The Option Investor Newsletter Thursday 10-21-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Published three times weekly, Sunday, Tuesday, Thursday evenings. ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 10-21-99 High Low Volume Advances Decline DOW 10297.70 - 94.70 10390.70 10177.40 1,012,540k 1,145 1,876 Nasdaq 2801.95 + 13.82 2805.07 2724.74 1,123,221k 1,718 2,209 S&P-100 676.67 - 2.57 679.24 665.55 Totals 2,863 4,085 S&P-500 1283.61 - 5.82 1289.43 1265.61 41.2% 58.8% $RUT 414.27 + 0.33 414.27 409.29 $TRAN 2812.09 + 3.65 2816.58 2778.56 VIX 24.77 - 0.44 28.21 24.71 Put/Call Ratio .61 ************************************************************* Microsoft giveth and IBM taketh away! I hope you had your seatbelt fastened on you trading chair the last two days. The strong +189 Dow and +99 Nasdaq on Wednesday was just the warm-up act for the IBM blues today. The Dow plunged -213 points at the open with IBM accounting for over -100 points of the drop. After trading in a narrow 60 point range almost all day the Dow made another try at a sell off and again touched the -213 mark at 10177 but quickly rallied back to close right on our previous resistance at 10300. Just another normal day in the October markets. The good news, and it was very good in my book, was that the Nasdaq held the +99 gain made yesterday and even added some more today. This was a very good sign when the tech sector was laboring under the IBM load. This is really a positive event. The range for the Nasdaq was almost 80 points and the low of the day was -64. Also impressive was the performance by the Dow. With IBM dropping -$21 from yesterdays close, the impact to the Dow was well over -110 points. The news that a jury could decide damages in a trial against Phillip Morris also impacted the Dow to the tune of almost -20 points. With a -130 point impact from just two stocks you would think we would have seen a major -200 to -300 point finish. Didn't happen and the -95 finish was a +45 point gain for the rest of the index. I am impressed! The bounce off the 10000 bottom for the Dow on Fri/Mon and the failure to penetrate 10200 significantly on three tries this week, has reawakened the bull mentality. You can just feel the psychology changing again. Last week the gloom and doom was everywhere and today the analysts are absolutely bubbling with optimism. (could be a bad sign) Still I am thinking about converting to a bullish bias again. When you look at the hits the market has weathered in the last week, it is amazing we are not trading in the high 9000 area. Xerox warned, Lexmark warned, Dell warned, IBM warned, INTC missed estimates, the PPI was terrible and there is a 100% chance the Fed will raise rates on Nov-16th. Still the market is showing increasing strength in the face of the Y2K hype. As I write this, yet another big name has warned of a bad fourth quarter. Gillette added it's name to the list of losers for the quarter. Gillette dropped -4.50 in after hours. The volume on the NYSE and the Nasdaq broke one billion shares each but IBM and MO accounted for over 136 million shares by themselves. IBM dropped over $40 bln in market cap and MO is down -$86 bln from its recent high. For the price of a carton of cigarettes today, you could have bought 1.5 shares of MO stock. MO traded as low as $21.94 today, a low not seen since 1995. IBM dropped from the number six spot on the S&P to the number nine spot in terms of market cap. The gains in the markets have been on the backs of the S&P earnings. As of today 283 S&P-500 companies have reported and earnings have come in at an outstanding +24.8% increase over last year. The buying is also being fueled by a flood of cash pouring into mutual funds. For the week ended 10/20 funds received +$5.3 bln bringing the total for the month to over $13 bln. In a month that normally has traders moving to the sidelines, the flood of cash could be to take advantage of any buying opportunities. This is a far cry from the "run for the hills" Y2K mentality that the bears are promoting. The "buy the dip" mentality is winning the war and traders are hoping for a big dip instead of worrying about one. The European Central Bank did not raise rates today as some had expected and that was a market positive. Bonds are feeling the impact of the flight of funds back to stocks after the "big" sell off did not occur. Yields today closed at 6.36% and the next milestone at 6.40% could be hit any day. The market appears to be ignoring the drop in bonds and is disconnecting from the bond/stock historical lock step. While I said above that I am considering a bias change back to bullish, I am still not convinced and I would urge you to be very careful about buying this rally 100%. The Nasdaq did return to positive territory and the Dow would have been positive except for IBM and MO, BUT... the advance/decline line was still negative 4:3 and the new highs at 149, were swamped by new lows at 888. Market internals are still bad and the big caps are continuing to disguise the event. We were severely oversold and it is possible that we move up from here but is also very possible that this is just a bear trap rally and we could trade in a range between 10000 and 10500 for some time. Obviously that would be a great trading range but also traumatic for buy and hold investors. A close over 10400 would be very positive and could mean the start of a new uptrend. A close under 10200 would be very negative and could signify the start of another down trend. There are some great stocks making some strong moves and we added more calls than normal tonight to attempt to position ourselves to take advantage of any rally. Please, remember that although we listed calls tonight, we only recommend playing them if the market is positive after amateur hour tomorrow. Watch the ticks, advance/declines, Dow, Nasdaq and other stocks in the same sector to get a feel for the true direction before opening a new position. You may end up buying in a little higher by waiting but that is better than making an impulse buy and then watching it roll over 30 minutes later. With all the new plays tonight space is going to be a problem so I am going to cut it short. Buy too late, sell too soon. There are no stop losses on cash. Jim Brown Editor ******************* FALL SEMINAR SERIES ******************* If you procrastinated scheduling an October seminar then it is time to plan for the two in November. Don't procrastinate any longer. Lack of education is expensive in the options market. You can pay your dues one trade at a time the hard way or "invest" them up front and turn them into an asset. Here are the only fall dates remaining: Oct 24/25 New York Nov 8/9 Miami Nov 14/15 San Francisco For complete details http://www.OptionInvestor.com/seminar/ There is a 100% money back guarantee and you can take a friend for free. What else could you ask for? Jim Brown ************ Stock News: ************ America Online Bucks the Trend By S.P. Brown IBM may have had most of the tech sector circling the drain today, but it couldn't pull America Online (AOL) into the whirlpool. Market sentiment towards the ISP giant was just too darn optimistic to let IBM spoil the mood. http://www.OptionInvestor.com/stocknews/102199_1.asp ***** Internet Stocks Push Afternoon Market Rally By Cindy Christ Despite a mostly down day on Wall Street, Internet stocks gained ground as a late-afternoon rally erased earlier losses and lifted the NASDAQ 13.82, or 0.50 percent. After advancing 4.1 percent on Wednesday, the American Stock Exchange Internet Index ($IIX) gained 0.8 percent. Merrill Lynch's 20-stock Internet HOLDRs gained 1.42 percent. http://www.OptionInvestor.com/stocknews/102199_2.asp *************** Market Posture *************** As of Market Close - Thursday, October 21, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 10,298 BEARISH 9.23 SPX S&P 500 1,350 1,420 1,284 BEARISH 9.16 OEX S&P 100 690 725 677 BEARISH 10.15 RUT Russell 2000 440 465 414 BEARISH 9.14 NDX NASD 100 2,320 2,500 2,477 Neutral 10.19 MSH High Tech 1,120 1,250 1,212 Neutral 10.19 XCI Hardware 950 1,050 1,003 Neutral 10.15 CWX Software 750 800 888 BULLISH 9.03 SOX Semiconductor 450 525 506 Neutral 10.19 NWX Networking 525 600 594 Neutral 10.19 INX Internet 450 525 504 Neutral 10.15 BIX Banking 690 710 598 BEARISH 7.23 XBD Brokerage 410 440 361 BEARISH 7.23 IUX Insurance 645 660 525 BEARISH 7.23 RLX Retail 915 960 871 BEARISH 7.23 DRG Drug 365 390 387 Neutral 10.19 HCX Healthcare 720 785 760 Neutral 10.19 XAL Airline 180 190 143 BEARISH 5.21 OIX Oil & Gas 300 315 297 BEARISH 10.08 Posture Alert