The Option Investor Newsletter Tuesday 2-29-2000 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) ************************************************************ 2-29-2000 High Low Volume Advance Decline DOW 10128.30 + 89.70 10204.90 10030.30 1,186,106k 1,809 1,179 Nasdaq 4696.69 + 118.84 4698.46 4637.17 2,088,835k 2,644 1,606 S&P-100 738.64 + 10.89 741.48 727.75 Totals 4,453 2,785 S&P-500 1366.42 + 18.37 1369.63 1348.05 61.5% 38.5% $RUT 577.71 + 20.03 577.72 557.68 $TRAN 2388.86 + 27.08 2394.82 2355.61 VIX 25.59 - 1.31 26.99 25.14 Put/Call Ratio .41 ************************************************************* Looks like a rally, feels like a rally, but is is a rally? If it is not a rally it is a very good imitation. However, you know there is a catch. Remember back just two weeks ago on the 11th/14th when we had a -200 point Friday and a plus +350 point Monday/Tuesday? Or maybe you have forgotten Friday Jan-28th and the -200 point drop followed by a +300 point gain on Mon/Tue. I am going to refresh your memory below but hopefully we have broken the cycle today and traders are ready for the April earnings run to begin. The NASDAQ caught fire today after resting yesterday with a needed profit taking stop. The rise came on the backs of chip stocks and biotechs with the very big caps mostly quiet. MSFT lost -2.19, DELL -.19, INTC +.63, CSCO +1.63, WCOM +.38, QCOM -.69 and with ORCL the winner at +5.63. After resting last week the biotechs were back in force. Big winners, again, were PDLI +32, HGSI +13, IMNX +6. Probably the broadest sector advance was the semiconductor stocks. After receiving several upgrades today the sector ramped up to record gains again. PMCS scored a price upgrade to $250 and a +14.31 gain. ATML, the play of the day last night posted a +5.88 gain. TriQuint posted a +7.56, TXN +10.25, LSI +7.00, MU +20, AMAT +6.00, KLAC +8.00, XLNX +9.00, VTSS +12, BRCM +16. Simply incredible! The semiconductor index was up +104 or a whopping +10%! Some estimate the need for chips could grow by +300% in the next year. Motorola helped boost the sector interest by announcing a 3:1 split and added +13.50. Salomon Smith Barney raised price targets on seven chip stocks and Deutsche Banc Alex Brown resumed coverage of three stocks with strong buy ratings. (ALTR, XLNX, ATML). Rambus, the much maligned, quick to brag, slow to ship, fast chip company added +60 to $301. This stock was only $80 two weeks ago. Looks like their time has come! Banc Boston Robertson Stevens is holding a technology conference this week and the list of presenters is a "who's who" of the tech world. CMGI was scheduled to present at 4:30 today and everyone expected a bullish outlook on web growth. Add to the CMGI pre-conference hype a raising of estimates by BBRS and you got an explosive rally by CMGI posting a +13 gain after 2:30 when the announcement came. CMGI had been moving down all day after a nice recovery yesterday. I was even thinking about closing my CMGI position for lack of follow through but with earnings only two weeks away I had decided to hold. A good decision in retrospect. 1stUp.com, a CMGI company, and Lycos announced today a free Internet service and CMGI was expected to present the plans at the conference. A CSFB analyst said this was a no-lose proposition since offering free Lycos access would eliminate the need for an outside ISP, letting Lycos control both access and content. CMGI will receive a split of the ad revenue from the project. With 65 million dial-up Internet users Lycos expects to garner a large share due to their size. AltaVista, another CMGI Company, also offers free access. Was it the falling consumer confidence number announced this morning that changed investor sentiment? I doubt it. The factor that made the dynamic duo team up for another dance was probably something as simple as an extreme oversold condition on the Dow stocks. Nothing moves in a straight line forever and if you look at the daily Dow chart above it has been repeating the four down two up for sometime now. I felt fairly good about this rally on the surface but as I write this I am having second thoughts. The VIX has retreated from the 29.50 buy range and plummeted to close at 25.55 today. The put/call ratio dropped to .41, which is also negative. These two indicators are not infallible but they should cause you to be aware of the subtle changes in the markets tomorrow. Granted these indicators are skewed toward NYSE stocks but as the Dow/NYSE goes, so goes the market eventually. If we roll over again this week buyers who have been thrice burned on bear traps recently will be very cautious before stepping back into the gap the next time the Dow drops under 10K. On the flip side, I will put my bullish hat on here, the advance/decline ratios were the strongest I have seen of any of these aborted rallies. The past bear trap rallies have had advances only even with declines or even losing to declines so I think this one may have some staying power. This divergence between the Dow and the NASDAQ has been unprecedented and the NASDAQ shows no signs of correcting anytime soon. That means the Dow is the index that has to change its spots. That may be happening this week. Even with a downgrade to Alcoa today the Dow, which opened down, managed to mount a good steady climb all day and did not really sell off at the close. There was a small sell program that hit at 10200 for about -65 points but buyers stepped up and filled the gap. Financials had a mixed day and were hurt by an earnings warning from a regional bank but most rose slowly all day. Unsettling however was the drop in the last five minutes by AXP, JPM, BAC, WFC and BK. Citicorp broke the mold by finishing close to the high of the day. It could have just been fear of darkness and fear of another repeat drop for the other financials but Wednesday will tell. I think it is a good sign that the Dow finished positive with major components losing ground. IBM -1.75, MSFT -2.19, GM -1.88, DD -1.38 and AA -2.56. Volume increased to the upside on IBM when it touched $101 late this afternoon and there was a nice bargain hunting bounce at the close. With the first April earnings only five weeks away the odds of any more serious drops are reduced every day. The NASDAQ rally today was on the largest volume ever of 2.08 bln shares and the 8th largest point gain. Some analysts attribute some of the gains to end of month window dressing by hedge funds but I think it was simply real buyers trying not to miss the next express train out. The next economic stumbling blocks are the NAPM and Construction Spending tomorrow and then the big February Employment Report on Friday. I don't think anything short of a blowout on the Employment Report can cause any more damage from interest rate fears than we already have. We know the Fed will raise rates at the next two meetings. We know Greenspan will ONLY raise +.25% each and we know that the political process may slow down any rate increases after that. In short, interest rates have a top and we know where that top is within .25%. The Fed will not and has not raised much above 6% even when the economy was stronger than it is currently. Investors are awakening to this fact and the future raises will prove to be less of a deterrent to the market than the Y2K event. If we get another dip this week, it may be our last. In the abandon ship category, we recommended that readers close their positions on the ANAD play before the close on Tuesday to avoid post split depression and profit taking from the nice gains on this 3:2 split run. It is nice to see you took our advice but did you all have to wait until the very last minute? The market maker must have thought the sky was falling. Stop losses anyone? If you did not have one you are now married to this play. In the rumor department there was a rumor today that DT was going to announce a buyout of Qwest after PCCW bought Cable and Wireless for $38.1 billion. The stock perked up around midday which could be insiders trying to beat the announcement. I picked up some but it is still just a rumor!! Also the rumor that JDSU will be added to the S&P-500 is making the rounds again. Eventually this will happen but it may not be the next entry. Long term buyers should plan now for a future surprise. Now see, I made it through an entire commentary without using the terms "--- economy." Trade smart and sell too soon. Jim Brown Editor Current positions include: BRCD, BVSN, CMGI, COHR, EMLX, HGSI, INCY, MUSE, PDLI, PMCS, PUMA, RBAK, TIBX, LU, AMTD, DELL, CMGI, Q ********** STOCK NEWS ********** Micronetics: Bringing Crystal-Like Clarity to Wireless Wireless, wireless, wireless. Have you heard enough about this industry? I sure haven't. Words like fiber optic networking, dedicated subscriber lines, undersea dark fiber, optical cable, gigabytes, hybrid fiber coax, pump lasers, photon amplifiers, and high-speed access can easily perk up the ears of investors. Well, add to that list voltage control oscillators, attenuators, and multi-path fading simulators. The future of telecommunications is both exciting and confusing. I think Webster's needs to publish a technology terms dictionary. Micronetics Wireless (NOIZ), based in Hudson, New Hampshire, designs and manufactures radio-frequency (RF) components and test equipment that help keep signals clear in cellular, satellite, microwave, and radar systems worldwide. Products include RF controls for military radar and communications systems, noise source components that test reception and transmission quality, and other noise generators and frequency emulators. They even help out the local weatherman in making their predictions. Lowered defense spending in recent years has forced Micronetics to shift its focus toward the commercial sector. Sales are now evenly split between