The Option Investor Newsletter Thursday 12-16-99 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) ************************************************************ 12-16-99 High Low Volume Advance Decline DOW 11244.90 + 19.60 11244.90 11124.40 1,070,310k 1,454 1,629 Nasdaq 3715.06 + 93.11 3715.25 3621.95 1,424,908k 2,107 2,045 S&P-100 775.70 + 4.87 775.70 764.64 Totals 3,561 3,674 S&P-500 1423.11 + 5.59 1423.11 1408.35 49.2% 50.8% $RUT 465.26 + 3.94 465.26 461.32 $TRAN 2933.01 + 1.97 2933.01 2909.58 VIX 24.88 + 1.52 25.58 22.82 Put/Call Ratio .46 ************************************************************* You can breathe now! Did you hear it? The collective exhale as the market resumed its upward advance from Tuesday's low was clearly audible. In fact Denver Colorado, where OIN is located, has had winds up to 77 MPH on both Wednesday and Thursday. Do you suppose it was related? We all held our breath after the big drop on Tuesday but all the anxiety was for nothing. After a quick -4.7% drop from the Monday high, the Nasdaq is off setting records again. Two major factors were the blowout earnings and 2:1 stock split by CMGI and the rally by Microsoft after announcing they were delivering Windows 2000. It never hurts to have a couple of market moving news events when the market is unsure of the next direction. CMGI soared today as high as $240 but closed ONLY +22 at $221.56. Microsoft rallied for the second day in a row on the Windows news with a +$5.19 gain. Remember this chart from Tuesday night? I was expecting the Nasdaq to test 3520 again. Here is the same chart two days later. Support held and we are off to the races again. The Dow also tested previous support at 11150 and actually traded several points blow that level for a few minutes this afternoon. When the bounce came, it was strong and with the help of the record setting Nasdaq, the Dow is now likely to test the upper resistance range again tomorrow. Another factor credited for the rally this afternoon was the Year 2000 outlook from Abbey Joseph Cohen. She is expecting another good year but not a great year. Her year end 2000 targets are 12,300 for the Dow and 1585 for the S&P-500. It was after her lengthy interview on CNBC that the market did firm and start moving upward. I do not apply much credence to her market moving ability. A perennial bull who peppers her forecasts with numerous cautions, Ms. Cohen is a stalwart in the bullish community but not a leader. If she turned bearish it would be a major news event and a market mover but just another choreographed bullish statement today did not give me the uncontrollable urge to buy. The NYSE turned in another billion-share day marking only the second time in history that the exchange traded over 1 billion shares three days in a row. The last was in April when we had a +1300 point rally. That we closed up on strong volume is a good sign normally but the breadth on the NYSE was still negative. Unusually strong volume three days in a row with decliners beating advancers is not the kind of foundation you want for a rally. The rally is still being carried by the few big caps in the Dow while the broader market is still slipping. The bond market rally from last week is history. After the weekly jobs numbers were posted this morning, showing the smallest number of new filers for unemployment since 1973, and an increasing trade deficit, the bond yields soared to a high of 6.4%. Last weeks forecast by many analysts of sub 6% yields this week are rapidly being replaced by whispers of +7% yields soon. While many are leery of the Fed meeting next week, almost no one expects an interest rate hike. Alan Greenspan is too political to tank the market during Christmas week. However the next Fed meeting after Y2K is going to be a market mover for sure. Oil closed near $27 a barrel today and that will eventually impact inflation and influence the Fed.'s movement. Tomorrow is a triple witching options expiration day and we have probably already benefited with the rally today. Many analysts however are pointing to Friday as the "last" trading day of this year. Many funds are planning a lock down for the next two weeks and volume is likely to set records on the low side instead of the high side. With very low volume we are likely to see either giant volatility swings or a EKG flat line of a market gone to sleep. I put my two cents on the side of the big swings. The funds may go into hibernation but greed is alive and well. Day trading is also alive and well and there are likely to be many news events and Y2K rumors to move the markets. The undercurrent of sellers as indicated by the advance decline line is undoubtedly cautious Y2K investors moving to the sidelines. We will not know if this is going to turn into a flood until after the options expiration tomorrow. Monday should be the key. If we can maintain positive Dow and Nasdaq momentum even with the negative breadth then we probably will not see any big moves. Only ten trading days remain between now and Y2K so any move to the sidelines will have to start very soon. I am not saying that half of the investors are going to panic sell. If anything maybe only 2-3% may step aside. Still 3% would be a large number in shares and dollars and could swing the markets several hundred points. Personally I would love to see a several hundred point drop between now and Y2K. It would make the Jan 3rd rally that much more explosive. There would be less fear of profit taking and more confidence moving into the January earnings period. I am stockpiling cash in my account just in case we get another buying opportunity. A reader sent the following expanded symbols. Send us yours. JDSU = J(ust) D(on't) S(ell) U(niphase) QCOM = Q(uick) C(ash) O(n) M(oves) Good Luck, Sell Too Soon. Jim Brown Editor ********** STOCK NEWS ********** Microsoft Delivers a Solar Plexus Punch By S.P. Brown In the "reports of my death are greatly exaggerated" category, software titan Microsoft (MSFT) let the world know yesterday that it is indeed alive and kicking. On Wednesday, the Redmond, Washington-based company announced it has released the final version of its newest operating system, Windows 2000, to its manufacturing facilities. Retail sales for the next-generation of Windows are set to begin on February 17. /members/stocknews/121699_1.asp ************** Market Posture ************** As of Market Close - Thursday, December 16, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 11,245 Neutral 11.12 SPX S&P 500 1,340 1,400 1,419 BULLISH 12.03 OEX S&P 100 700 750 772 BULLISH 12.03 RUT Russell 2000 430 450 465 BULLISH 11.12 NDX NASD 100 2,650 3,150 3,332 BULLISH 12.03 MSH High Tech 1,340 1,630 1,735 BULLISH 12.03 XCI Hardware 1,075 1,160 1,308 BULLISH 11.11 CWX Software 1,000 1,160 1,317 BULLISH 9.03 SOX Semiconductor 570 660 631 Neutral 12.10 NWX Networking 650 800 853 BULLISH 12.03 INX Internet 525 675 751 BULLISH 12.07 BIX Banking 645 690 554 BEARISH 11.30 XBD Brokerage 395 450 417 Neutral 11.30 IUX Insurance 625 650 593 BEARISH 11.30 RLX Retail 875 910 993 BULLISH 11.23 DRG Drug 375 395 352 BEARISH 12.07 HCX Healthcare 750 790 701 BEARISH 12.07 XAL Airline 180 190 149 BEARISH 5.21 OIX Oil & Gas 285 315 301 Neutral 11.23 Posture Alert Technology stocks ignored the sell off in the bond market and continued marching on, as the Nasdaq closed up +2.57% for another all-time high! Sectors that outperformed Thursday include Semiconductors (+4.13%), which also bounced nicely off of its 50-day moving average, Hardware (+2.89%), and the Nasdaq 100 (+2.88%). Losers today included Healthcare (-2.16%), Banking (-1.84%), and Drugs (-1.78%). There are no current changes in posture. *************** Market Sentiment *************** Thursday December 16, 1999 Negative Sentiment Continues! The Nasdaq continues on its unprecedented run and closed at new highs once again today. Technology shares got a lift from the strength in Microsoft and a solid earnings quarter for CMGI. These record highs seem even more improbable, given the face of higher yields in the bond market. Now granted, who wants to own a 30-year Treasury yielding 6.4% annually when you could own AOL for the decade and have a return of 79,500%! We know what we want to own. The matter of fact with the 30-year Treasury is how quickly the sentiment can change. Granted, we saw nice buying in select issues today, but what happens when the bond breaks new highs. The sentiment can change quickly, and if we see the bond break above 6.4%, watch out! Remember, equities drop twice as fast as opposed to when they rise, so continue with a bit of caution and watch the bond, even though many people are ignoring it. All you have to do is remember how quickly the market dropped several months ago when interest rates became an issue. The last thing any investor wants is buying at the top when interest rates become a predominate force in the market. Now on to more positive issue, we continue to see put buying in the Nasdaq 100. As you know, this sector has been a phenomenal performer this year and continues to rise. The major element that we have witnessed during this big bull-run in the NDX has been consistent put buying. At every major benchmark, put buyers have stepped up to the plate. This mentality of trying to call a market top still continues, and was felt yesterday when several strikes (puts) doubled their open interest, overnight! This was a very bearish position, and from a contrarian stance, it signaled more upside for the NDX. The Nasdaq 100 also trades as a stock on the American Exchange, under the symbol QQQ. We have mentioned in past letters about the high short interest on this issue, but if you were to go to the CBOE's option montage and enter QQQ, you would see open interest that significantly favors the puts. This trend has been very consistent this entire year, and until the put buyers throw in the towel and stop making purchases, we believe upside in this sector will continue! The day we see calls dominating the puts of the Nasdaq 100, and short interest decreasing dramatically, is the day we run the opposite direction. Short interest for the latest ending month is due out soon, and hopefully the negative sentiment continues. 