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http://www.123jump.com ISN Ones to Watch 11/27/2001: Too Soon To Tell ___________________________________________________________ TABLE OF CONTENTS 1. Overall Sentiment 2. Observations 3. Weekly Portfolio Results 4. Online Shopping 5. Sector Watch: The Brokers 6. Security Stocks Revisited 7. Trading Methods & Strategies 8. Comment Welcomed ------------------------SPONSOR------------------------- Haven't refinanced yet? Take advantage of the lowest mortgage rates in years. Save big with IndyMac Bank, the #1 rated mortgage website by Gomez.com for the last 4 quarters. IndyMac Bank guarantees to beat, not meet, any mortgage by $300! Click below for a free quote: http://quinst.com/clk/sadoukukyuderashusai -------------------------***---------------------------- 1. Overall Sentiment The first official day of what is known among retailers as the "Christmas Sell-Through Season" began early Friday morning, Nov. 23. In the market research I currently do for Ticker Magazine, a 123Jump.com property, I phoned into S.G. Cowen in Manhattan that day, and the receptionist told me the financial district was a "ghost town." One of the few days, she said, when the subway ride from Brooklyn into the financial district was "heavenly." There wasn't even a crowd outside the local Macy's department store. We should all hope that a crowd did gather outside Macy's, as well as the rest of the retail outlets, not only in Manhattan, but also across the U.S., that opened at 6:00 a.m. Eastern time that day to receive the throngs of shoppers wanting to get a head start. The drive to those retail outlets should be much cheaper compared to how it was just two months ago. On my weekly Saturday taxi ride to the supermarket, the local convenience store posted its price for a gallon of regular - $0.99.99 - down from $1.02.99 from the previous Saturday. My driver had predicted a drop to under $1.00 by Christmas. On the drive last Saturday, he also mentioned that the traffic was unusually heavy. Based on this rudimentary observation of the onset of the Christmas Sell-Through Season, we're off to a good start. Still, it is too soon to tell. For folks curious about how retailers are doing during this period, a good source is www.telecheck.com, a division of Equifax (EFX) that monitors check processing. Meanwhile, it has been eight solid weeks of advances for the popular indexes since the last 52-week bottom Sept. 21. It should be pointed out that after the prior 52-week bottom April 3-4, the marker rallied for about eight weeks into early June, stalled, shuffled sideways for most of that month and during July, and then began another slide during August and early September. All during that time, the TV stock market channels, dead- tree media and online media continued to trot out the usual gang of "chief market strategists" who talked about a "V- shaped" recovery in 2002. Put it into technology, they said. They said this in January, February, March, April, May, June, July, August, September, October and, of course, the final week of November. Do you folks think this spiel will change next month, or the month after that? Sooner or later (hope it's not later), they will be right. Overall, the charts of the world's stock exchanges mostly reflect the charts for the S&P 500 and the Nasdaq indexes: a 52-week bottom on or around Sept. 21, followed by an advance to near the 200-day simple moving average (SMA). There are a few exceptions, the most notable being the Russian stock market. This market has been among the top performers in 2001, as the following link to a one-year chart, courtesy of Yahoo! Finance, will display: SEE: http://finance.yahoo.com/q?s=3Dmtms&;d=3Dc&k=3Dc2&p=3Dm50,m200???2. Observat= ions??With the Russian stock market doing so well, it has definitely?been a= contrast when one compares the current situation to?this time three years = ago.??Three years ago, Alan Greenspan was bailing out the Russian?currency = by dropping interest rates and speeding up the?printing press that pumps U.