The Option Investor Newsletter Tuesday 11-9-99 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) ************************************************************ 11-9-99 High Low Volume Advances Decline DOW 10617.30 - 101.50 10765.60 10585.20 854,878k 1,306 1,707 Nasdaq 3125.04 - 18.93 3174.81 3099.22 1,467,758k 1,886 2,115 S&P-100 717.80 - 6.83 728.85 715.33 Totals 3,192 3,822 S&P-500 1365.28 - 11.73 1383.81 1361.45 45.5% 54.5% $RUT 446.28 + 1.21 447.81 443.79 $TRAN 2989.41 - 41.80 3059.41 2980.15 VIX 23.07 + 1.55 23.54 21.34 Put/Call Ratio .50 ************************************************************* On the eighth day they rested. If you thought it would last forever you are smoking something besides tobacco. The seven day record high winning streak by the Nasdaq came to a halt and the Dow relaxed in sympathy. After a strong opening with both indexes up at the open, the markets began a slow bleed as profit taking slowly leveled the playing field. The Dow leveled at just above 10600 and traded in a narrow range the rest of the day. If you remember my chart from Sunday, the two different methods of predicting the next critical point both called for something a little over 10600. Don't look now but we are there, 10617. The market has moved to the exact point where the PPI numbers tomorrow will have the greatest impact. Bad numbers and we will fall out of our recent trading range and possibly by a large number. Good numbers, +.1% or less, should light a fire under the market as fear of another Fed rate hike next Tuesday slowly evaporates. The Nasdaq just finally caved in under its own weight. Seven days on the high road and +9% gains just proved to be too much baggage to carry forward. But do not despair. The dip buyers were out in force today. Even though the Nasdaq was down at the close that was not the real story. Today was the heaviest volume day in Nasdaq history with 1.448bln shares trading hands. Every leader that dipped on selling by profit takers was met by strong buying on every dip. Most recovered from the early morning sell off by midday but some gave back some of their gains at the close in a final attempt to dodge the PPI bullet. I think you will agree this is not a weak chart! Without the mandatory day off today we had today, we would have been handicapped on good numbers tomorrow. Now, with the winning streak set back at zero we are free to rock and roll if the PPI is in our favor. The bullish undercurrents are boiling and it "seems" like nothing can stop us. The driver for tomorrow, other than the PPI, will be the CSCO earnings tonight. There had been rumors for weeks that Cisco would miss earnings and the stock had been flat. Surprise! Cisco beat the street but only by a penny. This was enough for the after hours crowd and it traded up $2 to $3. The strong report will be positive for the market going into Dell's earnings on Thursday. Part of the high volume on the Nasdaq today was the Charter IPO. Charter is Paul Allen's communication company. It looks like everybody wanted a piece of it but nobody wanted to hold it. Of the 170 mln shares in the IPO, 115 mln changed hands today. Hot potato anyone? The week would not be complete without Amazon doing a 180 after we picked it as a play on Sunday. The last three times we played Amazon it went exactly the opposite the next day. Either Jeff Bezos is a psychic or just has really good timing. On Monday he released a teaser press release to expect a major announcement on Tuesday morning. The rumors included a buyout/linkup with Beyond.com to capture their software business or a linkup with Home Depot to sell home improvement items on their site. Neither happened. Jeff announced this morning that they were going to sell software, video games and tools?? They would open four new sites and continue the Amazon tradition of losing money faster than anyone ever expects. The tool connection turned out to be with a small company in Idaho. No mega merger equals no sex appeal. Bank America promptly downgraded them and Merrill Lynch laughed about their focus, "maybe they should stick to books and not tools by mail". The stock dropped -7.19 but only gave back half of yesterday's gains. We considered dropping it as a put but the spiked looked like an entry point to us. Since it jumped at the open on Monday it was highly unlikely that anyone bought puts in amateur hour. This is still a high risk play. You be the judge. The PPI is expected to be only +.1%, very tame, and confirm what the recent economic reports have been saying. The economy is slowing and inflation is fading. The last PPI caused serious grief when it came in much higher than expected. The Fed claims to not put much emphasis on the PPI and considers it to be too narrow an indicator. Lets hope it comes in low just to be on the safe side. The next major events for the week will be the Dell earnings on Thursday and the Retail Sales and Productivity Reports on Friday and FOMC on Tuesday. With the calendar full you would think the market will stay locked in its trading range until at least Tuesday. The advance/decline line turned south again this week with the profit taking and the VIX dipped below 22 on Monday but closed at 23.07 today. With third qtr earnings almost over the attention is being focused on the anticipated fourth quarter earnings. The Y2K quarter results. As of today 124 companies have warned that the fourth quarter will fall short of estimates. Not a flood but enough to make us cautious about our long term outlook. Recently we have seen year end rallies as investors expect the retail boom to be reflected in the January earnings. If companies continue to warn then the Y2K bug may get a last laugh in December. After receiving all the hate mail on the Steve Brown article on Microsoft this week and the Buzz Lynn market wrap on MSFT last night, I would not want to be at the podium for the MSFT shareholders meeting tomorrow. There are likely to be a lot of pointed questions and angry people. It is not like they just woke up yesterday and saw the newspaper and said "Oh my! What has Bill done?" They knew the case was in process but they did not know it would bite them. Bill is on record as saying many times that "the trial would have no financial impact on MSFT whatever". Of course, everybody believed him. I wonder if he still feels that way? Either way, without a settlement it will be well into 2001 before the case is over. I am a happy camper this week after buying leaps on MSFT on Monday at fire sale prices shortly after the open. I look at it this way. I have at least four more earnings cycles and thirteen months of covered calls to profit from this cash cow BEFORE the Justice Dept can get a single dollar from MSFT. Even if Bill agrees to a breakup eventually the results should be good. Remember the AT&T breakup, or the Standard Oil? Did the baby bells turn profitable? Holding Exxon and Mobil would not have been a bad deal either. Some of the children of these monopolies grew bigger than the parents. From the hate mail there are a lot of readers who hate MSFT with a passion. So be it. Feel free to hate Mr Softee all YOU want, we still plan to profit from the stock! (we did switch to Unix mail servers this week after repeated glitches in the Windows-NT servers. We may be slow, but we are not stupid!) If the PPI gives us another buying opportunity try not to buy too soon. The Fed is still ahead! Jim Brown Editor ******************* FALL SEMINAR SERIES ******************* Only 4 seats left ! This is absolutely the last chance for a OIN/Optionetics seminar this year. 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 is the only fall date remaining: 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? ********** STOCK NEWS ********** Is It Time to Join the Oil Rush? By Cindy Christ Gains in major oil stocks -- which gushed Monday after an OPEC heavyweight said producers might support continued cuts in global production -- slowed to a trickle Tuesday. Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah said yesterday the 11-member group might consider extending worldwide crude oil supply cuts beyond their agreed upon expiration date in March 2000. http://www.OptionInvestor.com/stocknews/110999_2.asp **** Smokin' with Mirrors: Breakthrough Technology Routes Traffic at the Speed of Light By Cindy Christ Telecommunications equipment giant Lucent Technologies (LU) announced Tuesday it had developed breakthrough technology that can move the entire contents of a library across a fiber optic network in one second. Using a series of tiny mirrors, the company's new all-optical router eliminates the need to convert signals in fiber optic networks to electrical form. http://www.OptionInvestor.com/stocknews/110999_1.asp **** Nortel Takes Aim at Cisco By S.P. Brown In an obvious attempt to steal some of rival Cisco Systems' (CSCO) quarterly earnings thunder, Nortel Networks (NT) announced its newest business strategy early this morning. Actually, NT announced a two-part strategy aimed at slowing the CSCO juggernaut. http://www.OptionInvestor.com/stocknews/110999_3.asp *************** Market Posture *************** As of Market Close - Tuesday, November 9, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 10,617 BEARISH 9.23 SPX S&P 500 1,315 1,385 1,366 Neutral 10.29 OEX S&P 100 675 725 718 Neutral 10.28 RUT Russell 2000 425 450 446 Neutral 11.09 * NDX NASD 100 2,320 2,520 2,764 BULLISH 10.28 MSH High Tech 1,120 1,250 1,411 BULLISH 10.28 XCI Hardware 1,000 1,095 1,080 Neutral 10.15 CWX Software 770 800 1,042 BULLISH 9.03 SOX Semiconductor 475 525 619 BULLISH 10.29 NWX Networking 550 615 690 BULLISH 10.28 INX Internet 495 525 540 BULLISH 11.05 BIX Banking 