The Option Investor Newsletter Thursday 11-11-99 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) ************************************************************ 11-11-99 High Low Volume Advances Decline DOW 10595.30 - 2.40 10643.90 10543.90 891,350k 1,259 1,715 Nasdaq 3197.29 + 41.33 3201.38 3169.04 1,379,835k 2,012 1,983 S&P-100 725.11 + 4.24 726.27 720.30 Totals 3,271 3,698 S&P-500 1381.46 + 8.00 1382.12 1372.20 46.9% 53.1% $RUT 447.49 - 1.23 450.76 447.09 $TRAN 3011.99 + 5.75 3017.04 2988.84 VIX 22.54 - 0.96 23.76 22.26 Put/Call Ratio .55 ************************************************************* Hello Ripley? Believe it or not, 9 records in 10 days. After only a -19 loss on profit taking on Tuesday the Nasdaq has charged off again on another streak of new record highs. The gains are on strong volume making Thursday the fourth heaviest day on record with 1.38 bln shares traded. The Nasdaq continues to soar without the help of the Dow. Since spiking to 10840 at the open on Friday of last week, the Dow has continued to be weak and has closed exactly at lower support (10600+ for the last three days. The advance/decline line has been negative all week and new lows continue to beat new highs. You can see by the Dow chart above, that except for the spike last Friday the trend has been flat to down for over a week. However in contrast to the Dow the Nasdaq chart below is perfection in real life. The Nasdaq has been charging forward as if there was no worries in sight. I applaud the rally in the face of the coming Fed meeting and hope it continues. The reason for the rally is historical. Normally techs go down first and rally first. After the tech prices appear to top the rally will broaden out into the other sectors if the internals and economic fundamentals remain favorable. The Nasdaq rally is being fueled by massive amounts of cash coming in from the sidelines by institutional buyers. Comments like "just get me filled at any price" is powering some of these stocks to nosebleed levels. The fear by the tech funds is that the train is leaving the station and by waiting for a pull back that never comes they will be cursed with lesser returns than their fund brethren. This is causing a speculative bubble in techs that could be dangerous if the market fundamentals turn negative. The Fed meets next Tuesday to decide if they are going to raise rates, one of the major bull market fundamentals, and the Nasdaq market is ignoring this event. The on again, off again rate hike is still undecided. We seem to be vacillating between rate hike and no rate hike every other day. If the Fed does not raise rates then their warning words over the last few months will fall on deaf ears next time. This is the last chance to raise before Y2K. They meet again in December but nobody expects a raise one week before Y2K. The next meeting is in February. The Nasdaq appears to have factored in a rate hike several weeks ago during its strong correction. It is hard to believe the low for the Nasdaq on Oct-18th was 2632, almost 600 points or 23% later. Even if the rate hike does not happen the odds of a significant Nasdaq correction soon are growing every day we have another strong back to back gain. The Nasdaq is now up +45% for the year. 45% !!!!! Like I said on Tuesday, the Dow appears more concerned about possible Fed action. In reality the Dow was tech weak until just recently but is heavily impacted by financial concerns with Citigroup, JP Morgan and American Express. The recent addition of MSFT and INTC to the Dow has increased the tech ratio but those stocks have not set the Dow on fire yet. The tech stocks holding up/down the Dow now include HWP, IBM, UTX, IBM, MSFT, none of which have participated in the tech rally. The PPI report on Wednesday only served to slow the Nasdaq advance slightly. You know the old saying, "don't confuse me with the facts". It appears the Nasdaq is bulldozing all the fact roadblocks in its path. The new roadblocks to be faced tomorrow are the Retail Sales and the Productivity report. The Productivity Report is sure to show some strong gains which would be good for the market. The Retail Sales however may show some strong gains also and that will not be good for the market. The productivity gains are more important since it is the trade off for higher unemployment and labor costs. The Fed will be looking at both of these to factor into their decision process. The wildcard here is the market itself. If they feel the Nasdaq rally is the beginning of a speculative bubble then they will be more likely than not to pull the pin and deflate it. There was some interesting news driving some of the market leaders today. Microsoft announced a deal with Tandy (Radio Shack) where MSFT products will be sold in kiosks in Radio Shack stores. TAN was up strongly on the news. This prompted Best Buy and Circuit City to jump on the expectation that AOL would do a similar deal with them. (What no AMZN book kiosk?) The major credit card lenders took a nose dive when Bank One (ONE) issued a profit warning today. They expect to miss estimates by -.20 next quarter. Customers paying off their balances early are impacting their results. This is another example of the wealth effect from a constantly rising bull market. Wealth is being made and spent from rising stock prices instead of labor, materials and products. The end result will be inflation. PVN, COF and MNBA (KRB) were all down early but COF issued a statement that "business could not be better" and they finished slightly positive. Dell announced earnings after the close and met analysts estimates of $.18 vs $.14 last year. The more important number was the revenue at $6.78 bln. Analysts were afraid that the recent earthquake warning by Dell could have cost them millions in lost sales. Apparently Dell had enough in the pipeline to offset any recent problems. After the announcement CEO Michael Dell was very upbeat in a phone interview, saying Y2K was not a problem and 40% growth in the fourth qtr was probable. Dell traded up +1.00 in after hours. Friday Forecast: It is all in the numbers, again. The Retail Sales and Productivity numbers out before the open will dictate our direction. With the Fed meeting only two days away the numbers will be microscopically examined for any of the dreaded inflation signs. A bad report on either could cause some profit taking to settle in again. Also traders may want to go into the weekend and Monday flat and see what direction we go after the FOMC. The last several Fed meetings have been preceded by rallies even though there was no justification for the move. Market logic (oxymoron) would call for a step backwards before Tuesday. Don't tell the Nasdaq, its not listening to logic. I had several requests for stocks on which to sell naked puts on Friday with only a week to go before November expirations. This is dangerous because of the possibility of an abrupt change in market direction in the next three days. If you protect yourself with stop losses then these candidates would be good choices. (They are not the normal low dollar stocks that Ray does so well in the Sunday Naked Put Section. They are my high dollar, high risk favorites.) UBID $37, Nov-35P, DELL $44.25 Nov-42.50P, KIDE $76.50 at support Nov-75P (good premium), SFE $118.75 Nov-115, EMLX $179 support 175, Nov-175P (good premium), BVSN 81.56 Nov-80P, MSFT 89.56 Nov-90. Remember, the best way to play these is to wait for a market dip on one of the news events the next three days. This will inflate the premium and give you some feeling for where the support might be. As long as you use stop losses you can enter them anytime the market is moving up and then protect yourself. Pick your entry points carefully at this altitude and sell too soon. The Fed is still ahead! Jim Brown Editor ******************* FALL SEMINAR SERIES ******************* Only 2 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 ********** Microsoft and Tandy Shack Up to Promote Internet Use By Cindy Christ Microsoft is going offline to get more consumers hooked on the Web. The Redmond, Wash.