Technical Outlook

A weblog about the markets, trading and technical analysis.

Saturday, June 21, 2003

NYTimes- Small Investors, Once Burned, Lead New Bull: "To some professional investors, the return of the individual to the stock market is a warning sign all its own. Traditional market lore states that individual investors are not shrewd enough to know when to buy and that when they swarm into stocks professional investors often sell. But amateurs are not the only ones who are bullish. The most recent Investors Intelligence survey shows that 60.2 percent of investment newsletter writers are bullish, while 16.1 percent are negative. That is the lowest bearish reading since before the crash of Oct. 19, 1987."

NYTimes- Halliburton's Rebuilding Efforts In Iraq: "The Army says KBR got the Iraqi oil-field contract without having to compete for it because, according to the Army's classified contingency plan for repairing Iraq's infrastructure, KBR was the only company with the skills, resources and security clearances to do the job on short notice. Who wrote the Army's contingency plan? KBR ... From 1997 to 2000, when Cheney was running Halliburton, two of its subsidiaries sold Saddam Hussein's government a total of $73 million in oil-field supplies. The deal didn't violate U.S. sanctions because the subsidiaries, Dresser-Rand and Ingersoll Dresser Pump Company, were foreign. KBR/Halliburton, then, has rounded the bases when it comes to Iraq. It got rich doing business with Iraq, it got rich preparing to destroy Iraq and it's now getting rich rebuilding Iraq."

HAL announced on Friday that Q2 earnings would be below estimates. HAL gapped down in Friday trading and closed down 5.2% for the day.
BBCNews- Wi-fi will be 'next dot.com crash': "'What we're hearing right now are the promises of fame and fortune typical of an early deployment phase', says Keith Waryas, a wi-fi expert at IDC and warns that 'this market is still exceptionally young and rife with uncertainty.' ... George Bartley at Cordless predicts that in a wi-fi enabled UK just 15 to 20 places - like airports or train stations - will snap up 40% of all wi-fi revenue. Hotels for business travellers in about 1,500 locations will account for another 40% of revenue. About 17% of income will go to another 3,000 sites, while at the bottom end some 30,000 hotspot owners will fight for the remaining 3% of the wi-fi profit cake."

Wednesday, June 18, 2003

Play Money: "By the time the IRS comes calling next year, April 15, I will be able to report that selling UO [Ultima Online] goods is my primary source of income, and that I earn more from it, on a monthly basis, than I have ever earned as a professional writer."
NYTimes- Brain Experts Now Follow The Money: "Many neuroscientists are beginning to argue that it is time to create a new field of study, called neuroeconomics. These researchers are busy scanning the brains of people as they make economic decisions, barter, compete, cooperate, defect, punish, engage in auctions, gamble and calculate their next economic moves. Based on their understanding of how fluctuations in neurons and brain chemicals drive those behaviors, the neuroscientists are expressing their findings in differential equations and other mathematical language beloved by economists"

Interesting. Neuroeconomics, behavioral finance and technical analysis have different names but they all seem to be ways of getting behind the psychology of the markets.
AP- NASD Says Instant Messages Must Be Saved: "The National Association of Securities Dealers Wednesday told its member firms they must save instant messages for at least three years ... On Monday, the New York Stock Exchange officially told its 336 member firms that instant messages must be saved."
(via Boing Boing)

Sunday, June 15, 2003

Someone's been bidding up my Blogshares stock. The price went from $1.01 on Jun 14 to $192.55 today.
ESPN- CART may be privatized: "The For Sale sign is expected to be officially displayed by Championship Auto Racing Teams on Monday ... Since taking over CART's management before the 2002 season, CART CEO Chris Pook has maintained his goals were to take CART private and stabilize the company. 'All I can say is that there will be a press release issued in the near future,' Pook said on Sunday morning. 'Some of the naysayers may put a negative spin on it but it's the first step of what will be good news for this company.'"

