The Option Investor Newsletter Thursday 12-9-99 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) ************************************************************ 12-9-99 High Low Volume Advances Decline DOW 11134.80 + 66.70 11204.20 11054.70 1,116,721k 1,221 1,859 Nasdaq 3594.17 + 8.09 3647.55 3514.91 1,780,217k 1,820 2,349 S&P-100 757.39 + 3.28 762.08 749.17 Totals 3,041 4,208 S&P-500 1408.11 + 4.23 1418.46 1391.50 41.9% 58.1% $RUT 464.90 - 3.94 471.76 460.52 $TRAN 2824.78 - 56.89 2890.86 2813.77 VIX 22.38 - 0.24 23.95 21.84 Put/Call Ratio .41 ************************************************************* Was that profit taking I saw this week? You had to look close but if you read between the closes there was a lot of profit taking and it may be all we get. Yesterday's drop of -.84 on the Nasdaq was almost a non-event. The Nasdaq dropped after a surge at the open and recovered to almost close positive but the market breadth was just too strong to overcome. The Nasdaq failure to set another record high and three days of losses by the Dow energized the buyers and the markets gapped open strongly today. The rally was short lived as traders sold into the rally in an attempt to take profits in light of the recent weak internals. Not everyone was convinced as buyers waiting in the wings came off the bench and rushed to buy stocks that they missed in the last drop a week ago. The Dow finally broke out again after three days of profit taking and rotation out of some Dow stocks with negative stories. After posting three days of -61, -118, -38 losses the Dow managed to add +66 points and close almost +100 points over strong support at 11050. When you consider this was on top of an almost -$5 drop by IBM, it was impressive. An IBM official only confirmed they were on track to meet the lowered estimates given in October. He also gave another Y2K warning that they may see some first quarter impacts from the late 4Q Y2K freeze. They are looking for a banner 2Q next year and they expect all of 2000 to be a very good year. The Nasdaq set another record high today on the heaviest volume day ever (1.8 bln). The heavy volume on the downside this morning was met by strong buying in the afternoon as traders tried to make up for the previous missed opportunities. Everybody wants to wait for a real correction, something in the neighborhood of -10%, but it is just not happening. Cash is building up in the funds as they try to wait for a new opportunity but the tech market is just not cooperating. In a report out yesterday some funds have cash positions as large as 18% with most around 12%. This is a huge pile of cash across all funds and there are large underlying orders just under the market waiting for any dip. What is readily apparent is a very simple fact. Nobody is leaving. Nobody is moving to cash to store under their mattress for Y2K. Funds are not selling to lock in profits as many expected. Fund managers questioned about this, point to the huge profits and huge tax consequences. If they only wait until January to sell, they can put off the tax problem for a full year. If the market continues to rally next year then they can pay the taxes with next years earnings. If the year is bad then the losses would offset some of the 1999 gains. It is a win-win situation. Here is the next quandary. They are now faced with putting the excess cash into the market now, with no pullback in sight, or letting it accumulate on the sidelines for a pullback that may never come. If tech stocks soar another 20% in the 60 days and then pull back 10% to correct then waiting was not the correct play. Almost everyone expects the market to soar in January once the Y2K event is over and not being invested now may mean you give up 10%-20% to funds that are fully invested. Some funds take in $10-25 million dollars every day and the heavy end of year contributions will swell this number by 200%-300%. Imagine the fund managers problem. Hundreds of millions of dollars to invest but everything is already at nosebleed heights. It is easy to say wait but if the market train really has left the station then it will be their bonuses for 2000 they will be kissing goodbye instead of their competitors. On the downside, if there is one, if the PPI is bearish tomorrow then some analysts expect the Fed to change their bias to tighten at the 12/21 FOMC meeting. This would put the brakes on the rampant speculation with a dose of Fed reality. The PPI is expected to show an increase of +0.2% compared with Octobers decrease of -0.1% in prices. High oil prices are expected to have an impact but the increased productivity we saw earlier in the week may mute this factor. Even with the recovery today by both the major indexes the breadth was still very bad. On the NYSE there were 96 new highs to 279 new lows. Advancers lost to decliners on the NYSE 2:3 and on the Nasdaq 3:4. Closing ticks on the NYSE were slightly bearish at -363. Yes, there was a rebound today but all eyes are on the PPI on Friday. A bad number would have to be very bad to blunt the optimism in the markets but bad numbers do show up when you least expect them. What to do tomorrow? If the number is positive then wait until after amateur hour and look to open positions for January/February. This should be the last major hurdle for the year. The CPI is next week but with PPI prices down last month it should not be a problem. Retail prices normally follow producer prices. Money is still flowing into the market but that does not make the market indestructible. Pick your entry points carefully and be prepared to leave quickly if things turn around. Good Luck, Sell Too Soon. Jim Brown Editor ********** STOCK NEWS ********** Tyco Tumbles on News of SEC Probe By Cindy Christ Where there's smoke, there's fire. Since mid-October, there's been plenty of smoke surrounding shares of Tyco International Ltd. after a Dallas-based newsletter and The New York Times questioned its accounting methods. On Thursday, flames erupted under shares of the Bermuda-based conglomerate when it revealed the Securities and Exchange Commission would conduct an inquiry relating to charges and reserves taken in connection with its acquisitions. /members/stocknews/120999_1.asp *************** Market Posture *************** As of Market Close - Thursday, December 9, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 11,135 Neutral 11.12 SPX S&P 500 1,340 1,400 1,408 BULLISH 12.03 OEX S&P 100 700 750 757 BULLISH 12.03 RUT Russell 2000 430 450 465 BULLISH 11.12 NDX NASD 100 2,650 3,150 3,167 BULLISH 12.03 MSH High Tech 1,340 1,630 1,710 BULLISH 12.03 XCI Hardware 1,075 1,160 1,239 BULLISH 11.11 CWX Software 1,000 1,160 1,241 BULLISH 9.03 SOX Semiconductor 560 640 642 BULLISH 12.07 NWX Networking 650 800 831 BULLISH 12.03 INX Internet 525 675 763 BULLISH 12.07 BIX Banking 645 690 574 BEARISH 11.30 XBD Brokerage 395 450 437 Neutral 11.30 IUX Insurance 625 650 611 BEARISH 11.30 RLX Retail 875 910 932 BULLISH 11.23 DRG Drug 375 395 358 Neutral 11.30 HCX Healthcare 750 790 709 Neutral 11.09 XAL Airline 180 190 144 BEARISH 5.21 OIX Oil & Gas 285 315 298 Neutral 11.23 Posture Alert The Linux craze continued to sweep the market Thursday, as the Nasdaq closed up again on record breaking volume. The swing from intra-day high to low was very extreme, but the bulls continue on their victory march. Leaders Thursday include Internet (+4.20%), Retail (+3.13%), and Brokerage (+1.90%). Losing sectors included Semiconductors (-2.81%), Airlines (-1.99%), and Software (-1.64%). There are no current changes in posture. *************** Market Sentiment *************** Thursday December 9, 1999 Tug of War! The major indexes continued to the upside Thursday, with the Nasdaq breaking new ground on record volume. The violent swing by the major technology index was swift and severe, causing many investors and traders alike to close out positions, only to find them reverse later in the day, perhaps numerous times. This is a strong sign that the bears and bears are battling for the short-term control of this market, with neither really winning today's battle. We will most likely continue to witness such volatility in the near future, and with option expiration next week, we will most likely see some severe moves in many individual equities. Looking at some of the major indexes, many market technicians are calling for a near term correction or retracement from the highs. It is very hard to argue against this analogy with many of the indexes trading in stratospheric territory, however, we still see significant upside in the month ahead. What investors have to do is be choosier, and pick the sectors that are gaining momentum, not losing steam (i.e. Internet Index +4% today). To see the Nasdaq continue on its tear is becoming a more unlikely event, but to see individual sectors outperform the market is becoming the likelier scenario. The one thing that bothers us from a technical standpoint was Wednesday's poor closing, combined with the fact that the Nasdaq was not able to hold onto the big gains from Thursday morning. This could spell trouble for the bulls on the short term, but tomorrow's trading will be key in determining short-term direction. On the flip side, from a sentiment standpoint, we are witnessing significant put buying on some of the major indexes such as the OEX. This negative sentiment continues to fuel support for the market, and any pull back in the market continues to be met with buying pressure. This is a very healthy sign for all you bulls. Now, to dissect the put buying even further, we looked for the largest open interest on the S&P 100, and that happens to be the DEC-750 Put. The open interest stands at 13,492, which is a large number of contracts. What this means from a sentiment standpoint is that the 750 benchmark should have good support. Obviously, today's trading supports that theory, as the OEX traded at 749.17 before closing just above 757. We continue to view this level as good