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 (23.17): 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 (6.384%): The yield on the 30-yr Treasury is back into dangerous territory, and could cause a precipitous sell-off should we see new highs. Advance/Decline Line: The A/D line's continual break does not serve the best interests of the overall market. Investor Intelligence: The rapid change from bearish to bullish sentiment has been too great, and may indicate a near term top in the market. 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 Thurs Benchmark (12/10) (12/14) (12/16) Overhead Resistance (770-800) 14.51 3.96 6.47 Overhead Resistance (750-765) .85 .68 .58 OEX Close 763.49 758.62 772.06 Underlying Support (730-745) 3.01 3.51 6.55 What the Pinnacle Index is telling us: Based on 12/16, current overhead (770-800) is heavy, so we would be surprised to see a major break above 780 this week. Put/Call Ratio Friday Tues Thurs Strike/Contracts (12/10) (12/14) (12/16) CBOE Total P/C Ratio .45 .40 .46 CBOE Equity P/C Ratio .35 .32 .36 OEX P/C Ratio 1.44 1.42 1.40 Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (12/10) (12/14) (12/16) Puts 750 / 14,912 750 / 14,349 750 / 12,811 Calls 780 / 13,427 780 / 12,491 780 / 12,964 Put/Call Ratio 1.11 1.15 .99 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 16, 1999 23.17 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 Wed Thu Week Dow 11244.89-32.11 -32.42 65.15 19.57 20.19 Nasdaq 3715.06 37.93 -86.51 50.29 93.11 94.82 $OEX 772.06 -0.36 -4.51 8.57 4.87 8.57 $SPX 1418.78 -1.82 -12.05 10.02 5.59 1.74 $RUT 465.26 3.67 -7.63 -1.43 3.94 -1.45 $TRAN 2921.51 21.04 12.90 10.66 1.97 46.57 $VIX 23.17 2.68 0.87 -1.11 -0.19 2.25 Calls Mon Tue Wed Thu Week QCOM 439.25 26.06 3.69 1.94 16.06 47.75 Great week! NSOL 248.00-10.50 0.81 6.94 34.06 31.31 What a start BVSN 131.69 23.00 -7.00 4.75 3.94 24.69 New NXLK 71.38 5.13 -2.56 5.25 -0.56 7.25 Up nicely TTN 35.00 0.81 -0.56 3.63 2.63 6.50 New JDSU 249.88-10.19 -14.19 8.75 21.25 5.63 Great day! VRTS 113.00 -1.50 -4.81 5.44 4.81 3.94 Buyers swoop NT 90.00 0.69 -0.88 0.56 1.38 1.75 Groovin'! STM 137.81 -1.69 -7.75 -0.63 11.06 1.00 Soars high ARBA 237.50 -2.25 -0.25 -10.25 13.50 0.75 Dropped GE 147.63 0.75 1.06 -4.38 3.19 0.63 Splitting? INKT 168.31 10.50 -17.19 5.19 2.06 0.56 Slow and sure CLS 86.63 3.81 -8.94 -2.50 7.50 -0.13 Jumping! VOD 49.00 -0.50 -0.38 -0.06 1.44 -0.38 Better day NTAP 152.94 6.75 3.38 -11.06 0.00 -0.94 Split-run TMX 108.44 -2.38 -2.56 0.81 2.44 -1.69 Momentum! NOK 164.00 -1.50 -7.56 -5.00 9.00 -5.06 Recovers MACR 81.00 -2.81 -2.19 -3.00 2.13 -5.88 On support DCLK 189.69 2.50 -16.69 -1.06 8.94 -6.31 #1 pick! SUNW 74.94 -1.44 -4.88 -2.13 1.50 -6.94 Sunny day AOL 86.00 2.31 -5.50 -1.31 -3.63 -8.13 AOL & WMT? Puts KIDE 35.44 -2.19 -4.50 -0.88 -1.69 -9.25 Close at low ETYS 39.94 0.81 0.56 -4.44 -2.13 -5.19 Fun put play GT 28.13 -0.19 -0.44 -0.06 0.00 -0.63 Thanks 5-dma! GILD 39.06 1.00 -1.31 0.81 -0.44 0.06 Taking a nap ************ WOMANS WORLD ************ CHARTS, INDICATORS and YHOO Tonight, I wanted to discuss a few charting techniques and an indicator I use called Directional Movement. First though, a few thoughts on future Blow & Go stocks and a little more on the QCOM and YHOO strategies. I've been asked what companies I am watching for use with a future Blow & Go play. I expect a melt up in the markets in early January, followed by what could be a nasty period of profit taking. I hope I am wrong about that, but once all the money from end of year, bonuses and sidelined money from Y2K have been reinvested, many will be ready to take profits from this massive tech run up since the end of October. Except for a few strong plays here & there, at this time I plan on sitting out late January & February. If a strong pull back occurs, I will be looking for entries on companies that I want to hold in my core account. Remember, I look for stock on strong companies which I can get for "free". At this time, these are some of the companies that will be on my radar screen. DCLK ICGE EMC RNWK BRCM VRSN AMZN JDSU CMGI I will exercise a few profitable contracts in QCOM, YHOO and SUNW in January, to receive my "free" shares from their recent run up. Also, I am holding April DCLK and January CMGI which may give me two more opportunities. Otherwise, I used my IRA account to buy leaps for Blow & Go, at the market bottom in October. I did this so I would not be distracted with trying to "trade" this account through Y2K, choosing to focus instead on my personal accounts. In the IRA, I buy leaps when bad news hits good companies or in sell off periods. I hold 2001 or 2002 leaps in YHOO, MSFT, CISCO, AMZN, GE, DELL, INTC, TXN and AT&T. As you will notice, several of these had bad news events since this summer, which made options/leaps very cheap. A follow-up to my last minute OTM QCOM purchase on Tuesday at the close. Having been out of the market without news, charts and account information since the previous Friday afternoon, I was very anxious to play. Usually, on a sell off day, I am looking for entry points. The QCOM purchase was more of a gut call, due to the strength of QCOM that day in the face of a broader market sell off. It was a risky purchase at best, but I am up 4 points. I expect these to continue to climb from here. I told you that I would be looking for a YHOO entry on Wednesday. What a lucky call!!! YHOO sold off big time and hit a 317-ish dip, which it had not seen since the post S&P inclusion sell off last Wednesday. (see chart below) That was a GREAT entry!! Having a great entry though, means you have to execute the trade. When I tried to place the order, I found that I had some glitches in my newly loaded software programs, in my new computer. Talk about frustrating!! I basically got filled in the 320 area, which I can't complain. In the chart below, notice the congestion right around the 315-320 area on Wednesday December 8th. This is where YHOO bounced after the sell off, the day after inclusion in the S&P. That told me that was a strong support level, because the run up had been so strong. Most likely, if it were to sell off further, it would have happened on that day or the next. So when YHOO visited that neighborhood again, I assumed it was bringing me a present!! That is called a good entry point and what Jim means when he says "Don't chase it. Let it come to you." Notice that the contracts I forced myself to sell at the high last Friday (as I panicked with my hard drive crash), proved to be another lucky move. Also, the larger blue lines on both sides of the price movement are called the Bollinger Bands. Notice the general sell off and buying that occurs as it touches the top and lower bands. To me, this is better seen on a 1 and 5 minute chart, but you get the point. My personal feelings are that YHOO will experience more volatility between now and AFTER January 1st, when it should stabilize to take off for its earnings run...and pre split announcement run. Prior to January, I think a lot of people will be "trading" YHOO, meaning it is a candidate for sell offs and profit taking, followed by quick buying opportunities. This is how I am playing it, which is why I sold some January contracts today, to buy CMGI in the afternoon drop. One of the indicators that I use with my charting service is called Directional Movement (DM). The Directional Movement System helps determine if a security is "trending." Developed by Welles Wilder, the basic directional movement trading system involves comparing the 14-day +DI ("Directional Indicator") and the 14-day -DI. This can be done by plotting the two indicators on top of each other or by subtracting the +DI from the -DI. Wilder suggests buying when the +DI rises above the -DI and selling when the +DI falls below the -DI. He uses this system on other type of plays but I have found it helpful if I change the settings from the 14 DI, to a more sensitive period particular for the stock I am following. It helps me to time intra-day and intra-hour trades. The heavier line is a slower smoothing line and is a longer duration study period. Knowing I was hunting for a YHOO entry yesterday, I changed my parameters to capture fast price movement, against a short term pricing history. For this example, let's say I used 3 and 7. This allowed me to capture the post S&P sell off period without getting skewed by the fast run up prior to the close last Tuesday. Since I already knew the support level shown in the above chart, I was using the intra-day chart