The Option Investor Newsletter Tuesday 12-14-99 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) ************************************************************ 12-14-99 High Low Volume Advance Decline DOW 11160.20 - 32.40 11235.70 11143.00 1,027,880k 1,070 2,035 Nasdaq 3571.66 - 86.51 4127.38 3571.26 1,564,798k 1,492 2,710 S&P-100 758.62 - 4.51 765.99 757.37 Totals 2,562 4,745 S&P-500 1403.17 - 12.05 1418.30 1401.59 35.0% 65.0% $RUT 462.75 - 7.63 470.86 462.40 $TRAN 2908.88 + 12.90 2918.14 2888.40 VIX 24.47 + 0.87 26.44 22.71 Put/Call Ratio .49 ************************************************************* What was that noise? It was not a bump in the night that wakes you from a sound sleep with fears of monsters or burglars depending on your age. It was not the crack of thunder after a lightning bolt landing nearby. It was a horrible sucking sound as every trader took a deep breath as the tech market rolled over at 2:00pm. Is this "IT"? Is this the "big one"? Millions of traders are going to have a sleepless night tonight as they wait to exhale. If the market opens up tomorrow and moves on up as usual then a collective sigh of relief will be heard across the country. If the market opens down then everyone who was bleeding at the close, and some I know were hemorrhaging, will need transfusions of cash to cure their broken accounts. Remember on Sunday I talked about potholes on the rally road? We hit a big one today called the Retail Sales Report. The government caught you red handed spending those paper profits you made in the stock market this year. Retail sales were up +.9%, almost twice what analysts were expecting. At the same time the CPI was less than expected at +.1%. So why did the retail sales trip the bull? The rampant consumer spending is a major factor that the Fed watches for signs of the economy over heating. The formality of a Fed meeting in December had been ignored by many since there was no way the Fed would raise rates only one week before Y2K with no inflation in sight. All of a sudden the Fed meeting became a real threat. With the market still setting new highs, the economy gaining speed and no Y2K pull back in sight, there is no reason for the Fed to wait until spring to pull the trigger on another round of rate increases. OOPS! A rate increase next Tuesday? Yes, it may not be a sure thing but it does not have to be a sure thing to put fear into the markets. All of a sudden locking in those 65% gains for the year looked real inviting to many traders. The prospect of closing positions and taking the next two weeks off to watch the Fed and Y2K from the sidelines took on a whole new perspective. Yes, they might give up another 5% or so and they may have to pay taxes on their gains this year instead of next but at least they would have profits and they could relax for Christmas. Maybe we actually hit on the real reason for the sell off. Not the "excuse" of the retail sales report or the FOMC meeting next week. Maybe investors are just tired of looking around every corner for the next disaster. Maybe they are just plain tired of worrying about a possible Y2K drop at any moment. Maybe the increasingly bad market breadth is simply a leak in the dike holding up the rally and the huge gains made this year. Maybe all the tech bear warnings about excessive tech valuations simply awakened the sleeping investor subconscious's. Whatever the reasons the damage was sharp and swift. Tech stocks were hammered for big losses and it all happened in two hours. The traders on the sidelines bought the morning dip only to be blindsided by the severity of the afternoon selling. Intraday ranges were amazing. CMGI +$18 to -6, QCOM from a high of $437 to a low of $414 for a $23 spread. The QCOM chart here is an example of the night and day difference in market sentiment. Up +20 at 3:30 it dropped almost -25 points to the low of the day in only 20 minutes. The semiconductor sector took some serious hits across the board from the Solectron numbers. The major names lost gains in the high single digits but the big gainers recently like MSTR just got killed as the momentum players fled the scene. Rumors that some companies had been hoarding chips in case of Y2K problems put first quarter earnings in doubt. This was a pure case of over reaction but remember if you want logic don't look at the markets. The results for the day probably would have been a lot worse except for a strong rumor that Microsoft and the government were close to settling their court case. Rumors started Monday and gained speed today. MSFT was up +$4 at the height of the speculation but both the government and MSFT eventually said that the rumor was false. With MSFT a major component of both the Nasdaq and the Dow both indexes were benefiting from the price run up as well as other tech stocks in sympathy. What happened to the techs today has been happening to the broader market for months. CNBC had some interesting facts after the close. 52% of Nasdaq stocks are down for the year but 27% are up over 50%. The majority of the stocks up are the big cap tech stocks which are in the Nasdaq-100 and that is why the Nasdaq index is up +65% for the year. That means half of the Nasdaq stocks have been in a bear market correction while the rest were celebrating the coming of Y2K. On the NYSE the numbers were worse. 64% of the NYSE stocks are negative for the year. Last week there were 867 new lows on the NYSE accounting for 25% of all NYSE stocks. Today there were 567 new lows on the NYSE accounting for 15% of all NYSE stocks. Only 25% of the NYSE stocks are over their 200 DMA. At one time today there were more than 10:1 new lows to new highs. The ending number was only about 8:1 but still significant. The breadth that everyone talks about was very negative with decliners beating advancers by 2:1 on both the Nasdaq and the NYSE. This breadth has been bad and getting worse for several weeks which makes me wonder if we are really seeing that leak in the Y2K dike. Not only has the breadth been bad during the day but the last two days the "order on close" orders have been almost completely sell orders. Somebody, or more likely many traders wanted out of techs at the close today and wanted out bad. What had been orderly profit taking in the past with buyers at every dip turned ugly and nobody stepped into the gap today. Another bad sign was the flow of money into cyclicals. That is the kiss of death to a tech rally when stocks like MMM, IP and IR are up on a down day. If it looks like a duck, walks like a duck and smells like a duck is it a duck? If it looks like a correction feels like a correction and sounds like a correction is it a correction? Or is it a cleverly disguised buying opportunity? The key here is 3520 on the Nasdaq and 11050 on the Dow. If we break through those numbers to the down side then look out below. We will be in a weak area on the Dow that could cost us a couple hundred more points. The Nasdaq could also wander aimlessly until about 3340 where it should find very strong support. Hopefully neither of these scenarios will come to pass but I think we need to be aware of the possible Y2K implications. If traders were slowly moving to the sidelines before, then any indications of panic, like the abrupt sell off today could be like yelling fire in a crowded theater. Once a panic sell off begins, previous support levels will have no significance. Could we see 10,000 again before Y2K? While I do not currently expect it, there is still that possibility. The way I see it we have two distinct possibilities forming. 1. This is just a normal profit-taking spell after a remarkable rally. We have not had any serious profit taking in so long that the sharp sell off today was simply the result of a hair trigger on the part of traders with a lot of gains to lose. Another -100 points max and we are off to the races again. After all, funds would rather not sell now and trigger a taxable event in 1999 when they can wait and have all of 2000 to handle the tax problem. 2. The trickle of bad breadth over the last several weeks was a leak in the Y2K dike. The leak could be getting stronger as we get closer to the magic event and today could have traumatized traders planning to hold into joining the flow. If we are going to have a group of investors move to the sidelines then their time is getting short. With only 12 trading days left, in reality only 7 days since they would probably want to be out before Christmas, then tomorrow will be key. We should watch for buyers coming in off the sidelines to buy the dip. If there are no buyers then we should be sellers and move to the sidelines ourselves and plan our strategy for the January bounce. Another wild card here is the options/futures triple witching expiration on Friday. Normally the bias is to the upside during this week but the Y2K thing added an extra joker to the deck. Staying invested, the rest of the year may take an incredible cast iron stomach and a case of Rolaids. Picking market direction in normal times should be left to the Psychic Hotline but uncovering the true direction for the next two weeks is something even Fox Mulder and Dana Scully would be hard pressed to resolve. For me I think discretion may be the better part of valor and barring a resumption of the rally tomorrow I am going to unwind my trades and watch from the sidelines. Good Luck, Sell Too Soon. Jim Brown Editor ********** STOCK NEWS ********** 3Com Shareholders Get a Stake in Palm IPO By Cindy Christ Shares in 3Com (COMS) bucked a sell-off in the technology sector Tuesday after the No. 2 network equipment firm said it had filed with federal regulators to spin off its Palm Computing unit. At the close, shares in the Santa Clara, Calif.