Email Version, Section 1, Thursday 03/22/01
The SplitTrader.com Newsletter Thursday 03/22/2001 1 of 1
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In This Newsletter:
Market Commentary - Taming Of The Bear
Definition of the Day
Thursday's Split Announcements - BJS
Stock Plays - New - Updates - Drops
Friday's Play-of-the-Day - SFD
Taming Of The Bear
The bears will have to wait another day before the DOW
succumbs to their grasp. The old-economy average, after being
down over 300 points, managed an impressive late day rally to
finish 11 points above the official bear market level of 9378.
But let's face it. Although the DOW has not yet officially
slipped into bear territory, all the other elements are in
place for a bear market and looking around, you might as well
be on a river in Alaska during the salmon run. The bears are
They are on the front cover of just about every financial
magazine, in the papers and on television. Bears are supposed
to be mean and scary, but this time around, investors are
about as scared of this bear as they are of those big fury
creatures in Yellowstone National Park that eat out right of
Evidence of this comes in the fact that call option volume is
up, signifying that folks are actually trying to time the
turnaround. In addition, at the height of today's sell off,
the Volatility Index (VIX.X) didn't get much over 35 and the
Gold Index (XAU.X) was actually down. Remember that the VIX
rose above 60 at the market bottom in 1998 (sign of fear and
put option buying) and since gold stocks usually rise in
panicky times, the fact that they were down today signifies
still more investor complacency.
I bring this up because I still believe we have at least one
more leg down before things get better. Today's rally was not
a bounce off a "capitulation" bottom. In fact, it stunk of
short covering. Short covering is a snowball occurrence;
often producing quick and violent moves to the upside.
Serving to also put pressure on stocks recently were the
record redemptions out of mutual funds in the last week of
February. The mutual fund tracking company, Trim Tabs,
reported that outflows from mutual funds totaled over $5
billion for the week, a new record since the firm started
tracking this data in 1998. While this does not constitute a
large amount of capital when compared to what is now held in
mutuals, this type of pressure is enough to prompt funds to
start liquidating positions.
Put it this way, as a mutual fund manager, would you rather
choose when and how to sell your winners, or be forced to sell
them after they have already tanked, due to a flood of
redemption requests? I think that is exactly what we have
been seeing in widely held stocks like Pfizer (NYSE:PFE), down
$0.31 to $35.67 and Microsoft (NASDAQ:MSFT), up $3.94 to
$54.00 today. When mutual funds decide to sell, they do it in
bulk, which tends to break down charts and serves to raise red
flags for the retail investor.
Tech was finally in the drivers seat today, as the NASDAQ
(COMPX) was largely responsible for coaxing the DOW (INDU) out
of the midday doldrums. Moreover, looking back over the past
few sessions in the NASDAQ compared to the DOW, one can see
that money has been slowly rotating back to tech. It appears
as if the selling may be at least starting to dry up over in
The tech heavy NASDAQ put in a stellar session, especially
considering it had a strong current to fight against for most
of the day. NASDAQ added 67.47, or 3.69%, to 1897.70. Volume
was heavy at 2.5 billion shares but declining issues still
outnumbered advancers 2287 to 1507.
The DOW powered higher in the last hour to finish down by only
97.52 after having been down over 300 points. While the tech
components in the DOW certainly helped, program trading and
short covering were the catalysts on the day.
Stocks and Sectors on the Move
It was the semiconductor sector (SOX.X) that stole the show
today. The SOX.X bounced 68.37 to 626.39 on positive comments
out of Micron Technologies (NYSE:MU). MU delayed the release
of its earnings, which were due out yesterday, but did mention
that it booked $1.05 billion in sales for its second quarter.
Those numbers were ahead of most analysts' expectations and
along with news that inventories have come back down, kicked
off a good ol' down home rally in the weary chips.
With visions of a turnaround dancing in their heads, investors
bid up shares of Micron by $4.69, or 11.16%, sending MU shares
up to $46.70. Joining the party were shares of Texas
Instruments (NYSE:TXN), which was lit up by $3.85 to $37.87,
Intel (NASDAQ:INTC), which recovered by $3.13 to $28.69 and
Advanced Micro Devices (NYSE:AMD), which added $3.16 to
Of course, lest you get the impression that chip stocks are
the next safe haven, most of this buying was probably again
just more short covering, in addition to optimism over baked
in bad news. This is opposed to genuine conviction of a
recovery. Remember chips have grabbed our attention in the
recent past, only to turn around on a dime and plunge lower.