650 690 662 Neutral 10.28 XBD Brokerage 395 450 430 Neutral 10.28 IUX Insurance 610 650 637 Neutral 11.09 * RLX Retail 875 910 886 Neutral 11.09 * DRG Drug 375 390 393 BULLISH 11.04 HCX Healthcare 750 790 771 Neutral 11.09 * XAL Airline 180 190 148 BEARISH 5.21 OIX Oil & Gas 285 305 294 Neutral 11.09 * Posture Alert The Nasdaq continues to show great strength, but finally took a breather on Tuesday, closing down only -18. The Dow, however, continues to struggle at the 10,750 benchmark, even with the new additions just made to that index. Sectors being upgraded to Neutral from Bearish include Insurance, Retail, Oil & Gas, and the Russell 2000. The only negative was the Healthcare sector, which was lowered to Neutral from Bullish. With this latest run by the market, the only sectors remaining on the Posture Board with a bearish undertone, are the Dow and Airlines. A detailed description of our Market Posture and its applications can be found at: /members/marketposture **************** Market Sentiment **************** Tuesday, November 9, 1999 You Call That Profit Taking? So the Nasdaq broke its streak of seven consecutive days of record-breaking highs! It was due for a sell-off, profit taking, or whatever everyone else in the media called it today. I don't know about you, but over the last 10 days, the Nasdaq is up over +325 points, so for it to be finally down, and down only -18, is called sweetness. The market sentiment across the board for the last 10 days has been picking up dramatically, but many people missed numerous opportunities to capitalize on some of the big gains that were achieved. We have witnessed many technology stocks making $50 to $100 gains these previous weeks (or even days), and people who miss out, want to get into the action. We all wish that we had 100 calls or 10,000 shares of Commerce One (CMRC) before it ran 150 points last week, or Qualcomm (QCOM) which is up +90 during the last 10 days. When you combine the big gains that these stocks made, and the effects they have on people's trading psychology, the eventual outcome is fear or greed. From a sentiment standpoint, we couldn't ask for better conditions. Investor's Intelligence is still highly bearish, and the fear/greed that is coming out of the woodwork is significantly better than the blasť attitude that was witnessed several months ago. This combination forces investors to spend their cash reserves and money markets, which then fuels support and potential rallies for this market. Finally, pretend that you are a mutual fund manager for any kind of fund family out there. You still have large cash reserves that are now building with the recent up-tick in sentiment, and the market has gone through the roof. You've missed out on a lot of your favorite stocks. Your large bonus, future recognition, status, and job depend on your returns for the fund. You are also trailing your peers as well as the major index averages. Now, are you going to spend that cash a little quicker with less than 40 trading days until the end of the year? You bet you are. It's a race until the end of the year, and if no major economic hurdle is thrown at us, you can bet it will be a nice finish! BULLISH Signs: Short Interest: Short interest for the Nasdaq is at an all-time high, and increased over 5% from the preceding month. Bears have quick triggers: After being beaten up for many years, bears are quick to run & hide, and will cover short positions in a flash. Earnings: The results are in, with exception from a few stragglers, and the quarter ended up very solid. Investor Intelligence: As a contrarian indicator, we may have witnessed the bottom in pessimism, and should this prove right, this market has a lot more upside in the months ahead. Interest Rates: The yield on the 30-yr Treasury is now safely off the 52-wk high, and is getting close to being under the 6% benchmark, which is a key psychological number. Mixed Signs: Volatility Index: The VIX continues to prove that 32-33 is a great buying opportunity, and also shows that the low 20's have been a good exit point. Advance/Decline Line: The A/D line is showing signs of basing out. BEARISH Signs: NONE OTM Call Analysis As we move closer to the November expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 680-780 among option speculators. As we have been documenting, excessive out-of- the-money (OTM) call may serve as overhead resistance. November Expiration Cycle OEX OTM Call Analysis (Open Interest November 680-780) Date Open Interest Change % Alert Friday, October 15 39,072 - Friday, October 22 61,250 +56.8% Friday, October 29 75,022 +92.0% Friday, November 05 89,143 +128.1% 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. OEX Pinnacle Index Friday Tues Benchmark (11/5) (11/9) Overhead Resistance (720-740) 7.42 4.53 OEX Close 718.80 718.32 Underlying Support (700-715) 0.87 1.15 What the Pinnacle Index is telling us: Based on 11/9/1999, support is still light, and overhead resistance was heavy, and is on the decrease. Should the PI drop even further, this would suggest the OEX breaking out to the upside. Put/Call Ratio Friday Tues Strike/Contracts (11/5) (11/9) CBOE Total P/C Ratio .69 .68 CBOE Equity P/C Ratio .40 .38 OEX P/C Ratio 1.36 1.43 Peak Open Interest (OEX) Friday Tues Strike/Contracts (11/5) (11/9) Puts 670 / 10,889 660 / 11,142 Calls 740 / 8,772 740 / 9,798 Put/Call Ratio 1.24 1.14 Volatility Index 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 14, 1999 Top 25.01 July 16, 1999 Top 18.13 August 5, 1999 Bottom 32.12 October 15, 1999 Bottom? 32.06 November 5, 1999 23.07 Investors Intelligence 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 Oct. 13, 1999 Bottom? 39.2 37.5 November 4, 1999 42.1 38.6 Please view this in COURIER 10 font for alignment ***************************************************** CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 10617.32 14.37 -101.53 -87.16 Nasdaq 3125.04 41.68 -18.93 22.75 $OEX 717.80 5.83 -6.83 -1.00 $SPX 1365.28 6.78 -11.73 -4.95 $RUT 446.28 2.66 1.21 3.87 $TRAN 2989.41 27.22 -41.80 -14.58 $VIX 23.07 -0.54 1.55 1.01 Calls Mon Tue Week VRTS 114.88 2.44 4.38 6.81 What can stop this bull? BVSN 89.25 7.50 -1.75 5.75 BVSN posts huge volume SNE 170.00 0.06 5.25 5.31 Pre-holiday spirit! CMVT 118.69 7.25 -2.31 4.94 CMVT shows resilience! LSCC 42.75 2.66 1.69 4.34 Couldn't wait to move EMLX 186.44 1.13 2.69 3.81 Just keeps climbing DISH 73.50 7.94 -4.50 3.44 New, a healthy DISH! CNCX 32.13 0.88 2.25 3.13 New, buyout rumors SUNW 112.31 2.31 0.44 2.75 Another day in the sun LVLT 73.44 1.44 0.88 2.31 A new and higher target AAPL 89.63 8.06 -6.75 1.31 A chance to get on board ASPT 32.44 -0.19 1.38 1.19 New, technically tidy ADPT 50.50 1.38 -1.19 0.19 A buying opportunity HD 80.00 1.13 -1.00 0.13 Nice intraday recovery AOL 146.00 4.38 -4.38 0.00 The market giveth... SYMC 49.50 -0.19 -0.19 -0.38 Could be a solid entry NT 68.81 0.69 -1.69 -1.00 Cut costs to fight LU SEBL 127.06 6.13 -7.31 -1.19 Dropped, split coming KMB 64.25 -0.44 -0.81 -1.25 A slow and steady mover MXIM 83.81 -0.63 -0.88 -1.50 Possible stock split? INTC 80.06 -0.25 -2.06 -2.31 Time for a breather SFA 59.44 -0.56 -2.25 -2.81 Board Meeting Wednesday VSTR 93.88 -0.94 -2.19 -3.13 Another showdown for VSTR IMNX 60.63 -0.94 -4.00 -4.94 Dropped, broke the 10-dma Puts NDB 32.19 -2.50 -0.56 -3.06 The downside of spikes TXT 69.81 0.19 -2.75 -2.56 New, broke $70 support BBY 48.50 -1.63 -0.50 -2.13 Weak sales fears GT 37.06 0.69 -0.31 0.38 Trend is still lower ALD 56.13 0.44 0.06 0.50 Dropped, stuck in mud AMZN 70.81 13.06 -7.19 5.88 Rolled over today ****************** 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. 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The Option Investor Newsletter Tuesday 11-9-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ************** TRADERS CORNER ************** Nibbled to Death by Ducks Today I was totally overwhelmed with activities, yet traded successfully anyway -- is there something worth learning here for traders? The more I thought about it, the more I found bits and pieces that I am sure our reader/ trader's can relate to. Today was a blur, as are many of our work lives. I woke up at 6:15, and went to a job interview at a popular Silicon Valley breakfast spot. Steve Jurvetson, the venture capitalist who looks like a teenager, was holding court in a corner booth. After that, I dropped by my girlfriend's place, and settled in for some trading using my lap top with wireless modem. Fortunately, I had loaded my plays from the weekend newsletter and developed my plan. I had some stuff to print out for class going into the final hour, and watched the market close from the back of a class. I read CSCO's earnings surprise while monitoring a discussion of negotiation tactics. Here are my trades. Last week, I entered a basket of the newsletter's call picks based on my belief that cash was coming back into the market. I had big gains on AOL, SEBL, and EMLX calls. I closed all of my open calls on Monday based on a belief that the NASDAQ could not continue higher after 7 straight gains. I opened a OEX Nov 725 Put position at 11.5 yesterday, which I sold today for a 15% profit. I started target shooting more call picks from the newsletter today, establishing call positions in LSCC, HD, SNE, BDVN, AAPL, AOL, and SUNW. Half are December positions, the other half are Novembers. Again, my comparative advantages are patience in target shooting and the newsletter picks. Next column: how can we train our significant others to support us in the inevitable stresses and strains of option trading? If you have thoughts on this, email me. Good Luck! Janar Wasito janar@OptionInvestor.com ************** BROKERS