-based software company announced Thursday it would set up as many as 7,000 "stores within a store" as part of new, five-year strategic alliance with Tandy Corp.'s (TAN) electronics retailer RadioShack. /members/stocknews/111199_1.asp **** Chip Stocks Take A Cue from Merrill By Cindy Christ Shares in semiconductor issues hovered near all-time highs Thursday, after Merrill Lynch said the upswing in computer chip spending is far from over. Citing strong pricing power, analyst Joe Osha raised his 2000 price target for chip industry revenue growth to 21.5 percent from 18.6 percent. /members/stocknews/111199_2.asp **** David Beats Goliath, At Least for a Day By S.P. Brown Intel's (INTC) favorite whipping boy Advanced Micro Devices (AMD) has been taking a pummeling for so long from its Santa Clara-based rival that any talk of a comeback is usually brushed aside like so much dandruff off a black sweater. But finally, after suffering years of ignominy at INTC's hands, the world's second largest supplier of microprocessors announced today that it may be ready to land a solid counter- punch. /members/stocknews/111199_3.asp *************** Market Posture *************** As of Market Close - Thursday, November 11, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 10,595 BEARISH 9.23 SPX S&P 500 1,315 1,385 1,381 Neutral 10.29 OEX S&P 100 675 725 725 Neutral 10.28 RUT Russell 2000 425 450 447 Neutral 11.09 NDX NASD 100 2,320 2,520 2,850 BULLISH 10.28 MSH High Tech 1,120 1,250 1,468 BULLISH 10.28 XCI Hardware 1,000 1,095 1,121 BULLISH 11.11 * CWX Software 770 800 1,054 BULLISH 9.03 SOX Semiconductor 475 525 660 BULLISH 10.29 NWX Networking 550 615 736 BULLISH 10.28 INX Internet 495 525 537 BULLISH 11.05 BIX Banking 645 690 649 Neutral 10.28 XBD Brokerage 395 450 423 Neutral 10.28 IUX Insurance 610 650 621 Neutral 11.09 RLX Retail 875 910 897 Neutral 11.09 DRG Drug 375 390 397 BULLISH 11.04 HCX Healthcare 750 790 781 Neutral 11.09 XAL Airline 180 190 148 BEARISH 5.21 OIX Oil & Gas 285 305 303 Neutral 11.09 Posture Alert The Nasdaq made it 9 out of 10 record days, which is a pretty good batting average for any player let alone and index. Investors and fund managers continue to feed their appetite for anything tech related, while the Dow continues to languish. With this recent market action, we have raised Computer Hardware to Bullish from Neutral.Other sectors to watch include Oil & Gas, the S&P 100, Russell 2000, and the S&P 500, which are all getting close to bullish territory. A detailed description of our Market Posture and its applications can be found at: /members/marketposture **************** Market Sentiment **************** Thursday, November 11, 1999 The Gold Rush of 1999! The race continues, as investors and fund managers try to grab anything and everything technology related before the turn-of-the- century. The money that is pouring into this market has been phenomenal, as evidenced by the volume on the Nasdaq these last couple of weeks, and the new initial public offerings. The latest blockbuster IPO, United Postal Service, can best justify this large inflow of new money that is gushing into the market. UPS was originally supposed to be priced at $36-$42, and with a whopping 109 million shares, would have yielded the company $3.9- $4.6 billion. Well, the greed frenzy continued from start to finish on this deal. Not only was the IPO bumped up to $50 dollars, but the stock gapped up $16 at the opening. UPS closed today at 74, up another +5 3/4, which represents new money inflows of $8.1 billion, and now puts their market cap at $81 billion. Now add the UPS IPO to the 170 million share Charter Communications deal, and your talking over $10 billion in news issues just this week. That is a lot of new money being thrown around. We haven't even talked about Expedia, as well as the others new issues, but we think you get our point! This money inflow is incredible, and can very easily capitulate this market (especially the Nasdaq) into more record-breaking territory. The 49-Niners had it pretty good with the gold rush, but we prefer our Nasdaq. 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 Thurs Benchmark (11/5) (11/9) (11/11) Overhead Resistance (720-740) 7.42 4.53 3.92 OEX Close 718.80 718.32 725.11 Underlying Support (700-715) 0.87 1.15 1.31 What the Pinnacle Index is telling us: Based on 11/11, 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 may be breaking out to the upside. Put/Call Ratio Friday Tues Thurs Strike/Contracts (11/5) (11/9) (11/11) CBOE Total P/C Ratio .69 .68 .68 CBOE Equity P/C Ratio .40 .38 .40 OEX P/C Ratio 1.36 1.43 1.47 Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (11/5) (11/9) (11/11) Puts 670 / 10,889 660 / 11,142 660 / 11,977 Calls 740 / 8,772 740 / 9,798 740 / 10,607 Put/Call Ratio 1.24 1.14 1.13 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 11, 1999 22.54 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 Wed Thu Week Dow 10595.30 14.37 -101.53 -19.58 -2.44 -109.18 Nasdaq 3197.29 41.68 -18.93 30.92 41.33 95.00 $OEX 725.11 5.83 -6.83 3.07 4.24 6.31 $SPX 1381.46 6.78 -11.73 8.18 8.00 11.23 $RUT 447.49 2.66 1.21 2.44 -1.23 5.08 $TRAN 3011.99 27.22 -41.80 16.83 5.75 8.00 $VIX 22.54 -0.54 1.55 0.43 -0.96 0.48 Calls Mon Tue Wed Thu Week SFE 118.75 13.13 -5.13 5.00 2.25 15.25 New QLGC 130.06 3.34 2.09 2.25 4.06 11.75 New SNE 174.81 0.06 5.25 6.19 -1.38 10.13 Good news CMVT 123.06 7.25 -2.31 10.56 -6.19 9.31 Soaring LSCC 46.00 2.66 1.69 2.38 0.88 7.59 Steadfast SLR 88.94 3.63 -2.63 4.25 2.19 7.44 New VRTS 113.69 2.44 4.38 1.00 -2.19 5.63 Split 11/22 NT 74.25 0.69 -1.69 2.13 4.31 5.44 Still going SUNW 114.75 2.31 0.44 0.88 1.56 5.06 More news DISH 74.88 7.94 -4.50 3.88 -2.50 4.81 Consolidates AAPL 92.25 8.06 -6.75 1.81 0.81 3.94 Higher-lows CNCX 32.00 0.88 2.25 0.75 -0.88 3.00 Takeover? MXIM 87.06 -0.63 -0.88 2.06 1.19 1.75 On track HD 78.81 1.13 -1.00 -2.81 1.63 0.81 Earnings ADPT 50.63 1.38 -1.19 0.56 -0.44 0.31 Steady VSTR 96.94 -0.94 -2.19 1.94 1.13 -0.06 Momentum LVLT 71.00 1.44 0.88 -3.81 1.38 -0.13 Uptrend KMB 65.06 -0.44 -0.81 -0.13 0.94 -0.44 Rallied ASPT 30.44 -0.19 1.38 2.13 -4.13 -0.81 Dropped SFA 60.94 -0.56 -2.25 1.44 0.06 -1.31 Dropped BVSN 81.56 7.50 -1.75 -3.31 -4.38 -1.94 Hiccups SYMC 47.75 -0.19 -0.19 -1.38 -0.38 -2.13 Dropped INTC 79.44 -0.25 -2.06 -1.06 0.44 -2.94 Entry range AOL 143.16 4.38 -4.38 -0.25 -2.88 -3.50 Split 11/22 EMLX 178.50 1.13 2.69 -4.19 -3.75 -4.13 Time to buy? Puts NDB 30.75 -2.50 -0.56 -1.38 -0.88 -4.50 Works lower TXT 69.38 0.19 -2.75 -1.38 0.94 -3.00 Entry point? GT 36.88 0.69 -0.31 0.13 -0.31 0.19 Stalls BBY 54.25 -1.63 -0.50 0.00 5.75 3.63 Dropped AMZN 73.00 13.06 -7.19 1.19 1.00 8.06 Dropped ****************** 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. 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The Option Investor Newsletter Thursday 11-11-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ************** TRADERS CORNER ************** Trading Places Trading can be a lonely endeavor -- just you and the market. One of the successful trader's in our local option club noted the importance of getting support from your spouse or mate. Of course, she made a million dollars trading, so it is easy to see why her husband would support her. I received several interesting emails this week on the topic. Here are a few of the main themes, both from the emails I received, and from my own experience. 1. Make Money. It's that simple. My girlfriend asks, "Did you make money?" When I can say, yeah, that's that. When I start talking about good entry points, interest rates, etc, well, it's a harder conversation. The newsletter has good advice on entry points, both in Jim's 10-part series, and in each individual play, which usually lists support levels as probable entry points. 2. Date a Trader. As one email put it, "If your mate does not give you the space to use your emotions and energy on trading-- TRADE HER IN FOR A TRADER!!! Emotional compatibility is priceless. AND think of the FUN you both would have doing the SAME thing. DUMP THE NAGGER!!" Couldn't put it better myself. Even the most successful option traders will have bad days, but will, in the aggregate, make gains because of the overall portfolio over a long period of time. (editor: This was a real email from a female and it does not reflect the opinion of the staff. Please no hate mail!) 3. Wait until the end of the month to tally gains & losses with your mate. Another reader put it this way, "Our philosphy is (at her request), 'Don't tell me anything until the end of the month, and then let me know how we came out.' This seems to work pretty well for us." To this, I would add that most successful traders plan their time out of the market in order to gather strength & judgment for the next go around. I am in the November & December cycles deeply now, but I plan to take the week after November expiration off completely. I make a point of taking this 1 to 2 weeks a month, and try to spend some time with my girlfriend taking trips to Napa or something like that. After all, those are real dollars being won an lost out there, and spending some of them keeps it in perspective. 