commercial and military manufacturers, including Lockheed Martin, Lucent, Marconi, and Texas Instruments. The company's equipment is used inside all kinds of telecom equipment to help reduce and/or eliminate noise signals inside wireless devices. You probably have one of their devices in your cellular phone. The company is small. They currently have just 3 patents. One is for its MicroSource low phase VCO (voltage control oscillator), another is for its MicroCal Module, and a third patent covers the method and apparatus for verifying the integrity of smart antenna systems deployed in cellular, PCS and wireless local loop systems. Not the easiest stuff to understand. The company is also in the process of obtain ISO Certification, which basically is an industry stamp of approval of quality and reliability. But this small company, all of a sudden, has seen some huge moves in its stock price. Shares, which have been languishing in the $2 to $3 range for the last couple of years, have since moved up to $10, where it had been sitting until yesterday. Then the floodgates opened. Shares of NOIZ erupted, rising more than $14, or 136 percent, to $25. Shares are up another $17 to $42 today. The big news: The company announced that it was demonstrating the first integrated AWGN (additive white Gausian noise) Generator and Multi-Path fading simulator for CDMA applications at the CTIA Wireless 2000 in New Orleans. Huh? The two main sources of signal distortion in wireless communications systems are multi-path fading (weakening of the signal) and noise contamination (static). The product NOIZ is demonstrating integrates into one piece of test equipment the automatic generation of additive Guasian noise for signal to noise ratio measurements, and communication channel simulation for inducing various fading and multi-path effects on the transmitted signal. Simply stated, their product combines multiple test functions in one single product, which is cheaper, smaller and easier to use than those currently available on the market. And its the only product in the market. In the last eight months, the only insider buying stock has been CEO Richard Kalin, who bought 1 million shares at $1.41 back in July of 1999. Unusually enough, all other transactions by insiders have been planned sales, adding up to around 90,000 shares. Kalin currently owns about 31 percent of the company. The financials for NOIZ look pretty good. For the third quarter of fiscal 2000, ending December, net sales increased to $1.66 million from $1.09 million in the prior year period, an increase of over 52 percent. Net income increased to 4 cents per share versus 3 per share in the same quarter a year ago, an increase of 25 percent. Revenues for the first nine months of FY2000 increased to $4.49 million from $3.29 million, a 36 percent increase. Net income increased to 11 cents from 10 cents per share, up 16 percent. In the last few months, NOIZ has received contracts from areas other than just the wireless arena, confirming the wide acceptance of NOIZ's products. For example, on January 18, the National Oceanic and Atmospheric Administration awarded Micronetics a contract to supply noise measurement instruments. Ralph Marrone, Vice President of Micronetics/ Equipment, stated, "This is the first of what is expected to be a series of contracts over the next few years to supply these instruments to several of the National Weather Service's NEXRAD weather radar stations." Also, Micronetics was awarded a significant order from Daimler Chrysler Aerospace to supply microwave-integrated assemblies for the European Fighter Aircraft. Multi-year deliveries are scheduled to begin the first half of 2000. NOIZ seems to be making quite a bit of just that...noise. Like I mentioned earlier, Micronetics is a small company, but it has some very innovative products, and it happens to be in one of the hottest sectors on Wall Street. The company is profitable, which is an anomaly in the youthful wireless industry. A word of caution: the number of shares in the float is quite small, at around 2 million. Net profit margins are just under 6 percent, and it has practically no debt. NOIZ is not covered by any analysts, presently. Perhaps these latest announcements will finally get NOIZ abuzz on Wall Street. ************** Market Posture ************** As of Market Close - Tuesday, February 29, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,700 11,250 10,128 BEARISH 2.17 SPX S&P 500 1,400 1,450 1,366 BEARISH 2.18 OEX S&P 100 740 780 739 BEARISH 2.18 RUT Russell 2000 500 520 578 BULLISH 2.24 NDX NASD 100 3,800 4,000 4,267 BULLISH 2.24 MSH High Tech 1,850 2,000 2,075 BULLISH 2.24 XCI Hardware 1,300 1,460 1,515 BULLISH 2.24 CWX Software 1,200 1,470 1,551 BULLISH 2.24 SOX Semiconductor 800 900 1,170 BULLISH 2.24 NWX Networking 940 1,000 1,109 BULLISH 2.24 INX Internet 700 800 753 Neutral 1.06 BIX Banking 500 550 485 BEARISH 11.30 XBD Brokerage 400 450 450 Neutral 11.30 IUX Insurance 500 550 479 BEARISH 11.30 RLX Retail 950 1,000 836 BEARISH 1.28 DRG Drug 340 380 321 BEARISH 2.18 HCX Healthcare 700 750 664 BEARISH 2.18 XAL Airline 120 140 117 BEARISH 5.21 OIX Oil & Gas 280 315 252 BEARISH 1.27 Posture Alert The broad market as a whole locked in a solid day as the Dow and NASDAQ both climbed higher on good volume. The NASDAQ traded 2.1 billion shares, which still shows how much cash is being put to use. The Semiconductor sector was on fire, as that index closed up +9.75%! Other leaders include Brokerage (+5.88%), Networking (+4.24%), the Russell 2000 (+3.59%), and Software (+3.52%). There are no current changes in posture. **************** Market Sentiment **************** Tuesday, February 29, 2000 The Shorts Keep on Shorting! The Dow and NASDAQ actually hung together for a day, but the bigger news is that volume on the NASDAQ surpassed the 2-billion mark again! This increase in volume is a combination of the cash flow that is still being put to use, as well as the shorts running for cover, which leads us to our topic today. One important gauge of sentiment is the level of short interest on the major exchanges. Investors who sell securities "short" borrow stock and sell it, betting that the stock's price will decline and that they will be able to buy the shares back later at a lower price for return to the lender. Short interest reflects the number of shares that have yet to be repurchased to give back to lenders. In the past, stocks that have heavy short interest, when combined with some sort of positive news, has witnessed very quick and powerful up-moves. At times, short sellers are forced to cover, which only helps the buying pressure, and this is known as a "short squeeze." Short sales outstanding on the Nasdaq rose again in the latest month, hitting a fifth consecutive record. The level of short sales not yet closed out, jumped 8.51% to 2,618,936,228 shares on February 15. If you look at the graph below, and go back 5 months when record shorting began, you see a very nice corresponding return for the index. As such, below is a list of the most heavily shorted stocks on the NASDAQ, and based on changes from the previous month, it is evident that the shorts are alive and well. Largest Short Positions Rank Feb. 15 Jan. 14 Change 1 Oracle 45,414,368 40,983,954 4,430,414 2 Dell Computer 42,277,863 41,159,694 1,118,169 3 Cisco Sys 40,121,348 38,730,832 1,390,516 4 Amazon.Com 36,448,474 31,865,788 4,582,686 5 MCI Worldcom 35,756,276 30,858,750 4,897,526 6 Intel 34,173,314 32,111,659 2,061,655 7 E*trade Group 32,853,309 25,746,956 7,106,353 8 Microsoft 32,772,285 38,248,483 -5,476,198 9 Nextel Com A 29,661,046 27,211,762 2,449,284 10 Qualcomm 28,499,590 28,392,634 106,956 11 Global Crossing 24,999,886 26,370,891 -1,371,005 12 Yahoo 22,930,241 33,373,120 -10,442,879 13 Informix 22,488,375 12,536,720 9,951,655 14 Comcast Cl A 22,081,080 19,395,863 2,685,217 15 AT Home 21,456,638 19,835,805 1,620,833 ** Rambus 8,832,872 Rambus was included to show what can happen when the shorts get squeezed. Rambus stock has gained +164 dollars in just the last 5 days. CNBC continued to highlight the squeeze on air, which only helped add fuel to the fire! Largest Changes Rank Feb. 15 Jan. 14 Change 1 Exodus Commun 18,634,733 8,642,432 9,992,301 2 Informix 22,488,375 12,536,720 9,951,655 3 Paging Network 9,009,442 888,409 8,121,033 4 E*trade Group 32,853,309 25,746,956 7,106,353 5 CMGI 19,937,810 14,218,326 5,719,484 6 Read-Rite 10,680,730 5,185,259 5,495,471 7 Conexant Systems 15,619,346 10,215,526 5,403,820 1 Yahoo Inc 22,930,241 33,373,120 -10,442,879 2 BEA Systems 3,224,054 9,878,207 -6,654,153 3 Microsoft 32,772,285 38,248,483 -5,476,198 4 Psinet 10,354,207 15,137,098 -4,782,891 5 Chiron 9,088,917 12,619,658 -3,530,741 6 IDEC Pharmaceu 4,406,704 7,644,263 -3,237,559 7 Peoplesoft 9,481,576 11,951,117 -2,469,541 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. With the NASDAQ surpassing volume of 2 billion shares again, this money is obviously flowing into technology. Short Interest: Short interest continues to climb as quickly as the market. The short interest on the NASDAQ increased another +8.51%, for a 5th consecutive record. Interest Rates (6.133): The current yield is now safely off of 52-week highs and is temporarily out of the danger zone. Mixed Signs: Volatility Index (25.59): 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. The VIX proved to be a good buying opportunity again this past week! BEARISH Signs: 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. Investor Expectations: More and more investors are now expecting high double-digit growth if not triple-digit expansion in their portfolios. This extreme positive sentiment could help fuel a future selloff in technology shares. The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index OEX Friday Tues Benchmark (2/25) (2/29) Overhead Resistance (755-800) 3.28 4.68 Overhead Resistance (730-750) 1.15 1.28 OEX Close 719.78 738.64 Underlying Support (700-720) 5.70 4.92 Underlying Support (650-695) 8.11 10.20 What the Pinnacle Index is telling us: Based on the most recent sentiment, support for the OEX continues to be strong, while overhead is light up to 750 benchmark. Option speculators are starting to bet on a major move, as evidenced by the big increase in overhead (755-800). So as a contrarian, we would bet against this logic and against any significant move above the 750 level in the near term. Put/Call Ratio Friday Tues Strike/Contracts (2/25) (2/29) CBOE Total P/C Ratio .41 .41 CBOE Equity P/C Ratio .36 .36 OEX P/C Ratio 1.19 .99 Peak Open Interest (OEX) Friday Tues Strike/Contracts (2/25) (2/29) Puts 700 / 7,704 700 / 8,177 Calls 800 / 7,965 750 / 8,182 Put/Call Ratio 0.97 .99 Volatility Index Major Date Turning Point VIX October 97 Bottom 54.60 July 20, 1998 Top 16.88 October 8, 1998 Bottom 60.63 January 11, 1998 Top 26.38 March 4, 1999 Bottom 28.15 May 14, 1999 Top 25.01 July 16, 1999 Top 18.13 August 5, 1999 Bottom 32.12 October 15, 1999 Bottom 32.06 January 28, 2000 Bottom 29.09 February 29, 2000 25.59 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 10128.31 176.53 89.66 266.19 Nasdaq 4696.69 -12.65 118.84 106.19 $OEX 738.64 7.97 10.89 18.86 $SPX 1366.42 14.69 18.37 33.06 $RUT 577.71 0.94 20.03 20.97 $TRAN 2388.86 10.52 27.08 37.60 $VIX 25.59 -1.98 -1.31 -3.29 Calls Mon Tue Week ENMD 98.50 11.38 11.00 22.38 Off to the races again DNA 192.88 7.72 11.38 19.09 New, another new high! COMS 98.00 -1.63 18.94 17.31 A big thank you to Palm JDSU 263.63 3.81 10.63 14.44 New, a split run for JDSU HGSI 218.25 -1.19 13.44 12.25 New, ready to explode CMGI 129.56 -1.13 13.19 12.06 Can you say breakout!!! QLGC 156.00 -3.63 14.38 10.75 Takes your breath away! AFCI 68.13 10.31 0.38 10.69 AFCI hits the accelerator NSM 75.13 5.50 1.63 7.13 NSM outlook brightens ADIC 90.63 1.94 4.63 6.56 New, continues right up ATML 49.50 0.44 5.88 6.31 Flexes it's muscles today NEON 91.63 -2.63 8.69 6.06 NEON just won't burn out EMLX 160.00 -8.38 11.25 2.88 EMLX restores our faith SEBL 138.69 -3.69 4.00 0.31 SEBL gives us a squeeker GLW 188.00 -8.06 8.25 0.19 GLW is a split candidate ERICY 96.00 0.38 -2.00 -1.63 Volume on the right side CHKP 203.94 -4.13 2.44 -1.69 Buyers lurking in wings LHSP 105.94 -7.72 5.44 -2.28 Did you wait for bounce? PCMS 18.25 -2.16 -2.22 -4.38 Dropped, sharks surface VERT 220.00 -7.75 2.00 -5.75 Still time to enter VERT INKT 137.13 -4.13 -3.88 -8.00 INKT bounces off support INSP 217.00 -7.19 -1.13 -8.31 Intraday range for profit ANAD 135.00 -0.88 -11.00 -11.88 Dropped, splits tonight PHCM 139.63 -9.50 -3.88 -13.38 Dropped, gravity wins Puts RNWK 70.31 -5.38 -2.69 -8.06 New, singing the blues RHAT 60.69 -4.81 -2.88 -7.69 RHAT gets comfortable JNJ 72.00 1.56 -0.75 0.81 Nothing seems to help JNJ MCOM 77.88 -4.50 6.00 1.50 Dropped, springboard LLY 59.44 0.81 1.94 2.75 Dropped, rally's with DOW KMG 44.75 1.63 2.38 4.00 Still beneath it's 10-dma FD 36.69 2.69 1.44 4.13 Dropped, FD finds bottom PGR 59.50 2.19 2.75 4.94 Dropped, PGR gets bullish ************ WOMANS WORLD ************ Renee is out of town. ************** TRADERS CORNER ************** Making Money on the Road By Janar Wasito You've gotta love it when you make money on vacation! I am writing this quick column from an Internet Cafe in London, which is quite a digitally literate city from the looks of this and other such establishments around the town. I spent the first two nights in Paris, drinking & eating with some friends. It's been a blast. I have been checking stock quotes intermittently in papers and on the web here in London. JDSU, on which I have both a credit spread and a debit spread, is doing great. My other current winners look like CMGI (spread with expiry much later this year), NOK (spread expiring this summer), AFFX (spread expiring this summer; may have missed a good exit on Friday, but one of the beautiful aspects of these kinds of plays is having time), IMNX (March credit spread with max profit at 185 -- looking real good right now, especially with a split coming!), VIGN (got up to 235, maybe portending a move to higher ground). My sole loser is ICGE, which fell back after some warning about future earnings; but, again, I have a lot of time on this spread. I had a ton of plays set up on stocks which are moving, but which I didn't play -- PHCM, CMDX, HGSI. Oh well. DOW looks ugly. (written Sunday) Techs look strong. Good for me. As for spreads, I think that this is a technique that fits my trading style. First, I like to take longer term, bullish bets on companies which I understand from living in Silicon Valley. I like having a downside adjustment (closing the short side of a bull call spread). And, most importantly, I like the lower stress that allows doing things like taking a trip, and watching the market very loosely, for perhaps 10 days a month. That aspect of spread trading will allow me to be a long term success with trading -- more of the athlete in the race for the long run, instead of the fighter living and dying by every trade. One of the very successful traders interviewed in the New Market Wizards says that successful traders do not find excitement in the market. He continues that your emotions can be like a spring -- if you stretch them and compress them too often, they wear out. For me, at least, spread trading is the right technique. Oh yeah, on my stop in St Louis on the way out, I grabbed a bunch of LEAPs -- NOK, SEBL, IMNX, BRCM. When I get back, I plan on looking for good overbought entry points to sell March calls against them, thus taking advantage of a maximum time decay (theta) disparity between deep ITM Calls with 22 months of time left and OTM Calls with about 10 days of time left. This structure is so favorable for the trader! Anyway, good luck and buy to close too soon! 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: ***** PCMS $18.25 -2.22 (-4.38) The sharks finally surfaced and began to drag this play under water. When we last visited PCMS we were waiting for the telecom equipment company to make a move one way or the other. This time it was the other, as PCMS began the week with shareholders hitting the sell button. Again no company specific news behind the move. We mentioned Sunday a move back through $21.75 would signal it may be time to take some money off the table. Well PCMS made that move in the first fifteen minutes of trading Monday, however the $20 level did hold up late in the day. At that time it appeared as though PCMS may be setting up for a bounce and a possible entry point for a new play. Nope, PCMS gapped down at the open today, hitting $16 by the end of amateur hour. PCMS did give us several chances to make a profit, but for now we will stand aside until we see some signs of life. ANAD $135.00 -11.00 (-11.88) Time to go! ANAD undergoes its 3:2 split this evening after the close. Veteran readers know we always recommend an exit prior to an event - earnings and splits alike. We kept it as a play only because we expect some enthusiasm tomorrow morning at the new split price; however a recovery to the pre-split level of $153 is a big jump to make. Those of you who stuck it out to that point were nicely rewarded. However, if you did not exit prior to 3:30 ET, you are probably in pain right now since ANAD fell $18 from its high of $153 with just 28 minutes to go before the close. Hopefully, you had stops in place to break your fall. For those who chose to walk the rope without a net, tomorrow morning during amateur hour may be your last opportunity to exit with any profit. Don't get caught in the gravity borne of "buy the rumor, sell the news". You can always buy it back if it resumes its previous performance. ANAD isn't over forever, but it is over for now. PHCM $139.63 -3.88 (-13.38) If PHCM doesn't look like a good play to you any longer, we think you are right. It doesn't look like it to us either. While we got the breakout of the ascending pennant formation at $140-$142, and were able to capitalize on it up to $154, PHCM could not escape the pull of gravity. In a disappointing display of weakness, it closed today below its breakout point while the rest of the tech sector zoomed ahead. Perhaps ORCL's planned introduction of a competing product, OracleMobile, finally got the better of it. We can find no other news. No matter, we're cutting the line on this mobile data protocol play for now. PUTS: ***** MCOM $77.88 +6.00 (+1.50) Shares of MCOM seemed to find a springboard from which to bounce at $70. MCOM gapped down over $5 on Monday morning and rolled all the way down to $69.38 before finding its feet. Today, MCOM was off and running, gapping up over $3 at the open and trading as high as $83.38 before finally taking a breather and surrendering to a mere 6 point gain for the day (we say this tongue in cheek, of course). The volume backing MCOM's move up today was also impressive, coming in at two times the ADV, indicating quite a few interested MCOM buyers out there. Needless to say, we think MCOM may have found it's bottom at $70 and therefore, we are donning running shoes of our own and making a break for another play. LLY $59.44 +1.31 (+2.75) To be honest, it looks like we caught this one at the bottom. The good thing about this play, is it never offered the opportunity for us to get on board. Yesterday, the bulls charged in on the DOW and pushed LLY up right along with it. LLY managed to break through it's 10-dma at $59.25 during today's session and posted volume two times the ADV backing the move. Things are looking a little too rosy for Lilly and therefore, we are dropping it from our put play list. FD $36.69 +1.44 (+4.13) Well, it isn't what we were trying to