support, and view 770-780 as heavy overhead, since this level seems to show the most call speculation. Until the statistics change, this tug of war will most likely continue until next week's option expiration. BULLISH Signs: Cash Flow: The amount of money being poured into this market continues to be strong. Short Interest: Short interest for the Nasdaq is at an all-time high, and increased another 1.4% from October. Short interest on the New York Stock Exchange rose 72,007,030 shares in the month ending Nov. 15 to a total of 4,061,057,060 shares. S-Squeeze: News events continue to squeeze the shorts, as lately evidenced by Yahoo's incredible run as well as Amazon's latest jump. Mixed Signs: Volatility Index (22.38): The VIX is trading once again near its previous lows. Another quick reversal at this benchmark will likely presage an intermediate top. BEARISH Signs: Interest Rates: The yield on the 30-yr Treasury broke support, and may soon hit 52-week highs. Advance/Decline Line: The A/D line's continual break does not serve the best interests of the overall market. Investor Intelligence: The rapid change from bearish to bullish sentiment has been too great, and may indicate a near term top in the market. Energy Prices: With the rapid rise in crude oil, everything from manufacturing to transportation will be affected by higher costs. These higher cost will be felt more 1-2 quarters out, and could put pressure on profit margins. OTM Call Analysis As we move closer to the December expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 720-810 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% Friday, November 12 94,610 +142.1% December Expiration Cycle OEX OTM Call Analysis (Open Interest December 720-810) Date Open Interest Change % Alert Friday, November 19 36,165 - Friday, November 26 55,598 +53.7% Friday, December 03 66,323 +83.4% The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index OEX Friday Tues Thurs Benchmark (12/3) (12/7) (12/9) Overhead Resistance (770-800) 35.30 9.14 13.43 Overhead Resistance (750-765) N/A 0.76 0.79 OEX Close 767.48 756.11 757.39 Underlying Support (730-745) 1.65 2.43 2.91 What the Pinnacle Index is telling us: Based on 12/7, overhead resistance (750-765) is very light, while and underlying support is building strength. Put/Call Ratio Friday Tues Thurs Strike/Contracts (12/3) (12/7) (12/9) CBOE Total P/C Ratio .52 .51 .41 CBOE Equity P/C Ratio .38 .42 .36 OEX P/C Ratio 1.67 1.38 1.54 Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (12/3) (12/7) (12/9) Puts 750 / 9,697 750 / 11,174 750 / 13,492 Calls 750 / 8,315 780 / 8,466 780 / 12,779 Put/Call Ratio 1.16 1.32 1.06 Market Volatility Index (VIX) Major Date Turning Point VIX October 97 Bottom 54.60 July 20, 1998 Top 16.88 October 8, 1998 Bottom 60.63 January 11, 1998 Top 26.38 March 4, 1999 Bottom 28.15 May 14, 1999 Top 25.01 July 16, 1999 Top 18.13 August 5, 1999 Bottom 32.12 October 15, 1999 Bottom 32.06 December 9, 1999 22.38 Investors Intelligence Survey Major Percent Percent Date Turning Point Bullish Bearish October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top 58.3 30.0 March 4, 1999 Bottom 49.1 32.5 Oct. 13, 1999 Bottom? 39.2 37.5 November 18, 1999 52.1 29.9 November 26, 1999 53.0 28.7 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Wed Thu Week Dow 11134.79 -61.17 -118.36 -38.53 66.67 -151.39 Nasdaq 3594.17 25.38 40.91 -0.84 8.09 73.54 $OEX 757.39 -4.73 -6.65 -1.99 3.28 -10.09 $SPX 1408.11 -9.96 -14.17 -5.29 4.23 -25.19 $RUT 464.90 1.17 -0.05 3.14 -3.94 0.32 $TRAN 2824.78 -23.28 -19.36 -4.49 -56.89 -104.02 $VIX 22.38 0.24 0.32 1.24 -0.24 1.56 Calls Mon Tue Wed Thu Week CMGI 197.75 7.94 10.06 11.00 8.69 37.69 Great week! DCLK 197.00 8.88 5.88 12.75 0.13 27.63 New INKT 166.94 13.00 5.69 4.31 -1.06 21.94 New BRCM 226.31 13.75 3.00 0.50 1.31 18.56 Broad scope NOK 171.25 19.94 -4.19 0.56 -3.50 12.81 Profit-taking GMST 128.50 5.06 6.31 4.63 -4.63 11.38 Splitting QCOM 395.00 10.31 4.13 -9.63 5.75 10.56 Momentum! AOL 86.00 2.63 -1.25 -0.88 4.69 7.88 AOL jumps GE 143.56 1.25 1.25 3.00 2.31 7.31 New MACR 82.38 4.06 -3.44 8.75 -3.63 5.75 52-wk high USWB 51.69 2.00 1.88 1.69 -0.06 5.50 Nice chart STM 136.00 5.50 0.88 -0.50 -1.25 4.63 Bucks trend SNE 186.75 -2.00 2.50 -3.19 6.31 3.63 Cranks it up PRGN 84.38 10.75 -1.63 -0.63 -5.13 3.38 Above support NT 82.50 3.94 0.13 -0.69 -1.91 1.47 NT buying? VOD 50.75 3.63 -0.25 -2.63 0.19 1.31 Entry point? ANSR 34.38 -0.50 -1.38 1.69 1.06 0.88 ANSR climbs EMC 95.06 -1.25 0.25 0.50 -0.84 -0.19 Consolidates SDLI 182.00 15.50 -4.75 -2.75 -9.00 -1.00 Profit-taking TIF 77.94 0.06 1.50 -0.19 -3.13 -1.75 Dropped MXIM 90.50 2.63 0.34 -4.28 -0.50 -1.81 Good relative JDSU 240.38 3.25 5.31 -12.75 -6.63 -10.81 Comes back HGSI 114.00 -5.69 2.38 -8.50 -3.50 -15.31 Dropped VISX 54.63 0.38 -36.13 4.69 -2.06 -33.13 Dropped Puts GT 28.25 -1.44 -1.06 -1.69 -0.38 -4.56 Limbo winner KIDE 45.00 -3.81 2.50 -2.25 -1.00 -4.56 KIDE slides PGR 74.88 -1.75 -1.75 -3.06 2.88 -3.69 Square one JCI 51.94 0.81 -4.00 2.63 0.06 -0.50 Rally?? EK 61.00 1.19 0.06 -0.88 0.50 0.88 Stubborn! BOW 49.94 0.00 0.19 0.50 1.25 1.94 Dropped ************ WOMANS WORLD ************ Did You Find An Entry Point? Congratulations, to all of you who played a successful YHOO earlier this week. I received lots of emails with similar questions. I'll answer some of them here. But first, did you see any good entry points today??? As I mentioned last time, I was hoping for a softer market on Wednesday or Thursday this week, in order to find a good entry for QCOM and perhaps YHOO. I expect QCOM to start moving next week, in anticipation of the meeting on Decemer 20th, to approve a 4:1 stock split. I was hoping to be given a nice entry opportunity, during the pre-PPI anxiety period. With YHOO, I expected profit taking and a lull on Wednesday, but I did not know how long this would last. I assumed that the players familiar with YHOO would take profits, forcing a sell off, and then jump back in as soon as they saw their next door neighbors buying again. This of course, is in anticipation of a stock split announcement, which could occur on or before their earnings in early January. Qualcomm gave us a beautiful entry today, trading down to 279 1/2. I was able to grab my options at about the 281 area. It closed at 295. Let me share with you how I thought through this decision. Qcom gapped down at the open on Wednesday and hovered for 45 minutes before going to the high of day in the next 45 minutes. From there it rolled over, drifting downward without ever being able to take out the early morning high. When I'm wanting to buy something, I watch the movement in the morning first using my 5 min chart and charting indicators. I am watching the rolling action of the stock to see if each high, is higher than the last high or if each low is lower (or higher) than the previous low. This gives me an indication how the afternoon will play out. Nothing is exact, but this is an important pattern to become familiar with because it can help you decide if you should buy today, or wait for tomorrow. By early lunch, the chart tells me if the stock is struggling that day, or if each low point is getting higher...indicating if I continue to wait, I may be paying more for the stock in the afternoon. Yesterday, Qcom looked weak to me, having a hard time pushing higher. I was in a buying mood but I wanted a good entry. I delayed my purchase to re-evaluate it again Thursday, anticipating continued weakness due to the PPI on Friday. Wednesday night, I prepared by writing down the 5 and 10-dma along with the option symbols I needed to watch. On rare occasions since announcing the 4:1 stock split, QCOM has given us buying opportunities at the 10-dma, as announced by OIN in a rare ALERT message. I loaded my option symbols into my Qcharts, so at the right time, I could execute quickly thru my Preferred Trade account. Today after opening at 400, I doubted I would be given an opportunity to buy at the 10 dma which was around 381. I didn't think it would go that low. Just in case, I set my alert alarms at 382, so I wouldn't miss it. The gift came when QCOM hit its 10 dma once again, then slightly dipped below it to 379 1/2. Buyers rushed to the free beer and ran it up to 395. By then, I had already purchased my January positions for the split play and a few high risk December OTM calls that were just really so cheap, I couldn't resist. I was a happy camper by waiting till today to make my trades. As for YHOO, I tell you, if Yhoo's chart was an EKG strip, I would have pronounced it dead yesterday!!! That 5 min chart barely bleeped. Remember what I said about channeling? It's usually a sign that a breakout, either up or down, is fixing to occur. Well, I hope you weren't scratching your head examining the rocket boosters on the launch pad when it decided to blast off from its 312 1/16 lows about 1:30 pm. It was fast and furious!!! Congratulations to everyone who realized that price was getting close to YHOO's 5-dma. It appeared that all the neighbors had gone to lunch together and realized each other were planning on buying back in, after lunch. Did you grab a ride?? Other than these two entries, I tried hard to grab JDSU when it went down to 235. I'll be watching it for further weakness tomorrow since it is below its 10 dma. It should open weaker. This sure looks like a good entry to me, with the split coming at the end of the month, but it is possible a better entry could surface. I don't want to get distracted from my two main plays (YHOO & QCOM), but with the gains from Tuesday, its hard not to catch something that is just thrown at you. I had a limit order set, but I was not filled. Also, Tyco caught my attention due to its huge sell off. Could that be a little over done you think??? A lot of distractions are out there, but focusing will reward me. Although I feel comfortable with my entry points today, there is significant risk with these plays. The PPI number is due in the morning. If this upsets