The Option Investor Newsletter Tuesday 2-08-2000 Copyright 1999, 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) ************************************************************ 2-08-2000 High Low Volume Advance Decline DOW 10957.60 + 51.81 11022.75 10904.26 1,052,863k 1,588 1,438 Nasdaq 4427.50 +105.73 4428.48 4370.01 1,981,522k 2,385 1,842 S&P-100 782.21 + 9.32 783.69 774.19 Totals 3,973 3,280 S&P-500 1441.75 + 18.75 1441.83 1424.24 54.7% 45.3% $RUT 537.49 + 5.10 539.15 532.39 $TRAN 2582.80 + 10.59 2598.58 2562.81 VIX 22.10 - 1.60 22.96 21.99 Put/Call Ratio .56 ************************************************************* It is not the Economy, Stupid. The worker productivity report this morning showed no hint of inflation for the fourth quarter with worker productivity rising a huge +5% while unit labor costs declined by 1%. It was a case of news too good to be true. The report defused fears that the Fed would react again soon to raise rates. Investors went on a shopping spree and tech stocks were on the top of the list. The Nasdaq posted another record high, the third in three days, at 4427. The Nasdaq winning streak has now stretched to seven days and +13% from its low of 3750 on Monday of last week. The Nasdaq showed no signs of resting and closed at the high of the day. Tomorrow is likely to start out in rally mode as well after Cisco announced record earnings and a 2:1 stock split after the bell. As a major component of the Nasdaq the +$8.00 CSCO gained in after hours will jump start the Nasdaq at the open. Nasdaq futures are up +$25 at 6:15
The Option Investor Newsletter Tuesday 2-08-2000 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ********************** PLAY UPDATES CONTINUED, Calls ********************** ICIX $53.56 +0.38 (+4.31) Good news from ICIX today! Not only is ICIX a positive momentum run with some nice ties to DIGX (refer to previous ICIX write ups for further details if you are new to this play) but today, ICIX officially became an earnings run. The company set a date to announce Q4 and year- end results next Wednesday, February 16th before the open. Should ICIX continue to exhibit the momentum we have seen recently, we will be keeping ICIX on our play list until next Tuesday. As you know, OI recommends closing out your positions prior to an earnings announcement to avoid a post earnings depression. ICIX gapped up to hit a new 52-week high at the open this morning before quickly pulling back to find some nice support right around $52.50. ICIX spent the majority of today's session around this level before making a nice late day recovery and closing the session in the black. This afternoon's rally may have come as word made its way onto the street about the upcoming earnings announcement. Support could continue to hold between $52.50-$53 which looks to be backed by $50-$49.50. Note: It was another nice day for DIGX, as it gained $2.75, traded within $0.75 of the 52-week high and closed over $100. Translation? More money in the pocket of ICIX. PMCS $270.38 +4.38 (+23.19) This is the kind of call play that can bring a tear of joy to your eye. We thought that this mornings run down to just under $263 may have been the beginning of some possible profit-taking, which we have been keeping an eye out for. After all, PMCS has gained nearly $90 in just the last six sessions! PMCS found some support right around $270 and $265, but truthfully, if the profit-takers move in on PMCS, we may not see support catch until a more solid support level is reached, such as its 5-dma of $246.50. Do exercise caution at this point. If you take a look at today's intraday chart for PMCS you will see evidence of the profit-takers lurking in the woods. It is could be only a matter of time before they decide to emerge to lock in their profits, thus taking PMCS down. Because the stock is splitting on Friday, it may be a good idea to start thinking about closing out your positions and taking your profits. If you are going to stay for the remainder of the pre-split run, be sure to tighten your stops to protect yourself against potential profit-taking. PSIX $96.25 +4.25 (+3.63) Our play is either running out of steam or is taking a short rest to stoke the furnace for a final run into the 2-for-1 split on Friday. Earnings are also approaching rapidly, currently scheduled for February 21, and this may add further upward pressure when PSIX starts moving again. Trading this week has been relatively quiet as buyers and sellers run the stock between resistance near $97 and support which is building at $92. New positions can be considered on a bounce at support, although more timid investors may want to wait for a convincing breakthrough of the current resistance level. Positive analyst comments continue to flow, with the latest coming from Lehman Bothers analyst Bill Garrahan. He began coverage of PSIX today with an Outperform rating and a price target of $108, calling PSIX "the largest pure play Internet access provider, with significant global network assets". The $17 million investment PSIX made in Metrocall last week will likely pay huge dividends as demand increases for wireless data and messaging services. If you are considering a new position in PSIX, keep in mind this will be a short run; with the split on Friday, we will be dropping it from our play list on Thursday. SNDK $143.06 -2.06 (+1.06) Apparently moving on to more exciting issues, investors have left SNDK to its own devices this week. Posting an inside day on light volume yesterday, there was a little more interest today. Trading today was a stark reminder of why we don't recommend opening new positions during amateur hour. The rookies had run the price as high as $156 (a new 52-week high) by 10:30am EST, only to watch the stock bleed for the balance of the day. Finally stopping at $140, the bounce at this level in the last 30 minutes of trading was encouraging, and may have been the entry point we were waiting for. Stronger support is seen at $137 and a bounce between there and today's low could provide for an ideal entry point. Recall that the primary catalyst for our play is the 2:1 split, payable on February 21. Note that the breakthrough of the $137 resistance level came last Thursday after positive comments from Merrill Lynch. Citing the company as one of seven that should benefit from growth in the e-appliance market, Merrill Lynch issued near-term Accumulate and long-term Buy ratings. SNDK can have large daily price swings, as evidenced by today's action, so protect your capital with stop losses. BEAS $105.88 +6.06 (+16.63) Now you can see why we dugout the red carpet for BEAS. BEAS entered our play list and performed like a champ. We mentioned Sunday, a move through $90 would provide the perfect opportunity to buy calls. BEAS jumped through our first hoop in the first hour Monday, and provided numerous chances to join in for the balance of the day. And is you didn't take advantage of the entry on Monday, BEAS provided more of the same today, following Monday's blueprint almost to the tee. How's the volume been? Extremely heavy, with