The broad market looked ugly this morning, but investors seemed to shrug off IBM's earnings woes, as the market closed well off of its lows. America Online was the bellwether leader, closing up 4 ¼ on solid earnings, but the semiconductors led the indexes with a +2.14% gain! Leaders on the downside were Hardware (-2.34%) and Airlines (-1.36%). There are no current changes in posture. A detailed description of our Market Posture and its applications can be found at: /members/marketposture *************** Market Sentiment *************** Thursday, October 21, 1999 Big Blues! Thursday morning saw a big gap-down in the broad market, thanks to the earnings disappointment from International Business Machines. Not only did IBM miss the infamous whisper number by 3 cents, but they also used the dreaded "Y2K slowdown speech" in their conference call. Strike one, and strike two. The other bellwether to report last night was America Online. However, America Online did come in-line with the whisper number, and had a positive conference call with the street to boot. This could have been strike three, and lights out. As such, the market rebounded very strongly off the lows of the day, partially thanks to AOL, and also partially thanks to the spill-over effect from Microsoft's big quarter the previous day (and positive future comments). Should AOL have missed the whisper number and/or made cautionary comments like Big Blue, we would all be drowning our sorrows out at the local tavern (like NY Mets Fans). Anyway, this market just missed another bubble bursting dart, so celebrate the luck of the bulls. In Sunday's letter, we highlighted in the OEX section that there was a 50% chance, for a 35-point rally in the S&P 100 during the next two weeks. Well, we have 25 points in just four days, and based upon the negative sentiment that still prevails, we would not be surprised to see the former target achieved very shortly. The OEX put/call ratio is still very bearish, as well as other put/call ratio's in general. This contrarian indicator still suggests further upside, and with the market shrugging off IBM's woes, it would not be surprising to see. And finally, the Investors Intelligence Survey came out, and it looks like people who have been sitting on the sidelines are now joining the bulls/bears party. Negative sentiment continues to dominate, as bears increased another 2% to 39.5%, a new 52-week high. Bulls also increased very slightly, but the number is still extremely low at 41.2%. This increase from non-participants is a very good predicament, because what this shows us is that people on the sidelines are getting itchy to jump into this market, whether bearish or bullish. That means more potential money being used, and more potential for short covering down the road, as investors become more bullish, or less confident on their bearishness. Ideally, we would have liked to seen the percentage of bears being greater than the bulls. Either way, we look at the latest survey as an indication that we may have seen a bottom on negative sentiment, and as long as inflation stays in check; we will be avoiding any "big blues." BULLISH Signs: Pessimism on Earnings: We should see a solid third quarter from many companies, yet their stock prices do not reflect this upside potential. Investor Intelligence: As a contrarian indicator, the amount of Bullish investors is at a recent low, and bearish investors is at a recent high. Volatility Index: The VIX continues to show great support at 32-33, and continues to prove as a good entry point. With the VIX trading at 25.44, more upside in the stock market is prevalent. Mixed Signs: Earnings Season: Earnings season is still early, and we have mixed results so far, with Intel and IBM being the negative bellwethers for this last week. BEARISH Signs: Interest Rates: The yield on the 30-yr Treasury is breaking new highs, and will need to see a nice rally before stocks can advance. Miscellaneous Uncertainty: Y2K, inflation, higher interest rates, slowing corporate earnings, earthquakes, U.S. Dollar uncertainty, are all leading to an abundance of uncertainty for professionals and investors alike. Advance/Decline Line: The A/D line continues to be poor and is getting worse. X-Factor: Currently, good news is not rewarded very well, while negative news or even rumors will destroy a stock. We have witnessed this last week with issues such as IBM, Lexmark, HI/FN, Abercrombie & Fitch, and Unisys. Russell 2000 & S&P 500: The RUT and SPX are still very weak, with both breaking support levels. OTM Call Analysis As we move closer to the November expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 690-780 among option speculators. As we have been documenting, excessive out-of- the-money (OTM) call may serve as overhead resistance. September Expiration Cycle OEX OTM Call Analysis (Open Interest September 690-780) Date Open Interest Change % Alert Friday, August 20 41,346 - Friday, August 27 78,026 +88.7% Friday, September 3 104,700 +153.2% Friday, September 10 144,711 +249.9% October Expiration Cycle OEX OTM Call Analysis (Open Interest October 680-780) Date Open Interest Change % Alert Friday, September 17 34,361 - Friday, September 24 84,724 +146.5% Friday, October 1 108,460 +215.6% Friday, October 8 125,019 +263.8% November Expiration Cycle OEX OTM Call Analysis (Open Interest November 680-780) Date Open Interest Change % Alert Friday, October 15 39,072 - Market Sentiment at a Glance Friday Tues Thurs Indicator (10/15) (10/19) (10/21) Alert Pinnacle Index (OEX): Overhead Resistance (685-700) n/a n/a 2.3 Overhead Resistance (660-680) 0.9 1.2 0.8 Underlying Support (630-650) 13.3 12.5 13.6 Put/Call Ratios: CBOE Total P/C Ratio .7 .7 .7 CBOE Equity P/C Ratio .9 .4 .4 OEX P/C Ratio 1.1 1.2 1.2 Peak Open Interest (OEX): Puts 640 Calls 690 P/C Ratio 1.79 Market Volatility Index (VIX): CBOE VIX 25.44 Investors Intelligence: Bullish 41.20% * Bearish 39.50% * Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Wed Thu Week Dow 10297.69 96.57 88.65 187.43 -94.67 277.98 Nasdaq 2801.95 -42.68 -0.97 99.95 13.82 70.12 $OEX 676.67 5.04 3.48 18.97 -2.57 24.92 $SPX 1283.61 6.72 7.19 28.11 -5.82 36.20 $RUT 414.27 -5.80 2.03 3.01 0.33 -0.43 $TRAN 2812.09 -20.77 16.14 -51.77 3.65 -52.75 $VIX 24.77 -2.04 -0.98 -3.25 -0.44 -6.71 Calls Mon Tue Wed Thu Week BVSN 189.63 -9.63 5.63 23.75 7.88 27.63 Superb EMLX 152.00 -5.50 -0.63 11.25 18.88 24.00 Blasting off QCOM 215.69 -2.81 2.31 4.31 13.38 17.19 Skyrocketed ADBE 127.88 0.25 3.31 4.75 2.19 10.50 What a play! SEBL 94.88 -1.69 1.31 7.97 2.16 9.75 New CMVT 102.13 -2.25 1.75 6.63 0.75 6.88 New AMZN 80.75 -1.00 2.56 3.88 0.25 5.69 New RMDY 34.50 1.13 1.94 2.72 -0.28 5.50 Sweet perfume GMST 79.06 -1.25 -1.56 2.25 4.19 3.63 New TFSM 44.00 -4.81 3.19 3.88 1.13 3.38 New VRTS 92.94 -6.34 -0.50 5.88 2.81 1.84 New KIDE 58.69 0.75 1.13 -3.81 1.50 -0.44 Consolidation MACR 51.66 -2.25 2.63 -1.16 -0.81 -1.59 Buy rating DELL 39.50 -1.50 -2.81 1.50 -0.50 -3.31 Strong finish IBM 91.00 -0.88 0.13 -0.13 -16.00 -16.88 Dropped Puts EFII 36.19 -9.19 1.19 -0.13 -1.19 -9.31 Free fall LTR 65.94 -0.50 -0.50 -2.25 -1.81 -5.06 New CI 64.88 0.44 -2.56 -0.38 -0.56 -3.06 Big problems CB 45.88 -0.94 -0.25 0.63 -0.25 -0.81 Retreating CBS 43.63 0.69 -0.06 0.13 -0.31 0.44 Dropped KSU 40.94 -1.56 1.81 1.25 -0.31 1.19 Dropped VO 41.50 -0.06 -1.69 4.50 0.00 2.75 Dropped CNET 53.56 -2.13 1.13 1.63 3.06 3.69 Dropped CMGI 102.44 -3.50 2.69 5.50 -0.06 4.63 Slow down AMZN 80.75 -1.00 2.56 3.88 0.25 5.69 Dropped ******************* TRADERS CORNER ******************* Paper Tiger BRASS is the Marine acryonym for pulling the trigger: Breathe, Relax, Aim, Steady Squeeze. I am taking the week off to paper trade, and I find a lot of parallels between a well aimed rifle shot and a well executed option trade. Marine snipers crawl through mud, grass, and forests for hours, sometimes days, to take one accurate shot. This week, I am developing an essential skill for any trader who overtrades (if you're not guilty, go ahead and email me!) -- watching the market, WITHOUT pulling the trigger. Here are the targets my sights have settled on this week: Qty Contract Symbol Sold Price Bought Price Profit % Gain 5OEX Nov 660 Call OEYKL 19-Oct 25.13 18-Oct 19.38 5.75 30.0% 5OEX Nov 660 Call OEYKL 19-Oct 20.00 18-Oct 19.38 .62 3.2% 10IBM Nov 110 Call IBMKB 21-Oct 0.25 20-Oct 6.25 -6.00 -96% 10IBM Nov 110 Call IBMKB 21-Oct 0.25 20-Oct 6.38 -6.13 -96% I watched the market at the close on Monday, and saw a pretty strong rebound in the last hour in the OEX from 645 to 655. In Qcharts, I set set up the OEX 660 Call position in my