The Option Investor Newsletter Thursday 2-10-2000 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) ************************************************************ 2-10-2000 High Low Volume Advance Decline DOW 10643.60 - 55.60 10738.30 10606.40 1,050,510k 1,225 1,797 Nasdaq 4485.63 + 122.39 4485.67 4357.69 1,813,246k 2,189 2,002 S&P-100 768.98 + 3.51 771.68 762.21 Totals 3,414 3,799 S&P-500 1416.83 + 5.12 1422.10 1406.43 47.3% 52.7% $RUT 542.21 + 6.21 542.21 536.01 $TRAN 2475.27 - 75.05 2556.64 2467.56 VIX 24.38 - 0.27 25.80 23.87 Put/Call Ratio .51 ************************************************************* Dell, the Oracle and the Greater Fool Simply amazing! The Nasdaq continued to power forward to another new high even in the face of many negative factors. The records continue to fall as cash pours into the market at a record rate. The Nasdaq is now up +10% for the year and is now up +100% in just the last twelve months. The Dow however is now down -7% for the year. At this rate of divergence we are only 34 trading days from parity, the Nasdaq equaling the Dow, which would occur somewhere around 8500. While this would be extremely unlikely it does illustrates the rate of sentiment change between the two indexes. The bond market tried to derail the markets again today after the 30 yr bond auction failed due to lack of interest. The new bonds, some going at a yield of 6.34%, only had a bid to cover ratio of 1.33:1. This means there were barely enough bidders to buy the total offering and there was no real competition in the bidding. Many large buyers simply did not show. With the government planning to buy back $30 billion in existing notes and bonds the bond yields have been on a roller coaster. After touching 6.12% last week the yields have now floated back to close at 6.43% today. The significance of the rising rates were lost on the Nasdaq. So much for profit taking! The Nasdaq is rewriting the rules for investing. As I mentioned before, investors are not just buying tech stocks, they are fleeing from non-tech stocks in droves. Even the addition of MSFT and INTC to the Dow has not helped stop the bleeding. Today the Dow techs had a good day. MSFT +2, INTC +3, IBM +1.75, HWP +1.88 but they could not make up for drops in the old line materials stocks. Many of the older Dow stocks are at or near 52 week lows and dropping rapidly. There are just no buyers for non-techs. Can you blame anyone for not wanting to be in techs? With the Nasdaq up +100% in the last twelve months and on track to beat that performance why would you want to own Alcoa or International Paper? The financial components in the Dow are responding to the current rise in interest rates as well as the expected future Fed hikes. No relief there. What we are seeing is simply sector rotation. Biotechs, Internets, Chips, software and computer stocks just keep astounding with record gains and record earnings. The previous benchmark for comparing your portfolio performance was the S&P-500. That trend is changing. Fund managers who only equal S&P performance are in danger of losing their bonuses and their jobs. Value funds are hemorrhaging money. After getting their statements for last year and realizing their 21% returns were only one fourth what tech investors received, investors are not just readjusting their portfolios. They are cleaning house. Anything not in favor is history. What has been overvalued to most investors for years has now become undervalued every time we get a down day on the Nasdaq. Instead of advertising next year, "we beat the S&P by 3%" the really good funds will be advertising, "compared to the Nasdaq...". The Nasdaq rally is also being powered by record inflows of new cash. Trimtabs.com estimates that almost $21 billion in new cash came into the market in just the first seven days of February. This is on track to be the highest month on record. The previous high month was Jan 1997 with $29 bln for the entire month. Almost all of this money went into tech funds according to Trimtabs. One of the major drivers for the Nasdaq today was CSCO. After reporting record earnings this week they appear to have taken on a Qualcomm complex. With a +7.13 today CSCO is starting to act like the Internet stock it really is. Still gains by other Internet big names continue to astound. Network Solutions soared today after posting record earnings and saying good things about future business. NSOL gained +36. Other big gainers included VRSN +25, on computer security fears, JNPR +22, DCLK +15, ITWO +13, RNWK +13, BRCM +12. But before you start throwing money at just any Internet stock there is evidence of a rotation inside the Internet sector. Amazon, the poster child of Ecommerce last week has lost ground for two consecutive days, -$4 today. Ebay has also been trending down as well as CMGI and YHOO. This is encouraging. As long as rotation is taking place within the sector there is probably more upside. Another of the big gainers on the Nasdaq was Dell. After warning on Jan 28th they would miss estimates the stock had plunged to an eight month low of $35. Assuming the worst was over and hoping for good news after the bell today, investors took positions and added +3.25 to the price. After the bell Dell announced no surprises and only met reduced estimates. The outlook, more important than the actual numbers was rosy. Dell said they had +50% growth in the quarter from their new services effort. Services produced $490 mln in revenue. The Gigabuys website also showed record growth and added $610 mln in revenue. Dell said sales in Asia/Pacific/Japan soared +56% compared to 33% for the Americas and only 8% for Europe. They view the Asian markets as their biggest growth area. Servers and workstations continue to be strong with +55% growth. Now that the chip shortage is easing Dell should be back on track for this quarter. Still several analysts downplayed the results as fighting the "law of large numbers" and claimed Dell would be just another PC maker soon. We are seeing this happen. Historically Dell's growth has been 50% overall. Last year it dropped to 40% and this year CFO Tom Meridith is forecasting 30% with only a 7% profit margin. It is a sad day when you are embarrassed by 30% growth. So what can kill this tech rally and bring us all back to reality? 1. Higher interest rates. Got that, 6.43% and climbing. 2. Rising oil prices. Got that, $27 bbl and climbing. 3. Disruption in flow of money into stocks with a triple digit PE. Not yet. You have to wonder however, at what point does Alcoa, McDonalds and similar blue chip stocks start looking attractive. Many of these are already down to near single digit PE levels and there will come a time when they will provide such a bargain that investors will not be able to resist. Just look at a chart for PG, AA, IP, IR. There is a battle going on between historical methods of stock valuation and the new momentum investor model. Historically a company needed increasing earnings, solid growth and hard products. The new valuation is based on last weeks price. If it is higher this week then buy it. If the Nasdaq drops one day, buy more. If it drops for a week, wire another $27 bln and buy lots more. Buy, buy, buy. This game has been called the greater fool theory. As long as you can find somebody to pay more than you did, you win. They are the greater fool. The last fool holding when the game is over loses. We are not there yet or even close to hearing the music stop. As long as tech companies continue to post greater earnings based on the new Internet paradigm people will continue to buy tech stocks. This does not mean that we will not see some pullbacks along the way. Nothing goes up in a straight line. Well, almost nothing in the case of the Nasdaq. The oracle of Omaha had been rumored to be sick recently. So many rumors had surfaced that Warren Buffet’s office finally issued a press release saying he was in perfect health. This is not true. We have it on good authority that Warren is going crazy. With all the old line stocks dropping so fast many people have reported him running in circles inside his office chanting, "so many stocks, so much value, so little time. More money, I need more money!" As a true value investor Warren must be overwhelmed at the bargains. Where to from here? Don't look now but the Dow is now over -200 points below the 200DMA and showing no signs of slowing. If we don't get a bounce on Friday from the -62% retracement point which is exactly on the current trend line then the next chance is 10550 which would be a -10% correction. This may provide some temporary relief and produce a bear trap rally. Below 10550 is 10000 and that is a long drop. The Nasdaq is now up 8 of the last 9 days for over +700 points. It closed at the high of the day on strong volume. This would point to a carry through into Friday's trading. You want to be on the lookout Friday afternoon for profit taking. With the Nasdaq extended so far there may be a rush to the exits as traders lock in profits and wait for the next cycle. Trade smart and sell too soon. Jim Brown Editor ****************************** OptionInvestor/Optionetics Spring Advanced Seminar Series ****************************** The spring dates for the OptionInvestor/Optionetics seminar series are rapidly approaching. This is the advanced seminar taught by George Fontanills and Tom Gentile. If you feel you need more option strategies in your trading arsenal like the Delta Neutral Straddles George is famous for then this seminar is for you. Remember, you can bring a friend for free and retake this seminar as many times as you want for free. The cost of the two day seminar is about what you would lose in only one trade. Invest it, don't lose it. Here are the spring dates: Feb 27/28 Los Angeles Mar 19/20 Chicago Mar 26/27 Dallas Apr 2/3 San Francisco For complete details http://www.OptionInvestor.com/seminar/ There is a 100% money back guarantee and you can take a friend for free. What else could you ask for? ********** STOCK NEWS ********** AppNet: These Guys are on a Roll The world of e-business consulting is one of the most competitive areas on the Internet today. These days, it seems like everyone is claiming to be a B2B e-commerce solution provider. Then again, why not? The way the share prices of some of these companies are trading, it’s easy to see why. http://members.OptionInvestor.com/stocknews/021000_1.asp ************** Market Posture ************** As of Market Close - Thursday, February 10, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,700 11,250 10,643 Bearish 2.10 * SPX S&P 500 1,350 1,500 1,417 Neutral 2.01 OEX S&P 100 730 800 769 Neutral 2.01 RUT Russell 2000 475 500 542 BULLISH 11.12 NDX NASD 100 3,200 3,850 4,090 BULLISH 2.03 MSH High Tech 1,650 1,900 1,992 BULLISH 2.03 XCI Hardware 1,300 1,460 1,528 BULLISH 2.08 CWX Software 1,200 1,420 1,467 BULLISH 2.08 SOX Semiconductor 700 745 943 BULLISH 12.21 NWX Networking 800 900 1,021 BULLISH 2.03 INX Internet 700 800 784 Neutral 1.06 BIX Banking 645 690 514 BEARISH 11.30 XBD Brokerage 400 450 427 Neutral 11.30 IUX Insurance 625 650 512 BEARISH 11.30 RLX Retail 950 1,000 937 BEARISH 1.28 DRG Drug 340 400 347 Neutral 1.28 HCX Healthcare 700 790 717 Neutral 1.28 XAL Airline 180 190 120 BEARISH 5.21 OIX Oil & Gas 280 315 258 BEARISH 1.27 Posture Alert A tale of two markets as Technology and Russell 2000 extend record levels while the blue chips drift lower including Drug, Healthcare, Airline and financial stocks. After taking out Thursday’s low, we have turned Bearish across the Dow Jones Industrial average. **************** Market Sentiment **************** Thursday, February 10, 2000 Return to 10K? By Pinnacle Capital Advisors With the DJIA violating its 200-day moving average and failing to hold above 11,000, will we see a return to 10,000 soon? It was April ’99 when CNBC covered the 10K event with a special extended news coverage. Will CBNC also invite guests to celebrate the return to 10,000? Even though many investors think the Bull market will continue, it’s not beyond reach for the return to 10K, a key benchmark set in October 1999. It was only five short years ago when the Dow eclipsed 5,000. Since then, the equity markets have soared. 