The Option Investor Newsletter Wednesday 12-22-99 Copyright 1998, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Also provided as a service to The Online Investor Advantage ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 12-22-99 High Low Volume Advance Decline DOW 11203.60 + 3.10 11260.20 11181.90 852,865k 1,417 1,692 Nasdaq 3937.30 + 26.15 3948.48 3878.06 1,465,279k 1,914 2,254 S&P-100 781.92 + 3.06 784.39 776.71 Totals 3,331 3,946 S&P-500 1435.99 + 2.56 1440.02 1429.05 45.7% 54.3% $RUT 478.51 + 2.72 478.51 474.14 $TRAN 2848.42 + 11.92 2848.42 2819.94 VIX 23.12 - 0.32 24.31 22.53 Put/Call Ratio .48 ************************************************************* Investors Begin Filling Their Stockings..... Investors began their last minute shopping this afternoon, filling their Christmas stockings with an unusual group of items. Today it was stocks in the drug, biotechnology, and healthcare sectors. The Nasdaq finished +37 points for the session and is now just 63 points shy of 4000. Will we see Nasdaq 4000 before year 2000? Many of the analysts think so. Several market pundits today called for the major indices to rally into the first week of the new year, followed by a 15 to 20 percent correction. As we've said the rally at the Nasdaq has been a narrow technology rally. The bulls have been looking for quite some time for anything else to energize the markets. They believe that for the bull to continue we will need to see a widening in the breadth. Today it was an odd assortment of issues that led the way. Aetna(AET) gained +3.56 to close at $54.69, Kroger(KR)added +0.94 to $17.63, Newell Rubbermaid picked up +1.75 to finish at $30.56, Bristol Myers(BMY)jumped +3.06 to $63.19, while Goodyear Tire & Rubber increased +1.69 to $27.19 and TJX moved +1.25 for a 7 percent gain to close at $18.63. All of these stocks added 5 percent or better for the session. Investors seem to be bottom fishing, looking for stocks that have been beaten up and show some promise. Granted this is only one day but if it continues this could be the start of a widening in breadth, which would be a welcome sight. The Dow gave back most of its earlier gains but did manage to keep its nose in positive territory. The 30 industrials ended the +3.06 to finish the day at 11203.60. Up volume outpaced down volume, but the breadth was negative with declining issues ahead of advancers by a 17 to 14 margin. Yesterday's whipping boy Eastman Kodak(EK) turned in an impressive performance rising over 8 percent to close at $62.06, on the news that a new CFO would join the team. Investors showed their support for Procter & Gamble(PG) after yesterday's court victory concerning false advertising. Shares of PG gained +4.50 to $109.00. Drug maker Merck(MRK) put the brakes on its recent decline with a bounce up to $67.19 gaining +1.12 for the session. Lucent Technologies(LU) showed up as the most heavily traded issue today, losing -3.25 to $76.25 on volume of 24.8 million. Lucent reported a sharp decline in back-logged orders. Investors seemed concerned that sales may be slowing. All in all, a relatively quiet day at the NYSE. The Nasdaq recovered from a rough morning after Corel(CORL) fell out of bed. The software maker warned it will likely post a bigger loss in the 4th quarter than Wall Street was expecting. Corel fell 29 percent to $13.19. Red Hat, the Linux darling sank -20.19 to $236.88 in sympathy. 3Com(COMS) was the drag at the Nasdaq today. The network equipment company lost almost 9 percent to close at $48.44 after it warned that a seasonal downturn and worries about Y2K might hurt 3rd quarter profits. Some of the Internet and software stocks helped pull the Nasdaq out of the hole and push it to a new record. Oracle(ORCL) jumped +7.38 despite a downgrade from Edward Jones on valuation concerns. Yahoo(YHOO) continued its climb, adding +13.75, Broadcom(BRCM) picked up +24.13 to $254, Redback Networks(RBAK) gained over 17 percent to $162 after analysts at Raymond James initiated coverage of the company with a Buy rating, and Tuesday's momentum in Commerce One carried over into today with (CMRC) gaining +70.00 to close at $550. Overall the breadth at the Nasdaq was negative with the number of declining stocks leading the advancing issues at a rate of 22 to 19. The negative breadth continues to be of little concern to traders as it's some of the high-flying issues that continue to carry the Nasdaq to new high closes. Volume continued to be fairly strong for a holiday week with 1.4 billion exchanging hands as the Nasdaq closed +26.15 at 3937.30. After the closing bell Microsoft(MSFT) announced Greg Maffei, the company's CFO was leaving in early January to run a Canadian Telecom company. Shares of MSFT were down $3 in after hours trading. Communications equipment company Qualcomm saw the price of their stock fall another $2 in the after hours market, after announcing the sale of its CDMA consumer phone business to Kyocera Corp, a Japanese company. QCOM ended the day session -11.50 at $485.44. Investors bid the price of Gemstar International(GMST) over $9 higher in the after-market when the technology company announced it will join the Nasdaq 100 index January 3rd. Gemstar will replace Qwest Communications. The economic data released this morning reinforced the most recent report on third quarter gross domestic