to give me timing signal for entry at that level. Notice the green line crossing up through the red line right after 11:00 am on Wednesday. That is when I tried to enter my order. That is called a bounce up and since it at last weeks support, I felt sure it was a good entry point. The chart and indicators proved me right. I use different indicators with different graphs for different reasons. It totally depends on the play and what I am trying to accomplish. I am not a technician. I've just developed my own system which works for me and I am continually fine tuning it. There are times when these indicators tell me to do one thing, but then I do the complete opposite. Technicians never do that. I do this because to me, technical analysis is based on past history, whereas my gut is more sensitive to events I know that are soon to occur in the future. Also, because I am a woman, I have the right to change my mind. ;-) Good Trading!! Renee renee@OptionInvestor.com ************** TRADERS CORNER ************** An Osmotic Technical Point of View Hello.... my name is Harrison....I am a Stockaholic Ok, I took my own advice that I posted in my article on Sunday and pushed myself away from this fabulous feast of a market. As I had liquidated 99% of my holdings by Monday, the dessert came in the form of an 80 point drop in the NASDAQ. There were some great short term retracements in there too. My revelation and consternation came about shortly after I had told all of my trading buddies that I was done trading for the rest of the week and that I was not going to even turn on the computers. I did not care since I did not have any positions to concern myself with. I was going to take it easy this week! Well, that lasted for all of 15 hours. It started innocently enough with a phone call from a friend who wanted to talk about Apple's nice little drop. I had played Apple short in the teens and had watched it blow through 104 and now it was down around 92. Yes, it was a nice little short term correction and with the premium in the calls, it appears that there are quite a few people that think it must be heading north. What positions was I playing today, she asked? None, I am taking a vacation this week. No plays for me, no sir, not this week. Well, yes Apple does look like it is good for at least 5 points short term. Maybe, the play would be to just by the stock and see if it runs. Then look at doing good old covered calls north of 97. There are some juicy premiums in the calls and as an added benefit, no more capital gains this year. Hmmm, it does look good here, maybe, I could pick up a few hundred shares and sell the Jan 100 calls. They are at $7 now and still $8 dollars out of the money. Hmm, possibly $15+ on $46 on margin for one month, that equates to 32.6% return in one month. Heck, a lot of the big boys don't do that in a year, tempting! Apple just might be the dessert I was waiting for. So, now I have a small position in Apple. No biggy. Still on vacation. No need to watch the market. Uh oh, another phone call from another trading buddy. "Harrison, look at Mr. Softy (MSFT)." Wow, what a nice break out. Looks like it could really run from here. Nice support. Man those 2002 leaps look like a buy here! Missed the run last time. Hmmm, they do look good! Well, maybe just 5 contracts..... this position won't need baby sitting. At the close and 6 positions later, it hit me. I am a stockaholic! I just can't help myself. But, I guess it could be worse. I could be blowing money and smell bad, instead of making money and still retaining fairly decent grooming habits. I wonder if they have Stockaholics Anonymous meetings? Do you think that I could pick up any charting pointers there? Happy Trading Harrison@OptionInvestor.com **** Time on Target Earlier this year, I was in a job interview with a firm in San Diego. Out one side of the high rise, I could look south towards the city, the harbor, and Coronado, where, as a Marine Lieutenant, I spent many a weekend getting away from my base at Twentynine Palms, 200 miles into the Mojave Desert. To the east, I looked out on Miramar Naval Air Station, where F/A-18s and F-14s were taking off to conduct air combat manuevers (read: dog fights) as part of the Top Gun training program. I knew those aircraft well from serving as a Rifle Company Fire Support Coordinator. We would ride around in the high desert, and perch on a cliff overlooking some long dead tank that served as a training target. The artillery forward observers would set up their radios while a Marine Captain/ Pilot would make contact with the aircraft off in the distance. We would set up a "time on target" mission, in which the artillery marked the target with a white phosperous round 30 second before the appointed time hack, and the "fast movers" would streak in upside down to acquire the mark, roll over, and drop bombs on the mark. The idea was to get good at these procedures so that amidst chaos, it would be second nature. A few Recon Marines with a radio, trapped on a roof during the Battle of Khafgi during the Gulf War, used similar procedures to destroy the better part of an Iraqi mechanized regiment that had attempted a preemptive attack on the Saudi border town on the eve of the ground war. A year after that interview, I now recall the view to the west towards the ocean from that La Jolla office tower. Near the ocean, a cluster of white buildings nestled near the University of California campus -- the headquarters of Qualcomm. I recall talking to an interviewer about the importance of CDMA technology, since QCOM was an important client of the firm. A few weeks later, I would get my first CDMA phone. Over the past year, like a F/A-18 climbing on afterburner, QCOM has streaked into the stratosphere. But, upon further analysis, I tend to think that it is still very early in its ascent. In the past few days, I have read about a CDMA deal in China, a glowing report on the quality of Globalstar satellite phone handsets using CDMA technology, set top boxes using CDMA, delivery of movies to theaters using CDMA, and a trial run of 2000 wireless lap top computers using CDMA. Since I am writing this article from a coffee shop over looking the Golden Gate (family owned since 1937, great minestrone!) on a wireless modem equipped laptop (on which I have watched an awesome close!), I am well aware of the potential for the adoption of such devices. The potential for adoption of cell phone handsets with CDMA alone is staggering. On Tuesday night, while thinking over the importance of the Nasdaq's precipitous decline over a late night meal in a Chinese restaurant, I started reading The Gorilla Game, which argued that the dynamic effects of the adoption of a standard (eg, Windows) could drive a company's price (eg, MSFT, 1989 - 1998) far faster than any usual metrics of stock valuation. In short, that cluster of white buildings at the southern end of the Pacific seaboard could represent an opportunity similar to another nondescript cluster of buildings at the northern end of the West Coast up in Redmond, Washington. All of this thinking, along with the fact that I am getting fatigued by trading and am making bad decisions, has lead me to set up one final "time on target" mission in my 1999 option trading. The simple plan is to put all of my remaining ST Options capital into QCOM January Calls, and to let them ride through Jan 3 or 4. Sound audacious? Sound risky? It sure is. The stock is trading at 423, with a PE north of 300. By any normal metrics, the stock is grossly overvalued. But this is not a normal time. Fundamental to my decision is that both the Fed and financial institutions are pumping liquidity into the market to avoid any glitches in the face of Y2K. We had a dip Wednesday, and it was met by buying. I believe other dips will be too as individual mutual fund managers cannot afford to be underinvested in the face of a likely January rally. Add to this the wall of worry that Y2K represents. Yes, hospital records, financial records, and voting records in small countries will be lost. By in large, things will work in the United States. When they do, even more money will flood the markets on the first few days of the New Year. And, on the eve of the new millennium, Qualcomm is audaciously splitting its stock 4:1. If it is at $500 by then, shares at $125 will seem cheap. My options (and I already hold January contracts and as well as a Jan02 LEAP position) will split 4:1. Normally, it is wise to exit plays before a split, but this time, I will probably hold over the split because of the unprecedented power of a 4:1, the real wall of worry that Y2K represents, and the recent post-split performance of stocks like SUNW, VRSN, and CMGI after splits. Finally, I want to heavy barrel this play now because of the upcoming shareholder meeting on 12/20, which will also confirm the split date, and may be a good venue to announce the sale of the handset division. Working against me, of course, will be time decay on options with enormous premiums. I will buy in the money, so at least a good chunk of the value is represented by intrinsic value. If, however, QCOM starts to run into its split, I should see a pretty good delta in the appreciation of my plays. My trading this week has been fair to poor (though, as I revise this piece after the close on Thursday, my profit/loss is