-based company jumped $5.81, or 13 percent, to $50.63 after trading earlier at a new 52-week high of $52.19. COMS was the Nasdaq's third most active issue with volume of 29.7 million shares. Average volume for COMS is about eight million shares. /members/stocknews/121499_1.asp ************** Market Posture ************** As of Market Close - Tuesday, December 14, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 11,160 Neutral 11.12 SPX S&P 500 1,340 1,400 1,403 BULLISH 12.03 OEX S&P 100 700 750 759 BULLISH 12.03 RUT Russell 2000 430 450 463 BULLISH 11.12 NDX NASD 100 2,650 3,150 3,167 BULLISH 12.03 MSH High Tech 1,340 1,630 1,672 BULLISH 12.03 XCI Hardware 1,075 1,160 1,224 BULLISH 11.11 CWX Software 1,000 1,160 1,248 BULLISH 9.03 SOX Semiconductor 570 660 588 Neutral 12.10 NWX Networking 650 800 842 BULLISH 12.03 INX Internet 525 675 751 BULLISH 12.07 BIX Banking 645 690 573 BEARISH 11.30 XBD Brokerage 395 450 427 Neutral 11.30 IUX Insurance 625 650 605 BEARISH 11.30 RLX Retail 875 910 974 BULLISH 11.23 DRG Drug 375 395 351 BEARISH 12.07 HCX Healthcare 750 790 701 BEARISH 12.07 XAL Airline 180 190 152 BEARISH 5.21 OIX Oil & Gas 285 315 291 Neutral 11.23 Posture Alert The Nasdaq party has momentarily stopped, thanks to the efforts of the bond market. The yield on the 30-year Treasury bumped up to 6.30%, causing technology stocks to drop like a rock. Losing sectors Tuesday include Semiconductors (-6.82%), Internet (-4.91%), Morgan Stanley High Tech (-3.75%), and Brokerage (-3.09%). There are no current changes in posture, however, many sectors are on the verge of a downgrade if we don't see improvements from a technical standpoint. *************** Market Sentiment *************** Tuesday December 14, 1999 Breaking Down! Technology stocks got blistered today as selling pressure hit most sectors across the board. By now, you know the reason is due to the sell-off in the bond market, thanks primarily to the Retail Sales figures. What is always amazing is the speed at which the Street will turn-on-a-dime. Recently, this market has had numerous economic indicators proving to be positive, one after another. All of these positive events were thrown out the window with one shot today. The shift in sentiment can change extremely quickly, and with the latest in technology coming across millions of investors' desktops, we would view changes in perception to continue playing a major role in this market. The 30-year Treasury is now back at 6.30%, which is getting close to the danger zone. Today's action now means that any major economic indicator will most likely throw the bond market into new 52-week highs. This is not a positive scenario for the equity markets, and could spell trouble down the road. However, on the flip side, don't forget that the long bond was slightly higher that today's level, just 8 business days ago. In today's age, perception and reality are vastly opposite sides of the spectrum, and based on the media coverage, you would have thought that the long bond wasn't at these levels in many months. However, we were here just 8 days ago, so if we don't get any negative economic figures, and the bond holds support in this range, then this market can continue on its path. In this market, all investors have to remember that stocks & options drop twice as fast as they go up. It may take many weeks or months to make the gain, only to witness the gain evaporate over a couple of days. One sector that has gotten punished over the last few trading days has been the Semiconductors Index (SOX). With today's -6.8% drop, the index has lost 14% from just last week. The speed, at which market sentiment changes, whether it is blamed as profit taking or a true fundamental change, is staggering. When looking at the chart of the SOX, we witnessed a nice reversal one week ago today. Since then, it has been all downhill. With today's close of 587.99, the index closed just above the 50-day moving average (587.74). From a technical standpoint, you would expect a nice bounce in that sector very soon. However, if this sector breaks support, it could spell trouble for investors. The reason we highlighted this sector is just to show how quickly gains can evaporate. We have recently witnessed many big gains in numerous technology sectors, so you must be careful to protect yourself to the downside and lock in some gains. From a technical standpoint, the Internet Index (INX), the Nasdaq 100 (NDX), and the Software (CWX) Index, look very similar to the Semiconductor Index chart from last week. When you combine these strong reversal signals with the fact that investor sentiment can change so rapidly, you get a strong potential of a downdraft. Who knows, maybe these sectors bounce tomorrow with the help of Oracle's strong quarter, but if not, take aim, because you will see more sectors breaking down! BULLISH Signs: Cash Flow: The amount of money being poured into this market continues to be Strong, as evidenced by this last week's record IPO's. 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 up in stock price. Mixed Signs: Volatility Index (24.47): Once again, the VIX presaged a near-term market top, when it bounced off of 20. It is now safely off of the lows, however, a break through its 50dma may signal more downside in the market. BEARISH Signs: Interest Rates (6.30%): The yield on the 30-yr Treasury is back into dangerous territory. 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. However, we did see a slight downtick in sentiment this last week. Energy Prices: With the rapid rise in crude oil, everything from manufacturing to transportation will be affected by higher costs. These higher costs will be felt 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% Friday, December 10 86,405 +138.9% 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 Benchmark (12/10) (12/14) Overhead Resistance (770-800) 14.51 3.96 Overhead Resistance (750-765) .85 .68 OEX Close 763.49 758.62 Underlying Support (730-745) 3.01 3.51 What the Pinnacle Index is telling us: Based on 12/14, overhead resistance (750-765) is very light, while and underlying support continues to build strength. Overhead (770-800) has dropped dramatically, but with option expiration this week, we doubt there will be any significant move to the upside. Put/Call Ratio Friday Tues Strike/Contracts (12/10) (12/14) CBOE Total P/C Ratio .45 .40 CBOE Equity P/C Ratio .35 .32 OEX P/C Ratio 1.44 1.42 Peak Open Interest (OEX) Friday Tues Strike/Contracts (12/10) (12/14) Puts 750 / 14,912 750 / 14,349 Calls 780 / 13,427 780 / 12,491 Put/Call Ratio 1.11 1.15 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 December 14, 1999 24.47 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 24, 1999 53.0 28.7 December 10, 1999 51.7 29.3 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 11160.17 -32.11 -32.42 -64.53 Nasdaq 3571.66 37.93 -86.51 -48.58 $OEX 758.62 -0.36 -4.51 -4.87 $SPX 1403.17 -1.82 -12.05 -13.87 $RUT 462.75 3.67 -7.63 -3.96 $TRAN 2908.88 21.04 12.90 33.94 $VIX 24.47 2.68 0.87 3.55 Calls Mon Tue Week QCOM 421.25 26.06 3.69 29.75 Bungee jumping anyone? CMGI 205.75 17.81 -6.13 11.69 Dropped, hard to let go NTAP 164.00 6.75 3.38 10.13 New, a quick split play NXLK 66.69 5.13 -2.56 2.56 New, added to Nasdaq 100 GE 149.88 0.75 1.06 2.44 Board meeting on Friday NT 88.06 0.69 -0.88 -0.19 Numbers don't tell story VOD 48.94 -0.50 -0.38 -0.81 Sector approaches support SNE 186.25 -1.88 0.81 -1.06 Dropped, SNE flattens out ARBA 234.25 -2.25 -0.25 -2.50 ARBA split on Friday AOL 88.50 2.31 -5.50 -3.00 Chalk up another for AOL TMX 105.19 -2.38 -2.56 -4.94 Bombarded by good news MACR 81.88 -2.81 -2.19 -5.00 Prices continue to surge CLS 81.63 3.81 -8.94 -5.13 Delivers the pullback SUNW 75.56 -1.44 -4.88 -6.31 SUNW has some solid support VRTS 102.75 -1.50 -4.81 -6.31 Will Oracle save VRTS?? INKT 161.06 10.50 -17.19 -6.69 Provides room for entry PRGN 73.75 -0.25 -7.88 -8.13 Dropped, broke $80 NOK 159.50 -1.50 -7.56 -8.50 Gives us a firm bounce STM 127.38 -1.69 -7.75 -9.44 Closed right on support USWB 40.88 -7.06 -2.94 -10.00 Dropped, botched buyout NSOL 207.00 -10.50 -1.25 -11.75 New, we want a split! DCLK 181.81 2.50 -16.69 -14.19 Looking for adventure? JDSU 219.88 -10.19 -14.19 -24.38 On double secret probation! Puts KIDE 38.00 -2.19 -4.50 -6.69 Broke the 100-dma GT 28.19 -0.19 -0.44 -0.56 Rolling downhill nicely GILD 38.69 1.00 -1.31 -0.31 Declining relative strength ETYS 46.50 0.81 0.56 1.38 Shrugs off amateur hour PGR 79.38 2.25 0.56 2.81 Dropped, end of the trend ************ WOMANS WORLD ************ DECISIONS, DECISIONS....YHOO, QCOM and spelling??? Personally, I'm glad we got a sell off today. Let's just hope it stops. I've been very concerned about the euphoric feelings in the market, these last few weeks. Unfortunately, I am still dealing with the nightmares of my hard drive crash from Friday. Being the great computer technician that I am, (joke!) I promptly messed up my back-up computer too. Talk about a contrarian indicator! I did not mind being out of the markets on Monday, but by today, my anxiety level had grown. Sunday, I was not able to read OIN or do any research. Like you, I felt like a fish out of water. Finally, I was able to get online for the last 15 minutes of today's session. During that 15 minutes, I felt I had to prioritize potential trades and market sentiment. I have been on the phone with various computer technicians, all day Monday and Tuesday. Basically, I have been void of the Internet, OIN, research, CNBC, email and all quotes, since Friday mid-day. Fifteen minutes does not give one much time to sort things out and make decisions when they've been out of touch for several days. My reaction on Friday was automatic, sell my vulnerable positions and take profits. Monday didn't excite me. But TODAY, ...well this was a sell-off. I needed information, access to my online accounts and the ability to trade! I had 15 min to evaluate both my QCOM and YHOO positions. Deciding to focus on only a few strong plays going into Y2K proved beneficial to me today. I felt so unorganized. As I reviewed their charts, I realized that last Friday, I had been lucky to sell my YHOO positions at the high of the day, which continued to sell off on Monday and Tuesday of this week. I had already purchased QCOM on Thursday when it hit its 10 dma. A good entry for QCOM. Today, I should have sold more YHOO in order to take additional profits, readying myself for the next buying opportunity. By the time I pulled the chart up, it had sold off and was stabilizing. I thought about buying more contracts, but as I reviewed the chart, I decided to hold off. Yhoo is now sitting below its 5 dma (339 7/16), which it hasn't done since the announcement was made to enter the S&P. Stochastics showed an overbought situation, as did my directional indicator. With plenty of time before January earnings, triple witch Friday approaching and the10 dma (305 1/4) seeming to be inviting the 5 dma to join it for dinner, I just decided to wait and see if I could get an even better entry tomorrow. Deciding not to sell more positions in this quick evaluation into the close, may prove to be a mistake. I still needed to evaluate QCOM and I was running out of time. YHOO could gap down in the morning. On the other hand, after selling off since Friday, it may be ready to start feeling better and that down draft may make a quick recovery. Basically, I'm in a buying mode. If YHOO is still sick tomorrow, I'll take more profits off the table. I'll be watching the interaction between the 5 & 10 dma from the daily chart, but watching the movement of the stock price on the 1 & 5 minute charts. Depending on its movement and the broader market, I may get a great entry tomorrow. As I flipped to QCOM, I saw that it had taken off again today after a nice run up yesterday. Nasdaq was selling off in the afternoon, but