product. GDP rose at a 5.7 percent rate according to the third and final estimate by the Commerce Department. The figure was revised upward from its previous reading of 5.5 percent. Most analysts had expected the GDP to remain unchanged. Inflation remained tame according to today's report. The GDP price deflator, a measure of price increases followed by many traders, grew at a 1.1 percent annual rate in the third quarter, the same as previously reported. That number is lower than the increases of 1.4 percent in the second quarter and 2 percent in the first. Consumers continue to spend. Consumer spending which accounts for two-thirds of overall economic activity, rose at a 4.9 percent annual rate in the third quarter. A figure of 4.6 percent had been previously reported. The 30-year bond finished a quiet day with a gain of +6/32 to yield 6.44 percent. After the FOMC meeting yesterday, the Fed all but guaranteed a rate increase in the coming weeks. Greenspan's decision to leave rates alone and not adjust the bias going into Y2k, will give the markets the go ahead to end the year on a positive note and even begin the year on the upside. Remember we are not quite out of warnings season yet and there may be a few surprises around the bend, as today with Corel and 3Coms. Tomorrow should be a quiet day, with most traders squaring positions going in to the holidays. After the close of business tomorrow, spend time with your family and friends. The markets will be there Monday and for a long time to come. Randy Frey Research Analyst *********** STOCK NEWS *********** Oracle and Boeing Explore E-Commerce Venture By Cindy Christ An electronic-commerce venture may be on the wing for Oracle Corp.(ORCL) and Boeing Co.(BA). The Wall Street Journal said Wednesday the two are in early talks to build an electronic marketplace linking Boeing and possibly other aircraft makers with companies supplying parts and services. By bringing its supply chain online, Boeing hopes to cut purchasing costs and paperwork, improve efficiency, and speed up its manufacturing process. Experts estimate that businesses can spend more than 50 percent of their revenues purchasing goods and services. Reducing these costs has a direct and positive impact on the bottom line. The move follows similar ventures recently forged in the auto business between Ford Motor Co. (F) and database software maker Oracle, and between General Motors (GM) and Internet software provider Commerce One (CMRC). AutoXchange, the Ford venture, will create the world's first automotive online supply chain network, integrating Ford's $80 billion procurement budget with more than 30,000 suppliers and $300 billion extended supply chain. In addition to saving Ford billions of dollars a year, AutoXchange will become the world's largest business-to -business electronic network, extending Ford's core business into the exploding e-commerce arena. Ford and Oracle plan to monetize red-hot investor interest in B2B e-commerce ventures by taking AutoXchange public within 12 to 18 months. GM's venture, TradeXchange, is expected to generate revenues of $3 to $5 billion within the next five years. GM buys about $87 billion in goods a year through its main vendors, and about $500 billion through its supply chain. Analysts say these partnerships could revolutionize the emerging business-to-business electronic commerce industry, as well as the automakers' old-line manufacturing systems. According to market research firm Dataquest, if Ford and GM succeed in bringing their offline supply chains to the Web, e-commerce could explode from $200 billion this year to $1 trillion within three years. Ford and GM also could see a huge surge in revenues, estimated at $1 billion within 18 months and $4 to $5 billion in four to five years. By teaming with Oracle, Boeing hopes to bring the same synergies and expanded business opportunities to aircraft manufacturing that Ford and GM are linking to automaking. Some analysts are looking at these industrial age businesses as a value play on B2B e-commerce. In a December research report to clients, Warburg Dillon Read analyst Saul Rubin said Ford and GM would benefit from significant "first mover" status into e-commerce, adding as much as $7 to Ford share value and $15 to GM. While Boeing may not control the massive supply chain or serve a customer base equal to Ford or GM, with 31,000 suppliers and a need for more than 3 million parts, it could dominate a sizeable e-commerce network of its own. In related news, GATX Capital said Wednesday it had ordered five next-generation 737-800s and two 757-200s from Boeing, bringing GATX orders for the next-generation 737 to 20. Delivery of the newly ordered airplanes will begin in 2000 and continue through 2001. In addition, SG Cowen raised its rating Wednesday on Boeing shares to "Buy" from "Neutral." Cowen analysts said that Boeing is a turnaround play benefiting from a positive change in corporate culture, improving production performance, rising military business and strong cash flow. Analysts noted that economic recovery in Asia and a shift in demand toward high-margin, wide-body planes bode well for higher revenue prospects in 2001 and improve the chances of increased profits in 2000-2001. This year defense and space orders should account for close to 50 percent of 1999 operating