CORNER ************** RISKING 2 1/2 TO GAIN 2 1/2 REQUIRES BROADER STOCKPICKING THAN INTEL, MICROSOFT, CISCO & DELL. A FOLLOW-UP ON SPREADS As with any option strategy, the entry point into a spread should be determined by positive or negative chart patterns, depending on the direction of the stock you are expecting (of course). When markets have been rallying for several days and appear to be at risk of being overextended but breadth and momentum remain good with robust volume, look for quality stocks with stable and steadily advancing chart patterns that haven't participated in recent rallies to the degree of the more widely known names. In overbought markets, it's best, but not always possible, to find a spread that will pay you half of the difference between your strike prices. This way if the markets sharply reverse you'll be protected and limited to a smaller loss. In addition, the beauty of a spread lies in the time factor. In the event that the market went into a consolidation phase, you will have the luxury of waiting until expiration for another rally to develop and allow your stock to advance. If XYZ is trading at $50 and looks to be moving higher, look at the $50 put. If you can buy it for $2 and sell the $55 put for $4 1/2, you have taken in $2 1/2 and risked the same, but most importantly, you have given yourself solid downside protection and the time needed for the stock to move higher after the markets have corrected. This strategy is also a viable alternative for accounts that would like to sell puts but don't pass the margin requirements These opportunities are often difficult to find, but they are out there. Call your broker. There is a good chance that he has uncovered ideas that others haven't. L. Monty McCutcheon Associate Vice President Fahnestock & Co. Inc. 1-800-735-0993 **************** 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: ***** IMNX $60.63 -4.00 (-4.94) We said the going could get a little tougher as shares of IMNX approached the $70 area. An $8 drop is not exactly what we had in mind. After hitting $68.50 yesterday morning things began to unravel for the drug maker. Even a reiteration of an accumulate rating from analysts at Adam Harkness couldn't help IMNX. A competitor, Hoechst AG Germany's largest drug maker, received a warning from a European Union Scientific panel, to put a stronger warning label on a arthritis drug called Arava, to warn of its potentially dangerous side effects. That's all it took to knock the legs out from underneath our call play on IMNX. IMNX lost another $4 today and at this point is headed lower closing below its 10-dma at $61.31. Actually some of the decline could be profit- taking as well but our play just plain isn't appealing any more. IMNX did give us a chance to make a small profit before the decline set in. For now we will look elsewhere. SEBL $127.06 -7.31 (-1.19) Ahead of the Stock Split that is upcoming on Friday the shares of SEBL have gotten a little ahead of themselves on strong momentum that pushed the shares to a new 52 week high of $139.44. This was in the nose bleed section, and after a strong market open the shares came tumbling down to close more than twelve points from the intra-day high backed by strong volume. We choose to close out the position at these levels and protect the gains that have accumulated over the last three weeks. With the record date on Thursday and the uncertainty with the PPI numbers tomorrow, traders decided to take there profits off of the table when the upward momentum hit resistance today. Looking at the technical picture, we see minor support at the $125 level, and then the next level of support sits way down at $115. We will reexamine the shares of SEBL after the probable post-split pull back. PUTS: ***** ALD $56.13 +0.06 (+0.50) ALD has been stuck in $3 trading range since October 28th. We have been looking for ALD to make a move in one direction or the other, preferably down but at this point it is still stuck. Yesterday the Justice Department cleared the way for AlliedSignal to purchase Honeywell in a $14.9 billion stock deal if the firms divest some of their avionics business. Shares of ALD bounced up to $57.19 Monday before falling back to $56.06. Today it looked like our put play may begin to finally come together as the conglomerate headed south only to stop dead in its tracks at $55.13, the lower end of the recent range. The balance of the day ALD, headed back up only closing up $0.06 for the session. The bottom line here is ALD may not be going anywhere, but primarily it's not going south which is the direction we needed it to go to remain a viable play. ALD could be building a base in preparation for a move back up, for now we will let ALD go as we have outstayed our welcome. ***************** PICK NEWS - CALLS ***************** CMVT $118.69 -2.31 (+4.94) And there goes CMVT right on queue! If you missed Jim's Options 101 article in Sunday's edition of the newsletter, he outlined many of the current plays and what they looked like heading into this week. Jim showed the ascending bullish triangle that was forming on CMVT with the higher-lows. Sure enough it broke out on Monday and ran to a high of $122.75 before the Nasdaq crumbled today. Granted the market was due for a pullback and it gives us another entry on CMVT in case you missed the breakout yesterday. After dipping to $114 Tuesday morning, CMVT found stronger support at $117. From here we will be watching the Nasdaq closely. After seven record days, we want to see how much of a breather this market needs. In general, we are happy with today's comeback and CMVT is showing lots of resilience. Watch for the stronger volume to continue ahead of earnings on Nov 30th. EMLX $186.44 +2.69 (+3.81) Little by little EMLX is working it's why higher and by doing so adding value to our call options. However, the actual closing price is deceptive of how the stock actually trading. If timed right, traders were able to take home even higher profits. On Monday, the stock traded at an intraday high of $95, which was almost twelve points higher than the actual closing price that day. Investors who follow this stock know volatile-trading sessions are everyday occurrences. Today was no exception, however, EMLX held tough and managed to hold onto and impressive gain. This is another sign of how resilient the stock is and how investors will continue to buy as the shareholder meeting nears. November 18 is the big date, which is just around the corner. During this meeting, directors will announce the actual date for the 2:1 stock that was pre-announced back in October. When placing trades, look for entry points around $180, which is the nearest support level for the stock. During the last few trading sessions the stock retreated back to this level before heading to higher territory. Resistance is at $95 or the new 52-week high for the stock. As the stock approaches these levels remember to increase your stops to protect gains. VRTS $114.88 +4.38 (+6.81) Not even a declining market was enough to stop this bull that has continued to charge forward in anticipation of the upcoming 3:2 stock split. November 22 is the day. Traders have taken advantage of the opportunity the split run has provided and have been rewarded for doing so. The stock is up 23 percent since we first initiated the recommendation to buy back on October 21. These gains have been accompanied with increased volume, which is a good sign for near-term trading. Expect to see a continued run to higher ground as the split date nears. When placing new trades, investors should wait for intraday pullbacks in the stock. A good entry point is tough to call as VRTS broke out of its current range today despite the market. On an up day, this stock may be ready to roll. The nearest resistance is today's new 52-week high at $115.50, let's see if the broader markets can make a U-turn tomorrow and help carry our play past this point. Expect volatile conditions to continue as the split date nears, so remember, keep your stops in place just in case profit-takers step forward. SNE $170.00 +5.25 (+5.31) Once again SNE is breaking its way to high levels and leaving its competition in the dust. As the holiday season nears, investors are anxious to buy the stock with hopes that they too will be able to enjoy a little of this pre-holiday spirit. Today was a good example, SNE came out of the gates on fire and maintained its winning spirit throughout the entire trading session. We expect this winning spirit to continue into the near-term as sales for the infamous Sony Play Station is projected to top $1 billion in sales over the holidays. Backing its fundamentals is strong technical strength, which is obvious by looking at a recent chart of the stock. SNE's stock price has increased 15 percent in the last two weeks. These are some nice gains and provide reason to use caution when placing new trades. There may be some light profit-taking, which will give us more buying opportunities. Of course, watch for a positive bounce prior to placing the trade. The nearest established support is $160 or the stock's 10-dma and the nearest resistance is today's new high of $170.88 We anticipate the stock to continue its upward trend however, because we are at new highs, keep your stops in place to protect gains. AAPL $89.63 -6.75 (+1.31) Were you worried you had missed the boat too? AAPL roared ahead yesterday, stopping just shy of $100 at $97.75. It was the kind of move that makes you sick if you told yourself to buy calls first thing Monday and then didn't. Fortunately, it is giving us another chance to come aboard. The big news Monday was, of course, the defeat of MSFT in the monopoly