On the downside, Charles Schwab (NYSE:SCH) announced that it
would be cutting up to 3,400 jobs due to a slowdown in its
trading activity and the slowing economy. The stock closed
down $0.70 to $15.20. This comes just a day after three other
heavyweight brokers reported falling profits.
In another sign of the times, consumer giant Proctor and
Gamble (NYSE:PG) indicated that it too would be laying off
workers in a further effort to cut costs. PG is cutting 9,600
jobs, or 9% of its workforce to keep its bottom line
attractive to investors. PG fell $0.45 to $62.75.
In today's analyst action, Sanford Bernstein talked down Sun
Microsystems (NASDAQ:SUNW), cutting the server company's
fiscal year 2001 earnings estimate down to $0.47/share from
$0.53/share. Sanford's reasoning behind the downward revision
was a general sense that demand has fallen and that the launch
of Sun's US-3 product is in jeopardy. To this I say we must
be close to a bottom. When the last of the small Wall Street
firms jump on the bandwagon and downgrade stocks after all the
big boys lopped earnings long ago, we are getting there.
Looking Forward, Always Forward
No big economic news for Friday, but remember, no Friday yet
this year has been an up day. Investors are still very
hesitant to hold into the weekends for fear of some kind of
foreign economic catastrophe.
Today's stellar run into the close probably will set us up for
higher stock prices in the morning. Although this will also
be a prime set up for a slow fade into the close. On the
other hand, if we see any strength going into Friday's close,
I would take it as a very bullish sign going into next week.
Right now, the shorts are facing less of a risk/reward
scenario by continuing to short at current levels. Most
stocks that have been good shorts up to now are so far off
their highs that any real buying that takes stocks higher may
serve to provoke another wave of short covering.
Also, keep an eye on the semiconductors. If they can eke out
a few more good sessions, it may be a sign that at least the
NASDAQ is ready for a short-term rally.
As a side note, we have been having technical difficulties
with our charting software, so we apologize for the lack of
charts recently. The problem should be fixed soon.
Look Both Ways, and Have A Nice Weekend
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Definition of the Day
Volatility is a stocks tendency to fluctuate sharply in price
within a relatively short period of time. See also Beta.
Thursday, March 22, 2001, During the Market
BJ Services Declares Plans for Stock Split
Oil industry service provider BJ Services Co (NYSE:BJS) announced
on Thursday during regular trading that its board of directors
approved a 2-for-1 stock split, payable in the form of a 100
percent stock dividend. The distribution date is set for May 31,
2001, however, the split is contingent upon approval from the
stockholders to increase the authorized shares; a special
stockholder meeting will be held on May 10, 2001.
For the complete announcement, please go to:
Friday's Expirations by Payable Date
RSA Security Inc. (RSAS) splits 3:2
Innodata Corp. (INOD) splits 2:1
Mark Leibovit, the #1 market timer in the nation.
Mark is Chief Market Strategist for VRTrader.com, a Premier
Investor Network website, a technical consultant and former
'Elf' on Louis Rukeyser's Wall Street Week for 7 years.
His Annual Forecast Model has been subscribed to by Wall
Street's most elite. Mark is presently ranked #1 timer in
the nation by TIMER DIGEST and #2 on AmericasBestTimers.com.
For information on his extremely accurate Annual Forecast
Model for your own viewing, click here:
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.
Drops are closing 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
On the SplitTrader.com website we have very detailed profiles
for the stocks we play. Please take the time to visit the site
and look up a stock's profile if you are interested in more
NEW SPLIT RUN PLAYS 03/22/01
TMIC - Trend Micro Inc. $8.38 +0.81 (+1.63)
The technology stock recovery that we saw today was not solely
reserved for the big names. Trend Micro, which is in the anti-
virus solutions business, has seen a nice percentage gain this
week. It is interesting to note that, despite its single digit
share price, TMIC may be on the verge of a split run. The company
announced a 2:1 split back in February that will be made payable
on May 18th. A more immediate help to the stock has probably been
a couple of good news items concerning TMIC this week. On
Wednesday, this Japanese company announced the opening of a new
call center in Fort Worth, TX that should help TMIC to expand its
American business. Technically speaking, we anticipate possible
entry points if TMIC can cross above its 50-DMA of $8.75 tomorrow.
We would also like to see this move accompanied by volume of over
20,000 shares by midday. Another positive development is the fact
that the MACD turned positive today. TMIC is a somewhat
speculative play and is probably not for all of our subscribers.
That said, we are impressed with the stock's ability to post a
positive week in the face of so much broad market selling.