= S. currency into the world's?banking systems.??It worked. October 1998 was = the bottom for the U.S. stock?market and most of the world's stock markets.= The rest is?history. The most amazing bull market in U.S. history.??Earlie= r this month, Vladimir, the Russian Prime Minister,?Putin traveled to meet = President George W. Bush. They got?along well. Arm-in-arm. Good Old Boy-to-= Good Old Boychik.??During this diplomatic interlude, the Russian government= ?announced that it wasn't giving in to pressures from the?OPEC cartel to dr= op its daily output of crude oil.??We seem to have come full circle. Instea= d of Alan Greenspan?bailing out the Russian economy, it is the Russians who= appear?to be out bailing Alan Greenspan.??My take on the current situation= in Afghanistan: It's still?a sad place, and it will be this way for perhap= s decades,?regardless of what kind of government is established that?loosel= y resembles a "democracy." Were I the CEO of an?automobile/truck company, o= r an electronics component contract?manufacturer, I wouldn't consider locat= ing a plant there in the?near-term.??The more I study the writings of Herna= ndo de Soto and his?understanding of why some nations have succeeded in the= ?past 400 years, while others continue to be mired in social?strife and pov= erty, the more it makes sense to me.??Since Sept. 21, when more than 1600 s= tocks reached 52-week?lows on the NYSE and the Nasdaq, the number of stocks= ?making new highs has averaged around 100 for both major?U.S. stock markets= .??However, the number of the stocks making new lows has?averaged less than= 50 since that date.??Clearly, the market is sending a message that it want= s to take?a chance on hundreds, if not thousands, of beaten up stocks on?th= e hope that a turnaround in the U.S. economy in 2002, whenever?it occurs, w= ill result in accelerating revenues and profits.??When the U.S. economy was= roaring along at a 6% annual rate,?and Optical Networking, Internet, and e= merging Telecom stocks?were reporting year-over-year revenue growth rates o= f 500%,?investors were more than willing to buy stocks priced 10 years?into= the future on the assumption that the next 10 years of 500%?annual revenue= and earnings gains were a done deal.??Nothing ever changes on Wall Street.= The name of the game is to?anticipate future revenues and earnings. Someti= mes, though, this?anticipation goes to an excess.??No, I don't think some F= allen Angel stock that went public during?1998-1999 that bottomed out at 2 = a share Sept. 21, and then?rallied to 5 a share by Nov. 23, is headed for 5= 0 a share by?Dec. 31, 2001.??Moreover, I don't think these stocks will be p= riced at 50 a share?on Nov. 23, 2002, purely on "anticipation of rising rev= enues and?earnings."??But, I've been wrong before.??Certainly oil and its d= erivative fuels, natural gas, propane,?heating oil, gasoline and diesel are= sexy right now. So is gold,?since we're all worried about hard economic ti= mes.??In terms of raw materials, or commodities, to use the?general term, I= would advise readers to watch the copper?futures prices.??When George and = Vlad met last week, George did say in a?press conference that he and Vlad d= id agree about reducing?the production of nuclear, but they failed to agree= about?curtailing the production of nuclear missiles.??To make it simple, R= ussia and the United States, much less?any other country in this world, can= make nuclear bombs.?Terrorist organizations know how to make nuclear bombs= . The?information is available on the Internet.??It's the delivery system t= hat makes the difference.??The preferred method of delivery of a nuclear bo= mb is via?an Inter-Continental Ballistic Missile, or ICBM.??In other words,= it's not about the bombs, it's about the?missiles. Russia and the United S= tates have already made?enough nuclear bombs to destroy all the planets in = the?solar system from Mercury to Pluto.??This missile disarmament argument = has been going for four?decades, going back to the Kennedy Administration s= ince 1960.??The more things change, the more they stay the same.???3. Weekl= y Portfolio Results??The stocks in my Sharebuilder.com investment plan adva= nced?0.6%. This surprised me, for I thought this portfolio of 31?stocks wou= ld lose money for the week of Nov. 19-23.??The S&P 500 gained 1.03% for the= week, while the Dow 30?advanced 0.9% and the Nasdaq Composite inched up 0.