battle. All of the big names that have been working for a more level playing field against the software giant benefited from the announcement. Apple also had some good news of their own when a court decided that the iMac clones made by Future Power would not be allowed in stores just yet. It was ruled that the computers made by Future Power have too much of a resemblance to the iMacs. The retreat in shares of AAPL today came as the Nasdaq took a break from the 7 record closing highs. Now it is just up to the PPI due out tomorrow morning. A good report to go along with CSCO's solid earnings after the close could have tech stocks rocking. Support is at $88 and resistance at $91. Any move higher than $91 has a decent shot at $100. LVLT $73.44 +0.88 (+2.31) There has been a nice rotation into the telecommunication stocks in the last few weeks. To be more specific the processing systems and products stocks like Lucent, Plantronics, and LVLT. The upgrades are coming in bundles on the street, as well as the price target increases. Today USB Piper Jaffray reiterated there Strong Buy rating on LVLT, and due to the three new customers that LVLT has recently won, they increased there price target from $85 to $100. From a technical standpoint we also remain bullish as the stock is holding onto its gains during the day and closing at the high end of the trading range. The minor profit-taking seems to be over. Today's close at $73.44 broke above the high end of the recent trading range which signals higher prices. Protect this week's gains by using trailing stops and consider adding to current positions in a breakout above today's high of $73.88. ADPT $50.50 -1.19 (+0.19) Today the computer hardware stocks overall slid in the trading session, although the news is still favorable, and has been favorable for the last few trading days. This round of profit-taking was inevitable in these stocks. Good news continued to hit the market, but ahead of tomorrow's PPI numbers traders were taking some gains off of the table. In today's trading session ADPT traded as high as $52.50, before selling off to close at $50.50. Stocks like 3Com, Hewlett Packard, and Apple Computer in the sector were also down on the day as well. The price pattern and technicals remain consistent with our bullish outlook, and we will look at this pullback as a buying opportunity. The stock currently sits right at last Friday's intraday high, we look for this support to hold up, and like the $51.69 level for another possible entry point. If profit-taking continues, look for support at $49.50. SUNW $112.31 +0.44 (+2.63) Sun Microsystems Inc unveils new software products for the Internet today and continued their upward move. This new software is a Java tool that will reduce the cost and time involved to create "dot-com" applications. This news and the ongoing discussion of the Microsoft problems have only faired well for SUNW this week. The shares traded as high on Monday as $118.75, before pulling back to close the day at $111.81, today the stock traded as high as $117.31, before closing the day at $112.31. We warned of the volatility that could be experienced in these shares, but it has been an aggressive traders dream, and has provided numerous intraday opportunities to play the dips. Going forward, look for more of the same price surges and retreats. Keep in mind that SUNW has an upcoming stock split on 12/09. The record date for the stock split is 11/11. Use the major pullbacks as entry points. Current pullback support is at the $111.50 level, look for a bounce off of this level for a possible entry point. MXIM $83.81 -0.88 (-1.50) We mentioned Sunday that MXIM was due for a pullback. Monday shares of MXIM started the day higher. After about 90 minutes into the trading day MXIM hit $87.63. That's when the folks that have been buying MXIM decided they have a reasonable profit and decided to take some money off the table. Actually MXIM has been trending higher since the middle of October when a share of the integrated circuit maker was going for about $62. At this time we are pleased with MXIM as a call play having added over $7 since being selected for our play list. If you entered a play on MXIM last week you have had a chance to make a profit. We are keeping MXIM on our call list ahead of their shareholder meeting on Nov 18th. We see a good possibility for a stock split. The selling at this point has been fairly light and orderly, as there is not a mad rush to get out of the stock. The support areas of $82, $80 and $78 we mentioned Sunday are all still levels we could see MXIM hit and bounce off of which would then be viewed as an opportunity to buy calls. For now be patient and let the market dictate our next move. SFA $59.44 -2.25 (-2.81) The scenario we described Sunday is beginning to play out. After making a new high on Friday, SFA has experienced the profit-taking early this week. SFA fell to a low of $57.75 in the first 90 minutes of today's session penetrating the 10-dma at $58.16 but recovered to close at $59.44, down $2.25 for the day. SFA released their 10-Q report yesterday. Basically sales were up and margins were better. SFA will hold their annual stockholders meeting tomorrow and shareholders should be pleased with the past quarter's results. We will keep our eye out for any news coming out of the meeting tomorrow that could enhance our play. For now we have had a retracement and will look for a bounce off the support levels for a chance to buy calls. We have the PPI report in the morning so we will wait to see how traders digest that news as well, prior to considering a new play. INTC $80.06 -2.06 (-2.31) The semiconductor industry finally began to consolidate a bit today. INTC began its consolidation yesterday and continued to slip today. INTC crept lower Monday when the chip maker announced the availability of its new Intel AnyPoint Phoneline Home Network. The Intel AnyPoint family of products allows two or more people to surf the Web at the same time without the need for a second phone line or Internet account. Today INTC lost $2.06 after they announced they did not plan to stockpile inventory in the event of possible Y2K related problems. They said they see little or no Y2K impact based on a study of business conditions, backlog and inventory, and felt no need to maintain a buffer of additional finished goods inventory. The decline this week really appears to be more technical in nature than anything else, as the Nasdaq, Semiconductor stocks and Intel have reached a point where some profit-taking or consolidation is due. As long as the retracement is orderly in nature we would look for a bounce off the $80 as an opportunity to buy calls. BVSN $89.25 -1.75 (+5.75) Along with the overall NASDAQ market, BVSN's volume has been huge this week. Even in today's round of profit-taking, volume was more than two times the ADV, which helped keep today's profit-taking loss in check. The profit- taking was just flat overdue and there may be more to unwind given how far and fast this issue has moved. However, as long as the volume keeps up, we look for more gains (yes, even though the price has risen from $59 in the last two weeks). While we may see some caution in front of the FOMC on Nov 16th keeping the price in check, support this week has been at $87, then at $81, then $76 last week. Resistance is at $96, its intraday high. Do not buy at the current level - wait for a pullback to your targeted entry number based on your risk profile. You can also scale into your position with three different orders, each with a lower target than the previous. NT $67.81 -1.69 (-1.00) Though eking out a small gain yesterday, like everything else, today was an overdue day for taking profits. After today's gap open, then fall, NT's losses tapered as it found support at $67.50. Given the overall volume of the market and the fact that NT volume is 33% above its ADV, we think the breather is temporary, though the FOMC meeting scheduled for November 16 may keep a lid on the action for the next few days. Nonetheless, dips are buyable at the current level if the market firms up. The next support is $65, then $61. Helping their competitive edge in the future, NT announced today that they are taking aim at Cisco and will slash the price of some routers by 50%, undercutting CSCO's competing product by half. In a related article from CBSMarketWatch, NT said they would license software to Intel for use in programmable network devices, and to Microsoft in it to-be-released Windows 2000 operating system. Bring on the royalty stream! Choose your entry wisely and commensurate with your risk profile. AOL $146 -4.38 (+0.00) The market giveth and the market taketh away, so therein lay the sum of "zero". We need to be careful here with AOL. While the close was well above the low of the day (a good sign), the volume was beginning to increase into the close as the price was falling, indicating there may be more room to fall. Given the rise to current levels form $109 on Oct 15th, we would not be surprised to see more profit-taking or at least a flattening out before the FOMC meeting on Nov 16th. Near-term support is in the $141-$142 range, where we had a strong bounce today and last Thursday. Target shooting here will get the best entry; however, there are no guarantees since Internets are interest rate sensitive issues. A PPI hiccup could upset the pattern rather quickly, especially this close to an FOMC meeting. The next level of support is $132. Not to worry, Mary Meeker, the Internet underwriting guru at Morgan Stanley Dean Witter noted that while there may be a shakeout in e-commerce businesses after the holidays, AOL has shown that it has