The Option Investor Newsletter Thursday 6-3-99 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) ************************************************************ 6-3-99 High Low Volume Advances Decline DOW 10663.69 + 85.80 10667.18 10577.26 720,290k 1,595 1,309 Nasdaq 2403.32 - 29.09 2444.04 2402.29 819,074k 1,895 1,913 S&P-100 657.66 + 1.97 661.62 654.15 Totals 3,490 3,222 S&P-500 1299.54 + 4.73 1304.12 1294.23 52.0% 48.0% $RUT 435.98 - .76 438.82 435.62 $TRAN 3420.96 - 6.64 3427.32 3397.44 VIX 27.52 + 1.29 28.28 26.44 Put/Call Ratio .55 ************************************************************* The jobs are coming, the jobs are coming! This market wrap could be summed up in two words, "jobs report." The monthly non-farm payrolls report is due out tomorrow before the market open and you would think the fate of the entire world rested on the outcome. Traders are worried that the jobs report tomorrow morning will be a blowout and the Fed will pull the trigger on a rate increase. Some even feel they won't wait for the next FOMC meeting on Jun-29th. The estimate for new jobs is 225,000. Any number close to that should bring on a relief rally and because of the severe anguish going into the report it may take a huge number to cause a sell off. I have seen blowouts in the past generate no reaction but with the Fed changing their bias to increase rates it could be the spark needed. In the things can't get worse dept, Alice Rivlin, the vice chair of the Fed committee, announced she was resigning after the close today and would not take part in the Jun FOMC rate meeting. Alice is seen as a dove on the committee and favored pro-growth policies instead of tighter rates. With Alice out of the picture it leaves 10 of the 12 governors to vote on the rates. The 12th position is currently unfilled. While the stated reason for the resignation was "to spend more time with her family", there are some who said they saw it coming. Other Fed heads had been seen as distancing themselves from her recently and feel there could have been some disagreements among the group as to direction. In reality the decision comes down to Mr. Greenspan and whether or not he wants to fight the market at this time. The Fed group has been dishing out Fed speak in volumes the last two weeks and some feel that any rate increase at the June meeting would be the most advertised increase in history. The market has easily already factored in a +.25% increase but the way it is delivered and the tone of the bias will determine market direction after an announcement. Another signpost on the Fed highway is the recently scheduled testimony by Greenspan to the joint economic committee in Congress. He basically has an open invitation to speak whenever he deems it necessary. Rumor has it that Mr. G. just called up and requested June-17th as a meeting date. This date is relative since it is the day after the next CPI report. If the Fed policy was going to change it would be an ideal opportunity for the Fed chief to explain his reasons to Congress and the world. For the ever present conspiracy theorists this now represents "I" day. Even if he did not announce the actual increase, his speech would provide the justifications. If you disagree with the conspiracy theory, I have only one warning. Alan Greenspan NEVER does anything unplanned. Trust me. The good news today was the market. In the face of what market economists are calling a sure jobs blowout, the DOW held 10,600 and even bounced strongly off this magic number at the close to post a great +86 point gain. Three days this week we broke under 10,500 yet today we held over 10,600 with a potential disaster only hours away. This is a victory in my book. The advance/decline line was technically positive today with 268 more advancers then decliners. As you can see from the chart the technical halt of the A/D slide of the last two weeks is a small victory but one sorely needed. The Nasdaq also won a victory of sorts today by holding off a late day flurry of sellers and holding the critical 2400 level. The average was in trouble from the start this morning and only traded in positive territory twice before going negative on the backs of the sinking Internet stocks. The Nasdaq held to single digit losses until the last hour of trading when sellers fled from Internets in droves. The Internet sector is regarded as the most likely to suffer if the interest rates are raised. Personally I think this is crazy at these levels but of course I don't have a corner on irrational thought in these matters. What I think we are seeing here is pull back to the support levels from the drops on each of the last two Wednesdays. If you look at the Ebay chart here you can see what I mean. Most of the charts on Internet stocks look exactly like this. It is not a stock fundamental thing but a sector pull back. If we do get a mild jobs report I feel the Internet sector will be the first and the strongest to react from it's heavily oversold position. Another sector I think is primed and ready to rock is the broker sector. After the Merrill Lynch announcement last Tuesday the carnage has been severe and some of these stocks are way oversold. Even Merrill finished flat today at -.75. I was more convinced earlier in the day but EGRP gave back some of it's gains at the close. Still EGRP at -.88, NDB +.38, MWD -.25 and SCH -0- would lead me to believe the selling is over. EGRP would be my preference because of their size, market position, stock price and new Telebank relationship. Their new E*Offering site for IPO's is now up and running and is sure to help their exposure. They have a dual purpose investor draw as a broker and an Internet play. The way to play it is through Telebank (TBFC). With Etrade paying 2.1 shares of EGRP for every TBFC share that means a $1 rise in EGRP will cause a $2.10 rise in TBFC. Leverage is what it is all about. You can return the NoDoz to the store because the NYSE decided to day to delay the extended hours until the second quarter of 2000. They are going to wait until after Y2K and make the transition at the