Email Version, Section 1, Wednesday 03/14/2001
The SplitTrader.com Newsletter Wednesday 03/14/2001 1 of 1
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In This Newsletter:
Market Commentary - Parabolic Fear
Definition of the Day
Wednesday's Split Announcements - UCBH
Thursday's Play-of-the-Day - SBL
The Dow Jones Industrial Average (INDU) has lost roughly 885
points in the last four trading sessions. Meanwhile, the Nasdaq
Composite (COMPX) fell below the psychologically significant
With fear running rampant on Wall Street, the threat of that
emotion spilling over into Main Street America is a cause for
great concern. Many economists and market watchers have
opined recently that the plunge in stock prices, particularly the
Nasdaq, could negatively impact consumer sentiment and ultimately
reduce spending. And as Alan Greenspan has made it clear during
recent testimonies, the American consumer holds the key to
fending off a recession in the United States economy. We'll know
more about the recent decline in stock prices and the impact on
consumers with the preliminary Michigan Consumer Sentiment report
set for release Friday morning, in conjunction with the producer
In the meantime, we must set aside emotions in the form of fear
and instead defer to objectivity. For the investor types among my
readers, with longer time horizons than traders, the game is
growing more and more difficult. Up until the recent blowup in
the INDU, sectors such as retail, finance and cyclical had been
But, the growing concerns in international markets, particularly
Japan, has confounded matters in the aforementioned groups of
stocks. However, I continue to think these groups of stocks
will work higher in the second half of 2001, If the U.S.
economy doesn't slip into a recession. Moreover, by
positioning in finance, retail and cyclical, investors can take
advantage of a dramatic move by the Fed. And by dramatic, I
mean a cut in interest rates that the market has not yet
In fact, rumors hit trading desks Wednesday that the Fed could
possibly cut interest rates Thursday, similar to what they did
in 1998, which was a day before an options expiration. In
addition, the Fed Funds Futures discounted a 68 percent
probability of the FOMC cutting by 75 basis points next Tuesday.
Whether or not either of the two scenarios plays out over the
coming trading sessions remains to be seen. Nonetheless, both
traders and investors should be aware that there exists an
increasing probability of the Fed drastically cutting interest
rates in the near future to snuff out the fear which is
spreading across global capital markets, particularly if
inflation remains subdued.
The fear that I've been alluding to has been exacerbated in
recent days by the debacle in Japan. About two weeks ago,
Standard & Poor's downgraded their credit rating on Japanese
debt, which was seen as pivotal. This morning, another debt
rating agency, Fitch, placed 19 Japanese banks on 'Rating
Watch Negative.' In essence, the downgrade by Fitch
heightened fears of broad risk among global financial
institutions. The concerns over defaults in Japan are very
real for leading money center U.S. banks such as Citigroup
(NYSE:C) and JP Morgan Chase (NYSE:JPM) judging by the
price action in their shares Wednesday. While I still
believe the financials will outperform in the latter half
of this year if the Fed cuts rates drastically, the
market may continue to punish shares of the larger banks
with exposure to Japan. That's why investors may shun the
larger, global banks for smaller, regional concerns in the
U.S. such as Washington Mutual (NYSE:WM).
The breakdown in the financial sector played the leading role
in the demise of the INDU Wednesday. We may see a rebound
on short covering Thursday in the INDU, but it appears the
old economy index wants to trade lower. Of course, that
could change with the market's perception of what the Fed
will do next week. Nevertheless, I consulted my astute
colleague, Jeff Bailey, for a downside target on the INDU
using his point and figure charting. Jeff's charts revealed
that the bearish price objective for the INDU is 9400. Now
we don't expect the INDU to trade in a straight line down
to 9400, but it does give a reference to the downside.
Furthermore, resistance for the INDU now solidly sits at
the 10,250 level. What that means, in the near-term, is the
INDU could bounce back up to that level and rollover. This
is just an idea and a few levels to reference in the
INDU over the coming week or two to keep in mind for a TRADE.
Chart of the Dow Jones Industrial Average:
Meanwhile, the COMPX continues to work lower and the trend is
obviously down. And that's why I'll reiterate that buying puts
on weak tech stocks should continue to make money until the
market tells us we're wrong (read: losses) in betting on lower
stock prices. Our recent put play on shares of Broadcom
(NASDAQ:BRCM) represents a good argument. We've captured
about $13 on the downside in the Broadcom play.
The 1500 level has been popularized among technicians lately
as a possible downside target for the COMPX. And there is a
growing belief that the COMPX is headed to that level. Here
again with the COMPX, I'm simply setting forth a reference
point for traders.