a profitable plan that works, and will remain a survivor in any industry consolidation. Funds love to hear those words and are inclined to put their money where they think it will be safe. Gauge the market sentiment while looking for the bounce (confirm market direction) or target shoot your entries at support consistent with your risk profile. VSTR $93.88 -2.19 (-3.13) VoiceStream opened down slightly on Monday and then a made a quick move up only to find resistance at $98. VSTR headed down a bit and flirted with the $96 level before finally closing at $96.06. VSTR opened up today and quickly headed south, making a bounce at $93 and settling in for yet another bout of buyers versus sellers, this time with the showdown holding right around $94. We believe that the PPI report due out tomorrow before the open will most likely direct VSTR in trading. If we get a positive report, we expect VSTR to rally with the market, in which case, the current level could serve as a solid entry point. If the report is negative, VSTR still maintains support at it's 10-dma of $92.50 and should VSTR violate this level, it may be time to exit this play. VSTR said that they had successfully raised $1.5 billion in proceeds from its recent sale of senior discount and senior notes. VSTR is using a portion of these proceeds to pay back an approximate $400 million principal amount of VSTR's 12% senior debentures due 2011. LSCC $42.75 +1.69 (+4.34) LSCC couldn't wait to get out of the gates at the open this morning and quickly ran up to tag a new 52-week high of $45. LCSS then retreated a bit and held a rather tight trading range just above $43 for the majority of the day. The PPI report is due out tomorrow before the open and if it is negative and causes the market to pull back, LSCC has some support at $40, strong support at $38 and if needed, additional support at it's 10-dma of $37. If we see a positive report, LSCC could continue it's positive momentum run and easily break through resistance, which is it's new 52-week high. If you are currently playing LSCC, it is important to raise your stops to protect your gains. On Monday, LSCC announced its contribution to the Programmable Analog market. LSCC introduced its Programmable Analog Circuit monolithic ICs family, the ispPac (TM). HD $76.63 -2.50 (+0.13) It looked as though HD had a solid foundation heading into today as it held support at $78 in trading Monday and made a strong move up in afternoon trading to tag a new 52-week high and close just over $79. Then Amazon had to come along on Tuesday morning and announce the opening of four new on-line "stores", one being a home improvement market. Many investors were expecting Amazon.com to announce an alliance with Home Depot as a part of this deal and investors did not react well to the absence of Home Depot's name in the AMZN press release. HD has also been feeling the pressure as of late because they have yet to roll out a site where customers can purchase their products on-line. HD began to make a slow and steady recovery mid-day, and by the close had managed to make back most of what it had lost in morning trading. It looks as though HD may very well be headed back into it's upward trend, and we think HD could easily break through resistance, which is currently the 52-week high of $79.44, particularly with earnings next Tuesday and a possible split announcement. KMB $64.25 -0.81 (-1.25) KMB shot up at the open, hit a new 52 week high and then spent the rest of the day pulling back. Use caution with this play! This is a slow and seemingly steady mover and the trend shows the possibility of a rollover. We want to see a bounce and a definite move toward a break through of the 52-week high before entering a new play. KMB is currently trading at the 5-dma and is just over $1 above the 10-dma at $63. If we see a bounce followed by the return of positive momentum at either of these levels, this could be a nice entry point. The PPI report will most likely be a factor in the near term direction of KMB so be sure to take that into account also. SYMC $49.50 -0.19 (-0.38) SYMC had a somewhat blah day with a trading range of only $0.75. Many are pointing to tomorrow's pending PPI report, which is due out before the open, as the reason for some "timid" investing so far this week. A good entry has been somewhat difficult to come by as of late being that SYMC has been consistently hitting new highs, so depending upon the report tomorrow, this brief decline could be just the break we were hoping for to make a new entry more palatable. If we see a positive report tomorrow, we expect that SYMC will participate whole-heartedly in the rally and could easily break through resistance, which is currently at $51.31. If the report is negative, SYMC could continue to pullback. SYMC has support at it's 10-dma of $48, which again, if we see a bounce and a reclamation of positive momentum, may serve as a solid entry. Either way, we are still optimistic in regards to the future of SYMC. On Monday, SYMC announced that they had entered into a relationship with On The Go Software and have developed an add-on, which will enable the sharing of data between ACT! and Quicken ExpensAble. This feature will help to simplify the tracking of expenses. **************** PICK NEWS - PUTS **************** NDB $32.19 -0.56 (-3.06) Everything is going as planned. We originally recommended NDB as a put play because of a spike in the stock price on Friday. If history was any indication of the future, we knew this move was going to be a short-lived. Apparently investors were quick to realize this too, shares of NDB were quickly sold on Monday and continue to be sold in today's trading session. The stock is down 10 percent since we initiated the play on Sunday, which is a healthy return by any traders' standards. We expect the selling to continue as investors drive prices of the stock back down to levels near it's closest support of $22-$25. Current trading levels would be good entry points but remember to confirm negative momentum first. The nearest resistance level is $35, which was the turning point for the stock on Monday. In the news, NDB suffered technical problems for about three hours on Monday, leaving customers angry and frustrated about slow execution of online trades. This is just one more reason for current investors to dump the stock (if they can get online, that is). BBY $48.63 -0.38 (-2.13) It was reported today that U.S. retailers are enjoying their strongest stretch of sales gains in at least a decade, and as we approach the Christmas season the retailer's are poised to benefit from one extra shopping day between Thanksgiving and Christmas compared with last season. Wal-Mart came in with positive earnings today, but the shares sold off due too a forecast for sales to slow in January. It seems that this is the overall story for the retail sector and specifically BBY. The positive news continues to flow, but the positive news is old news. The street is looking for future earnings and they are skeptical. That is why BBY has continued to slide this week, hitting an intraday low today of $45.88. We were looking for an entry point on Monday at the $50 level and the downtrend continued and provided us with a trading opportunity as forecasted. Aggressive traders have had a nice two day run and should protect profits at these levels. Going forward the shares sit slightly above another possible trading entry point of $48.50. Trading through this level should retest the lows of today at $46. GT $37.06 -0.31 (+0.38) We'd cautioned that there might be some strength in GT if the overall market headed south, prompting investors to start looking for some "bargains". Sure enough, GT gave us a little spike to $38.06 before plateauing $37.50, followed by a fade at today's close to $38.06, it's low of the day - the trend is still down and the volume is still up. It looked like a put buying opportunity to us at the close. There is no news. Technical chart is negative on all counts. We look for the downward trend to continue, as it appears index funds are not finished selling this issue yet. Careful - mild intraday support is at $35.69. Real support at $35. A break south from there would set up GT for the next stop at $32, where it has strong support. Tighten up the stops in case GT becomes irresistible to the "value" crowd (p/e = 19), thus stabilizing and perhaps elevating the price. It can't fall forever, but doesn't appear to have a grip yet. AMZN $70.81 -7.19 (+5.88) He fakes right and goes left, or so it seemed with investors anticipation yesterday of a big announcement from AMZN this morning. Honestly folks, we didn't plan to have Jeff Bezos make a price-moving announcement the morning after we picked AMZN as a put. (He really should be calling us before he announces news that will affect the play.) That's why we frequently note: "Don't buy the morning after a news letter" and "confirm market direction". The technicals are still negative and there are still cracks in AMZN's foundation. What was presumed to be a great forthcoming story of perhaps a synergistic acquisition (beyond.com?) became just another announcement of the addition of new stores to its Web site. While certainly not chopped liver, the announcement of the addition of home improvement, software, video games, and gift ideas was somewhat of a letdown to investors who expected more. Did investors really send AMZN down over $7 (albeit on yesterday's $13 gain) because they liked the news. Of course not. Don't get us wrong, we love AMZN's brand strength and their ability to leverage and grow legions of loyal customers from their sites, but some day, they'll need to show a