over 12.2 million shares changing hands in the first two sessions this week. Last week several analysts were pounding the table on BEAS, after a positive meeting with the company's Chief Operating Officer. BEAS is scheduled to report earnings on February 22. $103.50 and $102 should provide support for BEAS, with a third level back at $96. After a $16 increase in two days, we may see BEAS slow down to catch its breath. If that's the case use any bounces, to jump on board. NTAP $132.00 +6.63 (+4.06) NTAP gave us bit of a scare Monday, but a second look showed the decline to be only profit-taking to the support level seen near $120. Buyers came to the rescue NTAP late in the day, as the networker finished the day down only -2.56. Whether NTAP was following the lead set by CSCO today or moved up on its own, we were pleased with the end results. After an initial pop up this morning NTAP, found itself trading sideways for most of the day until the last thirty minutes of the day. Here's the impressive part, NTAP jumped over $6 the last half hour on strong volume. Over 500K shares were traded in that time, indicating there is more to come. NTAP is due to report earnings next Tuesday, after the close of business. Keep this in mind if you have a position, as you will definitely want to exit by Friday or Monday. CSCO reported better than expected earnings this afternoon and was higher in after-hours trading which could bode well for our play as well. BRCM $335.00 -4.31 (+24.00) Not only did our split run play recover nicely the first two days, BRCM set a new high late this afternoon before profit taking set in. You don't have much time to participate in this one, as the payable date for the split is Friday, with the ex-date Monday. The late day pullback came within $5 of a strong support level seen at $330. Depending on the mood of investors in the morning we may have one last chance to enter this play before the split. It is a bit concerning that with the Nasdaq setting a new high, and Semiconductor sector finishing with a gain, BRCM couldn't show a bit more strength late in the day, but we will play the cards we are dealt. The $330 level would be a good an entry or exit point depending on your positions. BRCM is scheduled to give a presentation at the Goldman Sachs Technology Symposium later this week, and investors will be listening for any positive announcements. EBAY $169.75 +0.19 (+1.69) For the third consecutive session, EBAY traded above the psychological $170 level. The stock is clearly establishing a consistent pattern of higher-highs and higher-lows. Accordingly, near-term support is now at $168 and 171 with overhead resistance at today's intraday high at $175. The news of eBay and Disney's Go.com four-year strategic marketing deal added some spice to today's climb. Together they will offer co-branded person-to-person sites and a new merchant- to-person site for Disney auctions. Basically eBay will be Disney's online trading service. All told the volume is only moderate, but there's no doubt EBAY has powerful momentum. This is the very reason EBAY is on our call list. Target shooting may be your best bet for an entry unless there's a pullback on the Nasdaq that brings the Internet sector down a few notches. As is always the case with VOLATILE Internet plays, know your tolerance for risk and use stops carefully. In other Internet news, Yahoo and Buy.com were "sabotaged" and suffered major outages today. These direct attacks bring up the question of how vulnerable are all Web sites. CMGI $125.38 +5.44 (+6.81) The million dollar question we were left with on Friday's close was answered. CMGI did hold at the $118 support level on Monday! Then today we got an explicit bounce that confirmed upward direction. Yes our next obstacle is opposition at $126.75, an intraday high from Friday, but take a look at the 30-dma. This technical indicator (now at $126.48) is also resistance. Be cautious until CMGI can generate the momentum to penetrate these levels. Very short-term support is at $125, then firmer at $118 and $120. If you're interested in playing intraday volatility, a dip to firmer support provides solid entry points assuming of course there's a wave to ride back up. In the news, CMGI happily announced its 16.1% stake in Silknet (SILK) will result in a 5.4% minority stake in Kana Communications (KANA) following Kana's proposed $4.2 bln stock swap for the computer software business. COVD $81.25 +3.00 (+4.69) "We remain as bullish as ever on the DSL market opportunity overall, and on Covad's positioning within the market". The above is a quote from this morning's upgrade from analysts at E*OFFERING. Christine Nairne, today upgraded her rating on COVD from a Buy to a Strong Buy, one day after the communications company signed a national broadband agreement with OneMain.com. OneMain.com is an ISP that serves smaller metropolitan markets and rural communities, which just happens to be a perfect alliance for COVD. On the news, COVD shot up to a new high at $81.25, but fell back to the $78 area. The lack of any follow through is somewhat concerning. This morning before the open we saw a large number of shares for sale, which made us a bit suspicious as well. The one positive for our play was the strength seen in the final two hours of trading today. COVD managed to dust itself off and regain its composure and move back above the $80 area that's provided stiff resistance. Volume the last two hours was exceptionally strong with over 950K changing hands, almost half of what it did for the whole day. So tonight we sit with $78 providing support and $82 as the new resistance level. A move through $82 with continued strong volume would keep our play on track. MFNX $76.88 +0.94 (-1.44) Confirming that rarely does MFNX move up unless volume rises over 3 mln shares, today we saw MFNX stand still while the rest of the NASDAQ powered up the chart to a new record. Volume was less than half the ADV. No wonder the stock doesn't move up in unison with the rest of the NASDAQ - there's no volume! The good news is that MFNX held at $76.50 today with the exception of the 11 o'clock ET hour where it took a brief dip to $75.94. It's looking like $76 is providing solid support in preparation for the next move up - maybe borne of an earnings run? Zack's still has February 15 listed as the release date, but we won't know that for sure until we get a confirmation from IR. We think more like the first week in March. Anyway the chart looks pretty good and resistance is up at $80 so there room to run. Now, if we could only find a REASON for it to run. As usual, nothing in the news that will cause that. Target shoot if you wish, or buy contracts with more time (just don't use it), like May. BCE $119.00 +3.13 (+0.00) Since this play is really based on unlocking BCE value via its sale of its 39% stake in NT, we can look to LU as the catalyst for today's move. You may recall that Schroder downgraded LU by two notches to an Underperform rating, citing too much circuit-switching inventory that will likely have to be sold at a discount. Not