1995 5,000 1996 6,250 1997 8,000 1998 9,500 1999 11,200 As Pinnacle has been highlighting over the past couple of months, earnings and interest rates represent two key market pillars. Strong earnings and falling interest rates cause multiples to expand, while weak earnings and rising interest rates force contraction. And in an environment marked by strong earnings yet rising interest rates multiples do little of anything, much as they have in the broad, nontech market for so long. The S&P 500 hasn't budged since last July. Earnings remain strong, as the generally outstanding set of fourth-quarter reports show. But the recent action in the bond market has made the second half of the equation a lot tougher to game. It's no secret that the prospect of a shrinking supply of 30-year bonds as the Treasury moves to pay down debt has been keeping long-term yields lower than they otherwise might have been. The five-year and 10-year notes have become better indicators of bond-market sentiment. The sentiment is also notably more negative than the artificially low yields on the long bond have been suggesting. Still, throughout it all, many stock-market participants have shown few reservations about interpreting the 30-year Treasury's outperformance as a sign of the long-term sustainability of benign inflation. They may be right, but the past week's reversal of the long bond's rally may be making more than a few traders revisit that theory. The bottom line is that the stock market may have a tough time finding its feet until the bond market does. BULLISH Signs: Corporate Earnings: Major corporate earnings continue to come out strong and ahead of analyst expectations. Cash Flow: The cash that has been sitting on the sidelines has been put to use as of late, as record volumes for the major indexes have been shattered. Short Interest: From a contrarian stand, short interest on the NYSE is still very high, eclipsing 4 billion shares. The short interest on the Nasdaq is more than 2.4b shares. Mixed Signs: Interest Rates (6.220): Although the bond market rally has helped bring the current yield down near 6.0 last week, it closed Tuesday (2/8) at 6.220. BEARISH Signs: Volatility Index (25.38): The VIX continues to prove that the low 30's are an excellent buying opportunity, and the low 20's continue to be a great selling opportunity. 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 Thurs Benchmark (2/4) (2/8) (2/10) Overhead Resistance (780-830) 4.76 3.50 4.37 OEX Close 775.51 782.21 767.00 Underlying Support (740-760) 2.10 2.45 2.50 Underlying Support (700-735) 10.31 10.55 10.25 What the Pinnacle Index is telling us: Overhead resistance is building and could stall a broad market advance. Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (2/4) (2/8) (2/10) Puts 700 / 9,281 740 / 9,312 740 / 9,937 Calls 800 / 7,350 800 / 7,222 800 / 7,806 Put/Call Ratio 1.26 1.29 1.27 Volatility Index Major Date Turning Point VIX October 97 Bottom 54.60 July 20, 1998 Top 16.88 October 8, 1998 Bottom 60.63 January 11, 1998 Top 26.38 March 4, 1999 Bottom 28.15 May 14, 1999 Top 25.01 July 16, 1999 Top 18.13 August 5, 1999 Bottom 32.12 October 15, 1999 Bottom 32.06 January 28, 2000 Bottom 29.09 February 4, 2000 22.95 February 8, 2000 22.24 February 10, 2000 24.38 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Wed Thu Week Dow 10643.63 -58.01 51.81 -258.44 -55.53 -320.17 Nasdaq 4485.63 77.63 105.73 -64.36 122.39 241.39 $OEX 768.98 -2.62 9.32 -16.74 3.51 -6.53 $SPX 1416.83 -1.37 18.75 -30.04 5.12 -7.54 $RUT 542.21 6.87 5.10 -1.49 6.21 16.69 $TRAN 2475.27 -36.75 10.59 -32.48 -75.05 -133.69 $VIX 24.38 0.77 -1.60 2.55 -0.27 1.45 Calls Mon Tue Wed Thu Week AMCC 258.25 27.75 3.81 4.75 36.13 72.44 "Whoa mama" INSP 191.50 7.00 10.13 15.19 9.06 41.38 New BRCM 349.00 28.31 -4.31 1.94 12.06 38.00 Dropped PMCS 284.25 18.81 4.38 18.25 -4.38 37.06 Dropped MUSE 214.13 5.50 17.44 -4.06 8.13 27.00 A-knockin' BEAS 108.50 10.56 6.06 -0.50 3.13 19.25 Moves up MLNM 232.31 8.00 -0.25 -5.19 11.78 14.34 New TXN 145.00 2.50 4.38 2.00 4.13 13.00 Momentum CUBE 92.03 2.31 3.19 2.88 3.47 11.84 Not tired NTAP 139.25 -2.56 6.63 -3.31 10.56 11.31 Earnings COVD 86.38 1.69 3.00 2.81 2.31 9.81 Strength! LLTC 110.19 3.47 3.09 -2.50 4.69 8.75 Opportunity ASPT 66.50 1.63 2.88 -1.13 3.13 6.50 New high SNDK 148.13 3.13 -2.06 -0.94 6.00 6.13 Breakout? ADIC 63.00 1.63 -1.88 0.50 4.38 4.63 Unleashes MFNX 82.88 -2.38 0.94 3.13 2.88 4.56 Nice gains CLRN 102.69 -2.63 0.69 0.63 5.00 3.69 New ICIX 52.25 3.94 0.38 -0.69 -0.63 3.00 Entry? BCE 121.19 -3.19 3.19 2.13 0.06 2.19 Breaks out CMGI 117.81 1.38 5.44 -4.88 -2.69 -0.75 Dropped PSIX 91.00 -0.63 4.25 -2.38 -2.88 -1.63 Dropped EBAY 162.38 1.50 0.19 -5.75 -1.63 -5.69 E-thugs! Puts PVN 64.38 -2.38 -2.75 -4.94 -3.88 -13.94 Lawsuits KMG 47.75 -3.75 -1.00 -2.56 1.19 -6.13 Low fuel PGR 55.81 0.00 -0.75 -2.19 -1.50 -4.44 An auction CAT 38.06 -1.06 -0.25 -1.88 -1.06 -4.25 New UAL 51.31 -0.50 -0.13 -2.38 -1.19 -4.19 Bearish VERT 222.50 0.00 6.97 -6.03 -4.44 -3.50 Opportunity GD 42.19 -1.06 -1.50 -1.25 0.44 -3.38 Lower highs PG 91.44 -1.50 2.50 -1.75 -2.56 -3.31 Slumps MMM 86.00 -1.44 0.06 -0.06 -1.63 -3.06 Goes lower GBIX 42.88 -1.00 -2.56 1.63 4.81 2.88 Dropped ************ WOMANS WORLD ************ Don’t Lay Pennies In Front Of A Freight Train By Renee White Okay, I give up. I get it now. This is not your typical February. Nasdaq is experiencing intermittent cluadication, needing only moments of rest to catch its breath, before continuing its journey northbound. Don’t blink if you are looking for a dip to buy into. NAS seems to be getting a little arrogant by ignoring the deterioration in the DOW, in addition to movements in interest rates. It has a mind of its own. I guess it is to be expected, when you have the best toys on the block, for everyone to play with. Everyone wants to go to your house to play. Nothing seems to be able to lure them away for anything else, for very long. I was expecting a larger correction in Nasdaq since Monday. After having a 7 day rally, one would think its legs were getting weak and it might need to rest a little. I added to my put position on a rolling high, anticipating a late day sell off yesterday. The 10 yr note auction did not go well Wednesday and the sell off began in the afternoon. Feeling happy, I decided to stand in front of the freight train with my hand up, asking permission to lay a new shiny penny on the track. I thought I heard the brakes squeak and thought I could tell the train was slowing into the close yesterday. Feeling safe with my position, I took my eyes away, and bent over to place the penny. Just as I did, the brakes stopped squeaking and the engine revved this morning, catching me frozen on the tracks not having time to take the smile off my face from yesterday’s late day sell-off. Seconds later **SPLAT* *Squish**!! The penny, me and the QQQ puts, got flattened. Lesson learned: never stand in front of a moving freight train and smile. I had entered the Nasdaq index puts for two reasons. The first was as a protective downside play, against the nice gains from last week in my other Nasdaq near-term plays. As a hedge, they have performed their duties. The second reason I bought was because I anticipated weakness with the bond/note auctions this week on top of an already top heavy Nasdaq. Now that’s the one that got me! I know better than to try to time a market top, when there is no level of resistance above it. Being a little spunky sometimes gets me in trouble. These puts stink, as a profit play. They were supposed to shine, as interest rates went up from the bond auctions. Usually, they do. Yesterday, as Cisco’s opening strength started weakening, I noticed Nasdaq rolling in harmony. Once the auction results were known, interest rates went up which weighted on the Nasdaq into the close. I held last night anticipating continued weakness from the recent run up, higher interest rates and one more auction. But this time, I’m not sure Ole Nas even noticed that the 30 yr yields went up today. Few wanted the safety of the treasury yields, preferring to hedge their bets by playing the techs instead. That says a lot for the strength of this market. What happened to the rule that interest rate fears rattle the markets? When Greenspan raised rates earlier this month, Nasdaq acted like it could care less with a yawn and an Okay, Next mentality. No, so far, this is not a typical February. Play where the toys are, the trend is your friend. If you play against it, you may very well get squished. Although to hedge is to play both sides of the market, only one side can be profitable at a time. I sure am glad I had good entries on my February bull plays, which are still performing beautifully. I am ahead of the game with my bull plays significantly up and my puts, moderately down. I did not load up with plays during this run. I entered last week after the correction, at good entry points, then entered the puts for downside protection. I did not trust the volatile action of the market seen in early February. I was aware of the historical patterns without a Y2K effect. I weighed my risks and decided to trade lightly due to other non-market responsibilities, staying more in cash until closer to a more predictable April earnings, or for a good entry if there is a major