profit. That's what has investors so flustered. The fundamentals haven't changed. The news has simply given us a better entry. As volume increased into the close, $70 is looking like it will come under pressure tomorrow. Confirm the break south of $70 before entering. ************** NEW CALL PLAYS ************** DISH - EchoStar Communications $73.50 -4.50 (+3.44 this week) Located in Littleton, Co is the second-largest provider of satellite broadcasting. EchoStar operates the DISH Network and offers more than 300 channels of digital TV and audio programming. They have over 2.4 million subscribers and also provide satellite delivery of local network stations in several large markets. DISH has formed a partnership with Microsoft to provide WebTV access through its DBS system. They compete with industry heavy-weights DIRECTV, Time Warner, and AT&T Broadband & Internet Services. We welcome DISH back to our play list tonight. Dish split 2:1 the last week of October and we have seen no post split depression from the broadcasting company. As a matter of fact DISH made a new split adjusted 52 week high today at $80. The investing public has had their eye on DISH even thought they missed earnings earlier this month by about 14.5 percent. Several analysts have given DISH a vote of approval as well reiterating Buy and Accumulate ratings. So what makes DISH so attractive now? Besides the fact their chart looks great and its been climbing virtually everyday since the split and setting a new high, there is this piece of legislation in Washington concerning satellite TV reform. Under an compromise reached yesterday Lawmakers from the House of Representatives and Senate agreed on legislation to allow satellite firms to carry programming from local TV stations. The bill should level the playing field for cable and satellite dish companies, and could lead to lower cable bills for all consumers. Shares of DISH jumped over $7 yesterday in anticipation of the agreement. Today we saw some profit-taking come in after DISH hit $80. We would look for some consolidation in the price of DISH stock. The area between $70 and $72 should provide support. In considering a new play in DISH look for a bounce off the support levels prior to entering a play. In other news even though DISH missed earnings, the pending legislation and the prospects for DISH to remain healthy in the near-term and long-term Merrill Lynch reiterated Buy and Accumulate ratings on DISH last Thursday. ***November strikes expire in less than 2 weeks*** BUY CALL NOV-65 UAB-KM OI=1327 at $ 9.75 SL=7.25 BUY CALL NOV-70*UAB-KN OI= 605 at $ 6.38 SL=4.75 BUY CALL NOV-75 UAB-KO OI= 167 at $ 3.75 SL=2.00 BUY CALL DEC-70 UAB-LN OI= 465 at $10.00 SL=7.50 BUY CALL DEC-75 UAB-LO OI= 512 at $ 7.63 SL=5.75 Picked on Nov 9th at $73.50 P/E = N/A Change since picked +0.00 52-week high=$80.00 Analysts Ratings 9-7-1-0-0 52-week low =$ 7.38 Last earnings 11/99 est=-0.48 actual=-0.55 surprise -14.5% Next earnings 03-17 est=-0.57 versus=-0.67 Average daily volume = 1.03 mln Chart = http://quote.yahoo.com/q?s=DISH&d=3m **** ASPT - Aspect Communications $32.44 +1.38 (+1.38 this week) Need customer service management software for your data or call center? Then Aspect has your number. In addition to automatic call routing, voice mail, e-mail, fax and Web integration software, they also provide consulting, project management, and integration services. Since October 1, ASPT stock has nearly doubled, setting new highs along the way - today included. Frankly, we can't find a story here, but we can find a tidy looking technical chart showing a steady ascent from the mid-teens over the last month. Over that period, volume has been running in waves from minus 40% to plus 60% of its ADV (869K). It looks like its beginning to cycle up again on the volume, with support at $32 in the ascending channel. Based on the trend, ASPT has moved up, seemingly impervious to market influences. It shows strength on up and down days. We can find pretty good support at $31, and $30 as well on a near-term historical basis. These levels look buyable as a place to target shoot. SoundView upgraded the issue to a Strong Buy last Friday, however their price target isn't known. Wish we had more. But in this case, "the trend is your friend"; we'll play it while we can and search for any hidden catalysts. In the news, AT&T broadband, and Cellular One have recently signed on to use ASPT's customer management Web solution portals. ASPT was selected over Lucent technologies, which is known in the industry for its cozy relationship with AT&T (it's a parent and child thing). To beat out Lucent, they've got to have a better mousetrap, better price structure, or both. ***November strikes expire in less than 2 weeks*** BUY CALL NOV-25 ATQ-KE OI=4233 at $8.00 SL=6.25 BUY CALL NOV-30 ATQ-KF OI= 264 at $3.75 SL=2.00 BUY CALL DEC-30 ATQ-LF OI= 182 at $5.13 SL=3.25 BUY CALL DEC-35*ATQ-LG OI= 105 at $2.81 SL=1.50 Picked on Nov 9th at $32.44 P/E = N/A Change since picked +0.00 52-week high=$32.75 Analysts Ratings 0-11-1-0-0 52-week low =$ 6.00 Last earnings 10/99 est=-0.21 actual= 0.00 surprise = 100% Next earnings 01-19 est=-0.08 versus= 0.11 Average Daily Volume = 869 K Chart = http://quote.yahoo.com/q?s=ASPT&d=3m **** CNCX - Concentric Network Corp $32.13 +2.25 (+3.13 this week) Concentric Network Corporation provides complete, easy-to-use Internet business solutions for small to medium sized companies and customized Virtual Private Network and data center services for larger organizations. Concentric's portfolio of services for small to medium sized companies includes high-speed DSL access, Web hosting and e-commerce. For larger enterprises, the company offers dedicated Web hosting and data center services. Internet stocks were up on the open of trading today, but started to sell off across the board after the early reports coming from Amazon were not enough to push the stocks in the sector higher, the early morning momentum fizzled out. As a group the smaller ISP's have started to bounce back to life. This group which includes CNCX have lagged the overall Net index since August. The ISP's are seeing renewed enthusiasm as the demand for Web hosting bandwidth has resurfaced. VRIO, ELNK, and CNCX all ended the day up. CNCX specifically ended the day up over 2 points on very strong volume. The shares are trading up on the back of takeover rumors and positive news. With the new monthly high being reached today at $32.63, and the stock closing near the high at $32.13 at the high end of the intraday range, backed by strong volume and momentum, we expect to see higher prices over the short-term. Look for a possible entry point above $32.75 backed by the confirmation of strong volume and price surges similar to today. Pullback's to support at the $29 level is also a possible entry point. In the news today CNCX reported that it will offer Microsoft's office 2000 over the internet to customers. CNCX and Microsoft are leading the industry trend of making software applications available on a subscription basis from central data centers. ***November strikes expire in less than 2 weeks*** BUY CALL NOV-30 QXF-KF OI=1646 at $3.50 SL=1.75 BUY CALL NOV-35 QXF-KG OI= 80 at $1.19 SL=0.00 High Risk! BUY CALL DEC-30*QXF-LF OI= 628 at $5.50 SL=3.75 BUY CALL DEC-35 QXF-LG OI= 90 at $3.25 SL=1.63 Picked on Nov 9th at $32.13 P/E = N/A Change since picked +0.00 52-week high=$57.31 Analyst Ratings 5-6-2-0-0 52-week low =$10.69 Last earnings 10/29 est=-0.69 actual=-0.65 Next earnings 01-25 est=-0.69 versus=-0.85 Average daily volume = 1.34 mln Chart = http://quote.yahoo.com/q?s=CNCX&d=3m ************* NEW PUT PLAYS ************* TXT - Textron Inc $69.81 -2.75 (-2.56 this week) Textron is a diversified company that operates in the Aircraft, Automotive, Industrial and Finance sectors. Their aircraft business makes Cessna aircraft and Bell helicopters. Their automotive business makes trim products, fuel systems and components. Their industrial group makes fasteners, golf carts and lawn products. Their finance division finances commercial equipment lease-loans. They do business around the world but the U.S. still accounts for 65% of sales. There is no rest for the weary. TXT keeps sliding to lower levels and we expect more downside ahead. This is what happens to your stock when you beat estimates by a penny and you have no real hopes for the future. The highlight of Q3 that was reported on Oct 19th seems to be a new "Textron Quality Management" program that they HOPE will improve profitability. Wow, that sounds reassuring, doesn't it? As we said above, they did beat First Call by $0.01 when they reported a $0.95 per share profit. This pushed TXT up the 50-dma and it rolled over once again. The overall pattern has been headed lower since May but today's close under long-term support of $70 is very bearish. Tomorrow will be a telling day for the shares of Textron. If they don't get a surge of buyers on nice volume to bump them back over $70, this trend will likely be sustainable for awhile. We mentioned that $70 has been long-time support. Well, usually when a stock hits a firm support level it will bounce. A look at today's intraday chart shows no such bounce. It fell from $72.50 in the morning, flattened out at $70 for the afternoon and pushed through $70 near the close and on above average volume. In other words, no bounce. We want to confirm the trend tomorrow before jumping in. The next technical support level is $60. BUY PUT NOV-75 TXT-WO OI=110 at $5.38 SL=3.75 BUY PUT DEC-75 TXT-XO OI= 33 at $6.25 SL=4.25 Average Daily Volume = 382 K Chart = http://quote.yahoo.com/q?s=TXT&d=3m ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Tuesday 