4. Educate your mate. Your close friends can be good sounding boards, even if they aren't in the market. The other day I told my girlfriend, "I have to get up because I have to trade." She said, "I don't want you to ever feel like you HAVE to trade." Good point. Another common dialogue is: "I made xxx dollars! I'm so psyched." To which, she responds, "Did you sell?" Jim couldn't have put it better, eh? (editor: AMEN !!, he must have been talking to my wife - Jim) Anyway, its been a pretty good week, except for a bad move yesterday. Seeing weakness at the end of the day, I opened a OEX put position, which continued down in value today, so I sold it. I was setting up a hedge (kind of a straddle) for my 5 call plays on several of the newsletter picks. My rationale was that the market would generally trade sideways until the FOMC decision next week. Too complicated for my emotions -- I find it hard to cheer for the market to go up and down at the same time -- though on an intellectual level, I know that a range bound market could very well trigger profitable sells in both put and call plays. In the "perfect play ledger," is my exit from a LSCC Nov 35 Call on a limit sell at 13, the high of the day at the open, after purchasing the position for 8.625 on Tuesday. You have to have one of those every now and then -- made it look easy. After the close, I check my broker, and I got another fill on a limit order today -- sold half of my HD Nov 75 Call at 4, having purchased the contracts at 3 on Tuesday. 33% gain. Those aren't the ones that you brag about at the Money Show, but they are the ones that pay the bills -- Cash Flow is King. I would do that trade a thousand times and be very happy (someone do the math on the compounding, please). Right now, I have about 30% of my Short Term Option Trading Capital in open call plays. I am getting fatigued and my trading has not been too sharp, so I am holding off on entering more positions today. Tomorrow and Monday, I will probably target shoot more positions until I have about 50% of my Short Term Trading Capital in open positions ahead of the Fed. Aggressive, I know, but I expect the decision to be market positive either way. I should also note that I have 5 positions in my Long Term Brokerage -- SCH Mar & AMZN Jan Calls bought due to SP Brown's columns a few weeks ago; MSFT 2002 LEAPs bought due to the newsletter's LEAP section on Monday's opening dip; MSFT & CSCO Jan Calls. The SCH and CSCO contracts are up sharply; the AMZN's have died; and the two MSFT positions are mixed. I took half of the CSCO contracts off the table today because the position was up 100%. That CSCO position is "paid for" and I have taken my emotion out of the play. I expect CSCO to be considerably higher by January on general accumulation of NASDAQ leaders. On the whole, I am looking forward to my Thanksgiving Holiday planned week off. By that point, I may have a few open Dec positions in plays like SNE, SUNW, and AAPL, but I will not be trading that week. Good Luck 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: ***** SFA $60.94 +0.06 (-1.31) SFA did give us a bounce off of support levels we mentioned Tuesday. However, after the bounce, the ball went flat. SFA penetrated the $62 area right out of the gate Wednesday and then fell back into a narrow range for the balance of yesterday and today. At this time there have been no major announcements come out of the shareholders meeting held yesterday. The major trend for SFA is still up, and SFA may continue higher as they certainly had a good last quarter and projections for the current period look bright. With SFA entering a consolidation we are going to say good-bye to SFA. If you have a position in SFA and are not choosing to drop this play keep your eye on the $59 area as that could prove to be support or a point you may want to make an adjustment. SYMC $47.75 -0.75 (-2.13) The tight trading range at the beginning of the week followed by SYMC's dips below its 10-dma ($48.61) without any strong reclamation during the past two sessions are not good signs. It appears this momentum run is coming to a timely close. We're not going to ignore the writing on the wall and are exiting the play this evening. This is certainly not to say that SYMC could surge to newer highs once again following a positive FOMC meeting on Tuesday, but for now the play is over. ASPT $30.44 -4.13 (-0.81) Actually this play was looking pretty good, reaching as high as $34.56 yesterday, and hanging at $34 this morning. Leave it to today's "after lunch crowd" to begin selling this stuff en masse, causing ASPT to fall as low as $28.25 before rebounding $2 in the final 5 minutes. Sorry Charlie - too little, too late and not enough volume to convince us that it has any ability to dig out of a hole on Friday in front of the FOMC meeting next week. We're hanging up on this call center software firm as quickly as we answered the call. Bye bye. PUTS: ***** BBY $54.25 +5.75 (+3.63) After Microsoft announced that they will invest $100 million in Tandy Corp.'s online store as a part of an alliance in which it will market Internet service and products through RadioShack's electronics chain, this sparked an unexpected rally in rivals of RadioShack. In particular Circuit City and BBY. They rose on speculation that America Online will now start to shop for a similar partnership. Circuit City Group rose $7.88 on the day and BBY rose $5.75. This is one reason we continue to push trailing stops to protect profits, you never know when some unexpected news will hit the street to completely disrupt the current trend. So was the case in BBY, we will choose to close this position out until the speculation is over. AMZN $73.00 +1.00 (+8.06) It's rare but it happens - some days, we just can't pick 'em (even with 10 fingers). The market still seems impressed with the addition of 4 new stores to the AMZN site announced on Tuesday, following the teaser pre- announcement on Monday. Still that doesn't address why Goldman Sachs issued an uninspiring Market-perform rating today. The reasons for this issue to drop are numerous, but the rest of the market doesn't seem to agree right now. That said, we'll order that hand replacement surgery to fix the piranha wounds inflicted while swimming in this AMZN. Even sharks are more fun than this, so we're dropping the play tonight. ***************** PICK NEWS - CALLS ***************** VSTR $96.94 +1.13 (-0.06) Hopefully, if you are playing VSTR you noticed Jim's chart analysis in Sunday's newsletter (Options 101). It clearly defines the channeling pattern that we have been referring to since we have begun playing VSTR. You will see the quick run up that VSTR made at the end of October due to the rumors of a possible takeover. When the rumors died down so did VSTR's upward momentum as VSTR needed time to come back down to earth. VSTR spent the majority of Wednesday hugging $94 before finally making a late day break and trading up to a high of $96.13. VSTR closed just short of the high and opened today with continuing positive momentum. VSTR had spent so much time "cooped" up in a tight trading range, that once it found it's legs, it just wanted to run. It made it all the way up to $99 before rolling over. VSTR tired out a bit, danced along $98 and then began to decline, finding some support at $96. VSTR moved up slowly in afternoon trading and closed just shy of $97. This is just a stone's throw from $100 which we should hit soon. Once we move past this obstacle, we believe this will rejuvenate investor confidence for higher prices. The sector remains hot and rumors of acquisitions continue, although we haven't heard any specifics relating to VSTR lately. LSCC $46.00 +0.88 (+7.59) LSCC traded in a steadfast manner on Wednesday and managed to squeeze in another new 52-week high by a quarter. Thursday, LSCC gapped up at the open to hit a new 52-week high of $48. LSCC then fell back a bit, making a bounce at $45.50 and finally closing right at $46. It is going to be important to confirm direction before attempting a new play. Today Merrill Lynch semiconductor analyst Joe Osha helped the sector, saying that he is expecting a three to five year upturn for the overall sector and noting that the semiconductor prices still have a lot of upside potential. BancBoston Robertson Stephens initiated coverage of Lattice today with a Buy rating and a price target of $70. Did you catch Jim's analysis of Lattice's trading pattern in Sunday's newsletter? If not, you may want to take a look. It pointed out the fact that LSCC has been reaching higher lows and narrowing intraday trading ranges. Jim also went into detail regarding recent plateaus, indicative of at least one large buyer that has to keep upping their limit order because no one is willing to come down to meet their price. You can find all of this information in Sunday's Options 101 section of the newsletter. KMB $65.06 +0.94 (-0.44) KMB wasn't sure what direction it wanted to head today as it spent a good portion of the morning flirting with yesterday's close, right around $64. KMB lost its footing mid-day and traded as low as $63.31 before rallying in afternoon trading. KMB has additional support at it's 10-dma of $63.50. But in reality, before entering a new play, we want to see this afternoon's momentum continue. We want to see a breakthrough of today's new high, and we want to see it continue to trade above that level to make sure that this