quote sheet, and set price alerts at -15% (a stop loss) for half the position, and 30% profit (a limit sell) for the other half. Sure enough, the rally continued into Tuesday, and hit the sell price, so I gave myself credit for the 30% profit there. I didn't check the market again until the close on Tuesday, so, realistically, I could only take credit for closing the other half of the position for a slight profit at 20. On Tues at the close, I realized that MSFT was announcing. I priced MSFT Nov 85 Calls at 5, and thought that this would be a good play since the Ballmer Bomb had lowered expectations and Mister Softee always suprises on the upside. Sure enough, great numbers and a nice pop. But I can't credit myself with that shot. However, on Wednesday morning, I figured IBM would gain in sympathy with MSFT and possibly suprise in its own earnings, especially because of the e-business initiatives. So, I entered a IBM Nov 110 Call position at about 6.25 (I got some realistic variance in pricing while entering the position fields in the qcharts quote sheet). I also set a limit sell at 30% profit, and a stop loss at -15%, both for one half of the position. At the close, Wednesday, the contract is at 7 and I am holding for a continued move up. However, on Wednesday afternoon, IBM warns about Y2K, and... you know the rest. My stop would have triggered at the open on Thus, resulting in a market sell at the open at a price of 1/4. I check the market midday, see the debacle, and sell the other half of the position. Total wipeout. 96% Loss. Catastrophic effect on my decision making ability. Game over. Same lesson, different quarter: Never hold over earnings! But the good news is these are only paper trades! And I could care less, but I have learned the lessons. If these were real trades, I would not be able to make sound decisions now. I'd be off balance and tempted to make bad trades. What is the value of paper trading? Rest is essential. I sleep well, I enjoy the cash I've made so far this year. I am gathering my strength for the total focus which being in a real play requires. I also mentally rehearse my actions for various scenarios. Is this a good entry point, why or why not? What is the broader market and sector telling me? I practice the order system that I want to use. I also take care of other parts of my portfolio. I sold 1/3 of a high yield bond fund which I built up over the summer by selling stock positions when the market peaked. I want to move more of my long term money into equities in end of the year buying opportunities. I bought AMZN and SCH calls with expiry in Y2K, based on some columns in last week's news letter, and my own analysis; I don't have a target price on them, I have a target date -- January 1, 2000 -- which I think will start a rally when everything... works! I am planning which weeks I want to trade, how many trades I want to make, how many days (and nights) I want to be in plays for the rest of the year; I am planning when I want to go on vacation and ignore the market. When I was in Infantry Officer's Course, they told us about a Regimental Commander who was awakened by one his staff. "Sir, we've located the enemy headquarters. Should we target it with an artillery attack?" The colonel responded, "When are we kicking off the planned attack? Wake me up when we are ready." He shot the artillery mission in conjunction with the previously planned attack, thus blinding his opponent at a critical juncture. I want to be that guy. I'm out hunting the big volume capitulation that the Market Wrap described on Monday night. Wake me up when everyone in the streets is saying, "Hey, did you hear the market crashed?" When volume signals big players buying the bottom, I will be waiting with a lot of cash. Janar Wasito Janar@OptionInvestor.com 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: ***** IBM $91.00 -16.00 (-16.88) Well, this is probably going to be remembered as one of the first true casualties of Y2K. Despite meeting expectations in their earnings release Wednesday after the market, the company warned that their computer sales would be impacted over the next several quarters. This prompted the stock to sell off from a close of $107. The next round of bad news came from analysts. Five analysts downgraded the stock this morning. Some might view the pullback as an opportunity due to the fact that the stock is now at a support area built earlier in the year, but the fact of the matter is that this move took the stock well below its 200-dma. This will keep institutions out of the stock until they can see the company's numbers move past the Y2K issue, probably after the first quarter next year. PUTS: ***** CNET $53.56 +3.06 (+3.69) The Internet stocks came storming back at the end of the trading day. Investor confidence over quarterly earnings reports turned optimistic. CNET in particular ahead of its earnings report. Investors stepped in and bought back the shares after a week of selling pressure. The major reason for our removal of CNET was the earnings announcement that we won't hold over. By the way, the numbers are out and CNET beat the street estimates, which was an estimate of a 33 cents loss, they came in at 32 cents, with revenues nearly doubling. In current market conditions, earnings reports can be interpreted either way, it can be hazardous to the health of our wallets to hold positions over earnings reports, especially when technical levels have been violated. We will look to revisit the stock after Wall Street has digested the current quarterly results. VO $41.50 +0.00 (+2.75) We got kicked in the butt on this play plain and simple. We never got the downward confirmation as expected on Wednesday. Instead VO spiked up $4.50 in response to the news that earnings would be released early. Today Seagrams did report a loss, but the shortfall was less than what analysts expected and shares surged to a daily high of $43.94 before closing unchanged for the day. Also in the news today Credit Lyonnais reiterated a Buy rating. Needless to say, the stock's reversal puts it on our drop list tonight. CBS $43.63 -0.31 (+0.44) Big blue and Y2K worries sent the broader markets reeling this morning. Unfortunately CBS didn't get the clue. For most of the week CBS has simply gone nowhere. We may be pulling the plug a bit early but with the weakness in the broader markets this morning we looked for CBS to move further south than it did. Shares of the broadcasting giant may have put in a short-term bottom and be preparing for an earnings run. CBS is scheduled to release earnings Nov 1st. We have seen no specific news on the company or it's industry that would hold the stock up. With some many other plays surfacing at this time, we will focus our attention in other areas for profitable plays. ******************* DROPS 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 10-21-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ***************** DROPS CONTINUED FROM SECTION ONE ***************** AMZN $80.75 +0.25 (+5.69) While we're dropping AMZN from the put list tonight, we're simultaneously adding it as a call. As we noted in Tuesday's update, a move over $78 with any strength at all should get us headed for the exit, especially since it appears that AMZN is picking up the pace into its earnings on October 28. Again, too strong for puts; switching to calls for an earnings run. KSU $40.94 -0.31 (+1.19) Did today's sell-off really surprise anyone? This trend of selling off rallies has become quite common within the market. Fortunately, the sell-off has trickled down to our put play on KSU, which found its way lower today. After making a small run the last three trading sessions, today's small decline was a much needed relief. KSU is riding the fine line of bouncing off its 10-dma at $41 or breaking through. But the news of strong earnings from industry foe UNP has renewed optimism in the group. The value players may be emerging in this beaten down group so we are exiting the play. ***************** PICK NEWS - CALLS ***************** EMLX $152.00 +18.25 (+24.00) Budda-bing budda-BANK! Wow talk about exciting!! EMLX was true to form on Thursday blasting off for higher ground. It opened up and never looked back, thanks in part to the huge NASDAQ rally and the great earnings report from Microsoft (MSFT). EMLX fast approached resistance at $137 but decided not to test it for the day. Now for the real excitement. Today EMLX launched and reached the stratosphere taking out resistance and setting a new 52-week high! Volume was just under 3x the norm and EMLX closed at its high of the day