Picked on March 22nd @ $8.38
Change since picked +0.00
Stop Loss @ $7.00
NEW SPLIT CANDIDATE PLAYS 03/22/01
NEW MOMENTUM PLAYS 03/22/01
SFD - Smithfield Foods, Inc. $32.25 -0.35 (+1.45)
Smithfield Foods is a vertically integrated pork and processed
meat producer. The company offers hog production and fresh pork
products such as hams, hot dogs, loins and ribs. Shares of SFD
have been moving higher over the past year after hitting a low of
$14.88 on 2/24/00. The stock traded to a 52-week high of $33.30 on
January 2nd after Smithfield lost a bidding war with Tyson Foods
(TSN) over the acquisition of IBP Inc. (IBP). Since then, SFD has
traded in the $27-$33 range. The stock is currently on a run from
a relative low of $27.85 on March 1st. With that said, we believe
that SFD could be ready to break through its trading range as the
US pork industry benefits from the European livestock disease
crisis that has wiped out most of the European pork products. From
a technical standpoint, support is the 5-dma at $32.02 with
additional support at Thursday's intra-day low of $31.20.
Resistance is Wednesday's intra-day high of $32.80 and then the
January 1st intra-day high of $33.30. Look for entry points on a
bounce off of $32.02 or a move above $32.80 on volume greater than
130,000 shares by noon. We plan to set stops at $29.75 to limit
Picked on March 6th @ $32.25
Change since picked +0.00
Stop Loss @ $29.25
SPLIT RUN PLAY UPDATES 03/22/01
SPLIT CANDIDATE PLAY UPDATES 03/22/01
CEC - CEC Entertainment Inc. $40.45 -0.66 (+0.05)
CEC Entertainment continues to trade in the $40-$42 range despite
a generally weak market. On Thursday, shares of CEC fell to an
intra-day low of $40.01 before making a recovery late in the day.
The stock ended the session at $40.45 on strong volume of 224,000
shares. CEC has dipped back down to its previous downward trend
line and it has made two consecutive lower lows coupled with lower
highs. On the bright side, daily volume has been increasing over
the past three sessions and the stock has not violated the lower
end of its trading range. For now, support is Thursday's intra-day
low of $40.01 with additional support at $39.50, the March 1st
intra-day low. Resistance is the 20-dma at $41.16 and then
Tuesday's intra-day high of $42.15. Traders may consider starting
new plays on a bounce off of $40.01 or a move above $41.16 on
volume of at least 80,000 shares by noon. We are keeping our stops
at $39.50 as downside protection.
Picked on March 6th @ $41.81
Change since picked -1.36
Stop Loss @ $39.50
RDN - Radian Group Incorporated $60.98 -1.41 (-0.02)
Benefiting from highly competitive mortgage rates and a less
demanding approval process, Radian Group is looking to improve its
annual earnings growth by 15% this year. What's more, interest
rates now match their lowest levels since mid-1999 and could
create more immediate interest in the stock. On the day, RDN
shares were pressured by sector related weakness, which caused the
NYSE Financial Index (NF) to fall 11.29 points, or 2.03%, to close
at $542.16. The broad industry decline swayed RDN to finish lower
by $1.41 and close at $52.94. We need to point out that today's
decline was accompanied by volume of 521,900 shares, which is
slightly more than the three-month average. This indicates that
there is ample selling at present levels and could result in
further weakness. Still, the MACD is on the verge of a bullish
crossover, which tells us that the recent bump and run off $60
could still be possible. So, with that said, should shares trend
higher later in the week, we'll look for resistance to emerge at
the 200-dma of $62.91, followed by a harder challenge at the $65
mark. Support will come at $60. Look for entry points when shares
bounce off support or break above the 200-dma on volume of at
least 250,000 shares traded by midday.
Picked on March 18th @ $61.00
Change since picked -0.02
Stop Loss @ $59.00
UHS - Universal Health Services $82.05 -2.44 (-2.32)
There was nowhere to run and hide for members of the NYSE this
morning. Even UHS, a major owner and operator of hospitals that
has been recently attracting the value-oriented crowd, saw share
price declines. Despite today's pullback, UHS appears to have put
in an important bottom by finding support at its 200-DMA. This
highly watched moving average closed today at $80.66. We also
like the strong possibility that UHS may be on the verge of
announcing a split. Previous splits occurred when the stock was
trading at levels substantially below today's closing price. The
strong market recovery into the close may help UHS to start moving
back up tomorrow. We are encouraged by the fact that the MACD is
very close to issuing a buy signal. That said, we are comfortable
adding positions if UHS can stay above the 200-DMA, just in case
there is some weakness in the early going. Otherwise, momentum
traders may be interested in buying UHS if it can climb above the
50-DMA of $85.19, accompanied by volume that approaches 350,000
shares near the close.