QCOM waited till late in the session, to erase most of its gains. I watched carefully. I expect QCOM to be a big mover this week, in front of the meeting next Monday. Granted it has moved up since Friday, but this late day sell-off seemed more of a gift to me. When I saw it bounce off its lower Bollinger Band about 6 minute before the close, I jumped in. At first I fought with limit orders, trying for a really cheap entry. But as the buying pressure continued, seen by using candlesticks, I changed to a market order, seconds before the close. I felt lucky to get 10 January contracts at what I think will prove to be another good entry. Since the meeting is imminent, I did not want to risk missing this entry. With a big Nasdaq hit this afternoon, buyers may resurface tomorrow, bringing QCOM with it. I could be wrong. If I am, I will get out quickly and wait for a better entry. A triple-witching option expiration week can be very volatile. Volatility can be profitable or costly. Now, on to a little discussion about some email I have received. It has been brought to my attention that I can not spell the word LOSE. I always seem to type LOOSE instead and my spell checker has not cooperated by reading my mind. I've had a long talk with it, but all it will do is underline words in red or green. Being dyslexic, I've always had to learn unusual ways to deal with an occasional brick wall. For my readers, I promise to try to remind myself, that when I think it is LOOSE, to just automatically change it to LOSE. Trying to get a dyslexic to "think it through" doesn't help. Now if I can only remember to catch myself!! Hopefully, most understand the intent. To the few guys out there who keep reminding me of this, let me explain that I do know how to spell PROFIT and WIN. I'm not sure if you noticed, but neither one of those are four lettered words.... LOSE is!! Interesting, huh? Misspelling a four lettered word isn't too bad, is it? Don't feel badly. I've been corrected for similar things all my life. Only last year I realized "in other words" was not "another words". The year before that, I learned that I ate "giblet gravy" instead of "chicklet gravy". Obviously there is a larger than usual gap in one of my synapse. Thank goodness it hasn't affected my professional career or trading life, which is what I really want to share with you. One final note. I have not been on email successfully, since last Friday. I have been unable to send & receive consistently since Sunday. While writing this column, my new laptop finally arrived. Do you know how happy I am? I expect to have it up and running by tomorrow afternoon. Have a nice week! Renee renee@OptionInvestor.com ************** TRADERS CORNER ************** Frag Plan Y2K-1 My December Game Plan is going well, but it is time to think through what the Marines call a Fragmentary Plan, or Frag Plan, which adjusts the current plan but leaves most of it intact. General Situation. This is a unique time of the annual financial cycle, indeed, a unique time due to the convergence of several factors. Because we are on the eve of Y2K, the Fed has increased the money supply to ensure that liquidity is available for whatever problems arise due to the dawn of the new millennium (http://www.bog.frb.fed.us/). However, in 2000, I expect the Fed to begin to move against asset inflation (ie, the reason call plays have been so lucrative this year) recognizing that inflation is not the only benchmark of success (see The Economist's survey of trends for 2000). How the Fed handles this will be delicate and might be the difference between a "soft landing" and a "hard landing." Y2K is also a "wall of worry," with real potential consequences (eg, smaller countries & companies will have bigger legacy problems). The financial community is dedicated to minimizing Y2K problems, and if it means gross asset inflation for a month or two, that is relatively a small problem which can be easily "corrected" in February and the New Year. The net result is that I think that the markets will trade sideways with some volatility or trend upwards through the New Year. As well, I believe that the first week in January will be bullish due to the continued inflows of 401k and pension fund cash, and individuals who waited until the New Year (though, clearly, many are jumping aboard this train now). Specific Situation. I have a little more than half of my Short Term Option Portfolio in January NOK, QCOM, and SCH plays. My ST Option Portfolio represents about 45% of my total financial assets. In my LT Stock Portfolio (about 55% of my total assets), I started trading a certain amount of money in options in early November. I had put that capital into a High Yield Bond Fund in July, when the market peaked, and had started taking that cash back out and putting it into new stock and longer term option plays (eg, VRSN, SCH, GSTRF, AMZN Jan95, SCH Mar35) in October. By November, recognizing the significance of the large volume breakout on the last two days of October, I took all of that money out and went on the offensive. Now, almost 35% of my LT Stock Portfolio is in my "stocking stuffer" January Calls (SCH, EGRP, SNE, GTW, NOK) and cash from recent sales (YHOO, SUNW) of the "stocking stuffers" that went ballistic. My long term plan for that capital is to enhance my LT Stock Portfolio with Jan02 LEAPs, which I dollar cost average into. Included in my mental accounting for the LT Stock Portfolio is my Roth IRA, a potent secret weapon (due to the tax free compounding which it will offer me for the next 4 decades) in which I currently hold stock (VRSN, purchased at 58, split adjusted, in October), options (AMZN Jan95, which recently made a nice move into the money), and cash from the sale of half of the VRSN when it peaked with its split; I will make the maximum contribution to my Roth as well this year. I also have a 403b, which is invested in the most aggressive growth option available; can't do a thing to accelerate the returns there, unless I become a mutual fund manager at TIAA-CREF. Mission. Make as much money as possible in this bullish period. Execution. 1. Overall Intent/ Desired Endstate. On December 31, have all available cash fully invested in call options on newsletter picks. 2. In my ST Options Trading Portfolio, target shoot entry into January calls on newsletter picks on Dec 13-17, and 29 - 31. I am deliberately taking December 20 - 28 off from entering new plays to spend time with family and friends during Christmas. Last year, I started establishing larger positions in the last week of the year, and it was totally dead, with low volume and little movement. Good entry opportunities, but not much movement. This year may be different, but that is the plan that fits my personal life. 3. Enter some LEAP positions now in my LT Stock Portfolio. Based on my belief that the market will continue to rise between now and mid January, as well as my research on the fundamentals of specific stocks I have traded, I am considering LEAPS on QCOM, NOK and SUNW. Sure, $13,000 for a QCOM LEAP might seem insane, but that contract will split along with the stock in a few weeks, and I think that the adoption of CDMA products in a whole variety of forms is only at a very early stage. So too with NOK-led wireless access protocol (WAP), and SUNW Internet standards. It might not make sense to enter new LEAP plays until March, depending on the hangover from this Y2K euphoria. 4. Take profits, continuously, Dec 13 - 31 (monitoring the profit taking somewhat passively, Dec 20 - 28). Why take profits? Cash flow, cash flow, cash flow. I will take profits on parts of my current NOK, QCOM, and SCH plays at returns like 25 - 50%, even though I expect that in the first few weeks of 2000, these positions will yield even higher returns. By Dec 31, though, I want to have every last available dollar in a call play. 5. Take profits heavily, Jan 3 - 5. I expect that there will be a heavy inflow of cash in the first trading days of the year when everything works. The largest, newest, and most technologically advanced companies (ie, most newsletter plays) will do the best with regard to Y2K preparedness. There will be problems with smaller companies and smaller countries. These problems will get coverage, but I expect that the impact will be cushioned and spread out over a few weeks. My bias would be to go totally to cash by the middle or end of the first week of the New Year. The entire financial community, including the Fed, is holding its breath, and it doesn't care too much if there is a huge rally between now and the first week of the New Year... as long as there is not a major breakdown. 6. (Maybe) Pick plays with individual earnings runs in January. Last year, January was a bullish month overall. The first week was strong, but it was followed by several weeks where the markets traded sideways with sharp volatility. YHOO, AOL, MSFT and other stocks report earnings in January, but given the overall run up in stock prices, I wonder whether there will be strong earnings runs. The key here is to be very cautious and not to overreach, especially if I already have strong gains. Last January, I made 100% plays on AOL and MSFT, but met a very educational waterloo with DELL in February. At a certain point in January (and it may be in the first week), the best investment I can make may be to buy a plane ticket somewhere that I simply enjoy part of my gains without putting any of them at risk. This is a decision that I need to make based on monitoring how well I am making and executing decisions. If I am making bonehead plays, off to somewhere warm! By that point, I will be long overdue for my monthly week off. Administration. 1. I have to do my taxes. Ouch. 3 different brokerages, hundreds of trades. Lots of gains, but now I have to figure out how to keep as much of them as possible. A task for next week. Can't wait until 8/15 (with the 4 month extension) this year. On the plus side, I have a well optimized system with my current broker, and I have the right questions to ask my accountant, thanks to an SP Brown article a few weeks ago. Next year, I need to implement the use of Quicken to keep better records. Long Term Goals. 