absolutely rockin', largely due to QCOM and a renewed NOK!). There have been 3 terrific entries into the December Rally (11/30 - 12/1; 12/9; and 12/15). I absolutely crushed the first one, but, in retrospect it was because I was fresh, coming off of a week and a half Thanksgiving break. I entered plays too early on 12/8, in part because I had held a QCOM play over from the first entry, and I was distracted. I also made a undisciplined entry into call plays on JDSU, AOL, and INKT on 12/14, again, a day too early. One potential lesson to draw from this is to have a bias to be in cash (ie, sell too soon) so that you can make sound decisions for your next entry. Based on the overall market conditions, and my assumptions about a continued Christmas/ New Years liquidity driven rally, I am taking a highly risky course of action. I am staying in all of my plays, and adding all of my remaining capital to the QCOM Jan play also. I expect some volatility, but I also expect a steady run up to the 4:1 split. JDSU and INKT are also splitting right before the New Year. Of course, all of my plays have not been bad. I bought 100 SCH Jan45 Calls for 1.5 last Thursday on a report about trading volumes. I sold those contracts at 2.25 on Monday. I bought MSFT Jan100 Calls at 5.75 (thanks, Preferred Trade, for a clutch fill on that one) on the breakout above its all time high of 100 3/4 yesterday, and sold half of the position for 8.125 today, and will hold the other half for a January earnings run. On the downside, my NOK Jan160 position has crumbled with the stock bouncing off of 150 today after a several day decline. NOK, too, may benefit from the QCOM situation, especially if it aquires the handset division (Thus, though, NOK is bouncing back nicely). By January, I expect a pretty strong rebound for NOK, a company that one analyst noted may become the largest PC manufacturer in a few years. In my LT Stock Portfolio, I bought QCOM Jan02 410 LEAPS, GSTRF Jan02 30 LEAPS, NOK Jan02 200 LEAPS (Roth IRA) to augment my purchases of CSCO and GE Jan 02 LEAPS earlier in November/ December. I'll take some 25 - 50% profits on part of my positions with limit sells and will put that cash to work when I dial back into the markets on December 29. Anyway, the mission is called in and the fast movers are running. Now, I just need to get a good view and get ready for the fireworks. 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: ***** ARBA $237.50 +13.50 (+0.75) Yes, we are ending our play on ARBA, though the story certainly isn't over. ARBA found itself being a very hot topic on Wednesday as it was announced that ARBA was in talks to acquire Tradex Technologies in an estimated $1.86 bln stock swap. The union of these two companies has investors excited, as the business-to-business market just keeps getting hotter. This news, combined with the final leg of the split-run, helped propel ARBA to a high of $242.63 for the day. Shares of ARBA will be splitting tomorrow, which is why we recommended closing out your positions before the close today, however, this is one for your radar screens going forward. PUTS: ***** No dropped put plays today. ************************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 Thursday 12-16-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ***************** PICK NEWS - CALLS ***************** GE $147.63 +3.19 (+0.19) Who ever heard of selling the news two days before it even happens? That seems to be at least part of the explanation for the poor action in the shares of GE yesterday. On a day when the Dow shot up 65 points it was discouraging to see GE drop 2.5 points. As we have previously reported, GE's board is meeting tomorrow to discuss, among other things, splitting the stock. Weakness in the stock may be indicative of less confidence in the possibility of a split. Jack Welch, CEO of GE has had two opportunities this week to "leak" the news of a split during meetings with analysts. His lips have been sealed. The fact that GE closed yesterday more than 3 points above its intraday low was encouraging. Taking out the previous day's low was discouraging. Today's action in the shares of GE was much improved. After trading just below yesterday's low, GE rallied the rest of the day to get back close to even for the week. Keep those stops in. Although we may get a "pop" in the stock tomorrow with a split announcement, it nevertheless seems that the momentum is slowing. A drop below today's low of $143.75 could lead to consolidation between $135 and $140. So be careful about putting on any new positions until GE can trade through its high of $149.88. NXLK $71.38 -0.56 (+7.25) Nextlink seems to be building a short-term wedge (higher-lows and lower-highs) at the $70 level. It traded up nicely for us topping out at just under $72 yesterday before selling off. Today's rally fell short of yesterday's high. A close tomorrow around the strike price of $70 seems likely for expiration. The trend is still intact to the upside. $69.25 would be a good entry point for new positions. Major support remains at the $65 area. If a wedge does develop, stay observant. Wedges can result in big price moves in either direction. We will keep you posted. A break above $72 could result in some quick gains for traders so keep an eye out for that as well. There has not been any significant news in the past two days for NXLK. CLS $86.63 +7.50 (-0.13) Celestica has been jumping all over the place the past two days as investors engage in a classic tug-of-war. Some feel that Solectron's recently revealed problems could hold true for others in the sector. Other investors think the quick sell-off in CLS is a buying opportunity for the split on December 22nd. The stock traded below the key support level of $80 yesterday and immediately dropped to $75. Today's rally of $7.50 would have been more impressive with more volume. Today's volume was less than half of the volume of the previous two day's trading. Because of this fact, you may want to use caution in entering new trades just yet. On the downside, $80 is still a key pivot point for the stock and it should be watched carefully. STM $137.81 +11.06 (+1.00) The recent pullback in Semiconductor stocks like STM was said to be a good buying opportunity. That was CORRECT!! On the back of positive comments for the overall sector and specifically the "Chips". Analyst believe revenue growth for the sector will exceed the high end of the forecast for next year. The $SOX index finally saw some daylight, up today 25 points. Shares of STM remained close to $127 level during yesterday's volatile session, bouncing off a low of the day of $123, before closing at $126.75. This mornings analyst comments had the shares soaring out of the gate to open at $135, and got stronger during the trading day, reaching a high of $140.88, before closing at $138.81, which is a closing high for the year. The volume and price surges got stronger at the end of the session as money rotated into STM, and the stocks in the sector with a vengeance. Going forward protect any gains with trailing stops, look for higher-highs over the near term. We remain bullish at current levels and would consider new entry points at this level. MACR $81.00 +2.13 (-5.88) MACR's trading pattern has remained predictable, but seems to be getting weaker technically. In the midst of yesterday's sell-off in the shares, and then technical bounce off of the lows $75.75, MACR participated in the comeback, but we did not see the regular 4 to 5 point surges after weakness. It took two trading days to recover from Wednesday's sell-off. The two day trading range $75.75-$82.88. This was a normal one day range. In defense, MACR's chart pattern seems to be setting up for another leg up, but we need to see more volume. Without the pick up in volume, the stock may begin to rollover. We are bullish, but cautious going forward and look to tighten up stops. DCLK $189.69 +8.94 (-6.31) DCLK was a number one pick of Net analyst "Vik Mehta" at the Goldman Sachs 2000 outlook conference. He is bullish going forward on the company as they increase there leadership position in the online Ad space. DCLK was on fire today with the rest of the Cyber shares. The profit-taking of previous sessions provided another trading opportunity. The trading range for the last two sessions has been $174-$190. Another volatile ride, but there were a number of target- shooting opportunities for those traders with nerves of steel. Today's close was positive, closing near the high end of the range. Above the $190 level continues to look attractive. The first level of resistance is $196, and then again at $198.50. Above these levels would be another breakout towards the current 52-week highs of $209.38. With the ever present volatility in DCLK, any pullback near the $181 level should hold in current market conditions. There is major support near $174. The moves will only be enhanced during tomorrow's trading session, due to triple- witching Friday. INKT $168.31 +2.06 (+0.56) Slowly but surely INKT edged back off support ($160) gaining a little over $7 in the past two trading sessions. Volume was a bit sluggish on the recovery, however INKT still remains above the 10-dma ($164.33) and this is a good sign. There's about two weeks left to play this split run. We're anticipating momentum to get revved up as the paydate approaches