same time they go to decimals for prices. A side note on a past play. Dell computer has traded as low as $31.38 this week. A far cry from their recent high of $55. Since their fall from grace Dell has lost $55 billion in market cap. $55 BILLION !! Their PE is still a 57 and they are still regarded as the best player in their field. When they were positive earlier today I thought they might have found a bottom but the sellers are still lurking in force. Wait for the next earnings cycle and I would bet on $45 again. On the down side some analysts are projecting a $28-29 price soon. I do not see it. If you are a long term stock holder this may be the best shot you get for a long time. Today was a tough one for emotional trading. Several traders here in the office, including me, wanted desperately to be in the market today. Of course, we also view that as suicidal in light of the pending jobs report but we still fought the battle. It does not matter what the number is, IF you are out of the market. If you are in the market it matters a lot. As professional traders we need to only trade when we the majority of factors line up in our favor. Holding over an important economic event is like holding over earnings, sudden death. Why gamble with your capital when you do not have to? Patience is very hard but also very rewarding. The S&P futures are down -2.00 from the close on the Rivlin resignation but the die has already been cast for tomorrow. The numbers are etched in stone. We just have to wait for the jobs report to be made public to see our fate. Have a great weekend! Jim Brown Editor HOT NEW Summer Seminar Series for OIN readers As part of the new alliance with George Fontanills, OptionInvestor.com is presenting a new series of in-depth option training seminars to be taught by George Fontanills. George has two options training books on the Amazon.com top ten list. He has been teaching options trading since 1993 and is the pioneer of the delta neutral approach to trading options. His nationally known Optionetics Course is state of the art. We are very pleased to have George teach our readers how to maximize their returns. Seminar Schedule June 21 & 22 BOSTON /Crown Plaza June 27 & 28 LOS ANGELES / Burbank Airport Hilton July 18 & 19 DALLAS / Airport Marriott July 25 & 26 SAN FRANCISCO / Crown Plaza THE COURSES ARE LIMITED TO 100 PERSONS PER EVENT !!!!! In the past our seminars have filled up quickly and we expect these to be the same. If you are tired fighting the market and are ready to step up to the next level then we strongly suggest you attend. There is a full money back guarantee and we will allow you to retake the seminar for free as many times as you feel necessary to grasp and implement all the techniques taught. People fly from around the world to hear George speak and you can have two full days of personal attention at the OIN seminars. Go here for details: http://www.OptionInvestor.com/seminar/index.asp We guarantee you will not be disappointed! Jim Market Posture *************** As of Market Close - Thursday, June 3, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert DOW Industrials 10,500 11,000 10,664 Neutral 5.28 SPX S&P 500 1,325 1,360 1,300 BEARISH 5.25 OEX S&P 100 660 690 658 BEARISH 5.25 RUT Russell 2000 435 450 436 Neutral 5.28 NDX NASD 100 2,100 2,250 2,030 BEARISH 5.25 MSH High Tech 1,000 1,100 1,006 Neutral 5.28 XCI Hardware 900 920 850 BEARISH 5.20 CWX Software 600 675 666 Neutral 6.03 * SOX Semiconductor 390 420 387 BEARISH 5.25 NWX Networking 450 490 530 BULLISH 4.22 INX Internet 550 650 451 BEARISH 5.20 BIX Banking 700 720 662 BEARISH 5.18 XBD Brokerage 450 475 395 BEARISH 5.21 IUX Insurance 645 660 647 Neutral 6.03 * RLX Retail 900 970 883 BEARISH 4.29 DRG Drug 390 425 359 BEARISH 4.29 HCX Healthcare 780 850 730 BEARISH 4.29 XAL Airline 180 210 167 BEARISH 5.21 OIX Oil & Gas 285 310 294 Neutral 5.13 Posture Alert Employment Data due out Friday led to a light trading day on Thursday. We have turned Neutral on Software as the index broke below key levels. We have also turned Neutral on Insurance as that index broke above resistance. A detailed description of our Market Posture and its applications can be found at: /members/marketposture Market Sentiment Pinnacle Capital Advisors ************************* Thursday, June 03, 1999 The SKY is FALLING! With key Employment figures due out tomorrow, the markets have been trading very cautiously the last couple of days. You have witnessed much bloodshed in internet and various other high-tech sectors. There hasn't been much change of Pinnacle's opinion on the markets, however, one aspect of trading that Pinnacle Capital keeps a close eye on is Market Sentiment. A statistic that jumps out at us today, was the amount of Put Buying for the June contract, that is WAY OUT of the money. With the OEX trading at 657, we saw increased activity down around the 600 level. These speculators will need to see a pretty nice correction in the next two weeks just to be break-even. Considering that these speculators are usually wrong-way, and with such bearish sentiment between 600-645, we are not too concerned with a major drop (unless Robbie Rubin resigned so he can buy front-end month, out-of-the-money puts). On the other side of this equation is the increase in out-of-the-money call buying? We saw a nice pick-up in call speculation between 680-750. What this tells us is that the bullish wrong-way traders are trying to get into the act as well. When you combine these two groups of wrong-ways, what you get is a market trading between key benchmarks. Until the Fed takes action, or corporate earning start piling in, or some other ground-breaking news, these two groups described above, will have to put in some OVERTIME at work to make up for their Option Losses.... Bullish Signs: None. Mixed Signs: Market Volatility (VIX): Trading at its 50-day moving average (26.35). Next move above or below key benchmark will likely determine market direction over the near-term. Advance/Decline Line: After flattening and rolling over last week, the A/D line is beginning