do, but we managed to pick the bottom on FD. Breaking to new multi-year lows and looking technically weak, FD fooled us. Turning on a dime with the NYSE recovery yesterday, FD underscored the strength of the move with more than a $2 gap up at the open today. Although there is still uncertainty in the retail sector, FD no longer looks like a good put candidate. The broad-based Retail sector recovery today didn't help our play either. We'll let it go and move on to the wide selection of much better plays. PGR $59.50 +2.75 (+4.94) Are investors remembering PGR? Hopefully you had set stops for such a reversing trend. We had mentioned that PGR might rebound above resistance at $55 which happened yesterday. Making a bullish move over the last two days and crossing above the 10-dma. So we are throwing in the towel on PGR. Volume hasn't been real heavy for this rally, but PGR just might be taking advantage of the Dow. As you know, the Dow has had a strong rally after Friday's capitulation day. So this little spark of investor interest will cause us to say goodbye to PGR. ******************** PLAY UPDATES - CALLS ******************** ENMD $98.50 +11.00 (+22.38) With one final test of the $75 support level mid-day yesterday, ENMD was off to the races again, running as high as $98.81 in today's session. Sure enough, the lack of action last week was simple consolidation, as volume has picked back up to about 50% over the ADV this week, confirming the strength of the climb. Investors seem satisfied with the 5-dma (now $81.50) as support and have sent shares soaring along with the rest of the strong Biotech sector. Driven by the companies strong (and getting stronger) market position with respect to anti-cancer drugs and treatments. The latest big news, although almost a week old, bears repeating as it highlights the strength of the company's market position. On Wednesday, ENMD announced the issuance of a broad patent, covering all anti-angiogenic fragments and methods of production for its potent angiogenesis inhibitor, angiostatin protein. ENMD now has patent protection covering all forms of the angiostatin molecule, whether used as a protein, peptide fragment, or gene for delivery to a patient. Going forward, ENMD is now in blue-sky territory, closing very near the high of the day today. Mild support looks to be forming near $92, followed by $86. As long as volume remains strong, consider buying intra-day dips to take advantage of this winning play. LHSP $105.94 +5.44 (-2.28) Did you wait for the bounce or lose a finger trying to catch the falling knife? The last few days have seen a dearth of buyers, as investors took profits from the most recent run-up. After bouncing twice at the $100 level over the past 2 days, it appears that LHSP may be ready to move higher again. Volume however, is still not very convincing, hovering right at the daily average. LHSP looks like it ran into some resistance near $108, and we would like to see a successful breakthrough of this level to confirm LHSP is ready to move higher again. Perhaps the excitement over the company's upcoming 2-for-1 split has begun to wear off - volume will be the key going forward. The move up to this point has continued to be fueled by the stream of product announcements and industry alliances. Underscoring the popularity of speech recognition products in the consumer marketplace, LHSP penned two new promotional/bundling agreements yesterday with Voyetra Turtle Beach, and AMD. Both agreements will add to LHSP's market penetration in the speech recognition market. Consider entries on a renewed bounce near $100 or a break above $108. NEON $91.63 +8.69 (+6.06) Is anyone ever going to turn out this light? NEON keeps attracting investors like moths to a flame. The difference is that they aren't getting burned. Yesterday was fairly quiet but today yielded yet another 52-week high of $96.25 on solid volume. Profit-taking appeared in the afternoon, but the selling volume was fairly light, and new support appeared in the vicinity of $90. NEON's surge higher continues to be fueled by frequent product announcements and industry alliances, the latest of which was today's alliance with mobile e-commerce solution provider, TANTAU Software. The partnership addresses the growing demand for transaction- based wireless capabilities, including bill payments, account transfers, stock trades and online purchases. Investors are continuing to use the 5-dma (currently at $$85.50) as support for each surge higher. Consider entries on a bounce from either the new $90 support level or the 5-dma. As long as volume remains strong, NEON could soon top the psychologically important $100 level. A breakout above $95 can be considered for entries as well. QLGC $156.00 +14.63 (+10.75) The drop on yesterday's NASDAQ weakness was certainly breathtaking, but in retrospect provided a rare entry point. Beginning its recovery late yesterday afternoon, today QLGC rose like a phoenix from the ashes of the quick NASDAQ selloff. Hitting yet another 52-week high, this time at $159.50, QLGC consolidated a bit before moving higher into the close on increasing volume. As long as the volume remains heavy (75% above the ADV today), look for a continuation of this move tomorrow as investors attempt to break through the $160 resistance level. Although there is now strong support near $135, don't expect this level to be seen any time soon. Instead, look for entries to appear near $153 (support today) and then $150. There is nothing new to which we can attribute the move - just the continuing stream of product announcements and the momentum of both the stock and the sector. Extending their penetration into the Storage Area Network (SAN) market, QLGC announced on Friday that its ISP2100A processor is now shipping in the new StorageTek 9840 Fibre Channel Tape Drive, the first native Fibre Channel tape drive in the industry. 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The Option Investor Newsletter Tuesday 2-29-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** ERICY $96.00 -2.00 (-1.63) Everyone deserves a day off, particularly after demonstrating the kind of momentum that ERICY has of late. Monday's gain was small but backed with volume exceeding 10 million shares, which is twice the daily average. Though ERICY took back $2 in today's session, we saw the volume level drop and not even reach the ADV. In other words, the momentum is on the right side of ERICY for our call play. ERICY found support right around $96 today and has tested support at $95 as well. ERICY's 10-dma could play back up at $91.75, if needed. Resistance is the ever elusive $100 level, and though investors may struggle with this psychological number for a bit, ERICY could have the positive momentum backing it to break through. A breakthrough and a close above $100 will be a nice bullish indication and could provide another viable entry level. Yesterday, ERICY announced plans to form a joint firm with Volvo (VOLVY) and Telia, which will be called WirelessCar. This company plans to deliver mobile Web service to the automotive industry. Just imagine all of those people out there who will not only be able to chat on their cell phones, but will now be able to shop for their mother's birthday present online, all while driving in the lane next to you! Mass transit is sounding better every day, isn't it? ATML $49.50 +5.88 (+6.31) ATML is flexing their muscles for all to see and we are quite impressed too. They set another new 52-week high today after being listed as the Play-of-the- Day in the Monday newsletter. We are having above average volume on these high point gains too. Analysts are also looking in ATML's direction with two new coverages initiated today. Chase and HQ started them at a Buy rating while DB Alex Brown initiated them at a Strong Buy. This is partly because the whole semiconductor industry has been on fire. Few other areas posses the growth and upside potential as the semiconductors do in 2000, according to some analysts. The SOX pushed the Nasdaq today to a new high which will really put them in the spotlight. Now we might see profit-taking as Semis are an extremely jumpy bunch. Support is at $44 for ATML. So set stops is you are worried about a reversal. Otherwise, continue to ride the momentum. A push above $50 on strong volume is bullish for the next move. AFCI $68.13 +0.38 (+10.69) After a quick entry dip down to $56 on Monday, AFCI hit the accelerator. With volume turned up full-tilt (more than 3 times the ADV), the stock blasted through resistance of Friday's all-time high ($58.63). This was just type of move we wanted to see for confirmation. The new 52-week record is at $71.38. Recall AFCI is a pure momentum play that made huge gains last week. At the start today, investors scraped some profits off the top pushing AFCI down to an intraday support level at $63. But the momentum powered up in the last hour. AFCI made a dash for the finish line and claimed a fractional gain. Volume was also quite respectable at 2.95 mln (ADV=1.86 mln). The dma's are far surpassed at this point. Put up the radar if AFCI returns to firm support at the 5-dma ($59.46). On one hand, an intraday dip to this level could be used as an entry point, but have stops in place incase it's a sign that momentum has fizzled. An entry intraday is tough to call. A lull in the share price (like today's trading at the $63 level) followed by a bounce is of course the first hint that a stock is getting revved up to climb. On this play, much is going to depend on your stomach (and portfolio) for risk. So far this week there's no company specific news to effect trading. INSP $217.00 -1.13 (-8.31) Okay let's re-evaluate our split play. First we've got about 2 weeks left until INSP splits 2:1 on March 15th, so there's plenty of time make our