and in after market appeared to be holding it. If you entered the trade yesterday or even today, you should be very pleased with your profits. With the stellar $30.25 two day gain, we might see some profit-taking tomorrow so decide if you want to ride through it and hope for more to come. RMDY $34.50 -0.28 (+5.50) Still a short-term play, RMDY is making a run into earnings on October 25 after the close (confirmed), just two trading days away. Volume is still above the ADV of 405 K shares, but only by 19% today and falling. Keep your eye on volume. If it looks weak while the price is flat or moving down, you may want to make an early exit - it will signal that the buyers have lost interest and the sellers are about to move in. However, the sweet perfume of NT's purchase of Clarify still lingers in RMDY's clothing (guilty by association in a good way). Oh yes, did we mention another new 52-week high set yesterday? Resistance is now at $35.19, today's intra-day high. Support is still strong at $28. Unfortunately, those not already in the play have a small window of time to be right. Those already in the play should plan to be out by Monday's close before earnings are announced. There is no news. MACR $51.66 -0.81 (-1.59) Well, the NASDAQ rallied back and ended the day on a higher note, unfortunately, our play on MACR didn't follow suite. The stock spent the day on the flat side and settled once again on its support at $51. The bad news is that the stock broke it 10-dma at $52. Breaking this level comes as no surprise considering it's been a common occurrence lately. The real support for the stock has been at the $50-$51 level, which has been common ground for the past week. We decided to keep the play in hopes the stock will ride the coattails of today's comeback. If Internet stocks can maintain their bullish mood into tomorrow, we expect MACR will join in the celebration. One item of information that might help us accomplish our goal is today's announcement that Robertson Stephens Managing Director and Senior Networking Software Analyst John F. Powers initiated coverage of MACR with a Buy rating. Let's see if this will be enough to get us over our menace resistance point at $55. When placing new trades, look for entry points at the current price level, it's a well-established base. Like always confirm market direction before placing our trades. Remember, earnings are just around the corner on October 27. KIDE $58.69 +1.50 (-0.44) KIDE has been going through a period of consolidation for the last week. KIDE opened down this morning, traded as low as $53.50 and made a bounce off of its 10-dma. KIDE then made a turn in the positive direction picking up the momentum and showing us once again that you can't keep a good Pokemon down. KIDE moved up steadily, demonstrating great relative strength against the market. With a $6 trading range throughout the day, KIDE made some solid entry points. KIDE looks to have established a new and solid support right around $57.50 with a possible resistance set at $63.50. KIDE closed near the high of the day and had strong volume, indicating renewed and continuing investor interest. We expect KIDE to continue to rally tomorrow and maintain positive momentum. Confirm market direction before entering any new plays. DELL $39.50 -0.50 (-3.31) Share prices of Big Blue (IBM) may toppled by 20% today, but DELL maintained a strong stance at its $38 support level throughout the day. The stock finished strong just a fraction below the $40 mark of yesterday's closing price. An impressive performance considering Dell announced an earnings' warning on Monday citing 3Q profit margins would be hurt due to a 25% spike in chip components and the present state of the market. Volume continues to be robust for this technical/earnings play and this is a good sign of better things to come. The company is expected to report earnings in a couple weeks on November 11th. ADBE $127.88 +2.19 (+10.50) What a play! ADBE has once again stepped up to higher levels of trading. Yesterday it broke through overhead resistance at $122.94 cresting at a daily high of $127.44 on strong volume. The advancement persevered in today's market and ADBE set another new 52-week high when it hit $128.81 during the last hour of trading. However trading volume was lacking today and gains were made on only about 65% of its ADV. Technically firm support is still at $115 although near-term support may be now evolving at $122 - the daily low of the past two days. The excitement is obviously growing in anticipation of the 2:1 stock split next Tuesday, October 26th. Open positions on this momentum/split play should be closed by then to avoid the risk of any post-split decline. QCOM $215.69 +13.38 (+17.19) There's no complaints here! Our momentum play may be long in the running, but why change what's not broken. Share prices once again skyrocketed this time by 6.6%, or $13.38 in a direct ascent today. And now we have some evidence of a possible earnings run. Qualcomm's earnings' date is just around the bend confirmed for November 2nd, after the bell. And yes, the trading volume still remains weak sometimes dipping as low as 50% below the ADV. In the news today, Banc of America raised its target price on QCOM to $240 from $200 citing 4Q sequential chipset orders are better-than-expected. BVSN $189.63 +7.88 (+27.63) Our entry on BVSN couldn't have turned out better if it would have been scripted. BVSN announced earnings Tuesday of $0.16 per share beating the street by better than 23%. That cleared the way for our split run to begin. If you entered a position late Tuesday or Wednesday morning you should be feeling pretty good about your trading account. After the pullback Monday and a nice bounce Tuesday, shares of BVSN opened $5.25 higher Wednesday and never looked back. Today BVSN did open over $7 lower on the weakness of IBM and Y2K concerns, but managed to get back on track after the first 90 minutes of the session. BVSN hit a new high of $192.50 in the last hour of trading before traders decided to take some money off the table. BVSN splits 3:1 next Monday after the close. We still have two days left and BVSN could continue to make its way higher. If you took a position in BVSN, keep your stops tight as it has had such a good run, the bears may decide to take their money to the bank at any time. We would be very cautious about entering a new play with so little time left until its split. **************** PICK NEWS - PUTS **************** CI $64.88 -0.56 (-3.06) The problems at Cigna are far from over and the share price continues to reflect that. We have seen the stock try to find support at both $68 and $65.50 only to quickly fall through. The problems with the Managed Care industry and the potential government changes have kept Cigna on a short leash with any rally. The stock was down nicely today before coming back some with the markets. We are looking for bounce off resistance at $68 as a great entry but confirm the bounce first. That may be wishful thinking anyway so if the stock turns lower, pick your entry and go with the flow. Unless we get some dramatic news to change the sentiment, investors won't start buying anytime soon. CMGI $102.44 -0.06 (+4.63) CMGI fell almost 5 points in pre- market trading this morning after the IBM earnings report came in matching consensus estimates yesterday, but the company cautioned Wall Street that it sees a business slowdown on the horizon because of the year 2000 bug. The whole tech sector was spooked after this news going into the trading day. Investors were wondering who was going to get bit by the Y2K bug next. But after the initial scare and sell-off, the Nasdaq made a miraculous recovery, led by the cyber shares like CMGI, which closed well off of the lows, off a 1/16, at $102.44. The positive momentum came back to the internet stocks late in the day, with the bulls once again confident and focused on earnings reports in the sector. Companies like CNET, INKT, which are reporting today, led the rally. CMGI today trading as high as $102.75, still sits below a major support level at $104.25. We will remain in the current position, expecting lower prices, but keeping in mind mild support levels have been broken, so be cautious going forward. If you have not been stopped out, keep your stops tight, the risk/reward is narrowing. Current resistance sits near the $103 level. CB $45.88 -0.25 (-0.81) Yesterday's rally was a one-day event, which has become the norm lately. Investors were quick to take profits as the Dow headed south once again. Following these broader market movements