afternoon's rally is legitimate. If support does not hold and KMB has another iffy day in the market, it may be time to exit this play. HD $78.81 +1.63 (+0.81) Out from under the Amazonian shadow at long last. Alright, so it wasn't that bad, but it does look as though investors are realizing that there is really nothing to worry about in regards to competition from Amazon's new on-line home improvement store. This realization along with the current earnings run, worked to propel HD towards its 52-week high, which is just $1.25 away. Home Depot traded in a fairly tight range on Wednesday, finding support at $77 and resistance at $78. Today, HD again found support at $77 but had no trouble breaking through and trading above $78. HD closed right at the high for the day, a good indication heading into Friday's session. The NOV-80 contracts had volume over 1700 today, so obviously interest is not yet waning. We are looking for this momentum to continue on Friday and into next week as HD has earnings next Tuesday. As we have mentioned, we also see a possible split announcement. It is going to be important to close out your positions Monday afternoon, as HD is set to announce before the bell on Tuesday. CMVT $123.06 -6.19 (+9.31) Once again the major brokers are really sticking their neck out on price targets. On Monday, Lehman raised their price target on CMVT to $130. CMVT hit that price on Wednesday. Granted, we had two big up days in Comverse but why do keep those targets so close? OK, enough of the soap box about conservative brokers, let's get to the play. CMVT has been soaring. We were getting used to the slow channel north that CMVT was in for the past couple weeks but we don't mind the change. Obviously, investors are taking a position ahead of earnings on the 30th and a possible split announcement. The volume is also picking up. From here we see support at $120 if we can get a pullback. The resistance is at Wednesday's high of $130. And we still have plenty of time before earnings to be patient for a good entry point. So look for an intraday dip to initiate new positions. MXIM $87.06 +1.19 (+1.75) With the shareholders meeting coming up next Thursday, shares of MXIM seem to be back on track. We are anticipating a split announcement next week, as the board of directors has requested a vote to increase the authorized shares from 240M to 480M. The semiconductor industry received numerous upgrades this morning from analysts at Merrill Lynch and Prudential, which help our play as well. We saw the pullback in MXIM's stock the first two days of the week. Actually it wasn't really much of a retracement as the low of the week so far has been $83, early Tuesday morning. This morning MXIM gapped up at the opening hitting $87.88 and promptly turned around falling back to $85.13 in the next 30 minutes. For the balance of the day MXIM drifted higher on holiday volume of 1.2 mln. MXIM gave us another chance to jump on board yesterday morning. If you are in a play on MXIM, keep your stops close as several analysts are beginning to comment that the semiconductor industry as well as the Nasdaq is getting more and more over-extended and could be prime for some profit-taking. DISH $74.88 -2.50 (+4.25) Well, Tuesday DISH received word from Capital Hill that lawmakers had agreed on legislation to allow satellite firms to carry programming from local TV stations, which should level the playing field between satellite companies and cable firms. Today EchoStar announced they had added approximately 141K new customers in the month of October, which is the largest monthly increase in DISH Network history. This brings the total customer base to over 3.1 mln. subscribers. Tuesday Goldman Sachs reiterated their Buy rating on DISH and Salomon Smith Barney reiterated an Outperform rating indicating the legislation would "provide operational adrenaline." Since being added to our call list DISH has began to consolidate primarily between the $74 and $78 area. DISH did make a new high at $80 on Tuesday, so a pullback and or consolidation is not out of line. Ideally we would like to see DISH continue higher after bouncing off the $71 area Wednesday. If DISH continues higher from here then we would view that as an opportunity to buy calls. Again the $70-$72 level should provide support. If DISH continues to consolidate we would look to hold off until after the FOMC meeting on Tuesday. AOL $143.13 -2.88 (-3.50) As we warned on Tuesday more profit- taking was in order. AOL's descent over the past two days has brought it to just above near-term support in the $141-$142. Therefore look for a bounce off this mark on strong volume for upward confirmation. Continue to be careful ahead of the FOMC meeting next week. AOL is rate sensitive could react negatively even in light of the upcoming 2:1 split on November 22nd. The media research firm, Myers Group, announced today that consumers ranked America Online ahead of ABC, NBC, and CBS based on 26 attributes including frequency, relevancy, and value. According to the firm's CEO Jack Myers, AOL is strong that it could" successfully extend its brand into any number of offline ventures". If AOL breaks the 10-dma currently at $141, we may need to cut it loose regardless of the split. INTC $79.44 +0.44 (-2.94) INTC continued to quietly consolidate safely near its 10-dma ($79.50). The retracement puts the stock into an entry range. You'll want to look for a solid bounce off $80 to jump into this momentum/technical play. Volume has been moderate this week so a show of stronger trading activity would certainly be a plus. More good news hit the press today. Intel reported the waiting period for the US anti-trust review regarding its acquisition of DSP Communications has passed and no additional regulatory clearances are required. Recall Intel has a tender offer for DSPC shares at $36, which is scheduled to expire on November 17th. Also the company announced its has purchased a 6% stake in Opticom's data storage subsidiary Thin Film Electronics (TFE), a Norwegian technology company. Under the terms, Intel has subscription rights to acquire up to 13% interest and under certain conditions may convert its holding into common shares of Opticom. AAPL $92.25 +0.81 (+3.94) CSCO's solid earnings followed by a decent PPI report did eventually send the techs rocking. AAPL powered higher breaking through resistance at $91 reaching upward for that $100 brass ring. Today the stock inched forward, but the lackluster performance was a simple reflection of the light volume at 2.41 mln versus its ADV of 5.86 mln. Support is at $88 just above the 10-dma ($86.11) which would be an optimum entry point, but the present trading level is more realistic. Especially when you consider that AAPL has consistently been establishing a pattern of higher-lows. Tomorrow AAPL could get a boost from DELL's positive earnings' report. Dell reported after hours in-line with analysts' expectations coming in at $0.18 p/s and $6.78 bln in quarterly revenues! This is good news for the box-makers. In company specific news, Judge Jeremy Fogel granted Apple Computer a preliminary injunction against not only Future Power, but also against Daewoo Group and any others from distributing a iMac look-alike during the holiday season. EMLX $178.50 -3.75 (-4.13) EMLX has seen better days. The last two trading sessions have taken the stock to lower levels, which is unfamiliar territory for EMLX investors. We feel this is just a slight setback and actually a buying opportunity for out split run. Remember that the split date will be announced on November 18. We're hoping for a surge ahead of the ex-date announcement and expect volatile conditions to persist. With Tuesday's FOMC meeting adding tension, don't expect price fluctuations to let up soon. I know it's hard to believe, but at one point during today's trading EMLX traded at low as $171.50. At this level the stock bounced but if you were on your toes, it made for a great entry point. Support remains at $170-$171 and resistance resides at $190. Hopefully today's closing momentum will carry us to the weekend. We really don't want to see EMLX close below the 10-dma. This would be a signal to end your play. VRTS $113.69 -2.19 (+5.63) It was a mixed two days of trading for VRTS, which followed the roller coaster-like actions of the broader markets. Yesterday, the stock fluctuated between $112 and $116 several times throughout the day before closing on the upside. Thank the mixed PPI figures for the volatile trading session, which has become a popular theme lately. So expect volatile conditions to continue in the short-term. VRTS will be no exception, there will be bumps as the split date of November 22 draws closer however, the overall outlook remains positive. Investors will be anxious to ride the tail end of the split, so watch for additional buyers to step forward. For those placing new