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ISN Ones to Watch 11/27/2001: Too Soon To Tell
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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

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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=mtms&d=c&k=c2&p=m50,m200???2. Observations??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.??Earlier 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 drop its daily output of crude oil.??We seem to have come full circle. Instead 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 perhaps decades,?regardless of what kind of government is established that?loosely resembles a "democracy." Were I the CEO of an?automobile/truck company, or an electronics component contract?manufacturer, I wouldn't consider locating a plant there in the?near-term.??The more I study the writings of Hernando 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 poverty, the more it makes sense to me.??Since Sept. 21, when more than 1600 stocks 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 wants to take?a chance on hundreds, if not thousands, of beaten up stocks on?the hope that a turnaround in the U.S. economy in 2002, whenever?it occurs, will result in accelerating revenues and profits.??When the U.S. economy was roaring along at a 6% annual rate,?and Optical Networking, Internet, and emerging Telecom stocks?were reporting year-over-year revenue growth rates of 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. Sometimes, though, this?anticipation goes to an excess.??No, I don't think some Fallen 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 50 a share by?Dec. 31, 2001.??Moreover, I don't think these stocks will be priced at 50 a share?on Nov. 23, 2002, purely on "anticipation of rising revenues and?earnings."??But, I've been wrong before.??Certainly oil and its derivative fuels, natural gas, propane,?heating oil, gasoline and diesel are sexy right now. So is gold,?since we're all worried about hard economic times.??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 did agree about reducing?the production of nuclear, but they failed to agree about?curtailing the production of nuclear missiles.??To make it simple, Russia 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 that makes the difference.??The preferred method of delivery of a nuclear bomb 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 States 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 since 1960.??The more things change, the more they stay the same.???3. Weekly Portfolio Results??The stocks in my Sharebuilder.com investment plan advanced?0.6%. This surprised me, for I thought this portfolio of 31?stocks would 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 Lynch Biotech HOLDRs Trust (BBH) gained 4%.?Semiconductor stocks as represented by the Philadelphia?Semiconductor Index (SOX) pulled back 3.5%.??Conclusion: 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?newsletter, the only remaining stocks from February are two?semiconductor stocks: Xilinx (XLNX) and Broadcom (XLNX).??Xilinx is the premier programmable logic device company. Of?course, the folks at Altera Corp. (ALTR) would disagree.??Still, from a low of 19.52 on Sept. 21, Xilinx has managed to?advance 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.??Conclusion: 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 major source of price resistance.?This is Broadcom's third try at the 50 resistance 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?three of them: American Water Works (AWK), Tetra Tech?(TTEK), which splits 5-for-4 next month, and SCP Pool?(POOL). The latter two stocks are components of the?Standard & Poor's 600 SmallCap Index. American Water Works?is a component 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 Watch?Portfolio, EarthLink (ELNK), 1-800Flowers.com (FLWS),?Jack Henry & Associates (JKHY), Intercept Group (ICPT),?Alloy Inc. (ALOY), Catapult Communications (CATT),?Register.com (RCOM) and Copart Inc. (CPRT) have rebounded?above the 200-day simple moving average (SMA) since the?dramatic sell-off during Sept. 17-21.??The others - Efunds (EFDS), SEI Investments (SEIC),?Pharmaceutical Product Development (PPDI), Daktronics?(DAKT) and SonicWALL (SNWL) - are stragglers. Still trading?below the 200-day line.??SonicWALL, which competes in the firewall space, has been a?disappointment compared with others in the sector:?McAfee.com (MCAF), Internet Security (ISSX), Network?Associates (NETA) and Symantec (SYMC).??Of the Sweet 16? Tech stocks I've been tracking since late?July, four have advanced above the 200-day line: Business?Objects (BOBJ), Nokia Corp. (NOK), Vodaphone Group (VOD)?and Genentech (DNA). The former three are foreign firms,?while the latter has participated, 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: Veritas Software (VRTS), I2 Tech (ITWO),?Micromuse (MUSE), Alcatel (ALA), Comverse Tech (CMVT),?Network Appliance (NTAP), EMC Corp. (EMC), Juniper Networks?(JNPR), CIENA Corp. (CIEN), BEA Systems (BEAS) and Corning?Corp. (BEAS).??The 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,?namely, earnings, earnings, earnings, will determine how?far these stocks advance in 2002.??A major factor in long-term investment success entails two?ingredients: first, developing a plan based on investing?fixed amounts on a regular basis, and second, resolving to?stick with it through good and bad markets.??I currently have 31 positions in my Sharebuilder Plan. That?practically qualifies it as a mini-mutual fund. I make?regular monthly purchases on the fourth Thursday of each?month.??This morning, the plan purchased whole 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 Business Daily is a good source for beginning?investors and traders to learn how stocks in the same?business or industry are divided into groups, their overall?fundamentals, and how they are performing in comparison?with other sectors.??Dow Jones and Standard & Poor's also regularly publish the?daily performance of stock groups, according to their?particular ranking systems.??Indeed, Richard D. Wyckoff, an early pioneer in technical?analysis, watched specific stock sectors in order to?determine which groups were lagging and which groups were?performing well.??Computers and the Internet make it easier for individuals?to track stock groups.??By using a charting feature courtesy of Yahoo! Finance, I?pulled up the chart, including the 50-day and 200-day?simple moving average (SMA) for Merrill Lynch (MER):??SEE: http://finance.yahoo.com/q?s=mer&d=c&k=c2&p=m50,m200??Merrill belongs to the Broker/Investment Banking group. Its?one-year chart has closely tracked the 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 line 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?has 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 in 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 latter two issues still trade under 10 a share. They?also have that allure of being "Internet stocks."