1. Own a House. In my last year of grad school, option trading has already given me the financial cushion to move out of a student apartment into a great condo which I rent in San Francisco's Richmond district -- an important move back home for me after 12 years in college, the Marines, teaching and graduate school. I set up a spare bedroom as an office where I trade, complete with DSL line, high quality monitor, and other essential peripherals. But paying rent is a financial losers game -- the capital might as well disappear into thin air, and it is simply predictable cash flow for my landlord. Forget that! I trade like a madman because I plan to buy a first house within the next year. I plan to use a 15 year, instead of a 30 year, mortgage to build equity faster and to avoid paying so much in interest over the life of the loan. I want to have enough capital built up so that I have a range of financing options, including putting down over 20% of the purchase price to avoid higher financing fees. I plan to keep trading through this first purchase to be able to afford a larger house in the next 5 years. Towards this end, I want to be able to keep trading while working in a professional career. A steady income will help me to qualify for a mortgage, which, in turn will allow me to build equity in my first house. But my trading style will have to transition into a longer term approach in which LEAPS and perhaps some of the advanced strategies, like spreads, play a larger role. As well, I will still be able to make the short term plays which Jim Brown advocates. Indeed, my trading experience now represents a kind of investment. However, I will have to maximize my use of the advanced order entry capabilities which Preferred Trade is pioneering. For instance, I can still target shoot entries with their buy to open, market, contingent on stock (now available for NYSE, soon available for NASDAQ, stocks) by planning trades in non-market hours, and putting in the orders early in the trading day. When I have a good entry, I can enter a OCO (Order Cancels Order) order in which I set both a protective stop below the contract price, and a limit sell above the price (Preferred estimates early to mid 2000 for OCO capability). This will make it a lot easier to trade with peace of mind while working. 2. Career Flexibility. At this stage in my life, as a 30 year old finishing a professional degree, I have a lot of human capital. If I add to that a significant amount of financial capital, I can do different things after a few years, such as jump into a risky start up, run a search fund to buy a small business in a mini-LBO type of transaction, or continue in the professional career which I have chosen as a first step. My personal passion is for technology and education, and, in the San Francisco Bay Area, there are many, many opportunities to pursue that kind of career. Having a cash cushion will make it easier to pursue those opportunities. Renee's last piece about the pros & cons of trading full time was quite interesting. I for one, could never just trade. Trading is about making money, which is about being able to do what I really am passionate about in my career. 3. Lifestyle. This is an amorphous goal, right now. I am a former Marine and teacher, and, to be quite honest, I was probably happiest when I was living out of a pack, walking up and down hills in Korea; or when I was teaching and coaching high school for an annual salary less than some of my daily gains last week. Of course my future family will probably not share the same taste, so cash, and the flexibility it brings, will be key. The paradox is that, because I am still single, I can put a lot more at risk than I would if I had a mortgage and family right now. If I put all of it on the table, and lose, I can call my high school buddy who initially recommended OptionInvestor.com, tell him he's an idiot, joke about it, and go get a job. 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: ***** SNE $186.25 +0.81 (-1.06) It has been a lengthy and successful play but at last the time has come to bid Sony adieu. Sony does not appear to have the momentum to make it through $190 and looks to have flattened out a bit, as we have been trading in a narrow range for some time now. Though Sony does have solid support, it is simply not making the kind of moves to warrant a continuation of our call play. CMGI $205.75 -6.13 (+11.69) Sometimes its hard to say goodbye to an old friend. That's the case with our play in CMGI. The Internet venture company has been a fantastic play. Since its addition to our list of plays CMGI has ran up over $100 in 3 weeks. A great example of not only how profitable an Internet play can be but also the volatility involved in some of these stocks. CMGI reports earnings Wednesday after the close. We will stand back from CMGI at least for now. We are expecting a split announcement either with earnings or when the stockholders meet on the 17th. After hitting a high of $226.13 right out of gate this morning traders began to pull some money off the table. CMGI finished the day down -6.13 with a range of over $22 for the session. Volume was heavy with just under 8 million shares exchanging hands, indicating this could be it for the time being. We will keep our eye on CMGI as we will probably meet again soon. USWB $40.88 -2.94 (-10.00) Whitman-Hart's all stock offer for USWeb leaves a lot to be desired, but the logic makes sense. Too bad the market does not trade on logic. Traders were not waiting around to figure it out, they just dumped the stock. USWB initially opened at $58 on Monday but quickly headed lower as WHIT was tanking on the news. WHIT is now off over $27 on the week. Obviously a kicker for USWB when you have a stock deal. We will move away from this position over the near-term, although we believe that this merger will be a beneficial combination over the long-term. This is a situation an investor could ride out, but not a trader. There are better short-term opportunities that we can take advantage of. PRGN $73.75 -7.88 (-8.13) Directly from the open today, a "no buts about it" sell-off took place and returned PRGN to firm support at $70. PRGN was consolidating at near-term support in the proximity of its 5-dma ($82.10) and 10-dma ($81.51) after hitting a 52-week high at $96.75 last Tuesday. There was no specific news event to affect trading. PRGN was a pure momentum play and the negative pressure played a vital role in today's performance. We're exiting the play tonight for the above- mentioned $80 violation. PUTS: ***** PGR $79.38 +0.56 (+2.81) It has been excruciating to watch this stock rally despite all of the good reasons for it not to be doing that. Unfortunately the risk that Progressive's stock has found a bottom and will attempt to break its downtrend is too great to continue recommending buying puts on this issue. It is significant that PGR traded up to important resistance at the $79.50 level and failed to climb above it. It is possible that PGR could get weak again in the face of the fear that its profits may be impacted by an increase in property damage from Y2K disturbances. If it were to weaken again look for support at the $71.88 level, a possible exit point if you decide to continue holding puts. ************************Advertisement************************* 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 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 DISCLAIMER ********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter Tuesday 12-14-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ***************** PICK NEWS - CALLS ***************** TMX $105.19 -2.56 (-4.94) TMX pulled back on mild profit-taking and concerns of Mexico's 2000 budget may be delayed in Congress. Coming off Friday's all-time high of $110.50, the ADR is now consolidating at near-term support of $105 in the vicinity of the 5-dma ($106.13). Firm support is well established at $100. A return to this level should raise red flags as it sits under the 10-dma ($102.07) and could signal the momentum has subsided for the time being. Recall the stock is splitting 2:1 but not until Feb 1st. Still TMX was bombarded by positive analyst forecasts and trading momentum was very strong last week. Just yesterday Dresdner Kleinwort Benson Securities reiterated a Buy rating and issued a $126 target price. The conservative trader will wait for a confirming bounce and bullish market sentiment before opening any call positions. INKT $161.06 -17.19 (-6.69) Yikes! A 17+ point downdraft sounds so drastic. Actually INKT has simply returned to the upper spectrum of near-term support ($155-160) effectively providing traders with another solid entry into this split play. Yesterday players saw a $10.75 final advance and all-time highs intraday at $185. The news that Microsoft had reopened its doors to the search provider prompted traders to bid up the shares. Inktomi's award-winning Search Engine will once again be the search provider for all of MSN. INKT 2:1 stock split is expected on or about December 30th. If the market can rebound from today's episode, this could be a blessing of an entry point. AOL $88.50 -5.50 (-3.00) Chalk up another one for AOL. For the 3rd consecutive day, AOL set a new 52-week record high on Monday as shares continued to rise amid rumors of a cross-marketing deal with Wal-Mart (WMT). Officially there's no comment, but there's speculation that WMT will either sell AOL products and services on their new Website (to debut next month) or there'll be an ISP partnership in the future. Our holiday momentum play took a breather today as profit-taking took center stage amongst the Internets. Still AOL remains perched on its lofty pedestal. Firm support is much lower at $80-$82 just a smidgen under the 10-dma ($83.63). In the news on Monday, AOL reported that at this mid-point in the holiday season, first-time online buyers have doubled since last year and six mln of its members have already made online holiday purchases. ARBA $234.25 -0.25 (-2.50) ARBA shares will be splitting this Friday and we are looking for a split run to get us there. ARBA did a nice job of providing some room for points of new entry today, offering a trading range of nearly $12. $240 has been providing a bit of resistance for ARBA. ARBA has support at it's 5-dma of $232.50 and further support at $230, if needed. If you are going to play ARBA at this point, exercise caution, as there is not much time left for this play. Your best bet for new entries is to target shoot on an intra-day dip. It will be important to keep an eye on this one if you are in, and remember to use your stops. It will also be important to close out your positions before the close on Thursday. Any kind of market downdraft similar to today, would likely kill the final leg of this split run. GE $149.88 +1.06 (+2.44) We had a nice open yesterday for GE. The quick drop gave us another opportunity to initiate a call position at favorable prices. We had to act quick though, because the decline did not last long. After bottoming in the A.M. at $145.75, GE had a nice steady rise to just over $150 to justify its role as a market leader. Today, GE was unable to make another new intraday high, but it did manage to make a new closing high. We now have two day resistance at $150.50. GE was an excellent performer on a day when a lot of market