Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 1-18-2000 High Low Volume Advance Decline DOW 11560.70 - 162.30 11720.10 11546.40 1,023,849k 1,290 1,795 Nasdaq 4130.81 + 66.54 4148.00 4053.21 1,579,191k 2,468 1,797 S&P-100 795.68 - 1.84 800.85 791.02 Totals 3,758 3,592 S&P-500 1455.14 - 10.01 1465.15 1451.30 51.1% 48.9% $RUT 513.46 + 5.90 513.46 506.20 $TRAN 2853.61 - 38.02 2893.31 2838.18 VIX 23.31 - 1.47 23.86 22.40 Put/Call Ratio .44 ************************************************************* Merger mania fails to hold up the market Interest rates and oil prices weighed heavy on the Dow but the Nasdaq shrugged them off and soared +66 points. The bonds sank again and yields hit 6.75% with only two weeks left before the Fed meeting. The 6.75% yield is the highest since summer of 1997 and shows no signs of easing. The oil prices hit new highs of $28.85 per bbl and the severe cold snap in the northeast is threatening to push them even higher. The difference between the Nasdaq and the Dow was as different as night and day. The Dow suffered under the weight of the financial stocks and the interest rate drag. Financial stocks took a dive and the outlook for a direction change is slim. JPM -4.69, AXP -7.94, GE -3.00 all dropped with the bond market. Even the mega-merger of Glaxo and SmithKline could not prop up the sagging Dow. The Nasdaq however caught fire on the news that JDSU was buying competitor ETEK for $15 bln in stock. Last week it was America Online (AOL) bringing media conglomerate Time Warner (TWX) into the fold. This week it's JDS Uniphase (JDSU) doing the same to E-Tek Dynamics (ETEK). In a deal valued at $15 billion, JDSU, the world's No. 1 maker of fiber-optic equipment parts will exchange 1.1 of its shares for each share of ETEK, another major player in the fiber optic world. The acquisition gives JDS Uniphase more of the capacity it needs to meet the insatiable demand for optical equipment. Based on Friday's closing prices, the deal amounts to a premium of more than 50 percent for ETEK shareholders. Market reaction was decidedly bullish for both stocks. JDSU finished the session up $3.50 at $195.69, while ETEK rocketed ahead $42.50 to close at $178.38. The tech sector was not up across the board but the gainers were enough to push the Nasdaq within .35 of a new record high. Nasdaq leader MSFT gained +3.06 in regular trading before posting earnings after the close. MSFT beat the street with $.47 vs estimates of $.42 but the street was not happy due to a +$.04 gain on sale of investments included in this number. The revenue numbers came in on the low end of estimates at $6.1 bln and in keeping with tradition they warned about possible earnings challenges in the next two quarters. MSFT said there was softness in purchases by corporate customers in the fourth quarter and there was concern going forward. Data communications chip-maker, Broadcom Corp. (BRCM) also blew ahead today in anticipation of waxing the analysts. The stock closed at $328.50, up $33.25 or 11.3 percent. BRCM reported after the bell that profits rose by 360 percent and sales more than doubled. The company reported net income of $36.9 million, or $0.31 cents a share, for the fourth quarter compared with profits of $8 million, or $0.07 cents, a year ago. The First Call consensus estimate was for $0.27. Another stock making noise during the trading session was Network Solutions (NSOL). A courtroom victory was the catalyst for this stock moving forward. NSOL is a registrar of Internet addresses with the suffixes .com, .org, .net and .edu. As many Web-surfers know, these addresses make navigating the vast expanses of cyberspace a manageable affair. NSOL's exclusive registrar franchise was challenged in a 1997 lawsuit filed by people who had registered Internet domain names through the company. The suit claimed, among other things, that the registration fees were excessive and amounted to an unconstitutional tax. The U.S. Supreme Court rejected the challenge. In response to the positive ruling, NSOL advanced $42.56, or nearly 18%, to close at $280.31. The Dow drop today was due even if the oil and interest rates were not higher. After several days of records and a +700 point gain since Jan-7th it was due for a pullback. The real test for both indexes will be tomorrow. Super Tuesday is now over and the earnings excitement is starting to wane. The major banks reported outstanding earnings this morning but it did not help their stock prices today. The tech biggies are almost done with reporting. INTC, MSFT, Nasdaq and Dow leaders, have announced and are likely to start giving back some of the recent gains. YHOO, the leading Internet stock, announced and the buzz is now gone for the Internet sector. Volume was heavy in both the NYSE and NASDAQ markets. A total of 1.02 billion shares traded on the NYSE while 1.56 billion changed hands on the NASDAQ Stock Market. Losers edged ahead of winners by 18 to 13 on the Big Board, while winners bested losers on the NASDAQ 25 to 18. The outlook for the the markets is cloudy. There are no economic reports of importance this week and with earnings rapidly losing the attention of traders there is a strong possibility the markets will flounder. The Nasdaq has had trouble penetrating the 4100 level and after sprinting ahead today it must hold those gains to protect the rally. The Dow dropped below the previous resistance at 10600. Both indexes are fighting an uphill battle. As I reported on Sunday, February 1st has proven to be a pivotal point in the past and the news coming out in advance of the Fed meeting is not helping. After beating the street MSFT is trading down -$3.00 in after hours and BRCM who also beat estimates and announced a 2:1 split is trading down -$16 as well. DCLK beat estimates as well with a +150% increase in earnings but lost -$8.00 in after hours trading. When leaders are being beat up this bad after record results it shows how volatile the internals of the market really are. Traders do not want to hold for any length of time. They are afraid of the market strength. S&P Futures are down -4.70 and Nasdaq futures are down -46.00. The Asian markets opened lower in response to the Dow drop and the rising interest rates. There is a lot of darkness left before morning but the prospects for Wednesday are not looking bright. Several online brokers are scheduled to report tomorrow and report larger losses than in the past. This is not the kind of news traders want to hear. IBM, AOL, APPL, AMD, EGRP, AMTD are all scheduled for Wednesday. Good Luck, Sell too Soon Jim Brown Editor ***************** SEMINAR QUESTIONS ***************** The four day Option Investor Seminar we announced is for March 25-28th. It will be taught by 15 of the Option Investor staff and will have several well known "guest" speakers. The first day, Saturday March-25th is optional. This is a special Options Boot Camp session for newer traders who need to better understand the basic strategies before attending the Sun/Mon/Tue advanced classes. The four day seminar will focus on explaining in detail each of the option strategies you need to be a successful trader in all kind of markets. You will learn how to choose what strategy is right for you in every situation. You will learn how to make money in any market and recognize the difference. This is intensive instruction with real time, real life examples. We will use live examples and study real plays as they occur. Representatives will be available to answer your questions from many of the brokers, charting and quote services we use at OIN. The tax saving information you will receive in the tax classes will more than pay for the entire trip. This is our annual event and will not be repeated until 2001. You can lose more than the price of the seminar in only one trade. Why not invest the same money in education and profit from the experience the rest of your life? For more information click below. http://www.OptionInvestor.com/bootcamp/oinmain.html ********** STOCK NEWS ********** BCE Inc., Hidden Treasure Of The North (NYSE: BCE) By Bill Gamble BCE Inc. is truly a hidden treasure of the north. The company holds Canada's national telephone company, Bell Canada, and a broad array of telecommunication and Internet related businesses. BCE has been compared to other Internet holding companies like CMGI, SFE and ICGE. However, it has two major differences, its businesses are profitable and it trades at a substantial discount to these other industry leaders. http://members.OptionInvestor.com/stocknews/011800_1.asp ************** Market Posture ************** As of Market Close - Tuesday, January 18, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 11,000 11,350 11,561 BULLISH 1.13 SPX S&P 500 1,340 1,400 1,455 BULLISH 12.03 OEX S&P 100 700 750 796 BULLISH 12.03 RUT Russell 2000 430 450 513 BULLISH 11.12 