11-9-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. *************** PLAY OF THE DAY *************** VRTS - Veritas Software $114.88 +4.38 (+6.81 this 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. Sunday's Write Up We originally chose VRTS as a call play because the company announced a 3:2 stock split, which will take place on Nov 22nd. It's been a nice ride however, the stock has slightly stalled. On Friday VRTS followed the heels of the broader markets as they rallied behind mild unemployment figures, unfortunately, the afternoon profit-taking on VRTS was a little more extreme than the broader markets. The stock gapped almost 5 points at the open but profit-takers took control, leaving VRTS fractionally lower for the day. This week's change for our split play is very deceiving as to how the stock has really performed. If you were lucky enough, investors were able to buy at the close of each trading session and sell at the opening. This was the trend last week, which would have provided some nice profits for those lucky investors. However, trades like these are not for the light hearted and should be left for more aggressive investors. For less aggressive investors, watch for pullbacks near $105, the stock has held support at this level quite well. The nearest resistance is $113, which is the high for VRTS and was established during Friday's trading session. As the split day nears we expect to see the stock set more highs. On Friday VRTS announced record-breaking attendance at its third-annual worldwide user's conference in Anaheim, Calif. Attendees the opportunity to participate in pre-conference tutorials and attend presentations by VERITAS Software customers, executives and product managers. There was no other news to report at this time. Tuesday's Write Up Not even a declining market was enough to stop this bull that has continued to charge forward in anticipation of the upcoming 3:2 stock split. November 22 is the day. Traders have taken advantage of the opportunity the split run has provided and have been rewarded for doing so. The stock is up 23 percent since we first initiated the recommendation to buy back on October 21. These gains have been accompanied with increased volume, which is a good sign for near-term trading. Expect to see a continued run to higher ground as the split date nears. When placing new trades, investors should wait for intraday pullbacks in the stock. A good entry point is tough to call as VRTS broke out of its current range today despite the market. On an up day, this stock may be ready to roll. The nearest resistance is today's new 52-week high at $115.50, let's see if the broader markets can make a U-turn tomorrow and help carry our play past this point. Expect volatile conditions to continue as the split date nears, so remember, keep your stops in place just in case profit-takers step forward. ***Caution: only 2 weeks left for November options*** BUY CALL NOV-105 UQJ-KA OI=193 at $11.75 SL= 9.25 BUY CALL NOV-110*UQJ-KB OI=530 at $ 8.50 SL= 6.50 BUY CALL NOV-115 UQJ-KC OI=223 at $ 5.63 SL= 3.75 BUY CALL DEC-105 UQJ-LA OI=136 at $15.88 SL=12.00 BUY CALL DEC-110 UQJ-LB OI=295 at $12.88 SL=10.25 Picked on Oct 21st at $92.94 P/E = N/A Change since picked +21.94 52 week high=$115.50 Analysts Ratings 5-13-2-0-0 52 week low =$ 24.25 Last earning 10/14 est= 0.17 actual= 0.21 Next earning 01/28 est= 0.27 versus= 0.12 Average Daily Volume = 500 K Chart = http://quote.yahoo.com/q?s=VRTS&d=3m ************************ SPREADS\STRADDLES\COMBOS ************************ Stocks Fall As The Day Of Reckoning Approaches.. Monday, November 8 Stocks moved higher Monday and the Nasdaq climbed to a new record as investors continued to buy technology issues, even in the wake of the Microsoft ruling. The Dow Jones Industrial Average closed up 14 points at 10,718 and the Nasdaq composite finished up 41 points at 3,143. The S&P 500 index ended 6 points higher at 1,377. Declines outpaced advances 1,697 to 1,350 on active volume of 802 million shares on the NYSE. The 30-year U.S. Treasury bond closed flat with the yield at Friday's finish of 6.06%. Sunday's new plays (positions/opening prices/strategy): Nvidia NVDA DEC20C/DEC25C $3.50 debit bull-call Youthstream NETS FEB22C/NOV25C $4.62 debit diagonal QLT PhotoTher. QLTI NOV47C/NOV45C $0.25 credit bear-call All three of our new plays provided favorable entry opportunities during the session. NVDA fell $1.75 at the open, allowing an easy entry at the target price and the stock recovered to finish $0.81 higher at the end of the day. NETS was relatively unchanged in the morning but slid lower in the afternoon, offering our target entry near the close of the session. QLTI was the only borderline issue with our bearish credit spread trading from $0.12 to $0.31, depending on when (and how) you opened the position. We recorded the initial credit as $0.25 and will watch the spread price for another opportunity at $0.31 in the next few days. Portfolio plays: Microsoft (MSFT) was one the most active issues in the market as more than 121 million shares traded during the session. The stock dropped almost $8 in early trading but fought back to close near $90, a small ($1.62) loss for the day. In a ruling released late Friday, a federal judge found that Microsoft had used its power to unfairly punish competitors. The news startled investors but they soon decided that what may be bad for Microsoft may be good for the company's competitors and the software/personal computer market in general. Analysts say there is now tremendous appetite for equities and the effects of the MSFT judgment may be ignored as the outcome was already priced into the market. Investors are also waiting for the release of the Producer Price Index, which gauges inflationary pressures at a wholesale level. The figures due on Wednesday, will help the Federal Reserve make a decision about its interest rate policy when the committee meets on the 16th of November. A number of analysts are predicting there will not be an interest-rate hike at the meeting. Our portfolio had some favorable activity today and one of the best performing issues was Excite@Home (ATHM), up almost $6 to a recent high near $45. The move came on the rally in Internet issues and speculation that a new merger/acquisition may be in the works. Both of our bullish spreads benefited from the move and we will look for favorable exit opportunities as the stock moves higher. Many of our technology issues moved up during the session and communications stocks led that group. Aware (AWRE), Bell Atlantic (BEL), Cisco Systems (CSCO) and 3Com (COMS) were the best performers. Internet brokerage Etrade Group (EGRP) is still on the move, rallying another $1.25 to $32. Our diagonal position is now ITM and you should consider closing the play for a favorable profit. EGRP's move also propelled Netbank (NTBK) to a recent high near $27. This bullish position is also a great candidate for early exit as the sold option is now $2 ITM. Smaller-cap stocks were less than outstanding today but we did have some positive issues in the group. One of our older plays, Network Associates (NETA) moved up $0.75 to a recent high above $20. The bullish (December) debit spread is now $3 ITM and can be closed for a favorable profit. Apollo Group (APOL) climbed $1.12 to $25.75 and that position is also deep ITM with a small profit for early exit. Occidental Petroleum (OXY) rose $1 with the rebounding oil stocks. The neutral calendar spread on that that issue has been one of the best performing positions in the Spreads/Combos portfolio and it is now trading at $0.88 credit. In our long-term section, Exxon (XON) was the leader, up $3.93 at $74.31 as energy shares soared amid favorable outlooks for the sector. The industry expects higher oil prices on support from oil producers that are now planning to extend global supply cuts. Our LEAPS/CC's play moved back to profitable territory on the rally. Other stocks in that portfolio that continued to move higher include Cabletron (CS), Sun Micro (SUNW), Solectron (SLR) and General Motors (GM). Motorola (MOT), Johnson & Johnson (JNJ) and Medtronics (MDT) all consolidated after recent gains. Most of the positions in this section are now profitable and we have favorable expectations for Polaroid (PRD) and The Limited (LTD) in the long-term. Tuesday, November 9 U.S. Markets slumped Tuesday as investors sold for profits after the recent rally in technology stocks. The Dow Jones Industrial Average closed down 101 points at 10,617 and the Nasdaq fell 19 points to 3,124, on the most active day ever for the index with 1.46 billion shares traded. The S&P 500 index slipped 11 points to 1,365. In the broader market, decliners outpaced advances 17 to 13 on active volume of 851 million shares on the NYSE. There were 75 stocks at new highs and 100 at new lows. The long bond was down 9/32 with its yield at 6.07%. Portfolio plays: Even in the midst of today's consolidation, we had some excellent performances by technology issues. Cisco Systems (CSCO) moved up to a midday high of $77 before traders exited the issue in a big pre-earnings sell-off. The networking company will report after the market closes and is expected to post a first-quarter profit of $0.23 a share, up from $0.17 a share last year. Analysts also foresee a 35% gain in first-quarter earnings per share thanks to booming sales of its phone, wireless and cable products. Our new bullish diagonal spread traded as high as $9.00 credit, a $0.75 profit for the one week play. Network Associates (NETA) continued to rally, up another $1.50 to a new high near $22. Our December debit spread traded at $4.50 credit, an $0.88 profit, during the session. 