correction in late February or March. Over-trading during volatile markets can yank money out of your hand faster than a cute kid in a candy store. That is why I am sticking to my plan. Another part of my plan of trading during this time, is to use the VIX to give me some indication of things to come. To me, we are in virgin territory in uncertain times, while trading this market near term. The post Y2K effect has no history we can look at to study, nor does the tech revolution, or the screwy bond market. Our current economic parameters, with its theories of whys and therefores, against the backdrop of other uncertainties, only adds to the confusion. Since I am not smart enough to figure it all out, I decided to become even more aware of the intra-day movement of the VIX. The extreme ranges of playing the VIX are the most profitable, but of course these extremes are fairly rare also. A whole lot of action goes on in between the extremity plays of 30 and 20, which only occur a few times a year. The saying is, When the VIX is High, it’s time to Buy. When the VIX is Low, it’s time to Go. Or the one I prefer is, Get ready to play dirty when the VIX is near 30. Take your profits and Go when the VIX is Low. Bernie Shaffer’s comment on the VIX gives one plenty to think about for the contrarian play. "The VIX's reaction to a short market pullback of a few hours or a few days is an excellent indicator of how market participants are currently reacting to the market and what they expect will follow. If market weakness is met with an increased demand for puts, the VIX will spike upwards. Such spikes are a telltale sign of fear in the market - a very healthy and bullish view for expectational analysts; speculators will tend to buy puts after they have sold out of their long positions. This often signals an end to short-term selling pressure. If the VIX does not increase on a pullback, it signals that the public is meeting the market downturn with complacency and has expectations of a quick recovery. In these cases, there is often more downside motion to follow. As such, the VIX plays a key role in our ability to predict future market performance." After reading that, where do you think we are after yesterday’s profit taking? Looking at the VIX chart this year, I see it has traded at the 30 level (a sign of market fear due to a sell-off, which is typically bullish for the contrarian), on January 5th, 28th, and 31st. This frequency is just as unusual as two 10% corrections in one month. It also pierced through the upper Bollinger Bands on those days. It has not met the 20 level yet, although it has seen the 20-22 level several times. This is the range one should be considering taking profits. The 23-28 levels are more cyclical. I will be watching the 5 and 10 min charts, looking for patterns I can use in this mid range, to improve my short term trades, until earnings season excitement heats up again. I will not try to stop a freight train again, by smiling and standing in front of it. Renee White Contact Support ************** TRADERS CORNER ************** Notes from Market Wizards & How I Watch The Market By Janar Wasito Here are some notes that I have been keeping from other traders in our local Silicon Valley Club, as well as some notes from Market Wizards. G’s Rule: Success in Trading is determined by how much you put into stable assets like cash & real estate, not by how big your trading account gets. Corollary to G’s Rule: Success in Trading is determined by what you do with your non-trading time, not by how much time & effort you put into trading. Ed Seykota: Everyone Gets What They Want from the Markets. * I want ___ dollars, after taxes -- not more, not less. Paul Tudor Jones: Play Great Defense, Not Great Offense. * Always look at what I can lose first. Larry Hite: Aim for best growth rate consistent with extremely rigorous risk control. * Never risk more than 2% of total equity in any trade; aim for 1% within a year. David Ryan: Plays should be profitable on the first day; Learn from every trade you make. * Cut losses at 15% on every option trade, and after 2 days if not profitable. * Keep a trading journal. Marty Schwartz (see Pit Bull) Ethos: 1. By nature, I am a risk taker with a feel for good attacks & sound defense. 2. Harvard taught me how to think creatively. 3. Stanford grad school taught me what to think about. 4. The Marines taught me how to perform under fire 5. My dreams of a family, house, triathlons & financial freedom taught me the importance of good money management Methodology 1. Averages: DOW, TICK. TRIN, TIKI, SPX, SPX, QCHA. 2. Keep a daily blotter 3. Use online resources OIN, research Fontainills’ Trade Options Online. 4. 10 day EMA on averages & stocks. 5. Chart Stocks: resistance & support 6. Tricks of the Trade: a. Gaps in Charts b. Mutual Fund Cash c. Three Day Rule d. Put/ Call Ratio e. How Market Reacts to News f. New Highs/ New Lows g. Up Mondays h. Market Probability Calendar i. Option Expirations j. Trading on the Half Hour k. Take Out the Highs/ Take Out the Lows l. First Trade Back m. Worst Fears Not Realized n. Ego: I can tell you how I became a winner I learned how to lose. Checklist for Taking Positions * Check Charts & Moving Averages prior to making a trade moving averages work better than any tool I know. Don’t go against them. o Are we above or below moving averages, i.e., in positive or negative mode? o Are we above or below a dominant trend line? o Has recent price action taken out previous highs or lows? o Is the MTO (magic T oscillator) in positive or negative mode? * Always ask before taking a position: do I really want to have this position? * Always know the amount I am willing to lose before taking a position. Know the uncle point and honor it. * After a very profitable run of trading, reduce the position size. * After a successful period, take a day off as a reward. On a day to day basis, I am starting to keep a daily blotter, also described in the last chapter of Pit Bull. Down the left side, I have the day, broken into half hour segments. In each segment, I record statistics such as VIX, DOW & NASDAQ. These will get more sophisticated. I make annotations about questions throughout the day, which I shoot off to other members of our local list. On the bottom, I have my plan for current open positions. In the long run, the trader with consistent methodology will be successful. Janar 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: ***** PMCS $284.25 -4.38 (+37.06) How can we say farewell to this play with the kind of fanfare that it deserves? We introduced PMCS to our call list back on Tuesday, January 25th. PMCS had closed the session at $196.88. Here we are just two weeks later and closing a session that saw a new all time high of $298.75. Now that is what we call a run. Unfortunately, as the saying goes, "all good things must come to an end". Because PMCS is set to split 2:1 tomorrow after the market closes, we are dropping PMCS from our play list to avoid a post-split depression. Though it will probably be a tearful farewell for many, it is important to close out your positions before tomorrow's close. Yesterday, Deutsche Banc Alex Brown initiated coverage of PMCS with a Strong Buy. PMCS is definitely one for your radar screens going forward. PSIX $91.00 -2.88 (-1.63) Interest in PSIX this week has been rather anemic, especially for a stock splitting 2:1. There just hasn’t been enough interest to push through resistance at $97. The weakness this week has come in the midst of strong gains in the NASDAQ - not very encouraging for our play. Earnings, currently scheduled for the week of February 21, may exert some upward pressure, but prudence demands that we follow our own advice and sell too soon. With the split occurring tomorrow after the close, we want to exit our play before the normal post-split depression. BRCM $349.00 +12.06 (+38.00) Boy sometimes you really hate to see your guests leave. That's the case with BRCM. Although we've said many times before, nothing moves in a straight line. BRCM has continued to head strongly higher since being added on January 30th. BRCM has given us numerous opportunities to jump in on the $65 move. Wednesday, analysts at DB Alex Brown came out with a Strong Buy rating on BRCM, which helped the company move to a new high today at $354.88. We won’t forget to send them a Valentine’s day card. The payable date for BRCM's 2:1 split is tomorrow, with the ex-date on Monday. If you didn't close your positions today, we would suggest you do so Friday. We close this one with a tip of our hat and a standing invitation for BRCM to join our list in the future. CMGI $117.81 -2.75 (-0.75) CMGI continued to lose ground today after it ended yesterday's session on the downside at its first support level ($120). Today news was behind the descent. The announcement that CMGI plans to acquire uBid.com (UBID) for $407 mln was a bit puzzling to investors and analysts alike. Typically their strategy has been to invest in Internet Advertising or International ventures, but instead it’s the Internet auction business. All said and done, the announcement was not well received. CMGI dived as much as 5.3%, or $6.38 at its low point today. The stock is now perched at its 10-dma ($117.93). It appears the momentum has fizzled and we're not very enthusiastic that there'll be a confirming bounce any time soon so we're exiting CMGI tonight PUTS: ***** GBIX $42.88 +4.81 (+2.88) Globix did a little more than just warm up today. GBIX gapped up over $2 at the open and traded up as high as $43.50. The catalyst backing today's move? Wit Soundview raised their price target on GBIX from $34 to $100, obviously a healthy upgrade. Investors welcomed the news and quickly moved in to snatch up shares of GBIX, pushing the volume level up to nearly four times the daily average. GBIX managed to penetrate and re-enlist the support of its 10-dma. Today simply yielded too many bullish indications for us to keep GBIX on our put play list. ******************** PLAY UPDATES - CALLS ******************** AMCC $258.25 +36.06 (+72.44) In the words of Bart Simpson, "Whoa, Mama!" To heck with gravity, momentum reigns, especially in the Semiconductor sector. Not so puzzling in the news is that funds, Navallier and Kemper Technology commented that they own AMCC. Under the cockroach theory (where there is one, there are many), other funds are going to be interested in it too. Volume increases over the ADV suggest that's already true. Need more evidence? Volume acceleration in the final hour today sent the price up an amazing $28 during that time period. That should come as no surprise since Charles Bidderman or Trim Tabs noted that $20 bln had flowed into the markets over the first week in