NDX NASD 100 3,200 3,800 3,758 Neutral 1.06 MSH High Tech 1,650 1,900 1,848 Neutral 1.06 XCI Hardware 1,300 1,350 1,437 BULLISH 1.14 CWX Software 1,210 1,420 1,352 Neutral 1.07 SOX Semiconductor 640 660 803 BULLISH 12.21 NWX Networking 820 900 884 Neutral 1.07 INX Internet 665 800 729 Neutral 1.06 BIX Banking 645 690 542 BEARISH 11.30 XBD Brokerage 410 450 439 Neutral 11.30 IUX Insurance 625 650 590 BEARISH 11.30 RLX Retail 900 935 975 BULLISH 11.23 DRG Drug 380 400 361 BEARISH 12.07 HCX Healthcare 760 790 739 BEARISH 12.07 XAL Airline 180 190 141 BEARISH 5.21 OIX Oil & Gas 280 315 294 Neutral 1.06 Posture Alert Tuesday's trading was anything but usual, as the Dow retraced -162 points while the Nasdaq continues on its course with a +66 point gain. Leading sectors include the Internet (+2.50%), Software (+1.44%), and the Nasdaq 100 (+1.43%). Sectors trending to the downside Tuesday include Insurance (-3.91%), Drug (-3.58%), and Banking (-3.50%). Several sectors that are getting close to previous failed highs include the Nasdaq 100, Morgan Stanley High Tech, Software, Networking, and Brokerage. We will be monitoring these sectors closely, to see if we get higher highs or another failed rally. There are no current changes in posture. *************** Market Sentiment *************** Tuesday, January 18, 2000 Anything can Happen! Just when you thought the Dow was making progress it gets hit for -162 points on the heels of solid corporate earnings. The 30-year Treasury was weak again today, which easily could be put to blame; however, technology shares shrugged off this little inconvenience as the Nasdaq gained +66 points. So far, the year 2000 will go down as the year where anything can happen, and does! Corporate earnings are starting to flow out like water, and the results so far have been stellar. Tonight after the close, the software king (Microsoft) announced earnings that beat expectations across the board. However, when we looked at the news flash we saw how earnings increased 22% and revenues increased 18%. Following Microsoft for, as many years as we have, you really have to start questioning valuation when you see revenue and earning increases of 18% & 22%, when the stock is trading with a P/E of 75. Yes, we know, no one cares about P/E's anymore. Its buy high, and sell higher. However, the start of this year has witnessed mass carnage to higher P/E stocks with reckless abandon. Will this trend continue, and has Microsoft gotten to big where their growth rates just aren't as impressive as previous years? Time will tell on these issues, but for the mean time, we're just happy that they beat expectations! We are still closely watching the stocks highlighted in our Sunday's Great Expectations article, however, with no trading on Monday, there weren't any significant changes to mention. However, looking at the S&P 100, major overhead lies at the 800 benchmark. This level is witness to the greatest open interest in calls, and will serve as major resistance in the near-term. January options expire this week, and with the massive overhead, we find the probabilities of seeing a major move above this benchmark decreasing significantly. The Pinnacle Index for the OEX between 800 and 820 actually increased since Friday, which is indicating that call speculators are betting on a good move over the next several days. Obviously, in the year where anything can happen, this benchmark (800) may be taken out easily tomorrow, however, we would bet against scenario. BULLISH Signs: Corporate Earnings: Major corporate earnings are coming out left and right, and so far, it looks to be another very solid quarter! Cash Flow: The cash that has been sitting on the sidelines was put to use Friday, as the NYSE traded 1.22 billion and the Nasdaq traded 1.63 billion. Mixed Signs: Volatility Index (23.31): The VIX proved continues to prove that the low 30's are an excellent buying opportunity, and the high teens continue to be a great selling opportunity. BEARISH Signs: Interest Rates (6.688%): The yield continues to break new highs, with the next stop being 6.75-7.00%. The market has already priced a 25 basis point increase this February, however the market is also pricing in a 30% chance of a 50 basis point hike. Valuation: Low price to earnings stocks have been a safe haven so far in 2000, while high P/E stocks have gotten blistered. Is value coming back into play? 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. The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index OEX Friday Tues Benchmark (1/14) (1/18) Overhead Resistance (800-820) 7.82 8.67 OEX Close 797.52 795.68 Underlying Support (770-790) 1.20 1.38 What the Pinnacle Index is telling us: Based on January 18, direct overhead is heavy and has increased as well. We will need to see put buyers coming in to help take this index out. Underlying support is light but slowly gaining strength. Put/Call Ratio Friday Tues Strike/Contracts (1/14) (1/18) CBOE Total P/C Ratio .42 .44 CBOE Equity P/C Ratio .31 .35 OEX P/C Ratio 1.83 .83 Peak Open Interest (OEX) Friday Tues Strike/Contracts (1/14) (1/18) Puts 700 / 10,484 750 / 11,862 Calls 800 / 22,600 800 / 22,217 Put/Call Ratio 0.46 0.53 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Tue Week Dow 11560.72 -162.26 -162.26 Nasdaq 4130.81 66.54 66.54 $OEX 795.68 -1.84 -1.84 $SPX 1455.14 -10.01 -10.01 $RUT 513.46 5.90 5.90 $TRAN 2853.61 -38.02 -38.02 $VIX 23.31 -1.47 -1.47 Calls Tue Week NTAP 118.13 24.44 24.69 Catalyst? Who knows, who cares EXDS 124.00 18.00 18.00 Teaming up with Foundry! MSTR 241.38 13.44 13.44 MSTR was one of today's winners! HGSI 194.13 9.50 9.50 Our split run continues! GMST 84.38 7.56 7.56 One of the days strongest techs LSI 79.25 6.50 6.50 Oh what a new rating can do! AFFX 192.75 6.00 6.00 The buying could accelerate! LVLT 92.06 5.31 5.31 Should continue to show strength NOK 184.06 5.13 5.13 A possible buying opportunity? TQNT 134.75 4.75 4.75 TQNT harpoons the bears! VOD 57.50 4.63 4.63 New, solid technical breakout SEPR 130.25 4.13 4.13 Exhibits good positive momentum MFNX 61.00 3.88 3.88 Exceptionally strong volume JDSU 195.69 3.50 3.50 We must pay homage to JDSU! EMC 112.03 2.78 2.78 Like a moth to the flame AMGN 69.06 0.75 0.75 Not a bad day for Amgen! ANAD 72.06 -0.94 -0.94 Resembles power freight train VIGN 198.25 -2.69 -2.69 Don't be fooled by a tame day ADI 98.50 -2.88 -2.88 Still a strong performer! CMVT 144.38 -3.94 -3.94 Recovers a bit into the close INTU 76.75 -4.63 -4.63 INTU is on a short leash! Puts CMGI 116.31 -5.63 -5.63 Defying the Nasdaq WCOM 44.50 -2.06 -2.06 Gets no help from big funds IIJI 84.00 -1.50 -1.50 Is looking rather inviting SBC 41.13 -0.88 -0.88 Play develops in fine fashion! FD 47.94 0.06 0.06 FD looks for some direction CHINA 81.50 4.00 4.00 Dropped, a game of ping pong ISLD 82.00 4.88 4.88 Deserved a little relief ICGE 138.75 5.25 5.25 A little late day rollover ************ WOMANS WORLD ************ IT'S HARD TO FIGHT MOTHER NATURE or the direction of the wind. Sometimes I think it is so weird when I write about something, then read a very similar message in Jim's column. One could think it is planned, but it never is. I guess when we have been in the market long enough; we all end up learning the same painful lessons. In Sunday's article, Jim discussed the typical downturn during the month of February in recent years. I discussed the familiar volatility prior to a market top, which caused me to go to cash. That familiarity came from reviewing my account and trade performance during a similar period last year. In my 1999 review, I noticed that from the end of January till the end of February, my account dropped 17%. It had actually been down as low as 22% in mid month. Looking at 1998, I saw a different situation. The market again was soft during this same period, but I was playing Pfizer because Viagra was soon to come to the market. My background in medicine just set the stage for that lucky home run! Other core holdings in my account were down during this period. In general, December & January are typically market friendly months while February is not. This is why I planned to exit the markets before this February, until the dust settled. I saw no reason trying to play against the historical trend. Basically, markets have cycles. If you get an opportunity to see the 50-year chart showing on average, which months typically perform well and which months don't, you will understand my point. On average, certain times of the year are just better than others for trading, while others are historically weak. These cycles may be due to holidays, vacations, economic cycles, earnings, etc. As Jim says all the time, you can't fight the general trend. You may have a good stock with good potential, but if the trend is with a downward bias, the odds are against you. Sure, some can trade through it. Are you