= 24%.??Among the sectors I follow, the biotechs did the best. The?Merrill Ly= nch Biotech HOLDRs Trust (BBH) gained 4%.?Semiconductor stocks as represent= ed by the Philadelphia?Semiconductor Index (SOX) pulled back 3.5%.??Conclus= ion: The Overall Tech Market is still searching for?a leader as it pertains= to a specific industry group.??As for the Ones to Watch Portfolio, which, = at this point,?is a leftover from February 2001 when I "inherited" this?new= sletter, the only remaining stocks from February are two?semiconductor stoc= ks: Xilinx (XLNX) and Broadcom (XLNX).??Xilinx is the premier programmable = logic device company. Of?course, the folks at Altera Corp. (ALTR) would dis= agree.??Still, from a low of 19.52 on Sept. 21, Xilinx has managed to?advan= ce back to 34.73, but still under its 200-day simple?moving average (SMA). = That chart pattern since Sept. 21 is?also true for the popular averages.??C= onclusion: Xilinx hasn't broken its long-term trend. The same?could be said= for dozens of leading semiconductor stocks.??Broadcom, though, has managed= to rally from a Sept. 21 low of?18.40 to 46.45 and also above it s 200-day= average, the?first time in nearly a year.??However, the 50-level is a majo= r source of price resistance.?This is Broadcom's third try at the 50 resist= ance since?early May 2001.??The water-related stocks from the Ones to Watch= Portfolio I?"purchased" Aug. 1 are in the black. I personally own all?thre= e of them: American Water Works (AWK), Tetra Tech?(TTEK), which splits 5-fo= r-4 next month, and SCP Pool?(POOL). The latter two stocks are components o= f the?Standard & Poor's 600 SmallCap Index. American Water Works?is a compo= nent of the S&P 500 Index that a German company,?RWK, wants to purchase for= $46 a share in cash.??Among the other 14 remaining stocks in the Ones to W= atch?Portfolio, EarthLink (ELNK), 1-800Flowers.com (FLWS),?Jack Henry & Ass= ociates (JKHY), Intercept Group (ICPT),?Alloy Inc. (ALOY), Catapult Communi= cations (CATT),?Register.com (RCOM) and Copart Inc. (CPRT) have rebounded?a= bove the 200-day simple moving average (SMA) since the?dramatic sell-off du= ring Sept. 17-21.??The others - Efunds (EFDS), SEI Investments (SEIC),?Phar= maceutical Product Development (PPDI), Daktronics?(DAKT) and SonicWALL (SNW= L) - are stragglers. Still trading?below the 200-day line.??SonicWALL, whic= h competes in the firewall space, has been a?disappointment compared with o= thers in the sector:?McAfee.com (MCAF), Internet Security (ISSX), Network?A= ssociates (NETA) and Symantec (SYMC).??Of the Sweet 16? Tech stocks I've be= en tracking since late?July, four have advanced above the 200-day line: Bus= iness?Objects (BOBJ), Nokia Corp. (NOK), Vodaphone Group (VOD)?and Genentec= h (DNA). The former three are foreign firms,?while the latter has participa= ted, perhaps even initiated,?a gradual rise in biotech and genomics stocks = since late?July.??In the aftermath of the dramatic one-week panic sell-off?= Sept. 17-21, the remaining 12 have rebounded above the 50-?day line: Verita= s Software (VRTS), I2 Tech (ITWO),?Micromuse (MUSE), Alcatel (ALA), Comvers= e Tech (CMVT),?Network Appliance (NTAP), EMC Corp. (EMC), Juniper Networks?= (JNPR), CIENA Corp. (CIEN), BEA Systems (BEAS) and Corning?Corp. (BEAS).??T= he 50-day day line has also begun to slope upward for most?of them. From a = chartist's perspective, this is an?encouraging sign.??However, that 200-day= line looms as a major area of?resistance for these Fallen Angels from the = technology?arena. Technical indicators are one thing, but fundamentals,?nam= ely, earnings, earnings, earnings, will determine how?far these stocks adva= nce in 2002.??A major factor in long-term investment success entails two?in= gredients: first, developing a plan based on investing?fixed amounts on a r= egular basis, and second, resolving to?stick with it through good and bad m= arkets.??I currently have 31 positions in my Sharebuilder Plan. That?practi= cally qualifies it as a mini-mutual fund. I make?regular monthly purchases = on the fourth Thursday of each?month.??This morning, the plan purchased who= le or fractional shares?in the following stocks: American Water Works (AWK)= , Biomet?