was our put play, CB. After yesterday's slight rise in the stock shareholders were anxious to sell today, taking what profits they could and running for the door. Since CB warned investors that third quarter earnings were going to be lower than expected, the stock has fallen slightly and gone into stall mode. The last few trading sessions the stock has traded between the price range of $45.50 and $46.50. CB still remains below its 10-dma at $48, its closest resistance point, which is a good sign for our put play. A good entry point for new trades would be price levels above the current stall point. The next support level for Chubb is $44 or the stocks 52-week low. If current market conditions persist, look for CB to continue to set even lower lows. EFII $36.19 -1.19 (-9.31) Electronics for Imaging hit another new 6 month low today. Though we see EFII building support right around $36, we are not convinced that it is going to hold. The NASDAQ was up over 100 points in the last two days of trading and yet EFII continued to fall, losing $1.31. We recommend waiting for a definitive negative movement before making any new plays. A breakthrough support at $35 with good volume would create an excellent point of entry. However, should the $36 support hold and EFII reverse, it may be time to take your profits and run. The hardware sector continues to struggle with XRX still down and LXK making a very slow recovery from Monday's huge loss. ************** NEW CALL PLAYS ************** CMVT - Comverse Technology $102.13 +0.75 (+6.88 this week) Comverse makes enhanced telecommunications systems and is the 3rd largest firm in the voice mail market. Its TRILOGUE Infinity and Access NP product lines supply voice and fax messaging, automated personal assistant, and call answering services. TRILOGUE is marketed to telecom network operators and gives multiple telephone users access to integrated digital information and messaging services. Comverse's AUDIODISK and ULTRA lines are communications monitoring systems used by police and surveillance agencies, correctional institutions, emergency 911 services, financial institutions and tele-marketers. It looks as though CMVT has embarked on a split candidate/ earnings run. These are two of the stronger catalysts for a stock to rise. CMVT will finish up business for the quarter ending on Oct 31st and begin to tally up the profits which are to be reported on Nov 30th (unconfirmed). You may also remember when we were playing this stock in early October. CMVT had an annual shareholder meeting to authorize more shares. Sure enough it was approved but we didn't get a split announcement. That left the stock to consolidate during the rocky month of October before now breaking out over $100. But we remember the words of the CEO who said at the time of the shareholder meeting that a split would be considered in the coming weeks and months. Hmm, that coincides quite nicely with their date for an earnings report. This could be the reason for renewed interest as the bulls have come back to the market mid-week. We saw strong intraday support today at $100 before CMVT took off with the late day market turn around. And the close at $102.13 is a new 52-week high. That means no resistance above and lots of catalysts to drive the stock higher. Of course, this is going to be dependent on the markets continuing to rebound. We may have some time for entry points as the real interest will come closer to earnings so watch for a dip to come aboard. In the news on Monday, First Albany analyst Herbert Tinger raised his price target for CMVT from $93 to $105. He also reiterated his Accumulate rating on the stock and cited new product developments as a positive catalyst. BUY CALL NOV-95 CQV-KS OI=498 at $9.50 SL=7.00 BUY CALL NOV-100*CQV-KT OI=595 at $6.50 SL=4.75 BUY CALL NOV-105 CQV-KA OI=124 at $3.75 SL=2.50 BUY CALL DEC-100 CQV-LT OI= 3 at $8.75 SL=6.75 low OI Picked on Oct 21st at $102.13 P/E = 51 Change since picked +0.00 52-week high=$103.00 Analysts Ratings 8-3-0-0-0 52-week low =$ 24.50 Last earnings 08/99 est= 0.49 actual= 0.52 Next earnings 11/30 est= 0.53 versus= 0.41 Average Daily Volume = 866 K Chart = http://quote.yahoo.com/q?s=CMVT&d=3m **** AMZN - Amazon.com $80.75 +0.25 (+5.69 this wk)(-14.19) Amazon.com comprises the Internet's #1 music, #1 video, and #1 book retailer. Amazon.com opened its virtual doors on the World Wide Web in July 1995 and today offers Earth's biggest selection with online auctions, toys, electronics, free electronic greeting cards and more than 4.7 million book, music-CDs, video, DVD, and computer-game titles. Amazon.com seeks to be the world's most customer-centric company, where people can find and discover anything they may want to buy online. As part of its efforts to provide the best shopping experience for customers, Amazon.com provides secure credit- card payment, personalized recommendations, streamlined ordering through 1-Click technology, and hassle-free auction bidding with Bid-Click. Now, if they could just turn a profit! This play is really simple. Listed as a put on Tuesday, we're switching AMZN to a call today in anticipation of earnings scheduled October 27 after the close. It appears that the earnings run has already begun. Finding $71 impenetrable earlier in the week with good support this morning in the $77 range, the move over $80 today is our signal to move into a position for an earnings run over the next four days until the announcement. Despite negative sentiment surrounding IBM, DELL and INTC earnings, and ascending interest rates, technology issues, including Internets have held up well over the last few days. Market willing, the sentiment should continue. Resistance is way up at $90, leaving plenty of room for AMZN to run. Just use caution, since this is a volatile issue, quite sensitive to interest rate moves. The best entry is to target shoot a bounce from $77-$78 according to your own risk profile. In the news, a Reuters article noted the following: "Amazon.com ranked number one in a market research firm Forrester Research's "Power Ranking" survey of electronic commerce sites in the categories of general merchandise; toys and games; and books, music and video, Forrester said Wednesday. They beat out CD Now, Hollywood Entertainment's Reel.com, and DVD Express. BUY CALL NOV-75 YQN-KO OI=5964 at $10.13 SL=7.75 BUY CALL NOV-80*YQN-KP OI=5635 at $ 7.50 SL=5.75 BUY CALL NOW-85 YQN-KQ OI=5135 at $ 5.38 SL=3.75 Picked on Oct 21st at $80.75 P/E = N/A Change since picked +0.00 52-week high=$110.62 Analysts Ratings 11-7-4-0-0 52-week low =$ 16.50 Last earnings 07/99 est=-0.25 actual=-0.25 Next earnings 10-27 est=-0.28 versus=-0.08 Average Daily Volume = 12.4M Chart = http://quote.yahoo.com/q?s=AMZN&d=3m *********************** NEW CALLS - CONTINUED IN SECTION THREE *********************** ***************************** SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter Thursday 10-21-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ****************** NEW CALLS CONTINUED FROM SECTION TWO ****************** GMST Gemstar International $79.06 +4.19 (+3.63 this week) Gemstar International Group makes video recording systems. They develop, market and license proprietary technologies and systems under the "VCR Plus+" name. Their VCR Plus+ system lets users program VCR's simply with one-to-eight digit codes published in TV listings worldwide. Gemstar's primary source of revenues are from licensing fees paid by consumer electronics manufacturers and publications for the licensing of the VCR Plus+ technology and the right to print the PlusCode numbers. Gemstar has signed long-term renewals of license agreements with Sony Corp, and Thomson Consumer Electronics. Recently they launched the system in Mexico, the 40th country in which VCR Plus+ programming is offered. As you may remember, we initiated a play on Gemstar on Oct 3rd only to turn around and drop the play the following Tuesday. This was due to an announcement made by GMST regarding a $9.2 million dollar merger deal with TV Guide. This news sent GMST stock down $7.44 the day of the announcement and another $6.81 the day following as is common with the purchaser. Gemstar has recovered well since and has been making a steady climb. GMST broke through its 10-dma of $76 in early trading today and demonstrated great relative strength against the market. GMST closed near the high of the day with slightly higher than average volume indicating strong investor demand. Another point of great interest is the very high option contract volume. The Nov-80 contracts were up $3.13 with over 