so look for increased volume to forecast a strong breakout. INKT is expected to split on or about December 30th. Be prepared to have any open positions closed out by then to avoid post-split depression. TMX $108.44 +2.44 (-1.69) TMX started moving on Wednesday, fueled by a resurgence in the Mexican bank stocks. Traders cited the Mexican Budget approval and a separate $505 mln World Bank loan for the re-capitalization of Mexico's banking system as major factors in the rally. Gains extended into today's session on the tails of a strong tech sector. TMX managed to peak at $109 bring it back into striking distance of last Friday's all-time high at $110.50. Look for increased trading activity to propel TMX through resistance. Support remains firm at $105 above the 10-dma ($104.04). Remember there's a 2:1 stock split in the future on February 1st. NTAP $152.94 +0.00 (-0.94) After adding NTAP Tuesday evening, we saw the sector fall in sympathy with Cisco (CSCO), a leading networking company. CSCO announced on Wednesday that it "expects that in the future our net sales may grow at a slower rate than experienced in previous periods" and this put a dark cloud over NTAP's split party. Consequently NTAP returned to the $150 range (firm support) and played Ping-Pong off the 10- dma ($152.08). Still the stock managed to break $160 during amateur hour today. There's only two trading sessions left to play this split run so remember if your going to play, make it quick. All positions should be closed by the end of trading on Monday as NTAP goes ex-div on Tuesday. AOL $86.00 -3.63 (-5.50) Following a strong opening today, AOL steadily succumbed to selling pressure and hunkered back down to the 10-dma ($85.66). Below is firmer support at $80-82, but an entry at this level could be risky. That is because we would really expect the $85 support to hold if AOL were to remain on the call list. Look for a strong bounce to confirm momentum. The big news today was the cross marketing deal between AOL and Wal-Mart (WMT). Together they announced a broad range of initiatives including a co-branded ISP. The deal was received well by analysts. Lehman Bros reiterated a Buy recommendation and DLJ gave AOL a Top Pick rating. Both firms issued a $100 target price. NSOL $248.00 +34.06 (+29.25) Wow, what a start to our brand new play in NSOL. In the past two days traders have bid the price of NSOL stock over $41 higher. NSOL made a new high at $251 just before the close of business Thursday. Investors continued to poor money into the tech sector today. News hit the market Monday that NSOL was among a new group of stocks to join the Nasdaq 100 index. NSOL will join that select group at the beginning of trading Monday. In addition NSOL will also be included in the Nasdaq 100 tracking stocks, which includes securities representing ownership in the Nasdaq-100 Trust. The $4 billion Trust holds a portfolio of equity securities that compose the Nasdaq-100 index. As for our play, NSOL gave us an opportunity to jump on board yesterday afternoon. Hopefully if you joined in you either enjoyed a great profit or have moved your trailing stops up along the way. NSOL now has several levels of intraday support, with the first being $245 followed by $239 and $230. If we see a pullback followed by a bounce off these areas, it would provide a good entry point or allow to add to existing positions. As always, assess your risk profile prior to entering any new play. VOD $49.38 +1.44 (-0.38) The telecom sector had a better day today and so did VOD. Nothing really new on the Mannesmann saga. Shares of VOD picked up +1.44 on lighter than average volume. Our play in VOD is struggling, but on the bright side, hasn't gone in the tank. We are still waiting for a point to re-enter our play. After falling to a support level of $47.50 on Wednesday, VOD did bounce back today, but still has closed under its 10-dma at $50.09. VOD is the kind of stock that can explode on a moment's notice or crumble do to lack of buyers and news. Today VOD had a bit of both. The big news for VOD was that they offered a share swap for a 30.5 percent stake in Airtel. Under the offer VOD would swap 5.5 percent of its stock, for Banco Santander Central Hispanp's 30.5 percent stake in Airtel. If the Spanish bank accepts the offer it would give Vodafone a 51 percent state in Airtel. Patience will be the key for VOD, as this play will need more time to develop. We would look for a breakout over $50 on solid volume as an opportunity to buy calls. VRTS $113.00 +4.81 (+3.94) VRTS fell out of bed at the open Wednesday and rebounded just as quickly. In the first 30 minutes of Wednesday's session VRTS hit $96.88 and the buyers swooped in bargain hunting. We are sticking with our play in VRTS as the volume was heavy with 3.3 million shares traded Wednesday and nearly 4.5 million exchanging hands today. Another reason we like VRTS is it broke out above resistance at $110 and appears to be headed higher. The software index(CWX) took off again today as well after catching its breath for the last week. The Nasdaq tech stocks and Internet stocks continued to be the story for investors again today. Technically VRTS bounced off its 10-dma this morning at $106.54 and got stronger as the day went on. If you were in a play and got stopped out Wednesday we would hope you gave VRTS another chance. Intra-day support for VRTS is seen at $110 and a bounce from that level would be another opportunity to enter a new play or add to existing positions. NT $90.00 +1.38 (+1.75) NT didn't offer a favorable response yesterday to news that it would acquire Qtera, a company designing a technology to increase the distance an optical signal must travel before regeneration is necessary. In fact it took a dip into the $85 range (garage sale) before rebounding yesterday. Today while reaching as high as $92.44, it fell back but still managed a close at a new high of $90. Though volume was 10% over the ADV of 4.29 mln shares, it remains significantly below that of the last five trading days, giving us pause for concern. Of course, we'll take any gain we can get. Mild support is at $87; stronger support remains at $85; a breakout occurs at $94 as long as the volume is strong, say over 5 mln shares. Since it's at the upper end of its trading range, we prefer to see a pullback to $87 or even $85 before taking a position. If the pullback is on light volume, that's much the better. If the pullback comes on heavy volume, get out of the way and avoid catching a falling knife. That would indicate genuine selling effort, not just lack of buyers. NT is a split candidate and we'll look for an announcement tentatively on January 25 (perhaps before but not as likely) NOK $164.00 +9.00 (-4.00) Support at $155 turned to vapor as NOK gapped down yesterday to the $150 level in the first 20 minutes of trading. That's the trouble with ADRs. In a gapping situation, the market skips right over your targeted stop leaving you in a losing position. Fortunately, NOK rebounded nicely for the rest of yesterday and all of today. Today's $9 gain was greatly appreciated. While it occurred on volume that exceeded the ADV by 8%, that is substantially lower then eight of the last nine trading days. Come to think of it, that high volume on down or sideways days indicates some distribution by money mangers or profit-taking, which builds a base for another move up. Since NOK is right at the edge of low end of its former trading channel, we expect further moves from here to be up. A stable move back over $167.50 (its 10-dma) with volume would sure make us more comfortable though. If you want to buy dips, there are a bunch of congested targets to hit: $161, $160, $159, $157, $154, and $150. Check your charts and pick what's most comfortable for your own risk profile. To us, $157 looks like the lowest point of "practical", but still runs the risk of being too low for a fill in the future if NOK moves up from here. Funds still love the 30-40% growth rate projection and increasing margins coupled with the expectation of selling 1 bln handsets by the end of 2002, a year ahead of schedule. NOK is a split candidate, but we have heard nothing further of a BOD meeting. Barring the surprise announcement, look for it around earnings tentatively scheduled January 20th. QCOM $439.25 +16.06 (+47.75) What a great move leading into the 4:1 split tentatively scheduled for December 30th, subject to shareholder approval on the 20th. While we've made a ton of money from this play, the overall market is looking a bit jaundiced with a very narrow selection of leaders. That said, QCOM has been moving up, but on steadily decreasing volume over the last 3 days. Today's volume was only 63% of the ADV and doesn't have us convinced completely that QCOM will explode from here. Be on the lookout for more profit-taking. If you still want to play, support is hard to find in the recent congestion, but seems pretty strong in $5 increments from $405-$415. If you want to target shoot, start there. If you can assume a bit more risk, support is a bit less strong at $425, then $432. Let QCOM's volume and the health of the market be your guide. We might suggest standing aside if the overall market is headed south. Even QCOM can't buck that kind of headwind for long. To be fair, remember too that QCOM has stated their intent to sell their handset