The Option Investor Newsletter Tuesday 4-6-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Also provided as a service to The Online Investor Advantage Published three times weekly, Sunday, Tuesday, Thursday evenings. ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 4-6-99 High Low Volume Advances Decline DOW 9963.49 - 43.84 10030.37 9915.76 791,356k 1,185 1,766 Nasdaq 2563.17 + 3.11 2582.37 2544.04 1115,400k 1,574 2,422 S&P-100 665.29 + .43 670.18 661.38 Totals 2,759 4,188 S&P-500 1317.89 - 3.23 1326.76 1311.07 39.7% 60.3% $RUT 401.08 - 1.21 403.52 399.39 $TRAN 3325.12 - 28.28 3367.29 3323.30 VIX 22.95 + .14 23.86 22.32 Put/Call Ratio .50 ************************************************************* Gillette suffered a very close shave after an earnings warning. After warning that sales were weak and earnings would come in under analyst's estimates Gillette lost -$7.81 as investors fled in frustration. Gillette joined Coke as the second big Dow components to both warn of weaker earnings for this quarter and possibly next quarter as well. Both blamed weaker global sales. The Dow, fresh from a +175 point run yesterday and a new closing high, took the warnings seriously and as a signal to take profits. Hopefully you did not really expect the Dow to be up today after the big gain yesterday. By any standard a big triple digit gain should be followed by a day of profit taking. At this level we are still seeing the D10K sellers. The longer we hover at this level the more momentum we will have when we pass it for good. We are eating up resistance daily and building support over 9900. Other notable news was the disclaimer by AOL that they were not about to announce a takeover of CBS. The concept baffles me but evidently there were some real strong rumors about an announcement on Wednesday. After AOL denied the rumor CNBC spared no effort to knock the recent price rise of AOL. I am not saying they are wrong but I do disagree with their running the spot over and over all day long. The point was the current valuation of AOL as greater than IBM, AT&T, Coke or Disney. At the high today AOL had a market cap of $173 Bln. The market caps of the other companies were IBM $169 bln, AT&T $168 bln, KO $147 bln, Disney $63 bln. AOL is now the seventh largest company by market cap on the NYSE. AOL made net profits of $92 million last year and IBM had net profits of $6.3 billion. Why should AOL be valued for more than IBM? If AOL continued adding 9 mln users a year, it's current pace, it would take ten years to have 100 mln subscribers. If it made $92 mln with 15 mln subscribers then you could project a $600 million profit ten years from now. This is a very simplistic comparison but I think you get my drift. If you assume IBM is fairly valued for a $6.3 bln annual profit then how many subscribers and page views does AOL need to be fairly valued at the same price? About 75 times more than they have today. Maybe CNBC is right but I don't think they should take it upon themselves to be Internet stock price monitors. In the Internet arena all eyes are on Yahoo which announces it's earnings after the close on Wednesday. They will be viewed as a barometer of the health of the sector. RNWK was blessed again today with another $250 price target upgrade and promptly soared another +$41. Gravity anyone? The Dow traded on both sides of positive all day until the failed cease fire offer in Kosovo. After 2:00 the Dow dropped -100 points to a low of 9915. Bargain hunters stepped in and closed the gap. This may be the only pull back we get this week. The volume was good with the Nasdaq trading over one billion shares. Analysts say the lack of warnings from major tech companies has put a positive forecast on the coming earnings season. The Nasdaq was up over +20 at midday but fell back with the Dow. It still managed to close with another record. Not everyone took part with MSFT turning in a -.88 and WCOM -2.94. CSCO managed to stay positive at +.81 but the leaders were INTC at +2.94 and Dell at +2.75. The Intel number was the result of analysts saying the recent sell off and bearish forecast was over done. Dell was up on expectations of a positive spin at the analysts meeting on Thursday where Michael Dell is likely to say good things about their prospects. Analysts are expecting +38% growth for Dell. If Michael is less than wildly optimistic we could see a buy the rumor, sell the fact pullback. Schwab boosted the brokers again by publicly announcing their total trades for the quarter were up over 40% and the percentage of online trades was growing as a percent of their total trades. Network Associates did announce earnings that beat estimates after the close today which bodes well for the software sector. Without any significant economic news until Friday we are likely to spend more time over 10,000 this week. With the major earnings due out over the next three weeks there is a good possibility we will finally break out over 10,000 and test the upper limits of our new trading range. Even with the positive outlook the advancers were beaten solidly by the decliners again today with 4,188 decliners to 2,759 advances. The blue chips continue to lead. There is some evidence of life in the small caps with the Russell-2000 closing over 400 for two days in a row. If we can hold above 400 we have a chance in convincing investors that the rally is for real. If it breaks below 400 again I think we could be in for some real trouble after earnings. The response to starting the option trading clubs on Sunday was incredible. We had so many responses we have not been able to organize them all yet. We hope to have the list of organizers for each area done by this weekend. If you have not emailed us with your interest level please do so soon so we can move this project to the next level. If you just want to visit then email to "visit@OptionInvestor.com" If you can help organize the first meeting of a chapter in your area then email to "organize@OptionInvestor.com". You must include your city and state in the email. We will send a list of organizers to the "visitor" list for each state. You can then contact the one closest to you. Good Luck, Sell too soon. Jim Brown Editor *************** Market Posture *************** As of Market Close - Tuesday, April 6, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 9,500 10,000 9,963 