Email Version, Section 1, Wednesday 06/06/2001
The SplitTrader.com Newsletter Wednesday 06/06/2001 1 of 1
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In This Newsletter:
Market Commentary | Stocks Crumple Under Weight of Warnings
Definition of the Day
Wednesday's Split Announcements | None
Thursday's Play-of-the-Day | MTG
Stocks Crumple Under Weight of Warnings
The Sun (NASDAQ:SUNW +0.59) tried to shine on the market this
morning, climbing $1.06 to $18.08 in pre-open trading. Analyst
Laura Conigliaro at Goldman Sachs said that a recent meeting with
management leads her to believe the worst is over for Sun
Microsystems. Her recent checks with a large U.S. distributor
suggested that U.S. business was stabilizing with a slightly
positive up tick. Sun shares managed to hang on to some of those
gains today, adding 3.5% to $17.61.
But news deteriorated during the day. Apparently, inventory
levels at Intel Corporation (NASDAQ:INTC +0.09) may not be as
lean as investors think, according to Analyst Joe Osha at Merrill
Lynch. He believes that it will be "tough" for the company to hit
even the low end of the $6.2 billion to $6.8 billion revenue
range set by Intel. Watch for Intel's mid-quarter update after
the close of trading tomorrow.
Hewlett-Packard (NYSE:HWP -1.34) and J.P. Morgan Chase (NYSE:JPM
-1.66) gave cautious outlooks, i.e., warnings, which by all
accounts ended four-day winning streaks for the Dow Jones
Industrial Average and Nasdaq Composite. The two companies
together are responsible for roughly 20% of the Dow's loss. The
Dow stumbled 105.6 points, or 0.9%, to 11,070. Of course, with
Hewlett-Packard being a computer maker, the tech-heavy Nasdaq
Composite could not shrug it off. The Nasdaq dropped 15.9 points,
or 0.7%, to 2,218 while the Standard & Poor's 500 Index shed
1.1%. Trading volume was decent, although a touch less than
yesterday, at 1.06 billion on the NYSE and at 1.77 billion on the
Nasdaq Stock Market. Market internals were quite negative, with
decliners outpacing advancers by 19 to 12 on the NYSE and by 22
to 16 on the Nasdaq. At least new 52-week prices highs beat new
lows by 173 to 20 on the NYSE and 124 to 30 on the Nasdaq.
A positive pre-announcement from Citrix Systems (NASDAQ:CTXS
+4.25) kept the lone software sector out of the red today (GSO,
up 1%). Before the bell, the company said it expects financial
results for the 2Q to be better than previously forecast due to
"modest acceleration" in the growth of its core business. Shares
gained a more-than-modest 18% to $27.96. Other winners in the
software group included small-caps such as Talx Corporation
(NASDSAQ:TALX +1.85), up 4.8% to $40.33, Verity Inc. (NASDAQ:VRTY
+1.02), up 5.7% to $19.05, Watchguard Tech (NASDAQ:WGRD +0.64),
up 10.5% to $6.74, Seachange International (NASDAQ:SEAC +1.15),
up 5.8% to $20.86, Red Hat Inc. (NASDAQ:RHAT + 1.49), to 5.6% to
$28.24, and Lightbridge (NASDAQ:LTBG +1.71), up 10% to $18.71.
Some bigger-name winners included I2 Technologies (NASDAQ:ITWO +
0.66), adding 3% to $22.96, Check Point Software (NASDAQ:CHKP
+1.40), up 2.9% to $49.19, and Siebel Systems (NASDAQ:SEBL
+1.82), up 3.7% to $51.15.
A.G. Edwards Inc. (NYSE:AGE +2.58) declined to comment
specifically on rumors that it might be a takeover candidate, but
said today that they "continue to believe that it's in the best
interests of our shareholders, clients and employees that we
remain independent." Just last month, Chief Executive Robert
Bagby told Barron's newspaper that the company's goal was to stay
independent. The stock price rose to an intraday high of $47.25,
up $3.14, as the April takeover rumor was revived. Day traders
did not mind at all, as options activity picked up nicely. The
stock ended up 5.9% to $46.69, on volume of 2.5 million shares,
more than five times the normal trading volume.
After the Bell
One of the small-cap software sector winners today, Carreker
Corporation (NASDAQ:CANI +0.87), reported net income of $1.3
million, or 6 cents per share compared with earnings of $1.5
million, or 8 cents per share, in the similar period a year
earlier. That earnings per share number matched expectations the
company outlined in May, but missed the consensus estimate of 9
cents per share. Revenue rose to $25.4 million from $22.1 million
a year earlier. The company increased its 2001 revenue target to
$175 million, with earnings per share of 95 cents, to take into
account its Check Solutions acquisition. For fiscal 2002, the
company sees revenue of $245 million and earnings per share of
$1.33. Shares are trading up to $14.88 after hours. That is a 32%
rally from the close.