CART (stock symbol MPH) has been on an constant downward trend since 1999, going from 30+ to Friday's close at 2.91.
WashPost- Wal-Mart Follows The Netflix Model: "[Netflix] has more than 1 million subscribers, offers 15,000 titles and ships from 20 distribution centers. Wal-Mart has released no subscriber tallies but is believed to have well under 50,000 ... It's worth noting that Wal-Mart, even with its vast network of stores, has rejected the in-store movie rental model being offered by Blockbuster."

In response perhaps to this news, NFLX dropped 12.4% on Friday to close at 19.20. NFLX had rocketed from 4.85 on Oct 10, '02 to a high of 26.35 on Jun 6, '03. The chart now shows a potential double-top pattern but was there any reason to exit the stock before Friday? Depending on how steeply we draw the uptrend line, it was broken either May 19, 03 or Jun 9, '03. In either case, breaking the trendline would have been a sign to sell. Doing so would have meant getting out around 23 or 22, preserving an extra 15-20%. Other than the trendline breaking, another bad sign was failing to hold the breakthrough of the 26 level on Jun 6. All these would be signs to exit before the massive drop on Friday.

Having said that, as noted in the WashPost article above, Netflix has over 1 million subscribers. It will conceivably still be a while before Wal-Mart is able to catch up to them. Also, one should consider the profiles of the customers who use Netflix vs Wal-Mart. My guess is Wal-Mart customers tend to be slightly lower income and less technologically inclined. These customers are probably less likely to own DVD players or access the internet on a regular basis. However, Wal-Mart could start a price war and thus attract customers that way and drive down Netflix's profits. Still, there remains no good news on the horizon for NFLX which could spur further upward price movement other than a minor correction of Friday's reaction.

Wednesday, June 11, 2003

NYTimes- JetBlue Buying 100 Regional Jets: "The order was an unexpected move by JetBlue, the low-cost carrier based in Queens, because the company had always espoused the efficiencies of operating only one type of plane, the A320 from Airbus ... 'It'll all depend on how it's implemented,' said Robert W. Mann, an airline consultant in Port Washington, N.Y. He pointed out that some low-cost carriers, like People's Express, grew too rapidly and failed."

JBLU closed on Tuesday at 32.978, down 4.72%. JBLU had been on a tear since mid-March, jumping 61% from 23.15 to 37.34 last week. The biggest problem with yesterday's drop from a technical standpoint is that it broke the 3 month uptrend line. Not only did it break the line, it gapped and did so on high volume.

When I see a drop of this magnitude, it looks like an overreaction to the unexpected news. The overreaction will likely lead to a minor upward correction tomorrow or over the next few days. However, as a technical trader, discipline is important. While psychologically, one may want to hold on and see, if one was trading based on short-term trendlines, it would be prudent to sell because the line has now been broken. Some profit may be left on the table but by selling, you preserve what you have, prevent further loss and there is nothing stopping you from re-entering the market if the uptrend resumes.

Tuesday, June 10, 2003

LATimes- Microsoft, Yahoo, AOL and others plan music services: "The possible foray by major Internet players into online music downloads is testimony to the vision of Apple chief Steve Jobs, who debuted his music service April 28. But it also signals that the Cupertino, Calif.-based computer company's early lead may be short-lived ... Some Internet executives wonder whether Apple's iTunes store generates more profits by promoting the company's computers and portable music players than by selling songs."

It's hardly surprising that other companies are scrambling to copy Apple's model again. However, as with past events, Apple is at risk of innovating but having others reap the profits through their own versions. All of Apple's products (save the iPod) are tied to Apple's hardware and operating system. At this point, iTMS software is available on Macs only although a Windows version is in the works.

Releasing things on Macs only or Macs first is a good strategy if you want to attract people to your computing platform. However, AAPL needs to decide whether iTMS will be a potentially bigger business platform-free or whether it's worth more as a draw for people to buy Macs.