Neutral 3.19 SPX S&P 500 1,250 1,325 1,318 Neutral 3.19 OEX S&P 100 630 660 665 BULLISH 4.6 * RUT Russell 2000 400 435 401 Neutral 4.6 * NDX NASD 100 2,000 2,100 2,219 BULLISH 3.29 MSH High Tech 900 1,000 1,096 BULLISH 3.29 Key Benchmarks Technology Bearish/Bullish Last Posture/Since Alert **************************************************************** XCI Hardware 800 900 935 BULLISH 4.6 * CWX Software 600 650 633 Neutral 4.6 * SOX Semiconductor 350 400 413 BULLISH 4.6 * NWX Networking 420 450 458 BULLISH 4.1 INX Internet 500 580 653 BULLISH 3.29 Key Benchmarks Financial Bearish/Bullish Last Posture/Since Alert **************************************************************** BIX Banking 650 710 672 Neutral 3.19 XBD Brokerage 350 415 428 BULLISH 4.6 * IUX Insurance 600 655 646 Neutral 3.19 Key Benchmarks Other Bearish/Bullish Last Posture/Since Alert **************************************************************** RLX Retail 875 940 909 Neutral 3.19 DRG Drug 390 420 410 Neutral 3.25 HCX Healthcare 775 835 807 Neutral 3.25 XAL Airline 170 185 172 Neutral 3.30 OIX Oil & Gas 250 260 264 BULLISH 3.30 Posture Alert The broad market advancing higher after favorable employment report last Friday. We have turned Bullish across the S&P 100, Hardware and Semiconductor sectors after breaking out of current trading range and Neutral on the Software sector after selling off below key 650 benchmark. We have also turned Neutral across the Russell 2000 after trading above the key 400 level. A detailed description of our Market Posture and its applications can be found at: www.OptionInvestor.com/marketposture ************************************************ Market Sentiment - By Pinnacle Capital Advisors ************************************************ Why is the DOW trading Below 10,000? With talk of a possible cease fire in the Baltics and a favorable employment report, why is the DOW trading below 10,000? After advancing into record territory on Monday (4/5), both the DOW and the S&P 500 could not hold its gains today. Wednesday (4/7) is going to be key moment in the market as many analysts will be looking for confirmation of the latest rally. Many fear that the rally was focused only on a couple of blue chip issues. Pinnacle will also be interested in whether the Russell 2000 can hold above the key 400 level. BEARISH Signs: Interest Rates Bouncing off 200dma and holding above important 5.50% level (5.516%) Advance/Decline Line Enormous gap between INDU and A/D line. BULLISH Signs: Higher Highs Several industry sectors advancing higher and took out prior highs including S&P 100, Nasdaq 100, Morgan, Stanley Technology, Internet and Networking. Peak Open Interest April's peak open interest (1.55) climbed higher indicating that Put open is building. Russell 2000 Trading above key 400 level. Troops beginning to follow Generals. Market Volatility (VIX) Trading BELOW 50-day moving average (23.04). OTM Call Analysis As we move through April's expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 650-700 among option speculators. As we have been documenting, out-of-the-money (OTM) call buying has been climbing and may serve as overhead resistance. March Expiration Cycle OEX OTM Call Analysis (Open Interest MAR 650-700) ----------------------------------------------------------------- Date Open Interest Change % Alert ----------------------------------------------------------------- Friday, March 5 58,085 - Friday, March 12 68,675 +18.2% Thursday, March 18 85,124 +47.6% * April Expiration Cycle OEX OTM Call Analysis (Open Interest Apr 650-700) ----------------------------------------------------------------- Date Open Interest Change % Alert ----------------------------------------------------------------- Friday, March 19 35,626 - Friday, March 26 60,266 +69.2% Friday, April 2 70,952 +99.2% Tuesday, April 6 74,683 +109.6% * Market Sentiment at a Glance ******************************************************************** Friday Tues Thurs Indicator (4/2) (4/6) (4/8) Alert ******************************************************************** Pinnacle Index (OEX): ----------------------------------------------------------------- Overhead Resistance (660-675) 5.1 2.5 Underlying Support (635-650) 1.8 1.9 * Put/Call Ratios: ----------------------------------------------------------------- CBOE Total P/C Ratio .6 .6 CBOE Equity P/C Ratio .5 .4 * OEX P/C Ratio 1.5 1.5 * Peak Open Interest (OEX): ----------------------------------------------------------------- Puts 520 520 Calls 700 700 P/C Ratio 1.41 1.55 * Market Volatility Index (VIX): ----------------------------------------------------------------- CBOE VIX 23.34 23.04 * Investors Intelligence: ----------------------------------------------------------------- Bullish 55.6% 55.6% * Bearish 31.6% 31.6% * The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index ----------------------------------------------------------------- OEX Friday Tues Thurs Benchmark (4/2) (4/6) (4/8) ----------------------------------------------------------------- (670-675) 31.9 10.8 (660-665) 3.2 1.6 Overhead Resistance (660-675) 5.1 2.5 OEX Close 649.92 665.29 Underlying Support (635-650) 1.8 1.9 (645-650) 1.4 1.6 (635-640) 2.0 2.4 Average ratings: Resistance levels 2.0 / Support .5 What the Pinnacle Index is telling us: Overhead sentiment resistance is slowly evaporating at the OEX 660/675 level while the underlying support is building at the OEX 635/650 level. Put/Call Ratio ----------------------------------------------------------------- Friday Tues Thurs Strike/Contracts (4/2) (4/6) (4/8) ----------------------------------------------------------------- CBOE Total P/C Ratio .63 .56 CBOE Equity P/C Ratio .47 .40 OEX P/C Ratio 1.43 1.50 Peak Open Interest (OEX) ----------------------------------------------------------------- Friday Tues Thurs Strike/Contracts (4/2) (4/6) (4/8) ----------------------------------------------------------------- Puts 520 / 15,222 520 / 16,579 Calls 700 / 10,780 700 / 10,704 Put/Call Ratio 1.41 1.55 Market Volatility Index (VIX) ----------------------------------------------------------------- Major Date Turning Point VIX ----------------------------------------------------------------- October 97 Bottom 54.60 July 20, 1998 Top 16.88 October 8, 1998 Bottom 60.63 January 11, 1998 Top 26.38 March 4, 1999 Bottom 28.15 April 1, 1999 23.34 April 