THE SHORT-TERM CONSENSUS HOTLINE
Stocks Update – Tuesday, August 24, 2004
Dow 10,099 (+26)
SPX 1096.19 (+.51)
Nasdaq Composite 1836.89 (-1.81)
NDX 1369.78 (-1.12)
Recall in our last update of August 13, we were looking for another near-term low “and the possibility that a decent rebound will soon begin.” In anticipation of a rally, I had suggested focusing on the Nasdaq as the area “where the sharpest recovery will be seen once the expected rebound begins.” Since then, the Nasdaq Composite has rebounded almost 100 points from that August 13 close to today’s (Tuesday’s) intraday highs, a gain of better than 5%. Some of our recommended stocks highlighted in that report have enjoyed some pretty good bounces, but you probably could have done just as well buying the QQQs.
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VRSN 16.90 (-0.16): In our last report of August 15, I suggested that, “short-term traders may wish to buy dips below the 16.50 level, risking just half a point to the 16 area, while position traders may wish to place stops below the 14.90 level…” We figured that the recent low at 16.21 would likely hold any further pullback. And it did. Last Tuesday the stock pulled back to 16.50 going into the close and then Wednesday morning it bottomed at 16.41. Since then, the stock has managed a decent rebound, bouncing better than 6% (more than a point) over the next few days. But the stock has already begun to back off and I would not want to see it break back below today’s (Tuesday’s) low of 16.61. So if you bought the stock and you’re still long, on a very short-term trading basis, I would probably tighten the stop to the 16.60 level or so. Bigger picture, I would allow for more of a recovery here, but short term the stock is not acting great.
DELL 35.08 (+0.13): Dell, meanwhile, has been virtually motionless since our last update, despite the sharp recovery in the Nasdaq indices. In fact, the stock hasn’t even picked up a point from its close of August 13 at 34.51. And on the downside, it never pulled back more than 1%. An unusually tight range in this one, especially considering the volatility on the 13th following its earnings report. Of course, we never got our recommended entry to buy this one at 33.50, but that still looks like the spot to buy.
MSFT 27.24 (unch): Microsoft has also been virtually motionless since the market put in its lows on August 13. After closing at 27.02 that day, the stock has traded in a range of 26.89 on the downside and only 27.50 on the upside. And that entire range occurred last Wednesday when the stock closed on its high at 27.46. So here as well, not much is going on, but at least the recent lows seen August 12 at 26.86 continue to hold. Very short term, that is the critical support. Though as previously noted, below that is our ideal buying zone around 26.
EBAY 83.87 (+1.52): Okay, now that’s more like it. Since closing at 77.36 on August 13, the stock is up 6? points for a gain of better than 8%. In fact, the stock has been up every day except for one (last Thursday) since August 13. Unfortunately, however, as we had recommended buying a pullback to the 73 level, we never made the trade as the stock never even returned to its August 13 closing levels. In fact, there is now a small gap left from the close of August 13, which, of course, gets filled at 77.36.
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Larry McMillan has shifted to a more bullish outlook on the overall market, and accordingly has taken profits in his bearish put spreads and has established some bull spreads in the OEX. Along these lines, most of his existing positions are either bullish (calls) or are straddles (betting on a sharp move in either direction). Speaking of straddles, Larry notes that today (Tuesday) OVTI reports earnings after the close (estimate 30?). He explains there has been considerable speculation about the earnings and the related forecast. No surprise, he explains the straddles are expensive, selling for almost 3 points at the September 12? strike. But he figures that there is potential for a move of that magnitude, if not more, once the earnings come out. Meanwhile, he continues to maintain a bullish position (calls) in AmeriCredit Corp. (ACF) with his stop still in place at 19.30 in the underlying stock. Still holding long call positions in Invision Technologies (INVN) and Neighborcare Inc. (NCRX), where he has raised his stop to 24.40 in the underlying stock. He has also established a new position in Newmont Mining (NEM) calls with his stop at 41 in the stock. Meanwhile, on the bearish side of the ledger, he continues to maintain a put position in Valero (VLO) with his stop at 68?, though he has taken partial profits here. And finally, still holding a partial (bearish put) position in Xilinx (XLNX) with his stop still in place at 29.
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Dr. Michael A. Berry reports that thanks to the reversal off of Monday’s new highs in crude oil, the precious metals have now corrected sharply. He points out that as the metals backed off on Monday, almost all of the precious metals stocks pulled back – except for one: Western Silver (WTZ), as it bucked the downtrend and moved up above $7 to $7.07. Michael explains that Tom Dorsey had made some bullish comments about the precious metals, and also about Western Silver, which Tom views as “a cheap way to play the precious metals bull market.” Apparently, he has a target of $12 on the stock. On the medical research front, Michael reports out that Dr. Scott Franzblau, a member of the Immtech International Consortium of Scientists, is developing new drugs to combat tuberculosis (TB). He apparently joined Immtech “when he noticed how effective the Immtech dicationic molecules were in killing TB bacteria in a test tube.” In fact, Scott had reported that only 50 of 50,000 substances screened over a seven-year period had seemed “efficacious in vitro (a test tube) against TB.” Michael goes on to explain that Immtech has two promising drugs, “that appear to work in vivo (in the mouse model). I expect them to be testing these in clinical trials by 2005…” He encourages readers to consider owning shares of Immtech, saying “they are legacy shares.”
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Meanwhile Monday morning’s commentary from the Ice Man highlights some low-priced stocks coming off of bases, including Allos Therapeutics (ALTH) above the 2 level, Medarex (MEDX) above the 5.30 level (achieved at Tuesday’s close), and Nevada Gold and Casino (UWN) above the 11.50 level. He notes that Hansen Gray (HGCI) splits two-for-one tomorrow. And he said he would buy gold and silver stocks for trades on any large one-day decline – and Monday may have qualified.
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According to Schaeffer’s Research, among the transports, Delta Airlines (DAL) broke through overhead resistance at its 20-day moving average, closing at 4.26 on Tuesday. CSX has potential support just below closing levels at 31.20. Within the biotechs, Applied Biosystems Group (ABI), which closed at 19.77, is pinned between resistance at the 19.80 level and support at its 20-day moving average. Meanwhile Shire Pharmaceuticals Group (SHPGY) broke support at the 24.50 level, closing at 24.36. It is also noted that VeriSign (VRSN) is now “perched on its 10-day moving average.” And Sepracor (SEPR), which was up 1.74 today to 49.35, has potential resistance at the round number 50 level.
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The market has staged a solid recovery off of its recent new lows for the year. While we suspect there may still be some upside potential to this move, for the moment the market appears to be going through a necessary consolidation phase, working off its near-term overbought condition in preparation for a further rebound. For the moment, the key level to watch is that 1100?1102 area of the S&P (futures), as only a convincing move through this level will suggest that another pop to the upside may be underway.
H. Schiller
Released Tuesday night, August 24