the market severely, in particularly YHOO and QCOM, I will exit to the sidelines for a few hours, till things calm down. I would be surprised to get a better entry than today, but NASDAQ is so overextended, that at any time, it could use any excuse to exhale its hot air. I just want to make sure that if that happens, my premiums don't go with it!! I would have felt safer, if NASDAQ had closed lower today. We needed that. But since it roared back, I feel a little more at risk. Nevertheless, with good entry points, I have more protection and I will not fight the trend. See you at the party. I hear QCOM and YHOO are double dating!!! To answer a few emails: Hi, Renee: I should get $200,000 profit from yhoo run yesterday, But I lost half of it since I sold too late. Could you tell me where do you get the bollinger band; MACD; stochastics chart? how much it cost? Thanks. Yphe Congratulations on the profits you kept!!! There is more to come. I use a service by Quote.com called Qcharts. I pay about $80.00/mo for NYSE, NASDAQ and option quotes with all charts. The indicators you mentioned, come with the charting service and can be added to your charts as you like. I have no idea how I traded options successfully for 2 1/2 years before ever having real time quotes & charts!! The expense is not in the $80.00 per month. The expense is in NOT having it and picking poor entry points!! ***** Do you have a minimum amount of contracts you buy at a time in each position? Do you have a period of time you won't buy? That is, say in the month of December, is there a time you will no longer buy December options? Dina Hi Dina! No, the minimum amount tends to depend on how strongly I feel about my position and how much money I have available at that moment. Sometimes I scale in to a position if better entry points come along, so the number of contracts grow. Sometimes, the premiums are so high, that I may not be able to afford a lot at one time (Qcom), but the trade is very profitable nonetheless. No, I do not have a period of time I will not trade. I believe risk tolerance is individual. Day trading options is hard and you need to know what you are doing. I occasionally trade intra day at volatile times when the volume is high. But for a beginner, I think this is dangerous and higher risk than necessary. ***** I live in Las Vegas, NV-can you recommend some great brokerages well versed in option trading? Also, can you give us the names of some outstanding books dealing with you style of research & trading? Thank you. Steve Steve, I only trade online. I am unfamiliar with brokerage groups that can help you with your positions. As for books, this subject came up a lot in my emails. Personally, the way I study is this, I decide what I want to learn. Then I go to my favorite library or mega bookstore and pull out 10+ books that have chapters on my subject. I peruse that chapter in each book in order to get a general perspective by different authors. Some books will soak in better to my pea brain, than others. If one really strikes me, I buy it for reference. I have always studied this way because I realized if the same points come up, over and over again by different authors, there must be something to it. ***** One other point that came up a lot. Yes there is a difference in trading full time and part time. It can affect your trades and opportunities tremendously. Don't beat yourself up, if you are working full time. Develop a system that works for you. I have only been trading full time since January 1999, but I've traded for several years. Renee renee@OptionInvestor.com ************** TRADERS CORNER ************** Getting Caught With My Pants Up In One Up On Wall Street, Peter Lynch describes his feeling of being fully invested when the stock market is rallying as getting caught with his pants up. That's how I feel on Thursday morning, as I watch the market rally yet again, perhaps establishing a trading range of 11100 to 11400 on the DOW, and adding yet more unbelievable gains to the NASDAQ. (In fairness to Mr. Lynch, in the same book, he also argues that options should be outlawed!) A few weeks ago, I described my "Christmas Stocking," and, right on schedule, like popcorn kernels in a skillet, the options are beginning to pop. In fact, I've had to take profits early on a few contracts, to lock in gains which I plan on using to boost my LT Stock Portfolio with LEAP plays: YHOO Jan 220. Bought at 25, sold at 108. Had to take that off the table after the SP move. SUNW Jan 62.5 (post split). Bought at 6.5, sold at 20 3/8. I held it over the split, since my strategy with my stocking stuffer plays was to hold until Jan 1. But when SUNW continued to move up after the split, and then further up this morning, I recognized that I was pushing my luck, and took a very large profit, put it back in cash, and am waiting for an entry into some AOL Jan contracts, or, perhaps will just wait to dollar cost average the money into LEAP plays on weakness in the New Year. And oh boy, can we expect some weakness after the New Years euphoria has worn off. I might not be buying calls again until March. AMZN Jan95. Bought at 10 in October (!) on the strength of an SP Brown column regarding eChristmas. Held through ups, downs, Jeff "Who Needs Profits" Bezos, some recovery in November. This morning, an upgrade and price target of 160. AMZN moves 20 points on strong volume. Now, the contract is at 20, and I am holding them, a much happier man. I hold the contracts in my Roth IRA, which, by the way, is a great place to trade aggressively. On balance, the strategy of holding these Jan calls until Y2K has been mixed. SCH is weaker than I expected, but, with all that trading volume, some analyst will start the cockroaches stampeding with upgrades in a few weeks; ditto with EGRP. My SNE play is positive, especially after this morning's nice move up; Playstation2, anyone? GTW has been crucified, but now with the news regarding the leadership change out, perhaps the stock has put in a bottom and will start moving up with strong Holiday sales. Finally, my NOK Jan 135s have been a huge success, with over a 200% return since late Nov, when I stuffed the Christmas Stocking; when the Telecom sector gets the QCOM 4:1 injection in a week, I expect NOK to move in sympathy, perhaps over 200 by Jan. My plays in YHOO and SUNW alone have "paid for" the rest of my plays, so, essentially, SCH, EGRP, GTW, and NOK are "free plays." At this point, I anticipate letting them run until Jan 1. In my ST Option Portfolio, I have been taking profits this week. On Monday, I sold NOK Dec 140s on the strong gap up at 30, having bought them at 6.5 the previous week. I missed an extra 5 points on the contract, but with a profit of 460%, I can't complain, and the stock rolled over after its high on Monday anyway. I also sold JDSU Jan Calls for a 50% profit on Monday; AOL Jan 70 and Jan 80 calls for a net profit when the stock looked to be basing around 80, instead of moving; and SNE Jan Calls for a slight profit. I decided to hold QCOM Jan 380 Calls because of the upcoming 4:1 split, and the newsletter's Sunday write up, which indicated a "graphical convergence" coming at about Dec 9 & 10. Without any kind of TA expertise, I finally figured out what this might mean by doodling in qcharts: draw one line at 400, draw another connecting QCOM's higher lows since hitting 400 on about Nov 12, and those two lines converge at about Dec 9 & 10. On the strength of this analysis, I have been buying more QCOM Jan 390 calls when QCOM dips to 390. I have also been buying NOK Dec 160 and Jan 160 Calls when NOK dips below 170. I opened a JDSU Jan 250 play yesterday, but was stopped out when the stock dipped below 240 this morning. Overall, I benefitted from a early week break to gather my perspective, before beginning a new round of plays on Wednesday. The market looks overextended, and could react negatively to any less than positive news. But, at the same time, this is the time of year to make money. I have a friend in grad school who has an MBA and spent 5 years at a Wall Street firm trading a S&P 500 basket. He has been setting up a bearish futures play since late November, initiated it, and took a small loss last week. Then he called me and said, how can this continue? What is going on? I shrugged, figured as long as I was making money I was happy, and promptly subscribed him to a two week trial to the newsletter! Janar Joseph 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: ***** VISX $54.63 -2.06 (-33.13) We had our bounce on Wednesday and now it is time for us to let VISX rest in peace, for now anyway. We still believe that VISX is a good company and continues to possess the fundamental traits we like to see for a play, but we think it is going to be a while before VISX can fully recover technically from Tuesday's plummet. VISX's legs are just too shaky to make the risk of continuing this play worthwhile. Also the resistance at $60 which we mentioned did hold strong on both Wednesday and Thursday. HGSI $114.00 -3.50 (-15.31) The past two days, despite valiant efforts to bounce, HGSI could not hold support. Perhaps we underestimated the possible influence of the upcoming convertible debt offering. As we mentioned in Tuesday's report the debt offering could provide competition for dollars looking to invest in the company. The offering is set for December 14th. If a rally ensues after the offering, we may take another look at HGSI. On top of that possible negative influence, it seems that profit-taking has been hitting most of the favorites of the Biotech world. With HGSI being hit harder than most of the others in the sector, we feel that this negative relative strength makes us unable to continue a call play on HGSI. TIF $77.94 -3.13 (-1.75) We had been cautiously bullish on the shares of Tiffany & Co., because of the average volume. We continued to see the shares hit higher highs, but their was no major push in the volume, this is a