trades. If you're willing to bet that INSP will rocket upward again into higher realms like it did on Thursday and Friday, then here's your entry. INSP is at the moment hovering in the vicinity of $215 and $225. Technically $215.21 is the current daily 5-dma and this mark serves as a pretty fair entry gauge. The wide intraday spreads in and of themselves are offering room for profit. But if you'd rather not add more venture to an already VOLATILE Internet play, then of course you'll wait for INSP to move through $231, Friday's all-time high. In the news yesterday, InfoSpace announced it made an investment (financial details not available) in Internet Broadcast Systems (IBS), a leader in the industry of converging local television news and the Internet through its national network of local Web channels. According to IBS, the investment will help it expand its Web channels in the US and Canadian markets. INKT $137.13 -3.88 (-8.00) I'm confident all of you were prepared for the mild downdraft; especially after watching the momentum drive the share price up $22.56 last week in five consecutive moves which propelled INKT to higher highs. Friday's 52-week record still stands at $148.25. Call to mind, consolidation is normal and expected. INKT is managing this consolidation period quite well. It consistently made strong bounces off near-term support of $138 and $140, until profit- takers took a bigger bite out of the share price in late afternoon trading today. INKT slipped below the 5-dma (now at $140.84), however the volume was rather low. The moderate trading volume is a good sign that validates the sellers aren't in any rush to dump the stock. If you're interested in adding more positions or getting an entry into this momentum play, consider waiting for upward confirmation over the next few days. At least be patient for a solid bounce off the 5-dma followed by a convincing upward trend. CMGI $129.56 +13.19 (+12.06) Can you say BREAKOUT!! Yes indeed, early entries on solid plays can certainly be profitable. CMGI is our case in point. The extremely bullish upswing off firm support at $114 and $115 today shot CMGI right through strong resistance at $120 and $122.25 (Thursday's intraday high). New readers, CMGI is a simple earnings play that we added on Thursday evening in anticipation of a stellar run. The company is confirmed to report on March 9th. Make sure if you're considering playing this run that you have your positions closed prior to this date to avoid any post-earnings' decline. Now what we have to deal with is possible back-filling tomorrow (considering the intense move this afternoon). So wait and see how CMGI responds tomorrow before you jump in headfirst. If there's a back-fill look to the $120 level (at the 5-dma $120.54) for near-term support. In the news, CMGI's iCast division is releasing an application that combines multimedia content with instant messaging features. Also, don't forget that CMGI is presenting this evening at the Robertson Stephen's Tech Conference taking place this week. This could keep the buyers coming. The stock is already at $132 after-hours. EMLX $160.00 +11.25 (+2.88) EMLX tested the bottom of the channel we mentioned this past weekend and it did so in the first hour of the session on Monday. Investors sold shares of EMLX right from the start pushing the fibre channel technology company down to $143.50. It was beginning to appear as though investors were turning their back on EMLX. Today our faith was restored as as Emulex found traders ready to buy. EMLX is not as volatile as many of the companies on the Nasdaq, but certainly comes with enough volatility to keep us awake as it experienced about a 10% move from its low to its high today. The bottom line for this one, is that it continued its recent momentum after a one day bout with profit-taking. Not much on the news front for EMLX, but they were scheduled to make a presentation at the Robertson Stephens Tech 2000 conference in San Francisco this afternoon. Technically EMLX closed on and intraday support level at $160. The next areas of support are seen at $155 and $150. Some suggest EMLX may have come to far to fast, but for now we believe EMLX could be preparing to mount an attack on its high set in early January. COMS $98.00 +18.94 (+17.31) Aren't IPO's fun! Well at least this one is. With the Palm IPO expected to price tomorrow and hit the streets Thursday, shares of 3Com soared almost 24% today. COMS added about $6 Monday, only to see the gains slip away by the end of the day. This morning COMS jumped up over $5 at the open and never looked back, picking up 24% by day's end. Most of the push today came on the news that Palm had doubled the amount it expects to raise from its initial stock sale tomorrow. Palm expects to sell 23 million shares, or about a 4% stake in Palm, at a price range of $30 to $32 per share. 3Com has said they plan to distribute their estimated 94% stake in Palm to shareholders sometime in the next six months. Volume on today's move was extremely heavy with 40.9 mln shares changing hands. How high can COMS go? Obviously no one knows for sure, but COMS was moving higher at the end of the session today. COMS has minor support at $96 and $91 although another gap opening is certainly possible again tomorrow. With the IPO on Thursday, be prepared to close any positions as we could see a pullback after the IPO. NSM $75.13 +1.63 (+7.13) NSM fell to the $64 level of support early Monday, when buyers decided to start nibbling on shares of the semiconductor company. Actually the whole sector showed signs of weakness early Monday, but began to find some strength just after lunch. Today began with a much brighter outlook, after analysts at several brokerage firms either upgraded or reiterated Buy and Strong Buy ratings on several companies in the SOX. NSM made a new high today $75.38, not only on the strength seen in the sector today, but probably more on comments made by Don MacLeod, NSM's Chief Financial Officer yesterday. MacLeod said he sees third-quarter revenue rising over the second quarter figures. MacLeod went on to say he sees third- quarter gross profit in the range of 46 to 48 percent versus 45 percent in the second quarter. This brings us back to why we added NSM to our play list. NSM will report earnings March 9th. With the CFO saying he expects the company to report better than expected earnings, we would look for NSM to continue to new highs. NSM has support at $73, with the 5-dMA sitting at $71.39. A bounce off either support level or continued momentum would offer a good entry point. CHKP $203.94 +2.44 (-1.69) Our play in CHKP has started out the way we'd like to see a new play begin. For those with the foresight to jump in when CHKP fell out of bed Monday and hit the support level at $190, you certainly must be pleased. CHKP regained its composure after the initial sell-off ending the day down just -$4.13. Today CHKP did find a few buyers lurking in the wings, but not in the numbers we'd like to see. Volume was a bit light today, but CHKP did pick up $2.44. We are making it the Play of the Day for tomorrow based on what looks like a breakout beginning. It really started to tick up right before the close and may be worth a look for entry points. A move over $208 on strong volume would be the green light. CHKP did announce a new alliance Monday with CoreHarbor. The joint effort will integrate CHKP's Secure Virtual Network Architecture into its hosted e-procurement solution ProcureEdge. Technically, CHKP has support still at $200 and $190. Be sure to confirm the volume prior to entering any new play. GLW $188.00 +8.25 (+0.19) For a brief moment yesterday, it looked as though GLW had forgotten how to make optical fiber. The stock made an instant $17 nosedive during the first 45 minutes of trading. However, what the market taketh away, it sometimes giveth back. Such was the state of trading GLW so far this week. Not only did the last two days make GLW look a bit long of tooth (worn out), GLW violated all the averages yesterday and closed $10 under its 10-dma on 50% more volume than the ADV. Today, just the opposite. As we noted Sunday, GLW would likely claw its way back with any recovery in the NYSE issues. We're happy to say that GLW closed back over its 10-dma of $185.92 on volume of 13% over the ADV. For the technical traders, that's a positive sign and is further bolstered by the long tail on today's candlestick formation. It looks like even conservative traders would have found an entry late in today's trading as GLW passed back over previous support of $187. Adding to the technical security was a series of higher lows on the way back up. While we think it safe to get back in the water, you might get a better entry by target shooting $187, or $185, depending on your tolerance for risk. GLW is also a split candidate and now has an agenda item for shareholders to authorize more shares at the next shareholder meeting on April 27 in order to make it happen. Earnings are scheduled for April 17, which would make a great time to make the split announcement. SEBL $138.69 (+0.31) That was a squeeker. If you closed your eyes, it looks like nothing happened over the last two days. However, that was not the case. While we thought $130 would hold as support in all but the worst case scenario, SEBL slipped briefly to $125 (the center of the ascending channel) after finding what seemed like new support on the top line outside the channel at $138. Despite a good effort to stair step its way back over that level, intraday stutter stepping with a positive bias took over after today's open. The two technical bright spots today though were the long tail on the candlestick formation, indicating investors interest in pushing the price back up from the lowest levels of the day, and the close once again