leaders got beat up. New positions can be added if GE trades above $150.50. Support remains at $140.00. Keep those stops in, and consider raising them to lock in profits as GE looks to continue rising. In a rare conference call meeting with analysts today, GE CEO Jack Welch made several announcements. Most importantly, he revealed a very good profit outlook for next year. Welch said that GE is on track to grow earnings by 15 percent in 1999 and 2000. He stated that their "e- business" which is the new "E" in GE, should be a big contributor to the company's growth in the future. He also announced that General Electric is aggressively expanding overseas and plans to make up to $25 billion in acquisitions this year. Welch gave no indication as to whether the board will announce a split on Friday. CLS $81.63 -8.94 (-5.13) When we first introduced Celestica to our subscribers we mentioned that we had grown tired of waiting for a pullback in the price of the shares so that we may get a good entry point to take advantage of the upcoming split. Sure enough, two days later we got the pullback we wanted. The largest company in Celestica's industry group (CLS is third), Solectron announced earnings that were in line with estimates but fell short on revenue expectations. The news sent shockwaves through the entire sector and CLS was not spared the carnage. Analysts said a shortage of key components had hurt Solectron and was part of a broader problem for printed circuit board makers. Fears that CLS may be experiencing the same problems as Solectron may be unfounded. An analyst with CIBC Worldmarkets reiterated his Strong Buy rating on CLS and kept his 12-month price target of C$180. The sector analyst at Bank of America went so far as to say that CLS was seeing no component issues and continues to forecast "significant upside" to revenue and earnings estimates. Their price target remains $130 on Celestica. We need to be cautious about buying CLS down here. It did do some technical damage today by dropping more than 10% on three times normal volume and closing on its low for the day. There is some support for the stock at $80. Aggressive investors could buy calls if CLS bounces at that level. If CLS trades below that level, a drop to $76 seems likely as it would close a gap. The $76 level would be an excellent entry point. It is possible that neither of those scenarios will occur and investors relieved to hear the positive reiterations from analysts may start bidding up shares right away. If that happens a very aggressive investor could attempt to jump on the momentum but be very wary of the support level at $80 where a stop should be placed. VOD $48.94 -0.38 (-0.81) Our play in VOD is struggling a bit. As we've said, this play is driven primarily by speculation of a takeover of German telecom giant Mannesmann AG. Yesterday VOD said they would file a hostile takeover for Mannesmann under German law, rather than in the UK. Under Germany rules VOD could choose to alter their bid a later date. VOD has lost -0.81 for the week and is sitting near a support level of $49. It's somewhat concerning that VOD has closed below its 10-dma for two days in a row, which tonight sits at $50.05. Tuesday afternoon a state court threw out a suit filed by three shareholders of Mannesmann who were trying to block its chairman's attempts to stave off the hostile takeover. We will stay with our VOD play for now. The telecom index lost about 1.5 percent in trading today and is approaching intraday support. We will watch the VOD for a bounce and another opportunity to buy calls. Should we see a bounce in shares of VOD, check the volume to make sure the move is being supported by solid volume, and not a head fake. VRTS $102.75 -4.81 (-6.31) The software sector gave back some of its recent gains today to the tune of just under three percent. Traders joined in selling shares of VRTS from the opening bell. The retail sales report this morning didn't do anything to help our cause, with the numbers coming in nearly twice as high as the street was expecting. VRTS did stick its head out of the recent trading range early Monday morning. After hitting $110.63 shares of VRTS began to decline yesterday and the selling continued today. If you entered a play in VRTS you should have been stopped out yesterday. The intraday chart does look a little rough but we are looking for the $100 area to provide support for the software company. VRTS did close below its 10-dma at $103.79 but the volume the last two days on the decline has been about average, indicating the selling is orderly and probably just profit taking at this point. Oracle reported earnings after the close today and posted a solid gain in both earnings and revenues. This should help the entire sector to rally tomorrow. STM $127.38 -7.75 (-9.44) The weakness in the Semiconductor stocks was said to be more than just profit-taking from traders. There was some institutional selling taking place late in the trading day that had the $SOX index down 43.05 points today. The signals being sent in the sector are mixed, as a number of the Semi stocks being hit this week have been receiving positive comments, for instance STM received two upgrades. Lehman Bros reiterated their Buy rating and raised the price target to $170. Goldman Sachs raised there price target to $185. But this positive sentiment going forward was not enough to keep the stock from falling. The market sell-off was overriding most of the individual stories today in the sector. Good support levels at $134 gave way in the midst of this overall weakness, but not on major volume or negative sentiment. This is being called a great buying opportunity by many analyst, and does not look like a case of WE SELL, WHILE WE TELL YOU TO BUY. Today the $127 level held up well and this is why we are keeping STM as a play. If the market is just taking a breather, but is still planning to go higher, the $127 level is worth a look for an entry point. MACR $81.88 -2.19 (-5.00) Prices continued to surge this week in the shares of MACR, hitting another 52-week high on Monday at $88.69, at this point profit-takers stepped up as usual. The stock closed in the middle of the trading range at $84.06, bouncing up from the low of the day $81.44. The trading range remains wide and volatile, but consistent with previous trading sessions. Today's overall market sell-off did not effect the trading pattern of MACR, and has provided us another buying opportunity. Going forward we remain bullish in the midst of some overall market weakness. We should be able to trade MACR at current levels. Support levels held up well at $80. If there is any further weakness, look for a bounce near $77.25. DCLK $181.81 -16.69 (-14.19) Alliance news, stock split rumors, and new advertising deals signed this week was not enough to keep DCLK from falling today. The stocks in the Internet software and services space were getting hammered across the board. This kind of profit-taking is something that many stock and option traders were hoping for so they could get into stocks like DCLK at lower prices. We were looking to enter the stock on a bounce near the $190 level and on Monday that is exactly what we got. The stock traded as high as $202.50 after that bounce. If you were adventurous, you had a nice ride to the upside, and hopefully you took profits accordingly. Today after gapping up at the open, DCLK just continued to get weaker with the market all day. The Nasdaq finally took a break, as traders took some profits. This could be setting up for a nice buying opportunity, but we will have to target shoot our way in. Remember that this is a very risky stock to trade. Adventurous Traders only. NT $88.06 -0.88 (-0.19) The final numbers don't tell the whole story. Despite an S.G. Cowan reiteration of a Buy rating and upward revised price target of $105, NT chalked up a small gain yesterday. With daily volume moving up following the breakout of a trading range last week, we expected good things, but nothing compares to today's buying frenzy wherein NT scaled a cliff of market terror all the way $94 during amateur hour. While a lousy time for a slip and fall, NT did just that, skipping along in the $90 range for most of the rest of the day, until it fell off another ledge to $88.06 in the final 30 minutes. By the closing action (almost 115,000 shares in the last minute), it would appear there were buyers, but not at the ask price. There may be a bit more room to fall in the morning, and there is no solid base of support until NT approaches $85 again. The doji on the chart does not look good (the upside down "T" with a tail pointing up). NT still has a great story to tell (see Sunday's write-up), but with the market as volatile as it is, today's action may just be a hiccup of profit-taking, and the buy the dip crowd may show up for the garage sale. There is still a lot of money to be put to work. Don't isolate yourself to watching just this issue for an entry. Let an improvement in the market be your guide. NOK $159.50 -7.56 (-8.50) Recall from Sunday, we noted that NOK may have gotten ahead of itself a bit and that any move south of $165 would set NOK up to test $155. It did just that today and gave us a firm bounce north back up to $160, but had trouble holding. This has put us firmly at the low end of the trading channel. Under normal circumstances we would expect another bounce back up, but the market is anything but normal. If volume picks up and the price moves south, we will want to close the play. There is one saving grace keeping NOK on the list tonight - it is a split candidate. We have learned that Nokia will likely hold a board of directors meeting this week, though we are unable to verify that it will actually happen, let alone the exact date. It is conceivable that they could announce a split should there actually be such a meeting. We'll keep you posted, but be on your guard for more selling. NOK is on thin ice. It too will melt if the rest of the market does, even though the long-term outlook remains good. QCOM $421.25 +3.69 (+29.75) QCOM is the stock market's version of bungee jumping. Will the cord snap QCOM back before it hits dirt? The answer today appeared to be "yes". However, what's really important is that we finally got that breakout over $407.50 on strong volume yesterday. Today, the trend continued as QCOM rose to another all-time trading high of $437.50 on strong volume. That's where the bungee cord comes in. No sooner did it hit the high than it fell a total of $23 in 20 minutes into negative territory. It would have been a bad technical sign to see it close below yesterday's close and today's opening. Fortunately for us, it reclaimed $7 to close up $3.69 on the day. The bungee cord worked as a result of what appeared to be