Qualcomm (QCOM) - On May 4th, cellular technology specialist QCOM gave
traders a long as it moved over 62.35, but shares quickly backed off
from a high of 62.94, leaving traders with a small loss. Since then the
stock has traded within a few bucks of 60. Recent news about CDMA
contracts in China have bolstered bullish sentiment. Additionally, QCOM
is currently at the top of its recent trading range. However, volume is
declining and share price is hesitating, having opened at 65.51 and
closing at 65.37 on Friday. It looks like it may pull back from here.
We suggest shorting shares below 64. Look to turn and go long on a
bounce near 60 where the 22 and 50 DMAs intertwine. Aggressive traders
may nibble long over 69 if volume improves. Either way, use tight
stops. Optionable.
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INTERNET STOCKS
***********************************
Verisign (VRSN) - A nice bounce off the 50 DMA had traders entering
long from near 50 on Wednesday. Shares were added as the stock pushed
through 55.73 on Thursday, and VRSN finally ended the week at 60.74. Be
certain to pull stops up to protect the 20% in profits sitting on the
table! VRSN has recently resumed talks with the Department of Commerce
regarding its monopoly on ".com" domain names. It looks like there may
be some interesting results coming out of these discussions, so keep an
eye on the news since VRSN's bottom line could be greatly influenced.
If the stock continues higher, add long shares over 61.73. On a
pullback, go long on a bounce near 51-52. Optionable.
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MEDICAL & BIOTECH STOCKS
***********************************
Friday the AMEX Biotech Index ($BTK) held onto its impressive gains
from Thursday as it slipped a mere 1.3 or 0.21% to close at 600.96,
near its high of the day. The AMEX Pharmaceutical Index ($DRG) slid
3.28 or 0.79% to close at 410.23.
UBS Warburg will hold its Specialty Pharmaceuticals Conference next
week on Tuesday and Wednesday. On Tuesday SEPR, ALKS, FRX, AGN, ADRX,
IVX, BRL, TEVA, ENMD, and CEPH will make presentations. On Wednesday,
KG, MRX, INHL, BVF, and CELG will present. We report to you about
upcoming conferences because companies often report important breaking
news at them. Now, Regulation FD (Fair Disclosure) requires companies
to release any new information to the entire investing public, not just
a few analysts on Wall Street.
This week the American Society of Clinical Oncology (ASCO) held its big
annual cancer research meeting. ASCO released market-moving information
on the drug companies scheduled to make presentations at its conference
to its members and analysts a month before the news was made public.
Although it isn't clear whether Regulation FD applies to medical
conferences, this may have been in conflict to the new Fair Disclosure
Regulation mandated by the SEC.
Human Genome (HGSI) - On May 15th, HGSI announced that it had completed
the acquisition of a state of the art research and manufacturing
facility in Rockville, Maryland. Traders entered long on a bounce near
57. Friday, on weaker than average volume, HGSI rose 2.43 or 3.71% to
close at 67.93, near its high of the day. Traders are now sitting
pretty with a 10.93 or 19.18% paper profit! If the stock can maintain
the momentum to keep it moving higher, add shares over 68.61. If it
pulls back, take profits and re-enter long on a bounce near 57-58.
Optionable.
Imclone Systems, Inc. (IMCL) - Friday IMCL fell 1.58 to close at 44.93.
We're looking for it to pull back to the 22 DMA, currently near 40, for
a bounce. Aggressive traders can short it below 44, but tighten stops
as the stock approaches 40-41. Long traders can look for a bounce near
40-41 to enter long. Optionable.
TRADER'S TIP: Breakouts and Support Levels.
When a stock breaks out in such a way that the entire day's range winds
up completely above the high of the previous day, a new support level
is often created at or very near the low of the breakout day. The low
of the breakout day becomes the new low of a new trading channel or
range for the stock. This is important to know because we will often
see a stock that has broken out consolidate for a day or more, but then
find support and bounce off the new support level before moving higher.
Placing a stop under this new support level is an excellent way to
protect profits from positions entered before the breakout. The new
support level also makes a good place to look for a bounce entry after
the stock pulls back from the breakout day's high. If the stock breaks
through the support level convincingly, it is likely to return to the
previous trading channel or range, so your stop will take you out of
the position before it does.