???5. Online Shopping??Speaking of the Web, online shopping 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 news?that sales were ahead of last year's levels on the first?day of the holiday shopping season.??Little known Global Sports (GSPT) also rallied to trade?roughly three points below its 52-week high of 19.88.??Online retail commerce is undergoing a transition.?Retailers have determined that running a Web site in-house?is expensive and requires a great deal of expertise.??Amazon has been making deals with major retailers such as?Target (TGT) to operate it is online division on a fee?basis.??Global Sports does the same thing, specializing in providing?e-retailing technology for sellers of sporting goods.??From a technical perspective, Global Sports was bombed in?the panic 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 more?than a year. In contrast, Global Sports' 200-day line has?been on an upward 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 stocks that provide services?such as bomb detection.??"But the most spectacular gains were reserved for a number?of little-known and underfollowed companies involved in?bomb detection, X-ray surveillance and other forms of?security surveillance. The list of winners was quite?extensive":??Vicon Industries (VII)?American Science & Engineering (ASE)?Hi-Shear Technology (HSR)?Identix (IDX)?Intelli Check (IDN)?Mine Safety Appliance (MSA)?Invision Technology (INVN)?Visage Technology (VISG)?ICTS International NV (ICTS)?Visionics Corp. (VSNX)?OSI Systems (OSIS)?Magal Security (MAGS)?Compudyne Corp. (CDCY)?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 Martin (LMT)?Titan Corp. (TTN)??"If you were an old friend of mine," Albert asked," what?would be your advice, or what would be your best choice?among the 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 stocks that excited speculators because they?have something to do with providing security at places like?airports:??American Science & Engineering (ASE)?Identix (IDNX)?Invision Technology (INVN)?Viisage Tech (VISG)?Visionix (VSNX)??The problem I have with them is after gains of 75% to 250%,?how much upside 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 speculation 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 be handled by government?agencies who operate behind the scenes.??I would tend to go with companies that are more established?business enterprises.??The company that interests me the most in terms of established?long-term performance is Mine Safety Appliances (MSA)?that trades on the American Stock Exchange.??SEE:?http://finance.yahoo.com/q?s=MSA&d=c&k=c2&a=v&p=m50,m200&t=?1y&l=on&z=m&q=b??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 price from 30 to 52.??Notice how it has declined to where it again touches the?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?diverse line of products (as opposed to these emerging?stocks, which are basically one-product companies) that?provide protection for firefighters, rescue workers, all?designed to protect their health and safety.??The company took in $537 million in revenues in the past 12?months and has a market capitalization as of Friday, Nov.?23, of $440 million. Moreover, it pays a little 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 per share of free cash that can be put back?into the business (excluding dividends) or used to acquire?other businesses to ehance its product mix.??In fact, MSA has acquired two companies since 1999.??In my view, this company deserves to be placed in the?Standard & Poor's 600 SmallCap Index in the place of Armor?Holdings (AH).??The Pentagon's recent awarding of its largest order for?military aircraft will benefit certain semiconductor stocks?that make specialty chips used in the cockpits of the new?jet fighters that are intended to be adequate for at least?the next 20 years. One of the beneficiaries will be?Microsemi (MSCC).??This stock's chart has gone the other way in the past year?compared with leading companies such as Intel and Texas?Instruments.??SEE:?http://finance.yahoo.com/q?s=mscc&d=c&k=c2&t=1y&a=v&p=m50%2?Cm200&l=on&z=m&q=b??Microsemi was among the stocks that shot up Sept. 17 when?the market reopened as I watched the CNBC tape. Since I?knew the company is heavily involved in providing chipsets?for military applications, this didn't surprise me. It was the?chief reason why I included it in the Sept. 18 newsletter.???7. Trading Methods & Strategies??I pulled up this tidbit of trading wisdom from a Raging?Bull chat board:??"A stock trader's supreme virtue is not discipline, as is so?often contended. Discipline is often stubbornness or?inflexibility masquerading as strength of character.??"The supreme virtue - and probably the rarest - is?patience. Patience for the long-term investor, who must?learn that a year is but a fraction of a business cycle;?patience for the intermediate or swing trader, who 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-date 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 $8900.00.??"56 closed positions with 32 losing trades for about?$8500.00 and 24 winnings 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."??Overall, Sonny T says that his ratio of winning trades?versus losing trades is roughly 50%.??Is this a poor performance? Let's turn to an expert on the?subject of trading, Dr. Van K. Tharp, who writes in "Trade?Your Way to Financial 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 improve?on his ratio of winning trades and be profitable each week,?Tharp produces this statistic:??"Most successful speculators have success rates of 35 to 50?percent. They are not successful because they predict?prices well. They are successful because the size of their?profitable trades far exceeds the 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 requires tremendous?internal control."??Lastly, "Most successful conservative investors are?contrarians. They do what everyone else is afraid to do.?They 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 Portfolio??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 of Wilmington, NC, Dave Jennings performs market?research for Ticker, a monthly publication for financial?planners and advisers. Dave enjoys receiving reader comment?and replies to all e-mails. He can be reached at?djennings@ec.rr.com.???---------------------------------------------------------------?INTERNET STOCK NEWS (ISN) ? 2001??Disclaimer: The material herein is for informational purposes?only and should not be deemed an offer or solicitation 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.htm?listid=117996&mid=115298?To Change your subscription please go to:?http://123jump.com/letters.htm?S=L&email=alewis@enron.com