to check up and could prove Bullish if advancers can out pace decliners in the week ahead. Russell 2000: Climbed back above the key 435 benchmark. The small cap stocks are beginning to show strength just above its 50/100 day moving average. BEARISH Signs: Investor Intelligence: As a contrarian indicator, the percent of Bullish investors spiked from a week ago suggesting Bullish sentiment is picking up steam and investors are ignoring the selloff. Interest Rates: Trading ABOVE 200dma and 5.50 Benchmark (5.936%). Pinnacle Index: Overhead resistance (OEX 680-750) clocking in at 6.7 suggesting that option speculators are expecting the market to advance higher. Peak Open Interest: The contraian put-call ratio clocking in at .86 suggesting bullish sentiment picking up steam. OTM Call Analysis As we move through June's expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 680-750 among option speculators. As we have been documenting, excessive out-of-the- money (OTM) call may serve as overhead resistance. 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% Friday, April 9 74,028 +107.8% May Expiration Cycle OEX OTM Call Analysis (Open Interest May 680-750) Date Open Interest Change % Alert Friday, April 16 30,697 - Friday, April 23 53,887 +75.5% Friday, April 30 65,936 +114.8% Friday, May 7 89,736 +192.3% Friday, May 14 97,861 +218.8% Friday, May 21 115,336 +275.0% June Expiration Cycle OEX OTM Call Analysis (Open Interest June 680-750) Date Open Interest Change % Alert Friday, May 28 53,502 - Tuesday, June 1 53,293 -.4% Thursday, June 03 58,515 +9.7% * Market Sentiment at a Glance Friday Tues Thurs Indicator (5/28) (6/1) (6/3)Alert Pinnacle Index (OEX): (680-750) 6.8 6.7 9.47 * Overhead Resistance (680-700) 3.7 3.5 5.21 * Underlying Support (645-660) 1.3 1.2 .85 * (510-660) 3.8 3.7 .26 * Put/Call Ratios: CBOE Total P/C Ratio .6 .5 .6 * CBOE Equity P/C Ratio .5 .4 .4 * OEX P/C Ratio .8 1.2 1.1 * Peak Open Interest (OEX): Puts 650 650 600 * Calls 670 670 670 * P/C Ratio .82 .86 .93 * Market Volatility Index (VIX): CBOE VIX 26.38 27.92 27.08 * Investors Intelligence: Bullish 60.90% 60.90% 61.60% * Bearish 28.70% 28.70% 27.70% * 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 (5/28) (6/1) (6/3) (680-750) 6.8 6.7 9.47 * Overhead Resistance (680-700) 3.7 3.5 5.21 * OEX Close 658.66 654.21 657.66 Underlying Support (645-660) 1.3 1.2 .85 * (510-660) 3.8 3.7 .26 * Average ratings: Resistance levels 2.0 / Support Levels .5 What the Pinnacle Index is telling us: Overhead sentiment resistance is building at the OEX 680/695 level while the underlying support is holding at the OEX 645/660 level. Put/Call Ratio Friday Tues Thurs Strike/Contracts (5/28) (6/1) (6/3) CBOE Total P/C Ratio .63 .54 .58 CBOE Equity P/C Ratio .50 .41 .42 OEX P/C Ratio .83 1.24 1.09 OEX Peak Open Interest Friday Tues Thurs Strike/Contracts (5/28) (6/1) (6/3) Puts 650 / 10,950 650 / 10,967 600/ 11,475 Calls 670 / 12,700 670 / 12,750 670/ 12,308 Put/Call Ratio .82 .86 .93 VIX Market Volatility 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 May 21, 1999 25.36 May 28, 1999 26.38 June 1, 1999 27.92 June 3, 1999 27.08 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 March 4, 1999 Bottom 49.1 32.5 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 April 07, 1999 56.4 31.6 April 14, 1999 55.9 30.5 April 21, 1999 56.4 30.8 April 28, 1999 56.1 30.7 May 05, 1999 58.1 27.6 May 12, 1999 56.9 31.0 May 19, 1999 60.9 28.7 May 26, 1999 61.6 27.7 * Please view this in COURIER 10 font for alignment ***************************************************** CHANGES THIS WEEK Index Last Tue Wed Thur Week Dow 10663.69 36.52 -18.37 85.80 103.95 Nasdaq 2403.32 -58.49 20.38 -29.09 -67.20 $OEX 657.66 -4.45 1.48 1.97 -1.00 $SPX 1299.54 -7.58 0.55 4.73 -2.30 $RUT 435.98 -1.22 -0.72 -0.76 -2.70 $TRAN 3420.96 50.90 -39.00 -6.64 5.26 $VIX 27.52 1.54 -1.69 -0.40 -0.55 Stock Tue Wed Thur Week MEDI 67.25 -0.75 1.75 2.63 3.63 Off and running! ORCL 27.50 0.69 0.69 1.31 2.69 New, earnings run? SCI 43.50 -0.81 1.12 1.69 2.00 New, recovering ADPT 31.31 1.06 -0.63 0.00 0.43 Bullish breakout? BVSN 51.88 -0.13 0.50 -0.50 -0.13 Technicals positive SONE 38.13 2.00 -0.50 -1.75 -0.25 Bullish signs SLR 54.31 -0.69 -0.69 0.94 -0.44 Flat! FNM 67.19 -0.63 -0.25 0.13 -0.75 Not much action LGTO 53.81 -1.50 -0.38 0.94 -0.94 Slightly down HWP 91.44 -4.19 -0.38 1.69 -2.88 Analyst meeting BGEN 106.13 -1.06 -2.50 0.56 -3.00 $146 price target ABOV 30.06 -1.13 -0.44 -1.63 -3.20 Dropped BMCS 45.88 0.06 1.06 -4.69 -3.57 Support at $44.50 LXK 132.13 -1.44 -1.81 -0.75 -4.00 Splits June 10th EGRP 37.38 -5.19 -1.06 -0.88 -7.13 Undervalued CUST 51.13 -3.75 -1.63 -3.50 -8.88 Dropped PVN 82.31 -2.38 -3.75 -7.44 -13.57 Dropped EBAY 161.31 -10.69 2.00 -7.50 -16.19 Dropped Puts CVC 74.69 -2.88 -1.88 0.56 -4.20 Dow rally? INTC 50.50 -3.38 1.25 -1.44 -3.57 Mixed sentiments EK 67.38 -0.50 -0.31 0.56 -0.25 Ceiling at 10 dma? UNM 54.38 0.06 0.56 -0.06 0.56 Range bound TBH 84.63 -0.50 1.25 0.38 1.13 Lock in profits! MEA 39.50 1.94 0.38 -0.19 2.13 Sitting still IR 66.06 2.19 -0.63 0.81 2.37 Use stops! IP 52.44 2.75 1.06 -1.38 2.43 Back to selling ABF 28.56 -0.50 -0.69 3.88 2.69 Dropped CLX 104.06 2.94 -0.44 0.63 3.13 Volume dwindling DOW 126.00 4.94 1.75 -2.19 4.50 Nice haircut! ***************** 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: ****** CUST $51.13 -3.50 (-8.87) We continued to carry CUST this week with cautions. A big turnaround in the Internets with volume returning to the sector could still send it higher, as could the website previewing of its new product. However, the preview could be as late as the very end of June, and who knows how soon big buying volume will return to the Internets? The stock has been slipping lower each day. We have to drop CUST, but we will be watching it for another opportunity. PVN $82.31 -7.44 (-13.57) In the three trading sessions so far this week, PVN has given back more than the $12.50 it added last Thursday and Friday after all the upgrades. Negative articles quoting customers and employees continue to paint the company in a bad light. Stockholders