above the top line of the channel, now at $139. That last one is a double-edged sword though. Without volume, which would indicate investors' conviction about the upward price direction, SEBL may be susceptible to another pullback. If it comes true, look for a bounce at support at $139, $136, or $130. The worst case would be at the 10-dma, now at $124.54. The sentiment from Prudential's upgrade last week is still intact. Target shoot to your own level of comfort. SEBL is also a split candidate at these levels although shareholders will need to vote an increase in authorized shares in order to effect anything greater than a 3:2 split. VERT $220.00 +2.00 (-5.75) While we might loudly complain that volume fell off a cliff and the price didn't move relative the rest of the tech issues in the last two trading days, that could actually be a blessing. The low volume of roughly half the ADV of 1.4 mln shares says that traders are not interested in dumping VERT shares either and we may have found a higher low following the solid bounce off previous long-term support of $200. It now appears support is holding well at $215-$216. Use that as your target for what will likely be the best entry. If you'd rather see a breakout before taking a position, then $225 backed up with an increase in volume is your number. Still helping to drive this play going forward will be the 2:1 split, which will take effect after the close on March 31. You still have plenty of time for a good entry, so wait for VERT to come to you. With the rest of the market moving forward though, the probability of VERT remaining at these levels for long diminishes. Earnings are not a factor again until May. ******************* PLAY UPDATES - PUTS ******************* RHAT $60.69 -2.88 (-7.69) RHAT seems to be getting pretty comfortable on our play list. RHAT has continued to decline for the past two sessions and has posted strong volume on the way down. Not even another record breaking day for the NASDAQ could offer RHAT shareholders any relief. RHAT is currently trading at a level of pre-established support though it does not appear to be very solid. Should RHAT trade through $60, it may be cleared for a healthy fall back to the next level of solid support, which looks to be in the neighborhood of $47. Should RHAT make a move up, it may end up hitting its head at $70, a level that has not only provided resistance in the past, but is now backed by RHAT's 10-dma. If RHAT makes a move up, watch for resistance to hold it back, a reclamation of negative momentum and take advantage for new possible entry points. Otherwise, we recommend waiting for RHAT to trade through $60. As always, remember to adjust your stop loss orders as RHAT continues to decline to lock in your profits. KMG $44.75 +2.38 (+4.00) The bottom line on this put play is the fact that KMG closed 10 cents under it's 10-dma. This may not seem so significant at first glance, but drilling a little deeper (pardon the pun), we believe that there is more downside to come for KMG. If you remember, KMG rallied briefly mid-month and made it all the way up to, you guessed it, it's 10-dma. That level held KMG back and we have benefited from a 10-point loss since. Though KMG finally decided that it wanted to rally along with the other oil service stocks, in comparison, KMG's rally was weak. We have continually pointed out the weak relative strength against it's peers, such as SLB, which traded up to a new 52-week high today. We will let KMG have its day in the sun, but until we see a breakthrough of the 10-dma, KMG is staying put (again, pardon the pun). JNJ $72.00 -0.75 (+0.81) What's in our favor for keeping JNJ on the put list. Well for starters the DOW is trying to make some ground, yet JNJ can't penetrate $73.44 with volume levels almost double the ADV. Even today CSFB came out with a new Strong Buy recommendation for JNJ and zippo, no breakout. However we're still faced with bottom opposition fractionally near the $70 level. Monday's daily low of $70.06 is the new 52-week record! Again, better confirmation that the downtrend will continues if for JNJ to slide under this mark. If you want in now, then shoot for downward bounces off the 5-dma (currently at $72.85). ************** NEW CALL PLAYS ************** JDSU - JDS Uniphase $263.63 +10.63 (+6.81 this week) Here's another company laying around on paradigm beach ready to surf the next wave. JDS Uniphase Corporation is a fully integrated optical electronics company that designs, develops, manufactures and markets fiber optic telecommunications components and modules and laser subsystems. The Company's telecommunications products include semiconductor lasers, high- speed external modulators, transmitters, fiber Bragg gratings and optical modules for fiber optic networks in the telecom and cable television industries. Based in the Silicon Valley, California, they employ approximately 6260 people worldwide. Customers include Lucent, Nortel, Cisco and Ciena. Pure and simple, we're adding this old favorite back tonight for no other reason than a split run. Yep, within a week after its last 2:1 split on December 31, JDSU announced another 2:1 payable on March 10, assuming shareholders approved an increase in the authorized shares from 600 mln to 3 bln shares. That approval came last Friday. Technically, JDSU pulled out of its slump a week and a half ago when it was trading around $210. It's been on the rise ever since with a noticeable increase in volume. The volume has been constant at 20% over the ADV of 7.6 mln shares for the past three trading days. If volume keeps up, we'd expect the run to continue. Near-term support is found at $245, $253, $258, and intraday at $260. Prior to today, resistance was at $260, but by the close, JDSU had broken through to close at a new high of $263 - another short-term ascending pennant with subsequent breakout. Even better, it was up another $3 in after hours trading. Assuming the market cooperates tomorrow after what we hope/think will be a benign NAPM report, JDSU should continue on its journey into the split. Target shoot to your level of comfort after amateur hour. JDSU continues to solidify its position as lead dog in the optical revolution. As we've noted before, JDSU is to photons what Intel is to electrons. JDSU is also another Gilder favorite. Want a sympathy play? Look no further than ETEK, which JDSU announced last month that it would purchase. The OCLI merger was completed on February 5th. BUY CALL MAR-250 UCQ-CJ OI=8998 at $26.00 SL=20.00 BUY CALL MAR-260 UCQ-CL OI=5534 at $20.38 SL=16.00 BUY CALL MAR-270*UCQ-CN OI=5296 at $15.63 SL=12.25 BUY CALL APR-260 UCQ-DL OI= 668 at $35.88 SL=28.00 BUY CALL APR-270 UCQ-DN OI= 245 at $31.25 SL=24.50 Picked on Feb 29th at $263.88 P/E = N/A Change since picked +0.00 52-week high=$264.94 Analysts Ratings 20-11-1-0-0 52-week low =$ 21.38 Last earnings 01/00 est= 0.16 actual= 0.18 Next earnings 04-26 est= 0.20 versus= 0.09 Average Daily Volume = 7.6 mln /charts/charts.asp?symbol=JDSU **** HGSI - Human Genome Sciences $218.25 +13.44 (+12.25 this week) Human Genome Sciences develops drugs and diagnostic products based on human genes. Although the company has no marketable products, firms pay HGSI to develop products for cancer, heart disease, arthritis, and Lou Gerhig's disease. HGSI is involved with SmithKline Beecham, Merck, and The Institute of Genomic Research. HGSI also researches non-human genes, including those of bacteria, fungi and viruses. These could eventually prove useful in creating vaccines and antibiotics. HGSI competes with Genzyme, Incyte Pharmaceuticals and Scios. Welcome back old friend! Since we last spent time with HGSI, there has been more excitement surrounding the genomics company. We previously had HGSI on our list of favorites for a 2-for-1 stock split at the end of January. Since then the company has reported earnings and issued patent on a human gene that produces what is believed to be a critical entry point for the AIDS virus. Not a bad month, actually HGSI has already surpassed its pre-split levels and gone on to new highs. Their earnings weren't so hot, but right now investors don't seem to care. Most are betting on the long-term prospects for company's in genomics industry. We've included HGSI on our play list again as the company is displaying the momentum necessary to move past the high set earlier this month at $231. HGSI and many of the stocks in the Biotech sector made new highs in the middle of the month, and spent a few days consolidating. HGSI added 6.0% today on solid volume. The company received an honorable mention as a favorite of Tom Bepler. Bepler is the fund manager for the Orbitex Health & Biotech fund. By the way the Orbitex fund is the third-best performing mutual fund this year, with an 80% return through Feb 23rd. Bepler said his top holdings in the genomics include HGSI, among others. HGSI appears to be ready to explode. Due to the volatility this may not be a play for everyone, but for those with the proper sized account, it could be a honey. HGSI has support at $210 and $200, although given given the strength of recent moves we may not see those areas again soon. On Friday a company named Vical, announced it would exchange its DNA delivery technology for certain access to HGSI. Vical has developed a technology to inject so-called naked DNA, genes that enter the body without first being bundled with a virus. The move is a beginning of a trend of partnerships between companies who decipher genetic information and companies that develop technology to introduce therapies into the body. BUY CALL MAR-210 HBW-CB OI=324 at $27.88 SL=21.50 BUY CALL MAR 220*HWB-CD OI=948 at $22.75 SL=17.75 BUY CALL MAR-230 HBW-CF OI=524 at $18.25 SL=14.00 BUY CALL APR-220 HBW-DD OI=104 at $41.38 SL=32.00 SELL PUT MAR-200 HBW-OT