, lowering its EPS to break-even from the $0.05 expected
from First Call. Not surprisingly, Yahoo shares were down
sharply in after-hours trading, falling $4.38 to $18.
In more upbeat news, Royal Dutch Petroleum (NYSE:RD), 60 percent
owner of the Royal Dutch/Shell Group, submitted a $2.2 billion
cash bid (ironically, Royal Dutch is one of the few companies
these days that can get away with offering stock) for Denver-
based oil and gas exploration firm Barrett Resources (NYSE:BRR).
Barrett finished the day up $15.69 to $61.11 while Royal Dutch
finished up $0.51 to $60.46.
As for economic news, U.S. consumer borrowing increased to $16
billion in January, more than twice the increase of $7.2 billion
reported in December, thanks to the biggest increase in credit
card charges since August.
In other news, the Federal Reserve said that the U.S. economy
continues to expand, but at a "sluggish to modest" pace, at least
that's what the Fed said in its "Beige Book" report on regional
Looking ahead, the next significant economic data set will be
released on Friday with the government's unemployment rate, which
is expected to come in at 4.2 percent.
As for trading tomorrow, the Yahoo brouhaha could weigh heavily on
traders minds at the open. However, I think the impact on
trading will be short lived. The fact is, traders have become
calloused to earnings warnings (with so many delivered over the
past two months, how could they not?). That's not to say,
though, they are ready to jump back into tech issues with
reckless abandon, because they are not.
Yes, the chip makers, particularly the communication chip makers,
have rallied nicely this week (sans Broadcom, of course).
Comverse Technology (Nasdaq:CMVT), PMC-Sierra (Nasdaq:PMCS) and
Vitesse Semiconductor (Nasdaq:VTSS) are all trading higher from
where the begin the week. But I wouldn't get to excited; I think
this has been a trading rally based on short covering, so I would
be leery about jumping in at this points (My apologies to you
traders looking for the chips to lead us out of the doldrums).
With that said, I would remain conservative in my long picks. In other
words, don't be too surprised if tobacco and energy stocks
continue to lead the way into the March 20 FOMC meeting.
So for the time being, don't get too speculative with those long
picks and keep those stop-losses tight.
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Definition of the Day
The ability to buy or sell an asset quickly, without having a
significant impact on the asset's price.
For the complete definition, please go to:
Wednesday's Split Announcements
Have you wanted to learn to trade options but didn't know
where to go. OptionInvestor.com is the place.
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The PLAY LEGEND:
SplitTrader.com Play Recommendations.
Play-of-the-Day is our number one play recommendation for the
following trading day.
Updates are just that - updates on continuing plays
New plays are brand new for the newsletter.
Closing plays are plays that we feel have lost the advantage.
You will see:
Stock Symbol, Company Name, Closing Price, (change for the week)
Picked at date and Change since picked
BoD = Board of Directors meeting
ADV = Average Daily Volume
dma = daily moving average
At the SplitTrader.com website, we have comprehensive profiles
for each stock that we are playing or have played in the past, as
well as hundreds of others. Please take the time to visit the site
to view the profile of the stock(s) you wish to learn more about.
Wednesday, March 7, 2001
WFT - Weatherford International $58.25 +1.45 (+4.25)
Weatherford International is a leading provider of oil and
natural gas drilling and production equipment and related
services. WFT has gained over 78% after hitting a relative low
of $31.75 on November 30th. The stock hit its all-time high on
Tuesday, and we believe that it could be ready to move even
higher. The oil drilling equipment sector currently has strong
momentum and WFT should continue to move with the rest of the
group. We are also looking for a split announcement with the
April earnings release or out of its next BoD meeting. The
company has enough shares for a split, with 250 million shares
authorized and 110 million shares outstanding, and the stock
is currently trading at historic split-levels. The company's
last split was a 3:2 when the stock was trading in the $45-$50
range. Going forward, WFT has support at Tuesday's intra-day
low of $55.50 with stronger support at $54.15, the 5-dma.
There is light resistance at Tuesday's intra-day high of
$57.20. A move above $57.20 could send the stock up to $58 or
$60. Traders should be looking for a bounce off of $55.50 or a
breakout above $57.20 on midday volume of at least 750,000
shares before opening new positions. We plan to place stops at
$52 to limit potential losses.
Weatherford and the rest of the energy sector were
beneficiaries of renewed investor enthusiasm for the group
today, sparked by a hostile takeover bid from Royal Dutch
Shell (NYSE:RD) to acquire Barrett Resources (NYSE:BRR). Even
though our play resides within the Oil Services sector,
investors bid up shares industry wide on hopes that this
potential deal would be a catalyst for further consolidation.
In fact, the Oil Services Index (OSX.X) broke through key
resistance at 135, having bumped up 4.23 to 137.39 on the day.
This puts the OSX.X just 4.95 away from its all-time closing
high. This is obviously a sector that is experiencing some
good buying momentum. As for our play, WFT notched a new 52-
week high on good volume of 2.3 million shares traded. This
is 65% above the three-month average trading volume of 1.4
million shares and tells us that buyers are still hopping
aboard. In addition, the MACD just turned positive and OBV is
at new highs. Near term resistance may present itself at $60.
We note support for WFT at the top of its recent base at $55
and also slightly lower at $52. Additional entry points might
present themselves on a bounce off of today's low of $56.71 or
additionally, a bounce off of support at $55 on good volume
that would put the stock on pace to finish with 1.5 million
shares traded for the day. We have set our stops at $52.00 to
protect against a reversal.
Picked on March 6th @ $56.80
Change since picked +1.45
Stop Loss @ $52.00
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