division by year end. We think the December 20th meeting is a likely time to name the buyer (our hunch is Nokia), which could propel QCOM upward a few more $$$ by itself. JDSU $249.88 +21.25 (+5.63) Headline reads, "Reprobate Escapes Expulsion". Since being put on double secret probation Tuesday night, JDSU has changed its behavior - but not without one last temper tantrum to $210 first thing Wednesday morning, wherein the recovery to $220 was swift. It skipped along most of the day at $222. For those waiting for a buying opportunity, yesterday was it on the morning dip to $210 or in the afternoon on the strong volume close at $228. The trend continued today all the way to $249.88, but volume was a little light compared to previous sessions. Still it was over the ADV by 38%, giving us nothing to worry about. What's the hubbub about anyway? Simple a 2:1 split scheduled December 29th, which will begin trading at the split price on December 30th. By the way, on that date, JDSU will have a symbol change to JDSUV (lawyers' first choice in 4-wheel drive? - just kidding). Make a note so you don't lose track of it after the split. Support is at $220, $225 and $236. Though milder, there's some at the $244 level also. Target shoot to your comfort level; just make sure the market is in your favor and JDSU's volume is high when it starts back up. Otherwise you'll want to see a break over $263 with strong volume. SUNW $74.94 +1.50 (-6.94) Well, SUNW is proof positive that retracement of 75% is sometimes not enough. How about 100%? That was SUNW's story yesterday as it took a dip to $70.75, violating solid support at $72. SUNW gave us a nice rebound today, but if you look closely, it actually closed slightly below today's gap up opening price. Has the SUNW gone cold? While news that Microsoft's Windows 2000 server platform to be released in February may get some widespread adoption while sending some chills into SUNW's revenue stream, SUNW is getting creative in finding new channels of distribution in the on-line auction business by offering its severs online to entrepreneurs starting their next dotcom business. Yes, MSFT is stealing some of SUNW's thunder, but SUNW still has strong growth prospects. Historical support is at $75; the 10-dma is at $76. If your risk profile allows you to target shoot, then great. However, our preference would be to see SUNW get back over $76 before taking a position. The SUNW still has spots; look for increased activity (volume) and a cooperative market. **************** PICK NEWS - PUTS **************** ETYS $39.94 -2.13 (-5.19) ETYS isn't having any fun this week but put players are. After investors digested and rejected the Goldman Sachs upgrade on Monday, shares of the toy e-tailor have headed south all week. On Wednesday, ETYS dropped through the $46 support level and never looked back. Shares fell all the way to support at $40 on more than double the ADV of 2.2 million shares before a minor recovery near the close. This morning the $40 support level again attracted ETYS like a 9-year old to a Pokemon display. For the rest of the session, buyers tried valiantly, but couldn't push prices above this level, turning it from support into resistance. Well below all of its moving averages, ETYS looks ready to take a run at its next support of $36. Wait for confirmation of further weakness with a bounce below $40 before opening new positions. If the broad markets weaken, we may get a run toward $28.50, the 52-week low. For those of you with profits on the table, don't forget to tighten up those stops. KIDE $35.44 -1.69 (-9.25) Apparently, the KIDE investors have a shorter attention span than the many worldwide Pokemon fans. KIDE tried to make a run up at the open of Wednesday's session but to no avail as it quickly found resistance at $41.75. KIDE fell into a steady decline for the remainder of the day, taking back another $0.88. Today, KIDE continued right where it had left off, moving down to just under $35.50 in early trading. This level managed to hold KIDE throughout the session. Previously, support at this level has been weak at best however it is something to keep an eye on. KIDE closed right at the low of the day, a good indication heading into tomorrow. KIDE also had good volume backing today's decline, an indication of plenty of willing investors looking to drop their KIDE off. KIDE looks to have some rather formidable resistance forming as it's 10 and 100-dma's are working to converge right around $44. Being that we are approaching a good deal of support, a new entry will most likely only be beneficial on another intra-day rally backed by holding resistance. As always USE YOUR STOPS! GT $28.13 +0.00 (-0.63) Thank you 5-dma! GT's 5-dma, which is currently $28.50, has done a wonderful job of holding GT down. On the other side of the coin, $28 has managed to hold GT up throughout the last two sessions. This may very well be the bottom for GT but until we see some consistent trading above current resistance levels and a reclamation of lost support backed by good volume, we are not convinced that GT is reversing its trend. As we mentioned, immediate resistance is at $28.50 with further resistance at $29.50 (10-dma) and $30, so keep an eye on these levels. Until we have confirmation of direction, it is probably best to hold off on entering new plays. If you are already in, it may be time to consider taking your profits. GILD $39.06 -0.44 (+0.06) Nothing is really going on for the shares of Gilead Sciences. Every little rally is met with selling. Any selling is met with a rally. Therefore, we are right were we started. Current and new put positions are still recommended at these levels because the down trend is still intact. Biotechs in general have done well the past two days but GILD has done nothing. That fact bodes well for put holders. There has not been any news the past two days. The range for the stock is $38.50 to $40.13. If it trades above the range be careful of your stops. If it trades below the range you could add to your puts. We still look see potential for GILD to drop into the low $30 range. ************** NEW CALL PLAYS ************** BVSN - Broadvision $131.69 +3.31 (+24.31 this week) Broadvision provides integrated software application systems. These systems enable users to create applications for marketing and selling their services on the World Wide Web. Broadvision's software is designed as a platform to conduct e-commerce transactions, offer online financial services, and deliver information to customers. Their One-to-One software enables venders to tailor their marketing efforts directly to each visitor based on a set of business rules. Thus making it easier for both parties to interact. Momentum is the name of the game for the e-business world and BVSN looks to be a team captain. Broadvision began the month of December at a mere $92.69, which was $39 dollars ago as of the close today ($24 of this can be attributed to the last week alone). Broadvision traded up to new 52-week high of $135 on Monday. After going a few rounds with the profit-takers, BVSN looks to have its eye on breaking through resistance at $131 and reaching for another new high. BVSN traded up to $134.25 toward the end of today's session, backed by strong volume, both good indications heading into tomorrow. The overall volume level for BVSN has been very high this last week due to BVSN's recent addition to the NASDAQ 100. Because of this, we have seen a good deal of institutional buying. Broadvision has support at $125, $120, and the 10-dma at $115. BVSN has more resistance at the 52-week high of $135. Being that BVSN does a nice job of providing a wide intra-day trading ranges on a fairly regular basis, i.e., $9.25 today, look for your potential points of entry on the intra-day pullbacks backed by holding support. BVSN split 3:1 in late October but it looks to already be in need of another. They have the shares to do it, but the timing of an announcement will be more difficult to predict. We will keep you updated on anything we find regarding a split. Broadvision was recently added to the NASDAQ 100. BVSN will also be a part of the NASDAQ 100 Tracking Stock Index, which will be traded on the AMEX under symbol QQQ. On Monday, BVSN announced that Sears (S) is using Broadvision's One-To-One Retail Commerce(TM) to launch their new Tool Territory on Sears.com. BUY CALL JAN-125 BDV-AE OI=533 at $21.38 SL=16.50 BUY CALL JAN-130*BDV-AF OI=294 at $18.88 SL=14.75 BUY CALL JAN-135 BDV-AG OI=207 at $16.50 SL=12.75 Picked on Dec 16th at $131.69 P/E = 852 Change since picked +0.00 52-week high=$135.00 Analysts Ratings 5-16-2-0-0 52-week low =$ 9.00 Last earning 10/99 est= 0.04 actual= 0.05 Next earning 01-27 est= 0.06 versus= 0.03 Average Daily Volume = 1.90 mln Chart = http://quote.yahoo.com/q?s=BVSN&d=3m **** TTN - Titan Corporation $35.00 +2.63 (+6.50 this week) The Titan Corporation is a leading provider and integrator of state-of-the-art information technology, satellite communications systems and services, and medical product sterilization and food pasteurization products and services, for commercial and government customers worldwide. Titan has made substantial changes recently by moving from a defense communications company to an information systems and services concern. Huge news from the USDA creates a mighty giant move for Titan! On