If AAPL is able to move quickly enough, the iTunes Music Store concept has the potential to break free of that and become something that is licensed by other parties. Imagine iTMS being the backbone for Amazon's own store or for AOL. Why would either of those companies want to team up rather than build their own? AAPL has figured it out already. They have the infrastructure set up. They can cut months out from their own development time, an important consideration especially since Microsoft is planning to develop their own music store as well. However, a question remains in whether or not AAPL's agreement with record labels allows them to sub-license their system.
Canadian insurer Manulife Financial Corp has been on an uptrend since the beginning of this year. Currently trading at 28.17. A crucial test will be the 30 level, reached in May '02. At that time, the resistance was high. MFC attempted to go past 30 a few times, failed and eventually fell to 18. If MFC fails to break through 30 this time, it will be a bad sign in terms of the uptrend. If it does break through, it will be interesting where it goes from there. The historic high for MFC is 32.188, a price reached on Dec 29, '00.
NYTimes has an article on how Steinway pianos are made by master craftsmen today. Steinway & Sons' is owned by the public company Steinway Musical Instruments.

LVB (the symbol stands for Ludwig van Beethoven) has gone up about 25% in the past two weeks. The one year downtrend has been broken. The next major test will be the high of 19.19 reached on Nov 4, '02.
There's a good daily column in the Washington Post called Filter which focuses on a certain topic each day and links to a bunch of articles in different papers about that topic. The latest article is on Oracle's hostile bid for PeopleSoft.

Wednesday, June 04, 2003

From MTV News- Apple looks to sign independent labels to iTunes Music Store: "Apple has invited hundreds of indie label representatives to a private presentation on Thursday at the computer giant's Cupertino, California, campus to discuss hopping onboard and adding their content to the more than 200,000 songs already available through the service."

This is good news but the contribution to the bottom line will probably be minimal. Practically all the "popular" artists are signed to the major labels. While undoubtedly bands on indie labels have their fans, they remain a niche audience. After signing the indie labels, Apple could look to foreign expansion. Perhaps set up a Spanish or Chinese or Japanese music store. They could also go the route of mp3.com and allow anyone to publish and sell music through their system. However, as mp3.com has shown, people remain interested mainly in the big name artists.

On another note, The Register reports that Amazon is interested in licensing the iTunes Music Store. The most interesting tidbit of information from that article is that Apple currently pays 65 cents of the 99 cent song price to record companies.
More on Disney: DIS closed Wednesday at 20.73, +4.91% on the day. DIS has now broken above the high of 20.24 reached on Dec 02, '02. DIS is now at an 11 month high.

TheStreet.com reports that analysts are split on the prospects of DIS: "Fulcrum analyst Richard Greenfield initiated coverage of Disney with a sell rating and $16 price target, saying the shares are overvalued after the fast success of the U.S-led war in Iraq. Going forward, the analyst said he believes margins will decline to 12% from 14.3%, and that full-year earnings will only grow 9%, compared with expectations of 25% to 35% ... Meanwhile, Credit Suisse analyst William Drewry couldn't have disagreed more, saying Disney will have 'the best-performing stock in the media/entertainment group over the next 12 months.' He raised his target price to $27 from $23, based on his estimate of the company's 2003 earnings before interest, taxes, depreciation and amortization of $3.8 billion."

Tuesday, June 03, 2003

NYTimes- Martha Stewart Expecting Federal Indictment on Criminal Charges: "Martha Stewart, who has been under investigation by the Justice Department for more than a year for her sale of shares in ImClone Systems in late 2001, is expected to be indicted on criminal charges 'in the near future,' her company said today. An indictment could come as early as this week."

MSO dropped 15% to 9.52 on heavy volume on Tuesday. Overreaction or buying opportunity? The P/E ratio is listed at a staggering 112. Is that accurate? Common sense and a look at the chart would indicate that it would be more prudent to sell or wait for more information at this point. Upon the actual indictment, MSO is likely to drop again and upon a conviction (if indeed she is found guilty), there is liable to be yet another drop, especially if jail time is required.