IDEC Pharmaceuticals Corp. (IDPH) - Agile traders profited from both of
our previous entries on April 12th. A long entry over a gap-adjusted
52.25 on April 17th was exited before earnings on April 19th. Then a
gap-adjusted short entry near 45.27 on April 23rd was good for a couple
of points before stops were triggered. The company reported earnings of
0.12; beating estimates by 0.01, and vs the year-ago loss of 0.03.
Friday IDPH broke through resistance as it rose 1.95 to close at 57.05.
Enter long over 59 or else on a bounce near 50. Optionable.
***********************************
ENERGY STOCKS
***********************************
The Oil Index ($XOI) gushed to a new high on Friday, opening at 593.19
and closing at 606.34 as news of the US Energy Policy filtered into the
markets. The plan calls for increased tax credits to promote domestic
energy development and conservation. According to an American
Automobile Association survey, rising gas prices have not dampened
summer vacation plans for motorists. More of them plan to be on the
road this year than the record number that hit the road last year. (Not
a lot more, but more, nonetheless.) As a result, NYMEX crude oil
futures were up a buck on Friday. Bush's plan does little to address
short-term supply issues. In a side note, middle-eastern tensions rose
as American and British planes bombed targets in Iraq in retaliation
for Iraqi fighters firing on planes enforcing the "no-fly" zone. The
bombings were not considered material to any supply issues, but serve
to underscore the instability in the region. Earlier this week pundits
were talking about a developing rift in OPEC that may lead to
additional oil supplies flowing into the market from some of the less
wealthy oil exporting nations. They generally agreed that it should
lead to lower oil and gasoline prices in coming months.
The Shaw Group (SGR) specializes in making piping systems for power
plants and construction services. Short interest in SGR grew by nearly
50% to 3.3 million shares in April as speculation increased that long-
term shareholders would sell to raise cash in order to take advantage
of an IPO for Global Power (GEG), a company in the same sector. The
plan was sound as far as GEG was concerned. The stock is up 57% over
its IPO price on its first day of trade on Friday. But all the news
coverage on the new energy policy may have hurt the larger strategy.
SGR, which is up over 167% in the last year, didn't fall off much as
the IPO approached and it doesn't look like much of the new short
interest has been covered yet. If the market drives the stock higher
next week, shorts could add fuel to the fire. This has the makings of a
classic short-squeeze that could add some serious fuel to SGR's rocket.
We cover SGR elsewhere in this report.
OSCA Inc. (OSCA) - Sleeper. OSCA provides specialized oil and gas well
completion fluids, completion services and downhole completion tools to
major and independent oil companies. Traders entered long over 26.80 on
May 17th. Friday, on big volume, the stock rose 1.35 or 4.96% to close
at 28.55. Plan to add shares over 29 and tighten trailing stops over
29.50. Watch out for round number resistance at 30. Not Optionable.
Arch Coal, Inc. (ACI) - Sleeper. Breakout! ACI, the nation's second
largest coal producer, is prospering on the country's energy problems.
This new demand has tripled coal's price in the western U.S. and
doubled it elsewhere. Michael Beall, analyst for Davenport & Co., said,
"Something you couldn't give away a year ago you can't buy today. We've
gone to a very, very tight market." Coal is much cheaper than natural
gas and some companies are building coal-fired plants in order to meet
rising energy needs. Friday ACI rose 1.60 or 4.46% to close in blue-sky
territory at 37.45, just off its day high of 37.50. Traders who entered
near 32.50 added shares over 34 on May 14th, and are sitting on a
pretty profit of 4.95 or 15.3% over the first entry. Add shares over
37.75, and tighten stops over 38.50. Optionable.
EOG Resources, Inc. (EOG) - EOG explores for, develops, produces and
markets natural gas and crude oil primarily in the producing basins of
North America. While it has other properties in Trinidad as well as
other select international locations, its focus on the U.S. and Canada
may help the company benefit handsomely from the Bush energy policy.
Since we last covered the stock it has moved between about 38 and 49.
Friday shares ended at 49.22 near the top end of the recent channel.
Volume wasn't great, suggesting that it may have a hard time breaking
through 50. If EOG moves over 51, go long. If the stock bounces down
from near 50 consider a short. Optionable.