trades, watch for entry points at $112.50, VRTS bounced three times at this level yesterday. The resistance level was established today at $116.38, a new 52-week intraday high. SNE $174.81 -1.38 (+10.13) Considering SNE's impressive run yesterday, it's expected that some profit-taking would follow. That's what happened today as some investors decided to take the money and run, resulting in the only down day since Nov 1st. What stated Wednesday's buying spree was SNE and Sun Micro's announced plans to further collaborate to provide digital consumer electronic appliances with direct access to Internet- based content and services. Combining the technologies of these two companies would create a seamless connections between network servers and digital consumer electronic appliances in the home. Not only would such a connection simplify the secure electronic distribution of digital content, but it could also allow innovative solutions for customer service and other types of post-sales support. Good things happen to great companies, which is why we continue to play SNE as one of our call plays. Despite today's slight setback, expect the stock to reach higher territory in the near future. When placing trades, watch for slight pullbacks in the stock. The nearest psychological support level is $170, but hopefully won't be a factor in the near-term. Resistance for SNE is the 52-week high at $177. CNCX $32.00 -0.88 (+3.00) The rumors of a takeover continued to be the major focus concerning CNCX and yesterday after the board of directors adopted a shareholders rights plan, the rumors were confirmed that the company is indeed in play on some level. A shareholders rights plan merely gives stockholders the opportunity to boost their holdings in the event that a third party acquires a sizeable stake in the company. This would stop a hostile takeover of the company without the okay of the company's management and board of directors. The shares of CNCX continued the uptrend trading as high as $33.50, before pulling back to close at the lower end of the range at $32 on lower than average volume. It is not surprising that the rally stalled somewhat, the market normally does not like to see shareholders rights plans. In this case we believe that after this is digested and traders remember that CNCX has had revenues that were up more than 75% this year and have posted four straight quarters of gross profits, the uptrend should resume. Possible pullbacks that might fill the short-term trading gap should firm up at the $29.75 level. This would be a possible entry point. A break through current resistance is at $33.50 level. LVLT $71.00 +1.38 (-0.13) The volatility remained in the shares of LVLT the last two days, as momentum players continued to keep the stock in a trading range. Buying and selling very quickly. The telecommunications processing and products sector remains on fire, with the likes of Nortel, Lucent, and others continuing to power forward on the back of favorable sentiment from analysts. LVLT's uptrend remains in place and we believe the pullback to the $68.38 level today was a good trading entry point for an aggressive trader that had LVLT on the radar screen. We continue to look for LVLT to break out of the recent trading range for additional entry points above the $73.88 level. Going forward with only three more trading days before the FOMC decision on interest rates, we expect the volatility to remain in place, but there should be opportunities to trade the shares on pullbacks. ADPT $50.63 -0.44 (+0.31) The networking equipment companies remained steady in the last few trading sessions, with some traders lightening up on some positions on a day that saw volatility, but also saw the Nasdaq hitting record highs once again. On the back of Cisco System's good earnings report on Tuesday, the other stocks in the group have also remained in an uptrend. ADPT has consolidated somewhat the last few days, as it tries to break above the $52.50 level. The current pattern has been, up in the morning and sell-off in the afternoon, as the shares remain in a trading range. This should possibly provide trading opportunities. The volume remains below average, so there is no major sell-off taking place at this time, just profit-takers, and momentum traders getting in and out of positions. Look for an opportunity for a bounce back around the $49.00 level if there is a continuation to the downside. A breakout of the trading range would be above $52.50 backed by strong volume. SUNW $114.75 +1.56 (+5.06) SUNW seems to have great news to report each and everyday. They did not disappoint us today as well. At the BaanWorld 99 today they announced that the Solaris-Powered SUNW Servers are the preferred Unix platform for high-end adopters of Baan ERP applications. This is news that investors find significant, seeing that many companies have chosen this server to help to run their businesses. Also as the Nasdaq powered higher on the back of high tech companies like SUNW, analysts continue to see technology outshining other sectors of the market with very strong top-line growth, with SUNW as a favorite stock that is leading the way. The shares continued to be volatile, but no surprises. Closing today at the high end of the trading range. Trading opportunities have been in abundance for SUNW, and the daily pattern remains consistent for aggressive traders and conservative traders to pick there spots depending upon your risk tolerance. Today 11/11 is the record date for the upcoming stock split on 12/09, and there will possibly be some selling pressure for the near future. After a record date has passed, it is good to be cautious for a few days. Keep stops tight at this point if you have trading profits to protect. There is support around the $111 level, and then major support around $106. BVSN $81.56 -4.38 (-1.94) Volume in this issue remains huge at more than twice the ADV - too bad it went in the negative direction today, although that wasn't totally unexpected given the big moves earlier in the week. Nonetheless, BVSN broke support at $87 and stair stepped it's way to $84 before falling off a cliff to $80 on a panic induced, profit-taking spike of volume. It was there that BVSN found its character and recovered nicely back over $82 as volume increased into the close. That looked like a buyable dip to us. There is no news here - just good old-fashioned profit taking. Strong volume still signals that buyers have interest and should move the price back up, market willing. Be careful though. The market may not be willing. With a rarely achieved 10 days of gains (less a 1-day hiccup where the NASDAQ finished down 14 points), profit-taking can occur without notice. A break south of $80 sets BVSN up to retest $76, the next support level. Keep your stops set in case the market decides to take profits before you do. NT $74.25 +4.31 (+5.44) Tuesday's news of price slashing to outgun Cisco, and licensing agreements with INTC and MSFT carried into NT's analyst meeting yesterday, which went great. Over 400 analysts in attendance yesterday got the news that NT expects 21% growth in fiscal 2000, largely fueled by high demand for fiber optic networking gear, which could bring in $10 bln of revenue next year. Though they also announced they would be laying off 1000 people next year (Wall Street likes this stuff despite the personal misfortune of some), the analysts put their money where their mouth was and pumped up the volume today to almost 2 times the ADV of 3.5 mln shares. Yes, the funds are buying and helped NT set a new high today. Strong support occurs at $68, then $71, and today at $73, where the bounce came on increasing volume into the close. $4.31 is a big move for these guys, but not likely to be given back even if the market gets shaky prior to the FOMC meeting. However, on a full profit-taking sell-off, all bets are off. We think intraday dips are buyable even at this new level. Just keep those stops set so you don't give back any profits. **************** PICK NEWS - PUTS **************** TXT $69.38 +0.94 (-3.00) Apparently TXT's decline was getting to bad for the company to stomach. They came out this afternoon to reiterate that there is no major developments to cause the stock to be dropping. The problem is, that is why we are playing the stock. There are no developments at Textron. The company said they are in line to meet analysts expectations. So despite confirming what we already know, TXT bounced on the news. That is ok though. This is either the perfect entry point or time to ditch the play and we will know for sure tomorrow morning. We want to see resistance at $70 hold TXT down. If so, we should continue right back to our selling pattern. Today's late bounce was probably due to the fact that CNBC covered the story. Any buyers of the stock will likely be disappointed tomorrow if TXT doesn't go up through $70 and dump the stock. So we will let TXT show us which way to go tomorrow. NDB $30.75 -0.88 (-4.50) NDB has lost some steam lately but still manages to work its way lower. We feel this negative trend will continue in the near-term, ultimately resulting at price levels under $30. However, before doing so NDB must breakthrough its nearest support level and 10-dma at $29.50. Entry points are tough at this stage in the play. We would caution new plays as we are getting close to taking profits and leaving the play. Hopefully, with the Federal Reserve meeting on Tuesday, inflation feared investors might be the help we need to finish NDB. The nearest resistance point is at $32.50. There was no additional news at this time that would alter the price of our play. GT $36.88 -0.31 (+0.19) While retreating ever so slightly since Tuesday, volume has started to fall off, telling us that the fund selling may be coming to an end and so might this play. The overall market has been strong, and even GT (recently delisted from the DJIA) has begun to find support at the current level. With that said, you might want to tighten up your stop tomorrow should GT begin to move up again. On the other hand, we're going to wait and see if some Friday profit-taking can get GT down a bit more. If GT can get under $35, the next stop would be $32. Wait for the market to give you a direction before starting a play. No news either. But this could become a value play rather quickly. ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Thursday 11-11-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ************** NEW CALL PLAYS ************** SLR - Solectron Corp $88.94 +2.19 (+7.44 this week) Solectron is a premier global provider of customized manufacturing services rendering electronic solutions for original equipment manufacturers (OEM's). They have won the Malcolm Baldrige Award twice for their manufacturing excellence. Solectron has a wide range of clients including Cisco, Hewlett- Packard, and Mitsubishi. SLR caught our eye on November 2nd when news was swirling around regarding its acquisition of two manufacturing from Ericsson AB bought specifically to boost its manufacturing capacity. There were no official financial terms released, however analysts speculated a deal in the $100 to $200 mln range based purely on company size and manufacturing output. Also Solectron reported the same day it had completed its acquisition of NULOGIX Technical Services (a wholly owned subsidiary of IBM Canada), a a world leader in repair, re-manufacturing, and renovation. Herve Francois, analyst at CSFB came forward and reiterated his Buy rating in support of the recent deals. The share price slowly began to rise and by Thursday SLR "officially" broke out above $75 and has since set 5 consecutive new 52-week highs. If SLR doesn't pullback in front of the FOMC meeting on Tuesday, you'll have look for an intraday bottom if your risk profile allows it. Technically the stock is poised to go higher as it establishes higher-lows on the climb and has left the short-term 10-dma ($79.76) in the dust. We'd like to see this momentum remain intact leading the stock into earnings next month expected on December 14th. Today CSFB once again reiterated their Buy rating and just on Monday, Eugene Peroni, equity research director from money management firm, John Nuveen, believes shares of SLR "could rise as earnings increase and technology advances". ***November calls expire next week*** BUY CALL NOV-80*SLR-KP OI=501 at $ 9.63 SL=7.25 BUY CALL NOV-85 SLR-KQ OI=224 at $ 5.25 SL=3.50 BUY CALL DEC-80 SLR-LP OI=247 at $11.63 SL=9.25 BUY CALL DEC-85 SLR-LQ OI=256 at $ 8.50 SL=6.50 BUY CALL JAN-85 SLR-AQ OI=549 at $10.13 SL=7.75 Picked on Nov 11th at $88.94 P/E = 73 Change since picked +0.00 52-week high=$90.00 Analysts Ratings 9-8-3-0-0 52-week low =$29.12 Last earnings 08/99 est= 0.32 actual= 0.33 surprise +3.1% Next earnings 12-14 est= 0.35 versus= 0.26 Average daily volume = 1.34 mln Chart = http://quote.yahoo.com/q?s=SLR&d=3m **** QLGC - QLogic Corporation $130.06 +4.06 (+12.75 this week) The competition in their industry is very stiff, yet they lead the market in Fibre Channel host bus adapters. Located in Costa Mesa, California, QLogic Corporation makes integrated circuits and adapter boards that connect peripheral devices to computers. Their input/output subsystems handle data flow between computers and peripheral devices such as hard disk, tape, and CD-ROM drives. QLogic has expanded its product line to include the higher-performance fibre channel standard. They also make chips for the mass storage and server markets. Sun Microsystems is one of QLGC's better known customers, although about 40% of their sales are outside the U.S. Their top competition comes from Adaptec, Cirrus Logic and Emulex. Take one look at their chart and you can see why we have added QLGC to our call list. Since the 3rd week of October when their stock was trading for around $80 per share, QLogic has jumped to over $135 per share. The momentum behind the stock has been absolutely incredible. Technically MACD turned positive late in October and is still climbing, showing no signs of slowing, at least for now. One other item that peaked our interest in QLGC is the recent vote by stockholders to increase the number of authorized shares from 50 mln. to 150 mln. QLGC has already split twice this year in late February and early August. QLGC is approaching the level where we could see a split announcement come at any time. Over a dozen stocks in the semiconductor industry received stronger reiterations and price projections this morning from analysts at Merrill Lynch and Prudential, which if nothing else makes QLGC attractive by association and being in the right industry at the right time. QLGC can be a volatile stock as evidenced by the option premiums. If you are considering a play in QLGC, you'll find intraday support near $122 and $116. Should we see a dip and bounce off those levels we would look to initiate a new position in QLGC. You may want to wait until after the FOMC meeting next Tuesday to enter a new play in QLGC or any other stock. As always consider the risks and potential rewards prior to entering a new play. This morning QLogic was named the number one company in the independent Fibre Channel host bus adapter market. It was also named the vendor of choice to seven of the top-ten server manufacturers. Wednesday QLGC introduced their Zircon family of management processors, which is a fully integrated baseboard management controller. BUY CALL DEC-125*QLC-LE OI=251 at $16.38 SL=12.75 BUY CALL DEC-130 QLC-LF OI= 3 at $14.00 SL=11.25 low OI BUY CALL DEC-135 QLC-LG OI= 6 at $11.75 SL= 9.75 low OI Picked on Nov 11th at $130.06 P/E = 122 Change since picked +0.00 52-week high=$135.44 Analysts Ratings 3-4-1-0-0 52-week low =$ 23.25 Last earnings 10/99 est= 0.31 actual= 0.35 surprise +12.9% Next earnings 01-20 est= 0.36 versus= 0.19 Average daily volume = 772 K Chart = http://quote.yahoo.com/q?s=QLGC&d=3m **** SFE - Safeguard Scientifics $118.75 +2.25 (+15.25 this wk) Safeguard is an Internet-centric holding company that finds, acquires, operates and manages business-to-business companies engaged in e-commerce, e-communications, and e-business software and services and has interests in several private equity funds. Safeguard generally acquires ownership interests in companies that allow it to have a significant influence over their direction and management over the long-term. Safeguard assigns a dedicated team to each partner company and actively assists its partner companies in their management, operations and finances. Safeguard seeks to maximize shareholder value by actively providing operational assistance and expertise to help its partner companies grow and develop and by giving its shareholders the opportunity to participate in the initial public offerings of its partner companies while retaining a significant ownership interest after the initial public offering. SFE has been on a tear lately, moving up 48% since the end of October from $80. We know what you're thinking - it's come a long way really fast; isn't it time for substantial profit- taking on a Friday before an FOMC meeting? We don't think so. Here's why. SFE closed at a new recent high on tapering volume (still higher than the ADV), but seems to be stuck in this upper range over the past few days. That is until you notice that the lows have been getting higher, forming a nice upward trending pennant, portending what we think will be a strong breakout to the upside, so long as weekly volume continues to rise as it has over the past 2 weeks. The bottoms today at $116 and $117 looked really strong, holding up even as the rest of the market experienced mid-day jitters. In short, we think it may blow through $120 really soon and we expect volume to pile on when it does. Target shooting according to your