only that but LU is having trouble retaining personnel. NT holds a bigger share of the next generation optical market than does LU, which tells us that NT is gaining even more ground at LU's expense. Also, just a hunch, but maybe those "un-retained personnel" have found a home at NT? No matter, what's good for NT is good for BCE. Support comes in $2 increments at $117, $115, $113, then again at $110. Careful though, resistance is at $119-$120 and volume is decreasing ever so slightly from its highs in late January when the news hit that BCE would sell its NT interests. BCE is also nicely above its 10-dma and may need a breather before the two meet up again. Nothing is going to help anyway if the market decides to roll over later in the week. Since BCE is so close to resistance, you may find it prudent to move up your trailing stop so you don't give back any profit. If you still want to get into the play, wait for the breakout over $120 on strong volume or a pullback to your comfort level of risk. AMCC $217.38 +3.81 (+31.56) AMCC gets the Runaway Train Award this week for its 17% gain since picked. As a big chip provider to the wireless industry, AMCC is double-blessed since it is a semiconductor and an optical chip/wireless Internet equipment player, both of which have been nicely rewarded this week. Technically, it looks great and has been setting new highs on increasing volume. Today, it was twice the ADV, which might be partially explained by noting that CSFB reinstated their Strong Buy rating with a $240 price target. No matter how you slice it, AMCC is also a split candidate over $100. There are enough shares for a 3:1. Now at nosebleed altitude in price, we hate to suggest taking a position at this level, especially with no retracement following over $90 in gains in the last 7 days. But momentum is clearly driving AMCC on. As we suggested Sunday, "Don't rush to buy this thing Monday morning unless you see a positive market, advancers beating decliners and AMCC moving up on strong volume after amateur hour." The same logic still applies. Remember those trailing stops too. *********************************************************** NEW CALLS *********************************************************** CUBE - C-Cube Microsystems $85.69 +3.19 (+5.50 this week) C-Cube is the industry leader in the development and delivery of highly integrated digital video silicon and systems solutions. C-Cube's Semiconductor Division delivers digital video silicon and systems solutions for the communications and consumer electronics markets. C-Cube's DiviCom Division is a leader in the deployment of digital video networks. If you have been reading the Call plays section for the past month you will have noticed a number of very profitable plays in the Semiconductor sector. Here is another one. The story is mostly the same. A very strong earnings report from a company that sells a lot of its product to other high tech companies. On January 20th, CUBE reported earnings of $0.40 "beating the Street" by three pennies. One aspect that sets CUBE apart from other Semiconductor stocks is its strong relationship with the consumer electronics sector. Circuit City and Best Buy recently have rallied on the reports that consumers are spending money like crazy on the latest gadgets. C-Cube makes a lot of the chips for these must-have toys, especially DVD players. Cube began the year on a soft note selling off with the rest of the market. Since then the stock had a spectacular rally that saw shares rise from the mid $50's up to the low $80's. After an inevitable pullback and consolidation back down to $70 the stock has been one of the big winners in this stellar NASDAQ run. With a new high established today look for the possibility that the momentum traders may start gobbling up shares and drive the stock higher. It is important to note that CUBE is approaching that important $90 level. If CUBE can close above $90 it may be the beneficiary of that peculiar phenomenon that drives stocks right to $100 as soon as they cross $90. We have seen this happen many times before and hopefully it can happen again. If the market slows down look for support in the high $70's for an entry point. In early January the Lehman analyst re-iterated a Buy rating on the company with a target price of $71. With the stock well above the target price we are looking for someone to step up to the plate and put a new more aggressive target price out there to shoot for. We got a new target price of $110 from H.C. Wainwright. Let's see if anyone follows suit. ***February contracts expire in less than two weeks*** BUY CALL FEB-80 UQB-BP OI=440 at $ 7.50 SL= 5.75 BUY CALL FEB-85 UQB-BQ OI= 97 at $ 4.13 SL= 2.50 BUY CALL MAR-75 UQB-CO OI= 10 at $14.13 SL=11.25 BUY CALL MAR-80 UQB-CP OI=213 at $11.13 SL= 8.75 BUY CALL MAR-85*UQB-CQ OI=202 at $ 8.00 SL= 6.25 Picked on Feb 8th at $85.69 P/E = 63 Change since picked +0.00 52-week high=$86.00 Analysts Ratings 3-3-1-0-0 52-week low =$17.25 Last earnings 01/00 est= 0.37 actual= 0.40 Next earnings 04-20 est= 0.34 versus= 0.34 Average Daily Volume = 845 K /charts/charts.asp?symbol=CUBE ********** TXN - Texas Instruments $138.88 +4.38 (+6.88 this week) How about Semiconductors R Us? TXN has broad-based exposure to the semiconductor market, especially in digital signal processors and analog integrated circuits. TXN's products are used in a diverse range of electronic systems, including digital cell phones, computers, printers, hard disk drives, networking equipment, and digital cameras. TXN also supplies electronic controls equipment, sensors, radio-frequency identification systems, and sophisticated graphing calculators. Continuing to benefit from the strong growth in the Semiconductor industry, TXN has moved up sharply over the past week. Launching through resistance at $115, the buying volume pushed TXN above $130 in only 2 days. After spending last Friday consolidating its gains, the buyers returned this week to add on another $6.88. After a slight post-earnings pullback, TXN was ready to run higher and good news and upgrades (see below) continue to add to the momentum. TXN continues to produce cutting edge products, deliver them to market and post strong earnings. That is a hard combination to beat and investors are continuing to show their approval. Volume over the past week has been as high as 50% above the ADV, but has dropped off some this week as investors catch their breath. TXN has mild support at $132 (also the site of the 5-dma), backed up by stronger support at $125. Resistance seems to be forming at $139, near today's high. Going forward, consider entries on a bounce near support or a break through $140. As is the case with any momentum play, volume will be the key to moving higher and stops are a must. Further strengthening its leadership in analog circuits, TXN introduced new process technology on Monday that enables 20 times greater integration of Digital logic with Analog blocks in Broadband applications. Also yesterday, the Semiconductor Industry Association (SIA) announced that worldwide sales of