6, 1999 23.04 Investors Intelligence Survey ----------------------------------------------------------------- Major Percent Percent Date Turning Point Bullish Bearish ----------------------------------------------------------------- October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top 58.3 30.0 ----------------------------------------------------------------- January 6, 1999 58.3 30.0 January 13, 1999 60.0 30.0 January 20, 1999 61.7 25.9 January 27, 1999 60.7 28.2 February 3, 1999 60.0 26.7 February 10, 1999 61.7 25.9 February 17, 1999 55.7 28.7 February 24, 1999 54.1 31.5 March 3, 1999 50.9 32.1 March 10, 1999 49.1 32.5 March 17, 1999 52.6 17.6 March 24, 1999 55.9 29.7 March 31, 1999 55.6 31.6 * Please view this in COURIER 10 font for alignment ***************************************************** CHANGES THIS WEEK Index Last Mon Tue Week Dow 9963.49 174.82 -43.84 130.98 Nasdaq 2563.17 66.69 3.11 69.80 $OEX 665.29 14.94 0.43 15.37 $SPX 1317.89 27.40 -3.23 24.17 $RUT 401.08 3.55 -1.21 2.34 $TRAN 3325.12 44.24 -28.28 15.96 $VIX 22.95 -0.53 0.14 -0.39 Stock Mon Tue Week CMGI 229.63 28.69 13.63 42.32 Internet speculation is in bloom RNWK 195.44 -3.38 40.94 37.56 Just another $40, takeover candidate YHOO 214.88 39.38 -4.25 35.13 Dropped, earnings 4/7. Split candida AOL 167.50 16.94 0.56 17.50 Bigger than IBM, T, or KO EGRP 76.00 11.75 3.38 15.13 Started its earnings run VISX 128.50 9.00 6.00 15.00 Charging for the earnings date gate SUNW 140.63 3.81 10.63 14.44 Splits Thursday SCH 107.25 9.13 3.88 13.01 Exploding with new highs AMZN 182.88 15.50 -3.63 11.87 Is this our next Entry point? QCOM 145.94 11.88 -2.94 8.94 Oh my gosh! A down day. LVLT 81.19 4.75 4.19 8.94 New, strong trend in growing sector TLAB 107.25 4.88 3.81 8.69 Started its earnings run VOD 192.00 3.63 1.88 5.51 Closed above $190 (a good sign) MWD 104.81 2.94 1.94 4.88 Split candidate with shareholder meeting UNPH 125.88 8.13 -3.81 4.32 New, maybe the Intel of the future PVN 113.00 2.31 1.25 3.56 Earnings are coming up MER 91.13 3.19 0.19 3.38 Expecting strong earnings numbers AEOS 76.38 2.00 1.00 3.00 Getting an early start on the split run CMVT 88.94 5.44 -2.50 2.94 Running for its 3:2 split EMC 131.19 4.75 -2.19 2.56 A little profit taking WMT 95.69 2.13 0.31 2.44 Splits April 19th GE 113.31 3.00 -1.31 1.69 Dropped, earnings are soon MSFT 94.06 2.25 -0.88 1.37 Experiencing post split fatigue OMC 77.63 2.19 -0.94 1.25 Dropped, not moving fast enough ALD 51.44 1.94 -0.75 1.19 Bounced again WHR 54.00 -1.19 2.13 0.94 Rebounding after yesterday's drop WCOM 89.56 3.25 -2.94 0.31 Dropped, not moving fast enough COF 153.94 0.00 -0.44 -0.44 Resting after recent run YUM 72.31 -1.25 0.06 -1.19 Consolidating after recent run BBBY 36.13 -0.94 -0.56 -1.50 Resting after recent run Puts ABS 51.31 -0.06 -1.69 -1.75 Still falling LHSG 28.69 -0.13 -0.94 -1.07 Continues to dig itself deeper CMB 79.25 -0.63 0.50 -0.13 Dropped, may have found a bottom CVS 45.63 -0.81 1.13 0.32 Dropped, announced positive sales #s LTR 73.88 0.50 0.38 0.88 Waiting for the next cigarette bomb. EMR 55.44 1.75 1.88 3.63 Dropped, not performing EBAY 152.00 10.13 3.25 13.38 Dropped, Internets too hot DCLK 121.00 -1.00 25.44 24.44 Dropped, one of the 3 that don't drop ***************************************************** PICKS WE DROPPED ***************************************************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ****** YHOO $214.88 -4.25 (+35.13) YHOO gave us a great 1-week run into earnings, which the company will announce tomorrow after the close. We are bullish on Yahoo's future, especially with their plans to acquire Broadcast.com. Though Broadcast won't be reflected in tomorrow's earnings report, YHOO usually beats estimates by 30% and could conceivable announce a split at these levels. Nonetheless, the risks of holding through earnings is not worth it 7 of 10 times and we always recommend you close your position prior to. At this level, one small hiccup could cause a $50 haircut at the open on Thursday. If you hadn't guessed it by now, we're dropping YHOO tonight on the probability that it will be down later in the week. WCOM $89.56 -2.94 (+0.31) WCOM certainly started the week off with a bang. On Monday it added +$3.25 as the markets flew. On Tuesday it was a different story. WCOM lost -$2.94 on the news that it was in preliminary talks with Nextel Communications. WCOM is considering buying the wireless phone company. The drop down was propelled by a much larger trade volume than normal. Over 22 million shares of WCOM traded hands when the normal daily trade volume is much lower at $11.8 million. With that much momentum driving the price down, we are dropping WCOM as a play. It remains to be seen how investors will respond to any forthcoming agreement. OMC $77.63 -0.94 (+1.25) OMC had been on an incredible run. It pulled back significantly last Friday and provided us with an entry point. It recovered on Monday to a +$2.19 gain. It then pulled back again on Tuesday -$0.94. Even though this could be simple profit taking, we are dropping OMC as a play for now. Due to its "gain some, lose some" actions in the past few days of trading, we feel that there are much bigger movers out there to play and we can pick OMC back up at a later date. GE $113.31 -1.31 (+5.50) After a strong performance yesterday gaining $6.82, GE gave some back today. A breather was warranted, but some investors are also nervous about this Dow component's earnings after Gillette's surprising bad news. While GE has not given us anything to worry about, and in fact, has made positive statements, investors are sending the stock lower and we feel we must drop it. GE announces earnings this Thursday, 4-8 according to Zacks and it is risky to hold over earnings. We are being cheated out of an earnings run on worries, but investors expectations are now low, and if GE comes out with strong profits, the stock could take off. Also, a continued price increase would put GE in split territory. We will be watching to pick it up again when it looks safer. PUTS: ****** DCLK $121.00 +25.44 (+24.44) Normally, 7 out of 10 companies suffer from post split depression. That leaves room for 3 out of 10 splitters to continue to perform well. DCLK just happens to be one of those three. On Monday it actually pulled back $1. But on Tuesday, CE Unterberg Twbn initiated coverage