Email Version, Section 2, Thursday 05/03/2001
The SplitTrader.com Newsletter Thursday 05/03/2001 1 of 1
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In This Newsletter:
Market Commentary - Unemployment Figures Unravel Market
Definition of the Day
Thursday's Split Announcements - None
Stock Plays - New - Updates - Drops
Friday's Play-of-the-Day - TTC
Unemployment Figures Unravel Market
We all knew that layoffs have accelerated, but today's jobless
claims data seemed to rekindle economic worries that had been
largely absent over the past week. Both first time jobless
claims and announced layoffs came in much greater than expected
and served to remind investors that we are not going to recover
as quickly as recent trading has implied.
Before we delve into the actual jobless numbers, let me first say
that I believe the market knew the weak numbers were coming and
that the institutions simply stepped back today. After all, the
market had become overbought in the short run and the big players
probably still have more cash to put to work.
Let's also not forget that stocks have been rising lately on wide
expectations of further interest rate cuts. The weak economic
data that came in today increases the odds of further rate cuts,
which in the short-run, should be net positive for stocks.
The market's reaction to the weak numbers was also suspect. We
saw the predictable free fall in the morning, but also saw big
buyers come into stocks almost on an hourly basis after the
We also saw some real buying interest come into the market within
the last hour of trade, which is contradictory if the market
truly believes that the weak jobs data is going to hurt stocks in
the short run. This is because the most important jobs data of
the week comes out Friday with the payrolls number. If the
market believes that the lack of jobs growth will hinder the near
term health of the market, buyers would be naturally stepping
away from stocks right now, since Friday's payrolls number is
expected to disappoint.
Friday's non-farm payrolls number for April is expected to show
the economy added 27,000 jobs after March added 86,000 jobs.
However, many analysts think that there is a good chance the
number might surprise to the downside, due to the recent jobs
climate. In addition, we get average hourly earnings, expected
to have moved up 0.3%, and the unemployment rate, which is
expected to come in at 4.4%.
Now, back to the actual numbers. The Labor Department said today
that first time jobless-claims rose 9,000 to 421,000, the highest
jobless figure in more than five years. The four-week average
rose to 404,500, which is the highest since October of 1992. Of
particular note here is that October of 1992 came 15 months after
the recession of 1990, and by this time, the market had already
recovered for the most part. This goes to show that the jobless-
claims number is a lagging indicator, and that yes, it will get
worse before it gets better.
We also got word that the weakness in the manufacturing sector
has indeed spread to the service sector. The NAPM service index
came in at 47.1% versus expectations of 50.6% and down from
March's 50.3%. The services index fell below the 50%-level for
the first time since this data has been tracked. This weakness
also bodes well for further interest rate cuts come May 15th,
which is the next time the FOMC meets.
The NASDAQ (COMPX) performed a slow meltdown for most of the
session, after initially opening down 37-points. The tech heavy
index closed the day down 74.40, or 3.35%, to 2146.20. Volume
was moderately heavy, with 2 billion shares changing hands. On
the bright side, new highs beat out new lows 136 to 16.
The DOW (INDU) tried valiantly to recapture losses in the last
hour, but the old-economy still ended down 80.03, to 10796.65.
However, this wasn't such a bad showing, considering at its low
the DOW was off 153. NYSE volume came in at 1.3 billion and new
highs beat new lows 82 to 15.
Treasurys advanced on the weakness in equities. The 10-year bond
added 21/32 to yield 5.21% and the 30-year note rose 31/32 to
yield 5.63%. The weak economic data gave bond investors reason
to believe that more rate cuts are on the way, thus the renewed
interest in government debt.
Stocks and Sectors on the Move
You guessed it. The sectors that sold off the most today were
the exact same ones that booked the most gains over the past four
The computer hardware stocks were reigned in today, after some
issues had just found their stride to the upside. The main
culprit was a UBS Warburg downgrade of Dell (NASDAQ:DELL) to a
"buy" from a "strong buy" based on pricing issues. UBS believes
that aggressive price wars between Dell and Compaq (NYSE:CPQ)
will result in decreased margins. They also feel that this may
leave Dell open for further disappointment, given its rich P/E of
36. Dell closed down $1.80 to $24.93, CPQ slipped by $0.55 to
$17.40 and Apple (NASDAQ:AAPL) soured by $1.63 to $24.96.
Riding the elevator down with the hardware issues were the
semiconductor stocks. The SOX.X slipped 23.58 to 647.07 after
again encountering resistance at around the 700-level. Intel
(NASDAQ:INTC), the bellwether chip stock, fell $1.54 to $30.40,
Advanced Micro Devices (NYSE:AMD) lost $0.34 to $32.61 and Xilinx
(NASDAQ:XLNX) gave up $2.46 to $45.81.