Stone Energy Corp. (SGY) - New Sleeper. Friday, we set our radar screen
to find an independent oil company in the Gulf of Mexico region that
was not already at all-time highs, but in an uptrend; and this is what
we found. SGY is engaged in the acquisition, exploration, development
and operation of oil and gas properties located onshore and in shallow
waters offshore of Louisiana. Thursday, it moved above its 200 DMA,
which is above the 22 and 50 DMAs. On Friday, it extended the move,
closing up 0.76 at 55.26. The 52-week high is 69 on this stock that
trades at a P/E of 10.36, while earning 5.26 per share. On April 6th,
the CEO purchased 70,914 shares of the stock at 48.75, not too bad of a
sign! Plan to enter on a bounce near 51.10-52.75 or go long over 56.25.
Trailing stops should be placed 8-10% below your entry. Optionable.
Valero Energy Corp. (VLO) - Breakout! Sleeper. VLO produces, transports
and markets environmentally clean fuels and products including
reformulated gasoline, low-sulfur diesel, and oxygenates. Even though
Prudential downgraded it from "strong buy" to "hold" on Friday, the
stock rose 0.85 to close in blue sky at 51.59, and set a new high of
52.60 in the process. Traders who originally entered over 45.98 added
shares over 51.20 Friday, leaving them with a maximum paper gain of
5.61 or 12.20%. This stock trades at a P/E of 7.05, less than its
earnings/share of 7.19. Add shares over 53.10 and tighten trailing
stops when the stock climbs over 54. Optionable.
***********************************
FINANCIAL STOCKS
***********************************
AFLAC Inc. (AFL) - The company using TV commercials featuring a
frustrated goose trying to share the benefits of supplemental insurance
with clueless humans has bounced off a March low of 23.38 and moved up
to a close of 32.35 on Friday. The weekly chart shows a significant
volume spike, a bullish signal. But the daily chart shows rising price
with volume falling off to nearly average by Friday signaling a
pullback might happen. That means our best entry may be long on a
bounce near 30-31. If the stock moves up nibble long over 33.40.
Optionable.
TRADER'S TIP: Weekly Volume.
When a veteran trader asks about a stock he wants to know two things,
"price and volume." Volume confirms or brings into question price
information. Why? If a stock has risen on lower than average volume it
is a danger signal. However, if it rises on higher than average volume
it is bullish. When evaluating a stock it is wise to go to a weekly
chart to confirm rising volume. If you have five days of 5 to 10%
higher volume it might not be clear how important it is. But put it on
a weekly chart and suddenly it stands out in stark contrast because all
those 5 to 10% days have been added together to show a real spike.
Rising volume usually means that institutions are buying. That's the
kind of buying that drives stocks. Take a look at the daily and weekly
chart for AFL and POG and you will see what we mean.
Black Hills Corp. (BKH) - New Sleeper. Breakout! Talk about being at
the right place at the right time; this company does it all! BKH is an
energy and communications company consisting of three business units:
regulated energy, independent energy and communications. Its electric
utility serves South Dakota, Wyoming and Montana; while the unregulated
unit produces and sells electricity in a number of markets, with a
strong emphasis on the western United States; AND it produces coal,
natural gas and crude oil in the Rocky Mountain Region, marketing them
throughout the U.S. If that isn't enough, its communications group
offers broadband communication services! Friday, the stock closed up
1.41 at 55.94, setting a new high of 56.23 intra-day on very strong
volume. BKH still only trades at a P/E of 16.42, while earning $3.32
per share and yielding 2.05%. Plan to enter on a bounce near 52-54 or
go long over 56.73. Optionable.
***********************************
OTHER STOCKS
***********************************
Quanta Services, Inc. (PWR) - This firm specializes in designing,
installing and maintaining end-to-end networks for telecom, cable TV
and electric utilities. Friday it opened at 35.66 and closed at 36.90
on heavy volume as First Union reiterated their "strong buy" rating. In
early May, management guided analysts to expect 2.18 per share in
earnings for 2001, suggesting that spending by utilities should
continue to increase in coming quarters. The stock has been helped
along as outside experts have suggested that telecom and cable
construction has bottomed and may well be lifting off again in the
latter part of the year. We suggest going long over 38, or on a bounce
near 33. Optionable.