on DCLK with a "strong buy." DCLK took off and never looked back. It added +$25.44 in trading and closed just off its high for the day of $122.25. With that type of jump, there could be a pullback. However, we aren't going to wait around anymore for it. We feel there are safer put plays and we are therefore dropping DCLK for the time being. EBAY $152.00 +3.25 (+13.38) Last week when Amazon reported about its auction site, we quickly added eBAY as a put play on the news of the new competition. EBAY proceeded to pull back approximately -$15 on the news. However, it has been rebounding this week and has since recovered most of its losses on the Amazon report. We now feel that EBAY can actually benefit from Amazon's presence in the auction business. Customers could crossover from Amazon to eBay and vice versa. The two could actually attract customers to one another. Now that the initial shock of Amazon's announcement is accounted for with the pullback and recovery in eBAY, we are dropping it as a put play. CMB $79.25 +.50 (-.13) CMB hasn't done much this week, but we are going to drop it as a play. It seems to be forming a bottom in the $79-80 range. We saw a gain today in a negative market also. It could still break down, but we don't like the looks of the chart. CVS $45.63 +1.13 (+.32) We are dropping CVS as a put play. The stock plummeted from $45 to $42 Monday morning before turning on a dime and recovering. (wonder if someone new good numbers were on the way?) Anyway, the company announced sales numbers today and they came in pretty positive. This puts a stop to the worries about earnings for the time being. EMR $55.44 +1.88 (+3.63) Sometimes even the blind squirrel gets an acorn. We haven't seen a 2-day spike like this in EMR since last November. Though it didn't break through any moving averages, volume was about 40% above average as EMR made its gains. There is no news to be found on the wires telling us the reason. But fact is EMR is on someone's buy list and just isn't performing the way a good put should. Thus we're dropping it tonight. ****************** PICK NEWS - CALLS ****************** MWD $104.81 +1.94 (+4.87) Text book! That's what MWD has been. If you look at a chart of MWD, you will notice that it has a perfect trending chart since October. This means higher highs and higher lows. It has consistently bounced off the 25-dma and headed higher. MWD has its shareholder meeting on the 8th and we could see a stock split announcement. MWD reached a new 52-week high of just under $107, a pretty bullish day considering the market went down. RNWK $195.44 +40.94 (+37.56) The tear continues. RNWK went as high as $168 on Monday before it settled for a small loss. Those of you that bought the dip were in for a nice surprise. On Tuesday, RNWK had its price target raised by DLJ to $250. It also was started at a buy. There is a lot of excitement about this company, but make sure you buy on dips. This stock will trade in a wide range. With earnings coming up, we feel it is very likely a split will be announced. The volume on Tuesday was very high and could help RNWK trade higher on Wednesday. We feel obligated to remind everyone, that this is very abnormal and buying calls can be very risky. Yes, there is a lot of speculation and excitement, but we urge strong caution!!! (remember, we picked RNWK at $70) ***** Play updates continued in section two ***** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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The Option Investor Newsletter Tuesday 4-6-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. PICK NEWS - CALLS (continued) ***************************** TLAB $107.25 +3.81 (+8.69) TLAB has had a great two days. We are in new high territory as TLAB traded as high as $109.50 on Tuesday. TLAB's website is stating earnings will be announced on the 14th of April. There are rumors that earnings are going to come in very strong. There also is a pretty good chance TLAB could announce a split. If a split is not announced with earnings, we could see it announced at TLAB's shareholder meeting on the 22nd of April. CMGI $229.63 +13.63 (+42.32) CMGI has had a fantastic week so far. It gained just shy of $29 on Monday and followed it up with over a $13 gain on Tuesday. There is a lot of speculation in the Internet industry about what stock will be purchased next. CMGI has been an incubator for Internet companies and has its hands in a lot of companies. CMGI is now trading in new high territory. Watch for pullbacks to enter new plays. Internet plays are not for the weak hearted, but we have all watched the explosion they can have. Again, we urge caution starting new plays here! SUNW $140.63 +10.63 (+14.44) Now this is what we call a split run. Since we picked SUNW just over a week ago, it has risen from $116 to $140. SUNW did trade as high as $145 today. The split is just two days away now and we could see even more gains before the split. With such large gains, be careful about blindly jumping in. Watch for pull- backs. SUNW also got a boost today when they announced they are working on improvements so their products would be more compatible with Microsoft. We also are seeing strength in SUNW because of its earnings coming up in a few weeks. Earnings are expected to come in strong. Remember, we normally suggest NOT holding over a split. 7 out of 10 companies hit some kind of post split depression. QCOM $145.94 -2.94 (+8.94) Profit taking and very little at that. QCOM has been on a sprint and when you sprint, you must rest occasionally. Two days of trading this week and QCOM is up close to $9, can't complain. Monday saw FAC Equities raise its earnings estimate, its price target and set a buy recommendation. All strong news and positive for the stock going forward. Watch for intra-day pullbacks. QCOM has had wide intra-day swings. Also a split candidate. MER $91.25 +.31 (+3.50) With reports showing a huge increase in Internet trading, MER must feel that it made the right decision to finally venture into online trading. It was up both Monday and Tuesday. Today it reached as high as $93.69 before market profit taking took it back down. MER could have a little resistance at $94.50, the highest level it has hit this year. Beyond that is resistance at $109.13, its 1998 high. Remember that MER is due to report earnings soon. Zacks is showing 