cautious indication. All it would take is a push from the sell side to see the bottom fall out with no major buying support to hold the highs. That is exactly what we got this afternoon. After hitting another 52-week high of $83, the stock began to sell-off gradually. All of the buyers had bought, so there was no tug of war effect between buyers and sellers. The carnage did not stop until the stock closed at $77.94. We will choose to walk away from the shares of TIF at current levels. Tight stops over the course of this play proved profitable. PUTS: ***** BOW $49.94 +1.25 (+1.94) It looks like Bowater's shares are making a major bottom down here in the $48-$50 range. Without a strong short term downtrend, we feel it would not be prudent to continue to hold puts on BOW. There has not been any major news to warrant any huge amounts of buying in BOW. It does seem that the selling in the shares has abated for now and is unlikely that BOW will be making any new lows in the immediate future. ***************** PICK NEWS - CALLS ***************** BRCM $226.31 +1.31 (+18.56) Broadcom had a broad scope today, offering a trading range of over $20. BRCM reached up to tag yet another new all-time high of $234.88 within the first hour of trading. Then the sell-off began, pulling BRCM down to a low of $214.63 for the day. If you were able to keep an eye on BRCM today, we had some nice points of entry granted mid-day as the profit-takers emerged. The new high now serves as the ultimate resistance. BRCM has support at it's 10-dma, which is currently at $225. The 5 and 30-dmas are converging at $221.50, which could provide some solid support going forward. Time your entries on the profit-taking dips. On Monday, BRCM unveiled a new tuning chip right along side of rival Conexant Inc. Broadcom's new chip is said to be smaller, cost less and allow for more than one tuner to be used in a device. Today, Schroder and Co. initiated coverage of BRCM with an Outperform rating. SNE $186.75 +6.31 (+3.63) "Crank it to 11, blow another speaker" (Citizen King) Sony cranked it up, gapping up slightly at the open and quickly traded up to a high of $189. SNE continually found resistance at this level and traded the majority of the session in the neighborhood of $187.50. Aside from the high today, we see formidable resistance at the level of $190. Sony has support at it's 10-dma of $185.00 and further support at $180, which has held Sony up solidly for the last 3 sessions. Your best bet for a new entry is either waiting for a down day (with support levels firmly holding) or an intra-day dip. But be cautious ahead of Monday's ever important Tankan report from the Bank of Japan. This may cause big swings depending on there findings related to the current status of the economy. AOL $86.00 +4.94 (+7.88) Today AOL shares jumped to $87.50 on a spike of volume during the last hours of trading. After channeling this week between $78 and $82 it now appears we may see a break through $87.75, the all-time high. Earlier in the day, Wit Capital reiterated a Buy recommendation and issued a 12 to 18-month price target of $105. In the holiday spirit, AOL announced a new "concierge" shopping service to make gift-giving easier this season with its 'At Your Service' on Shop@AOL. The service gives shoppers direct access to over 50 AOL merchants with alerts to companies offering free shipping, gift wrapping, and bonus gifts. Our play is based on the anticipation of a holiday run-up and today's bounce may be the precursor. In the news yesterday, Telescan announced a three-year deal to add its stock screening and portfolio analysis tools to AOL's personal finance channel. And AOL is at war again. This time with AT&T's WorldNet Internet who tried to give its 1.8 mln subscribers Instant Messaging access to not only AOL, but also to rival Microsoft (MSFT). AT&T subscribers were quickly rejected from AIM system yesterday. ANSR $34.38 +1.06 (+0.88) Another analyst put out a good word for ANSR this week. Yesterday Salomon Smith Barney started new coverage on the stock with a Buy rating. In response ANSR climbed $1.69, or 5.3%. However until ANSR surged last minute today, we saw more consolidation at what's now evolved as near- term support ($31.50 to $32). Again this isn't unusual after such lofty gains (46.5%) last week. The rising 10-dma ($29.82) continues to trail behind and this is a bullish sign. If today's last minute spike extends into tomorrow's session then we'll face opposition at $36.63, the May 1998 high. This momentum play is powered by the strong Internet sector and good technicals. PRGN $84.38 -5.13 (+3.38) Profit-taking was the name of the game on the Nasdaq today and PRGN was on its short list. PRGN was brought down a notch, but remains well above the first level of support at $80 and the 10-dma ($80.03). Trading volume continued to be active but at only about 50% above the norm in today's session. Remember this is a pure momentum play and the broad market played a major role in today's pullback. Ultimately the downdraft effectively offered a multitude of entries below the recent $87 to $90 consolidation range. In the news yesterday, Peregrine announced its GetIt! solution suite, self-service applications for Internet Procurement. Separately the company announced an alliance partnership with Commerce One to integrate its GetResources! (the 1st application in GetIt!) to allow for direct connection to Commerce One's MarketSite, the global trading portal; thus promoting real-time transaction capabilities. Some other vendors who've signed GetResources! agreements include Compaq Computers, Office Depot, Dell, and IBM Global Services. STM $136.00 -1.25 (+4.63) STM continues to buck the overall negative trend being established in the $SOX index, with some help from a continuation of good news being reported about the company. The $SOX Semiconductor Index gave us a serious head fake today, in early trading the index was up over 8 points, only to drop and trade near the lows for the rest of the session, closing the day down $18.52 points. STM mirrored the trading pattern today by the $SOX with a nice bounce in the early going that saw the shares gap open at a new high of $145 and began to sell off. Conservative or Aggressive traders should have been able to take advantage of the activity in the shares of STM. We continue to remain positive on the stock, the uptrend is still firmly in place, the $134 support level continues to hold, and this round of profit- taking looks to have provided us another buying opportunity at current levels. Be cautious, but bullish, going forward. Wait for the market direction to confirm, and then look to target shoot your way back in if support levels hold. MACR $82.38 -3.63 (+5.75) MACR's trading pattern remains consistent. This morning the shares hit another 52-week high of $87.50 in early trading, on the back of a $8.75 point gain on Wednesday, once again profit-takers stepped up and took some gains off the table. The sell-off today was helped by overall volatility in the Nasdaq. Looking at the charts it seems the sellers ran out of steam after a pullback to $79.13, the shares bounced from the lows to close at $82.38. We might note that MACR is heavily in play this week with numerous deals, alliances, and presentations, we should continue to see good tradeable opportunities. Target shoot your way in on weakness, with tight stops after positions have been taken. We like the stock at current levels $82.38, any pullbacks would be even better above $79. ****************************** CALLS CONTINUED IN SECTION TWO ************************************************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter Thursday 12-9-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ***************** CALLS CONTINUED ***************** USWB $51.69 -0.06 (+5.50) The spotlight continues to shine bright on the Internet advertising companies. Agency.com which just went public, ended yesterday's trading session up 192%. This is one of the latest companies to go public in this hot business-to-business Internet sector. USWB which is a feature player in the space, traded at another new high today at $53.81 on average volume. Most Internet companies traded off of the highs today as the profit takers stepped in, lightening up on positions ahead of tomorrow's PPI numbers. USWB closed the day at $51.69, on strictly profit-taking, nothing major. The chart pattern is very favorable, the stair case formation is signaling higher-highs going forward, today's dip has provided us another entry point. We like USWB at current levels. Look for a swing to one end of the trading range($48.50-$53.81) tomorrow morning depending upon how the economic data is digested. Let the intra-day volatility help you find an entry point. Take profits according to risk tolerance. CMGI $197.75 +8.69 (+37.69) Since last Friday CMGI has moved up 27% in four days. That used to be a considered a big move. We'll take it, as our play has provided us with an opportunity to take some money off the table. After picking up $11 Wednesday, CMGI gapped up over $10 higher at the open this morning. The Internet company made a new high at $204 in the first 30 minutes of trading. Traders put on the brakes and began to rake in some profits. Buy lunch time CMGI had traded as low as $175.50 and began to bounce back. Depending on you risk tolerance you could have jumped back in as CMGI began to climb back out of the hole. CMGI finish the day +8.69. Intraday the $188 level held, as CMGI made its way back late in the day. Most analysts seem to believe the intraday sell-off in the tech heavy Nasdaq was more technical than anything as buyers jumped back in. Our view for CMGI has not changed. We would wait for the market to digest the PPI numbers in the morning prior to entering any new positions. Although we aren't expecting any big surprises in PPI numbers, a bad report and we could see the selling resume. GMST $128.50 -4.63 (+11.38) It could be