5000 contracts traded today. GMST has solid support at $70 and resistance at the 52-week high of $88.50, so it looks as though the current price will make a solid point of entry. Interestingly enough, there is no new news to report at this time. Makes you wonder... BUY CALL NOV-75 QLF-KO OI=4089 at $9.00 SL=6.75 BUY CALL NOV-80*QLF-KP OI=9309 at $6.75 SL=4.75 BUY CALL NOV-85 QLF-KQ OI= 436 at $4.38 SL=2.50 Picked on Oct 21st at $79.06 P/E = 55 Change since picked 0.00 52-week high=$88.50 Analysts Ratings 6-0-0-0-0 52-week low =$20.44 Last earnings 08/99 est= 0.00 actual= 0.17 Next earnings 11-02 est= 0.18 versus= 0.15 Average Daily Volume = 1.14mln Chart = http://quote.yahoo.com/q?s=GMST&d=3m **** VRTS - Veritas Software $92.94 +2.81 (+1.85 for the week) VERITAS Software is the industry's leading enterprise-class application storage management software provider. They furnish storage management software for protection against data loss and file corruption, efficient file processing and network back-up. Veritas (Latin for "truth") has made its name by partnering with such technological heavyweights as Hewlett-Packard (HWP), Microsoft (MSFT), and Sun Microsystems (SUNW), all of which have licensed and embedded VERITAS products in their operating systems. Its purchase of the network and storage management software group of the disk drive maker, Seagate Technology (SEG), doubled VERITAS size and gave Seagate a 35% stake in the company. Great earnings, a split announced and a new 52-week high make for a nice play. VRTS beat estimates on 10/14 by $0.04 cents and tacked on a nice +$9.63 gain as investors were pleased with the results. Of course a split announcement always helps. The split, a 3:2 will be paid to owners of record as of 11/2 and the pay date is scheduled for 11/19/99. The last time VRTS split its stock was on 7/9/99 and that was 2:1. This time around the company decided to follow previous splits and do a 3:2. After a slight dip on Monday, VRTS has resumed its nice upward trend started back on Aug 11th. Today VRTS tacked on another $2.81 closing at resistance. If we get a duplicate of last time, VRTS will make a run for its pre-split high of $107. Keep an eye on this one for an entry but be patient. Wait to see if the markets confirm its recent strength. The next resistance is around $98-$100 and support is at $88 so plan your entry and exits appropriately. Market willing, we believe that VRTS will reach its previous pre-split highs and maybe some more. Volume is a little above average but is stronger compared to its earnings run last time. That means that the big guys are buying into this one. BUY CALL NOV-90* VUQ-KR OI=419 at $8.25 SL=$6.00 BUY CALL NOV-95 VUQ-KS OI=307 at $5.88 SL=$4.38 BUY CALL NOV-100 VUQ-KT OI=211 at $4.25 SL=$3.00 BUY CALL DEC-95 VUQ-LS OI= 26 at $8.38 SL=$6.25 Low OI Picked on Oct 21st at $92.94 P/E = N/A Change since picked +0.00 52-week high=$91.94 Analysts Ratings 1-6-3-0-0 52-week low =$19.38 Last earnings 10/14 est= 0.17 actual= 0.21 Next earnings 01/00 est= 0.19 versus= 0.12 Average Daily Volume = 1.98 mln Chart = http://quote.yahoo.com/q?s=VRTS&d=3m **** SEBL - Siebel Systems Inc $94.88 +2.16 (+9.75 for the week) Siebel Systems designs, markets, and supports enterprise-class information systems focusing on customer service and call center software. The company's main software product, Siebel Sales Enterprise, is used globally by well-known clients such as Lucent Technologies, Glaxo Wellcome, and Prudential Insurance. Anderson Consulting owns 8% of the company and CEO and Chairman Thomas Siebel has a 28% stake. Coming off better-than-expected earnings on Tuesday and a 2:1 stock split announcement, Seibel Systems has skyrocketed the past two days increasing its share price from $84.75 to $94.88, a 12% rise! 3Q profits more than doubled resulting from a 63% increase in software sales and higher revenues from maintenance and consulting. According to CFO, Howard Graham, the new Siebel 99.5 software designed for Internet-based sales, marketing and customer service "extended the ability of our software to capture all the customer information over the Internet" and since its release in June has played an important role in fueling the company's growth. The earnings' numbers topped analysts estimate by $0.02 coming in at $0.27 p/s, a 93% gain since last year's $0.14 same quarter results. Then the 2:1 stock split announcement put the icing on the cake. SEBL reached new highs the past two days breaking through overhead resistance ($91.63) set a week ago Tuesday. The 52-week high now stands at $95.13. The split date is just a few weeks away scheduled for November 12th and the investor's excitement is likely to elevate share prices in the near-term. The crowd of analysts were impressed too. On Tuesday, Banc of America Securities reiterated a Strong Buy rating and issued a price target of $110 - just last Friday they had upgraded SEBL from a Buy. The following day Deutsche Banc Alex Brown and SoundView Technology also reiterated their Strong Buy ratings. SG Cowen also came forward and raised its fiscal earnings for the company. For 1999 they increased EPS to $1.01 from $0.95 and for 2000 to $1.34 from $1.20. BUY CALL NOV- 90 SGQ-KR OI=1321 at $8.63 SL=6.50 BUY CALL NOV- 95 SGQ-KS OI= 12 at $6.00 SL=4.25 BUY CALL NOV-100 SGQ-KT OI= 5 at $4.00 SL=2.50 BUY CALL DEC- 95 AGQ-LS OI= 200 at $8.63 SL=6.50 BUY CALL DEC-100 AGQ-LT OI= 5 at $6.38 SL=4.75 Picked on Oct 21st at $94.88 P/E = N/A Change since picked +0.00 52 week high=$95.13 Analysts Ratings 9-7-0-0-1 52 week low =$18.25 Last earnings 09/99 est= 0.25 actual= 0.27 Next earnings 01-28 est= 0.27 versus= 0.20 Average Daily Volume = 1.66 mln Chart = http://quote.yahoo.com/q?s=SEBL&d=3m **** TFSM - 24/7 Media Inc $44.00 +1.13 (+3.38 this week) They do business in the rapidly growing Internet advertising industry. 24/7 Media is an Internet advertising and direct marketing firm. The company generates revenues primarily by selling advertising and promotions for their Affiliated Web sites. TFSM customizes solutions to allow advertisers and direct marketers to tailor their advertising to reach a specified target market. They also provide sophisticated tracking and reporting functions for their Affiliated Web sites. Some of 24/7's more well known customers include Ameritech, Dell and Prodigy. 24/7 Media competes with some pretty heavy hitters including CMGI, Double Click, and Flycast Communications. Welcome back, TFSM! You may remember we were playing this stock recently on takeover rumors. Unfortunately, the markets turned sour and we dropped the play while we had gains to protect. Now the trend has returned, not to mention the Nasdaq on Wednesday and Thursday. Since we last saw TFSM it has managed to make a low of $34.38 this past Monday. On Tuesday TFSM joined the strength found in the Nasdaq and was even able to ignore the Y2k worries and the negativity in the broader markets today. The strength in TFSM is probably due to the renewed rumors and speculation that there is a potential deal in the works with Doubleclick (DCLK). For those of you that don't remember TFSM gave as a fair profit on the same speculation earlier this month. The rumors are back and so is our play on TFSM. A merger with DCLK does make sense for both companies, as some analysts feel that DCLK is somewhat overvalued and that TFSM is undervalued. Whatever the reason shares of TFSM are on the move again. Intraday support for TFSM lies near $42.50 and $41. In considering a new play in TFSM remember it is primarily rumor and speculative. Look for continued strength in the shares of TFSM or a pullback to the support levels before entering a new position in TFSM. BUY CALL NOV-40*BMQ-KH OI= 817 at $7.25 SL=$5.50 BUY CALL NOV-45 BMQ-KI OI=1011 at $4.38 SL=$2.75 BUY CALL NOV-50 BMQ-KJ OI=1348 at $2.88 SL=$1.50 Picked on Oct 21st at $44.00 P/E = N/A Change since picked +0.00 52-week high=$69.63 Analysts Ratings 6-3-0-0-0 52-week low =$ 5.00 Last earnings 07/99 est=-0.37 actual=-0.37 surprise=0% Next earnings 11-09 est=-0.61 versus=-0.50 Average Daily Volume = 636 K Chart = http://quote.yahoo.com/q?s=TFSM&d=3m ************* NEW PUT PLAYS ************* LTR - Loews Corporation $65.94 (-5.06) Diversified holding company Loews Corporation's main interest is insurance, through publicly traded subsidiary CAN Financial. other holdings include tobacco (the Kent, Newport, and True US cigarette brands, through litigation-addled subsidiary Lorillard Tobacco Company); 15 hotels in the US, Canada, and Monaco (through subsidiary Loews Hotels); watchmaker Bulova; and contract oil-drilling