OI=131 at $13.50 SL=17.00 (See risks of selling puts in play legend) Picked on Feb 29th at $218.25 PE = N/A Change since picked +0.00 52 week high=$231.00 Analysts Ratings 1-4-2-0-0 52 week low =$ 14.63 Last earnings 02/00 est=-0.36 actual=-0.39 Next earnings 05-11 est=-0.35 versus=-0.27 Average daily volume = 1.21 mln /charts/charts.asp?symbol=HGSI **** ADIC - Advanced Digital Info $90.63 +4.63 (+6.56 this week) A leading supplier of automated tape libraries, ADIC buys tape drives from other manufacturers and outfits them with robotic arms. The arm then selects a tape from a multi-tape unit, ranging in size from desktop-size to large standalone units, and adds or accesses data. With over 55,000 libraries installed and a suite of innovative software solutions and Storage Area Networking (SAN) products, ADIC is a leader in the rapidly growing market to manage and protect computer network information. You don't often see a chart with such a consistent stair-step pattern of higher-highs and higher-lows. This pattern has been in place since before the company split its shares 2-for-1 last August. Without so much as a post-split depression, the stock resumed its pattern, which has continued right up to today. Using its 5-dma (now at $$82.38) as support over the last month, ADIC technically looks very strong. But that's just the beginning; the company announced strong earnings on February 16th with 30% sales growth and 80% earnings growth year-over- year. Just in case that wasn't enough to get investors excited, the company threw in a 2:1 split, and its execution date of March 13th, is rapidly approaching. Not one to be content sitting on its laurels, the company has been very busy. In early February, ADIC announced that it had added new Fibre Channel routers to its suite of Open SAN Backup Solution products, making that package the first in the industry to build in support for direct disk-to-tape, serverless backup within SANs. Closing above the $90 resistance level today puts ADIC back in blue-sky territory, with numerous levels of support below. Mild support is found at $84 and $78.50, with strong support at $73. The catch is, ADIC doesn't often drop back to test major support. You may get lucky and get an entry if ADIC bounces off of one of its minor support levels, but given the proximity of the split, don't wait too long. If investor enthusiasm remains unchecked, jump on board near today's close if the $90 level holds as support. Volume over the past several weeks has been at or above its daily average and will have to remain so if ADIC is going to push higher. The most recent news on ADIC is from last Wednesday, but highlights the growth the company is seeing. In an attempt to widen the options for IT departments responsible for storing, managing, and analyzing large data sets, Fujitsu Computer Products and ADIC announced integration of the new Fujitsu M8100 tape drive into ADIC's Automated Mixed-Media Libraries (AMLs). The new Fujitsu drive provides for a fast data transfer rate of 13.5 MB/second, and its inclusion in ADIC's suite of products will help the company continue to address the rapidly growing demands of the data storage industry. BUY CALL MAR-85 QXG-CQ OI=14 at $ 9.25 SL= 7.00 BUY CALL MAR-90*QXG-CR OI=44 at $ 6.50 SL= 4.75 BUY CALL APR-85 QXG-DQ OI=20 at $14.88 SL=11.75 BUY CALL APR-90 QXG-DR OI= 2 at $12.50 SL=10.00 SELL PUT MAR-85 QXG-OQ OI= 0 at $ 5.63 SL= 7.25 New Strike (See risks of selling puts in play legend) Picked on Feb 29th at $90.63 P/E = 102 Change since picked +0.00 52-week high=$92.13 Analysts Ratings 3-3-0-0-0 52-week low =$ 7.19 Last earnings 02/00 est= 0.23 actual= 0.27 Next earnings 05-17 est= 0.25 versus= 0.17 Average Daily Volume = 490 K /charts/charts.asp?symbol=ADIC **** DNA - Genetech Inc $192.88 +11.38 (+17.88 for the week) Genentech is one of the largest biotechnology companies in the world. The company's research has led to twelve biotechnology- based products on the market today. Genentech is the only biotechnology company to have taken seven of its own products from the laboratory to the marketplace, with several other products stemming from Genentech research licensed to other companies. Today Genentech markets seven biotechnology-based products and has a product pipeline of more than a dozen potential products. Activase, Protropin and Nutropin, Herceptin, Pulmozyme, and Rituxin and two other drugs make up 66% of their revenues. Everyone knows Biotech is a hot sector, but the more discriminating investors are favoring companies like Genetech, CuraGen (CRGN), and Gene Logic (GLGC) who spend time and money researching genomics, gene therapy and genetic decoding. Just last week, many of these biotech companies discussed cutting- edge genetic treatments at a growth stock conference. It appears this conference was the trigger event for the momentum players to jump aboard DNA. Since Wednesday the stock has been on the move. By Friday it closed above the previous resistance of $173.50, but we wanted to see the stock break $180 before adding it as a momentum play. Although momentum isn't the only element in this play's favor. DNA is a definite split- candidate. It's been trading way above historical split-levels of $130 for well over a month now. DNA last split 2:1 in November 1999. Notably the split was announced along with its earnings. Genentech is scheduled to report its next earnings around April 12th, before the bell. It'd be nice to see momentum carry DNA into an earnings and potential split run. Currently the company has 400 mln shares issued and 257 mln outstanding; thus, without shareholder's approval there's only enough shares for a 3:2 stock split. But for now let's focus on the current trend. We're faced with huge gains in a short time period so we've got to be careful on the entry. The nearest support level is at $180 in-line with the 5-dma ($178.33) and then much firmer at the 10-dma ($170.07) although a return to this technical would likely kill the play. In the case of no pullback AND it looks like DNA will power higher very quickly, then you could be extremely aggressive and use today's intraday support at $187 and $190 for an entry. Be careful, very careful. Earlier on February 8th, Goldman Sachs reiterated a Market Outperform rating for DNA. BUY CALL MAR-180 DWN-CP OI=132 at $18.75 SL=14.75 BUY CALL MAR-185 DWN-CQ OI= 0 at $15.75 SL=12.25 New Strike BUY CALL MAR-190 DWN-CR OI= 0 at $13.00 SL=10.50 Today's vol=63 BUY CALL APR-180*DWN-DP OI= 40 at $26.63 SL=20.75 BUY CALL APR-185 DWN-DQ OI= 0 at $23.88 SL=18.63 New Strike BUY CALL APR-190 DWN-DR OI= 0 at $21.50 SL=16.75 New Strike Picked on Feb 29th at $192.88 P/E = N/A Change since picked +0.00 52-week high=$194.50 Analysts Ratings 3-5-5-0-0 52-week low =$ 58.25 Last earnings 12/99 est= 0.18 actual= 0.18 Next earnings 04-12 est= 0.25 versus= 0.22 Average Daily Volume = 794 K /charts/charts.asp?symbol=DNA ************* NEW PUT PLAYS ************* RNWK - RealNetworks $70.31 -2.69 (-8.06 this week) RealNetworks is the pioneer and established market leader in streaming media technology on the Internet. RealNetworks is helping transform the Internet into the next mass medium by making real-time, or streaming, Internet broadcasting possible and profitable. Based in Seattle, RealNetworks develops and markets software products and services designed to enable users of personal computers and other digital devices to send and receive real-time media using today's infrastructure. Perhaps RealNetworks has the music turned up a little too loud and did not notice the rest of the NASDAQ moving up for yet another record breaking close. RNWK headed up to tag a new 52-week high on February 11th, which was the Friday before it's 2:1 stock split. Since the split, it looks as though RNWK fallen victim to a post-split depression as just over two weeks later, RNWK is trading nearly $30 lower. So just how long will RNWK be singing the post-split blues? Though RNWK has found some support at the $70 level, we see the more solid support level coming in to play closer to the $60 level. Being that RNWK has continued to post strong volume on it's way down (today's volume was particularly impressive, coming in at twice the ADV), we believe the negative momentum could very continue to carry RNWK lower. RNWK looks to have resistance overhead at $76. RNWK's 10 and 30-dma's have worked to converge at $82, which could provide additional resistance if needed. We recommend waiting for RNWK to trade through $70 before entering any new positions. Keep an eye on the volume level, as volume can be a very valuable tool in identifying the strength behind a move. RNWK tends to open near its high for the day, so once the direction looks to be confirmed for the day, time new entries toward the earlier part of the session. It is important to use your stops on this one as RNWK has a history of being a big mover. Try and take advantage of the wide intraday trading ranges that RNWK tends to offer. BUY PUT MAR-75 RNO-OO OI=659 at $8.75 SL=6.50 BUY PUT MAR-70*RNO-ON OI=474 at $5.75 SL=4.00 Average Daily Volume = 1.89 mln /charts/charts.asp?symbol=RNWK ********************** PLAY OF THE DAY - CALL ********************** CHKP - Check Point Software $203.94 +2.44 (-1.69 this week) Check Point Software has laid claim on being the best in the business at securing the Internet. Their Secure Virtual Network (SVN) architecture provides the infrastructure that enables secure and reliable Internet communications. It's FireWall-1 verifies remote users, controls access and blocks viruses and other unwanted Web content, while VPN-1 will allow companies to set up virtual private networks for secure internal and remote communications. CheckPoint markets its products through manufacturers and resellers including Sun Microsystems. Sunday's Write Up The recent