that our split run play is about to run out of gas. After hitting a new high of 138.25 Wednesday, the bears have grabbed hold of this stock and began to have their way. GMST splits 2:1 Monday after the close. If you didn't take your profits yesterday or today, we would suggest that you begin to do so. The $127 area has provided support so far, but GMST is beginning to look a little weak, so we would not allow the money to slip through you fingers. We do have two trading days prior to the split and the gunslingers may want to see if we get one last bounce. If that's the case please keep your stops close. EMC $95.06 -0.85 (-0.19) Our play in EMC is stuck in a sideways consolidation mode. The tech sell-off this morning took shares of EMC to its low of $93.56. This area has provided support all week. The next challenge is for EMC is to pull itself out of this narrow range and move higher. We have PPI numbers in the morning. A positive report could provide the strength get EMC back on track. A negative report and the party could be over, at least for the time being. On an intraday basis it would appear as though EMC is giving us a good point to either enter a new play or add to existing positions. If EMC breaks the $93.50 area we would get out of the way until the dust settles. The volume this week has been on the light side, giving no real clues as to which way the breakout will be. If you still have a position, in EMC on the books, keep your stops close. VOD $50.75 +0.19 (+1.31) Shares of VOD are setting up to give us another entry point. If you missed the first one early in the week, we may have another opportunity at hand. The one fly in the ointment still concerns the Mannesmann. Company executives are still fighting the hostile takeover bid from VOD which is now estimated to be $141 billion euros. Mannesman said Wednesday in a statement the all-share offer by VOD was the "wrong strategy, wrong price, wrong path". Some see this as an attempt to get VOD to continue to up the price. As for our play we would look for further moves higher as a chance to jump on board a good call play. VOD has been a bit sluggish and could stand to make up some ground with others in the telecom industry. Intraday support for VOD now sits just above $50. If VOD breaks that support area we would stand aside for the time being. It's 10-dma is at $49.56 which could provide support as well. MXIM $90.50 -0.50 (-1.81) Well, after 5 straight up days, you start to expect a pullback and we've had two days of them now. The stock was weak on Wednesday, experiencing a decline of almost 4%. We saw some of the same weakness today, with shares falling to test the 10-dma at $89. The good news is the fact the stock came back in the afternoon after bouncing off the 10-dma and closed above $90. One other thing to keep in mind, the Semiconductor index (SOX) was down by as much as 5% today and closed down over 3%, so MXIM actually looked good for the day. Volume was good both days. Support is the 10-dma at $90.50 and resistance is at $95. NT $82.50 -1.91 (+2.31) Whew! How about that hair-curling selloff this morning? If you missed it, NT opened at $85.50, which by the way is proving to be formidable resistance this week, then sold off to $81.38 by mid-day. It looked like Judgement Day since the NASDAQ had fallen 115 points during the same period - we all thought we were in for it. We can't tell you exactly why, but the cash and the confidence returned late in the session to plant NT right back at support of $82.50 at the close - Roadrunner escapes from Coyote again. Though eclipsed by the action, the real news is important. NT is reported to be in acquisition talks with Florida-based Qtera, a maker of optical networking equipment. They are developing a technology to make optical lines carry signals further without regeneration. The price could be as high as $3.8 bln. While analysts are yelping that it's too high since NT could develop the product themselves, the fact is engineering talent is hard to come by, and development would take at least six months...better to be first to market. For you target shooters, consider aiming at $81.50, or picking some off at current support of $82.50. More conservative types may want confirmation of a breakout over $85.50. Volume remains strong, but a dip below $80 sets NT up to test $77. NOK $171.25 -3.50 (+15.19) Lingering good feelings following multiple upgrades permeate the air around NOK. It's also comforting to know that Janus Funds own 6.5% of the company (as of December 7), its largest shareholder. It's not surprising then to see NOK remain fairly stable, albeit on huge volume, in today's turbulent tech action. Despite some investor apprehension that the Ericsson/Microsoft wireless browser agreement might outflank NOK, NOK found support in the $168 range. While this is above the ascending channel established in November and should throw a yellow caution flag, NOK also has a habit of basing a few days, then bumping up a level. With new price targets galore over $220, history says tomorrow should be an up day, especially since buying volume has swelled into the issue in the last five days. That is not an endorsement to forget about due diligence. We still need a workable plan and a willing market. Support is in the $168-$170 range. Resistance is $177. You can target shoot or wait for the breakout with volume. QCOM $395.00 +5.75 (+10.56) We could whine about the pullback from the breakout on Monday, but we knew QCOM was slightly weak because the volume wasn't up to its usual levels. Nonetheless, we're not going to reverse our stance on volume requirements on a $400 stock - it's necessary and we need to see it. We shouldn't be giving a stock a pass on that issue just because the price got high in a hurry. That said, $390 and $385 support was broken on the way down to $380 today. That tested an "old" level of support from last week. If you recognized that on the chart and acted on the strong bounce, you made a perfect entry and a lot of money on the rebound. While we may be in for more turbulence, QCOM isn't finished yet. It's volume remains low as it consolidates in the $390-$400 range in anticipation of making a strong run (we expect with increased volume) into the shareholders' meeting, where we expect the 4:1 split to be approved and new share authorized. An added bonus (likely we think) would be the disclosure that QCOM has found a buyer for their handset business - what a perfect time to announce! We hasten to add that the higher lows of support and continuing resistance over $400 are really packing the powder for an explosive breakout as soon as volume returns. Target shoot to level of comfort for the best entry or wait for the real breakout with volume. JDSU $240.38 -3.63 (+10.81) JDSU is proving to be a real channel changer, causing the screen to get fuzzy and blurred. Ever see the movie titled Dr. Strangelove? Slim Pickens, in good cowboy fashion, rode the H-bomb out of the belly of a B-52 bomber. You can imagine the ending. If you were in a JDSU play, you can probably visualize the ending here too - at least you could this morning as JDSU plunged to $228 (old support level). The good news is we saw JDSU bounce hard off $228 for an impressive day- end gain - a textbook rebound and great entry point if you happened to catch it. While the lows are still getting higher, they have re-established a slower ascending pennant (hence the "channel changer"). While we anticipate a breakout moving toward JDSU's Dec 30th split date, it looks to be a little slower in getting here than we originally thought. One thing to keep your eye on though is the volume. It has been steadily increasing this week as the price has been falling. That indicates some distribution or profit-taking. Even so, we fully expect JDSU to mount a serious run back over $273 before the split. But current price and volume tell us there may be a rough ride getting there. Target shoot ruthlessly at support ($221, $227, $233, and $240) for your best entry. Gauge the market before making your entry and protect your position with stops if the trade goes against you. SDLI $182.00 -9.00 (-1.00) Ouch! Gotta chalk it up to profit- taking. So much for the pennant breakout. Just be grateful the volume remains well below the ADV, indicating nobody's in a hurry to unload. Apparently that renewed trader chat suggesting SDLI and ETEK would make fine merger candidates for each other, and a better competitor to JDSU isn't rubbing off on the stock price. Too bad, but as we'd noted Friday, these two aren't as universally loved as JDSU, making it a bit more risky than other issues in the same industry. No matter, SDLI still has a good story to tell on its own - it can't produce optical components fast enough to satisfy all the demand and is still growing like a weed as a major provider of optical equipment in the photonic revolution. Support is solid at $180, though today's bounce came at $181. After that? Look for $160, but let's hope it never gets there. You know what to do to protect your self - set a stop under $180 if SDLI should break south from here. We are still looking for a breakout of the pennant. Resistance is at $190, then $201. Use these for support if the price moves up. **************** PICK NEWS - PUTS **************** KIDE $45.00 -1.00 (-4.56) Perhaps KIDE should take a few of the new Rexall Pokemon vitamins! On Wednesday, Rexall (RXSD) announced that they were going to begin manufacturing and distributing new Pokemon vitamins early next year. Apparently this news did nothing to impress investors! KIDE did try and make another bounce, this time about $2.50 over the 100-dma, but again this bounce was small and even shorter in duration then the last. The beautiful thing about these mini-bounces is the opportunity for entry points! KIDE is just pennies above the 5-dma, which could provide some support in tomorrows session. KIDE has some immediate resistance at its 10-dma of $45.50. The 