semiconductors jumped 18.9 percent in 1999 to a record $149 billion. According to George Scalise, president of the SIA, "1999 broke all predictions and was an exceptional year of record growth and productivity". On February 4th, Banc of America analyst Richard Whittington upgraded TXN from Buy to Strong Buy, based on strong new designs for cable modems and next-generation cell phones. ***February contracts expire in less than two weeks*** BUY CALL FEB-135 TNZ-BG OI=671 at $ 7.38 SL=5.50 BUY CALL FEB-140 TNZ-BH OI=311 at $ 4.63 SL=2.75 BUY CALL MAR-135 TNZ-CG OI=643 at $12.38 SL=9.75 BUY CALL MAR-140 TNZ-CH OI= 58 at $ 9.75 SL=7.25 BUY CALL MAR-145 TNZ-CI OI=154 at $ 7.63 SL=5.75 Picked on Feb 8th at $138.38 P/E = 80 Change since picked +0.00 52-week high=$139.69 Analysts Ratings 14-14-5-1-0 52-week low =$ 43.00 Last earnings 01/00 est= 0.47 actual= 0.51 Next earnings 04-24 est= 0.51 versus= 0.32 Average Daily Volume = 4.08 mln /charts/charts.asp?symbol=TXN ********** ASPT - Aspect Communications $64.50 +2.88 (+4.50 this week) Aspect Communications provides customer relationship management solutions worldwide. Their hardware and software enables companies consistent interactions with their customers via the telephone, Web, electronic mail, and fax. Clients include DaimlerChrysler, E*Trade, ICT Group, Bank United, and PacificCare Health Systems. The momentum generated from Aspect's announcement it will acquire PakNetX Corp is astounding. On February 1st, ASPT reported it entered into a definitive agreement to purchase the privately held company. ASPT took off like a rocket climbing from a daily low of $48.63 to today's all-time high of $65! This represents a 33.7% increase in just six trading sessions. Quite an impressive feat for any stock. The acquisition is important because the combined technology will for the first time allow seamless integration of video, voice, conferencing, and Web interactions from a centrally managed software switch, thereby eliminating the traditional PBX. As a result of the $55 mln cash deal, Aspect will take a one-time charge in the first quarter. In response, CSFB trimmed their 2000 EPS outlook to $0.45 from $0.51 the following day, but this had no effect on the share price. Near-term support is now right in the vicinity of the 5-dma ($59.52) and firmer at $58, the stock's previous resistance. If you can catch a solid bounce off the 5-dma on the rise, that would be a door prize. But remember that in light of the rapid ascent traders should expect profit- taking. Enter into this momentum play with caution. In the news this week, Aspect announced the integration of its Aspect Portal applications with Clarify, Remedy and Vantive front-office systems. This "out-of-the-box" solution provides a seamless system that can be easily customized to meet a client's need. ***February contracts expire in less than two weeks*** BUY CALL FEB-60 ATQ-BL OI= 99 at $ 7.25 SL=5.50 BUY CALL FEB-65 ATQ-BM OI=613 at $ 4.25 SL=2.75 BUY CALL MAR-60*ATQ-CL OI=113 at $11.00 SL=8.75 BUY CALL MAR-65 ATQ-CM OI= 57 at $ 8.25 SL=6.50 Picked on Feb 8th at $64.50 P/E = N/A Change since picked +0.00 52-week high=$65.00 Analysts Ratings 1-9-1-0-0 52-week low =$ 6.00 Last earnings 12/99 est=-0.03 actual= 0.01 Next earnings 04-14 est= 0.00 versus=-0.27 Average Daily Volume = 1.04 mln /charts/charts.asp?symbol=ASPT *********************************************************** PUTS *********************************************************** PGR $59.50 -0.75 (-0.75) Slip sliding away is the continuing catch phrase for the shares of PGR. There is simply no interest on the buy side and bids continue to slowly drop. Today's break below $59.63 into new low territory is an encouraging sign that we can ride that slow steady stairway to put profits. Investors have just simply decided that they wish to put their money to work in the only games in town, tech and biotech. With interest rates rising the decline of financial stocks could keep going for awhile. It appears that one could keep buying puts on mini- rallies and be cautious of any rallies that take out the previous day's highs. GBIX $36.44 -2.56 (-3.56) The story for GBIX is a little like the day after Christmas. The excitement for GBIX is over and investors are heading for the "returns counter" to unload their shares and use the money for other, more desirable "toys". Today, there were plenty of sellers lined up right around $37, and though this level tried to provide some support, it could not hold and the sellers managed to push the stock back to close underneath and just pennies above the low for the day. Volume backing today's decline was impressive, coming in roughly 25% higher than average. All of the indications that we like to see backing a good put play are present here. We are approaching a level of some pre-established support in the neighborhood of $36-$34. Though GBIX does look to have the necessary momentum to push it through this level, it may be a good idea to proceed with caution as far as new entries go. GBIX may encounter some resistance at $38, though the more formidable level looks to be at $40. We don't believe that investors are ready to start redecorating their portfolios with GBIX shares just yet. VERT $232.97 +6.97 (+6.97) VerticalNet traded more horizontally than vertically on Monday as it spent the day testing support at $225 and finally opted for a close unchanged for the day. Though VERT traded as low as $220 on Monday, the $225 level held well throughout the majority of the session and could provide us with a bit of an obstacle on this play. Today, VerticalNet traded a bit truer to its name, heading straight up (or vertically) to $239. Obviously, this is not the direction we are looking for, though we were encouraged by a couple of the factors in today's rally. One being that VERT found resistance first at $239 and then at $235 nearer to the close (lower resistance levels). Another encouraging factor in today's move was that there was considerably more volume backing the afternoon drop then the day's move up, which is indicative of more of traders looking to dump their shares of VERT. Today's session may have done us a favor by providing some room for potential entry points. We still think VERT could fall back to $200, but obviously you will want to confirm direction before entering and exercise caution at the $225 level. MMM $87.69 +0.06 (-1.38) MMM seems to be stuck - relegated to a narrow range of $3 as sellers absorb all of the available buying volume. Yesterday looked good for our play as the bears pushed MMM through its resistance at $89. Those that missed their entry point yesterday were given another chance during today's amateur hour. Bouncing as high as $90 in the first 45 minutes of trading, MMM declined for the rest of the day, closing near the low at $87.69. Now that we are firmly below the months-long support (now resistance) level of $89, the 10-dma (now below the 200-dma), should continue to provide downward pressure. Volume has been just north of the ADV and we will need continued selling interest to propel our