(BMET), Cheesecake Factory (CAKE), Daktronics (DAKT), Jack?Henry &= Associates (JKHY), Micro General (MGEN), Sigma?Aldrich (SIAL), SurModics (= SRDX) and Tetra Tech (TTEK).???4. Sector Watch: The Brokers??Investor's Bus= iness Daily is a good source for beginning?investors and traders to learn h= ow stocks in the same?business or industry are divided into groups, their o= verall?fundamentals, and how they are performing in comparison?with other s= ectors.??Dow Jones and Standard & Poor's also regularly publish the?daily p= erformance of stock groups, according to their?particular ranking systems.?= ?Indeed, Richard D. Wyckoff, an early pioneer in technical?analysis, watche= d specific stock sectors in order to?determine which groups were lagging an= d which groups were?performing well.??Computers and the Internet make it ea= sier for individuals?to track stock groups.??By using a charting feature co= urtesy of Yahoo! Finance, I?pulled up the chart, including the 50-day and 2= 00-day?simple moving average (SMA) for Merrill Lynch (MER):??SEE: http://fi= nance.yahoo.com/q?s=3Dmer&d=3Dc&k=3Dc2&p=3Dm50,m200??Merrill belongs to the= Broker/Investment Banking group. Its?one-year chart has closely tracked th= e S&P 500 (which I?also pulled up). The charts are similar: a rebound from = the?lows in September, followed by an eight-week rebound above?the 50-day l= ine but below the 200-day line.??More important is the long-term trend from= the high of 80?in February. For Merrill stock to inspire confidence, it?ha= s to break this trend by advancing to at least above 70.??Other stocks from= the group, though, have outperformed?Merrill's 57% advance since putting i= n 52-week lows Sept.?21, including Bear Stearns (BSC), Charles Schwab (SCH)= ,?Morgan Stanley (MWD), Goldman Sachs (GS), A.G. Edwards?(AGE), Legg Mason = (LM), Lehman Brothers (LEH), Ameritrade?(AMTD) and E*Trade (ET).??The latte= r two issues still trade under 10 a share. They?also have that allure of be= ing "Internet stocks."???5. Online Shopping??Speaking of the Web, online sh= opping this holiday season is?expected to increase from last year, but not = at a blistering?pace. Any improvement, though, is better than none in this?= beaten up sector.??Amazon.com (AMZN) rallied sharply Monday, Nov. 26, on ne= ws?that sales were ahead of last year's levels on the first?day of the holi= day shopping season.??Little known Global Sports (GSPT) also rallied to tra= de?roughly three points below its 52-week high of 19.88.??Online retail com= merce is undergoing a transition.?Retailers have determined that running a = Web site in-house?is expensive and requires a great deal of expertise.??Ama= zon has been making deals with major retailers such as?Target (TGT) to oper= ate it is online division on a fee?basis.??Global Sports does the same thin= g, specializing in providing?e-retailing technology for sellers of sporting= goods.??From a technical perspective, Global Sports was bombed in?the pani= c sell-off after the terrorist attacks to around 8?a share. It rebounded to= trade above its 200-day SMA at?roughly 15. Amazon has rallied to where it = just touches its?200-day line, which has been steadily sloping down for mor= e?than a year. In contrast, Global Sports' 200-day line has?been on an upwa= rd slope in the same time period.???6. Security Stocks Revisited??Albert L = e-mailed last week about a previous newsletter?that mentioned a number of s= tocks that provide services?such as bomb detection.??"But the most spectacu= lar gains were reserved for a number?of little-known and underfollowed comp= anies involved in?bomb detection, X-ray surveillance and other forms of?sec= urity surveillance. The list of winners was quite?extensive":??Vicon Indust= ries (VII)?American Science & Engineering (ASE)?Hi-Shear Technology (HSR)?I= dentix (IDX)?Intelli Check (IDN)?Mine Safety Appliance (MSA)?Invision Techn= ology (INVN)?Visage Technology (VISG)?ICTS International NV (ICTS)?Visionic= s Corp. (VSNX)?OSI Systems (OSIS)?Magal Security (MAGS)?Compudyne Corp. (CD= CY)?Mercury Computer (MRCY)?Applied Signal (APSG)?Engineered Support (EASI)= ?Kroll O'Gara (KROL)?Aeroflex (ARXX)?MicroSemi (MSCC)?Armor Holdings (AH)?L= -3 Communications (LLL)?Raytheon (RTN)?Wackenhut Corp. (WAK)?EDO Corp. (EDO= )?Alliant Tech (ATK)?Teledyne Tech (TDY)?Northrup Grumman (NOC)?Lockheed Ma= rtin (LMT)?Titan Corp. (TTN)??"If you were an old friend of mine," Albert a= sked," what?would be your advice, or what would be your best choice?among t= he above listed stocks to buy now?"??My reply:??I pulled up 1-year- bar and= volume charts for the stocks?from that newsletter to see how they've done = in the?aftermath of the Sept. 11 terrorist attacks.??These are the sexy sto= cks that excited speculators because they?have something to do with providi= ng security at places like?airports:??American Science & Engineering (ASE)?= Identix (IDNX)?Invision Technology (INVN)?Viisage Tech (VISG)?Visionix (VSN= X)??The problem I have with them is after gains of 75% to 250%,?how much up= side is left for companies that are extremely?small, are poorly capitalized= , and haven't produced much in?the way of profits prior to all this specula= tion about them?being at the forefront of surveillance technology.??I would= consider them highly speculative and wouldn't?advise anyone to invest more= than 5% of one's total?available capital in them.??Despite the hoopla and = emotion surrounding them, I tend to?think that the real surveillance will b= e handled by government?agencies who operate behind the scenes.??I would te= nd to go with companies that are more established?business enterprises.??Th= e company that interests me the most in terms of established?long-term perf= ormance is Mine Safety Appliances (MSA)?that trades on the American Stock E= xchange.??SEE:?http://finance.yahoo.com/q?s=3DMSA&;d=3Dc&k=3Dc2&a=3Dv&p=3Dm5= 0,m200&t=3D?1y&l=3Don&z=3Dm&q=3Db??As the 3-day bar and volume chart shows,= the stock doesn't?trade much volume on a daily basis. In fact, the 3-month= ?moving average is only 24,000 shares despite the spike that?occurred Sept.= 17-24 as the speculators and the specialist?firm at the AMEX ran up the pr= ice from 30 to 52.??Notice how it has declined to where it again touches th= e?200-day simple moving average (SMA).??However, one must take into account= how the shares have?moved in the past 12 months, while trading above this = long-term?line.??A check of the profile reveals that the company makes a?di= verse line of products (as opposed to these emerging?stocks, which are basi= cally one-product companies) that?provide protection for firefighters, resc= ue workers, all?designed to protect their health and safety.??The company t= ook in $537 million in revenues in the past 12?months and has a market capi= talization as of Friday, Nov.?23, of $440 million. Moreover, it pays a litt= le dividend of?56 cents a share each year. Cash flow was $81 million in the= ?past 12 months based on 12 million shares outstanding, or?roughly $6.75 pe= r share of free cash that can be put back?into the business (excluding divi= dends) or used to acquire?other businesses to ehance its product mix.??In f= act, MSA has acquired two companies since 1999.??In my view, this company d= eserves to be placed in the?Standard & Poor's 600 SmallCap Index in the pla= ce of Armor?Holdings (AH).??The Pentagon's recent awarding of its largest o= rder for?military aircraft will benefit certain semiconductor stocks?that m= ake specialty chips used in the cockpits of the new?jet fighters that are i= ntended to be adequate for at least?the next 20 years. One of the beneficia= ries will be?Microsemi (MSCC).??This stock's chart has gone the other way i= n the past year?compared with leading companies such as Intel and Texas?Ins= truments.??SEE:?http://finance.yahoo.com/q?s=3Dmscc&;d=3Dc&k=3Dc2&t=3D1y&a= =3Dv&p=3Dm50%2?Cm200&l=3Don&z=3Dm&q=3Db??Microsemi was among the stocks tha= t shot up Sept. 17 when?the