100-dma which has been providing the springboard for KIDE's bounces so far this week is now at $51.50. Therefore, this level has become resistance rather than support. Watch for the bounces met and held by resistance for possible entry points. GT $28.25 -0.38 (-4.56) "How low can you go?' GT would be the winner of any limbo contest, as each day it proves that it can and will go lower. We mentioned a bit of a "bounce" in Tuesday's write up. This was an unimpressive display on such a strong psychological number as $30. Wednesday, GT gapped down at the open and encountered resistance at $30. GT rescinded for the remainder of the session, closing just over $28.50. Today, GT finished snugly sandwiched between the 5 and 10-dma. It is important to exercise caution at this point. Should GT manage a breakthrough of the 10-dma, which is currently at $28.50, it would be wise to hold off on entering any new plays until we see a reclamation of negative momentum. The 5-dma of $28 could provide some support, so watch for some trading below this level backed by good volume. EK $61.00 +0.50 (+0.88) Kodak has been stubborn in its attempts to break down for us. The stock managed to drop a little yesterday on no news. Surprisingly, Kodak opened higher Wednesday, despite closing on its low print of the day on Tuesday. Fortunately for put holders there was very little follow through to the upside, and Kodak managed to close lower just above its low for the day. In news today, Kodak announced an expansion of their share buy back program. The company will allocate another $200 million to the program on top of the $700 already allocated. Share buyback programs are usually a positive event for the share price of the company. Not only does it increase buying in the stock, but also helps the earnings profile of the company by reducing the shares outstanding resulting in a more favorable P/E ratio. The only question is when the company actually starts buying the stock. The CFO will attempt to buy the stock at the best price possible. If the CFO determines that the stock could succumb to more market pressure then he will wait. Today's announcement only managed to move the stock up a half of a point. EK closed today right in the middle of its trading range between $60.25- $62.19 despite opening up almost a point. Overall, a pretty neutral day. Keep a look out for EK if it trades either above resistance at $62.50 or breaks support of $60. PGR $74.88 +2.88 (-3.69) What a great start for our put play of the day. Progressive opened down on Wednesday by only $0.38, offering an excellent opportunity for put buyers to enter a position for the subsequent selloff. PGR managed to drop over three points from its opening price, closing only $0.13 above its high. The late selloff on the NYSE hit the laggard stocks, like PGR, particularly hard. That is the good news, now the bad news. On Thursday PGR regained almost all of its losses from Wednesday. The volume was lighter today then the volume during yesterday's selloff. However the bounce today was significant. That means we are back to square one. The downtrend is still intact and you can hold current positions. Be wary of your stops and be very cautious if PGR starts trading above $77.50 which is the 10-dma. JCI $51.94 +0.06 (-0.50) JCI continued its attempts to rally off of Tuesday's low of $49. Although the bounce off of $49 was a bit discouraging there was not much momentum as the stock has only caught back about three points of its recent losses and is still down for the week. We would like to see the $49 support taken out soon to avoid the possibility that the recent rally is an attempt to consolidate the shares and to attempt to form a bottom. The biggest selling influence on JCI has been tax- loss selling and general end-of-the-year window dressing. If investors are done with these activities then early bird value investors could start snapping up shares. In the news, JCI announced that its Integrated Facilities Management Division reached an agreement with Xerox to manage its headquarters property. Terms of the contract were not announced but the high visibility of receiving a contract from a name like Xerox does not hurt. Resistance is the 10-dma at $53. If JCI should rally through resistance we will be exiting this position. ************** NEW CALL PLAYS ************** INKT - Inktomi Corp $166.94 +1.06 (+21.94 this week) Inktomi develops the world's most scalable software for the world's fastest-moving software environment: the Internet. The company's core technology underpins products for the Internet infrastructure that contribute to network performance, scalability and efficiency. Inktomi technology paves the way for emerging opportunities in online commerce, media and communications by enabling the Internet to intelligently accommodate more users and data traffic. Inktomi developed the search engine that runs such popular portals as HotBot, NBC's Snap, Yahoo!, and the Disney Internet Guide. INKT is a pure and simple split run. On December 3rd, the Board of Directors announced a 2:1 stock split payable on or about December 30th. The company has 300 mln shares authorized and 50 mln outstanding. Therefore there are plenty of shares available for the split. INKT share prices surged last Friday on the news. This week the momentum remained intact as the stock stretched into new territory. Yesterday INKT hit $179.88 setting the most recent new high. The profit-taking on the Nasdaq today was a blessing as it pulled INKT back into an entry range. Near-term support is at $160. An intraday dip to this level like we saw today would be a solid entry, but we may not be afforded this luxury if the market rages on. Plus today INKT received a Strong Buy recommendation from Thomas Weisel Partners. In other news this week, Inktomi and Sun MicroSystems (SUNW) agreed to invest $26 mln in Digital Island, a company that provides high-speed data network services for Internet businesses. This strategic alliance provides leadership in the content distribution industry. ***December contracts expire in 2 weeks*** BUY CALL DEC-160 KYQ-LL OI= 715 at $12.88 SL= 9.50 BUY CALL DEC-170 KYQ-LN OI= 648 at $ 7.63 SL= 6.00 BUY CALL DEC-180 KYQ-LP OI=1972 at $ 4.88 SL= 3.25 BUY CALL JAN-170*KYQ-AN OI= 221 at $19.50 SL=15.25 BUY CALL JAN-180 KYQ-AP OI= 345 at $15.63 SL=12.25 Picked on Dec 9th at $166.94 P/E = N/A Change since picked +0.00 52-week high=$179.88 Analysts Ratings 7-7-3-0-0 52-week low =$ 51.31 Last earnings 10/99 est=-0.10 actual=-0.09 surprise=+10.0% Next earnings 01-14 est=-0.08 versus=-0.14 Average Daily Volume = 1.96 mln Chart = http://quote.yahoo.com/q?s=INKT&d=3m **** DCLK - DoubleClick $197.00 +0.13 (+27.63 this week) DoubleClick is a leading provider of comprehensive global Internet advertising solutions for marketers and Web publishers. Combining technology and media expertise, DoubleClick centralizes planning, execution, control, tracking and reporting for online media campaigns. The online advertising firm offers a targeted delivery of ads using its patented DART technology. DART measures Ad effectiveness and Web traffic. DoubleClick has Global headquarters in New York City and maintains offices in 32 other major cities around the world. DCLK is rolling on rumors that it may be splitting its stock in the near future. Looking at history for the company, they last announced a 2:1 stock split in April. At this time the shares were trading at $180, while the shares now currently sit at the $197 level, off of recent 52-week highs of $209.38. These type of rumors can be bullish for the shares of DCLK and traders are bidding up the stock. This week the stock has been up almost 30 points, WOW!!. Today was a trading day of dramatic swings. Take a look at the trading range on DCLK, $183.75-$209.38, that is a $25.63 point swing. Enter this stock with caution, the volatility is enormous. With the favorable outlook in the overall Internet software and services sector, and DCLK specifically, as well as the split rumors that are surfacing, we are bullish on DCLK at current levels. We believe, going forward, there will be new highs over the near- term, but the ride is going to be volatile. It might not be a bad idea to keep a close eye on the shares of DCLK. The trading pattern should allow you to find a good entry point after the direction of the stock has been confirmed intraday. Trade this stock according to your risk tolerance. There is good support near $190, and then again at $183. A major breakout should come if the split rumors are confirmed, or if buyers push the stock above $209.50. In recent news, Raymond James initiated coverage on the shares of DCLK with an Accumulate rating and another firm, Fletcher & Faraday, added the stock to its buy list. ***December contracts expire in 2 weeks*** BUY CALL DEC-195 TDU-LS OI= 316 at $12.50 SL=10.00 BUY CALL DEC-200*TDU-LT OI= 966 at $10.00 SL= 7.50 BUY CALL JAN-200 TDU-AT OI= 829 at $22.88 SL=19.63 BUY CALL JAN-220 QTD-AD OI= 126 at $15.63 SL=12.38 Picked on Dec 9th at $197.00 P/E = N/A Change since picked +0.00 52-week high=$209.38 Analyst Ratings 11-7-1-0-0 52-week low =$ 16.00 Last earnings 10/99 est= -0.14 actual= -0.13 Next earnings 01-19 est= -0.10 versus= -0.13 Average daily volume = 2.7 mln Chart = http://quote.yahoo.com/q?s=DCLK&d=3m **** GE - General Electric $143.56 +2.31 (+7.31 this wk) One of the most profitable companies in the world, General Electric has been able to make money in all kinds of different industries. The company is engaged in developing, marketing and manufacturing of a wide variety of products involved in generation, transmission, distribution and utilization of electricity and other goods. It produces aircraft engines, transportation equipment such as locomotives, appliances (both kitchen and laundry equipment), lighting, generators and turbines, nuclear reactors, medical imaging equipment, and plastics. GE is also a large player in the financial services field as well as