In other chip stock news, Vitesse Semiconductor (NASDAQ:VTSS)
slipped $3.47 to $34.30 after reporting that it will reduce its
work force by up to 12%.
Turning to stocks that posted gains in today's session, EchoStar
Communications (NASDAQ:DISH) blasted off by $4.60, or 14.33% to
close at $36.93. The satellite T.V. provider reported a loss of
$0.16/share, narrower than the $0.24 loss expected by analysts
and also said that it picked up 460,000 new customers in the
quarter, much more than expected. Echostar's Dish network is the
second largest in the U.S. behind Hughes Electronics' Direct T.V.
Today's surge in Echostar's stock put DISH shares above their
200-dma for the first time since 10/4/00 and also served to boost
the stock above its four-month cup formation.
Other sectors that posted small gains on the day were the banks
and the insurers. Citigroup (NYSE:C) added $0.40, to close at
$51.00, Bank One moved higher by $0.15 to close at $38.55 and
Chubb (NYSE:CB) advanced by $0.26 to close at $67.71.
Looking Forward, Always Forward
We could be in for a wild ride tomorrow morning following the
release of the April payrolls number. This number has added
importance since it is the last significant reading the Fed gets
before its May 15th meeting. Therefore, use your best judgment
when buying stocks on a gap up in the morning or conversely
selling stocks on a big gap down because the big boys will want
to take the market back towards any gap opening.
Sometimes it's hard to see the forest through the trees, so let's
take a step back and see what kind of lie we currently have.
Looking at the S&P 500, we can see that the market hammered its
tee-shot from 1100 all the way up to the 1250-level. From 1250,
the market sliced a seven-iron into a bunker back at the 1200-
level, but recovered nicely with a well placed eight-iron shot up
to the 1250-level (I know, I have golf on the brain).
For weeks now, traders have been talking of the magical 1275-
resistance level on the S&P as the quintessential hole that the
market has been shooting for since we so called "bottomed" on
4/4/01. They argue that if we can get over this hurdle, that
it's clear sailing all the way up to 1350.
Chart of the S&P 500:
Whether the jobs report stands in the way of a perfect chip shot
over the 1275 level remains to be seen. Although, I think market
sentiment has changed enough for the better as to provide limited
downside. This is again due to the buy-the-dips mentality that
is slowly creeping back into investors' thoughts and actions.
Besides markedly improved sentiment, I think investors are now
willing to take more calculated risks in equities now that money
market yields have dropped to the 4-5% range and are due to go
Enjoy Your Weekend
Definition of the Day
Existing Home Sales
A monthly report released by the National Association of Realtors
measuring the number of closed sales of previously constructed
For the complete definition, please go to:
Friday's Expirations by Payable Date
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 05/03/01
NEW SPLIT CANDIDATE PLAYS 05/03/01
BMET - Biomet Inc. $42.16 +0.30 (+0.47)
Biomet provides a wide variety of medical devices such as
electrical bone growth stimulators, spinal implants, and bone
cements, used primarily by musculoskeletal specialists. Shares of
BMET have performed well over the past year. The stock has gained
over 97% from is 52-week low of $21.33 on 5/23/00. BMET has been
trending higher over the past four weeks, and we believe that the
stock could break out to new highs. We are also looking for a
split announcement following the June 17th earnings release or its
next BoD meeting, expected on June 29th. The company already has
enough shares for a split, with 500 million shares authorized and
179 million shares out standing, and the stock is its within
historic split range. From a technical standpoint, support is the
10-dma at $41.11 with stronger support at $40.35, the April 27th
intra-day low. Resistance is the all-time high of $43.68 and then
possibly $44 or $45. Look for entry points on a bounce off of
$41.11 or a breakout above $43.68 on volume greater than 900,000
shares by noon. We plan to set stops at $39.50 as downside
Picked on May 3rd @ $42.16
Change since picked +0.00
Stop Loss @ $39.50
NEW MOMENTUM PLAYS 05/03/01
SPLIT RUN PLAY UPDATES 05/03/01
SOTR - SouthTrust Corporation $46.36 +0.34 (-2.24)
SouthTrust Corporation posted a small gain on Thursday despite a
generally weak market. Shares of SOTR hit an intra-day high of
$46.95 before pulling back to a close of $46.36 on light volume of
721,000 shares. Volume has declined over the past two days.
What's more, the stock has tested the 20-dma in each of the last
three sessions and it held every time. SOTR may be able to rally,
as we are now just 6 trading days away from the 2:1 split, payable
on May 11th. Until then, support is the 20-dma at $46 with
stronger support at $45.45, the April 23rd intra-day low.
Resistance has moved up to the 5-dma at $47.01 and then the April
26th intra-day high of $48. A bounce off of $46 or a move above
$47.01 on midday volume of at least 500,000 shares may be possible
entry points. Our stops remain at $44.