that knowledgeable? As I reviewed my trading records against the cycles, I could see that in general, trying to play against the wind was wasted effort. For me, that's another area that needs improvement. An extended down draft can ruin any good play! Add in a little fear from the day traders and you get rapid evaporation of your option premiums in the near month. That definitely upsets the feathers of an option trader. You know how it is; you never really learn the lesson when someone else is losing money. Somehow, it just seems to make more sense when it's our own loss. After studying my trades from last year, it is easy for me to see that not only did my account dropped during this period, but so did the whole market. Like you, I don't like to lose money. "Can't Fight Mother Nature", so the saying goes. So, why even try? This is why when I saw the January sell off starting early this year, I just moved into cash. For all the new players who have just recently began using charts, it is important to remember to view things a little differently during this period. When the market is flying high and running wild, it is easy to focus ones attention on intra-day charts. During those times, the market is more forgiving of those unaware of the daily patterns on the daily charts. But during a downtrend, it becomes imperative that you view your plays thoroughly, both intra-day and with the daily charts. In fact I would say, ESPECIALLY the daily charts. It is during slow down trending periods when previous support levels will be broken. Once broken, the integrity of the stock's recent performance starts coming into question. This is when increased selling occurs. The patterns can be seen more clearly on a daily chart. Sure, one could pick up the stock on the intra day low by watching the intra day charts, but if the stock is trailing downward for the week, that intra day low will become yesterday's high. That is NOT a way to buy a gold watch! There are charting patterns that are indicative of a continued downward bias, just as a breakdown in your indicators (moving averages) can alert you to a possible continued sell offs. Violating the 50 & 200 dma are psychological pivot points in many traders minds and many times the downward motion increases at that time. Another point I would like to make is determining a downdraft when there appears to be positive days every other day. Again, don't be fooled by the positive reading on the CNBC ticker. All you care about is if the wind is against your particular trade or not. If you want a better idea, again look at the daily chart pattern of the NASDAQ, the DOW and the sector your play is in. You may be surprised to see that they are starting to stair-step downwards, yet with a blip up every couple of days. Sometimes sell offs are subtle, sometimes they are not. Do you see a general sell off pattern in your sector? If so, and you own February options, you may want to dump them because time value will start decaying much faster now. I tend to exit weak plays the expiration before, especially if I think continued weakness is possible. Due to my travel plans and my need to catch up with my professional medical duties, I felt February was a good time to take a trading rest. I'm also planning the same thing for this summer, due to the typical summer sell off. I realized that if I had just exited during these times, then returned when the market was healthier and in my favor, I would have been a much happier person. It wasn't hard for me to decide, would I rather spend the money having fun, or spend the money on losing trades. You can decide for yourself, but until the pattern changes, I'm not fighting Mother Nature. I'd rather spend it, than lose it! Just think if I'm wrong, I should at least get some good entries. Renee White Contact Support 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: ***** No dropped calls today. PUTS: ***** CHINA $81.50 +4.00 (+4.00) Watching CHINA trade the past two weeks has been like watching a ping pong game, back and forth. Up to $85, back down to $75. Strong resistance met by strong support. Unfortunately, that isn't real conducive to a good put play. Well-timed entry points have allowed for profits, but not enough to convince us to keep this play. In truth, a stock that holds at support as strong as CHINA has held at $75 typically means the bottom is forming. Today's better than average volume backs that theory. So we will let it go for now, but any break below $75 on good volume would be worth a second look. Also, news out late today for CHINA that they are busy opening new offices in China will help to solidify investor sentiment that rapid growth is continuing. ***************** PICK NEWS - CALLS ***************** AMGN $69.06 +0.75 (+0.75) Not a bad day for Amgen, but we sure would have liked to have seen it crack that $70 resistance by more than an eighth. Important note: Amgen's earnings will be reported after the close of Jan 25th, not Jan 20th as had been reported previously in these pages. It is not unusual for companies to change their earnings dates. We will do our best to keep you updated on any changes. The Biotech's were very strong today as they continue to become comfortable in their leadership role. We will continue to give AMGN the benefit of the doubt and give it a chance to start moving back into new high ground. Resistance is at $70.13, followed by the old high of $72.69. If the stock can trade through those levels then the earnings rally could be strong. If the stock sells off a little look at the mid to low $60's as possible entry points due to support. AFFX $192.75 +6.00 (+6.00) If you had been able to watch AFFX closely today you might have been able to get a good entry point after the gap up and subsequent selloff during amateur hour. If you did not get in, do not worry. AFFX is developing a very bullish right triangle formation. If the pattern is confirmed by a convincing breakout into new highs then buying could really accelerate. A strong close above $200 could entice the stock into a longer-term move to $250. As we have mentioned before, Human Genome Project stocks are looking to become a new leadership group for aggressive momentum investors and AFFX could prove to be one of their favorites. As always be careful with this extremely volatile stock. Try and stay disciplined and use your stops and be conscious of your risk tolerance. Support levels are at today's low of $179.50 and then $163. TQNT $134.75 +4.75 (+4.75) The way TriQuint is harpooning bears these days they might as well change their name to "Trident". TQNT was once again a leader in the Semiconductor and wireless communications groups despite a small drop in the SOX. It took the stock a little while to get going this morning, but then it took out Friday's high. Unfortunately, there was not much follow through. The pullback into the close was not that surprising and the stock enjoys a strong uptrend. The pullback was possibly due to short-term traders not wanting to be long tech going into MSFT's earnings. If this theory is true, then look for TQNT to continue its rally tomorrow. If the stock decides to pause, then you can find support at $128.50, followed by $126. If today's action is any indication then very aggressive traders may want to buy small pullbacks and sell breakouts when they slow down. MSTR $241.38 +13.44 (+13.44) It was a mixed day for Internet stocks in general, but MicroStrategy was one of the winners, definitely a good sign. Could today's rally have anything to do with the conclusion of a two week inter-company pow-wow and strategy conference yesterday? It is just idle speculation, but maybe all of that brainstorming ignited a little enthusiasm. Either way the chart still looks great, albeit we would have liked to have seen more volume today. Today's rally confirms that we have found good support at $218 which may be of interest for put sellers. Be careful trading this stock. It seems that the first half hour of trading produces the high for the day. Therefore, "chasing" would probably be inadvisable. (Probably good advise for trading any stock.) A close above $250, today's high, could rekindle excitement in this stock and drive it higher. A pullback to $230 also may prove to be a possible entry point for a bullish position. MSTR announced three new clients for its Strategy.com Network. They are Stocksystem.com, Wealthcast.com and Green Mountain Asset Management. GMST $84.38 +7.56 (+7.56) Gemstar was one of the strongest tech stocks out there today. It opened higher and kept gathering strength all day to close $0.88 off of its high. Indicators are showing that GMST may be a little overbought up here and it may need to consolidate a little before going even higher. On the other hand, as OI subscribers are very aware, stocks can trade in "overbought" conditions for a