own risk profile at $117, $116, or $114 should get you the best entry, or you can wait for the breakout over $120 with volume backing up our cause. Just don't buy on a spike in amateur hour. News? On September 4, CS First Boston issued a Buy rating. While we can't get into great detail, there have been many articles lately about B2B Internet growth in which SFE is nicely positioned. Much like CMGI, SFE has numerous companies in the pipeline, which they plan to take public in 2000. Only SFE has a reasonable p/e ratio of 47. By definition, it's profitable. BUY CALL NOV-115*SFE-KC OI=409 at $ 7.00 SL= 5.25 BUY CALL DEC-115 SFE-LC OI=495 at $12.50 SL=10.00 BUY CALL DEC-120 SFE-LD OI= 34 at $10.00 SL= 7.50 low OI Picked on Nov 11th at $118.75 P/E = 47 Change since picked +0.00 52-week high=$121.00 Analysts Ratings 8-3-1-0-0 52-week low =$ 24.50 Last earnings 10/99 est= 0.14 actual= 0.26 surprise = 85.7% Next earnings 02-17 est= 0.16 versus=-0.23 Average Daily Volume = 440 K Chart = http://quote.yahoo.com/q?s=SFE&d=3m ************* NEW PUT PLAYS ************* No new puts today. ********************** PLAY OF THE DAY - CALL ********************** SFE - Safeguard Scientifics $118.75 +2.25 (+15.25 this wk) Safeguard is an Internet-centric holding company that finds, acquires, operates and manages business-to-business companies engaged in e-commerce, e-communications, and e-business software and services and has interests in several private equity funds. Safeguard generally acquires ownership interests in companies that allow it to have a significant influence over their direction and management over the long-term. Safeguard assigns a dedicated team to each partner company and actively assists its partner companies in their management, operations and finances. Safeguard seeks to maximize shareholder value by actively providing operational assistance and expertise to help its partner companies grow and develop and by giving its shareholders the opportunity to participate in the initial public offerings of its partner companies while retaining a significant ownership interest after the initial public offering. SFE has been on a tear lately, moving up 48% since the end of October from $80. We know what you're thinking - it's come a long way really fast; isn't it time for substantial profit- taking on a Friday before an FOMC meeting? We don't think so. Here's why. SFE closed at a new recent high on tapering volume (still higher than the ADV), but seems to be stuck in this upper range over the past few days. That is until you notice that the lows have been getting higher, forming a nice upward trending pennant, portending what we think will be a strong breakout to the upside, so long as weekly volume continues to rise as it has over the past 2 weeks. The bottoms today at $116 and $117 looked really strong, holding up even as the rest of the market experienced mid-day jitters. In short, we think it may blow through $120 really soon and we expect volume to pile on when it does. Target shooting according to your own risk profile at $117, $116, or $114 should get you the best entry, or you can wait for the breakout over $120 with volume backing up our cause. Just don't buy on a spike in amateur hour. News? On September 4, CS First Boston issued a Buy rating. While we can't get into great detail, there have been many articles lately about B2B Internet growth in which SFE is nicely positioned. Much like CMGI, SFE has numerous companies in the pipeline, which they plan to take public in 2000. Only SFE has a reasonable p/e ratio of 47. By definition, it's profitable. BUY CALL NOV-115*SFE-KC OI=409 at $ 7.00 SL= 5.25 BUY CALL DEC-115 SFE-LC OI=495 at $12.50 SL=10.00 BUY CALL DEC-120 SFE-LD OI= 34 at $10.00 SL= 7.50 low OI Picked on Nov 11th at $118.75 P/E = 47 Change since picked +0.00 52-week high=$121.00 Analysts Ratings 8-3-1-0-0 52-week low =$ 24.50 Last earnings 10/99 est= 0.14 actual= 0.26 surprise = 85.7% Next earnings 02-17 est= 0.16 versus=-0.23 Average Daily Volume = 440 K Chart = http://quote.yahoo.com/q?s=SFE&d=3m ************************ SPREADS\STRADDLES\COMBOS ************************ Veterans Day Trading Just Like A Holiday.. Wednesday, November 10 Equity markets were mixed Wednesday as inflation fears plagued blue-chip issues while the Nasdaq climbed to a new record high. The Dow closed down 19 points at 10,597 as financial services stocks fell on rate worries but the Nasdaq composite ignored the issue, moving 30 points higher to 3,156. The S&P 500 index was up 8 points at 1,373. In the broader market, declining stocks led advances by 16 to 14 on heavy volume of 986 million shares on the NYSE. The 30-year U.S. Treasury bond was down 6/32 with the yield rising to 6.09 percent. Tuesday's new plays (positions/opening prices/strategy): Champion CHA NOV50P/NOV55P $0.38 credit bull-put Multex.com MLTX MAY17C/NOV17C $3.50 debit calendar Monsanto MTC JAN50C/NOV50C $1.93 debit calendar 3Com Corp. COMS JAN30C/JAN32C $1.31 debit bull-call Champion (CHA) was our first new play and it remained in a small range for the first thirty minutes of trading. Near 10:00 AM, the stock price started to drift lower and it went downhill (all day) from there. Our opening credit was $0.38, well below the high of $0.75. If the stock continues at this rate, we may indeed own it at $55; if it rebounds, we may double-up our position to reduce the current cost basis. Multex.com (MLTX) fared about as well, dropping $1.06 by 9:45 AM. We adjusted our target lower but that didn't help much as the stock closed down $1.62 for the session. We expected the issue to consolidate but this may be more than we bargained for in the initial assessment. Monsanto (MTC) was one of our favorable plays, allowing an entry near the target debit and moving higher during the session. 3Com Corp. (COMS) was the best pick of the group, but the period of opportunity to participate was limited. A debit of $1.25 was the lowest entry price observed and that lasted only a few minutes. Individual orders would have produced a much better position as the stock price rose steadily during the day. Portfolio plays: Financial stocks led the Dow Industrials lower after the October Producer Price Index showed a stronger-than-expected rise of 0.3% in the core rate, which excludes food and energy items. Analysts said the increase may affect the Federal Reserve's decision when it meets to discuss interest rate policy next week. Investors may be uncertain whether the FOMC will opt for an inflation-fighting rate hike but that didn't prevent them from driving the Nasdaq to a new high. One of our recent picks led the group of technology stocks. Cisco Systems (CSCO) reported fiscal first-quarter profits that topped analysts' consensus estimates by a penny. Revenue for the period totaled $3.88 billion, up from $2.6 billion a year-ago, as Cisco continued to advance its Internet technology for each of its key markets. SG Cowen and Banc of America raised their target prices for the stock and the issue closed up $5 at $79.50. Our bullish diagonal spread was easily closed near maximum profit. Another stock that refuses to consolidate is Qualcomm (QCOM). The issue rose $19 to close at $320 after analysts increased earnings and revenue estimates for next year. JDS Uniphase (JDSU) has been a big mover in recent weeks and the stock establishing a new range near $180-$190. Some of our lower-priced positions moved higher as profit-taking pummeled the Dow. Talk.com (TALK) climbed $1.06 to $16.50 after Tuesday's news that Metris Companies (MXT), one of the nation's fastest-growing direct marketing companies, signed a marketing agreement to provide TALK's long distance services to members of Direct Merchants Credit Card Bank. The new deal leverages TALK's ability to bill, service and market telecom services through the Internet. Our current neutral position has traded profitably in the past few weeks and we decided to adjust our calendar spread to a bullish outlook for December. The move cost an additional $0.43 but now we have better upside potential. The $15-call (in December) also offers a favorable credit for those who want to remain conservative (and neutral). Anesta (NSTA) rocketed to a midday high above $15 and closed up $1.75 as large block orders and institutional buying raised the session volume. A favorable exit opportunity was again available in that position. In our long-term portfolio, two of the issues appear destined for another galaxy and regretfully, we can no longer offer any accurate analysis as to where they will stop. In the case of Sun Micro (SUNW), our current spread was still in the double digits so we decided to move up closer to the new trading range of the stock. We chose $105 as the short position and now our debit is $28.25, gaining some upside potential and a reasonable downside margin. Solectron (SLR) has also been on the move and with the breakout above