4-8, (this Thursday), while First Call shows 4-13. MER wouldn't confirm a date for us. Holding over earnings is always risky and not recommended. SCH $107.00 +3.63 (+12.75) Schwab is on fire! After Bill Burnham at CS First Boston reported that 1st quarter online trading increased 30-35% from the 4th quarter to around 450,000 trades per day, the online broker stocks took off. SCH added $9.13 on Monday and another $3.62 today to close at a new high. It reached $113.38 this afternoon before the market turned down. At $41 billion, Schwab's market cap is now 4$ billion greater than Merrill Lynch's. SCH is increasing Capital spending 40% to about $266 million and development spending by 35% to about $365 million this year. The goal is to increase trading speed and virtually eliminate glitches. SCH is doing things right and the stock has powerful momentum, but watch out for profit taking as this stock's PE climbs out of sight. Use stops. Positive earnings from MER this week would send SCH even higher in a run toward its own earnings, expected about 4-15. PVN $113.00 +1.25 (+3.87) PVN is moving toward its high of $118.44, where it will find a little resistance. By that time it may be in an earnings run that will take it right through to new highs. Zacks shows earnings on 4-22, while First Call shows 4-26. The company could not give us a date. Two quarters ago PVN announced a week early, so we could see earnings in less than 2 weeks. Yesterday DLJ initiated coverage with an "outperform". With interest rates in check for the time being, PVN looks good to move up. WMT $95.69 +.31 (+2.44) WMT is inching back up toward its high of $98.38. Today it hit $97.06 before falling with the market. In the news, WMT and Amazon have reached an agreement in the trade secrets lawsuit. Amazon has agreed to move or reassign some former WMT employees and will not actively recruit any new WMT employees for a year. Some former WMT employees will return property to WMT. No damage payments will be paid. WMT splits 4-19 and should have no trouble clearing the $98.38 resistance in a split run. YUM $72.31 +.06 (-1.25) YUM saw profit taking right from the open on Monday after setting a new high on Thursday. Later in the day there were buying opportunities. The stock was still resting today and gained only $.06. This is normal after last week's move and provides a chance to jump aboard this one before it takes off again. BBBY $36.13 -.56 (-1.50) On Sunday when we added BBBY, we recommended that you buy it on dips because it had risen so quickly in the previous 2 weeks. We got our dip even as the rest of the market rose yesterday. Late this afternoon was an even better buying opportunity. The dip was probably extended due to the 2 co-CEOs selling a total of 2 million shares following the post earnings climb. However, they still own 12% of the $5.11 billion company. BBBY should head up again after a short rest--this is a strong stock. CMVT $88.94 -2.50 (+2.94) Monday was a stellar day for CMVT. It gained +5.44 and closed like a champion right on its daily high. This afternoon it succumbed to market pressure and lost -2.50, but only after setting a new 52 week high at $92.94 - what a little rebel. This week should continue to prove profitable as anticipation increases for the 3:2 stock split set for April 15th. ALD $51.44 -0.75 (+1.19) ALD bounced again! It pushed through its resistance at $50.94 on Monday. And on strong volume, ALD set a new 52 week high during trading when it peaked at $52.31. Today, it never dipped below $51 and hardly gave back anything. Strong volume and a bullish environment is all this stock needs to continue its upward trek. Always confirm direction and put stops in place. VISX $128.50 +6.00 (+15.00) VISX is becoming more "sexy" as it consistently trades higher each day. Monday it advanced +9 and today it wasn't giving up any and tacked on another 6 points at the close. New highs are the name of the game for this stock. It's newest 52 week high was set today when it hit $132.50! The momentum for this earnings run seems unstoppable. VISX had gained $33.25 in six trading days!! Earnings are expected April 14th, but let me warn players once again. Beware of profit-takers and the ever so volatile market. Use stops and always sell too soon! AEOS $76.38 +1.00 (+3.00) AEOS is splitting 2:1 on May 3rd. We suggested that this stock needed show some strength and break through resistance at $74-75. Well it did just that on Monday and traded above $76. It settled back to $75.38 at the close, but it wasn't a head fake. Today, AEOS edged forward a little more and gained a point, but on low volume. Watch for stronger volume to give this stock a big boost for an exciting pre-split run. AMZN $182.88 -3.63 (+11.88) AMZN has made over 25% in gains just since the company announced its own Auction service, "Bid Click", would give Ebay a run for their money. Translated into dollars that's a little more than $30 in profit. Last week an analyst was quoted as saying Amazon was the new Wal-Mart of the Web and I assume no pun was intended...but hold that thought. Yesterday, news came out that Amazon and Wal-Mart had agreed to settle their legal battle over allegations that Amazon was recruiting former Wal-Mart employees for trade secrets. No cash damages were paid and AMZN agreed to reassign certain employees. Investors were obviously very satisfied with the outcome and AMZN soared $15.50 on the announcement. Today the stock consolidated a bit in the afternoon, but only after topping $195 to flirt near its 52 week high of $199.12. Great earnings are expected on April 27th and perhaps too, we'll get an official word regarding this split candidate. COF $153.94 -0.44 (-0.44) As expected, COF was a victim of some profit-taking the past two days, but it provided some solid entry points to start a new play. Monday the stock dipped as low as $152.69, yet traded intraday over $157 offering a very profitable spread. Also on Monday, DLJ initiated coverage on COF to an "outperform" adding a little zest to this powerful earnings run. Earnings report is due April 15th. MSFT $94.06 -0.88 (+1.37) Other than the largest weighting in the NASDAQ 100, MSFT has remained blow the radar screen since opening yesterday. Volume has been lackluster, off today by almost half its normal volume; this when the NASDAQ traded over 1 bln. shares. Not to