long time. A gap up might be a good profit-taking opportunity, looking to get long again about halfway back in the uptrend in the mid $70's. Some traders might be more comfortable using trailing stops to lock in profits. Either way, it looks as if we may have a winner on our hands, so good luck! And trade with a plan. Some of today's rally can be attributed to GMST's announced acquisition of two eBook companies, NuvoMedia and SoftBook Press. These properties should compliment GMST's media presence on top of the planned merger with TV Guide. ADI $98.50 -2.88 (-2.88) Despite the late-day drop, ADI was in fact a strong performer, especially considering the -162 point loss on the DOW. The stock flirted with Friday's new 52-week high ($101.94) and traded consistently above $98. The 5-dma has risen to $95.55 and this would be a solid entry point; however near-term support appears to be emerging at $98 and $100. Therefore it's more likely you'll have to look intraday to get a position in this momentum play. ABN Amro once again reiterated a Buy rating for ADI and upped the price target to $120 from $100. In other news, Analog Devices and Virata Corp (VRTA) announced the joint development of a reference design kit for Asymmetric Digital Subscribers Line (ADSL) customer premises equipment (CPE) devices. Competitive rival, Silicon Laboratories, announced it has filed a law suit against ADI alleging misappropriation of trade secrets and patent infringement in regard to its Direct Access Arrangement (DAA) solutions. Earnings have been confirmed for February 16th, before the bell. INTU $76.75 -4.63 (-4.63) The slip under near-term support at $80 and its failure to stay above the 5-dma (now at $78.33) is disappointing. Volatility was certainly expected for this momentum play, however INTU lacked any significant upward movement today and this is somewhat bearish. If the stock breaks the 10-dma (now at 75.83) we'll quickly exit the play and move on. So let's put INTU on a short leash for now. Switchboard Inc, an Internet directory subsidiary of Banyan Worldwide (BNYN), and Intuit announced a partnership to enhance Site Builder web sites. According to the terms Switchboard will add Site Builder to its local merchant network as well as provide future content and services to Site Builder customers. ANAD $72.06 -0.94 (-0.94) ANAD is resembling a powerful freight train that stops for nothing in its path. Mid-way through the session ANAD crushed overhead resistance at $73 and powered upward to $73.88, setting another all-time high. Today there were not any analyst recommendations or company events that drove ANAD into new territory. Nonetheless the chart just keeps looking better and better. This momentum is carrying the stock right into its earnings date confirmed for January 28th, before the bell. Keep that date in mind. OIN never recommends holding over an earnings' report. LVLT $92.06 +5.31 (+5.31) Congrats to the traders who got in on this play early morning (after amateur hour of course!) and reaped some quick profits. Right from the start LVLT definitively bounced off an intraday low of $84.75 and made a beeline upward confirming it could easily hold short-term support at $85 and $86. Conceivably, LVLT should show strength above $90 as it moves toward its earnings' date confirmed for February 3rd, before the bell. Now if there's a correction we wouldn't want to see LVLT dip much below the 5-dma (now at $85.50). Today Level3 and Convergys (CVG), an outsource business support systems company, inked a deal which will link CVG's online billing and customer services to Level 3's Internet network. CMVT $144.38 -3.94 (-3.94) CMVT didn't have such a great start to the week, dropping almost $4 during amateur hour. After putting in a base near $144, buyers managed to push the price back up to the $149 level, retesting the highs from Friday. The buying volume just wasn't there to push through and the bears came out of the woodwork, driving the volume up and the price down. Fortunately, support held at $144, and CMVT managed to recover a bit into the close. Going forward, we would like to see this support level hold, and a bounce here on increasing volume would make for a good entry. In the event of more investor nervousness, we could see prices dip as low as $140 (10-dma), and a bounce here is also tradable. Below that, stand aside as you don't want to try and catch the falling knife. More conservative traders may want to wait for CMVT to move convincingly through the resistance that has developed at $149. In the news today, CMVT announced that it has inked a distribution deal with Teloquent Communications. Teloquent will be offering recording and monitoring solutions from CMVT as part of its call center solutions for enterprise, branch office and work-at-home environments. EMC $112.03 +2.78 (+2.78) Like a moth to a flame, EMC seems attracted to the $112 level. Although it moved up nicely from the open, our play stubbed its toe again as it approached the $116 resistance level and it was downhill from there for the rest of the day. The bears brought EMC back to earth, limiting the days gains to a little under $3. On slightly less than average volume, the battle between the buyers and sellers continues with support and resistance now set at $112 and $116 respectively. Stronger support exists at $108 (the site of the 10-dma), and a pullback and a bounce here would provide a very nice entry into the earnings run which should commence any day now. More conservative investors may want to wait for EMC to break through resistance at $116 before opening new positions. Continuing to demonstrate why they are the market leader in storage applications, EMC announced today the immediate availability of the EMC Fibre Channel Interface kit for AIX. This new kit enables servers running IBM's AIX operating system to connect via switched Fibre Channel into an EMC Enterprise Storage Network (ESN). VIGN $198.25 -2.69 (-2.69) Where have all the buyers gone? After the wild gyrations last week, investors showed muted interest in VIGN today. Except for a blip up during the first few minutes, shares traded in a narrow $4 range all day, shaving off $$2.69 by the close on about half the average daily trading volume. Support looks to be building in the $195-197 area, with the 5-dma at $195.38. Stronger support appears in the form of the 10-dma at $185, but with earnings approaching sometime soon (the company has still not released the date), we would consider a dip to this level to be a gift. VIGN continues to bump into resistance at $206, and more conservative traders may want to wait for the return of volume to push prices convincingly through this level. Don't be fooled by today's tame action, as this is still a volatile internet and wide price swings can occur intraday. With that in mind, don't forget to keep your stops in place. Today VIGN announced a strategic alliance with R.R. Donnelley Online Services in which VIGN's StoryServer 4 software will be a core component of RR. 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The Option Investor Newsletter Tuesday 1-18-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ***************************** PICK NEWS - CALLS - CONTINUED ***************************** HGSI $194.13 +9.50 (+9.50) Our split run continued today as HGSI gained +9.50 on the first day back. Genomics and HGSI has been in the news lately as well and continues to attract investors attention. In the past couple of weeks HGSI signed a major deal with Abgenix(ABGX), a leading player in the antibody field. HGSI intends to take information derived from genomics programs and then apply Abgenix's antibody technology platform to create antibody drugs. HGSI gapped higher at the open and then retreated to $183, before regaining its composure to climb to a new high of $194.25. A real positive for our play was the fact the intraday level of support at $183 held. If you have a position in HGSI, move your stops up to protect profits. If you are considering adding to or initiating a new play look for continue strength as an opportunity to join in. Another area of support would be found at $189 and a bounce off that level would be positive as well. SEPR $130.25 +4.13 (+4.13) SEPR continued to attract investors attention, and their buy orders Tuesday. SEPR saw $4.13 added to the price of their stock today. A bit concerning was the light volume at 362K. SEPR jumped up at the open, and fell back to the $126 area, when traders began to build support for the Biotech company, bidding the price higher. The momentum continued into the close, with SEPR heading towards its high of the day of $131.19. Ken Kam, manager of the Medical Specialist Fund, listed SEPR as one of his favorites. In commenting on SEPR, AMGN and MEDI, Kam said these companies will provide better research for new drugs. Our earnings