information services. With ownership of NBC, General Electric is one of the largest broadcasters in the world. With this diversity and reach, it is no wonder they count their profits in the billions. GE owns a piece of just about everything and everybody seems to own at least a little piece of GE. Maybe that is an exaggeration but it certainly seems that way. So why our interest in GE? Profits, we hope. The biggest news item influencing our decision to profile GE is one that has not happened yet. The board of directors are meeting on December 17th. There is rampant speculation that they will announce a split. From a low of $94 in January, GE's stock has not looked back. Why not cap off a great year in the stock market by splitting the largest company. The real speculation is whether they will split 2:1 or 3:1. It would make sense for them to split 3-for-1. Why not just get it over with and split 3-for-1 and reduce the expense of future splits. Of course there are other reasons for our interest in GE calls. They have typically announced good news during the month of December. Also since July, GE's stock has broken above six double tops. The last double top it broke above resulted in a quick move of 10 points. Yesterday, GE broke above a double top at $140. A healthy move is possible due to both fundamental and technical factors. It is making new highs right now so there is very little overhead resistance. Support is at the recent breakout point, $141. In other news, as Tom Brokaw might say, GE was named the world's most respected company for the second straight year in a worldwide survey of chief executive officers conducted for the Financial Times. GE Chief Executive Officer Jack Welch was selected as the world's most respected business leader in the survey. On Tuesday, GE received a $1.98 billion Air Force engine contract. And finally, in the holiday spirit, last night the National Christmas Tree in Washington was switched on by President Clinton to reveal 70,000 GE lights. (I told you they are everywhere!) ***December contracts expire in 2 weeks*** BUY CALL DEC-140 GE-LH OI=18689 at $ 4.50 SL=2.75 BUY CALL JAN-135 GE-AG OI= 3222 at $11.88 SL=9.50 BUY CALL JAN-140*GE-AH OI= 5592 at $ 8.50 SL=6.50 BUY CALL JAN-145 GE-AI OI= 5319 at $ 5.50 SL=3.75 BUY CALL JAN-150 GE-AU OI= 4729 at $ 3.63 SL=1.75 Picked on Dec 9th at $143.56 P/E = 46 Change since picked +0.00 52-week high=$144.94 Analysts Ratings 9-10-1-0-0 52-week low =$ 86.19 Last earnings 10/99 est= 0.79 actual= 0.80 Next earnings 01-20 est= 0.92 versus= 0.80 Average Daily Volume = 4.96 mln Chart = http://quote.yahoo.com/q?s=GE&d=3m ************* NEW PUT PLAYS ************* No new puts today. ********************** PLAY OF THE DAY - CALL ********************** INKT - Inktomi Corp $166.94 1.06 (+21.94) Inktomi develops the world's most scalable software for the world's fastest-moving software environment: the Internet. The company's core technology underpins products for the Internet infrastructure that contribute to network performance, scalability and efficiency. Inktomi technology paves the way for emerging opportunities in online commerce, media and communications by enabling the Internet to intelligently accommodate more users and data traffic. Inktomi developed the search engine that runs such popular portals as HotBot, NBC's Snap, Yahoo!, and the Disney Internet Guide. INKT is a pure and simple split run. On December 3rd, the Board of Directors announced a 2:1 stock split payable on or about December 30th. The company has 300 mln shares authorized and 50 mln outstanding. Therefore there are plenty of shares available for the split. INKT share prices surged last Friday on the news. This week the momentum remained intact as the stock stretched into new territory. Yesterday INKT hit $179.88 setting the most recent new high. The profit-taking on the Nasdaq today was a blessing as it pulled INKT back into an entry range. Near-term support is at $160. An intraday dip to this level like we saw today would be a solid entry, but we may not be afforded this luxury if the market rages on. Plus today INKT received a Strong Buy recommendation from Thomas Weisel Partners. In other news this week, Inktomi and Sun MicroSystems (SUNW) agreed to invest $26 mln in Digital Island, a company that provides high-speed data network services for Internet businesses. This strategic alliance provides leadership in the content distribution industry. ***December contracts expire in 2 weeks*** BUY CALL DEC-160 KYQ-LL OI= 715 at $12.88 SL= 9.50 BUY CALL DEC-170 KYQ-LN OI= 648 at $ 7.63 SL= 6.00 BUY CALL DEC-180 KYQ-LP OI=1972 at $ 4.88 SL= 3.25 BUY CALL JAN-170*KYQ-AN OI= 221 at $19.50 SL=15.25 BUY CALL JAN-180 KYQ-AP OI= 345 at $15.63 SL=12.25 Picked on Dec 9th at $166.94 P/E = N/A Change since picked +0.00 52-week high=$179.88 Analysts Ratings 7-7-3-0-0 52-week low =$ 51.31 Last earnings 10/99 est=-0.10 actual=-0.09 surprise=+10.0% Next earnings 01-14 est=-0.08 versus=-0.14 Average Daily Volume = 1.96 mln Chart = http://quote.yahoo.com/q?s=INKT&d=3m ************************ COMBOS/SPREADS/STRADDLES ************************ The Dream Continues.. Wednesday, December 8 Blue-chips stocks continued to suffer from profit-taking while leading technology issues held Nasdaq losses to a minimum. The Dow Jones Industrial Average dropped 38 points to end at 11068 while the S&P 500 stock index slid 5 points to 1403. The Nasdaq composite finished the day relatively unchanged at 3586 after a morning rally to a new all-time high. Overall market breadth was again negative with declining issues outpacing gainers 3-to-2 on heavy volume on the NYSE. Yields on the 30-year Treasury moved up three basis points to 6.23% percent as prices fell 13/32. The two-year treasury finished down fractionally at 99-27/32 with a yield of 5.96%. Tuesday's new plays (positions/opening prices/strategy): Cendant CD JAN12C/JAN17C $4.06 debit bull-call Cohu COHU FEB25C/DEC30C $4.88 debit diagonal SBC Comm. SBC LJAN40/JAN55C $15.00 debit LEAPS/CC's All three of our new candidates offered favorable entry prices during today's session. The only position that wasn't available (on a simultaneous order basis) was the bullish calendar spread on Cendant. CD opened higher and closed finished up $0.50 at $19. Both COHU and SBC fell during the day with better-than-expected prices available in both spreads. Portfolio plays: Internet stocks dominated the market in today's session and our leading portfolio issue was Lycos (LCOS), up $10.43 to close at $77. Shares of the Web portal surged after Jefferies raised its price target and reiterated a 'buy' rating on the stock. They cited better-than-expected fundamentals for the upgraded target. The stock is rated a 'buy' or 'strong buy' by 19 of 21 analysts following the issue. Lycos is currently a play candidate in both the Spreads/Combos and Straddles sections. Our bull-call spread is now $20 ITM and the JAN-$70 straddle offered a $10.00 profit during the session. With the Internet stocks running rampant, this issue should move higher with any market strength. Another Internet issue that led the secondary stocks today was CyberCash (CYCH). The share price moved up $1.50 to close near $11 and the rally offered a great opportunity to roll-out to January in the neutral calendar spread. Our new position, MAR15C/JAN15C has a debit of $0.75. One small-cap issue that has quietly been on the rebound is Silicon Graphics (SGI). The current (neutral) spread offers two possible adjustments depending on your future outlook for the issue. A conservative adjustment would involve a roll-out to the Jan-$10 options, lowering the overall debit in the spread to $0.31. A investor with a bullish outlook would transition to the diagonal position (FEB10C/JAN12C) for an additional debit of $0.50, leaving the overall cost near $1.43. This move would allow $1.06 of upside potential, in the event the issue rallies further. The recent volatility has benefitted a number of our long-term positions and the straddle we commented on Tuesday, Williams Co. (WMB) moved up to $9.62 credit during the session. Cullen Frost Bankers (CFR) has also departed a recent trading channel to the downside and the straddle is now profitable. The current trend should continue to the next support level near $25. C.R. Bard (BCR) broke-down through a short-term support area near $51 and it appears that the stock could fall to the mid-$40 range. Our bearish debit spread is profitable with the stock below $56. The recent credit strangle on CYGN did not materialize but it turns out that was a good thing as the stock has managed to remain in the $17-$18 range after the FDA advisory committee approved their glucose monitoring device. Many of our recent picks have suffered from profit-taking after the recent rally. Most of the issues will rebound as the market moves higher in coming months but the key to success in spread strategies is position management. With this underlying goal in mind, we decided to execute roll-outs on a few of our calendar positions to January while the time premium is high. The first candidate in the group is Priceline.com (PCLN). The (bullish) diagonal spread could be moved to a January debit position for a credit of $6.00, leaving us with a JAN50C/JAN60C at a cost of $6.88. That brings the break-even down to $56.88 for the spread. Delta And Pine Land (DLP) provides another excellent example. Our new (bearish) diagonal spread is doing very well and we can also increase the probability of profit on the neutral position by moving to the JAN-$30 Put. The current spread, FEB30P/DEC30P has a cost basis of $1.25. A roll to the January option reduces the price of spread to $0.62 and allows us to widen the profit range for the issue. Loral Space (LOR) is also moving lower as the technology sector rallies but we can substantially increase the downside margin with a move to January. The credit for the transition to JAN-$20 calls (on the short side) is $0.56-$0.62. Toys-R-Us