worry, your concern should grow if volume was heavy and prices were dropping. They aren't. MSFT is just taking a breath. The chart still shows positive MACD, momentum, and stochastic. MSFT could keep up the pace all the way to earnings on 4- 22. Settlement talk with DOJ has remained off the front pages. A few drops of cold water were splashed on MSFT as Dell reported taking a stake in privately held Red Hat Software, a small private firm marketing the Linux operating system, a tiny thorn growing bigger in MSFT's side. Keep stops in place and confirm market direction before playing. AOL $167.31 +0.38 (+20.31) We can hear the short-sighted saying "up only $0.38 cents today?" Never mind that AOL rose about $20 yesterday, and has risen $80 in the last 30 days on strong volume. Funds have been buying not wanting to miss the next Internet rise like they did in January. AOL is in nosebleed territory and will likely continues its rise (with small breathers) into earnings scheduled 4-27, where we could get another split announcement. Enough shares exist for a 3:2, but would require shareholder approval if they announce 2:1. That said, we caution that gains don't run forever in a straight line. Be prepared to exit on any downturn by keeping a trailing stop in place to protect profits. Confirm market direction before starting a new play. FYI, CNBC announced prior to the close that the AOL/CBS merger rumors are false (CBS puts anyone?). **We have to urge strong caution on anyone playing AOL. While we don't believe everything we hear on CNBC, the talking heads have been pumping their story that AOL now has a bigger market cap than IBM or AT&T or KO. Considering that IBM made about $6.3 Bln in profits last year and AOL made about $92 mln, there is a large discrepancy here. Consider the thousands of people who now have made millions in AOL stock. If they decide to get out, the turn around could be ugly. Everyone agrees that AOL is the best Internet play there is, but prices are getting outrageous. Know the risks before you play! EMC $131.19 -2.19 (+3.44) No news coming out of EMC, so lets look at the technical chart for some guidance. We see MACD, momentum, stochastic and RSI all positive, though volume has been light to average. This is good. Today's action resulted from investors taking some profits in the wake of a $33 run-up over the last 30 days. We may see some consolidation for a few days at this level too, before EMC resumes upward mobility. EMC reports earnings before the market opens on 4-20. Just a reminder too that EMC splits on May 28, though that is a ways off and shouldn't affect our current trading. As always, protect your profits with stops and confirm market direction before starting a new play. VOD $192.00 +1.82 (+5.50) VOD is tricky because it's volume is a little light and tends to gap up or down at the open without much range in the trading day. Consequently, it's also a riskier trade and we advise using only risk capital, depending on your profile. That said, we've had a nice move this week. The technical chart is decidedly positive on 3 indicators. We like the play because VOD has powered through its 30 and 50 DMA, while holding above its previous resistance of $190. Next stop, $200. VOD gave us good news this morning when it announced that it signed up 1.31 mln. new customers worldwide in the first quarter of 1999. That excludes the new users that AirTouch (ATI), VOD's merger partner, signed up during the same period. The merger won't be completed until the second half of 1999. ATI reports earnings 4-22 and will only help VOD since ATI uses CDMA technology, the growing worldwide cellular phone standard knocking the socks off rival, TDMA. Stops won't help much on the gaps, but use them anyway. Do your best to confirm upward momentum before playing. EGRP $76.00 +3.38 (+15.13) Wow! We got the technical breakout over $61, which seems inconsequential after a few kind words about on-line brokers from CS First Boston's Bill Burnham. He noted, "Online trading volumes rose almost 40 percent to a record 340,000 trades a day in the fourth quarter. About one in 7 stock trades now takes place in cyberspace, and that number is expected to grow" (Reuters). Concerning EGRP, he noted they should report better-than-expected Q1 results due to rising trade volumes. 3-2-1, we have lift-off! The technical chart is maximum positive. Don't let it cloud your good judgement. Spikes usually have a good chance of substantial pullbacks in the name of profit taking. To that end, protect your profits with stops, confirm market direction before starting a new play and enjoy the sector ride. WHR 54.00 +2.13 (+0.94) WHR gave us a scare yesterday as it dropped during an otherwise record-setting session. Today's gains came on about 15% greater volume. Candidly, WHR may need to breathe a bit more as MACD has turned neutral. Other technical indicators are still positive and WHR closed near its high of the day. Overall, it still looks good. It didn't hurt that WHR, along with Maytag (MYG) got picked up on CNBC radar today as Midwest Research started coverage with a target price of $60. Remember to use stops though in case the market heads south. You want protection from the grim profit reaper. Confirm market direction before playing. ***************** PICK NEWS - PUTS ***************** LHSG $28.69 -0.94 (-1.06) LHSG can't seem to gain its way out of a wet paper bag (just the way we like 'em), even on a record setting day like Monday. The technical indicators are looking miserable (they have for a while) as the price graph gives the appearance of a fast, mogul ski run. With no news available on 3 different services, look for ugliness to eventually crack the mirror. Beware of good news though as it could cause a price spike anytime. This is a play where it is important to use stops. Confirm direction before starting a new play. LTR $73.88 +.38 (+.88) LTR eked out a small gain today, but closed near its low of the day. Though LTR has stayed positive this week, we feel the worries about tobacco lawsuits will heat up again and take LTR down further. The chart doesn't look good and there doesn't seem to be many buyers. ABS $51.31 -1.69 (-1.75) ABS traded as low as $50.75 today and its MACD is very negative. ABS was in the news today as they just completed a $1.5 billion credit facility with Nations Banc. The facility was