Tuesday, the USDA approved an irradiation technology to kill deadly bacteria on raw ground beef, steaks and pork chops. Because of this announcement, Titan said that it will now be able to utilize its patented and FDA approved SureBeam technology that destroys food-borne pathogens in seconds. Titan's new electronic food pasteurization facility will immediately begin pasteurizing meat as a result of the USDA announcement. Earlier this year, Titan entered into several multi-year agreements with most of the nation's major poultry and meat providers. Most of these agreements are exclusive, and cover approximately more than 75% of the nation's ground beef production and half of the nation's poultry production. It is a great coup for Titan and it should and has tickled the stomachs of the investing public. Titan did not give any indication as to how much impact this news item will have on profits and earnings. After the announcement shares of TTN took off up over 3.5 points. Today, TTN had a nice follow through up another $2.63 and settling $1.50 below the intra-day high. Volume has been very big the past two days. Despite being a little bit over bought, TTN could plow further ahead over the next few days if it can trade above $36.50, which would be a good place to buy calls for very aggressive traders. It is possible a little patience will pay off and a bullish position can be placed after the stock pulls back to and successfully tests the $30 level before making its next advance. Other news items concerning Titan include an announced acquisition of Internet commerce company, Assist Cornerstone Technologies through Titan's e-business solutions subsidiary Cayenta.com. Assist's technology provides a complete front to back-end solution to companies focused on conducting business over the Internet. Titan also recently announced the acquisition of Advanced Communication Systems, Inc., a leading government information technology services company. BUY CALL JAN-30*TTN-AF OI=2846 at $7.13 SL=5.25 BUY CALL JAN-35 TTN-AG OI= 463 at $4.25 SL=2.50 BUY CALL JAN-40 TTN-AH OI= 0 at $2.38 SL=1.00 Picked on Dec 16th at $35.00 P/E = 67 Change since picked +0.00 52-week high=$36.50 Analysts Ratings 5-0-0-0-0 52-week low =$ 4.75 Last earnings 11/99 est= 0.13 actual= 0.13 Next earnings 02-17 est= 0.15 versus= 0.13 Average daily volume = 670 K Chart = http://quote.yahoo.com/q?s=TTN&d=3m ************* NEW PUT PLAYS ************* No new put plays for today. ********** PLAY OF THE DAY ********** VRTS - VERITAS Software $113.00 +4.81 (+3.94 this week) The world's largest maker of storage management software is located in Mountain View, California. VERITAS supplies enterprise data storage management solutions and provides advanced storage management software for open systems environments. Other VRTS products offer centralized administration with a high degree of automation. They also make backup software and cluster management tools. VRTS has partnered with the likes of Hewlett-Packard, Microsoft and other manufacturers, all of which have licensed and bundled VERITAS products with their operating systems. Sunday's Write Up The software index continues to make its way higher and VRTS is certainly doing its part to help lead the way. VRTS got a boost Thursday when it announced its software used to backup data on computer systems is being shipped with Red Hat Inc.'s Linux 6.1 Deluxe product. These days anything connected to Linux seems to move. Shares of VRTS gapped up over $11 to open at $116 Thursday morning. By midday VRTS dropped back to a low of $102.88 amidst some profit-taking. VRTS finished the day +3.44 and tacked on another $1.13 on Friday. The software sector continues to be hot. Friday the software index helped lead the Nasdaq higher gaining 2.7%. As one analyst said recently, VRTS is becoming the "gorilla vendor" as the software market explodes. Speaking of analysts, Tuesday, Michael Stanek from Lehman Brothers initiated coverage of VRTS, with a Buy rating. His twelve month target for VRTS came in at $140 per share. Wednesday analysts at SG Cowen reiterated a Strong Buy rating of the software company. Most feel that despite recent losses brought on by acquisitions Veritas' business is a long term one, since the increased reliance on database storage by corporations isn't going away. VRTS settled the week in the middle of an intraday trading range between $105 and $110. The next area of support for VRTS lies at $100, near its 10-dma of $101.95. Should we see further profit-taking a bounce off $105 with solid volume could provide a good entry point. If VRTS moves higher, a breakout above $110 would also provide a good point of entry. Thursday's Write Up VRTS fell out of bed at the open Wednesday and rebounded just as quickly. In the first 30 minutes of Wednesday's session VRTS hit $96.88 and the buyers swooped in bargain hunting. We are sticking with our play in VRTS as the volume was heavy with 3.3 million shares traded Wednesday and nearly 4.5 million exchanging hands today. Another reason we like VRTS is it broke out above resistance at $110 and appears to be headed higher. The software index(CWX) took off again today as well after catching its breath for the last week. The Nasdaq tech stocks and Internet stocks continued to be the story for investors again today. Technically VRTS bounced off its 10-dma this morning at $106.54 and got stronger as the day went on. If you were in a play and got stopped out Wednesday we would hope you gave VRTS another chance. Intra-day support for VRTS is seen at $110 and a bounce from that level would be another opportunity to enter a new play or add to existing positions. BUY CALL JAN-110*VUQ-AB OI=652 at $16.50 SL=12.75 BUY CALL JAN-115 VUQ-AC OI= 39 at $14.38 SL=11.25 low OI BUY CALL JAN-120 VUQ-AD OI=689 at $12.50 SL= 9.75 Picked on Dec 12th at $109.06 P/E = N/A Change since picked +3.94 52-week high=$116.00 Analysts Ratings 6-15-2-0-0 52-week low =$ 17.53 Last earnings 10/99 est= 0.14 actual= 0.11 surprise=+27.3% Next earnings 01-13 est= 0.15 versus= 0.08 Average daily volume = 2.46 mln Chart = http://quote.yahoo.com/q?s=VRTS&d=3m ************************ COMBOS/SPREADS/STRADDLES ************************ Technology Issues Lead The Way.. Wednesday, December 15 A pair of technology giants led the market higher during a day of rising bond yields that pressured other sectors. The Dow closed up 65 points at 11,225 and the Nasdaq index climbed 50 points to end at 3,621. The S&P 500 index closed up 9 points at 1,413. Declining issues led advances by a margin of 16 to 14 on heavy volume of one billion shares on the NYSE. New lows outpaced new highs 465 to 49. The long bond was off 11/32 with the yield at 6.33%. Tuesday's new plays (positions/opening prices/strategy): Navistar NAV JAN40C/DEC45C $4.62 debit diagonal Navistar NAV JUL35C/JAN45C $9.06 debit diagonal Applied Graph. AGTX JUN7C/JAN10C $2.31 debit diagonal Bid.com BIDS MAY7C/JAN7C $0.62 debit calendar Our new group of spread candidates was an active lot on Wednesday morning with Bid.com and Navistar both falling at the open while Applied Graphics waited in the wings, gathering momentum for a run to $10. AGTX's mediocre movement in the first thirty minutes allowed plenty of time for a favorable entry and the stock closed up $1.12 for the day. BIDS and NAV also offered position-opening debits near our target prices. Portfolio plays: Market-leading technology issues moved higher today with PC and semiconductor stocks topping the headlines. Positive corporate news and strength in the cyclical arena helped many blue chips rally from yesterday's sell-off but financial issues continued to suffer from rising bond yields. The majority of larger-cap companies in our portfolio participated in the move and Motorola (MOT) was the top performer. Shares of the telecom issue rose $10 to $130 after SoundView initiated coverage of the company with a "strong buy" rating and a target price of $175. Oil stocks climbed higher with rising crude prices and Exxon-Mobil (XOM), the world's largest oil company recovered from recent losses to finish at $83. Exxon-Mobil also said it plans to cut 16,000 jobs as it moves to reduce costs following the completion of its $82 billion merger. Auto giant General Motors (GM) rose to $71 after announcing plans to domestic creditors of South Korea's ailing Daewoo Motor to buy a number of the company's auto-making plants overseas. Other long term issues performed well during the session including Johnson & Johnson (JNJ), Medtronics (MDT), Proctor & Gamble (PG) and the recently battered Solectron (SLR). MDT is one of the few remaining roll-out candidates and we used the small rally to move to January options in the LEAPS/CC's play. The new position is LJAN37C/JAN40C at $4.25 debit. Our (neutral) calendar spread on United Airlines (UAL) was also rolled into January with a $3.25 credit for the $75 call option. The new cost basis is $6.75 for the LJAN75C/JAN75C. Sun Microsystems (SUNW) was our final adjustment in the LEAPS/CC's section and the credit for the move to JAN-$70 options was $2.50. Smaller technology stocks rallied during the session and our key performers included Peoplesoft (PSFT), Network Associates (NETA), and Proxymed (PILL). Both of the PSFT positions are now profitable and the bullish NETA spread is now trading at maximum profit. The recent upside movement