February. Liquidity is clearly driving the momentum of these high flyers. That said look for the trend to continue. Remember too, AMCC is screaming to split. However, we know it's hard not to salivate watching these big moves and suggesting that you be careful playing AMCC will probably fall on deaf ears. Nonetheless, trees don't grow to the sky, gravity will eventually take over, nothing goes up forever in a straight line, etc. There, we said it. Support is in $10 increments all the way down to $200. Target shoot where you feel comfortable, and remember to use those trailing stops. There is no reason to give back an $18 gain (50% delta on $36 move) just because you earned it in one incredibly lucky hour. ICIX $52.25 -0.63 (+3.00) On Wednesday, ICIX once again tested support right around $52.25 (currently ICIX's 5-dma) and found resistance for the day at $55. Today, ICIX gapped up slightly at the open and found resistance at a lower $54 level. Though it did trade through $52.50 late day, it did make a bounce at $51.25 and made a move up to spend the night resting back on its 5-dma. Being that this level of support seems to be holding, it could provide a nice area for potential entry. Merrill Lynch initiated coverage of several Competitive Local Exchange Carriers (CLECS), including ICIX with a near-term Accumulate and a long-term Buy. In the news for ICIX subsidiary Digex (DIGX), Clorox announced today that it had chosen DIGX to host its corporate website. The American Stock Exchange announced that it plans to list options for Digex on Monday, Feb 14th. ADIC $63.00 +4.38 (+4.63) Unleash the power within! With apologies to Tony Robbins, that is our buzz phrase for wanting to get long ADIC. Recently we have had success in this section isolating companies who have substantial investments in other high-flying companies. Such is the case for ADIC which owns 2.6 million shares of Crossroads Systems (NASDAQ:CRDS) which is a storage router company. ADIC also has an OEM agreement with Crossroads. CRDS has recently seen an incredible explosion in their share price due in large part to the market's recent love affair with nearly every router stock. See JNPR and CSCO to name two. The past four trading days have seen CRDS rally over 70 points resulting in paper profits of over $180 million for ADIC. With a strong move today it appears that the "Street" is finally attempting to give ADIC a little credit for their stellar investment. The close at its high of the day coupled with a break above a four day base indicates to us that ADIC may be ready to make its next move. New 52-week highs are only 3 and a half points away and if the NASDAQ can stay strong we are anticipating an attempt to surpass these levels. Support is back in the previously mentioned basing area of $58-$62 which could prove to be a good area to initiate a position if we get some weakness. An open tomorrow above today's high of $63 could prove to be a strong indication that new highs are only a hop- skip-and-jump away. Don't forget, earnings are set for Wednesday after the close. Also note the big options volume that came in this morning across all strikes from 45 to 70. Could it be that word of strong earnings or a surprise announcement at the shareholder meeting on the 16th is leaking out early? Don't know, but someone is acting like they do. MUSE $214.13 +8.13 (+27.00) With the market still a-rocking MUSE keeps a-knocking on the door of new highs. Relative strength is the name of the game for momentum investors and Micromuse has plenty of it. The only thing that has us bring out the caution flag on MUSE is the lack of volume the past two days. We really want to see volume get back to at least the ADV level. 2 or 3 times ADV in new high ground could be indicative of a blow-off top which may prove to be an excellent exit point. Much of the move in MUSE can be contributed to two factors. First there is a 2-for-1 split coming up on February 23rd and the company has recently added several new customers for its Netcool suite of software. Technically, today's new high was a good sign that MUSE could continue to be a leader in this recent NASDAQ rally. Pullbacks into the low $200's have proven to be excellent entry points for intraday rallies. If momentum continues, buying in new high ground may be profitable, but also very aggressive. Be cautious of getting whipsawed and set your stops within your risk tolerance parameters. CUBE $92.06 +3.94 (+11.84) It never gets tiring writing the same thing over and over again if we are making nice profits. Semiconductors are leading this market higher and C-Cube is one of the strongest in the group. Thursday was a wonderful day for the stock which saw it climb above $90. As we mentioned in the initial write-up, stocks have the peculiar habit of running straight to double digits once they cross $90. Although there is no guarantee of this for the shares of CUBE, we certainly like the odds. C-Cube has also been the beneficiary of strong consumer demand for home electronics which CUBE provides many of the chips for. After six straight days of moving higher, look for CUBE to take a breather if it finishes down on any given day. Otherwise, enjoy the ride hopefully to $100 and perhaps beyond. LLTC $110.19 +4.69 (+8.75) Yesterday's break to the downside in the share price of LLTC probably got a lot of traders to take profits. The stock closed just above its low for the day and certainly looked like it was ready to slow down and consolidate for a few days. That said, it was critical that LLTC stayed above Tuesday's low of $104.50. Hindsight tells us that yesterday's selling was just an opportunity to get long at more favorable prices because the chip rally was again in full force today. LLTC is clearly not a stock to chase because the intraday pullbacks can be very painful. It seems that buying LLTC on pullbacks is the more profitable strategy than buying on breakouts. This has been the trend for the past several days. LLTC had an "outside" day (traded above and below yesterday's trading range) today which is very bullish because LLTC closed on the upside of this range. The uptrend is clearly still intact but we would like to reiterate that chasing this stock appears to be inadvisable. If the Semiconductors stay strong buying pullbacks seems to be the way to go. SNDK $148.13 +6.00 (+6.13) How’s your memory? If you use a portable device like a palmtop computer or digital camera, SNDK has your solution. Benefiting from the apparently insatiable demand for its compact storage products, SNDK continues to garner investor attention. Of course the occasional positive analyst comment never hurts. Dan Niles at Robertson Stephens reiterated his Buy rating yesterday and issued a six-month price target of $200. Although volume this week has not been exceptionally strong, the intraday chart shows a nice pennant forming. With lower-highs and higher-lows, the convergence of the pennant lines points to an imminent breakout. With a 2:1 split payable on February 22nd, we think the break will be to the upside. Since the price jump in late January, prompted by strong earnings and the split announcement, SNDK has been moving steadily higher, using the 5-dma ($144) as support. In the event of a pullback (always a possibility, given the gains in the NASDAQ), SNDK has support at $140 and then $137. Bounces near either the 5-dma or the $140 support level are buyable, as is a breakthrough of resistance near $150. Look for an increase in volume to confirm the stock’s direction, and as always, use stops to protect your gains. TXN $145.00 +4.13 (+13.00) The rate of ascent has slowed, but TXN’s momentum is still intact. Market up or down, investors continue to bid the price higher. Adding fuel to the climb is continued positive press, highlighting the strong growth in the Semiconductor industry and increasing demand for the core of TXN’s business - Digital Signal Processing. Giles Delfassy, VP of TXN’s worldwide wireless communications business was very upbeat at the Goldman Sachs Technology Symposium today, citing continued strong growth in the wireless communications market. Eight out of ten digital phones shipped worldwide have TXN semiconductors inside. Volume today was a little on the light side at 3.4 million shares, but closing at the high of the day with over a $4 gain is decidedly bullish. The breakout today turns the old resistance at $142 into support which is further supported at $139. A retreat to the 5-dma (currently $138.25) would be a gift of an entry point, but given TXN’s strength, we may have to settle for target shooting any intraday weakness. *********************************************** PLAY UPDATES - CALLS - CONTINUED IN SECTION TWO *********************************************** ************************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 ************************************************************** 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. 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The Option Investor Newsletter Thursday 2-10-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** BEAS $108.50 +3.13 (+19.25) We just can't say enough good things about BEAS. Wednesday during the decline in the Nasdaq, BEAS did pullback to our support level near $102. Buyers came to the rescue and bought shares of BEAS, driving the price back up to close at $105.38. BEAS held up very well, on the rare occasion the Nasdaq has traded lower. After a brief decline again this morning, BEAS again saw buyers enter the market, pushing it to a new high. BEAS continues to get the red carpet treatment not only from us, but from other heavy weights in the industry as well. Today, BEAS received an honorable mention for its place in the $4.7 billion Kemper Technology Fund. Jim Burkart, co-lead manager for the fund said "he looks for segments in technology that are growing at above average rates." Although they own some big names, Burkart has also found "bigger is not necessarily better" adding that companies like BEAS and others are some of his favorites as well. BEAS is scheduled to report earnings on February 22 and is in the process of a solid earnings run. Intraday support is now up to $106 with $102 bringing up the rear. COVD $86.38 +2.31 (+9.81) The strength we saw in the last two hours on Tuesday afternoon proved to be for real Wednesday and today. COVD made a new high in each of the past two sessions. Volume has been a bit light, but we will take the better than $5 gain and say thank you. Besides the recent breakout, one of our reasons for finding COVD attractive, is the numerous upgrades and favorable comments from analysts. COVD may be coming into its own, in the communications industry. This morning Merrill Lynch initiated coverage on