run, is exhibiting good momentum, but with the light volume today, we may see a bit of a pullback. If so, a bounce off $129 or $126 would provide a good entry point. SEPR does not report earnings until Jan 28th, so we still have time for this play to develop. LSI $79.25 +6.50 (+6.50) It's amazing at times what a brokers rating can do to influence the price of a company's stock. Many times it depends on which broker, and which firm comments on the future of a company. This morning before the open, Dan Niles, Robertson Stephens Managing Director and Senior Semiconductor analyst reiterated his Strong Buy rating on LSI. Niles went on to say he was projecting a $90 price target for LSI, and estimated over 100% earnings per share growth from 1999 to 2000. It couldn't have come at a better time for our play. LSI did gap up over $5 at the open, and headed higher making a new high at $80.50 before settling at $79.25. If you are looking for an entry point to this play, the $79 did provide intraday support for LSI, and a bounce off that area would provide the opportunity we are looking for. Should we see a pullback, be patient an wait for intraday support to build, prior to entering a new play. LSI reports earnings Jan 25th after the close, so this will be a play you would want to exit by the close of business next Tuesday. NOK $178.88 -5.13 (-5.13) As we noted in Sunday's write-up, the breakout over $180 on low volume might retrace if the market gets rough. Not that the market got rough, but MOT announced earnings today and only beat estimates by a penny while growing sales by "only" 13% over last year. Frankly, that's lousy given the incredible growth of handset business, which conveyed to investors that maybe NOK sales wouldn't be so hot either. We disagree with that analysis based on current demand for handsets and NOK's announcement that sales are exceeding even their lofty demands. Despite previous reports to the contrary, NOK is probably putting the hurt on MOT more than MOT would like investors to believe (speculation, ours). Technically, a quick peek at the chart shows a pennant forming over the last two weeks on slowing volume, which usually portends a breakout - we think to the upside, given the nearness of earnings on February 1 after the bell and the potential of a split announcement too. Support is good at $175, and strong at $170. Consider today's weakness on MOT's misfortune as a buying opportunity. For the more conservative, target shoot your way in, or wait for strong volume and a positive price move for the best entry. JDSU $195.69 +3.50 (+3.50) First, let us all bow toward San Jose California, the home of JDSU, and pay homage for having the foresight to consolidate what would otherwise remain an able, scrappy, yet smaller competitor. Then take a bow to other traders all over the world for having the belief that JDSU is worth more money since announcing its offer to buy ETEK late last night. For those who missed it, JDSU agreed to buy ETEK in a stock deal valued at about $15 bln. The ratio is 1.1 JDSU shares for every 1 ETEK share. While there may be some Federal Trade Commission hurdles to clear in the merger, it is a rare occurrence that the acquiring company goes up in value. Apparently, the market loves this deal, and we don't blame them. Keeping up with demand is biggest hurdle in the business, and ETEK, along with the OCLI acquisition can insure that demand is satisfied through economies of scale, according to JDSU's CEO, Kevin Kalkhoven. JDSU looks just like Intel did 15 years ago - the dominant player in a growing industry with a big market lead in what is becoming a branded product. While JDSU traded as much as $14 over last week's close, much of the gain was given back at the end of the day, but still managed to close with a $3.50 gain on 2.5 times the ADV of 4.6 mln shares. A nice gain with big volume and earnings on tap for January 26 is a win, and looks good for the future. Support is strong at $180, but was found today at $185. If old resistance becomes new support, we may have found a new level at $195 today. Don't bet the farm on the latter though, or chase it up the chart. With volatile swings in the NASDAQ, not to mention a close at a previous high, the NASDAQ could go either way, taking JDSU with it. While it looks like JDSU is on fire, we think target shooting still yields the best entry. With big premiums, selling naked puts on the dips or using Jim's covered short straddle can yield excellent returns. EXDS $124.00 +18.00 (+18.00) Wow! Whatta day! Yes, there was news today. EXDS is teaming up with Foundry Networks (FDRY) to speed up clients' connections by a factor of ten times with FDRY's gigabit Ethernet switches. Nothing like a little bandwidth expansion to goose the price. Also in the news, EXDS is teaming up with Nomura Research to develop consulting and Web hosting services in attempts to expand the Japanese market. These two items alone shouldn't account for an $18 move. We don't know the real reason for the jump. However, we do know that volume was over two times the ADV of 3.7 mln shares, telling us that demand for the issue is strong. Perhaps, it's money coming off the sidelines for an earnings run (scheduled January 26 after the bell), or a possible split announcement then too. Careful though. The nearest support following today's $110 breakout is at $113. Since nothing goes up forever in a straight line, expect some intraday profit-taking along the way, and be prepared to buy those dips. Of course, if the overall market exhibits huge gravitational pull, no amount of EXDS rocketry is going get it into orbit. Be like NASA Control and wait for another launch time. MFNX $61.00 +3.88 (+3.88) BRRRR! We got the cold shoulder this morning from MFNX's IR department. When asked for a specific earnings date, they declined an answer and said to call back in February. Thanks for the help! While they are not likely to report in January, it could happen any darn time they feel like it in the first two weeks of February (Zack's has a tentative earnings date of February 7). Making things even tougher, they have reported during market hours for the last two quarters. All frustration aside, volume remains exceptionally strong at 45% over the ADV today, showing us strong buying interest. Part of the reason may be the emerging possibility of MFNX's transmitting up to 2000 channels within a single strand of fiber, creating ubiquitous, cheap bandwidth for all in its service areas - that's up to 8 petabits per second, or the total average traffic covering the entire globe as recently as 1997. Anyway, technically, this is nosebleed territory, with the nearest support at the 10-dma, way back there at $51.39. While we fully expect MFNX to be at a higher price by earnings (whenever it is), there will be bumps along the way. With seven consecutive days of gains, now is not the time to buy everything in sight. Wait for the dips, (hopefully a big intraday selloff followed by a strong bounce) for an entry. Also be forewarned that MFNX is really temperamental, and subject to violent moves for no apparent reason (think Tasmanian Devil) - something we expect from a company with little concern for disseminating news. Nonetheless, we like the gains and the chart is strong. While nowhere near a guaranty, over $52, they could also announce another split. NTAP $118.38 +24.69 (+24.69) What happened to the price of NTAP shares today? Well, we will tell you. It ended the day $24.69 higher than where it began. The volume supporting the move was strong at over 3.7 million shares. What left some investors scratching their heads, was there was no company specific news today, that would have moved the stock in such a fashion. The Nasdaq saw investors return to some old favorites today in the technology sector. PSIX a company in the networking sector, with NTAP, announced a 2:1 for stock split, and did receive a reiteration of a Buy recommendation from analysts at Robertson Stephens. Traders may have viewed these comments as, whatever they can do, NTAP can do better. CSCO, PSIX, and NTAP all finished the day with solid gains, but NTAP was clearly the leader of the group, gaining over 26% for the session. NTAP opened $4.19 higher and continued to climb higher into the close, setting a new high of $120, in the last 5 minutes of the day. If you entered this play early in the day, congratulations. If not, intraday support for NTAP is now found at $115, $110 and $107. If traders take some money off the table, look for bounces off support as an entry point for this play. **************** PICK NEWS - PUTS **************** ICGE $138.75 +5.25 (+5.25) We are keeping ICGE as a play and this is why. Sure they closed up today, but the stock rolling over late in the day was a positive factor. ICGE had some good news about a corporate position they filled and