are afraid to remain in the stock and new investors are afraid to buy. Even bargain hunters who agree with all the analysts that this is a buying opportunity stayed away ahead of tomorrow's employment report. PVN is a rate-sensitive stock, and inflation fears are thwarting any rally. A non-inflationary report tomorrow could result in buying, but a negative report could just as easily send this stock further south. We have to drop PVN. EBAY $161.31 -7.50 (-16.19) Did we add EBAY to the calls list this week? Wasn't a good move. EBAY has been unable to show strength and it seems the Barron's article on AMZN has placed an anchor around EBAY's neck. Though we feel the Internet is poised to run soon, we just don't feel confident in keeping EBAY on the call list. When EBAY and AMZN, among others, decide to make their move, we will look at adding them again. ABOV $30.06 -1.63 (-3.20) ABOV creeped lower again in trading on Thursday. Even though it has received upgrades from some analysts, its upward movement has been hampered by the overall market conditions. The Internet sector is still being picked on as investors shy away in light of a possible interest rate hike. The job reports to be released on Friday morning could further impact the markets and thus affect ABOV. We have to drop ABOV as a call. We gave it ample time to make a move. Right now, there are better plays out there and we are tired of waiting for investor confidence to return to the Internet sector. PUTS: ****** ABF $28.56 +3.88 (+2.68) Today we got the inevitable bounce in ABF's stock. The downward spiral that begun more than two weeks ago finally came to an end. There was an article that hit the news around 11:00am EST about the U.S. Postal Service teaming up with ABF to deliver packages. It sounds like a good deal for ABF and it sparked a convincing rally. It also triggered a sell off for ABF's competitors like Federal Express. Although the news article was interesting and positive, the real story is in the stock's decline. It had pierced its 200-dma with ease and just kept going. When a stock is sinking that quickly its nice go along for the ride. But it also provides a good example of the importance of stop losses. If you had them set, you should have been successfully taken out of the play. So we are going to drop ABF from the put list fearing the bounce may be as violent as the drop. ***** 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. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 *********** DISCLAIMER *********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter Thursday 6-3-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ****************** PICK NEWS - CALLS ****************** MEDI $67.25 +2.63 (+4.37) MEDI was up 5 days in a row last week and due for a pause. After a slight decline on Tuesday and a gap down at the open yesterday, MEDI was off and running again. Today it set a new closing high and also set a new intra-day high of $68.63. Volume was a little better than average. MEDI is one of the biotech companies presenting at a forum this weekend, which may call more investor attention to this stock. In addition, in drug stocks are seeing renewed interest, and biotechnology stocks as a subset of the drug sector may benefit. MEDI is on a good run, and should continue moving higher, if the market can avoid an interest rate meltdown. BGEN $106.13 +.56 (-1.93) BGEN has experienced a few days of consolidation, but finally started up again today. Volume, however remains light, as it has been all week. Potential buyers are waiting for the jobs report tomorrow. Volume should increase if the news is good, and that could send the stock price toward the new $146/share price target given by ABN-AMRO on Tuesday. Wait for more volume to return to BGEN before initiating new plays. LGTO $53.81 +0.94 (-0.94) Down slightly yesterday, up again today, the whole market is going nowhere fast. Even so, the technical chart is still nicely positive. Volume is still only 50%-60% of normal, thus it will be tough to get much of a gain until conviction (read that volume) comes back into the stock. The only news coming out is that LGTO now offers immediate web-based access to its licensing solutions, which won't shake the walls to its foundations. Again, we need to see volume and a rising market to enter the play. Set your stops to get out if the market opens lower tomorrow from an unfavorable non-farm employment tomorrow. Confirm market direction before playing. SLR $54.31 +0.94 (-0.44) Just like watching paint dry. Still, nobody wants to sell, which indicates support at this level. Then again, nobody seems itching to buy either, given the overall low market volumes lately. Did we mention too that the technical chart is flatter than a pancake? Earnings are June 14 (company confirmed). Market willing, we could get an earnings run. The only news is a new product release from a wholly owned subsidiary. Considering the size of SLR, the news is really inconsequential to the stock. Tomorrow morning, we get the non-farm employment release. If it looks bad, SLR will get hurt. Obviously, don't start a play until this hurdle is cleared, volume is increasing and positive market direction has been established. HWP $91.44 +1.69 (-2.88) Volume is still on the light side. Nonetheless, HWP got a little boost today, stemming from an analyst meeting, wherein HWP stated they would have "double-digit" revenue gains in the second half of 1999, despite that their margins would drop slightly and the cost to split the company will be great. Keep an eye on the chart - it's looking just a little tired, though still positive. Not to worry, BT Alex Brown upgraded HWP to a buy rating today. Though the week has been flat, HWP has shown some strength through most of yesterday and today. A good payroll report and more volume would be nice to see before entering the play. Of course, confirm market direction before playing and use stops. EGRP $37.38 -0.88 (-7.13) Recall that we put EGRP on the "probation list" Tuesday night for being the injured player too good to throw off