several competitive local exchange carriers (CLECs). COVD was given an intermediate and long-term Buy rating. If that wasn't enough, Wednesday Netopia (NTPA), a DSL Internet equipment company announced they had selected COVD to provide circuits for their company. None of these deals are earth moving contracts, but COVD continues to form strategic alliances in the right places at the right time. Support for COVD is seen at $85 and 82.50, which would provide entry points to either add to or enter new positions in COVD. NTAP $139.25 +10.56 (+11.31) Not much news on this one. So what's moving this networker higher? We believe it's several things. First is probably earnings. NTAP is scheduled to report earnings next Tuesday after the close and it appears as though traders have been on an earnings run. CSCO, the leader in the networking sector, beat the street and saw a bit of profit-taking yesterday as did NTAP. NTAP, CSCO and the Nasdaq got back on track today, all reaching new highs. Basically right now tech stocks are where the money is flowing and NTAP is in the right place at the right time. Volume has lightened up a bit so if you have current positions in NTAP we would look to move your stops up. NTAP has good support at $135 and moved higher into the close today, ending the session near its high of the day. This suggests we may see more strength tomorrow. If you planning to enter a new play or add to existing positions, remember you will want to close your plays by Tuesday. EBAY $162.38 -1.63 (-5.69) The brazen e-thugs hit the various Web sites hard over the past few days. EBAY was not immune and its site was shut down Tuesday evening. This invasion has put quite a scare in the market; particularly shaking the confidence in stocks like EBAY, AMZN, and YHOO. Internet security stocks, on the other hand, soared on the news and kept the Internet sector afloat. But to us EBAY is still a viable momentum play. In all likelihood the hoo-ha will subside and buyers will put cash back into these Internet powerhouses. Essentially the downdraft has effectively offered a variety of entry points between the 10-dma ($159.83) and the 5-dma ($166.75). If there are any conservative Internet players out there, you'll wait for a move through short-term resistance at $165 before opening a new position. ASPT $66.50 +3.25 (+6.50) ASPT rode the Nasdaq wave to another all-time high today. By mid-session the stock pinnacled at $67.25 on moderate volume. The intraday high prompted some minor selling, but ASPT made a strong bounce off $64 and redeemed itself. Although it's disappointing to note that volume was light the past two days. Optimal conditions would, of course, be for the trading levels to pick back up. For the dma watchers, the 10-dma is back in the shadows at $58.22 and represents previous resistance. While the rising 5-dma ($63.20) is a good reference point for an entry into this momentum play. In the news yesterday, Aspect announced the appointment of two new VP's "to strengthen and enhance customer support and consulting services". MFNX $82.88 +2.88 (+4.56) Finally, a communique from MFNX's IR department with regard to an earnings date. Y'all ready for this? "The third or fourth week of March; very little chance of anything in February". Thank you very much! At least we're unlikely to be surprised mid-day anytime soon by an earnings release. Technically, we've seen nice gains from MFNX since Tuesday, but they have come with volume as low as 50% of the ADV in today's case. It's hard to feel comfortable with very little conviction by buyers. Our guess is that with the flood of money entering the market since February 1 (a new 7-day record of over $20 bln), the rising tide is floating this boat. While it' nice to get your boat floated every now and then, it also makes the play a bit more volatile. The weak breakout over $80 may not stick. If you have profits, you may want to tighten your stops a bit while we wait for a real breakout with volume over 3 mln shares. On a short-term basis, dips to $79.50 followed by a bounce would reinforce current support at that level and get us more comfortable with the current price. One news item: MFNX announced yesterday that they had expanded their Pan-European network by 6000 route miles. BCE $121.19 +0.16 (+2.19) No sooner had we said $119-120 is resistance, then BCE popped over it for a "breakout". Careful though. Yesterdays doji (upside down "t" on a candlestick chart) and declining volume may presage a reversal. The point is that without volume, the move over $120 wasn't very convincing. Nonetheless, $120 has provided good support since our Tuesday write-up. The NT chart looks a little better, and after all, BCE unlocking the value of its NT ownership is what this play is all about. CSCO's earnings certainly speak well for the industry since they further validate the robust business of Internet backbone builders, a category which NT dominates on the optical networking end. Anyway, as long as the market cooperates, look for $120 hold. If you want to target shoot at lower numbers, feel free, but we'd rather see volume flood in to carry BCE up convincingly over $121. ******************* PLAY UPDATES - PUTS ******************* PGR $55.81 -1.50 (-4.44) Ever been to an auction where everybody stands around looking at each other waiting for someone else to place a bid? We are sure that the Specialists at the PGR post have got to be feeling that way recently as the stock keeps slipping lower. Good thing value investors are a very patient lot. The prevailing wisdom this week (and the last ten years!) has been to dump your losers and buy momentum stocks if you want to make any money. PGR has the added handicap of being a financial company in a rising interest rate environment. We feel profitable put positions could possibly be placed on any small rallies as the share price of PGR continues to look like it wants to disintegrate further. Be advised that whenever PGR does bounce and take out a previous day's high it tends to make a nice counter-move that can last a couple of days. GD $42.19 +0.44 (-3.38) It was the 5th largest point gain in Nasdaq history and GD didn’t show much life. Early in the day GD was climbing right beside the Nasdaq, but at about the time the Nasdaq soared, GD turned and went the opposite direction. Looking at stock's movement and lower-highs is signaling more downside to come. Especially with volume backing the point drops rather than the gains. Today, for example, we had less than average volume and it was the only day GD has been up for awhile. So obviously we are ready to enter puts on any of these rebounds. Support is still at $40, with the possibility of $32 after that. Aggressive investors can target shoot entry points off the rebounds, but cautious players will want to see the break below $40. VERT $222.50 -4.44 (-3.50) Wednesday turned out to be a day of opportunity if you were willing to take on some risk. VERT offered a $19 trading range and tagged the high for the day fairly early on in the session, giving traders looking to play VERT on the downside with some great options for entry points. VERT finished Wednesday out just under a dollar over the low for the day and continued right where it had left off at today's open. Though we are encouraged by VERT spending the majority of today's session beneath the "cautionary" $225 level that we mentioned in Tuesday's write up, we are looking for VERT to take the initiative and break below the $220 level and head toward the $200 goal. For new entries, you really have one of two options available to you. Make your decision based on your own personal risk tolerance. You can try and target shoot your way in on the intraday rallies met by holding resistance, which currently look to be right around $236 and $230, for the higher risk play. Another option is to wait for VERT to make the break below $220 on strong volume to confirm negative momentum. KMG $47.75 +1.19 (-6.13) Oil prices reached a new nine-year high today, inching closer to the $30 a barrel level and helping to move many of the oils stocks higher. It has been 24 years since the oil supply situation has been this tight. Though there is some debate as to when a move may be made to alleviate the tightening world oil inventory situation, many seem to believe that action will have to be taken in the near future to avoid the situation having negative global economic impact. Though the oil sector did rally today, it quickly found resistance and was unable to come up with anything too impressive. In looking at an intraday chart for KMG, you will find pretty much the same story. KMG made a morning move up and quickly found resistance at $48. KMG spent the remainder of the session flirting with this level and though it had strong volume backing its move up, it never came up with the fuel to break it through. We believe that oil investors could continue to proceed with caution ahead of the March OPEC meeting, which in turn could continue to drive shares of KMG down. Look for the $48 level to continue holding KMG back and take advantage of this level for possible entry points. MMM $86.00 -1.63 (-3.06) Like rats jumping off a sinking ship, the flow of sellers has continued to push MMM lower. With volume remaining strong and the stock now testing last summer’s lows, our put play is behaving very nicely. Adding to the downward pressure is the weakness in the DOW. As long as the broad, non-tech market declines, MMM will have a hard time moving higher. The 5-dma ($87.50) continues to provide resistance and bounces near this level are buyable. A continuation of the weakness seen in the last 2 weeks should continue to drag MMM lower as it heads for support near $81. A broad-based market recovery could buoy MMM’s share price, so keep your stops in place. UAL $51.31 -1.88 (-4.19) At first glance Tuesday evening, there was the question as to whether or not $53 would begin to establish itself as a bottom. But Wednesday's late day sell-off turned up the heat. The negative pressure pushed UAL down to a bearish close smack on its daily low of $52.50. You couldn't ask for a more bullish sentiment. And today, the news of UAL's decision to cut leisure fares by 40-45% resurfaced causing analyst and investors concerns of weaker airline revenues to rekindle. Shares fell another 3.6%, or $1.88 on strong volume; and notably, UAL couldn't rally above $52.88. Remember there is no support below. Do not try to guess the bottom. Keep stops in place to protect against a reversal. In the news, UAL and Safeway grocery stores (SWY) announced the first "frequent flyer miles for groceries". Together they're launching Grocery Miles. For every $250 you spend on groceries at SWY, you'll earn 125 miles for UAL's Mileage