International Game Technology (IGT) - Breakout! Sleeper. Patience was
amply rewarded on this sleeper. Traders entered IGT back on April 25th
over 56.63, and those using the recommended stop loss are still in the
trade. After a trip to the support of its 50 DMA on Tuesday, traders
hit the jackpot when IGT rocketed into blue sky, gaining 6.35 points in
3 days and closing up 2.76 at 59.85, on Friday. Volume was huge! IGT
makes and operates computerized casino gambling systems and is the
largest producer of slot machines in the world. It received a real
boost last year when California state officials passed legislation
allowing 45,000 new slots in Native American casinos. Other states are
also expanding casino space. Tuesday, IGT got more help from the
California Gaming Commission, when it said it would not enforce a May
15th deadline for placement of new machines in the state. Plan to add
shares or establish a new position on a blue-sky breakout over 60.50,
or enter on a bounce near 55.75-57.75. Trailing stops should be placed
8-10% below your entry. Optionable.
C.H. Robinson Worldwide, Inc. (CHRW) - This firm provides global,
multi-modal shipping and transport services. Since our last coverage
traders had two chances to go long: once on May 10th as the stock moved
over 28.88 and again the next day as it bounced off an intra-day low of
27.75. Friday shares closed at 30.99 on solid, but declining volume. We
suggest tightening stops to protect profits. Friday's close is equal to
the same level the stock saw in early March before falling off to lows
near 23. This price is an important resistance point that may lead to a
bit of back tracking. JP Morgan didn't help matters when it downgraded
CHRW to "neutral" from "outperform" Friday. Nevertheless, we are not
here to fight the tape, and the tape says shares are still moving up.
Consider adding to long positions on a move over 31.65, nudging stops
up behind. Otherwise, consider a short on a bounce down from near 31.
Optionable.
Engelhard Corporation (EC) - New Sleeper. This company has five
business divisions: Environmental Technologies; Process Technologies;
Specialty Pigments and Additives; Paper Pigments; and Additives and
Industrial Commodities Management. Friday, the stock closed up 0.18 at
28.59, after hitting 28.90 intra-day. Volume was strong. Its 52-week
high was set Thursday at 29.20. We see this company as a play under the
Bush energy plan. EC pioneered auto-emission catalysis, producing the
1st automotive three-way catalyst to drastically reduce carbon
monoxide, hydrocarbons and oxides of nitrogen emissions. It remains the
world's largest developer and manufacturer of automotive catalysts,
supplying more than a third of the vehicles on the road. Plan to enter
on a bounce near 26.00-27.75 or go long over 30.12. Trailing stops
should be set 8-10% below your entry. Optionable.
The Shaw Group Inc. (SGR) - Baton Rouge, Louisiana-based SGR
specializes in piping systems for power plants and construction
services. Some traders went long on Tuesday as it bounced near the 50
DMA and a low of 53.50, but most waited to see what Wednesday would
bring and got in near 54. Thursday they added as the stock moved over
58.40, and Friday brought a 59.95 close on declining volume, which
suggests a pullback may be in the works. Pull up stops to protect the
10% in paper profits so far and consider going long on a bounce near
57. If SGR continues to move higher, add shares over 60.85. Be sure and
read the Energy Intro for further information on a possible short-
squeeze developing for SGR. Optionable.
Beazer Homes USA, Inc. (BZH) - Sleeper. Traders entered this
homebuilder near 53.80, over 57.85, over 67.50 and over 67.75 on May
9th, tightening their stops on the move. The stock gapped down on
Wednesday on a downgrade of 6 major homebuilders by Salomon Smith
Barney. Traders were able to exit BZH over the next 2 days with profits
from 2 entries and small losses from 2 entries. The analyst stated his
belief that national housing figures are likely to weaken by the middle
of the year, if not sooner. This is in direct conflict with a recent
press release from BZH showing that orders for homes rose 35.5 percent
in April, led by higher orders in the Southeastern and Southwestern
regions of the United States. Since the release, the 22 DMA, near 59.40
has held support very well. Friday, the stock closed lower by 2.70 at
61.60, but on very low volume. In fact volume has significantly fallen
since Wednesday, indicating that there are fewer sellers willing to
sell. Plan to re-enter on a bounce near 59-61, or go long over 65.30.
Your trailing stops should be set 1-2 points below the 22 DMA and moved
up. Not Optionable (Options will begin trading on May 25th).
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