-=Trader Wizard Ezine - August 29, 2004=-



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BUY or SELL Recommendation on United Technologies
	UNITED TECHNOLOGIES (NYSE:UTX) Aug 27 last:$93.41 RECOMMENDATION: SELL STRATEGY: Buy UTX=WT Nov-04 Puts Strike@100 Price to be calculated as Aug 30 opening ask price for UTX=WT (Aug 27 close @ $7.60) OneChicago Single Stock Futures (UTX1C): UTX1C Z4 (Dec 04) (Aug 27 close $93.66) Among general reading, here is the material I used to make this decision: EasyStock Interactive charts: Monthly, Weekly, Daily, Hourly, 30-Minute plus Reuters data at Yahoo Finance and the ValueLine study. Also Motley Fool discussion of PEG.

The case for selling:
	1. PEG ratio, which is the company's price-to-earnings ratio compared to its earnings growth rate, is too high. The P/E (ttm) is 17.9 while Earnings Growth Rate (past 5 years is 15.5, but expected (see ValueLine) to fall to 11.0 over next 5 years. 2. Surprisingly high 2Q04 earnings supposedly reflects renewed growth of commercial aerospace industry, but the actual industry growth has not been that great, so 3Q04 earnings, while probably up, will not likely be shockingly so. 3. Otis (subsidiary) may have violated European Union competition rules, and is under investigation and may be subject to major penalties. 4. Declining RSI and STO technical indicators in short-term data series will likely carry over to Weekly data charts, particularly if VIX and VXN volatility indicators bottom out here and start to climb following GOP convention in NYC this week.

The case against selling:
	1. The recovery in the commercial aerospace aftermarket can’t be ignored. 2. Company’s financial strength will help manage any increase in market interest rates. 3. Guru Analysis at Nasdaq shows Lynch, O’Shaughnessey and Fisher rate UTX highly.

Trader Wizard's expectation for this trade:
	1. The UTX=WT puts are in-the-money and I’m paying ~$1 time premium. I anticipate UTX to re-test its $90 base (-3.6%) within 30 days, which would move the puts to ~$11, and a gain of ~40%. This decision is mostly based on anticipated stock market direction and the relative technical strength of other Dow components. 2. This is an aggressive stance: if the stock moves up to $97.15 (i.e., against me 4%), the puts will drop to ~$4, which would be a loss of ~47% of capital. The stock’s all-time high is $97.84, but if it happens to rally above $97 in this cycle, it will then likely set a new record high.

Trader Wizard Profit & Loss:
	Future issues of the ‘Trader Wizard buy or sell’ Ezine will present a calculation of p&l for individual trades and for all trades (both open and closed) for the Trailing Twelve Months.

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