Picked on April 19th @ $46.96
Change since picked -0.68
Stop Loss @ $44.00
SPLIT CANDIDATE PLAY UPDATES 05/03/01
ACS - Affiliated Computer Services $72.00 -0.70 (+0.61)
ACS was curiously ignored during this very volatile week in
technology stocks. Although ACS did pull back a bit today, the
good news is that the volume of 341,300 shares was noticeably
light. This indicates that the selling was relatively tepid.
Perhaps traders are holding on in the hopes that ACS is on the
verge of announcing a split. The last split occurred in November
of 1996 when the stock was trading at $57.50, which is decidedly
below today's closing price. The stock is enjoying a nice long
term uptrend and the MACD is indicating that this trend should
continue. That said, the short term may see a bit of a pullback
now that the stock has closed below its 5-DMA of $72.19. A weak
opening tomorrow could result in the execution of our trailing
stop of $71.00. However, ACS may issue a buy signal if it can
reverse course and establish a new high tomorrow above $74.00
accompanied by midday volume exceeding 300,000 shares.
Picked on April 26th @ $69.34
Change since picked +2.66
Stop Loss $71.00
AYE - Allegheny Energy, Inc. $49.92 -0.44 (-0.68)
Allegheny Energy has been under pressure over the past two days
along with the rest of the energy sector. On Tuesday, the company
announced that its unregulated generation subsidiary, Allegheny
Energy Supply Company, LLC, has completed the purchase of 1,710
megawatts of generating capacity from Enron Corp. (ENE). Shares of
AYE traded to an intra-day low of $49.60 on volume of 516,000
shares following the news. Volume has cooled off over the past two
days, so the stock may spend some time consolidating in the $49-
$52 range. On the positive side, the AYE is having its Annual
Meeting on May 10th, and we are looking for a possible split
announcement. Going forward, support is the 10-dma at $49.29 with
additional support at $48.75, the April 27th intra-day low.
Resistance has fallen to the 5-dma at $50.68 and then Wednesday's
intra-day high of $51.20. Traders may consider starting new plays
on a bounce off of $49.29 or a move above $51.20 on volume greater
than 300,000 shares by noon. We are keeping our stops at $47 to
limit potential losses.
Picked on April 29th @ $50.60
Change since picked -0.68
Stop Loss @ $47.00
HRB - H & R Block Inc. $53.00 -0.78 (-1.60)
H & R Block continues to move in the wrong direction. After
peaking at $55 on Monday, this tax preparer to the masses has
accumulated three-consecutive losing sessions to close below
support at the 10-dma at $53.86 and below its April upward
trendline. Moreover, the sell-off has caused HRB's MACD to go
negative, which means it may have lost momentum. Fortunately,
though, the three-day exodus has been accompanied by weak volume,
so it doesn't appear traders are sprinting for the exits. As it
now stands, HRB has strong support at its 40-dma at $51.12 and
immediate resistance at $55.00, so the risk/reward tradeoff is
probably even. Traders considering a position in HRB should look
for strong volume, 250,000 shares or more traded by noon EDT, on a
move through resistance at $55.00 or a bounce off the 20-dma at
$52.61 before placing their trades.
Picked on April 18th @ $52.85
Change since picked +0.15
Stop Loss @ $49.25
JEC - Jacob's Engineering $64.75 -1.05 (-1.52)
JEC, a major construction engineering services provider, received
two notable new contracts yesterday. The first contract, awarded
from the Federal Aviation Administration, is for 8 years and worth
$404 million. The terms of the contract call for JEC to provide a
wide variety of design and building services for the FAA, which is
looking to update its aging facilities across the country.
Meanwhile, Sverdrup Technology, a subsidiary of JEC, received a
potential $308 million contract to provide Technical and
Engineering Acquisition Support (TEAS) for conventional weapons
systems development and testing for the Air Force. These new
contracts add to JEC's already impressive backlog of $5.9 billion
in future business. Unfortunately all of this good news was not
enough for JEC to push forward during today's market pullback.
JEC did find some support just above its 10-DMA of $64.06 (our
stop is slightly lower at $64.00). If JEC starts to rally
tomorrow, one possible entry point may present itself if the stock
can establish a new high above $66.95. The Money Flow and OBV
have begun to retreat from their lofty levels but the RSI is no
longer signaling a severely overbought condition.
Picked on April 24th @ $62.00
Change since picked +2.75
Stop Loss @ $64.00
TTC - Toro Company $46.54 +0.55 (+0.29)
If April showers (or in the case of Denver today, snow showers)
bring May flowers, then demand for Toro's huge line of lawn and
gardening equipment should be strong. This fact may have helped
the stock brush off the broad market selling today. Technically
speaking, TTC is knocking on the door of a significant breakout.