the team. . .it's still true. Technically speaking, EGRP's chart makes it look like a put. However, we think that EGRP is a leader in its sector and is "undervalued" as far as Internet plays go. Thus we expect that the rebound will be big when it finally comes. "You are using that as a basis for the play?" you ask. Sort of; here's the real play. We are really suggesting that you look at Telebanc Financial Corp (TBFC, $71.63) as a LEVERAGE PLAY. Since EGRP just announced they would acquire TBFC, exchanging 1 EGRP share for 2.1 TBFC shares, that means for every $1 move in EGRP, TBFC moves $2.10! Of course, that leverage can work against us on the way down too, making this a HIGH-RISK play. We've listed some TBFC strikes below which we think look good, market willing. Don't blindly jump in; confirm market direction first and remember your stops. Strong stomachs only! BUY CALL JUN-70 TFU-FN OI=210 at $7.00 SL=5.25 BUY CALL JUN-75 TFU-FO OI=256 at $4.75 SL=3.00 BUY CALL JUL-75 TFU-GO OI= 65 at $9.75 SL=7.25 BMCS $45.88 -4.69 (-3.57) BMCS took a beating today as the stock dropped just under 10%. The only news we could find to account for such a drop was a downgrade by Hoak Breedlove Wesneski to a "hold". Today was the first drop in five trading days for BMCS, but it was a big one. Support for the stock is at $44.50, the site of BMCS's 200-dma. Make sure to confirm market and stock direction before buying back in. Volume was on the light side today, so we feel this drop was overdone. FNM $67.19 +0.13 (-0.75) FNM didn't have much action today as the stock traded in a range from $66.63 to $67.44. We feel traders are waiting to see the results of tomorrows employment results. If the report shows a definite concern with inflation, FNM might test or break its lower channel of $66. If the numbers show little inflation, FNM should start to trend toward its upper channel of $73. The stock has consistently tested $66, but has yet to break and hold below this level. LXK $132.13 -0.75 (-4.00) LXK has struggled a bit this week, but we are keeping it as a play. LXK has a stock split coming up on June 10th and we feel the stock will run into this date. Unfortunately, LXK has not shown much strength over the last four days. LXK has support at the site of its 30-dma at $128. If the stock breaks this support, things won't look too rosy. We do not expect the stock to break support and hopefully see a nice split run. LXK reached a 52 week high last Friday when it reach an intra-day high of $145. The last three day's drops have been on below average volume. A lot of LXK's drop can be considered just plain old profit taking. SONE $38.13 -1.75 (-0.25) SONE dropped today on very light volume. The stock did close $1.13 off of its daily lows, showing a bit of strength. There isn't any news on the stock, but we feel as more attention gets focused on Internet finance, that SONE will benefit. SONE has a very high put/call ratio, which contrarians would interpret as a bullish sign. When too many people feel the stock is headed down, it often helps hold the stock up. Put buyers have already placed their bet and it will take more people to be bearish to continue the downtrend. BVSN $51.88 -0.50 (-0.13) BVSN traded down slightly today, but still has a positive chart pattern. Technicals show positive for the stock and the price is still above its 10-dma. BVSN again performed better than its industry, as the sector traded down close to 2%. BVSN was rated "buy" in new coverage by analyst Peter Ausnit at Volpe, Brown Whelan & Co., on June 2nd. BVSN also announced yesterday that their software has been chosen to power Xerox's corporate site. Be cautious trading BVSN. ADPT $31.31 +0.00 (+0.44) ADPT closed even on the close after trading in positive territory for most of the trading day. We still like the looks of ADPT going forward. The chart shows that the stock has had five consecutive days of higher highs and higher lows on an intra-day basis. This is a positive sign for a bullish breakout. ADPT did trade as high as $32.63 today, which is a new 52 week high. We still like the fact that ADPT trades with a PE ratio well below the industry average. Wait for stock and market direction before buying new calls. PICK NEWS - PUTS ***************** INTC $50.50 -1.44 (-3.57) Sentiment was mixed among analysts regarding Intel's acquisition of Dialogic. MSDW's Mark Edelstone reiterated his "strong buy" rating on INTC and suggested that the deal with Dialogic was "expected to offer minimal dilution". Other analysts also came forward to reiterate their "hold" ratings on the stock. Yet some whispered Intel may be in danger of trying to put too much together too fast. First thing Wednesday morning, INTC was on the move heading for the other side of $50. Then after the analysts' remarks hit the press, the stock had a late day rally. Today this tech stock fell lower in sympathy with the tech sector and closed near its lows for the day - a good characteristic for a put play. INTC had opened at $52.50, but steadily dropped below its old support ($52-53) and settled in at around $51 for the afternoon. Then on a surge of volume, the stock plunged and the closing bell saved it from further losses. The delayed purchase of Level One may also have had some influence on the stock's behavior. On Wednesday, Intel announced that the merger expected to close in the 2Q would be delayed until the 3Q due to delays with regulatory filings. However, the details of the stock swap are the same as was originally agreed upon in March. Intel will pay .86 of a share for every whole share of Level One. CVC $74.69 +0.56 (-1.32) CVC free-fell almost 5 points Wednesday morning to hit a daily low of $71.25 before attempting a recovery in the afternoon. However, the stock still closed down -1.88 at $74.13 keeping it well below its 50 dma of $78-79. Today CVC traded mostly in the $72-73 range, but rallied with the DOW late afternoon and captured a fractional lead. Two days don't confirm a new support level, but one may be forming around $72-74. A conservative player will look for downward confirmation