previous resistance near $75, it's probably best to adjust higher on the sold (short) option. The transition to DEC-$80 calls offered the best balance between bullish potential and protection against a short-term reversal. Motorola (MOT) is also moving like a freight train with no overhead resistance; it may not stop any time soon. The original (static) position has been far more profitable than our (personal) spread but we will try to stay close to the stock price to protect current profits. For now, the sold strike at $105 is within the profit envelope but if the underlying rises above $118-$120, we will be forced to move higher. Computer Associates (CA) is starting to solidify at $60 and we plan to make an early move to December if the chart shows further signs of bullish activity. Our bearish (call-credit) spread on QLT PhotoTherapeutics (QLTI) offered a new entry point after Warburg Dillon Reed raised its rating on the biotech company to "strong buy". The analysts said that QLT's Visudyne drug should be approved by the FDA advisory panel and the recent weakness in share value offers an excellent opportunity to own the position. Based on the technical outlook for the issue, the upgrade appears a bit optimistic. Sector news hammered one of our long-term speculation plays as the nation's largest trash hauler, Waste Management (WMI) failed to meet the analysts' earnings estimates. This industry continues to spiral downward and our position in Allied Waste (AW) has suffered long enough. The (bullish) calendar spread has ample time to recover but in this case, it may be better to take the remaining capital and invest it in another successful play. Our closing credit for the March-$12.50 call was $0.75. Thursday, November 11 Thursday's session offered little direction for equity markets as the Nasdaq closed at another new high while blue-chips fell on interest-rate woes. The Dow Jones Industrial Average slipped to 10,595 but the Nasdaq index continued higher, closing up 41 points at 3197. The S&P 500 index gained 8 points to 1,381. In the broader market, declining stocks outpaced advances 17 to 12 with 885 million shares traded and 81 stocks at new highs along with 145 at new lows on the NYSE. The U.S. Treasury market was closed for the Veterans Day holiday. Portfolio plays: Gemstar (GMST) was the portfolio leader today, up over $6 to a new 52-week high of $96 during the session. The rally comes on the heels of their favorable earnings report Tuesday night. The company announced higher-than-expected revenues from its guide and the VCR Plus recording device. GMST earned over $22 million or $0.19 a share and one analyst said the program-guide business will be worth $40-$50 billion in a few years. Another stock that is moving higher on future earnings expectations is Pixar (PIXR). The stock is finally showing that technical strength that we saw earlier in the month and today it moved up almost $2 to a midday high near $45. The company reported great third-quarter earnings last month and also said they expect to beat Street expectations for the year. MessageMedia (MESG) gained $0.75 to $14 on extreme volume, a nice recovery from the recent slump. Trading in after hours was also brisk as investors speculated on upcoming news. Nvidia (NVDA), a new diagonal spread, jumped to a recent high of $32 and ended up $2 on new bullish activity as the earnings date approaches. The rumored "short squeeze" appears to be having an effect on the stock price and now the issue is trading above the old resistance area. Another of our new bullish plays; Champion (CHA) made a solid recovery today, up $2 as rumors of a possible merger continued. One trader suggested the potential partner may be European because a foreign entity would more likely allow the current management to continue to run the business. This type of speculation should continue to support the stock price for a few days, hopefully until next week's expiration. There were ample opportunities for a second entry today (at credits near $0.75). Questions & comments on spreads/combos to ray@OptionInvestor.com **************************************************************** - NEW PLAYS - Jim's positive comments on the Covered-Calls with LEAPS strategy resulted in an overwhelming response with numerous requests for long-term (bullish) candidates. Today we have some new, low-cost calendar spreads for those who favor the concept of selling time. **************************************************************** ELON - Echelon Corporation $9.00 *** A Technology Standard *** Echelon Corporation develops, markets and supports a family of hardware and software products that enables original equipment manufacturers and systems integrators to design and implement open, interoperable, distributed control networks. They intend to extend their technological expertise by targeting leading OEM customers, developing a systems integrator distribution channel, integrating LonWorks control networks with other enterprise data networks and leveraging international market opportunities. Echelon recently completed a strong quarter in line with company targets and the expectations of analysts. Revenues were almost $10 million, an increase of 37% over the same period last year. Net loss for the quarter was $743,000, or $0.02 per share, less than most analysts expected. Echelon's core product is the LonWorks® control network. With millions of devices already installed worldwide and thousands of application developers, LonWorks technology is the leading cross industry standard for the networking of devices in average homes, buildings, factories, and transportation systems. The technology enables the myriad of everyday devices around us to communicate with one another. The system has been approved as an industry standard by the American National Standards Institute (ANSI). The most recent news concerns the introduction of another ELON product designed to connect everyday devices in the LonWorks networks to the Internet. The i.LON 1000 IP Server will enable thousands of devices to be monitored simultaneously over the Internet, enabling up-to-the-minute information to be sent from devices to enterprise management systems. These products will also provide the technology base needed to develop optimized solutions for the emerging home networking market. A very unique company with an interesting product and a bullish technical outlook. PLAY (conservative - bullish/calendar spread): BUY CALL MAY-10 EUL-EB OI=180 A=$2.62 SELL CALL NOV-10 EUL-KB OI=1175 B=$0.25 INITIAL NET DEBIT TARGET=$2.19 TARGET ROI=%50 Note: If the premium for the November option is not available, you may have to move to the December position (EUL-LB B=$0.75). Chart = http://quote.yahoo.com/q?s=ELON&d=3m **** LOR- Loral Space And Communication $18.00 ** On The Rebound? ** Loral Space is a technology company concentrated on satellite manufacturing and satellite based communication services. They produce broadcast transponder leasing and value-added services, domestic/international corporate data networks, global wireless telephony, broadband data transmission and formatting, Internet connectivity, digital audio radio services, and international direct-to-home satellite services. Today the stock price of Loral rocketed 25% amid rumors of a new deal involving Microsoft (MSFT). Traders and analysts speculated that Microsoft would acquire the 14% stake that Lockheed Martin holds in Loral. Microsoft's news that it would make a strategic announcement today fueled the rumors and the stock rose almost $2 to close at $18. Unfortunately, the announcement was about a deal with Tandy's RadioShack unit. The good news is that LOR appears to be back on track technically and the recent buying pressure indicates a renewed interest in the stock for institutional investors. Fundamentally, the company has reported better-than-expected third quarter results and plans to meet analysts' numbers for the year. The company says that the leasing of transponder capacity on newly expanded fixed satellite services fleet and the initiation of Globalstar service will be the major drivers of new revenue and shareholder value. In 1999, five new satellites were added to their fixed satellite services fleet, doubling the capacity of current transponders. These new additions will expand revenue potential and provide a solid foundation for growth. The stock has been in a slump recently but the Microsoft rumors have provided some much-needed attention for this favorable long term issue. PLAY (conservative - bullish/calendar spread): BUY CALL APR-20 LOR-DD OI=784 A=$2.88 SELL CALL DEC-20 LOR-LD OI=64 B=$0.88 INITIAL NET DEBIT TARGET=$1.81 TARGET ROI=50% This position also be opened with 2001/2002 LEAPS. Chart = http://quote.yahoo.com/q?s=LOR&d=3m ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
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