play towards its next support in the vicinity of $81. UAL $54.88 -0.13 (-0.63) The recent move by the major airlines to cut leisure fares by as much as 45% for US, Canadian, and Caribbean travel rekindled analysts' concerns of weaker airline revenues today. Couple this with Clinton's transportation budget proposal yesterday, which ultimately would incorporate a cost-based fee passed directly onto the consumer, and the airlines are not in the limelight. Overall, the Dow Jones Transportation average is on the skids resulting from higher fuel costs and tight labor markets, not to mention earnings season coming to an end, we think it smarter to play the downside at this point. UAL doesn't have a firm support level south of its current price. Although today, UAL did bounce intraday off points between $53.50 and the daily low of $53.13 before it tried to unsuccessfully close above the short-term resistance at $55. Technically UAL is still safely tucked under the 5-dma ($56.26) and this is a good sign. Volume is robust too and at times reached levels more than double its ADV. Moreover keep your attention on the above-mentioned reference points for signs of direction. PG $95.75 +2.50 (+1.00) News that Standard & Poor's picked Proctor & Gamble for its Global Index, a new index tracking 100 of the world's largest public companies, was of no positive consequence on Monday. PG continued its steady slide losing another dollar on strong volume. Trading volume was vigorous again today, but instead of pushing lower PG found comfortable intraday support in the $92 and $93 range. Late day the stock made a valiant charge but slammed into strong resistance just under the 5-dma ($96.04). This is a bearish sign considering this technical indicator has served as overhead opposition on PG's descent. Although it's important to recall that back in October, $92 and $93 was a bottom for the stock. In other words, look for PG to crack these marks. Even if market sentiment continues to be somewhat negative, it's possible investors may see this as a prime long-term buying opportunity despite the company's warning of weak 3Q results. *********************************************************** NEW PUTS *********************************************************** GD - General Dynamics $43.00 -1.50 (-2.56 this week) General Dynamics, headquartered in Falls Church, Virginia, employs approximately 44,000 people worldwide and has annualized sales of about $10 billion. The company has leading market positions in shipbuilding and marine systems, amphibious and land combat systems, information systems, and business aviation. Wow, the last time GD was this low was just about two years ago. Talk about not capitalizing on the amazing bull market. Investors are really starting to panic too as we saw record volume today. Adding insult to injury is the Nasdaq hitting a record close. If we look back to May of 1998, GD went as low as $40. That may be an upcoming support level to watch out for. But with investors panicking, GD might fly past $40 in which case the next stop would be $32. News has been good for GD as their subsidiary, Gulfstream Aerospace, received a large contract today, but it had no effect on investors. Over a week ago they got upgraded by two analysts from Buy to Strong Buy. Despite this good news, something is obviously wrong with the stock. Resistance is at $49 and also a great entry point if we bounce up there, but with investors in such a panic to unload GD, today's close might be the best price you can get. It looks like nothing can help GD right now (but that is usually when a stock starts to bottom, right?). Maybe not in this case. So, as always, place stops to protect yourself from a shift in direction. But with investors lack of faith in GD we see them continuing down that long path to more 52-week lows. ***February contracts expire in less than two weeks*** BUY PUT FEB-50 GD-NJ OI=320 at $5.75 SL=3.50 BUY PUT FEB-45*GD-NI OI=108 at $2.69 SL=1.25 Average Daily Volume = 917 K /charts/charts.asp?symbol=GD ************ PVN - Providian Financial Corp. $73.19 -2.75 (-5.13 this week) Providian is a provider of lending and deposit products to customers nationwide and also offers credit cards in the United Kingdom. Providian serves a broad market with loan products including credit cards, home equity loans, secured cards and membership services. With a commitment to 100% customer satisfaction, Providian's mission is to help its customers build or rebuild, protect and responsibly use credit by providing a quality borrowing experience that leads to active and lasting customer relationships (code for "C" grade consumer credit). Providian has $23 billion in assets under management and over 12 million customers. Sometimes kids need to learn the same lesson twice. Such is the case for PVN. Spurred by attorneys' general in California and Connecticut, there are rumblings that the Federal government may be coming after the subprime consumer credit giant. That wouldn't be the first time PVN has had suits leveled at them. There were already four lawsuits filed in San Francisco that accuse Providian of charging consumers for credit products and services they didn't want, transferring balances from other credit cards without customer approval and imposing excessive late fees, according to a Forbes article published as far back as July, 1999. Anyway, the rumor had an effect on the technical outlook for the stock, dropping it below historical support of $75-$77 on increased volume over the last two days. It now trades under its 10, 50, and 200-dma. That's a bad sign given that interest rates (bond rates, not discount rates) should be benefiting financials. Not so for PVN. Its next level of support is way down at $60. It doesn't mean it will get there though. The rumors could be dispelled quickly and PVN is still a nicely profitable company with a growing earnings stream (just the stuff to cause an upgrade). A tick up to $75-$77, then a bounce back south would provide the best confirmation for entry - all the better if the market is headed south too from interest rate worries (watch tomorrow's 10-yr bond auction). ***February contracts expire in less than two weeks*** BUY PUT FEB-75 PVN-NO OI=548 at $4.25 SL=2.50 BUY PUT MAR-75 PVN-OO OI=432 at $7.13 SL=5.25 BUY PUT MAR-70*PVN-ON OI=785 at $4.38 SL=2.75 Average Daily Volume = 1.14 mln /charts/charts.asp?symbol=PVN ************ KMG - Kerr-McGee Corp. $49.13 -1.00 (-4.75 this week) Kerr-McGee Corporation is an Oklahoma City-based company engaged in two worldwide businesses. One is oil and gas exploration and the other is production and marketing of titanium dioxide pigment. The company purchased Oryx Energy in 1999, making it one of the top US non-integrated oil and gas companies. This is a story based put play. As you know, oil prices have been very high. Oil was at roughly $10 a barrel at the beginning of 1999 and is now all the way up in the neighborhood of $30 a barrel. Because of the inflated prices, it is expected that OPEC will be announce plans to increase oil production at the March meeting