"Reward must be earned."

-- Christina Nikolov

Name/Ticker: Phelps Dodge (PD)

Date: January 2, 2003

Opinion: Bearish

Current Price: $33.20

Target Price(s): $29.40, the possibley below $25

Commentary:

Over the past three months, Wall Street's prognosticators slashed their 2003 earnings estimates for Phelps Dodge (PD) by 58.6%. Regardless, the shares are now 26.1% higher than they were three months ago and tout a p/e multiple of 59 based on fiscal 2003 projections.

PD surged 47% between the October 10th low and the November 6th peak, then spent the past two months consolidating. (chart #1) Currently, the stock is about to challenge its two year moving average- A level which has offered considerable resistance over the past year. (chart #2)

At the same time, these shares dangerously overbought on the weekly chart, while approaching an overbought level on a daily and monthly basis. Coincidentally, over the past seven years there were five instances when PD was this overbought on the monthly chart. All came right at or very close to significant peaks. (chart #3)

Eventually, we expect this security to fall like lead, so it might be a good idea to use any strength to swap long positions for short positions.

To profit from this anticipated decline, we suggest the July 40 put (Symbol: PDSH), which is currently offered at $8.80. We like this security because the breakeven point is far higher than other PD options, while giving you a very conservative six month window.



Chart(s):

#1) Phelps Dodge (PD) Four Month Daily Chart

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#2) Phelps Dodge (PD) Twenty Five Month Weekly Chart

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#3) Phelps Dodge (PD) Seven Year Monthly Chart

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