Picked on March 15th @ $83.50
Change since picked -1.45
Stop Loss @ $80.00
MOMENTUM PLAY UPDATES 03/22/01
MAT - Mattel, Inc. $18.02 -0.78 (+0.32)
Mattel Inc. ran into some selling pressure on Thursday after
hitting a 52-week high of $19.05 earlier in the week. Shares of
MAT traded to an intra-day low of $17.55, breaching the 20-dma for
the first time since March 5th. However, the stock bounced back to
a close of $18.02 on volume 2.42 million shares. MAT was not able
to close above the $19 mark, so the stock may fall back into its
previous $17.50-$18.50 trading range. However, Thursday's action
came on weaker volume, so the reversal could end up being nothing
more than a quick round of profit taking. Going forward, support
has fallen to Tuesday's intra-day low of $17.85 with stronger
support at $17.68, the 20-dma. Resistance is now down to
Thursday's intra-day high of $18.60 and then Wednesday's intra-day
high of $19. A bounce off of $17.85 or a move above $18.60 on
midday volume of at least 1.5 million shares may be possible entry
points. Our stops remain at $17.
Picked on March 15th @ $18.55
Change since picked -0.53
Stop Loss @ $17.00
SPLIT RUN PLAY DROPS 03/22/01
UCBH - UCBH Holdings Incorporated $44.38 -5.44 (-8.75)
On Wednesday the broad markets sold off sharply, with the Dow
Jones Industrial Average (INDU) posting another triple digit loss.
During this rush of this selling, UCBH fell $3.13 to close at
$49.81. At this level it didn't take much of a fall to hit our
stop of $49, which is exactly what happened in today's trading. We
will continue to watch this fundamentally sound company for better
opportunities in the future.
Picked on March 15th @ $52.63
Profit/Loss = -3.63 (-7%) (Stopped Thursday @ $49.00)
Best Profit = +1.37 (+3%)
SPLIT CANDIDATE PLAY DROPS 03/22/01
GDW - Golden West Financial $56.20 -1.85 (-0.72)
We were initially impressed with GDW's ability to withstand the
selling within the bank sector immediately following the rate cut.
Today, renewed concerns about the potential for major Japanese
bank failures scared investors enough to knock down domestic
banking concerns across the board. If GDW can hold above its 50-
DMA of $55.81, we may revisit this play in the future.
Picked on March 20th @ $58.80
Profit/Loss -4.30 (7%) (Stopped Thursday @ $54.50)
Best Profit +0.30 (1%)
MOMENTUM PLAY DROPS 03/22/01
SIAL - Sigma Aldrich Corporation $43.81 -2.06 (-0.56)
We entered SIAL on the belief that the stock's extended uptrend
would persist and that new highs would be established. On the day
we picked the stock, just tw days ago, shares had broken into new
intraday territory and set an all time high of $47.50.
Unfortunately, a rally back to this level was never achieved and
SIAL didn't fulfill what the chart indications were telling us.
That aside, we feel that Sigma Aldrich is a fundamentally sound
company that could yield us plenty of upcoming plays.
Picked on March 20th @ $45.44
Profit/Loss = -3.19 (-7%) (Stopped Thursday @ $42.25)
Best Profit = +0.69 (+1%)
Thursday, March 22, 2001
SFD - Smithfield Foods, Inc. $32.25 -0.35 (+1.45)
Smithfield Foods makes its living in the rather distasteful
trade of hog rendering. The company offers fresh pork products
such as hams, hot dogs, loins and ribs. Still, investors don't
seem to be put off by this messy business. In fact, shares of
SFD have been moving higher over the past year after hitting a
low of $14.88 on 2/24/00. The stock traded to a 52-week high of
$33.30 on January 2nd after SFD lost a bidding war with Tyson
Foods (TSN) over the acquisition of IBP Inc. (IBP). Since then,
SFD has traded in the $27-$33 range. The stock is currently on
a run from a relative low of $27.85 on March 1st. With that
said, we believe that SFD could be ready to break through its
trading range, as the US pork industry benefits from the
European livestock disease crisis that has wiped out most of
the European pork products. From a technical standpoint,
support is the 5-dma at $32.02 with additional support at
Thursday's intra-day low of $31.20. Resistance is Wednesday's
intra-day high of $32.80 and then the January 1st intra-day
high of $33.30. Look for entry points on a bounce off of $32.02
or a move above $32.80 on volume greater than 130,000 shares by
noon. We plan to set stops at $29.75 to limit potential losses.
Picked on March 6th @ $32.25
Change since picked +0.00
Stop Loss @ $29.25
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