Plus. On another front, UAL and On2.com will develop an Internet travel site to increase online ticket sales and other travel arrangements. As part of the deal, UAL will acquire a stake in On2.com. No financial terms were available. PG $91.44 -2.56 (-3.31) Robust volume persevered and PG finally cracked that comfortable $92 and $93 trading range today. Coming off highs near the resistant 5-dma on Tuesday, PG's broke down. On news that it was suing the British company, Reckitt & Colman, for patent infringement and monetary damages, the stock slumped. Today's market gave PG another push late day. With lawsuits in the wings, warnings of a weak 3Q, and the DOW falling apart, it's conceivable PG could even further down. Nevertheless, play smart. Keep stop losses in place to protect against long-term buyers coming in off the sidelines. The next level of any support was seen back in July at $88 and $90. PVN $64.38 -3.88 (-13.94) Nobody seems to want to dispel the rumors that PVN may be subjected to a federal lawsuit on grounds of deceptive or fraudulent consumer practices. Not that they have actually done that, but 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 play is more technically oriented now that support at $75 vanished into thin air on Tuesday. In fact, investors have kicked PVN into the basement, taking out yet another mild level of support at $70 on the way to $60, maybe even $56 if the current pace keeps up. Price drops with high volume never look good. Neither does further price descent south of every moving average ever invented. To show you how bad it is, PVN can't even hold its three-day moving average, let alone its 5, 10, 50 and 200-dma. Temporarily, as long as volume is high, this put play should continue to perform as more sellers are shaken out. The ideal entry would be after you see a bounce south of $65 or $67. Those two price points should provide some temporary resistance if buyers step in to try to save PVN. Be on the lookout though for any company press releases of good news or analyst upgrades based on the recent selloff. ************** NEW CALL PLAYS ************** CLRN - Clarent Corporation $102.69 +5.00 (+3.69 this week) Bent on keeping information moving, CLRN is a leading provider of scalable Internet protocol (IP) telephony systems which permit the simultaneous transmission of voice, fax and data over the Internet. The Clarent system is built around packet- switched technology, which breaks information into pieces, transmits it, and reassembles it at its destination. This method makes more efficient use of network bandwidth because it only takes up space during the actual transmission. AT&T accounts for 36% of sales and customers outside the US make up another 50%. CLRN’s message is coming in loud and clear and investors are listening. Since it’s IPO last July, shares of the company have increased almost 450%. Still a fairly small player relative to giants like Lucent and Cisco, the company has plenty of room to grow as it pursues its singular focus of providing voice traffic over communication networks. The positive reaction to the company’s strong earnings on January 20th propelled shares as high as $109.50, just shy of a new 52-week high. After the euphoria subsided, CLRN returned to its familiar pattern of providing higher highs and lows. Moving up throughout the day was just the first act, as a surge of buyers in the last hour helped CLRN punch through resistance at $100. With volume over 2.5 times the daily average, and a close very near the high of the day, CLRN looks to be in breakout mode. Consistent with the theory that old resistance becomes support, look for CLRN to use this level as support going forward. Below that, $97 should provide stronger support, followed by $94. Upside resistance comes in the form of the 52-week high ($110.25), most recently tested the day after earnings. Now that CLRN has built a staircase of higher highs and lows up above $100, a breakout to new highs will likely happen sooner than later. Either a bounce off of support or a continuation of the move upwards can be used as entry triggers. As evidenced by this week’s move, volume will be the key to a continued move up. Investors already have a lot of profit in CLRN, so watch out for profit-takers (Translation - Use Stops). Speaking to SmartMoney.com yesterday, COO Rich Hopps crystallized the company’s focus, stating Voice is, if you look downstream, the most lucrative application of a converged voice and data network. On February 3rd, CLRN and ACT teleconferencing, a full-service global provider of audio, video, data and Internet conferencing products and services, introduced the first-ever full duplex IP telephony conferencing solution. The new solution, Action VOIP gives customers the ability to conduct attended, unattended and fully automated audio conferences via IP telephony, regardless of the location of conference participants. ***February contracts expire in next week*** BUY CALL FEB-100 KGQ-BT OI=172 at $ 6.75 SL= 5.00 BUY CALL FEB-105 KGQ-BA OI= 12 at $ 3.88 SL= 2.25 BUY CALL MAR-100 KGQ-CT OI= 6 at $15.63 SL=12.25 low OI BUY CALL MAR-105 KGQ-CA OI= 2 at $11.13 SL= 8.75 low OI BUY CALL*MAR-110 KGQ-CB OI=864 at $ 9.25 SL= 7.00 Picked on Feb 10th at $102.69 P/E = N/A Change since picked +0.00 52-week high=$110.25 Analysts Ratings 1-4-0-0-0 52-week low =$ 19.88 Last earnings 01/00 est=-0.10 actual=-0.05 Next earnings 04-20 est=-0.06 versus= N/A Average Daily Volume = 447 K /charts/charts.asp?symbol=CLRN **** INSP - InfoSpace.com Inc $191.50 +9.06 (+41.38 for the week) InfoSpace.com provides content and commerce solutions for Web sites and Internet appliances. Their focus is on content such as yellow pages, maps, classified ads, real-time stock quotes, sports and other information. InfoSpace.com has 100+ online customers including the likes of American Online and Microsoft. Founder and CEO, Naveen Jain, has a 38% stake while Acorn Ventures owns 12% of the company. InfoSpace.com's share price is indeed rocketing into space! This is a company that has climbed more than 40-fold since its $15 IPO in December 1998. Many analysts believe it's just the beginning and predict INSP will rise significantly as the demand for cell-phone Web services grows. Our play is much more short- term and specific. On January 31st, the company's BoD announced another 2:1 stock split payable March 15th. The split is subject to shareholders' approval and a vote to increase authorized share from 200 mln to 900 mln is expected by written consent. Presently there are 48.2 mln shares issued. Now some of you may be thinking...didn't INSP just split last month? And the answer is an indubitable yes! The stock split 2:1 on January 4th, after the bell. Following that split, INSP announced stellar earnings on January 26th and that marked "take-off". Earnings came in at $0.09 shooting past 4Q estimates of $0.00 by a First Call consensus. Traders lost no time driving up the share price 40% to an all-time high today at $192.81. Near-term support is first at $185, then $180. The 5- dma ($169.69) has yet to catch up with the recent surge, but should be watched in the event of a pullback. Many analysts have raved about INSP's future. Merrill Lynch's infamous Blodgett has a Buy rating and both Dain Rauscher Wessels and US Bancorp Piper Jaffray have Strong Buy rating for INSP. Recently Merrill Lynch upped their price target to $175 and Paine Webber also raised their target price to $200 from $160. ***February contracts expire in next week*** BUY CALL FEB-170 FHY-BN OI=173 at $25.00 SL=19.50 BUY CALL FEB-175*FHY-BO OI=939 at $20.38 SL=16.00 BUY CALL MAR-185 FHY-CQ OI= 0 at $30.50 SL=23.75 Wait for OI! BUY CALL MAR-190 FHY-CR OI= 0 at $28.00 SL=21.75 Wait for OI! BUY CALL MAR-195 FHY-CS OI= 0 at $22.13 SL=17.25 Wait for OI! BUY CALL MAR-200 FHY-CT OI= 23 at $24.00 SL=18.75 low OI Picked on Feb 10th at $191.50 P/E = N/A Change since picked +0.00 52-week high=$192.81 Analysts Ratings 6-3-0-0-0 52-week low =$ 10.00 Last earnings 01/00 est= 0.00 actual= 0.09 Next earnings 05-01 est=-0.12 versus=-0.01 Average Daily Volume = 1.69 mln /charts/charts.asp?symbol=INSP **** MLNM - Millennium Pharmaceuticals $232.31 +11.75 (+14.31 this wk) Millennium Pharmaceuticals is a leading drug discovery and development company. They incorporate large-scale genetics, genomics, high throughput screening and informatics in an integrated science and technology platform. MLNM develops treatments and diagnostics for such conditions as obesity, type II diabetes, asthma and cancer. They have a number of research and development alliances with Hoffmann-La Roche, Eli Lilly and Bayer. MLNM also licenses technology to Monsanto for use in plant agriculture and human health care. Take one look at the chart and you can see why MLNM made to our list of recommended plays. However there are more reasons why we believe MLNM could turn out to be an good play. Yes they are in the hot Biotech sector, but this company is has more going for than just being in strong sector. Late last week MLNM and Wyeth-Ayerst announced the discovery of a family of proteins called Potassium Channel Interacting Proteins that associate with and regulate the activity of certain potassium ion channels, "A-type" channels. In short, this discovery could be extremely beneficial in time in the treatment of such including anxiety, depression, ischemia and epilepsy. Granted the benefits from these discovery may be well into the future, but it is this kind of announcement that has drawn investor attention, in the biotech and genomics field the past few months. MLNM doesn't have an abundance of analysts that follow the company, but it is popular with institutions, with over 59% of the outstanding shares owned by the big boys. Some are predicting a stock split for MLNM as well. Honestly there's no news on a split yet, but they do have the available shares. MLNM closed just above support at 230 today. Should we see a pull back $220 would also provide a good entry point for this new play. The $220 level was tested many times this week and hold strong every time. Lexicon Genetics a company that has established collaborative agreement with MLNM, today filed for a $100 million public offering. Lexicon said the proceeds would be used to increase its functional genomics research efforts. ***February contracts expire in next week*** BUY CALL MAR-220 QMR-CD OI=13 at $34.63 SL=26.50 BUY CALL MAR-230 QMR-CU OI= 1 at $30.13 SL=24.00 low OI BUY CALL MAR-240*QMR-CV OI=16 at $25.88 SL=20.00 Picked on Feb 10th at $232.31 PE = N/A Change since picked +0.00 52 week high=$237.25 Analysts Ratings 3-3-2-0-0 52 week low =$ 28.00 Last earnings 01/00 est= 0.02 actual= 0.05 Next earnings 04-25 est=-0.35 versus= 0.05 Average daily volume = 668 K /charts/charts.asp?symbol=MLNM ************* NEW PUT PLAYS ************* CAT - Caterpillar Inc. $38.06 -1.06 (-4.25 this week) Headquartered in Peoria, Ill., Caterpillar is the world's largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. As one of the Fortune 500, Caterpillar and its dealers sell products in nearly 200 countries and sponsor events that promote the company's growth-oriented, high-tech strategy. What do you get when you cross a bear and a cat? Well, you either get an omnivore that hisses, sheds and hibernates or a put play on the world's largest construction equipment maker. Fears of rising interest rates have plagued heavy equipment companies and as many investors believe that increasing rates will equal a decrease in demand for heavy equipment. It is these fears that have worked to grab the CAT by the tail and drag it to new 52-week lows. This week, CAT spent some time flirting around between $41 and $40, trying to decide if this level was going to serve as support. Yesterday, the decision was made as CAT moved lower and closed at its low for the day, which was below $40. But, as you know, one day does not a trend make and we were waiting to see if CAT was going to continue on with its negative momentum. Today gave us the go ahead as CAT traded to yet another new 52-week low and never even made it up to $40. The volume backing CAT's decline has been very strong, a nice bearish indicator showing us that there are plenty of investors that have decided that CAT is a dog. CAT could continue to encounter resistance at $39 which is backed by the $40-$41 level. CAT does tend to offer some fairly narrow intraday ranges. Therefore, your best bet for new entries is probably to try enter toward the early part of the session. Be prepared to stay on board for a bit to make the play worthwhile, as CAT is not known for being a fast mover. ***February contracts expire in next week*** BUY PUT FEB-45 CAT-NI OI=1600 at $7.00 SL=5.50 BUY PUT FEB-40 CAT-NH OI=1095 at $2.19 SL=1.75 BUY PUT MAR-40*CAT-OH OI= 758 at $3.00 SL=2.25 Average Daily Volume = 1.96 mln /charts/charts.asp?symbol=CAT ********************** PLAY OF THE DAY - CALL ********************** ADIC - Advanced Digital Info. $63.00 +4.38 (+4.63 this week) ADIC is a leading global provider in the market to manage and protect information for computer networks. The company has over 50,000 automated tape libraries installed and a suite of software solutions and Storage Area Networking (SAN) products. These products are marketed under ADIC and ADIC/GRAU brands of OEM partners including Dell, Exabyte and Unisys. The company's own storage management tools include AMASS, FileServ and CentraVision which are software products that provide users with shared access to network data. Sunday's Write Up If there is one universal desire in the technological age, it is to have as much memory capacity and access to it as possible. ADIC is one company that seeks to provide the most cutting edge tools to allow companies to fulfill their ever growing capacity needs. Smaller technology firms are starting to participate again and ADIC is no exception. With earnings expected after the close on February 16th, we are looking for the possibility of a continued run of the company's share price. ADIC announced year end results in early December that showed a 95% increase in sales for the year and they beat the Street's estimate by $0.04. If those trends continue then it is entirely possible that an earnings run could occur as investors are always interested in the fastest growing companies. After establishing a new high in mid-January after breaking out of a nice base around $50, ADIC has had a very volatile past two weeks which has seen the stock reverse course and start to head back up higher. The selloff down below $43 appears to have been an aberration and the stock has recovered nicely. Friday's move beyond $56.38 was an encouraging sign that the stock may be back on its way to challenge for another new high. If we get a selloff you may want to try and go long around $55 where we find some pretty good support. If ADIC takes out Friday's high print of $60.13 an attempt for a new high could occur very quickly. Part of the recent excitement about ADIC occurred after a new product was revealed last Tuesday. The company has added new Fibre Channel routers to its suite of Open SAN Backup Solution products, making the package the first in the industry to build support for direct-to-tape, server-less backup within SAN's. Also, ADIC will hold its annual shareholder meeting on the 16th, the same day as their earnings release. Look for more good news to be announced at that time. CEO's rarely say anything but good news and investors know it so don't expect much selling in ADIC ahead of this date. Tuesday's Write Up The disappointing start this week for the shares of ADIC have not discouraged us from this play. We believe that the "Street" has yet to recognize the hidden value found in owning shares of ADIC. The company owns a big chunk of high flyer, Crossroads Systems (NASDAQ:CRDS). CRDS is a storage router company and ADIC has an OEM agreement to distribute these products. ADIC owns 2.6 million shares of CRDS. CRDS has rallied over 60 points in the past three days resulting in over $120 million in paper profits for ADIC. The rally for CRDS could easily continue on the heels of CSCO's strong earnings report. At some point this incredible rally in CRDS could be realized in a strong move for the shares of ADIC. In the meantime, ADIC is in the middle of a range between roughly $50-$65. There is some support around $55 which might prove to be a good entry point for a bullish position. If ADIC can trade above $62 a more substantial rally may ensue. Thursday's Write Up Unleash the power within! With apologies to Tony Robbins, that is our buzz phrase for wanting to get long ADIC. Recently we have had success in this section isolating companies who have substantial investments in other high-flying companies. Such is the case for ADIC which owns 2.6 million shares of Crossroads Systems (NASDAQ:CRDS) which is a storage router company. ADIC also has an OEM agreement with Crossroads. CRDS has recently seen an incedible explosion in their share price due in large part to the market's recent love affair with nearly every router stock. See JNPR and CSCO to name two. The past four trading days have seen CRDS rally over 70 points resulting in paper profits of over $180 million for ADIC. With a strong move today it appears that the "Street" is finally attempting to give ADIC a little credit for their stellar investment. The close at its high of the day coupled with a break above a four day base indicates to us that ADIC may be ready to make its next move. New 52-week highs are only 3 and a half points away and if the NASDAQ can stay strong we are anticipating an attempt to surpass these levels. Support is back in the previously mentioned basing area of $58-$62 which could prove to be a good area to initiate a position if we get some weakness. An open tomorrow above today's high of $63 could prove to be a strong indication that new highs are only a hop-skip-and-jump away. Don't forget, earnings are set for Wedensday after the close. Also note the big options volume that came in this morning across all strikes from 45 to 70. Could it be that word of strong earnings or a surprise announcement at the shareholder meeting on the 16th is leaking out early? Don't know, but someone is acting like they do. ***February contracts expire in less than two weeks*** BUY CALL FEB-55 QXG-BK OI=107 at $ 8.50 SL= 6.50 BUY CALL FEB-60*QXG-BL OI=427 at $ 5.00 SL= 3.75 BUY CALL FEB-65 QXG-BM OI=154 at $ 3.25 SL= 2.50 BUY CALL MAR-55 QXG-CK OI=242 at $13.13 SL=10.25 BUY CALL MAR-60 QXG-CL OI=276 at $10.25 SL= 8.00 SELL PUT FEB-55 QXG-NK OI=177 at $2.50 SL=4.00 (See risks of selling puts in play legend) Picked on Feb 6th at $58.38 P/E = 80 Change since picked +4.63 52-week high=$66.38 Analysts Ratings 3-3-0-0-0 52-week low =$ 6.63 Last earnings 12/99 est= 0.22 actual= 0.26 Next earnings 02-16 est= 0.23 versus= 0.13 Average Daily Volume = 420 K /charts/charts.asp?symbol=ADIC ************************ COMBOS/SPREADS/STRADDLES ************************ Dow Stumbles As Nasdaq Rage Continues.. Wednesday, February 9 Blue chip issues plummeted Wednesday on falling bond prices and new fears of rising interest rates. The Dow Jones Industrials closed down 258 points at 10,699. A series of attacks on major web-sites humbled Internet stocks and the Nasdaq slid 64 points to 4363. The S&P 500 index was down 30 points at 1411. Volume on the Big Board reached 1 billion shares, with declines outpacing advances 1,966 to 1,034. The long bond fell 30/32 with the yield closing at 6.3%. Tuesday's new plays (positions/opening prices/strategy): Cirrus CRUS JUN20C/MAR20C $0.88 debit calendar Adv. Fibre AFCI MAR40C/FEB50C $8.75 debit diagonal Valence VLNC MAR20C/MAR25C $4.25 debit bull-call Portfolio plays: The market slumped today as bond yields rose and new concerns of inflation plagued investors. Higher bond yields generally make fixed-income debt more competitive with stocks and analysts say there was an abrupt change of heart after Tuesday's rally, which was sparked by a favorable employment report. Now investors are preparing for a new batch of economic data that could provide additional indications of the future of interest rates. Financial, drug and technology stocks all suffered in the sell-off and there were few bright spots in the market. Gold and metal stocks were in the minority, rising as the broad market wilted in afternoon trading. One of our leading Internet issues was Aspect Development (ASDV), up $21 to a new all-time high at $118 after Robertson Stephens Senior eBusiness Software Analyst Kash Rangan today reiterated his BUY rating and raised the price target on Aspect to $130. The upgrade was based on the company’s solidification of its strategy for B2B E-commerce. Extreme Networks (EXTR) was also a big mover, climbing almost $6 to a recent high near $99. Today EXTR reported its Gigabit Ethernet switching solutions are powering a unique Metropolitan Area Network that enables Internet Service Providers and Internet Content Providers to transmit local Internet traffic at increased speeds and lower costs. With leading-edge Ethernet switching solutions, EXTR is securing a dominant position in the growing industry. Sun Microsystems (SUNW) rallied $5, closing at $92 after officials at the company told Wall Street analysts that SUNW was angling for higher sales growth. Chief financial officer Michael Lehman said that SUNW is aiming to boost revenues by 25% or more with new products and services. We decided to use the new buying surge to roll up and