market reopened as I watched the CNBC tape. Sin= ce I?knew the company is heavily involved in providing chipsets?for militar= y applications, this didn't surprise me. It was the?chief reason why I incl= uded it in the Sept. 18 newsletter.???7. Trading Methods & Strategies??I pu= lled up this tidbit of trading wisdom from a Raging?Bull chat board:??"A st= ock trader's supreme virtue is not discipline, as is so?often contended. Di= scipline is often stubbornness or?inflexibility masquerading as strength of= character.??"The supreme virtue - and probably the rarest - is?patience. P= atience for the long-term investor, who must?learn that a year is but a fra= ction of a business cycle;?patience for the intermediate or swing trader, w= ho must?learn that a day or a week does not make a trend; patience?for the = day trader, who must learn that a minute is not the?hour it seems to be."??= Our ex-IBM employee turned trader, Sonny T, e-mailed his?latest year-to-dat= e results:??"14 open positions with 9 of them in the money, with a?$9500.00= profit, and 5 lagging with about a $600.00 loss.?Net gain of about $8900.0= 0.??"56 closed positions with 32 losing trades for about?$8500.00 and 24 wi= nnings trades for a profit of a $4400.00.?Net loss of about $4100.00??"This= leaves a net gain of $4800.00 between the open and?closed trades."??Overal= l, Sonny T says that his ratio of winning trades?versus losing trades is ro= ughly 50%.??Is this a poor performance? Let's turn to an expert on the?subj= ect of trading, Dr. Van K. Tharp, who writes in "Trade?Your Way to Financia= l Freedom":??"Almost every successful investor that I have encountered?has = realized the lesson of the Holy Grail - that success?in markets comes from = internal control"??Although Sonny T has written that he would like to impro= ve?on his ratio of winning trades and be profitable each week,?Tharp produc= es this statistic:??"Most successful speculators have success rates of 35 t= o 50?percent. They are not successful because they predict?prices well. The= y are successful because the size of their?profitable trades far exceeds th= e size of their losses.?This requires tremendous internal control."??Tharp = adds, "Most successful market professionals achieve?success by controlling = risk. Controlling risk goes against?our natural tendencies. Risk control re= quires tremendous?internal control."??Lastly, "Most successful conservative= investors are?contrarians. They do what everyone else is afraid to do.?The= y have the patience and are willing to wait for the?right opportunity. This= also requires internal control."??------------------------SPONSOR---------= -------------------?Buyback Expert Earns 27.03% YTD with High-Tech Portfoli= o??David Fried knows a stock is cheap when the company buys?back its shares= . That's how he earned 27.03% YTD in techs?while the benchmark Nasdaq fell = 31.58%. 'Buy these 3 tech?buybacks today,' Fried says. Get them with a FREE= trial:?http://www.investools.com/c/go/BACK/JFN-backTW1?-------------------= ------***-------------------------------??8. Comment Welcomed??A resident o= f Wilmington, NC, Dave Jennings performs market?research for Ticker, a mont= hly publication for financial?planners and advisers. Dave enjoys receiving = reader comment?and replies to all e-mails. He can be reached at?djennings@e= c.rr.com.???---------------------------------------------------------------= ?INTERNET STOCK NEWS (ISN) ? 2001??Disclaimer: The material herein is for i= nformational purposes?only and should not be deemed an offer or solicitatio= n on our?part with respect to the sale or purchase of any securities.?http:= //www.123jump.com/disclaimer.htm?------------------------------------------= ----------------------??--------------------------------------------------?= You are currently subscribed to Internet Stock News Weekly as: alewis@enron= .com?To Cancel your subscription please go to:?http://123jump.com/confirm.h= tm?listid=3D117996&mid=3D115298?To Change your subscription please go to:?h= ttp://123jump.com/letters.htm?S=3DL&email=3Dalewis@enron.com
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