Has anyone else made this mistake? Wells Fargo (NYSE:WFC -0.93)
will take a 2Q one-time charge of $1.13 billion, or 65 cents per
share, to write down bad investments, particularly in the
telecommunications and technology industries. The write-downs
have been primarily in the venture capital portfolio and concern
public and private companies. Still, the company's recent returns
on their venture capital and equity investments were
significantly above historical averages.
How is it looking for the retailers? American Eagle Outfitters
(NASDAQ:AEOS +0.22) reported that comparable store sales for May
increased 0.2% above the same month last year. Total sales
increased 30 % to $80.7 million compared with $62.1 million.
Nordstrom's (NYSE:JWN -0.09) May same-store sales fell 2.2%
compared to last year. Total preliminary sales increased 3.6% to
$43.9 million. Hot Topic (NASDAQ:HOTT +1.82) reported May
comparable store sales up 1.5% compared with May of 2000. Total
sales increased 35% to $19.3 million from $14.3 million, with
sales increasing each week during the month. The company's
inventory is on plan heading into the summer selling season. Hot
Topic sells teen-oriented clothing in the malls, by the way.
Economic reports for tomorrow include wholesale inventories,
consumer spending data, and the weekly unemployment claims. Bear,
Stearns and Company expects an increase of 11,000 in initial
jobless claims to 430,000, partly based on the traditional
seasonal adjustment in the days just after Memorial Day.
The CBOE Market Volatility Index (VIX) picked up about a point to
22.4, while the Nasdaq Market Volatility Index (VXN) added less
than a half point to 54.3. Both numbers still indicate
complacency in the marketplace. I have never seen such neutral
closing ticks (+9 on the NYSE and -8 on the NASDAQ Stock Market)
and hence, no guidance for tomorrow's open. The late-day
downtrend in major indices could be used as your guide for
tomorrow's open. The near term all depends on earnings warnings,
and whether or not the market decides that any bad news items are
already priced into a given stock or sector. Be extra nimble, and
even quicker, in your trades. Best of luck to you.
Definition of the Day
Cyclical rotation occurs as the economy moves through its various
phases. As the economy turns up, there are certain groups of
stocks known as cyclical stocks, which will rise along with it.
For the complete definition, please go to:
Wednesday's Split Announcements
Thursday'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.
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.
NEW MOMENTUM PLAY 06/06/01
WMI - Waste Management $28.51 +0.11 (+0.71)
This waste service provider has been on a rocky ride since it fell
out of bed in July of 1999. Less than two years ago WMI was a $60
stock, but due to accounting irregularities, it lost half its
value in less than a month. Since 1999, Waste Management has
cleaned up its act and has reasserted itself as the leader in U.S.
disposal and recycling services. In addition, it just recently
announced the formation of the first pulp and paper trading
service within its industry. This service will allow WMI and its
customers to manage their commodity price exposure and will
further differentiate WMI from its competitors. Turning to the
chart, we can see that WMI has just broken out of a large cup and
handle formation. The good news is that the stock has very little
in the way of upside resistance to hold it back at this point. In
fact, judging by the depth of the cup, our near term price target
on WMI is $34.50. In addition, WMI's MACD is set to issue a buy
signal with one more up day like Wednesday's. Traders wishing to
get into WMI could look to do so as long as WMI opens strong and
doesn't dip below $28.50. Conversely, if WMI gaps higher, don't
chase it much over $29. Look for volume to continue to come in
strong (over 3 million shares for the day) when making your entry.
Our initial stop is placed just under support at $26.90.
Picked on June 6th @ $28.51
Change since picked 0.00
Stop Loss @ $26.90
Play of the Day (For Thursday)
Wednesday, June 6, 2001
MTG - MGIC Investment $72.40 +2.30 (+3.77)
MTG made up some lost ground on Tuesday, and did so on improved
volume. MTG traded 530,000 shares and advanced back towards its
neckline. The key to MTG's next leg higher will be volume in the
session that it is able to close above $70.65. The more volume
we have on that day, the less likely it is that MTG will roll
back over. Traders may wish to time new entries with a close
above $70.65 on volume of at least 600,000 shares. Our stops
remain at $66.75 to protect on the downside.
We were waiting for good volume to come into MTG and boy did we
get it on Wednesday. MTG traded 1.4 million shares as it
advanced up through resistance at $70.65. The stock rocketed as
high as $74 before profit taking settled in, causing MTG to ease
back to $72.40. We are indeed encouraged by the strong move, but
now anticipate that shares will pullback in the near term.
Therefore, traders might want to think about getting into MTG on
a pullback to the $71 level. If $71 holds, look to get in on a
bounce of this level, accompanied by volume of at least 600,000
shares for the day. Resistance for MTG has become today's high
of $74 and support should show up at $70.50. Our stop remains at
$66.75 for now, but will likely be raised on Thursday.
Picked on June 5th @ $70.37
Change Since Picked +2.03
Stop Loss @ $66.75
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