the Nasdaq had another up day, but these factors are short-term. Today's highs would have been a great entering point since they never broke resistance, just bounced around it. ICGE will now have a challenge rallying above resistance at $145. Support is still at $130, but once that support is broken then the next stop is at $120, the 50-dma mark. On the flip side, be cautious and cover yourselves if ICGE does break that resistance level. It looks like ICGE is making a good effort to rally, but the sector is weakening with CMGI dropping again today. The good news they had was Ms. Coleman, who used to be CEO of BAAN, was officially named a managing director of operations and brings 3 years experience with her. IIJI $84.00 -1.50 (-1.50) IIJI offered us a wide trading range today, bouncing off the support of $80 but that's exactly why it's called support. The bounce brought IIJI right back to resistance from the recent downtrend line. So expect IIJI to hang out at $80 for a little while, maybe even making bounces, but once support is broken it should be all down hill until the next support level of $66. We did not come close to the upper resistance of the 10-dma at $95.75 and that level is looking farther and farther away. So jumping in at around today's close looks inviting, just confirm the bounce off of resistance first. Another thing to look at is IIJI was down even though the Nasdaq was up, a good reason to believe that traders are still bearish. There was no major news effecting our play. WCOM $44.50 -2.06 (-2.06) WCOM got no help from the big funds today as Fidelity Investments flagship Magellan fund added Exxon and Texas Instruments to its top 10 holdings, knocking out MCI Worldcom. WCOM did have some positive press, successfully completing the first live commercial trial of Nortel Networks (NT) next-generation of optical networking equipment. Demonstrating the capability to carry a Terabit per second over a single fiber, this test will likely be far more helpful to NT than WCOM. The over-riding fundamental issues here continue to be concern over the financial impact of the pending merger with Sprint and long-distance rate wars with AT&T. Technically looking weak again, WCOM has given back most of the gains from last week and $46 (10-dma) looks to be providing good resistance going forward. Support will exist at the 52-week low ($42.56), set last Tuesday when WCOM traded below $41 for the first time in over a year. Don't chase this one down - wait for WCOM to come up for air and test resistance again before initiating new positions. FD $47.88 +0.06 (+0.06) A quiet day for FD today, given the news that came out on Friday. Announcing a doubling of their internet-related spending (up to $150-200 million) didn't sit well with FD and they responded by lopping $3.38 off of the share price. The company held a press conference to try and assuage investor concerns, stating that the increased spending will not adversely affect revenues for the fiscal year beginning volume returned to normal levels and FD couldn't move through $48. This level has provided good support over the past month and may now act as resistance. With trading volume on Friday's drop at roughly 4 times the ADV, today's lack of interest would seem to indicate there is not an abundance of investors willing to buy at these levels. Conversely, the drop in volume tells us there is not a rush for the exits. With the lack of direction in today's trading, we need to exercise caution. Look for a drop through $47 on increasing volume before opening new positions. Beyond that, FD looks to have long-term support at $45, $43, and $40.50. Adding further downside pressure will be the loss of retail veteran, Russell Stravitz. Leaving his position as Chairman and CEO of the $2.2 billion Rich's/Lazuras/Goldsmith's subsidiary of FD, Mr. Stravitz is moving to Nexchange, a four-year old Internet marketer. Does this say anything in regard to his feelings about FD's internet strategy? You be the judge. SBC $41.13 -0.88 (-0.88) Our put play in SBC is developing in fine fashion. After bouncing up to it's 10-dma at $43.19, traders entered the market sending SBC south. SBC closed down -0.88 today which, may not be considered by some to be a big deal. However when you consider SBC fell about $2 from its high of the day, on volume of 9.8 million, that gives this play more credence. We said Sunday, we wanted to see how SBC reacted to any rallies that might come. At this point the rallies haven't held, and intraday charts appear weak. At this point we aren't anticipating the bottom to fall out of the company's stock but we do believe there may be one more move south before SBC is able to form a bottom. If you entered this play on the decline from the resistance, keep your stops in place in case traders try to mount an earnings rally. SBC reports earnings Jan 25th at 10:00am EST. Further weakness should be viewed as a chance to join in on this play. CMGI $116.31 -5.63 (-5.63) On more than double the ADV, CMGI clearly slipped under recent support at $120 leaving the 30-dma ($123.04) merely as a dot in the rearview mirror. Now so far so good, but since CMGI is a volatile Internet always be prepared for a reversal. In other words, CMGI needs your undivided attention. If you're using stops watch out for wild intraday swings that could inadvertently knock you out of the play. After all we're still betting on a retracement back towards the 50-dma ($99.20). Today CMGI announced another acquisition. This time it's Green Witch, LLC, a leader of open source Internet radio broadcast solutions. Financial terms were not available. ISLD $82.00 +4.88 (+4.88) Today ISLD proved to be a nice intraday play with an almost six-point spread. On the upside resistance seems to be now more in-line with $82 than $80. Granted we're anticipating ISLD to fill in the gap from December's sharp rise, but first be aware that there's opposition at the near-term bottom support of $76. Shifting gears, take a look at a chart with a 5-dma line and you can see how this technical indicator has acted as overhead opposition on ISLD's descent. Therefore it's reasonable to assume that you can use this as an entry or stop gauge along with your own risk criteria. There was nothing newsworthy surrounding Digital Island to report that would have effected trading. ************** NEW CALL PLAYS ************** VOD - Vodaphone Airtouch $57.50 +4.63 (+4.63) Formed when the UK's Vodaphone Group bought US wireless provider AirTouch Communications in 1999, VOD operates mobile phone networks offering voice messaging, paging, and data services. With the most mobile phone subscribers in the world, (31 million and rising), VOD is a giant in the world of wireless phones, holding the #1 position in the UK and the #2 position in the US. The company continues to expand at aggressive pace, having agreed to combine with US wireless carrier Bell Atlantic, and still pursuing its takeover bid for Germany's Mannesman. Yes, it's back! For those of you that have been with us awhile, you'll remember we've had VOD as a play recently on speculation about the outcome of the seemingly never-ending merger battle between VOD and Germany's Mannesman. It looks as though VOD may be getting the upper hand, making a convincing argument in a published letter to Mannesman shareholders today (see below). VOD has been struggling for months to convincingly break through the $52 resistance level. This tug-of-war has actually provided a nice, tradeable $5-7 range, cycling from high to low and back again every 3-4 weeks. We knew it would eventually break out and late Friday and today seems to have done the trick. Today's move, on 1.5 times the ADV, followed a familiar pattern for this ADR. The open is usually a gap, and the direction of the gap usually determines the direction for the rest of the day. There are 2 possible entry strategies; wait for the gap up and then jump on board, or for those with a lower risk tolerance, wait for a pullback to support. Support now looks to be the old resistance near $52, a level we would like to see hold going forward. Use caution trading this issue as a stock that gaps at the open can run right over your stops if the move is strong. Keep that in mind when evaluating your risk profile. Continuing its full-court press to acquire Germany's Mannesman, VOD today published a letter to Mannesman shareholders detailing the real choice they have to make before the VOD offer closes on February 7. The letter details the greater strength the combined company will enjoy and that the growth rate will be greater than what they can expect for Mannesman's go-it-alone strategy. Addressing each of the concerns raised by Mannesman, VOD shows that many of them do not hold water, most notably the issue of demerging of Orange in the process of the proposed merger. VOD has a rational