strong buying volume activity in the final 7 minutes of trade. Good support is found at $414, less so at $421. As long as the rest of the market doesn't roll over too sharply, we expect the volume to continue pushing the price up in anticipation of the shareholders approving a stock reauthorization to enable the 4:1 split. The meeting is on December 20th; the split date is tentatively set for December 30th, pending shareholder approval according the QCOM's investor relations department. Target shoot at your comfort level if the market permits, but if you lack an iron stomach, you may want to consider a less volatile play. JDSU $219.88 -14.19 (-24.38) JDSU is on dangerously thin ice. Thus we are putting it on double-secret probation tonight for consistent bad behavior. Were it not for the potential reward that the 2:1 split promises on December 30, this slacker would be kicked off the team in a nano-second. In short, the 10-dma (currently $242) did not hold, nor did support at $228. While there is historic support at $220 from late November, JDSU is precariously close to falling through that ice too. Should it fail to hold $220, the next move would be a plunge into cold water at $200. This has all been happening on increased volume, which indicates some "distribution" or institutional selling taking place - not a vote of confidence for the future. We still believe there will be a split run, but it had better get going. There are a couple ways to play JDSU from here. First, target shoot at $200 and hope you've picked the bottom (certainly safe, but maybe not realistic). Second, take a position at this level with the expectation that we found a bottom today (just make sure you can find it with both hands!), though we consider this a risky strategy since the market may carry JDSU further down. Third, wait for the volume to show itself and a new upward trend to begin before taking a position. We'd opt for the latter. The market internals make it tough to predict when the slide will end. As such, we don't recommend trying to catch the falling knife and would rather wait for the new trend to show itself. (not for the weak-hearted) SUNW $75.56 -4.88 (-6.31) Wow, that's some retracement - roughly 75% of the gain experienced since its split last week. Support needs to hold at $74, which it did today, but just by the hair on its chinny-chin-chin. Though today's sell-off of the issue happened on whopping volume (more than twice the ADV), SUNW still managed a bounce off that support level during the last hour of trade - no small feat today. If there is a positive spin to this, it's that $74 also happens to be the 10-dma, a historical level of trading support for SUNW. Nonetheless, the waters are treacherous now and we need to proceed with caution. Support is at $74; after that, quite solid at $72. Target shoot to your level of comfort or wait for a new trend to establish itself. Otherwise, you'll have to wait for a breakout over $83 for a "safer" position. **************** PICK NEWS - PUTS **************** KIDE $38.00 -4.50 (-6.69) KIDE fell out of bed this morning and was in a sour mood for the rest of the day. $40 tried to hold KIDE up with no luck and this level wound up providing KIDE's resistance for the rest of the session. KIDE has additional resistance at it's 100-dma of $44 and it's 10-dma of $46.50. KIDE has exhausted all of it's moving average support with the exception of its 200-dma, which is all the way down at $27. Being that the next level of solid support for KIDE is $30, we could be cleared for a healthy fall from here. Watch for any moves up backed with holding resistance for possible new entries. As always, if you are in, keep your stops tight to protect your profits. Next stop, $30? That would certainly make for some happy holidays, for us anyway! GT $28.19 -0.44 (-0.56) I was under the impression that tires bounce! Apparently, I was mistaken but they certainly do roll downhill nicely, don't they? GT found some support this morning at $28.50, however, this level was unable to hold as GT fell to a low of $28.06 and closed just pennies higher, positioning GT well for a continuation of this seemingly never-ending downward trend. GT has immediate resistance at it's 5-dma of $28.50 with further resistance at it's 10-dma of $30 (this should provide some formidable resistance being that $30 is a strong psychological number as well). At this point, it is somewhat difficult to identify any kind of support aside from the levels and the 52-week low of $27.81. Time new entries very carefully at this point, being that we are now in territory that GT has not dwelled in since 1993! Watch for the GT mini-rallies (we saw a very small example of this in today's session) backed by holding resistance. GILD $38.69 -1.31 (-0.21) The shares of Gilead Sciences popped up yesterday but it has been downhill ever since, finishing today on its low. The little rise on Monday gave us an good entry point to enjoy what could be a nice downslide. GILD was weak today even though Biotechs in general where unchanged. That is the kind of declining relative strength we are looking for when buying puts. If GILD follows through to the downside it could test support of $35 pretty quickly where we will consider taking profits. ETYS $46.50 +0.56 (+1.38) We got a bit of a scare on Monday morning with the Goldman Sachs upgrade to Buy with a $65 price target. After the initial 'amateur hour' spike though, investors shrugged it off and ETYS bounced south from resistance at $50, providing a very nice entry. Volume was extremely heavy at 6.6 mln shares, as ETYS fell to close near the low of the session at $45.81, up fractionally for the day. On Tuesday, shares jumped to $48 shortly after the open, but then slowly bled throughout the day, closing near the low of the day on volume slightly higher than the ADV. There was a jump in volume near the close, bringing prices off of the session low. ETYS is continuing to obey the 5-dma, dropping anew each time it gets close, forming resistance at $48. At this point we would like to see convincing weakness in ETYS before opening a new position. Look for a break through the $46 support level on strong volume, and we could see a drop to long-term support near $40. ************** NEW CALL PLAYS ************** NTAP - Network Appliance $164.00 +3.38 (+13.50 for the week) The idea was inspired. Yet simple. Separate storage from an application server and put all that data on a special "appliance" tasked with serving data at high speeds. In 1992, NTAP originated this high-performance network appliance concept. Today they're a recognized leader in data storage and access. Corporations and ISPs, including 3Com, Adobe Systems, Tripod, John Deere, NationsBanc, and GTE use NTAP's solutions to reduce the cost and complexity of managing their mission-critical data. NTAP is quick in-and-out split play. Shares will split 2:1 after the bell on Monday, December 20th so there's only four trading days to play this one. Today the stock hit another all-time high at $167.75 on strong volume despite the negative market pressure. Technically near-term support is at $160, then $150 just above the 10-dma ($147.54). It's likely you'll need to target shoot for a bottom intraday around $160 to get an entry into this powerful mover however, keep your eyes open for a bounce off the 10-dma if market conditions and time permits. NTAP has the additional bonus of being in a charged up sector. Storage is a key component in the Internet revolution and NTAP is reaping the benefits. Watch other sector players to gauge sentiment in helping to choose your entry points. Just remember, this is a short-term play that needs to be closed by the end of trading on Monday. As an added bonus, NTAP is being added to the NASDAQ 100 Index. This event and the upcoming split should keep the momentum intact this week. Analysts have also been positive on NTAP and on Thursday, AG Edwards rated the stock an Accumulate with a price target between $175 and $185. BUY CALL JAN-155 NUL-AK OI=131 at $23.00 SL=18.00 BUY CALL JAN-160*NUL-AL OI=505 at $20.25 SL=15.75 BUY CALL JAN-165 NUL-AM OI= 0 at $17.63 SL=13.75 New Strike Picked on Dec 14th at $164.00 P/E = 267 Change since picked +0.00 52-week high=$167.75 Analysts Ratings 7-2-1-0-0 52-week low =$ 33.68 Last earnings 10/99 est= 0.17 actual= 0.19 surprise=+11.76 Next earnings 02-17 est= 0.20 versus= 0.12 Average Daily Volume = 954 K Chart = http://quote.yahoo.com/q?s=NTAP&d=3m **** NXLK - Nextlink Communications $66.69 -2.56 (+2.56 this week) Nextlink delivers broadband communications services to businesses over fiber optic and broadband wireless facilities. The Company currently provides these services in 41 markets across the U.S.. Nextlink is the largest holder of fixed wireless spectrum in North America, with licenses covering 95 percent of the population in the top 30 markets in the U.S. Additionally, Nextlink has acquired exclusive rights to a 16,000 mile high-speed, IP-centric fiber optic backbone network that will connect over 50 cities in the United States and Canada. Completion is expected by the end of 2001. Nextlink has been a very good performer in this red hot sector. From a 52-week low of $11.25, NXLK's stock reached an intraday high today of $73.94 before succumbing to broad selling in NASDAQ shares into today's close. Nextlink was launched into new high ground on Monday when it was announced that NXLK will become the newest member of the NASDAQ 100. By making it into the NASDAQ 100, NXLK will now be among the elite technology companies that are driving the changing face of corporate America. This added exposure typically results in an increase in overall investor interest as well as mandatory buying of the company's shares for Index funds. Today's pullback could provide an excellent entry point for a call position. With a little follow through selling on the open it may be possible to go long on NXLK at the $65 level. This price point was the old high before the recent breakout and could prove to be a good support area. If for some reason $65 does not hold, then $60 would be the next significant support level. A rally above today's opening price of $70.50 could also prove to a good entry point for a bullish position on Nextlink. Nextlink had another very good news item in addition to the news of being added to the NASDAQ 100. On December 8th it was announced that Forstman Little will invest approximately $850 million in Nextlink in the form of convertible preferred stock with a conversion price of $63.25. The investment represents ownership of approximately 8 percent of Nextlink's fully diluted shares. The conversion price will provide excellent long term support. NXLK also agreed on December 7th to acquire Eagle River Investment's 50 percent ownership