to force the price of oil down. While this gesture will most likely grant relief to some, it is going to be the companies that have benefited from the high oil prices, i.e., drilling companies, such as KMG, that are going to suffer. Though the overall global drilling activity fell 24% from 1998 to 1999, this drop was most likely curbed by the increase in oil price and demand. Though analysts expect drilling activity to increase in 2000, they also note that "some areas in 2000 will be slow to catch up", which will only add fuel to the fire at this point. More specifically to KMG, though it continues to deliver good news, such as a recent deepwater oil discovery, which could yield between 70 and 100 million barrels of oil, the stock continues to head south on a seemingly daily basis. Apparently investors are growing leery as the March OPEC meeting approaches. KMG looks to have everything in place to keep right on sliding downhill. Shares of KMG traded up to a new 52-week high of $67.94 back on January 21st. Since then, things have been a little slippery for the oil and gas company. KMG has exhausted all of its moving average support levels and could be positioned to continue its decline and offer a healthy drop. KMG looks to have some resistance overhead at $50 with more right around $54. We see some support between $46 and $44, but being that KMG's drop is most likely fueled by the upcoming OPEC meeting, we think that KMG could break through these levels. In the news today, KMG announced a public offering of 7.5 million common shares at $50.06 a share and a separate offering of $550 million of 10-year convertible debentures. This action accounts for the huge volume in today's session (over 9 million shares). ***February contracts expire in less than two weeks*** BUY PUT FEB-55 KMG-NK OI= 31 at $6.50 SL=4.75 BUY PUT MAR-55 KMG-OK OI= 12 at $7.63 SL=5.75 BUY PUT MAR-50*KMG-OJ OI=135 at $4.00 SL=2.50 Average Daily Volume = 471 K /charts/charts.asp?symbol=KMG ****** DROPS ****** CALLS TQNT $217.13 -2.50 (+11.78) It is with a heavy heart but a very fat wallet that we say goodbye to Triquint Semiconductor. It looks like we finally had a blowoff top in the stock today and it is time for TQNT to cool off and attempt to consolidate its monster gains. TQNT established a new high all the way up to $235.50 before pulling all the way back to $217.13 thus experiencing its first down day in six trading sessions that have seen the stock climb over 80 points. This is clearly a time to utilize the axiom, you never go broke taking profits. Earnings are coming out on Thursday followed by a 2-for-1 split on February 22nd. If the earnings come out fine we may pick up coverage of TQNT for the split run. VECO $64.50 +3.44 (+3.13) Veeco keeps banging into resistance at $65 and with earnings coming out on Thursday it is time to exit this play. A strong close today may give us a little follow through on the opening tomorrow and a good exit price. Remember, Veeco has a history of peaking in share price this time of year. It seems unlikely that we will re-enter this stock as a call play. That said, it is entirely possible that Veeco could really take off if it has a huge earnings announcement and can take out the major resistance points. So you may want to keep an eye on it. LU $54.13 -2.25 (-2.81) That was mighty unpleasant. Just when we thought the bad news is out, Schroder's downgrades by two notches to an Underperform with a $45 price target. That's like saying, "sell". What's the reasoning? Schroder's analyst thinks LU's circuit switching product is experiencing weak demand and may be subject to discounting later in the quarter at up to a 70% rate. They also cited LU's personnel turnover. This is going to rub off nicely for NT/BCE since they have taken the lead in optical gear. But it's lousy for LU since they now have to play catch-up and unload the old stuff at fire sale prices. The sad part is, there is probably some truth to the analyst comments. That said, we're dropping LU tonight. PUTS SCAI $34.50 +4.44 (+5.50) So now it decides to follow the Nasdaq! We thought earlier that SCAI was missing out on the Nasdaq's highs, but we see now that SCAI has finally been talked into capitalizing on the good market conditions. With earnings due out this Thursday the 10th, today might be the beginning of an earnings run. So we will obviously drop our put play on SCAI. They broke through resistance of the 10-dma at $32.50 and on a good volume serge this afternoon. Next resistance is tough to determine due to a lack of real trend in their trading. It should be interesting however, to see what their earnings are and if investors really like what the numbers say. For now though, we are exiting SCAI. ***************** Combination Plays ***************** Technology Buyers Propel Nasdaq To Record Levels.. U.S. equity markets rallied today after a report of increasing productivity in American industry ************* MARKET RECAP ************* Monday, February 7 Monday saw another Nasdaq record as investors continued to plow money into technology and biotech stocks. The composite of high tech issues closed 77 points higher at 4,321. The Dow Industrials ended down 58 points at 10,905. Small-cap stocks outpaced the broader market with the Russell 2000 up over 1% while the S&P 500 Index slipped to 1,424. On the NYSE, declines led advances 17 to 12 on 918 million shares exchanged. There were 82 stocks at new highs and 151 at new lows. The benchmark 30-year U.S. Treasury bond was down 29/32, with the yield at 6.34%. Sunday's new plays (positions/opening prices/strategy): PepsiCo PEP FEB37C/FEB35C $0.38 credit bear-call Sandisk SNDK FEB95P/F105P $0.75 credit bull-put BMC Soft. BMCS MAR40C/FEB45C $3.75 debit diagonal Marshall MI FEB50C/FEB55C $3.50 debit bull-call Southdown SDW FEB50P/FEB60C $2.25 credit strangle Portfolio plays: Technology stocks soared as investors continued to lose interest in the majority of classic issues. Rising bond yields have reduced the attractiveness of blue-chip companies since the Fed increased interest rates in January. Higher interest rates reduce corporate profits and make bonds and speculative issues more competitive as investments. Financial markets are forecasting more rate increases in the next year and that means money will continue to flow into high growth sectors such as Internet, telecom and biotechnology. Chip companies were today's big winners, up after a bullish report from the Semiconductor Industry Association. The SIA reported that December worldwide semiconductor sales rose to $14.7 billion, and year-end industry sales totaled $149 billion; an industry record. Financial, cyclical and retail stocks were hit hard and transport issues were lower even though oil prices fell. Gold company shares were among the most active as they consolidated following a strong rally last week. The majority of issues in the Spreads portfolio moved higher with the surging technology group. One of our headline issues, Pfizer (PFE) has finally agreed to buy Warner-Lambert (WLA) for $90 billion in stock. The company will