on strong volume before beginning a new play. EK $67.38 +.56 (-.25) We have been expecting an up day or two for Kodak and we got it today on strong volume, although it closed near its low of the day. Kodak had been down the previous 8 days in a row, and the cycle was due for a pause. If it moves up again tomorrow, it will hit its 10 dma, which may provide a ceiling. All technical indicators are still negative. At a conference sponsored by Prudential Securities, Kodak said that it is targeting "brand-loyal" consumers, which the company claims make up 70% of its market share. EK claims that it has not lost market share year over year, and that the industry study showing otherwise reflects switching by consumers in the most price-sensitive group--which buys less often and is less likely to buy premium products. Longer term, the strategy is probably a good one, but in the short term, the low-end, low-margin summer film buying makes up a significant chunk of EK's current market share that is getting squeezed. EK is still in a downtrend, but eventually longer-term investors will go bargain hunting (its PE is only 16) or it will meet support in the $61-$62 range. IP $52.44 -1.38 (+2.44) Its back to the selling in IP today after a Georgia Pacific upgrade on Tuesday had been supporting the sector. Volatility in the NASDAQ and DOW had also given IP some support from investors looking to park their money in cyclical stocks to weather the storm. But with an interest rate hike now considered certain, the broader markets are calming. This may help our play as money should flow back out of this group, market willing. The $50 price is the short term low set last week and will be the new support target for buyers. After that we are looking at $46 to be possible support. IR $66.06 +0.81 (+2.38) IR is trying to make a stand at $65. The stock had received support at this point after bouncing off the 50-dma at $62.50 on Tuesday. But signs of a strong rally are lacking. For instance, you may have noticed the volume the past two days. It has been very light. Also there hasn't been any positive news to curb the slide. Not to mention a lack of fundamentals due to low paper and pulp prices. So we are skeptical of a move upward from here. But if the market jitters continue, this will be perceived as a safe investment. So have your stops placed accordingly. As we mentioned above, support from the 50-dma is at $62.50 but after that it could be free fall mode down to about $53.00. UNM $54.38 -0.06 (+0.56) Trading in UNM has been range bound this week. The stock traded above average volume but was unable to escape the $54 area. We see this as a consolidation phase as the stock continues to proceed down to the 50-dma. The Insurance industry remains weak as most major players took losses on the day. The market in general is still searching for direction as interest rate concerns linger. We are expecting the market to confirm direction on our play but keep your stops set in case of a reversal. TBH $84.62 +0.38 (+1.12) TBH was able to rebound today after bouncing off the 200-dma at $79 on Wednesday. That is the level we are watching for potential support. The stock went through the 50-dma with such ease that we want to see evidence of firm support from the 200-dma. Events in Brazil have calmed down lately though. We want to encourage to have your stops placed to lock in profits. Also the Chilean market failed to react positively following their rate cut on Wednesday. Volume was surprisingly low in their market for that kind of announcement which is just further proof that all eyes are really on the Fed. Look for weakness in the U.S. markets to continue to weigh on ADRs and let the market confirm direction before opening new plays. MEA $39.50 -0.19 (+2.12) The Paper producers are just sitting still now after a rally on Tuesday. The Georgia Pacific upgrade got the group off on the right foot this week. It curbed the drops that had been occurring and left the stocks all right near potential support at the 50-dma. But MEA is at a pivotal point. It had the sudden drop last week and stopped on a dime thanks to the upgrade of GP and support from the 50-dma. It takes a vivid imagination to believe that the stock will hold at this point and sustain any kind of meaningful rally but crazier things have happened. But if the market settles down, investors will ditch these safe plays and we should get a new downward move from MEA. Like always, let the stock confirm its direction before playing. DOW $126.00 -2.19 (+4.94) That's more like it! The Dow Jones Industrial average shows a nice gain for the day and DOW (the stock) gets a haircut in the process, as interest rates rise too. Near term support is $120 in the current market, which leaves DOW some room to fall and for us to capture a profit. The technical chart is also still in negative territory. Looking at tomorrow, if inflation proves to be in check, money will rotate right out of cyclicals (DOW included) as investors move money back to technology (exactly what we want). While not impossible, it will be hard for DOW to participate in a general market rally. However, if tomorrow's employment numbers are stronger than anticipated, leading investors to believe a rate hike is imminent, cyclicals (DOW included) could rise. That of course is a bad time to be in a put play. Therefore, it's important to keep your stops in place if the cyclicals take off. As always, confirm market, sector and stock direction before playing. CLX $104.06 +0.63 (+3.13) Since making a comeback back on Tuesday, CLX seems to be hovering at or near $104. Its trade volume of approximately 760,000 earlier in the week was above average and might have helped push CLX to this foothold. However, CLX's trade volume was extremely light on Thursday. Only 313,000 shares traded hands as it added a mere +$0.63. Since its volume has steeply declined, we feel the upward momentum could fade and CLX could resume its downward trek. Wait to confirm both the market and stock direction before heading into any new put positions. NEW CALL PLAYS *************** SCI - SCI Systems, Inc. $43.50 +1.69 (+2.00 this wk)(+2.06) SCI Systems is ranked #2 in the world as the manufacturer of electronic components. (Solectron holds the pole position.) The company designs, manufactures, markets, distributes, and services products that are used in several industries. SCI is often contracted by the government and companies in the computer, aerospace, defense, telecomm, medical, and entertainment businesses. Hewlett-Packard and Apple are just two examples of their customers. Way back in early February, SCI announced that its revenue and earnings for the third and fourth quarters would be below analyst expectations. The company's future weakness was blamed on the possibility of a decrease in its sales to personal computer makers. Within four days of trading, SCI fell over -$20.00 on the news. But that was then, this is now. SCI seems to be recovering nicely. SCI looked particularly good in trading on Thursday. The company broke to a +$1.69 gain and finally surpassed its two month high. We feel that SCI can continue to climb higher if the markets can provide some backbone. No new news. BUY CALL JUN-40 SCI-FH OI=108 at $4.63 SL=2.75 BUY CALL JUN-45 SCI-FI OI=241 at $1.50 SL=1.00 BUY CALL JUL-40 SCI-GH OI=253 at $5.88 SL=4.25 BUY CALL JUL-45*SCI-GI OI=702 at $2.69 SL=1.25 Picked on June 3rd at $43.50 PE = 21 Change since picked +$ 0.00 52 week high=$59.38 Analysts Ratings 10-8-1-0-0 52 week low =$20.75 Last earnings 04/99 est 0.50 actual 0.48 Next earnings 08-03 est 0.57 versus 0.54 Average Daily Volume = 749 K Chart = http://quote.yahoo.com/q?s=SCI&d=3m **** ORCL - Oracle Corporation $27.50 +1.31 (+2.69 this wk)(-0.94) Oracle is the leading independent designer, developer, and marketer of database management systems software. Their software products allow multiple users to use the same data at the same time on everything from notebook computers to mainframes. We are adding ORCL as a call play based mainly on its recent performance coupled with strong news. First of all, ORCL has clawed its way higher in recent trading even though the markets have been shaky. It has posted gains for 5 trading days in a row even though the markets have been all over the place. Second, ORCL recently announced that it plans to cut its expenses by $1 billion with in the next 18 months. That is much more savings than originally predicted. The former figures were much lower at only $300-$500 million. Oracle will use its own software and technology to help it become a full-fledged e-business in order to produce the savings. And last but not least, we feel ORCL could pick up steam as we draw closer to earnings. The company will report its numbers on June 15th (date confirmed from the company). Look for ORCL to work its way higher but keep in mind that it could have some resistance at the $29 level. No new news. BUY CALL JUN-25*ORQ-FE OI=15112 at $3.13 SL=1.50 BUY CALL JUN-30 ORQ-FF OI=20767 at $0.63 SL=0.00 BUY CALL JUL-25 ORQ-GE OI= 1578 at $3.88 SL=2.50 BUY CALL JUL-30 ORQ-GF OI= 2482 at $1.38 SL=0.00 Picked on June 3rd at $27.50 PE = 32 Change since picked +$ 0.00 52 week high=$41.17 Analysts Ratings 7-13-10-0-0 52 week low =$12.13 Last earnings 03/99 est 0.15 actual 0.20 Next earnings 06-15 est 0.32 versus 0.27 Average Daily Volume = 19.6 mln Chart = http://quote.yahoo.com/q?s=ORCL&d=3m NEW PUT PLAYS ************** None today COMBINATION PLAYS ****************** Upcoming Economic Report Dominates The Market Wednesday, June 2 Blue-chip stocks ended lower Wednesday as interest-rate worries continue to plague Wall Street and the market prepares itself for a 6% yield on the long bond. On the bright side, the Nasdaq index of technology stocks rose 20 points to 2,432 as bargain hunters searched for survivors of the recent selloff. In the broader market, declining issues led advances 1,612 to 1,334 on active volume of 726 million shares on the NYSE. Tuesday's new plays (positions/prices): AHG SEP20C/JUN22C $2.75 debit (lower in the AM, then recovered) APCO OCT10C/JUN12C $2.31 debit (fell back after Tuesday's rally) CPU AUG7C/JUN10C $1.38 debit (a great covered-call play too) Portfolio plays: AAPL was the big mover today, rallying right through our STOP on Tuesday's news of an upgrade from Salomon Smith Barney. The BUY recommendation was very aggressive with a target of $55 based on the success of Apple's IMAC and the new products expected to be unveiled at MacWorld Expo in July. The closing price on the short option; MAY45C, was $2.50. The remaining option was sold later in the day for $2.00. This exit strategy is a basic roll-out technique that we use for credit spreads. A buy-to-close STOP is placed on the short option to protect the overall spread position. When the STOP is executed, a GTC sell order is placed on the long option at a price that will close the entire play at (or near) break-even. The technique is based on the probability that once the stocks reverses through a recent price trend or resistance with a sustained movement, the stock should continue to move in that direction. If the underlying issue loses momentum after the short position is repurchased, it may be necessary to sell the long option at the current price and just move on to the next play. It is a very difficult technique to perform if emotion enters the formula but it works well once you become experienced at it. The key to success is using the method at current resistance or support levels, otherwise you are just speculating about the stocks next move. In this case, AAPL made a big move, climbing $3 at midday to a recent high near $48. The steady manner in which the stock moved higher allowed the STOP to be executed at a fair price and the long position was easily sold into the rally; although it wasn't at the high of the day. Remember, the nice thing about spreads is; once you understand them, you can turn many losing plays into winning ones with the effective use of STOPS and by rolling out-of/into new positions when the stock turns against you. When you do lose, atleast you have reduced your losses by leveraging