is the last, noticeably bearish issue in the small-cap calendar spread group. Fortunately, the spread has offered many favorable exits over the past few weeks. As it stands, the play ends in January so the only option is to close the long position for the remaining profit ($0.75) and move to the next candidate. Johnson & Johnson (JNJ) has been falling almost daily and it was a prime candidate for adjustment. The move to January $100-calls offered a $1.50 credit against the cost of the long-term (LEAPS) position. The current spread is LJAN100C/JAN100C at $3.12 debit. Sun Microsystems (SUNW) rocketed to a new high in the post-split buying frenzy that surprised even the most bullish supporters of the stock. Some analysts suggested the move was based on window dressing purchases by fund managers. In any case, we'll wait for the next pull-back before making a move to a higher strike price. Adobe Systems (ADBE) made a $7 recovery today after slumping to support near $60. The company announced some powerful e-commerce and dynamic data modules for their Internet publishing software. The product enables designers to create dynamic sites with one familiar authoring tool (providing both page design and database binding directly within the program) allowing Web teams to focus on more complex programming tasks. If only they could design new products to support their flagging share value. Thursday, December 9 U.S. stocks rallied at the close, pushing all three major indices into positive territory. The Dow Jones Industrial's led the market with a 66 point climb to end at 11,134. The Nasdaq composite index closed at a new record high of 3,594 while the S&P 500 index rose 4 points to 1,408. Trading volume on the Nasdaq set a record with 1.8 billion shares exchanged. Market breadth was negative in heavy trading on the NYSE with declining issues leading advancers 3 to 2. The bellwether 30-year U.S. Treasury bond rose 5/32 to yield 6.22%. Portfolio plays: The incredible Lycos (LCOS) rally continued during the morning session as the stock price rocketed to an all-time high at $92. Our current straddle position topped-out at $33 credit, a $19 gain on the one month play and both January (bullish) spreads are now significantly profitable. MessageMedia (MESG) rallied almost $5 in early trading to a midday high near $19.50 after Cisco Systems (CSCO) announced that MessageMedia would provide outbound and inbound e-messaging services for Cisco customers, resellers and partners worldwide. Cisco selected MessageMedia for its scalable e-mail solutions and its customer relationship management expertise. All of our recent plays on the issue were based on speculation of an upcoming announcement and it appears the rumors were accurate. Youth Networks (NETS) was another big winner, bounding $3.88 to close at $29. Rumors for this company suggest that Disney is planning to purchase 10% of NETS at $45 and create links to their current websites (Disney/Seek along with Go Network/NETS and MYBYTES.com). Network Associates (NETA) rallied $3 to finish at $25 after announcing a three year pact with Dunn Computer Corporation. Dunn specializes in new network design, implementation and integration solutions. Online brokers rallied again as E*Trade Group (EGRP), Ameritrade (AMTD) and TD Waterhouse (TWE) rebounded from yesterday's slump. All three issues made favorable moves and EGRP led the pack with a $3.25 spike. Ameritrade's climb puts the stock price exactly at the sold strike; the maximum profit area for our bullish diagonal spread. Another of today's favorable online financial stocks was Net@Bank (NTBK). Our current spread (JAN22C/DEC25C) can be closed for a profit of $0.62 but there is another alternative. A move to the JAN-$25 call would increase the downside margin significantly while providing a reasonable profit in the event the stock price rallies during the next six weeks. The new (bull-call) position would be JAN22C/JAN25C at a cost of $0.50. Internet retail stocks continue to perform well and Shop-At-Home (SATH) gapped to $13.50 during the morning session. The move allowed a favorable roll-out to January options in our (bullish) calendar spread. The current position is FEB15C/JAN15C at a debit of $0.38. Zoltek (ZOLT) continues to lose ground in a post-earnings dip and the question is where will technical support halt the downtrend. A move to the $10 area offers the perfect opportunity for a roll to the January options but for now, the issue has yet to find any support in the current slide. Cendant (CD) also back-tracked in today's session offering a new entry point in our (bullish) debit spread at $3.88. The recent consolidation area near $17-$18 will offer some downside support in the event of a small correction. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* This week I received more requests for conservative, long-term plays on small-cap issues. The majority of our spread plays on lower-priced stocks are performing well and the trend should continue as investors transition to new growth prospects in the new year. These plays are based on the current price and trading range of the underlying issue along with their recent technical history. Market sentiment and upcoming news or events will have an effect on these positions so review each play and make your own decision about the future outcome of the stock price. **** KM - Kmart $10.00 *** Not Much Room Below! *** Kmart is one of the world's largest mass merchandise retailers. They operate in the general merchandise retailing industry with locations in each of the 50 United States, Puerto Rico, the U.S. Virgin Islands and Guam. Kmart has 2,177 retail stores and the well-known Super-K Centers are located across the United States. The Christmas season is off to a great start as cash continues to flow generously during the first week of December. U.S. shoppers encouraged by low unemployment, free-flowing consumer credit and a good economy, showed few signs of reining in holiday spending. Brick-and-mortar retailers continued to report solid sales gains despite projections for a sharp increase in online shopping this holiday season and last week, adjusted retail sales were up 4.5% from year ago levels. Retailers continue to be very pleased and highly optimistic about the seasonal revenues with the strong U.S. economy contributing to an increase in consumer spending. Kmart expects heavy shopping over the Thanksgiving weekend to help December results and sales from consolidated operations for the past three quarters were up up almost 7% from a year earlier. With the recent slump in share value and favorable option pricing, this position offers a high probability of success with relatively low risk. PLAY (conservative - bullish/diagonal spread): BUY CALL JUN-7.50 KM-FU OI=654 A=$3.38 SELL CALL JAN-10.00 KM-AB OI=11757 B=$1.06 INITIAL NET DEBIT TARGET=$2.12 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=KM&d=3m **** PTX - Pillowtex $5.38 *** On The Rebound? *** Pillowtex is a leading North American designer, manufacturer and marketer of bed pillows, blankets, mattress pads and comforters. They also offer complimentary bedroom textile furnishings such as comforter covers, featherbeds, pillows and protectors, bedspreads, synthetic comforters, shams, dust ruffles and window treatments. PTX remains one of the top single-source supplier to retailers for top-of-the-bed home textile furnishings, with an assortment of products across multiple price points. It's been a long, bumpy road to recovery for this much-maligned industry leader and it appears that a rebound may finally be in the making. This week, PTX management published a very in-depth report concerning their financial condition and future outlook. All of statements appeared positive and the company continues to achieve new goals in the current business plan. We favor the new trend in the technical history and the low risk outlook for the position. PLAY (conservative - bullish/diagonal spread): BUY CALL MAY-5.00 PTX-EA OI=764 A=$1.88 SELL CALL JAN-7.50 PTX-AU OI=15 B=$0.38 INITIAL NET DEBIT TARGET=$1.31 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=PTX&d=3m ************** MOMENTUM PLAYS ************** QWST - Qwest Communications $38.06 *** Moving On Up! *** Qwest Communications is a leader in reliable and secure broadband internet-based data, including voice and image communications for businesses and consumers. The Qwest Macro Capacity Fiber Network, designed with the newest optical networking, will span more than 18,500 route miles in the United States when completed and Qwest also has a pan-European venture with Dutch telecom company KPN, to build and operate a high-capacity fiber optic network. Today, Warburg Dillon Read raised its price target on Qwest to $55, based on the potential value of its recent accomplishments. Other brokerages support the view including Salomon Smith Barney with a "buy" rating, US Clearing / Piper Jaffray with a "strong buy" rating, and Morgan Stanley Dean Witter with a "strong buy" rating. The upgrades focus on QWST becoming a global leader with several undervalued assets that should stimulate stronger growth and expected future positive surprises. We agree with the outlook and both spread positions are based on favorable option pricing disparities and bullish technical trends. PLAY (conservative - bullish/debit spread): BUY CALL JAN-30.00 QWA-AF OI=6979 A=$8.62 SELL CALL JAN-35.00 QWA-AG OI=13983 B=$4.62 INITIAL NET DEBIT TARGET=$3.75 ROI(max)=33% B/E=$33.75 For speculative, short-term traders.. PLAY (aggressive - bullish/debit spread): BUY CALL DEC-35.00 QWA-LG OI=10491 A=$ SELL CALL DEC-37.50 QWA-LU OI=10858 B=$ INITIAL NET DEBIT TARGET=$1.88 ROI(max)=32% B/E=$36.88 Chart = http://quote.yahoo.com/q?s=QWST&d=3m ************************************************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millineum with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE
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