If the stock can push through the $46.85 resistance, it could move
very quickly to test its 52-week high of $47.65. The MACD, which
recently turned positive and has been slowly climbing all week, is
telling us that a test and subsequent break through the old high
could come soon. The Money Flow has also been excellent,
indicating there are more buyers than sellers. We also like the
fact that the RSI has plenty of room to run before indicating an
overbought condition. The 10-DMA, which closed today at $45.38,
has been providing the support. In the event of a pullback, a
bounce off $45.38 may provide traders with a good entry point. If
not, a move above today's intra-day high of $48.85 may provide
another entry point.
Picked April 29th @ $46.25
Change since picked +0.29
Stop Loss @ $43.50
MOMENTUM PLAY UPDATES 05/03/01
GTK - GTECH Holdings Corp $33.76 +0.01 (+1.52)
Shares of this lottery systems supplier made a valiant effort to
establish a new high during a quick round of lunchtime buying.
However, the broad market weakness likely curbed the enthusiasm
and GTK finished the day pretty much unchanged. Tomorrow could
bring another round of broad market selling depending upon the
April unemployment rate due to be released before the market
opens. If GTK happens to rally tomorrow, it may be a compelling
buy once it crosses its old high of $34.30. Momentum traders
could start buying the stock in earnest if a new high is
established accompanied by midday volume exceeding 150,000. If
GTK gaps up $1.50 or more one may want to wait for a bit of a
pullback before going long. If GTK pulls back right from the
start of trading, look for a bounce off the $32.50 support as
another possible entry point. The longer term picture for GTK is
quite bullish. This theory is supported by a solid MACD and On
Balance Volume. Our one concern is the RSI, which is indicating
an overbought condition that may have to be eased through a short
term pullback before GTK can resume its ascent.
Picked on April 22nd @ $29.79
Change since picked +3.97
Stop Loss $32.00
LEA - Lear Corp. $36.40 -0.05 (+0.42)
The trend is your friend, at least according to automotive
supplier Lear. In Tuesday's write-up we were whining (ever so
slightly) that LEA's stock was consolidating between $35 and $36,
which had us a little concerned that it may be ending its recent
strong run despite being ensconced in a bullish pennant formation.
However, on Wednesday LEA closed above $36, as it did today. At
this point, LEA is supported by its 10-dma at $35.88, followed by
the bottom of its recent consolidation range at $35.00.
Overhead, LEA has immediate resistance at Wednesday's intra-day
high of $36.55. After that, there is little to slow it down until
the April 1999 highs of $50 (though it could hit mild resistance
at the psychologically-significant $40 level). Traders
considering a position in LEA should look for strong volume,
250,000 shares or more traded by noon EDT, on a move through
$36.55 or a bounce off support at $35.00 before placing their
Picked on April 24th @ $36.20
Change since picked +0.20
Stop Loss @ $33.88
WSM - Williams Sonoma Inc. $31.86 +0.16 ($2.66)
For most of the Thursday, we thought that WSM's winning streak
would end at six. But then in the final few minutes of trading,
WSM got its act together to extend the winning streak to seven.
WSM appears to be running into its earnings release on May 15,
which means it could have room to run higher. To that end, we
think that WSM's technical indicators look favorable. The stock
has taken out resistance at $30, so it appears to have a clear
shot to $40. On the downside, WSM has a first level of support at
$30, followed by the 10-dma at $29.17. Traders considering a
position in WSM should look for strong volume, 250,000 shares or
more traded by noon EDT, on a move through today's intra-day high
of $32.14 or a bounce off support at $30.00 before placing their
Picked on May 1st @ $31.10
Change since picked +0.76
Stop Loss @ $27.75
SPLIT RUN PLAY DROPS 05/03/01
SPLIT CANDIDATE PLAY DROPS 05/03/01
MOMENTUM PLAY DROPS 05/03/01
Thursday, May 3, 2001
TTC - Toro Company $46.54 +0.55 (+0.29)
If April showers bring May flowers, then based on current weather
patterns demand for Toro's extensive line of lawn and gardening
equipment should be strong. This fact may have helped the stock
brush off the broad market selling today. Technically speaking,
TTC is knocking on the door of a significant breakout. If the
stock can push through resistance at $46.85, it could move quickly
to test its 52-week high of $47.65. To that end, the MACD
recently turned positive and has been slowly climbing all week.
The Money Flow has also been excellent, indicating there are more
buyers than sellers. We also like the RSI, which has plenty of
room to run before indicating an overbought condition. The 10-
DMA, which closed today at $45.38, has been providing the support.
In the event of a pullback, a bounce off $45.38 may provide
traders with a good entry point. If not, a move above today's
intra-day high of $48.85 may provide another possible entry point.
Picked April 29th @ $46.25
Change since picked +0.29
Stop Loss @ $43.50
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