plan for this stage and shows that Mannesman management's arguments don't hold water. BUY CALL FEB-50 VOD-BJ OI=3689 at $8.50 SL=6.50 BUY CALL FEB-55*VOD-BK OI= 865 at $5.13 SL=3.25 BUY CALL APR-55 VOD-DK OI=2033 at $7.50 SL=5.75 BUY CALL APR-60 VOD-DL OI= 412 at $5.25 SL=3.50 BUY CALL APR-65 VOD-DM OI= 149 at $3.50 SL=1.75 Picked on Jan 18th at $57.50 P/E = N/A Change since picked +0.00 52-week high=$58.00 Analysts Ratings 4-3-2-0-0 52-week low =$33.15 Last earnings N/A Next earnings N/A Average Daily Volume = 3.59 mln Chart = http://quote.yahoo.com/q?s=VOD&d=3m ************* NEW PUT PLAYS ************* No new put plays today. ********************* PLAY OF THE DAY - PUT ********************* WCOM - MCI Worldcom $44.50 -2.06 (-2.06) MCI Worldcom is a telecommunications giant, providing consumers and businesses with local, long distance, Internet, data, and international communications services. Included in the company's products and services are switched and dedicated long distance and local products, dedicated and dial-up Internet access, wireless services, 800 services, calling cards, and debit cards. Sunday's Write Up Survey said? Entry Point! The question we posed on Thursday, after seeing WCOM recover from a low of $40.75 was, "Has WCOM found a bottom or is this a good entry point?". The answer was clear by the close on Friday, as WCOM opened up at $49 and slid downhill all day for a loss of $2.94 from the high of the day. Volume was still heavy at more than double the ADV, indicating the weakness we have been focusing on is alive and well. The source of that weakness is the seemingly endless saga of the merger with Sprint. Adding further downside pressure is the announcement by AT&T on Thursday that they are lowering their key long-distance rate, a move WCOM will have to counter. This will continue to pressure the company's revenues and therefore the stock price. Look to enter new positions on continued weakness or a bounce off of the 10-dma, now at $47.50. Selling volume has been strong throughout this drop, so confirm that it continues to support any continuation of the downward move The latest salvo in the battle between the local phone companies and the large Telecoms was launched on Friday. In response to the AOL and Time Warner merger, the Small Business Survival Committee is urging Congress to reject legislation currently before the House of Representatives. The bill would grant local phone monopolies an exemption from the 1996 Federal Telecommunications Act, which prevents them from offering long-distance service to their local phone customers. Also on Friday, WCOM was named as the 'unnamed creditor' that has agreed to swap part of a $30 million for a 19 percent stake in Able Telecom, a builder of communications networks. Tuesday's Write Up WCOM got no help from the big funds today as Fidelity Investments flagship Magellan fund added Exxon and Texas Instruments to its top 10 holdings, knocking out MCI Worldcom. WCOM did have some positive press, successfully completing the first live commercial trial of Nortel Networks (NT) next-generation of optical networking equipment. Demonstrating the capability to carry a Terabit per second over a single fiber, this test will likely be far more helpful to NT than WCOM. The over-riding fundamental issues here continue to be concern over the financial impact of the pending merger with Sprint and long-distance rate wars with AT&T. Technically looking weak again, WCOM has given back most of the gains from last week and $46 (10-dma) looks to be providing good resistance going forward. Support will exist at the 52-week low ($42.56), set last Tuesday when WCOM traded below $41 for the first time in over a year. Don't chase this one down - wait for WCOM to come up for air and test resistance again before initiating new positions. BUY PUT FEB-50 LDQ-NJ OI=1698 at $6.75 SL=5.00 BUY PUT FEB-45*LDQ-NI OI=5362 at $3.00 SL=1.50 BUY PUT MAR-50 LDQ-OJ OI=1642 at $7.38 SL=5.50 BUY PUT MAR-45 LDQ-OI OI=5626 at $5.00 SL=3.25 Average Daily Volume = 14.24 mln Chart = http://quote.yahoo.com/q?s=WCOM&d=3m ************************ COMBOS/SPREADS/STRADDLES ************************ Inflation Signals Tumble Blue-Chips.. Tuesday, January 18 The majority of Dow components fell lower today as bond yields surged to recent highs. Fortunately, a rally in market-leading technology issues propelled the Nasdaq to another near-record close. The composite of technology companies rose 66 points to 4,130, just short of the all-time closing high set on January 3. The Dow industrial average was off 162 points at 11,560 and the S&P 500 index lost almost 10 points to finish at 1,455. Falling issues outpaced advancers 1795 to 1290 and the benchmark long bond dropped 20/32 to yield 6.74%. Sunday's new plays (positions/opening prices/strategy): Biovail BVF APR85C/F100C $10.00 debit bull-call Emulex EMLX FEB100-CC $95.00 C/B covered-combo Emulex EMLX FEB95-NP $92.50 C/B covered-combo Splash SPLH FEB7C/FEB10C $2.00 debit bull-call Tekelec TKLC FEB17C/FEB22C $4.12 debit bull-call Emulex was the our big winner and just as the chart suggested, the stock rallied for an incredible $20 gain during the session. The opportunity to play it at our strike was short-lived but if you bought stock near the open (in anticipation of playing the position), you were happily rewarded with higher call option premiums a few minutes later. Our cost basis is based on quotes observed (simultaneously) in the first few minutes of trading. All of the other issues offered favorable entry opportunities at some point during the day. Portfolio plays: Technology stocks dominated the leader-board in our portfolio today and two of our newest plays were at the top of the heap. Exodus (EXDS) rose $18 to a recent high near $124 after the company announced plans to offer its online customers 10 times faster connections with the new Gigabit Ethernet service. Exodus has teamed with Foundry Networks to provide the Gigabit Ethernet service throughout its global network of Internet Data Centers. Officials at EXDS say the product is necessary to support the growth of bandwidth-intensive activity over the Internet. The other surprise in today's session was our new combination play on Emulex (EMLX). EMLX's $20 move came on a lack of significant news but traders suggest the positive earnings reports among industry competitors and the possibility of another stock split are having a bullish effect on the issue. A number of other stocks moved higher on positive announcements and although the near-term trend is favorable, the market is expected to experience a period of consolidation following the earnings season. Among the soft sectors in Tuesday's session were financial and pharmaceutical stocks. In the technology group, networking issues moved higher while the chip companies were thwarted by losses in Motorola (MOT). Motorola fell almost $7 to $143 after reporting solid revenues and stronger-than-expected quarterly results. The telecom sector was less affected by the move and our top performer was the long-term play on Vodaphone (VOD). The stock rose another $4 to close at a new high near $57. Our bullish LEAPS/CC's spread is profitable after just one month and the move to February is an easy one with little downside risk at the $50 strike (new support). A number of our small issues climbed in individual rallies and the leaders in this group were Geron (GERN) and Silicon Valley Group (SVGI). Geron added almost $2 to end at $19.62 after the company announced that Pharmacia & Upjohn has decided to extend its drug discovery collaboration with Geron. The pact extends the research and compound selection period to March 2002 and Geron will receive additional research funding as part of this extension. Our recent bullish offering has now profited in both the initial calendar spread and the adjusted diagonal position. Silicon Valley Group rallied $1.81 to $25 on expectations of favorable earnings. The stock has moved up almost $10 since our initial recommendation last month and the position has provided numerous opportunities for profit. Key Energy Group (KEG) is worth mentioning. The issue moved up $0.62 to just above our sold strike at $7.50. The bullish spread; JUL7C/FEB7C is profitable at the current price but will lose potential as the stock moves higher. Monitor the issue for further upside movement and adjust the position as necessary. One of our new straddles broke the mold today. LHS group (LHSG) gained almost $3 on momentum from a recent telecom pact in the far east. LHS and their global partner Alcatel have signed an agreement to pursue wireless and wireline opportunities in China. The companies will assemble a joint dedicated team in Shanghai to address new opportunities in that country. Our debit straddle offered a $2.00 profit on $6.75 invested after just one month in play. Other