subsidiary Diamond Offshore Drilling, which operates 46 oil rigs. The company also owns a minority stake in fiber optic company Global Crossing. Tobacco stocks were burning out after it was reported that a Florida appeals court decision could lead to an estimate $300 billion punitive damages award against the cigarette industry. This had shares of Philip Morris, the largest cigarette maker, shedding $4.31, RJR Reynolds Tobacco Holdings down $3.69, and LTR dropping over 3 points. LTR opened this week at about $71, now well off that level and weakening. Hitting a new 52-week low today at the $63.88 level. Tobacco companies are not going to be protected any longer from punitive damages in lawsuits. There is a class action suit against the tobacco industry that a jury will decide upon on Nov 1st, the one single award is estimated at $300 billion or higher. Remember it was earlier this year that Phillip Morris finally admitted for the first time that smoking causes a number of lethal diseases, including lung cancer, heart disease and emphysema. This is very bearish for the sector and LTR specifically is technically weak. The volume today was very heavy backed by strong momentum to the downside, trading on more than 4 times the normal volume. We look to enter into a put position at current levels, and expect pressure in the shares ahead of the Nov 1st ruling. Current support levels sit near the $68- $70 level, with resistance at the 52 week low level of $63.88. BUY PUT NOV-70*LTR-WN OI=36 at $5.63 SL=3.88 BUY PUT NOV-65 LTR-WM OI=88 at $2.50 SL=1.25 Average Daily Volume = 230 K Chart = http://quote.yahoo.com/q?s=LTR&d=3m ********************* PLAY OF THE DAY - CALL ********************* SEBL - Siebel Systems Inc $94.88 +2.16 (+9.75 for the week) Siebel Systems designs, markets, and supports enterprise-class information systems focusing on customer service and call center software. The company's main software product, Siebel Sales Enterprise, is used globally by well-known clients such as Lucent Technologies, Glaxo Wellcome, and Prudential Insurance. Anderson Consulting owns 8% of the company and CEO and Chairman Thomas Siebel has a 28% stake. Coming off better-than-expected earnings on Tuesday and a 2:1 stock split announcement, Seibel Systems has skyrocketed the past two days increasing its share price from $84.75 to $94.88, a 12% rise! 3Q profits more than doubled resulting from a 63% increase in software sales and higher revenues from maintenance and consulting. According to CFO, Howard Graham, the new Siebel 99.5 software designed for Internet-based sales, marketing and customer service "extended the ability of our software to capture all the customer information over the Internet" and since its release in June has played an important role in fueling the company's growth. The earnings' numbers topped analysts estimate by $0.02 coming in at $0.27 p/s, a 93% gain since last year's $0.14 same quarter results. Then the 2:1 stock split announcement put the icing on the cake. SEBL reached new highs the past two days breaking through overhead resistance ($91.63) set a week ago Tuesday. The 52-week high now stands at $95.13. The split date is just a few weeks away scheduled for November 12th and the investor's excitement is likely to elevate share prices in the near-term. The crowd of analysts were impressed too. On Tuesday, Banc of America Securities reiterated a Strong Buy rating and issued a price targer of $110 - just last Friday they had upgraded SEBL from a Buy. The following day Deutsche Banc Alex Brown and SoundView Technology also reiterated their Strong Buy ratings. SG Cowen also came forward and raised its fiscal earnings for the company. For 1999 they increased EPS to $1.01 from $0.95 and for 2000 to $1.34 from $1.20. BUY CALL NOV- 90 SGQ-KR OI=1321 at $8.63 SL=6.50 BUY CALL NOV- 95 SGQ-KS OI= 12 at $6.00 SL=4.25 BUY CALL NOV-100 SGQ-KT OI= 5 at $4.00 SL=2.50 BUY CALL DEC- 95 AGQ-LS OI= 200 at $8.63 SL=6.50 BUY CALL DEC-100 AGQ-LT OI= 5 at $6.38 SL=4.75 Picked on Oct 21st at $94.88 P/E = N/A Change since picked +0.00 52 week high=$95.13 Analysts Ratings 9-7-0-0-1 52 week low =$18.25 Last earnings 09/99 est= 0.25 actual= 0.27 Next earnings 01-28 est= 0.27 versus= 0.20 Average Daily Volume = 1.66 mln Chart = http://quote.yahoo.com/q?s=SEBL&d=3m ************************ COMBOS/SPREADS/STRADDLES ************************ Big Blue Falls From Grace Wednesday, October 20 Equity markets moved higher on Wednesday led by earnings in the technology sector which helped the Nasdaq composite achieve its third highest one-day point gain. The index jumped 99 points to to 2,788 while the Dow industrials climbed 187 points to 10,392. The S&P 500 index rose 28 points to 1,289. In the broad market, advancing issues led declines 1,628 to 1,373 on heavy volume of 921 million shares on the NYSE. The 30-year U.S. Treasury bond was up 8/32 with the yield at 6.34%. Tuesday's new plays (positions/opening prices/strategy): Price Comm. PR FEB30C/NOV30C $1.38 debit calendar Talk.com TALK JAN15C/NOV15C $0.93 debit calendar Apollo Group APOL NOV20C/NOV22C $2.12 debit bull-call Our three new candidates were fairly cooperative with favorable opening positions available in each issue. The calendar spread on TALK was observed at $0.06 above the target price and the PR position was offered at the suggested entry late in the day. APOL was the only play that required a small adjustment as the stock moved higher right from the open and closed near the high of the session. Portfolio plays: The market roared today on strength in the financial services sector and technology issues. Favorable economic news helped ease interest rate fears that have plagued equities over the past few weeks. A report said the U.S. trade deficit fell to $24.1 billion in August, its first decline since April and far less than the deficit expected by Wall Street economists. The news helped ease pressure on the dollar and calmed investors concerns about higher inflation and borrowing costs in the near future. The spreads portfolio rallied in a big way and gains came in all sectors and industries. The best performing issues were the large-cap technology stocks with CMG Incorporated (CMGI), Qualcomm (QCOM) and JDS Uniphase (JDSU) leading the way. Many of our smaller issues like Network Associates (NETA) moved up in the rally and upgrades dominated much of the news. Another lower-priced stock that appears to be making a stand is IDT Corporation (IDTC). The issue has successfully tested support near $22 three times in the last month. Lets hope the trend continues. Two of our more popular calendar spreads benefitted from the market-wide rally. Legato (LGTO) moved up over $2 on the last day before earnings and a $1.62 credit was easily achieved in the exit trade. This bullish position provided a 100% return in just three weeks. Our recent (personal trading) debacle in C.R. Bard (BCR) ended on a positive note as the stock climbed another $1.06 to the sold strike at $55, allowing a favorable exit at $1.75 credit in the January calendar spread. The play actually closed with a small ($0.31) profit, but commissions reduced it to slightly better than a "wash" transaction. Our long-term portfolio was a mixed offering as the majority of blue-chip issues and technology stocks shined while one of the recent under-achievers plummeted. Shares of Dow component Philip Morris (MO), world's largest cigarette company, fell $4 to $27 after a Florida court refused to shelter the cigarette and tobacco companies from punitive damages in cases involving sick smokers. Rumors that the company was going to be on the receiving end of the ruling had already found their way into the options market earlier in the day. The stock price started to fall soon after the official announcement and although the exit was orderly, it's difficult to determine at what price we would have closed-out our long position. It appears that a $3 credit (for the JAN-2001 LEAPS) was about the best one could have expected after the announcement. Other companies in that group performed very well and the leaders were Solectron (SLR), Computer Associates (CA), and Exxon (XON). Thursday, October 21 Dow stocks fell lower Thursday as IBM plummeted after warning of lower future earnings. The world's most watched industrial average ended down 94 points at 10,297.69 after an early loss of more than 200 points. Technology stocks fought gallantly as the Nasdaq composite index rallied late to close with a gain of 13 points at 2,801. The S&P 500 fell slightly to 1,283. In the broad market, declines swamped advances by 