interest in INTERNEXT LLC for common stock. The deal which should close early next year provides advantages for Nextlink if it's stock price is above $64.20 at the time of the closing. This price dynamic provides another support level for the shares of NXLK. BUY CALL JAN-55 QNF-AK OI= 141 at $13.75 SL=11.00 BUY CALL JAN-60 QNF-AL OI= 343 at $10.13 SL= 7.50 BUY CALL JAN-65*QNF-AM OI= 329 at $ 7.25 SL= 5.25 BUY CALL JAN-70 QNF-AN OI=1474 at $ 5.00 SL= 3.25 Picked on Dec 14th at $66.69 P/E = N/A Change since picked +0.00 52-week high=$73.94 Analysts Ratings 8-5-2-0-0 52-week low =$11.19 Last earnings 11/99 est= -1.40 actual= -1.27 Next earnings 02-23 est= -1.45 versus= -1.04 Average Daily Volume = 977 K Chart = http://quote.yahoo.com/q?s=NXLK&d=3m **** NSOL - Network Solutions $207.00 -1.25 (-11.75 this week) Network solutions is the leading Internet domain registration services provider worldwide. At one time NSOL was the only registrar of Internet addresses ending in domains .com, .org, . Net, and .EDU. In 1999 the U.S. government opened the market To competition. By registering Internet domain names the company enables businesses and other organizations and individuals to establish an Internet identity. NSOL has registered more than 4 million .com Web addresses representing businesses around the world. Network Solutions received competition in 1999 from AOL, France Telecom and others pursuing the .com registration business. NSOL is now marketing its network engineering and security services. We welcome NSOL to our play list as well as the Nasdaq 100. December 20th NSOL will join a group of other high flying tech stocks in the Nasdaq 100 list of top technology stocks in the country. In early August NSOL was trading near the $50 level when it began its climb to unprecedented levels. In October NSOL reported better than expected earnings and the ascent continued. NSOL has been another stock that has been well received by investors and analysts alike. Monday analyst Stephen H. Sigmond at Dain Rauscher Wessels reiterated a Buy rating on the .com registrar. His 12-month projected price target for NSOL was $250. The rate the stock has been moving lately it may it $250 by Y2K. All the brokers that cover the company have either a Buy or Strong Buy rating. Another reason we've added NSOL to our play list is the possibility of a split announcement. NSOL has already split this year back in late March. Technically the chart for NSOL couldn't look better. Friday NSOL hit a high of $233.88 and began to see some profit- taking set in. NSOL is down $11.75 for the week and is now approaching its 10-dma at $202.50. The weakness may not be over yet but we are looking for a bounce in shares of NSOL stock. Intraday support for NSOL can be seen near $204. Should we see a bounce accompanied by better than average volume we would look to buy calls. Notice the volatility in the price of the calls listed below. This may not be a play for everyone to consider, due to the high volatility. Prior to entering a play check the direction of the stock and the volume to make sure it has a solid backing prior to placing your order. There is no other news at this time. BUY CALL JAN-200*JNU-AT OI=105 at $32.13 SL=25.25 BUY CALL JAN-210 JNU-AB OI= 99 at $27.38 SL=21.50 BUY CALL JAN-220 JNU-AD OI=325 at $23.13 SL=18.25 Picked on Dec 14th at $207.00 P/E = 334 Change since picked +0.00 52-week high=$233.88 Analysts Ratings 7-6-0-0-0 52-week low =$ 47.00 Last earnings 10/99 est=-0.19 actual= 0.21 surprise=+10.5% Next earnings 01-27 est= 0.23 versus= 0.11 Average daily volume = 1.05 mln Chart = http://quote.yahoo.com/q?s=NSOL&d=3m ************* NEW PUT PLAYS ************* No new put plays for today. ********** PLAY OF THE DAY ********** MACR - Macromedia Inc. $81.88 -2.19 (-5.00 this week) Macromedia is a leading provider of Web authoring and production software for professional Web developers. Its products range from Dreamweaver, the market-leading professional Web authoring environment, to Flash, the industry standard for high-impact, vector-based Web sites that deliver motion, sound, interactivity and graphics. The company recently announced a new corporate strategy known as the Macromedia eBusiness Infrastructure, which will provide developers and companies with the first comprehensive, integrated solution for creating, managing, personalizing and analyzing Web content. Sunday's Write Up MACR was getting a lot of positive press this past week and traders were rewarding the company by pushing the stock price up over 10 points. The intra-day trading pattern is perfect for stock and option traders. The recent pattern has the stock surging up 5 or 6 points, profit-takers then step up to the plate to take some of the chips off of the table, the stock bounces back off of support levels, currently between $77-$79, then the stock surges again to new highs. $87.50 is the current 52-week high. This has been a consistent pattern to the upside since we began initial coverage of the stock, the stock is now up close to 20 points in three weeks. Going forward, the bullish scenario is still firmly in place and we believe that at current levels the stock is setting up for higher-highs. The stock closed up strongly on Friday at $86.88, closing at the high end of the range, if history repeats itself we should see a pullback the following trading session, look for a bounce near $80. Trailing stops are a must after positions have been taken. At the Streaming Media West '99 conference this week, Chairman and chief executive Rob Burgess said the company's Shockwave.com Web site has signed the creators of "South Park" to produce 39 original animated shorts based on the show. He added that the Macromedia Flash Player has been installed by more than 180 million consumers worldwide. Tuesday's Write Up Prices continued to surge this week in the shares of MACR, hitting another 52-week high on Monday at $88.69, at this point profit-takers stepped up as usual. The stock closed in the middle of the trading range at $84.06, bouncing up from the low of the day $81.44. The trading range remains wide and volatile, but consistent with previous trading sessions. Today's overall market sell-off did not effect the trading pattern of MACR, and has provided us another buying opportunity. Going forward we remain bullish in the midst of some overall market weakness. We should be able to trade MACR at current levels. Support levels held up well at $80. If there is any further weakness, look for a bounce near $77.25. BUY CALL JAN-80 MRQ-AP OI=118 at $11.50 SL= 9.00 BUY CALL JAN-85 MRQ-AQ OI= 61 at $ 9.38 SL= 6.75 low OI BUY CALL FEB-80 MRQ-BP OI= 33 at $15.00 SL=11.75 low OI BUY CALL FEB-85 MRQ-BQ OI= 43 at $11.13 SL= 8.75 low OI Picked on Nov 23rd at $67.56 P/E = 142 Change since picked +14.31 52-week high=$88.69 Analyst Ratings 5-4-1-0-0 52-week low =$26.25 Last earnings 10/99 est= 0.31 actual= 0.19 Next earnings 01-26 est= 0.15 versus= 0.12 Average daily volume = 937 K Chart = http://quote.yahoo.com/q?s=MACR&d=3m ************************ COMBOS/SPREADS/STRADDLES ************************ Seasonal Shopping Sends Inflation Signal.. Monday, December 13 Blue-chip stocks fell on Monday as finance issues weakened ahead of this week's key inflation report. Technology issues saved the day, driving the Nasdaq to another record close. The technology index climbed 37 points to an all-time high of 3,658. Stocks in the Dow Jones Industrials dropped 32 points to 11,192 while the S&P 500 index was off 2 points at 1,415. In the broader market, declining issues led advances 18 to 12 on active volume of more than 977 million shares on the NYSE. There were 87 stocks at new highs while 472 made new lows. The U.S. Treasury 30-year bond was off 17/32, and the yield rose to 6.21%. Sunday's new plays (positions/opening prices/strategy): Southwest Banc SWBT MAY20C/DEC20 $2.25 debit calendar Geron GERN MAR12C/DEC15C $1.62 debit diagonal American Ins. AIG JAN96C/J110C $10.88 debit bull-call American Ins. AIG JAN104/D115C $9.00 debit diagonal Ciber CBR MAY25C/MAY30P $10.25 debit straddle Jones Pharm. JMED MAR37C/MAR40P $8.12 debit straddle The majority of our new positions were active in early trading and the day's downward movements allowed favorable prices in the bullish plays. AIG was the first candidate and our choice was the diagonal spread. Unfortunately, the large drop during the session reduced the premium for the short position to almost nothing. In any event, the target price was available. Geron also moved lower at the open and prices for the long (MAR-$12.50) option were well below Friday's quotes. We adjusted the target accordingly and our opening price was $0.25 less than originally planned. The spread traded as low as $1.50 debit. Southwest Bancorp was not nearly as cooperative and the best observed price in the (neutral) calendar spread was $2.25. The straddles were more difficult to gauge with almost no volume during the session. There was plenty of movement in the underlying stocks for target-shooting but the market makers inflated the 'ask' prices soon after the opening limit orders were entered. Our recorded entries are based on observed quotes during the session. Portfolio plays: Technology stocks dominated the leaders but analysts said anxiety about Tuesday's release of the Consumer Price Index and a rise in bond yields weighed on the broader market. The record close of the Nasdaq composite came after the Nasdaq-Amex Market Group replaced 15 companies in its Nasdaq 100 index but pressure on big financial companies dragged the majority of issues lower. One of the better groups was the airline sector with the S&P airline index up almost 3% after many of the major carriers raised business-class ticket prices in select markets. United Airlines (UAL) is one of our most recent LEAPS/CC's plays and the stock price moved up to our sold (short) strike near $75 on the rally. We will monitor that spread position closely for a move to the January options. Internet stocks were higher today and ExciteAtHome (ATHM), which provides high-speed Internet access over cable lines was up $5 at $51.38. Unfortunately, last week's drop took us out of the issue early and we did not benefit from the rally. Those of you in the bullish spreads can thank our well-known version of Murphy's Law for the move. Lycos (LCOS) was another headline stock, climbing $4 to close at $85. Share value in the Internet portal has moved up 25% in the past five days and both of our new positions have profited from the recent rally. Communications stocks were also higher and Qwest (QWST) was our leading performer in that group. The stock price rose $3 to a 26-week high near $42. Shares of the telecom company were higher after being listed in Barron's as one of the favorite picks of York Capital