against another position. The successful trader will utilize the strategies that work best for each particular situation and construct his plays based on the appropriate risk/reward attitude of his financial position. The other highlight of today's trading was the AMZN rebound. For those of you in the debit spread, it may have offered an early exit. The spread credit was still a small loss compared to the initial cost basis but some of you may have chosen to sell off the long side and wait for another dip to close the entire play. I would like to tell you that I expect the internet stocks to rally back to their previous levels but at this point, the best we can hope for is a consolidation at the current levels. Thursday, June 3 U.S. stocks continued without direction on Thursday as investors await Friday's jobs report. It is one of the main indicators of the economy and is expected to influence the Fed's decision on whether to boost interest rates. The Dow rebounded 85 points to 10,663 while the Nasdaq fell 29 points to 2,403 on weakness in the Internet sector. In the broader market, advancing issues led declines 1,595 to 1,309 on active volume of 716 million shares on the NYSE. Portfolio plays: Some of our volatility plays on recent takeover candidates are now profitable as the premiums of the front-month options fall with the receding stock prices. Spreads on COMS, UCL and UK have favorable profits and today's upward move by SKYT boosted that position to a $0.75 credit. The big question continues to be MER; will it rebound by next month? Our ATM spread (JUL85C/JUN85C) is still profitable but investors have demonstrated their opinion of the recent company decision to go online and the stock has shown little interest in any type of recovery. CD managed a small rally today and the bullish debit spread is almost back to break-even. ORCL made a nice move, climbing $1.31 during a session in which many of the small nasdaq stocks suffered. Oils and retail issues were also some of the better performers in our portfolio. Good Luck! ********** NEW PLAYS With a pivotal employment report due tomorrow, we decided to try a couple of short-term, speculation plays on small-cap issues. ********** ARTT - Advanced Radio Telecom $15.00 *** Big Mover! *** Advanced Radio Telecom is a facilities-based, broadband Internet Service Provider that offers a direct connection between the customer premises and the Internet. ARTT operates metropolitan area networks in Seattle, Portland and Phoenix using wireless and fiber optic technologies. ARTT owns or manages licenses in more than 210 markets in the United states including 49 of the top 50 markets. ART also owns spectrum licenses in several European countries. With Lucent as its network systems integrator, ARTT offers a full range of Internet services including dedicated Internet access at speeds up to 10Mbps, e-mail, web hosting and web design, domain name server registration, IP Fax and more. This week, a group led by Qwest Communications agreed to invest $251 million in ARTT, allowing the wireless ISP to continue the construction of its local networks. Qwest and the other partners will receive preferred stock that is convertible into ARTT common stock but they are limited to owning a 45% voting stake in the company. The new investment prompted Standard & Poor's to affirm its 'CCC' senior unsecured and 'CCC+'corporate credit ratings for ARTT and remove the company from a credit watch status where they had been placed last June; due to concerns about the company's liquidity. The company will use the money to build local networks and the new market penetration will give it access to a greater number of U.S. businesses. These wireless networks will be connected to Qwest's long-distance, fiber-optic network, expanding Qwest's reach and providing a long distance backbone for ARTT's local networks. It's a great opportunity for the company and there is definitely a change of character in the technical outlook for this stock. We expect the bullish trend to continue and this position offers a favorable method to enter a short-term speculation play. PLAY (aggressive/debit spread): BUY CALL JUN-12.50 AOQ-FV OI=247 A=$2.63 SELL CALL JUN-15.00 AOQ-FC OI=331 B=$0.87 INITIAL NET DEBIT TARGET=$1.50 ROI(max)=66% B/E=$14.00 Chart = http://quote.yahoo.com/q?s=ARTT&d=3m ***** PRTL - Primus Telecom Group $20.93 *** Double Upgrade *** PRIMUS Telecommunications is a global telecom company providing domestic and international long-distance voice, data, Internet, private network and value-added services. The company provides services through an extensive global network of owned and leased transmission facilities, including undersea fiber optic cables and international gateway switches; a satellite earth station and a variety of other operations that allow them to deliver traffic worldwide. During the last week, PRIMUS has made several announcements; the formation of an internet site, iPRIMUS.com, a new alliance with Global Crossing to enhance its high bandwidth worldwide fiber and satellite network, the acquisition of a leading German Internet Service Provider and the purchase of Telegroup. In addition, they also entered into a deal with AT&T Canada to buy the residential side of their long-distance operation. The deal will give PRIMUS an additional 650,000 voice customers and 50,000 Internet/data customers in Ontario and eastern Canada. The stock has excellent momentum and the trading volume indicates this may be a sustainable rally. The recent analyst upgrades will bring institutional buyers into the rally and that may be just enough to keep the stock price above $20 for two weeks. PLAY (aggressive/debit spread): BUY CALL JUN-17.50 PQW-FW OI=505 A=$3.75 SELL CALL JUN-20.00 PQW-FD OI=189 B=$1.75 INITIAL NET DEBIT TARGET=$1.75 ROI(max)=42% B/E=$19.25 Chart = http://quote.yahoo.com/q?s=PRTL&d=3m 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 $10 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. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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