by PILL has created increased interest in the call options and we used the activity to reduce our debit in the APR15/JAN15C calendar spread to $1.00. There are a number of other long-term plays that require adjustments to January and we will post the new prices on those positions in Tuesday's summary. One of the biggest surprises in our portfolio came after Verity Systems (VRTY) disappointed Wall Street analysts, posting second quarter earnings of $0.09 per share, short of analysts' estimates of $0.12. The stock was punished with a fury, losing $23 to close at $26.12. Our position was a bullish credit spread at $42.50 and while the play was comfortably OTM on Tuesday, it caught many of us completely off guard. Traders who neglected to close the play early (locking in profits) were confronted with extremely limited exit opportunities during the morning session. A pre-opening gap bypassed trade stops and inflated Bid/Ask spreads prevented any loss-limiting roll-outs. The best play available was simply the morning's technical bounce, good for a $2.50 profit in the first hour of trading. This position provided a meaningful (expensive) lesson for sure! While on the subject of losers, we decided to assess the portfolio for other plays that may warrant early exits. Delta and Pine Land (DLP) is probably the most closely watched issue in this section as we have three active plays on the merger candidate. Two of our positions are bearish (and profitable) but the speculative credit strangle is down slightly after today's session. For those of you in the loss-limiting mode, the play could have been closed for a $0.38 debit but in this case our plan is to take possession of the stock (if required) and sell covered-calls to recover any losses. A perfect learning experience for new readers and as many of you know, our credit strangles are generally weighted to the downside for this exact type of outcome. In the case of Delta and Pine Land, the current probability for a Monsanto merger is very low but if MTC were to exit the deal, DLP would receive almost $80 million. The fundamental share value of the company is about $20 and other companies may be interested in acquiring Delta. The future merger speculation will continue for months and the option premiums will be favorable for any premium selling strategies. A few other issues have fallen significantly since our original positions were offered and we have closed those with unfavorable short-term outlooks. These include Revlon (REV), JAN7C/JAN10C bull call spread at $1.00 credit; LG&E Energy (LGE), the MAR22C/DEC22C calendar spread at $0.38 credit; and Fortune Brands (FO), the one week speculative volatility play. Fortune may eventually offer a profit but the near-term outlook for the stock was very bearish and rather than hold for a possible small gain, we chose to exit the long position with a small loss. Another candidate for early adjustment is American International Group (AIG), our new bullish big-cap issue. The diagonal position; JAN104C/DEC115C can be moved to a debit spread at the JAN-$110 strike for $4.62 debit. The new position; JAN104C/JAN110C has further downside margin and a small profit potential. Thursday, December 16 U.S. equities moved higher as the Nasdaq rocketed to a new record on bullish news from leading technology companies. The composite index rose 93 points to 3,715 while the Dow climbed 19 points to close at 11,244. The S&P 500 stock index ended 5 points higher at 1,418. In the broader market, declining issues led advances 16 to 14 on heavy volume of more than one billion shares the NYSE. Once again, new lows outpaced new highs by a margin of 416 to 62. The 30-year treasury bond was off 27/32 with the yield at a two-year high of 6.39%. Portfolio plays: Today's session provided some incredible big-cap rallies but the most unusual move came from our new bottom-fishing issue; Cendant (CD). The stock price moved up $6 after Liberty Media (LGM) said they would acquire 18 million shares of the company, representing a 2.5% stake, and two-year warrants to purchase 29 million shares of stock at $23 per share; which could more than double Liberty's stake if exercised. The alliance is aimed at developing Internet and cable content with Cendant's travel, mortgage, real estate and membership businesses. Our bullish debit spread is now $6 ITM and can be closed near maximum profit. InterVu (ITVU) was another big mover in the portfolio with a $16 rally to close at a new all time high near $95. The company was recently granted a patent for the delivery of audio, video, graphics, text, and other computer data over the Internet. Another technology issue, Etek Dynamics (ETEK) had a nice rally during the session, climbing $7 with the booming chip sector. This issue has moved up $20 since our bullish credit-spread was opened in late November. Many of our small-cap issues were neglected in today's trading but we did have a few favorable roll-out opportunities. Geron (GERN) rallied to a midday high near $12.50 and the move to a JAN-$12.50 option provided a $1.00 credit for our new position; MAR12C/JAN12C. Cabletron Systems (CS) has been quietly climbing higher with the telecom issues and today's move above $26 prompted our adjustment to the January options. Our new long-term spread is LJAN15C/JAN22C at $5.75 debit. Youth Networks (NETS) has consolidated from recent gains and today's slump provided a great opportunity to roll-out to next month's options. Our (bullish) diagonal position is now a FEB22C/JAN25C at $0.62 debit. Other issues in the hot-box include Autoweb (AWEB), Bell Atlantic (BELL), Delta And Pine Land (DLP), Micron (MUEI), Navistar (NAV), Southwest Banc (SWBT), 3dfx (TDFX), Unisys (UIS), and Zoltek (ZOLT). Friday will be exciting as investors move to lock-in profits and option traders unwind (and roll forward) to next month's plays. We have a number of adjustments to make before expiration and the volatility should provide an excellent opportunity to boost our potential profit in many of the current positions. A summary of December results along with the complete list of portfolio plays will be posted in next Tuesday's edition of the OIN. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* Today we received two requests for plays on specific issues. The candidates that were submitted appear to have some promise for those of you that are bullish in the telecom or electronics sectors. The decision to offer these plays is based on the current price or trading range of the underlying issue and the recent technical history or trend. News and market sentiment will have an effect on these issues so review each position individually and make your own decision about the future outcome of the play. **** SPOT - Panamsat $49.68 *** Readers Request *** PanAmSat is one of the world's largest commercial provider of global satellite-based communications services. The Company is a leading provider of satellite capacity for television program distribution to network, cable and other redistribution sources in the United States, Latin America, Africa, south Asia and the Asia-Pacific region. PanAmSat's global network of satellites provide state-of-the-art video distribution and telecom services for customers worldwide. Today's $3 move to a new 52-week high indicates that the issue is garnering interest as it surges above a recent consolidation pattern. We favor the long-term growth potential and the positive divergence from the 200 and 50-day moving average lines. A strong up-trend is intact and the move is gaining momentum on increasing volume during the accumulation phase. The stock has posted large gains in the past month and the trend may continue now that the price is above recent resistance. A pair of favorable positions are offered, based on your risk/reward outlook. PLAY (conservative - bullish/diagonal spread): BUY CALL FEB-45 OQO-BI OI=179 A=$8.00 SELL CALL JAN-50 OQO-AJ OI=108 B=$3.75 INITIAL NET DEBIT TARGET=$4.00 TARGET ROI=25% B/E=$44.00 - Short-term Position - PLAY (aggressive - bullish/debit spread): BUY CALL JAN-45 OQO-AI OI=43 A=$6.88 SELL CALL JAN-50 OQO-AJ OI=108 B=$3.75 INITIAL NET DEBITR TARGET=$3.00 ROI(max)=66% B/E=$48.00 Chart = http://quote.yahoo.com/q?s=SPOT&d=3m **** RCOT - Recoton $7.50 *** Reader's Request *** Recoton is a worldwide producer of consumer electronics for many after-market applications. Their products are primarily sold to retailers and original equipment manufacturers. Its diverse line includes speakers, a complete line of car audio products: 900 MHZ and various other wireless technology products; and other highly functional accessories for audio, auto, camcorder, video game, cellular and standard telephone, home office, personal computer, multimedia, music, and video products. There appears to be some long-term potential in this issue but a consolidation is in order after the recent gap-up to the $8 range. Our outlook for the company and industry is favorable and a small disparity in option premiums will allow us to open this position at discount. PLAY (conservative - bullish/diagonal spread): BUY CALL MAY-5.00 ROQ-EA OI=49 A=$3.12 SELL CALL JAN-7.50 ROQ-AU OI=20 B=$0.81 INITIAL NET DEBIT TARGET=$2.12 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=RCOT&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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