3Com (COMS) moved higher today, up $1.12 after another favorable report on CNBC and speculation of a new spin-off of the Palm-pilot division. Our current diagonal spread is deep ITM (and very profitable) but we may be able to increase the return with the rising call-option interest. The Excite@Home (ATHM) rally is at full strength and we expect a favorable exit on both bullish plays in the next few days. In the smaller cap issues, 3dfx (TDFX), Anesta (NSTA) and Data Broadcasting (DBCC) all made solid moves and rumored takeover candidate Coyote (CYOE) rebounded $0.25 to finish just below $7. The short-term diagonal spread is now in profitable territory. On the down side, online troubles plagued Toys-R-Us (TOY) for a second straight day as customers overwhelmed the site's servers. Officials said the site received a sharp increase in the number of visitors this week, as consumers responded to advertisements in national newspapers around the country. The site slowdown is the latest in a series of Web-related problems the company has encountered and although our January position is not in danger, we will monitor the issue closely. Those of you participating in the QLT PhotoTherapeutics (QLTI) play had another chance today as the stock rallied early in the day to a high near $37, offering a credit of $0.31 for the short term (bear-call) spread position. The issue fell later in the session to a low of $32 but finished almost unchanged at $34.50. Questions & comments on spreads/combos to ray@OptionInvestor.com MERGER/TAKEOVER PLAYS These plays are based on speculation of acquisitions/mergers or other unique events for the candidates. Whether the rumors have substance is not the issue, we simply favor the recent technical history or trends and the higher probability of profit in many of these positions due to premium disparities in option pricing. News and market sentiment will have an effect on these plays so review each one individually and make your own decision about the future outcome of the stock price. **** COMS - 3Com Corporation $31.50 *** New Speculation *** 3Com has evolved from a supplier of discrete networking products to a broad-based supplier of local area network (LAN) and wide area network (WAN) systems for the enterprise, small business, home, and service provider markets. Following its recent merger with U.S. Robotics, the world's leading provider of modems and remote access products, 3Com offers customers a broad range of data networking solutions that include routers, hubs, remote access systems, switches, adapters, modems, organizers and other telephony products. As we said in today's narrative, COMS has moved higher recently on a solid rally in the sector and numerous rumors including; a possible deal with a broadband company and the speculation of a new IPO for the Palm-Pilot division. Today an analyst on CNBC, Jack Cunningham of Solomon Investors Fund, named the company as one of his top three picks in the industry and it appears that traders agree as the stock volume and call option interest has increased significantly in the short-term. We follow this issue regularly and feel confident that the new breakout on heavy volume and rising institutional interest is a step-up to the next trading range. A small premium disparity in option pricing will allow us to enter the play at a discount. PLAY (aggressive - bullish/debit spread): BUY CALL JAN-30.00 THQ-AF OI=13441 A=$3.88 SELL CALL JAN-32.50 THQ-AZ OI=4957 B=$2.56 INITIAL NET DEBIT TARGET=$1.12 ROI(max)=123% Chart = http://quote.yahoo.com/q?s=COMS&d=3m **** MTC - Monsanto $44.38 *** Implied Volatility Skew *** Monsanto and its subsidiaries engage in the worldwide manufacture and sale of a diversified line of agricultural products including pharmaceuticals, food ingredients, and chemical products. Their products are sold directly to customers in various industries, to wholesalers and other distributors and jobbers, to retailers and to the ultimate consumer. The rally started last week and today the stock gained another $0.75 to close above $44 after a Wall Street Journal report said the company was in talks with Novartis AG about a sale of all or part of its businesses. Officials from both companies declined to comment on a possible merger. Analysts say Monsanto, which makes the herbicide Roundup and genetically modified seeds, is under pressure to rescue its slumping stock price, through the sale of a division or the entire company. Novartis is eager to boost its drug offerings and a merger would bring new funding to Monsanto, which fell into debt after spending billions to acquire new seed companies over the last few years. This position is based on a disparity in the front-month implied volatility of the call options and the recent technical breakout to an old trading range near $46-$48. PLAY (very aggressive - bullish/calendar spread): BUY CALL JAN-50 MTC-AJ OI=7662 A=$2.19 SELL CALL NOV-50 MTC-KJ OI=80 B=$0.31 INITIAL NET DEBIT TARGET=$1.75 TARGET ROI=25% Chart = http://quote.yahoo.com/q?s=MTC&d=3m **** MLTX - Multex.com $17.81 *** Technicals Only *** MLTX is a provider of online investment research and information services designed to meet the needs of individual & institutional investors, including investment banks, brokerage firms and other companies. Their services enable online access to over 900,000 research reports and other investment information on over 15,000 companies from more than 400 investment banks, brokerage firms and third-party research providers worldwide. The company has been rumored to be a target of one of the major brokerage firms and with the recent favorable trend, this play provides an opportunity for excellent upside potential with good protection against a major reversal. The character of the stock is showing positive divergences in several technical indicators as it enters a stage-one base. The issue is establishing support near $13 (September/October lows) with resistance in the $17-$20 range. The outlook is bullish though the stock should consolidate as it works through overhead supply and our theoretical edge will help in the event of an upside move. Our plan is to transition to a diagonal spread in December. PLAY (aggressive - neutral/calendar spread): BUY CALL MAY-17.50 UXM-EW OI=40 A=$5.00 SELL CALL NOV-17.50 UXM-KW OI=449 B=$1.18 INITIAL NET DEBIT TARGET=$3.62 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=MLTX&d=3m **** CHA - Champion International $61.38 *** Short-Term Play *** Champion is one of the leading domestic manufacturers of paper for business communications, commercial printing, publications and newspapers. In addition, the Company has significant market pulp, plywood and lumber manufacturing operations and owns or controls approximately 5,300,000 acres of timberlands in the United States. Their Canadian and Brazilian subsidiaries also own or control significant timber resources supporting their operations. The stock price has rallied over the last two weeks and implied volatility and volume in options remained high today as takeover rumors re-circulated. The commentary on a popular Internet site listed Champion as among potential merger candidates and now the company is experiencing some "buyout" rumblings on Wall Street. Some analysts say there is a deal in the works with a European paper company and in early August, a Finnish forest industry group, UPM-Kymmene was the subject of speculation in a previous merger rumor. We simply favor the short-term potential of the underlying issue and owning it at $55 might not be such a bad play. PLAY (aggressive - bullish/credit spread): BUY PUT NOV-50 CHA-WJ OI=146 A=$0.19 SELL PUT NOV-55 CHA-WK OI=80 B=$0.50 INITIAL NET CREDIT TARGET=$0.38 ROI=8% (10 days) Chart = http://quote.yahoo.com/q?s=CHA&d=3m ********* STRADDLES ********* The last few days have provided some new volatility in the market and most of our Internet straddle positions have performed far better than expected. The American Online (AOL) straddle reached a high of $33 on Monday, a $15 profit and Go2Net (GNET) traded as high as $26 credit, an $8 return on $17.88 originally invested. Ebay Inc. (EBAY) is the only Internet issue that has disappointed in the short-term but the positions proved to be salvageable on a individual basis. As we suggested last week, a successful test of recent lows near $128 provided some support for a post-earnings rebound. An early exit of the bearish position near that price yielded about $24 credit, which leaves the call option in place to bring the overall play back to a favorable exit. Most of our other plays have performed well considering that many of them are mired in lagging sectors. One of the new candidates that appears to have good potential is Univision (UVS). The stock price has moved down almost $4 since originally picked and the overall credit will soon be at our break-even of $14.75. The straddle traded as low as $14.50 the first day it was offered (we were not patient enough to get that price) and thus we are now at a slight disadvantage in the play. Sunday's new plays (positions/opening prices/strategy): Cullen Frost Bankers CFR MAR30C/MAR30P $3.00 debit straddle Our new straddle position, Cullen Frost Bankers (CFR) was a big winner right from the start. The position was initiated by one of our subscribers (at market price - $3.06 debit) in the first few minutes of trading and after the order was filled, the straddle ballooned back to a theoretically correct price. The position was bid at $3.56 near the close, a one-day profit of $0.50 on simple option pricing disparity. ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
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