put in place as commercial paper back-up liquidity in connection with Albertson's pending merger with American Stores Company. We can't see any news that will help ABS out and feel it has more room to fall. *************** NEW CALL PLAYS *************** LVLT - Level3 Comm. $81.19 +4.19 (+8.94this wk)(+7.69) Level3 Communications is a telecommunications and information service company that is building an international fiber-optic network. The technology is based on internet protocol. They provide local, long-distance, and internet service over leased networks in 15 cities in the US and 2 in Europe. LVLT has been on a steady uptrend for months, but Monday it spiked up +4.75 and caught our attention. The market couldn't hold this stock back today and it gained another +4.19. Looks like its primed for a run setting new highs on both days. Its technicals are supportive showing positive ticks for the MACD and MOM and the stock has left its 10 dma in the dust at around $70-71. Conservative players should look for a pullback and then confirmation of upward momentum before jumping in. The $50 mln deal between LVLT and the Massachusetts Turnpike Authority on Thursday to lay fiber-optic cable along the 135 mile roadway may have sparked some interest for investors. But it's more likely the bullish environment that is behind this upward trend. Only 8 trading days left for April Options! BUY CALL APR-75 QHN-DO OI=329 at $7.25 SL=5.50 BUY CALL APR-80 QHN-DP OI=353 at $3.63 SL=2.00 BUY CALL APR-85 QHN-DQ OI= 90 at $1.44 SL=1.00 BUY CALL MAY-80 QHN-EP OI= 0 at $6.75 SL=4.50 vol=41 new strike BUY CALL JUN-85*QHN-FQ OI=460 at $6.38 SL=4.50 Picked on March 18th at $81.19 PE = 29 Change since picked +0.00 52 week low =$22.37 Analysts Ratings 1-4-0-0-0 52 week high=$81.19 Last earnings 12/98 est= -.28 actual= -.11 surprise= 60.71% Next earnings 05-06 est= -.44 versus= -.02 Average daily volume = 1.47 mln Chart = http://quote.com/q?s=LVLT&d=3m **** UNPH - Uniphase Corp. $125.88 -3.81 (+4.32 this wk)(+14.63) Uniphase Corporation is a fully integrated optical electronics company that designs, develops, manufactures and markets fiber optic telecommunications components and modules and laser subsystems. The Company's telecommunications products include semiconductor lasers, high-speed external modulators, transmitters, fiber Bragg gratings and optical modules for fiber optic networks in the telecommunications and cable television industries. From their base in the Silicon Valley, California they employ approximately 1200 people worldwide. They will merge with Canadian based JDS Fitel. Simply stated, JDS Uniphase will manage and develop optical signals in fiberoptic networks. "Dear God, please let there be one more company like Intel to invest in, and I promise not to mess it up this time". Does this sound familiar? Here's your big break. UNPH makes the laser modules and pumps (in addition to other components) that make fiber optic networks operate. Effectively they are to the growth of fiber optic bandwidth what Intel was to the growth of the PC, and have been labeled as such. In addition to being a good option play, their story is compelling enough to make them a George Gilder (Forbes Magazine Contributor and bandwidth guru) long-term ascendant technology. You want excitement? Look at the 6 mo. Chart where UNPH rises from $40 to its current $125. Their technicals are all in maximum positive territory. We think the $3 loss today is only profit taking and provides a better entry after yesterday's $8 gain. As always, confirm market direction before playing. Last March 5, Piper Jaffrey began coverage with a strong buy rating. *** Caution, these are thinly traded at this level! Only 8 trading days left for Options! BUY CALL APR-120 UQD-DD OI= 40 at $ 8.50 SL=6.50 BUY CALL APR-125 UQD-DE OI= 0 at $ 5.75 SL=4.00 BUY CALL APR-130 UQD-DF OI= 2 at $ 3.50 SL=1.75 BUY CALL MAY-125 UQD-EE OI= 0 at $11.13 SL=8.75 BUY CALL MAY-130*UQD-EF OI=166 at $ 8.88 SL=6.75 Picked on April 6 at $125.88 PE = n/a Change since picked +0.00 52 week low =$ 31.25 Analysts Ratings 4-9-0-0-0 52 week high=$131.13 Last earnings 01/98 est .26 actual .27 Next earnings 04-21 est .32 versus .23 Average Daily Volume = 823 K Chart = http://quote.yahoo.com/q?s=UNPH&d=3m ****************** NEW PUT PLAYS ****************** NONE ****************** COMBINATION PLAYS ****************** Consolidation is a good thing... Monday, April 5 U.S stocks rallied to new highs and the Dow regained its perch atop the 10,000 mark after a positive jobs report showed the economy may be slowing enough to keep the Federal Reserve from raising interest rates. The DJIA was up a whopping 174 points and surpassed the record finish set just last Monday, when it ended above the 10,000 milestone for the first time. The Nasdaq index rose 66 points to a new high of 2560 while the S&P 500 climbed 27 points to a record 1321. In the broader market, advancing issues led declines 16 to 12 on moderate volume of 699 million shares on the NYSE. Sunday's new plays (positions/prices): LU APR62C/APR60C $0.43 credit (as high as $0.62) SUNW APR110P/APR115P $0.50 credit (slightly below our target) AMAT MAY55C/MAY60C $3.62 debit (down almost $2 at midday) DRIV MAY30C/MAY35C $4.00 debit (finished $2 lower) NTLI APR75C/APR80C $3.87 debit (slightly below our target) XCIT MAY110C/125C $9.00 debit (very active position) Portfolio plays: Wow, what a day! Stocks went both directions in the melee (but mostly up!) and our portfolio was quite active. The NSOL credit spread was again the focus of our attention. The market opened with a big rally but NSOL went the other way, falling quickly through $100. The stock eventually stabilized around $94, above our sold strike but further retreat is still possible. TXN moved up on news that they were named the #1 company in the rebounding analog semiconductor industry. Our credit strangle was still OTM but with the stock trading above all recent resistance, it was best to take the safe exit, closing the play for a small debit. Atleast the profit from the other TXN spread (APR75P/APR80P) will help cover the small loss. BTC and SKYT rebounded on merger news and we expect both plays to finish profitable. The BTC play (MAY15C/APR15C) will be closed on the April strike date and the SKYT calendar spread is based on a JUN-25 call option (worth about $2). PROX traded almost $2 higher and the speculation spread (APR25C/30C) was easily closed for a $1.00 profit. COOL and EGGS continued their downward slide and both stocks show weakness even when the Internet sector performs well. Our exit today on EGGS may be a bit premature but there is little to drive these stocks in the short-term. We will play the current technicals and sell the long (APR17C) now while there is still some potential in the April options. Plan to close the short position at the first sign of renewed uptrend. COOL will also be on the chopping block if doesn't recover quickly. Tuesday, April 6 Most blue-chip stocks fell Tuesday as investors sold-off profits from yesterday's climb into record terrain. The DJIA ended 43 points lower at 9963. Gillette's $7.81 loss led the group down. The technology stocks of the Nasdaq index edged up slightly to 2563, its second consecutive record high close. In the broader market, declining issues led advances 17 to 11 on active volume of 787 million shares on the NYSE. Portfolio plays: Those of you still holding the LSI straddle should have exited today as the stock price gapped-up again. The APR30C was trading at $5.25, easily covering the price of both positions with a fair profit remaining. LU absolutely refused to falter and we closed our spread after just one day of punishment. The play was a good example of how you can occasionally exit a credit position for a profit (with the underlying stock movement) by closing the short first and selling the long later, after the stock loses some of its current momentum. In our case, the closing price ($0.75) was still a small loss. ICST is the last of our April straddles and we are going to plan for an exit (probably before this Friday) while there is still some time premium left in the options. NSOL finally rebounded and SUNW continued its pre-split run, gaining almost $11 today so there is 'something' to be happy about. Good Luck! *********** NEW PLAYS *********** CBS - CBS Corp. $44.00 *** Merger Speculation *** CBS is a TV and radio broadcast giant. Its CBS Television Network has climbed to #1 in ratings, ahead of NBC, ABC, and Fox. CBS also owns most of Infinity Broadcasting, which is the second-largest radio group in the US by sales. CBS's cable holdings include "The Nashville Network" and "Country Music Television". CBS has agreed to buy syndicator King World Productions, the force behind such popular shows as The Oprah Winfrey Show, and Jeopardy! to expand beyond its traditional network television programming business. CBS shares climbed again today to an all-time high, on rumors that America Online will buy the entertainment company. A major public relations firm said there is an AOL press conference scheduled for Wednesday that may involve an Internet related announcement. There is also the possibility of a joint venture between the two media giants and AOL may be interested in Infinity Broadcasting, CBS's radio and outdoor arm. Lots of activity in the call options gives us two ways to play, based on your risk/reward attitude. PLAY (speculative/debit spread): BUY CALL MAY-42.50 CBS-EV OI=224 A=$3.25 SELL CALL MAY-45.00 CBS-EI OI=810 B=$2.50 INITIAL NET DEBIT TARGET=$0.62 ROI(max)=300% B/E=$43.12 PLAY (aggressive/time spread): BUY CALL MAY-42.50 CBS-EV OI=224 A=$3.25 SELL CALL APR-45.00 CBS-DI OI=510 B=$1.38 INITIAL NET DEBIT TARGET=$1.75 TARGET ROI=25% Chart = http://quote.yahoo.com/q?s=CBS&d=3m ****** DELL - Dell Computers $46.81 *** On the move! *** Dell Computer is one of the world's top PC makers and the world's #1 direct-sale computer vendor. The company sells hardware and markets third-party software and peripherals, notebooks, PCs, and network servers. Dell also markets a variety of peripherals and software for other manufacturers. Almost all of its systems are sold to businesses and government entities. The company continues to expand services such as its Web site, expected to process half of Dell's transactions by the year 2000 and Michael Dell recently said that DELL will grow faster than the industry this year. This stock is covered regularly in the main section of the OIN so we won't get too involved in the DELL background. The main reason we are offering this play is because of the new interest in call options ahead of the analysts' meeting starting on Wednesday. The aggressive volume in many of the option series has produced some small premium disparities that will give a bullish DELL investor an advantage. PLAY (conservative/debit spread): BUY CALL MAY-45.00 DLQ-EI OI=35518 A=$5.25 SELL CALL MAY-47.50 DLQ-EW OI=15010 B=$3.87 INITIAL NET DEBIT TARGET=$1.25 ROI(max)=100% B/E=46.25 PLAY (conservative/credit spread): BUY PUT MAY-40.00 DLQ-QH OI=17028 A=$1.56 SELL PUT MAY-42.50 DLQ-QV OI=8856 B=$2.25 INITIAL NET CREDIT TARGET=$0.81 ROI=48% Chart = http://quote.yahoo.com/q?s=DELL&d=3m ****** NXTL - Nextel Communications $39.18 *** Another Merger? *** Nextel Communications is a provider of specialized mobile radio services to truckers and taxi drivers. It is building its digital network with the help of cash infusions from equipment provider Motorola and wireless communications pioneer Craig McCaw. Nextel service areas are expected to cover 85% of the US population by 1998. The company has licenses in Canada, Asia, and Latin America and is working to distinguish itself from cellular competitors, primarily by cutting charges. As a result, subscriber rates are exceeding analysts' expectations. MCI WorldCom is rumored to be in preliminary talks to buy Nextel. For more than a year, Nextel has been a takeover candidate and is seen as a strong fit with MCI, which has no wireless assets. The speculation about Nextel's future intensified earlier in the year when rival AirTouch Communications received acquisition offers from two suitors and agreed to be acquired by Britain's Vodafone. That deal left Nextel as the last independent wireless company with a national network. Nextel could fetch up to $55 a share in an acquisition since its national wireless network is such a rare asset. PLAY (conservative/debit spread): BUY CALL MAY-30 FQC-EF OI=4146 A=$10.00 SELL CALL MAY-35 FQC-EG OI=4419 B=$6.25 INITIAL NET DEBIT TARGET=$3.50 ROI(max)=42% B/E=$33.50 Chart = http://quote.yahoo.com/q?s=NXTL&d=3m *********** SEE DISCLAIMER IN SECTION ONE ***********
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