1,875 to 1,147 on active volume of 988 million shares on the NYSE. The long bond's price slipped 9/32 with the yield rising to 6.36%. Portfolio plays: Today's fall from grace started with the nuclear meltdown of International Business Machines (IBM) and the sentiment spread like wildfire, consuming most of the technology and blue-chip issues in the popular indices. Computer hardware stocks were at the heart of the crash with new fears that Y2K will squeeze profits in the final months of the year. One of the few bright spots continues to be the Internet stocks. Although they were punished as well, many of them tried to challenge the bearish trend with American Online's (AOL) positive earnings leading the group. Technology stocks have been the leaders for so long that it's strange to see investors in these issues giving way to the market bears. There were only a few favorable moves in the spreads portfolio today. Proxymed (PILL) climbed almost $2 as new speculation of a merger/takeover surfaced. Our new plays; Apollo Group (APOL) and Talk.com (TALK) also avoided the thrashing, holding gains to close in positive territory. Gemstar (GMST) may finally be out of the woods,. The stock was up almost $5, ending near the high at $80. Another technology issue that is back on track is JDS Uniphase (JDSU). Today it rebounded another $7 (after an upgrade from J.P. Morgan) to finish near the old trading range at $130. The biggest mover in our bullish group was Qualcomm (QCOM), up $13 to a recent high at $215 after Banc of America lifted their price target to $240. In the long-term portfolio, Johnson & Johnson (JNJ) continued to bull its way higher with many of the drug sector stocks. A Food and Drug Administration panel on Wednesday supported the antibiotic Levaquin for fighting a common strain of pneumonia that is growing resistant to the standard treatment. Levaquin, is made by JNJ's subsidiary unit Ortho-McNeil, and is one of the company's best-selling pharmaceutical products. The only other positive issue in this portfolio was Motorola (MOT), up $0.68 in sympathy with Nokia's (NOK) big earnings rally. The Finnish telecom equipment maker vowed to boost sales by 40% this year after posting best-ever third quarter earnings that confirmed its global lead in mobile phones. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* Here is another assortment of conservative, low-cost plays on smaller issues. These positions have favorable option pricing and their directional outlook is based on the current price or trading range of the underlying issue and the recent technical history or trend. Always review each play individually and make your own decision about the future outcome of the stock price. DBCC - Data Broadcasting $11.50 *** Merger Rumors *** Data Broadcasting Corporation distributes financial data and business information on a subscription basis to a broad range of individual and professional investors and businesses. The company provides its services principally through DBC West/BMI and Capital Management Sciences. DBC West/BMI sells access to its networks which provides business and sports information along with real-time financial news to individual investors. DBCC's most popular product is Esignal and the data service is gaining popularity with new partnerships and agreements almost on a daily basis. The eSignal service provides a streaming, real-time data feed, which is rich in content and includes a multiple-day or inter/intraday option along with current and historical prices, all delivered via high-speed Internet. The eSignal application includes: portfolio manager, Nasdaq Level II display, fundamental data, charts, analytics, news & other research products, customized tickers, time & sales, and of course, an options montage. The system is well established but that's not the reason for the recent increase in share value. Option traders have moved into new positions and the implied volatility firmed as call option volumes rose Thursday. The most current rumor appears to be a merger/takeover by broker Charles Schwab (SCH) or a possible spin-off. One chatroom mentioned a rumor that Schwab might buy Data Broadcasting in the low $20 range. Regardless of the rumors, we favor the new technical outlook and the option premiums will allow us to participate in a low cost, bullish (diagonal) position. PLAY (conservative - bullish/diagonal spread): BUY CALL DEC-10.00 BQD-LB OI=1925 A=$2.93 SELL CALL NOV-12.50 BQD-KV OI=138 B=$1.06 INITIAL NET DEBIT TARGET=$1.68 TARGET ROI=40% Chart = http://quote.yahoo.com/q?s=DBCC&d=3m **** MESG - MessageMedia $13.34 *** Short-Term Rally? *** MESG is a leader in advanced marketing and customer service systems for internet commerce. The company pioneered secure online payment systems and is currently focused on developing and supplying an integrated system for relationship-based transactive messaging using e-mail channels. Their objective is to develop market-leading interactive messaging services for electronic commerce. Their product line includes a large variety of e-mail tools on an outsourced basis that provide Internet companies with the information to initiate direct marketing initiatives, as well as to develop e-mail customer relationship management programs. One of the MESG's most well known clients is E*trade Group. E*Trade (EGRP) is using a specialized customer relationship package that exploits e-mail to get people who come for free quotes to convert them to membership. This type of marketing expertise is one of primary reasons that MESG is expected to succeed in the growing business Internet commerce. The most recent event at MESG is the launch of MessageMedia Europe, which is a joint venture with Atviso, a partnership between Softbank, their largest shareholder, and Vivendi in Europe. The company says it's a great opportunity as Vivendi is a major player overseas with a solid infrastructure and excellent client relationships. The current goal for MESG is to gain a leadership position in the region and develop the client base and product acceptance with European companies. One other interesting bit of news is the ongoing rumor of a deal with Cisco (CSCO). The company won't comment on any new (and pending) agreements but it may eventually have an affect on the outcome of this play. This position offers a slightly aggressive stance on the underlying stock but utilizes a low risk, debit spread. PLAY (conservative - bullish/debit spread): BUY CALL DEC-10.00 MUG-LB OI=100 A=$4.38 SELL CALL DEC-12.50 MUG-LV OI=6 B=$2.75 INITIAL NET DEBIT TARGET=$1.38 ROI(max)=81% Chart = http://quote.yahoo.com/q?s=MESG&d=3m **** NSTA - Anesta Corporation $8.94 *** Cheap Speculation! *** Anesta is engaged in the development of pharmaceutical products for oral transmucosal delivery of systemic drugs. The company's (OT) drug delivery system is designed to address the medical need for convenient, cost-effective drug delivery that provides rapid onset of therapeutic action and allows the caregiver or the patient to control drug administration until the desired therapeutic effect is achieved. Anesta has products essential to the healthcare industry and marketing affiliations that cover North America and Europe. Their new product pipeline is growing and its medication delivery techniques are gaining market share quickly. Analysts have set a price target of $28 within the next year, based on the recent surge in the company's revenue stream and their potential customer base. NSTA's Pipeline has five products in development: OT-nicotine for smoking cessation, OT-fentanyl for acute pain management, OT-etomidate for short-acting sedation, OT-piroxicam as a non opioid analgesic, and OT-droperidol for nausea and vomiting. Their first commercial product for pain related to cancer is known as Actiq. The drug is manufactured and sold by Abbott Laboratories and in September, prescriptions had increased by 40% since the launch date in March of this year. NSTA is moving into a stage I base and with the strong growth potential for the stock, this unique speculation play offers a favorable risk/reward outlook. PLAY (conservative - bullish/calendar spread): BUY CALL JAN-12.50 NQB-AV OI=76 A=$0.75 SELL CALL DEC-12.50 NQB-LV OI=0 B=$0.38 INITIAL NET DEBIT TARGET=$0.31 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=NSTA&d=3m ********* STRADDLES ********* No straddles today, but Tom Gentile of Optionetics has offered to provide us with some new Internet candidates for Sunday's edition. Good Luck! ************ See Disclaimer in section one ************
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