exchange 2.75 shares of its stock for each outstanding share of Warner-Lambert. The combined company will produce $28 billion in annual revenues, including $21 billion from pharmaceutical sales. Pfizer shares rose to $36.75 on the news and we are hopeful the issue will continue to rebound. Our bullish calendar spread will begin to profit as the stock nears $38. Another long-term issue, Adobe Systems (ADBE) was up $3 to $77 after announcing the debut of PDF Merchant software, a server-based application that secures electronic content for distribution and sales via the Internet. Adobe PDF Merchant provides publishers the necessary security to deliver electronic books directly to consumer devices. Our bullish LEAPS/CC's position has rebounded significantly in the last week and in order to maintain upside potential, we are going to roll forward to March options. Our new position is LJAN80C/MAR80C at $5.50 debit. The spread profit is near 100%. A number of market-leading issues moved higher during the session. Triquint (TQNT) was the top performer, up $14 to $220 on momentum from the recent confirmation of an upcoming 2-for-1 split. Aspect Development (ASDV) rallied $10 to $90 after the company was listed as a current holding in a popular (aggressive) mutual fund. The RS Internet Age portfolio includes middle-ware, content providers, networking, application software and other technology companies. BEA systems (BEAS) was also listed in that fund and the stock rose $10 to end at a $100, a new all-time high. Emulex (EMLX) closed up $12 at $120 after an article reported the issue was a majority holding in the Evergreen Select Strategic Growth Fund. The fund's manager focuses on hot technology areas such as bandwidth, data storage and business-to-business e-commerce. Director Shannon Reid says an explosion in the amount of information being transmitted around the world creates a big opportunity for companies who have the capacity to store, manage and access data. Extreme Networks (EXTR), a top networking technology issue, finally recovered from a recent slump. The stock bolted $6 to $88 with the rally in the networking sector. Our bullish credit spread at $70 should expire comfortably OTM and all of the positions on these issues are at or near maximum profit. In the small-cap group we had one surprise. Zoltek (ZOLT) gapped up $1.75 to close at $12 on strength in some bullish block orders. As usual, the company offered no news or reasons for the activity but regardless of the reasons for the move, our bullish position is now deep ITM and approaching maximum profit. Tuesday, February 8 U.S. equity markets rallied today after a report of increasing productivity in American industry. The Nasdaq composite rose 106 points to 4,427, closing above the 4,400 mark for the first time. The Dow Jones Industrial Average recovered 51 points to 10,957, after an early session romp to 11,000. The S&P 500 Index romped 17 points to 1,441. On the NYSE, advancers beat decliners 15 to 14 on 1.05 billion shares traded. There were 133 stocks at new highs and 129 at new lows. The yield on the benchmark long bond slumped to 6.24%. Portfolio plays: Investors lost all control in today's session, buying stocks at an aggressive pace in a wide variety of sectors. Our portfolio winners were much the same as yesterday with technology issues dominating the leader-board. Aspect Development (ASDV) roared ahead almost $7 to close at $96 and BEA Systems added another $6 to end at $106. Adobe Systems (ADBE) rocketed to $83 in the fifth consecutive day of gains. The stock has rebounded from lows near $55 last Wednesday. BCE Incorporated (BCE) climbed $3 to close at $119 as shares in one of their largest holdings, Nortel Networks (NT) continued to rally. A number of other issues deserved mention but the list of bullish big-cap stocks was far too extensive to cover in our daily narrative. In the small-cap section, Marketing Services Group (MSGI) shot-up $4 to $24 on speculation of a possible spin-off of WiredEmpire, an Internet (B2B) commerce provider. WiredEmpire provides integrated e-relationship tools and services for business. Companies looking to enhance their Internet marketing and customer service efforts can choose from a selection of Wired's products. Cabletron (CS) rallied $3 to $31.50 as stocks in the networking sector continued to reach new heights. Our bullish LEAPS/CC's spread was rolled up and out to March during the session. The new position is short at $25 (LJAN15C/MAR25C) with a $4.25 debit. Tekelec (TKLC) moved up $2.62 to end at $36 with the telecom group and Unisys (UIS) ended $1.50 higher at $33.50 after presenting a bullish future outlook at the Goldman Sachs Technology Investment Symposium in Southern California. Our new group of speculation plays was a mixed lot. Marshall and & Ilsley (MI) fell out of favor with a $1.50 decline to $54 while BMC Software (BMCS) rallied $3.38 with the computer sector. The speculative merger position on Chris Craft (CCN) rebounded nicely, finishing at $0.50 debit with the stock ending $1.62 higher at $75. It appears the bullish credit spread will expire safely OTM. The calendar spread on Pfizer (PFE) is included in this section and today the stock rebounded another $0.88 to close near $38. The long option is once again trading above our cost basis. Our new credit strangle on Southdown (SDW) moved back to the middle of the profit envelope, closing just short of $56. The break-even points are $47.75 and $62.25. It was nice to see Vodaphone (VOD) recover in today's session. The frenzy for media, telecommunications and technology issues propelled many of the European stocks higher and fortunately, the recent Mannesmann merger hasn't driven investors away from this global issue. In the straddles group, Ciber (CBR) continued into profitability with a midday low near $17. The maximum observed return on the position was $12.25. Another recent winner in the section, Jones Pharmaceuticals (JMED) powered ahead $3 in Monday's session. Our new straddle reached $19 profit, a 300% return for the two month position. LHS Group (LHSG) has also been one of the top performers this month with a favorable $5.25 profit on $6.75 invested. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** NEW PLAYS - ****************************************************************** AFCI - Advanced Fibre $55.00 *** Momentum Play *** Advanced Fibre Communications is an originator of telecom systems for the "local loop" between telephone service users and public telephone networks worldwide. AFC's flagship product is the UMC 1000 Third Generation Digital Loop Carrier. The UMC 1000 can be installed in a variety of network configurations to support the varying geographic distribution of subscriber bases. There are thousands of AFCI's systems installed in countries around the globe, serving approximately 2.5 million access lines. In the U.S., leading companies such as Sprint, WinStar, and Pac Bell, among others, deploy AFCI's UMC 1000 system. Advanced Fibre has been on the move recently and the big news is they have settled a lawsuit with RELTEC, a subsidiary of Marconi Communications. In addition to the settlement, they have entered into an agreement in which Marconi will distribute AFC's UMC1000 Multi-Service Access Platform for a period of three years. The distribution agreement allows Marconi to offer a broader line of products to its current and prospective customers. At the same time, AFC will benefit from Marconi's worldwide presence. The analysts were all over the news and they offered a slew of positive comments. Gruntal reiterated a short-term target of $50 to $60. Josepthal upgraded AFCI to a BUY with increased earnings estimates. US Clearing/Piper Jaffray also reiterated their STRONG BUY rating based on the lawsuit settlement. We simply favor the momentum in the issue and this bullish play offers a favorable risk/reward outlook. PLAY (very aggressive - bullish/diagonal spread): BUY CALL MAR-40 AFQ-CH OI=1021 A=$17.62 SELL CALL FEB-50 AFQ-BJ OI=45 B=$9.00 INITIAL NET DEBIT TARGET=$8.38-$8.50 TARGET ROI=19% The basic diagonal spread is a combination of both price and time (calendar) spreads. The most common version of this strategy involves buying a longer term call and selling a nearer term call at a higher strike price. The initial debit in the position should be less than the spread between the two options, eliminating the possibility of loss in an upside break-out. The cost basis of the long-term option is reduced by the sale of the short-term option. The position achieves maximum profit if the stock price remains above the sold option's strike price. The spread can also achieve positive returns long before expiration if the underlying stock advances significantly. More information on this unique strategy can be found in Sunday's edition of "Options 101." Chart = /charts/charts.asp?symbol=AFCI ****************************************************************** VLNC - Valence Technology $35.88 *** Earnings Rally! *** Valence Technology is a development stage company engaged in research and development to produce advanced rechargeable batteries based upon lithium ion and polymer technologies. Their current research design is a hybrid of proprietary technology and a plastic lithium battery technology licensed from Bell Communications. The company's potential battery products may be used in a number of applications including a rechargeable power source for portable electronics products such as notebook computers and cellular telephones, automotive starter, lighting and ignition, electric vehicles and military equipment. Valence derives most of its revenues from a completed research and development contract with the Delphi Automotive Systems Group of General Motors Corporation. Valence is expected to report quarterly earnings this week and option traders have risen to the occasion, speculating on the outcome of the report. Implied Volatility and volume have been off the scale with call options outpacing puts by a factor of 5 to 1. According to a First Call/Thomson Financial consensus forecast, the company is expected to post a loss of $0.32 per share for the quarter. The announcement should occur before the company's annual shareholders' meeting on 2/15/00. We expect the issue to consolidate in the short-term and with the current interest in call options, we should be able to open one of these positions at the target debit. A complete reversal with a close below the brief support area (near $27-$28) would be a potential early-exit signal. PLAY (conservative - bullish debit spread): BUY CALL MAR-22.50 VHQ-CX OI=97 A=$14.88 SELL CALL MAR-25.00 VHQ-CE OI=333 B=$12.62 INITIAL NET DEBIT TARGET=$2.00 ROI(max)=25% B/E=$24.50 -or- PLAY (conservative - bullish debit spread): BUY CALL MAR-20.00 VHQ-CD OI=533 A=$16.88 SELL CALL MAR-25.00 VHQ-CE OI=333 B=$12.62 INITIAL NET DEBIT TARGET=$4.00 ROI(max)=25% B/E=$24.00 Chart = /charts/charts.asp?symbol=VLNC ****************************************************************** CRUS - Cirrus Logic $15.69 *** Chip Sector Speculation *** Cirrus Logic is a premier supplier of advanced integrated circuits that combine mixed-signal processing, precision analog techniques, embedded processors, and application-specific algorithms into system-on-a-chip solutions for existing (and emerging growth) markets. The company serves a broad customer base in the markets of mass storage, personal computers, communications, consumer electronics, and industrial electronics. They supply integrated circuits that perform the key electronics functions contained in advanced magnetic, optical, and removable disk drives. They also develop and market products that address the needs of the Local Area Network, Wide Area Network, and Internet environments. Their key customers include Western Digital, Seagate, Hewlett-Packard, Dell, Compaq, IBM, Cisco, Bay Networks, Motorola, and Sony. In January, Cirrus reported favorable results for the quarter with net revenue growth of 13% over the prior period. Earnings per share were $0.40 compared to a per share loss of $0.15 in the previous quarter. The increase in revenue was fueled by a record demand for the company's market-leading "Crystal" audio products as well as a ramp to high-volume shipments of its integrated 3Ci chip for hard disk drives. Record shipments of its CD-RW chips also helped boost profits. The continued expansion of bookings and a large order backlog suggest Cirrus is poised to become a leader in the field of high-performance analog and DSP solutions for entertainment electronics. The leading analyst for Cirrus is Goldman Sachs and last month the brokerage raised its 2000 earnings estimates and upgraded the stock to OUTPERFORM, based on the quarter's strong results. We have made some excellent profits on the issue in the past and the recent bullish technicals suggest now may be the time to open another long-term position. In this case, we will use the small premium disparity in OTM options to enter the play at a discount. PLAY (conservative - bullish/calendar spread): BUY CALL JUN-20.00 CUQ-FD OI=332 A=$1.50 SELL CALL MAR-20.00 CUQ-CD OI=864 B=$0.56 INITIAL NET DEBIT TARGET=$0.81-$0.88 TARGET ROI=50% More on time selling strategies.. The basic premise in a calendar spread is simple; time erodes the value of the near-term option at a faster rate than it will the far-term option. A less neutral and more bullish type of calendar spread is when the underlying issue is some distance below the strike price of the options. This position is speculative with low initial cost and large potential profits. Two favorable outcomes can occur: the stock rallies in the short-term and the position is closed for a profit as time value erosion in the short option produces a net gain or; the underlying stock consolidates, allowing the sold option to expire and then eventually rallies above the long option strike price. 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. /charts/charts.asp?symbol=CRUS ****************************************************************** 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. 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