forward (to March) in our LEAPS/CC's position. The new spread is LJAN37C/MAR85C at $32 debit. Motorola (MOT) was another candidate for adjustment and our transition to the (short) $145 calls required an additional $5.00 debit. The new position is LJAN105C/MAR145C at a cost of $27.50. Adobe Systems (ADBE) continued it record run, adding another $3 to close at $87. Our long-term position offers a 100% profit in just three months and rather than chase the issue, it may be better to simply close the position and look for a new entry point. Unfortunately, the majority of issues in our portfolio fell with the market sell-off and a number of failing positions were closed to limit losses. Two of our recent speculation plays, Deluxe (DLX) and Marshall & Ilsley (MI) were on the hit list. Deluxe plummeted after last week’s spin-off announcement, allowing little time for an exit strategy and the merger speculation on Marshall vanished early in Wednesday’s session. Both of the (long) positions were closed on these plays. Pfizer (PFE) has also been disappointing and with increasing coverage of the costs of the Warner Lambert (WLA) acquisition, shareholders have yet to see it in a positive light. There is certainly a possibility for recovery (with a March expiration) but it may be prudent to simply move the remaining capital to a new play. One of the surprising issues in the portfolio was beverage and snack-foods giant PepsiCo (PEP), which rose $0.68 to $34 after posting better-than-expected fourth-quarter profits. Revenues were driven by strong gains in Frito-Lay and the Tropicana juice businesses. The company also said it would split its Frito-Lay snack unit into regional groups in an attempt to build upon its growth. Our new bearish position at $35 was tested throughout the session but eventually survived on the weakness in the overall market. The conservative exit strategy would be to close the credit spread for $0.75 debit, a $0.38 loss. Those of you with an aggressive outlook should wait for a technical confirmation of the recovery in tomorrow's session. Thursday, February 10 Blue-chip issues fell from favor Thursday as Technology companies dominated the headlines with soaring earnings. The Nasdaq Index gained 122 points to 4,485, another record close. The Dow Jones Industrial Average lost 55 points, closing near a three-month low at 10,643. The S&P 500 Index edged up 5 points to 1,416. On the NYSE, decliners beat advances 17 to 12 with 1.05 billion shares exchanged. There were 76 stocks at new highs and 255 at new lows. The long bond dropped 1-16/32, pushing the yield up to 6.43%. Portfolio plays: Today the Nasdaq Composite powered ahead as investors continued to pack their portfolios with technology issues. The majority of stocks in our collection ended higher and a number of positions are now trading at maximum profit. Triquint (TQNT) was again the top performer, climbing $16 to a new all-time high near $228. This issue has rocketed $90 since we added it to our pick list last month. Corning (GLW) rallied to a new all-time high after reporting favorable earnings and a bullish future outlook. The company finished the year with strong positive momentum and now expects productivity benefits from restructuring and business process re-engineering to have a positive effect on the bottom line. Our bullish credit spread at $130 will expire comfortably OTM. Emulex (EMLX) ended $6 higher at $117 with the rally in computer hardware issues. The stock has been struggling to remain above technical support near $100 and we expect it will finish far from our sold strike (and the maximum profit range) at $95 next week. In the small-cap portfolio we had a number of surprises. Network Associates (NETA) rebounded almost $4 to end at $28 on news of the recent rampage of Internet hackers. NETA quickly deployed the first and only on-line solution available to detect a family of computer vulnerabilities and zombie agents, stopping hackers' ability to link networked computer systems in distributed denial of service (DDoS) attacks. The new detector service, which will help protect companies like Yahoo!, Ebay, Amazon, E-Trade and Microsoft is now available at their web-site. The rally provided a perfect opportunity to move the bullish LEAPS/CC’s play into March. Our new position is LJAN15C/MAR25C at $7.88 debit. The new spread has no upside risk and a reasonable margin of safety for any future corrections. Our new position in Cirrus (CRUS) is off to a great start. Today the stock bounded $2 after confirming its support of the recent definitive agreement entered into by Intel and Ambient Technologies, a privately held firm in which Cirrus Logic holds a minority interest. Ambient was formed last year when Cirrus Logic entered into an agreement to spin off its PC-modem business unit. The divestiture of Ambient has enabled Cirrus Logic to expand its core audio and storage businesses, while focusing its high-performance analog and DSP expertise on Internet entertainment applications. Cirrus has yet to report the specific financial impact of the agreement but investors expect it to be favorable. In our case, the only adjustment made was in the older diagonal position (JUN10C/FEB12C at $2.25 debit). The new spread is short at $15 in March with a cost basis of $3.75. The new calendar spread (JUN20C/MAR20C) is already profitable. Questions & comments on spreads/combos to Click here to email Ray Cummins ********* NEW PLAYS ********* With the majority of big-cap technology companies trading at astronomic levels, we decided to look for some lower-priced issues with bullish character and favorable option premiums. These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. **** DRMD - Duramed $10.12 *** Drugs Are Still Hot! *** Duramed Pharmaceuticals currently develops, manufactures and markets a line of prescription drug products in tablet, capsule and liquid forms to customers throughout America. The products sold by the company include those of its own manufacture and those it markets under arrangements with other manufacturers. Duramed sells its products to drug store chains, wholesalers, private label distributors, health maintenance organizations, hospitals, nursing homes, retiree organizations, mail order distributors, other drug manufacturers, mass merchandisers and governmental agencies. Last year, Duramed received FDA approval of its first branded prescription product, Cenestin, which is a new plant-derived synthetic conjugated estrogens product for the treatment of severe vasomotor symptoms associated with menopause. The recent consolidation in the drug sector has made a number of small-cap companies targets for their larger brethren and Duramed fits the bill precisely. Investors are convinced that a major announcement is due for the company and Monday’s break-out above a well-defined trading range appears to confirm the speculation. In any case, the option premiums are favorable and the technical outlook is bullish, providing fair risk/reward for this unique, speculative position. PLAY (speculative - bullish/diagonal spread): BUY CALL JUN-5.00 DUQ-FA OI=32 A=$5.75 SELL CALL MAR-10.00 DUQ-CB OI=2772 B=$1.81 INITIAL NET DEBIT TARGET=$3.75 TARGET ROI=33% Chart = /charts/charts.asp?symbol=DRMD **** ESPI - e.spire Communications $10.88 *** Telecom Play *** E.spire is a facilities-based Integrated Communications Provider to businesses primarily in major markets in the southern half of the United States. The company was one of the first Competitive Local Exchange Carriers to combine the provision of dedicated, local and long distance services with frame relay, asynchronous transfer mode and Internet services. ESPI’s facilities-based network infrastructure is designed to provide services to its customers on an end-to-end basis. With this established suite of telecommunications services, which emphasizes data capabilities in addition to traditional CLEC offerings, ESPI has evolved into a leading ICP. ESPI has finally become a formidable company in the competitive world of local telephone/data services and today Merrill Lynch initiated coverage of the telecom provider based on their growing regional fiber network. Merrill also expects the entire sector to experience strong fourth-quarter results with excellent sequential growth in revenues. The initial rating for ESPI is long-term accumulate and that will magnify the recent momentum that has boosted the issue from December’s lows near $5. Our long-term position is very conservative but some of you may also wish to participate in the cheap speculation play. PLAY (conservative - bullish/diagonal spread): BUY CALL JUN-5.00 AQ-FA OI=332 A=$6.38 SELL CALL MAR-10.00 AQ-CB OI=2412 B=$1.93 INITIAL NET DEBIT TARGET=$4.25 TARGET ROI=17% -or- PLAY (speculative - bullish/calendar spread): BUY CALL MAR-12.50 AQ-CV OI=2218 A=$0.88 SELL CALL FEB-12.50 AQ-BV OI=1167 B=$0.25 INITIAL NET DEBIT TARGET=$0.50 TARGET ROI=25% Chart = /charts/charts.asp?symbol=ESPI **** RMII - RMI.Net $11.00 *** ISP’s Are On The Move! *** RMI.Net is a provider of E-Business, Web Solutions, and other communication services to business enterprises, as well as dial-up residential customers. RMI.Net monitors and controls its network through its Network Operations Center in Denver, Colorado. Through the company's nationwide network of owned and leased dial-up access sites, subscribers are able to access the Internet in 90 of the largest 100 metropolitan areas in the United States via a local telephone call. Internet services include dedicated access service; co-location; wireless service; Internet backbone access; web site production; web site hosting; info-highway/portal; turnkey software package solutions for electronic commerce of e-sell; web site marketing; Traffic Builder Plus software; and web training. Telecommunications services include IP telephony or e-phone; traditional long distance service; local phone services; and dedicated line services. A recent bullish analysts’ report listed a number of reasons for the future growth of this company including; an estimates 100% top line revenue growth in 2000, an exponentially increasing customer base and significantly improving cash flow. The brokerage offered a Strong Buy rating with a 12-month price target of $23 based on the incredible potential for B2B e-commerce infrastructure. We agree with the outlook and the bullish technicals suggest it may not be too optimistic. PLAY (conservative - bullish/debit spread): BUY CALL MAY-5.00 RMU-EA OI=90 A=$6.38 SELL CALL MAY-10.00 RMU-EB OI=505 B=$3.00 INITIAL NET DEBIT TARGET=$3.12-$3.25 ROI(max)=50% Chart = /charts/charts.asp?symbol=RMII ************************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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