recent winners, Jones Pharmaceuticals (JMED) and Univision (UVN) continue to offer excellent exit opportunities. JMED is trading near a 100% profit and UVN is returning 40% on the initial $14.75 invested just a few weeks ago. Questions & comments on spreads/combos to Contact Support ********* NEW PLAYS ********* Over the past few weeks, I have received a number of questions about the concept of selling time in Covered-Calls on LEAPS and Calendar Spreads. The premise in this low risk strategy is simple; time will erode the value of the near-term option at a faster rate than it will the far-term option. Using this concept, it is possible to establish a directional (bullish) bias, constructing aggressive out-of-the-money positions to take advantage of upward movement and short-term option disparities. As the stock price nears the sold strike price, theoretical value increases in both options but the time premium falls in the short position, adjusting the spread differential in your favor. When this occurs, it is often possible to close the position early for a profit; if the stock advances in a reasonably stable manner. That is why the original pricing disparity is so important; it can make the position profitable as the options return to theoretical value. To the average trader, it would appear that this technique can't lose. One would simply buy the longer-term option and sell the shorter-term option. As both time values decayed, the spread would gain value. In reality, it's rarely that easy because the underlying stock does not remain constant. The success of this conservative strategy hinges on the fact that most of the losses will be small and the profits from other calendar positions will overcome those losses. One of the benefits of this type of spread is the risk is limited to the original debit spent to establish the position and thus the trader is always aware of the potential loss. There are advantages to participating in short-term positions but it is generally best to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in this spread play; selling time value in the options when they are overpriced (high implied volatility) and buying it back (if necessary) when they return to intrinsic value. Ideally, the spreader would like to have the stock finish just below the sold strike when the near-term option expires. If the short options are in-the-money at expiration, he will have to buy them back to preserve the long-term position. If that case, the short call will shrink to parity, providing an opportunity to purchase the option with little or no time value premium. There are a number of excellent books on the subject and I prefer two of the bibles of option trading: Option Volatility & Pricing: Advanced Trading Strategies and Techniques by Sheldon Natenberg and Options: A Strategic Investment by Lawrence McMillan, both available in the OIN bookstore. Here are three calendar spread plays, based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is higher than other plays in the same strategy, based on pricing disparities in the option premiums. News and market sentiment will have an effect on these issues so review each play individually and make your own decision about the future outcome of the position. **** GLM - Global Marine $19.31 *** Oil Sector Rally *** Global Marine provides offshore drilling services on a day-rate basis and offshore drilling management services on a turn-key basis. Their domestic offshore contract drilling operations are conducted by Global Marine Drilling Company, and international operations are conducted by Global Marine International. They have a fleet of offshore drilling rigs; cantilevered jack-ups, semi-submersibles, one moored drill ship and one dynamically positioned drill ship. The company provides drilling management services through a number of subsidiaries and offers services as general contractors; with planning, engineering and management services beyond the scope of its traditional contract drilling. Oil and energy stocks continued to climb on Tuesday as oil prices increased on speculation that OPEC could extend supply cuts. The idea that OPEC might extend the current limitations beyond April has caused a number of analysts to raise their expectations for the industry. Demand for fuel oil has also moved higher as a cold snap in the Northeast continues to plague homeowners and businesses with rising heating costs. Even with the high oil and gas prices, the sector has yet to recover fully from the long-term slump and some industry experts suggest there is still substantial upside potential in the group. Today Global Marine reported sharply lower profits for the fourth quarter, citing last year's weak oil prices, but said OPEC output restraints and gradually higher premiums are expected to fuel new exploration this year. Global presented a favorable outlook for the future saying it expected current higher oil prices to spur new capital investment. A pre-earnings rally has boosted the stock price in the past few days but some traders say the rise may also be attributed to new merger speculation. GLM discounted the likelihood of a deal with another drilling company but said it would continue to look at small acquisitions. A short-term consolidation is certainly in order after the recent rally and a small disparity in option pricing offers a favorable opportunity to speculate on the stock movement for one week. PLAY (conservative - bullish/calendar spread): BUY CALL FEB-20 GLM-BD OI=24 A=$1.18 SELL CALL JAN-20 GLM-AD OI=5158 B=$0.31 INITIAL NET DEBIT TARGET=$0.75 TARGET ROI=20% Chart = http://quote.yahoo.com/q?s=GLM&d=3m **** PDE - Pride International $17.25 *** Sector Rally *** Pride International provides contract drilling and related services in offshore and international markets, operating a global fleet of 308 rigs. The company provides services for large multinational oil and gas companies, government-owned oil and gas companies and independent operators. PDE also operates an offshore fleet in Venezuela, and has operations in Colombia, Bolivia and Argentina including land-based rigs in North Africa, the Middle East and Pakistan. Oil prices peaked at record levels last week, boosting the majority of issues in the group to recent highs. Improving revenues are expected to augment the drilling industry's capital spending thus increasing the need for offshore rigs. PDE is expected to benefit from developments in the Gulf of Mexico and Africa as well as in Brazil where Petrobras, the state run monopoly has opened its waters to outside investment. We are going to begin this position with a short-term neutral outlook, using the premium from the January call to reduce the overall price of the April option. The recent failed rally area near $18 may provide just enough resistance to allow our spread to roll into February (this Friday) with favorable upside potential at a reasonable cost basis. PLAY (conservative - bullish/calendar spread): BUY CALL APR-17.50 PDE-DW OI=384 A=$2.19 SELL CALL JAN-17.50 PDE-AW OI=505 B=$0.31 INITIAL NET DEBIT TARGET=$1.62 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=PDE&d=3m **** AG -Agco $13.88 *** Second Time Around *** AGCO manufactures and sells a range of agricultural equipment and related replacement parts including tractors, combines, hay tools, and forage equipment and implements. AG participates in all segments of the tractor market and uses the replacement parts business as a source of revenue and profitability for both the company and its dealers. Their products are marketed under a number of brand names including Massey Ferguson, Fendt, AGCO Allis, Gleaner, Hesston, White, Landini, White-New Idea, Black Machine, AGCOSTAR, Glencoe, Tye, Farmhand, Ideal, and Deutz. Earnings season is upon us and although the majority of heavy machinery makers are expected to report declines in the quarter, analysts expect a industry rebound later this year. A number of farm equipment firms have been hammered in recent months by low commodity prices and to offset the slack demand, they reduced production of new equipment. With dealer inventories at all-time lows, production and sales are expected to climb in the coming months. Agco has a unique chart and always provides good option premiums for those interested in speculating on a low cost cyclical issue. Last time around, we jumped in a bit late but now it appears we have the right combination of trend and premiums for a low-risk position. PLAY (conservative - bullish /calendar spread): BUY CALL MAY-15 AG-EC OI=211 A=$1.56 SELL CALL FEB-15 AG-BC OI=273 B=$0.62 INITIAL NET DEBIT TARGET=$0.75 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=AG&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 millennium 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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