rash of cyber attacks may have put one of our newest additions to our play list in the limelight. Actually there are several reasons we find CHKP so attractive at this time. Friday, Mark Anderson, Vice President at Renaissance Investment Management spoke very highly of CHKP in an interview, reviewing his investment strategies. He mentioned that CHKP was their top performing position in 1999, having gained over 333%, saying they still have CHKP rated a Buy. Investors are focused on evaluating and trying to differentiate which business models will succeed and CHKP certainly comes in near the top of the list. Other news that moved CHKP to front of the class came this week when, CHKP announced it had joined an alliance with several other company's to help protect websites and corporate networks from cyber attacks. CHKP's Cyber Attack Defense System, coupled with other partners solutions will lead the way against preventing more attacks. With the broader markets in a destructive mode, traders seemed to be looking for anything positive to move into, and CHKP was not only a safe place to be Friday, but a very profitable place as well. CHKP broke through the $200 level that had been a holding the stock back for the past four sessions. The momentum behind the move was strong with 1.68 million shares traded, over twice the ADV. With that kind of support behind a move we would look for the momentum to continue. CHKP now has strong support at $200, with minor support sitting at $195. Any pullback to $200 would be considered a good point to target shoot entry into a new position. Otherwise, jump on if the momentum suits you. CheckPoint announced Wednesday that is working with Intel to scale it Secure Virtual Network(SVN) architecture to a full 64-bit implementation that supports the Intel Itanium processor. Computers using the powerful Itanium process will now take full advantage of CHKP's solutions for comprehensive Internet security. Tuesday's Write Up Our play in CHKP has started out the way we'd like to see a new play begin. For those with the foresight to jump in when CHKP fell out of bed Monday and hit the support level at $190, you certainly must be pleased. CHKP regained its composure after the initial sell-off ending the day down just -$4.13. Today CHKP did find a few buyers lurking in the wings, but not in the numbers we'd like to see. Volume was a bit light today, but CHKP did pick up $2.44. We are making it the Play of the Day for tomorrow based on what looks like a breakout beginning. It really started to tick up right before the close and may be worth a look for entry points. A move over $208 on strong volume would be the green light. CHKP did announce a new alliance Monday with CoreHarbor. The joint effort will integrate CHKP's Secure Virtual Network Architecture into its hosted e- procurement solution ProcureEdge. Technically, CHKP has support still at $200 and $190. Be sure to confirm the volume prior to entering any new play. BUY CALL MAR-200*YKE-CT OI=590 at $18.88 SL=14.75 BUY CALL MAR-210 YKE-CB OI=843 at $13.38 SL=10.75 BUY CALL MAR-220 YKE-CU OI=253 at $ 9.25 SL= 7.00 BUY CALL APR-200 YKE-DT OI=226 at $30.38 SL=23.75 SELL PUT MAR-180 YKE-OP OI=181 at $ 5.38 SL= 7.00 (See risks of selling puts in play legend) Picked on Feb 27th at $205.63 P/E = 173 Change since picked -1.69 52-week high=$208.50 Analysts Ratings 8-6-2-0-0 52-week low =$ 11.50 Last earnings 01/00 est=0.32 actual=0.35 Next earnings 04-18 est=0.35 versus=0.25 Average Daily Volume = 814 K /charts/charts.asp?symbol=CHKP ************************ COMBOS/SPREADS/STRADDLES ************************ Greetings from Moscow! The people here are friendly and the weather is much the same as my home state of Alaska. With the recent volatility and indecision in the market, we have a great opportunity to take a break from trading and discuss some of the strategies that work best in uncertain times. The options market offers a number of tools and techniques that can help the astute trader construct a powerful portfolio; one which possesses a high degree of safety with consistent returns. Through the use of combinations, the trader has a vehicle to pursue a wide variety of strategies. The complete option player can profit with bullish and bearish plays in situations that dictate either aggressive or conservative positions. With an understanding of the risk/reward relationships between long and short options at different prices in varying time periods, he can benefit from the most advanced techniques available in the market. The majority of traders utilize spreads to reduce the cost and the risk of option ownership. They construct combination plays with partially offsetting option positions to reduce the potential for capital loss. Spreads can be designed to generate return diagrams of almost any character but unfortunately, the fundamental benefit of this type of trading is also its downfall; the potential gains are limited. The most popular types of combination positions are: Price spreads - the purchase of an option at one strike price and the sale of another option with a different strike price. The potential profit in this strategy is based on the correct forecast of the direction of the market. Time (calendar) spreads - the purchase of an option with one expiration month and the sale of another option with a different expiration month. This type of spread benefits from the faster decay in the time value of the short-term. The diagonal spread is a combination of price and time (calendar) spreads. The most common version of this strategy requires the purchase of a long-term call and the sale of a short-term call at a higher strike price. In most cases, the initial debit of the position should be less than the spread between the two options, eliminating the possibility of loss in an upside break-out. The primary advantage of this strategy is the cost basis of the long position is reduced by the sale of the short-term option. The spread achieves maximum profit (at expiration) if the stock price remains above the sold option's strike price. The position can also profit (before expiration) if the underlying issue advances significantly after the play is opened. In most cases, a diagonal position is an improvement over the standard price spread. If the stock price remains relatively unchanged or falls slightly, the long option will retain more value because of its extended maturity. If the near-term (sold) call expires, the position can be reestablished with the sale of a new call. If the long option is current month, the position can be converted to a normal price spread. Once again, if the underlying issue rises above the sold strike price, the spread will be profitable. With longer-term options, the character of the spread can be adjusted to match the outlook of the underlying issue. A neutral or bearish position can be established with the sale of an ATM option or the original spread can be duplicated (at a lower cost basis) with the sale of a new OTM option. In either scenario, the long-term diagonal spread benefits from the sale of additional options throughout the life of the (long) position. The majority of advantages in a diagonal spread are obvious but there is one characteristic that most traders overlook. In a debit spread, if the stock advances substantially and the options trade at parity, the maximum potential profit will be limited to the difference between the strike prices. With a diagonal spread, the long option has more time premium. Thus, when the underlying issue trades near the strike price at expiration, the value of the position will grow beyond the theoretical profit range. With that in mind, it's easy to see why the maximum potential for profit (at expiration) occurs at the strike price of the sold option. Another method that is commonly used to increase the probability of profit in this strategy requires an understanding of relative value and implied volatility in option pricing. When opening or adjusting any type of spread, it's important to take advantage of the highest relative premium to create the best possible position. The exploitation of option pricing disparities is also paramount. In the majority of OIN positions, we try to open new spreads only when there is a disparity in pricing (most likely excess value in the sold option). This technique allows us to enter plays with a theoretical edge, at a discount. For the investor who is not familiar with spread trading, this strategy offers an excellent opportunity to learn the basics in a low risk environment. The concept of the diagonal spread is easy to understand and once established, the position can be managed with little difficulty. The occasional adjustments also provide the necessary background for more advanced techniques. Those who enjoy aggressive directional trading can construct positions to fit their style as well. Although the potential for upside profit is reduced, the limited downside exposure provides a favorable risk/reward ratio for the majority of investors. Good Luck! **************************Advertisement************************* Have you got an idea for a financial website? Need help getting started? Technical support? Funding? We will help you turn your idea into a reality. Don't sit on your idea until somebody beats you to the punch. Do you have a website now that is not succeeding like you think it can? Let us help you achieve faster results with our proven techniques. Sunset Investment Group has the knowledge and the financial capabilities to turn your ideas into reality. Contact us for a confidential interview. Email contact information to Contact Support **************************************************************** ************ See Disclaimer in section one ************
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