Management fund managers. Bell Atlantic (BEL) was another participant in the sector rally, climbing $2 to the top of a well establishing range near $65. BEL is one position that will have to be moved to January this week. Etek Dynamics (ETEK), InterVu (ITVU), and TV guide (TVGIA) also climbed higher during the day's trading and each of the spreads on these issues is at maximum profit. Many of the smaller-cap technology stocks also performed well in today's session. Youth Networks (NETS) was one of our best movers with a $2.50 rally to a new all-time high near $31. Our (bullish) diagonal spread will need to be adjusted into January during the next few days to maximize profit. Cohu (COHU) climbed $0.75 to a a recent high near our sold strike at $30. With the short-term resistance at the current price, we decided to roll the position into January. Our new diagonal spread is FEB25C/JAN30C at $2.88 debit. Kmart (KM) has been moving up since we opened the new play last week and today the stock finished $1 higher at $11.50. Our bullish diagonal position is now profitable with a $0.62 credit. Another short-term mover in this group is Pillowtex (PTEX). The stock price rose $0.75 to a technically favorable close at $6 and our spread is now in positive territory. ProxyMed (PILL) finally returned to the living with a midday rally to $11.50. A roll-out to the JAN-$15 options provided a $0.31 credit for the long-term calendar spread at $15. Net@Bank (NTBK) climbed to $23.50 during the session, once again providing a favorable credit for the move to January with a $0.25 cost basis in the new play; JAN22C/JAN25C. Tuesday, December 14 U.S. stocks fell Tuesday after long-term interest rates jumped on news that the economy may be overheating. The Dow Industrial average ended down 32 points at 11,160 while the Nasdaq index plunged 86 points to 3,571. The broad market S&P 500 index was 12 points lower at 1,403. Declining stocks outnumbered advances 2,035 to 1,070 on active volume of 1 billion shares on the NYSE. The 30-year bond plunged 1-8/32 and the yield jumped to 6.30%. Portfolio plays: Despite the swell of profit-taking in the market, 3Com (COMS) was a big winner today. The stock price gapped up in pre-open trading on news it will spin-off its Palm Incorporated, maker of the Palm Pilot hand-held computer devices, in an IPO slated for February. Shares in the company were up almost $6 after reports that 3Com filed with federal regulators to raise up to $100 million in the initial public offering. The Palm division garnered $176 million in the last quarter with net income of $9.7 million for the period. Goldman, Sachs and Morgan Stanley Dean Witter will underwrite the offering. Both of our spreads on this issue are at maximum profit. In the LEAPS/CC's portfolio, United Airlines (UAL) continued to move higher today, and the rally provided a good opportunity for a roll-out to January options in our deep ITM position. The new spread, LJAN60C/JAN70C has a debit of $13.25. We will adjust the the calendar position (LJAN75C/DEC75C) at the end of the week. Computer Associates (CA) also rallied during the morning session, allowing a favorable move to January. The position, LJAN60C/JAN65C remains bullish with a $4.88 debit, but the upside risk has been eliminated. Market bellwethers moved higher during the sell-off with Johnson & Johnson (JNJ) and Proctor & Gamble (PG) rising in heavy trading. Recent leaders Sun Micro (SUNW) and Solectron (SLR) were both hammered by profit-taking but neither is in danger of a significant loss. The SUNW correction actually boosted our net credit in the play and we will use the favorable movement to roll forward (and up) into January options. The Straddles section has endured some less-than-exciting activity in recent weeks but many of the plays are starting to benefit from the incredible volatility of the market. Ames Department Stores (AMES) rallied almost $6 at midday after Banc of America said that analyst Tom Tashjian has upgraded retailers, expecting investors to return to consumer stocks. Other profitable straddles include: Cullen Frost Bankers (CFR) which has moved well below the trading range near $30, providing a $1.31 profit in the MAR-$30 position; Allegheny Technologies (ATI) which has fallen $4 since the first of the month, offering $0.88 profit; and our new winner, Station Casinos (STN) which dropped $2 today to close at $20. The January $25 straddle now offers a closing credit of $5. Those of you that didn't take profits in the Lycos (LCOS) straddle should certainly be out now with this week's move to $90. Our best exit credit was $33, an $18 profit for the one-month play. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* With a much-needed correction now occurring, we decided to search for some new speculation plays. These positions are less likely to suffer from current investor anxiety in the broad-market and the long-term outlook allows plenty of time for eventual profit. **** NAV - Navistar $41.31 *** New Merger Rumors *** Navistar International operates in one principal business segment, the manufacture and marketing of diesel trucks and school buses, mid-range diesel engines and service parts in the United States and Canada, and in selected export markets. Navistar is the #3 truck-maker in the world behind Freightliner and PACCAR. Navistar also provides financing and insurance for dealers and customers and sells its diesel engines to other truck-makers such as Ford. The company operates plants all over the western hemisphere and exports its products to more than 70 countries. The merger rumors are back and investors are again speculating on Navistar as a takeover candidate, buying the stock out of a recent slump since early November. A few months ago, Volvo was rumored to be a potential suitor but no deal was announced. The stock surged today as rumors circulated among floor traders and demand for call options increased on heavy volume. Regardless of the potential merger outcome, Navistar has performed well fundamentally. In early December, the company reported solid results for 1999 and forecast a continued strong performance in the year 2000. NAV's quarterly operating income was excellent with gross margins at 18% and a 42% return-on-equity. After the report, Salomon Smith Barney reiterated their "buy" rating with a target of $60, based on the upside earnings surprise. Technically, the stock is coming out of a short-term base near $38 with favorable divergences in money-stream and time-segmented volume. We will position both plays with favorable profit and no upside risk in the event of a possible buyout announcement. PLAY (speculative - bullish/diagonal spread): BUY CALL JUL-35 NAV-GG OI=200 A=$12.12 SELL CALL JAN-45 NAV-AI OI=3062 B=$2.75 INITIAL NET DEBIT TARGET=$9.00-$9.12 TARGET ROI=50% - Short-Term Position - PLAY (speculative - bullish/diagonal spread): BUY CALL JAN-40 NAV-AH OI=5501 A=$5.12 SELL CALL DEC-45 NAV-LI OI=608 B=$0.53 INITIAL NET DEBIT TARGET=$4.50 TARGET ROI=25% Note: Our plan is to roll this position into a debit spread (JAN40C/JAN45C) after Friday's expiration. Chart = http://quote.yahoo.com/q?s=NAV&d=3m *************** TECHNICALS ONLY *************** These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. **** AGTX - Applied Graphics Tech. $8.88 *** On The Rebound! *** Applied Graphics Technologies is a major provider of outsourced advanced digital imaging management and archiving services through its proprietary Digital Link system, to magazine and newspaper publishers, advertisers, entertainment companies, cataloguers and retailers, as well as major corporations. AGT supplies a complete range of digital and traditional processes for images; scanning, color enhancement, editing, archiving and electronic distribution. In early November, Applied Graphics reported quarterly earnings of $0.01 a share, well below the analysts' expectation of $0.17 a share. The report sounds terrible and yet the stock began to move higher because of a bold statement included in the release. The text suggested that their newly organized E-business had landed important business with Wal-Mart, the largest retailer in the United States. It went on to imply that this new business should generate one-time revenue from E-commerce applications and the company was hopeful that the real payoff would be the recurring revenue streams from future E-commerce opportunities. Of course Wal-Mart has recently announced online partnerships with a number of smaller public companies so this speculation may have some merit. In any case, the technicals are favorable. Support exists near $7 with plenty of time to complete a double bottom (AMJ - OND) from the two-year lows. An increase in volume on any rally to the $10 area would signal the move to a higher trading range and our position will benefit in any future rally. PLAY (conservative - bullish/diagonal spread): BUY CALL JUN-7.50 QDF-FU OI=0 A=$3.00 SELL CALL JAN-10.00 QDF-AB OI=58 B=$0.62 INITIAL NET DEBIT TARGET=$2.18 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=AGTX&d=3m **** BIDS - Bid.com $5.05 *** Takeover Speculation *** Bid.Com is one of e-commerce's leading international online sales and marketing organizations. The company offers a compelling, entertaining and cost-effective method of selling a wide array of goods and services over electronic distribution channels. BIDS is strategically positioned to leverage its business-to-consumer technological leadership by offering an online auction platform for ventures into business-to-business markets, licensing custom branded e-commerce and for distribution through cable media. In addition to strategic alliances with CapGemini, NBCi, America Online, Chapters.ca and Rogers New Media, the company has also achieved agreements in the heavy machinery, automotive and travel sectors. In plain terms, the company sells computer equipment, jewelry, electronics and other merchandise through its auction web-site. Most of its offerings are new products, shipped directly from the supplier. In recent weeks, BIDS has surged to highs near $7 on rumors that online auction giant eBay (EBAY) was preparing to buy the Toronto based firm. Regardless of the possible outcome, this issue appears to be poised for upside movement in the months ahead. Our bullish speculation play offers a favorable method to participate in a possible rally with very little downside risk. PLAY (conservative - bullish/calendar spread): BUY CALL MAY-7.50 BDU-EU OI=1780 A=$1.06 SELL CALL JAN-7.50 BDU-AU OI=925 B=$0.25 INITIAL NET DEBIT TARGET=$0.68 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=BIDS&d=3m ************************Advertisement************************* 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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