profit for the aerospace giant, with healthy growth potential as work ramps on a new program, Cowen said. Cowen also raised its 2000-2001 earnings per share estimates to $2.40 and $2.85 per share, saying there's a good chance the company will beat earnings estimates for the fourth quarter 2000. At the close Wednesday, Boeing shares were up $0.69, or 1.8 percent, at $39.38 after trading as high as $39.94 intraday. Shares in Oracle rose $7.38, or 7.6 percent, to $105.06 despite a downgrade from Edward Jones. Based on valuation, the broker lowered its rating on ORCL to "Buy" from "Strong Buy." "We continue to feel Oracle is well positioned to capitalize on what we feel will be a post-Y2K spending boom in enterprise software, but at current prices the stock is getting much closer to being fully valued," said analyst Art Russell, also noting ORCL shares have surged 258 percent year to date. "After being under-appreciated relative to their role in this new age for the past couple of years, investors have jumped head first on to the ORCL bandwagon. New money should dollar cost average," he added. **************** PLAY OF THE DAY **************** BVSN - Broadvision $143.00 +6.88 (+14.00 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. Sunday's Write Up We began playing BVSN on Thursday because we thought that BVSN was poised to break through its newly set 52-week high of $135. Breakthrough it did! BVSN traded all the way up to $139.88 the very next day! BVSN spent the majority of Friday's session flirting with $137.50 before the rather voracious profit-takers moved in for the kill near the end of the day, dragging BVSN all the way down to close at $129. This is just the kind of opportunity we like to see on a solid call play. A quick sell- off backed by holding support and a reclamation of positive momentum. BVSN is resting on support of its 5-dma of $128.50. This level should evolve into nice support and we look for it to continue doing so in the future. BVSN made a nice bounce here on Friday and closed on the road to recovery. This could be a good area to make a new entry should BVSN continue Monday where it left off. BVSN has additional support at $120, if needed. BVSN may encounter some resistance at $130, though the resistance is the new 52-week high. Watch for established support to hold and a continued reclamation of BVSN's positive momentum run. Also, remember to take advantage of BVSN's wide intra-day trading ranges for possible entry points. There is no new news that we believe will really have an affect the share price. BVSN makes an occasional appearance in an article related to the booming business-to-business industry, which never hurts. We are still keeping our ears open to catch any news on the possibility of a split (we mentioned in last Thursday's write up that BVSN does have enough shares authorized for another split). Tuesday's Write Up Broadvision took back $3 during Monday's session, finding resistance at $135 in the first half of the session and $130 late day. Today, BVSN made a good move up in the morning, hitting its head at $135 once again, and quickly pulling back to revisit resistance at $130. BVSN found some legs to make another run, finally managing a breakthrough and a close above $135 at the end of the session. The $135 level has been providing formidable resistance for the last two sessions and we view today's finish as a good indication of BVSN's continuing positive momentum run. BVSN has near term support at $130, which is currently BVSN's 5-dma. BVSN has additional support at $125 and $120. BVSN really wants to run and we believe it will do so, particularly as we approach earnings on January 18th (unconfirmed). Make your entries on the pullbacks. Broadvision was ranked number one on Barron's Best Internet Companies list in the December 20 issue, citing BVSN as the best performer amongst its peers, such as America Online, Yahoo!, and Amazon.com. BUY CALL JAN-135 BDV-AG OI=867 at $23.00 SL=18.00 BUY CALL JAN-140*BDV-AH OI=315 at $20.50 SL=16.00 BUY CALL JAN-145 BDV-AI OI=118 at $18.13 SL=14.00 BUY CALL JAN-150 BDV-AJ OI= 42 at $16.13 SL=12.50 BUY CALL JAN-155 BDV-AK OI= 0 at $14.25 SL=11.00 Wait for OI SELL PUT JAN-115 BDV-MH OI=409 at $ 7.00 SL=10.00 (See risks of selling puts in the play legend) Picked on Dec 16th at $131.69 P/E = 907 Change since picked +11.31 52-week high=$146.00 Analysts Ratings 5-16-2-0-0 52-week low =$ 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 = 1.99 mln Chart = http://quote.yahoo.com/q?s=BVSN&d=3m ******************** Y2K Renewal Offer!!! ******************** Announcing the cheapest renewal rate available! $24.91 mo* Long time readers know that each December we offer our subscribers an extra value package as a thank you for their support. 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Added to the savings you receive on an annual subscription over the monthly rate and it is like getting over four months of the newsletter for free. A $180 value. This lowers the actual price of the newsletter to only $24.91 per month for an annual subscription. The supply of almanacs is limited so don't delay. Click here for more info. http://www.OptionInvestor.com/renewalinfo.asp ************************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. 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