Chart of the NASDAQ Composite:
Going into Thursday's session, there are a couple of things
to keep in my mind. There exists the possibility of
Fed-related rumors circulating again, which may induce short
covering in both the INDU and COMPX. What's more, we'll want
to pay special attention to the news and action overnight in
the global markets, especially Japan.
In addition, Oracle (NASDAQ:ORCL) is set to report earnings
after the close Thursday. In short, keep in mind the possible
impact of the Oracle report when planning trades, especially if
you plan on holding positions overnight. I have no insight into
the Oracle report, so I won't give a bias going into their
What's more, Friday marks triple witching for equity and
index options along with futures contracts. Expiration may
lend a brief bid to the tape in conjunction with anticipation
of the Fed meeting next Tuesday.
Finally, Friday morning will bring two key economic releases:
preliminary consumer sentiment numbers and the producer price
index (PPI). Both are very crucial! The market would like to
see a weak PPI to prove that inflation remains subdued.
Furthermore, the market might actually like a VERY weak sentiment
number which may induce the Fed to move more aggressively than
the market expects.
On a final note, in light of the rampant pain and fear in the
broader market averages, I'd like to share a random thought.
The biggest advantage that retail traders/investors have over
professionals is that the former don't HAVE to operate in the
market every day. Institutional traders/investors are required
to put money to work EVERY day, whereas retail market
participants are not. I would urge my readers to consider that
thought before every trade that may not present favorable risk
to reward characteristics. This market is one of the most
difficult to gauge in recent history and it's blowing up
professionals and individuals alike. But, for those who
make it through this difficult period, I'm sure they will
prosper and make a ton of money when the market gets easier.
And I unequivocally believe the market will get easier after
the pain has passed!
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Definition of the Day
A short and intermediate-term market breadth technical indicator
based on the New York Stock Exchange.
For the complete definition, please go to:
Wednesday's Split Announcements
Wednesday, March 14, 2001, Before the Bell
UCBH Announces Company's First-Ever Stock Split
Before today's opening bell, the Board of Directors of UCBH
Holdings, Inc. (Nasdaq:UCBH) announced a 2-for-1 stock split of
the Company's common outstanding shares. The payable date is set
for April 10, 2001 and shares are expected to trade on a split-
adjusted basis on April 11, 2001.
For the complete announcement, please go to:
Thursday's Expirations by Payable Date
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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.
Wednesday, March 14, 2001
SBL - Symbol Technologies $47.20 -2.45 (+0.79)
Symbol Technologies' scanning products have become
indispensable for a myriad number of industries, ranging from
heavy manufacturing to retail package delivery. A 3:2 split
was announced on February 27th when the stock was trading at
$41.82. The split will be made payable on April 16th. SBL
might resume its split run, now that the market appears to
have put in a short-term bottom. The stock initially took off
following the split announcement and peaked at $56.00 a few
days later. After a subsequent pullback, SBL appears poised to
move higher. The MACD survived a test yesterday and has now
issued a buy signal. The RSI has plenty of room to support a
rally before indicating an overbought condition. What's more,
today's low print of $45.75 successfully tested trendline
support. Any positive move tomorrow, accompanied by first hour
trading volume over 200,000 shares, may provide possible entry
Symbol sold off along with the rest of the market on Wednesday
but found good support at its 40-dma. We are also encouraged
by the fact that SBL finished the rocky session in the upper
half of its daily price bar. Turning to the fundamentals,
further evidence that the corporate PDA market is still
humming along came recently from Sears (NYSE:S). It placed an
order to buy 15,000 devices from Symbol to use for inventory
and price change purposes. This underlying strength in
corporate wireless devices may be serving to prop up the stock
in what has certainly been a turbulent market environment.
Switching to Symbol's charts, we like what we see in Symbol's
weekly chart. The weekly chart shows a clear ascending
triangle that is ready to break to the upside. The daily
chart, although not nearly as pretty, still shows a stock that
has become overbought and which subsequently sold off to
support levels created by its base pattern. In addition, the
10, 20, 40 and 50-dmas are now all firmly above the 200-dma.
Although this is generally a lagging indicator, it is bullish
nonetheless. Looking forward, new plays could be initiated on
a bounce off the 40-dma, now at $45.50, or a break above
yesterday's high of $50. In either event, look for volume to
be on track to finish the session at better than 1 million
shares traded. We are leaving our stops firm at $45.25 to
Picked on March 13th @ $49.65
Change since picked -2.45
Stop Loss @ $45.25
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