The Option Investor Newsletter Thursday 3-2-2000 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) ************************************************************ 3-02-2000 High Low Volume Advance Decline DOW 10164.90 + 27.00 10212.40 10103.50 1,191,065k 1,276 1,668 Nasdaq 4754.51 - 29.57 4829.01 4705.45 2,136,911k 2,046 2,235 S&P-100 750.26 + 6.72 753.00 742.23 Totals 3,322 3,903 S&P-500 1381.76 + 2.57 1386.56 1370.35 46.0% 54.0% $RUT 584.04 - 4.31 591.41 579.80 $TRAN 2353.93 - 43.84 2401.62 2342.14 VIX 23.90 + 0.22 25.04 23.20 Put/Call Ratio .41 ************************************************************* It was not pretty but the Dow makes it four in a row! It was an ugly day in the markets but we finally broke the cycle of Wednesday to Friday free fall. After opening slightly positive the Dow traded on both sides of the ledger all day and barely squeaked out a win at the close. But a win is still a win especially when the February employment report is due out Friday morning. I am still encouraged by the lack of another sell off. You can tell by the volume this week that a fierce battle is being waged between the bulls and the bears. There are plenty of sellers but there are also plenty of buyers with deep pockets for bargain hunting the NYSE stocks which are now shouting value louder every day. The NASDAQ ended yesterday up +17.5% for the year and in striking distance of Nasdaq-5000. (N5K for future reference) After setting a new intraday high of 4829 today, many traders decided to take profits from the +350 point gain since Monday's low. Simple profit taking in front of the Employment Report. No, the world is not coming to an end, the Nasdaq is not correcting and the 3Com PALM IPO did not tank the market contrary to many analysts views. Talk is cheap but oil is not. With commentators warning of an impending recession brought on by high oil prices and higher interest rates, the oil experts, and I use the term loosely, were "warning" OPEC that they need to increase output soon. I am sorry boys and girls but this mornings oil price of $32 is not going to bring on a recession, even with higher interest rates. "Warning" OPEC is not going to accomplish anything. The market rules and will create supply to fill the void. At $33 oil it becomes economical for many electric generation plants to use more coal. At $33 oil the production cheaters will pump even more to capture the profits before the big guys open the valves again. Don't look now but OPEC is starting to leak. The hard line production cuts are starting to bend under the pressure of the cash register not the political process. While high oil prices is killing the airlines and trucking industry it is only a cyclical thing and these industries consider it a routine annoyance and hedge their future needs whenever possible. The PALM that would be king of the Internet made a successful debut with their IPO today. With dealers quoting $70-$160 in premarket indications the PALM IPO was the talk of the market. For a stock that was only $20 last April 3Com has made quite a comeback. With an intraday high yesterday of $120 3Com had quadrupled its market cap while losing market share in their networking business. After the IPO today where 3Com sold off 4% of the PALM business the market cap of both companies is now more than 900% what it was a year ago. Based on today's price PALM by itself is bigger than Apple Computer which has been around forever and even bigger than its parent 3Com. While I agree that the Palm pilot is pretty neat and the new color models even neater, are we not getting a little out of hand here? If there was ever a speculative bubble this was it. I had been wishing for a week that I could short PALM this morning but I had to sit on the sidelines and watch that $160 spike in the opening minutes bleed away to close at ONLY $94 for a -40% drop for those lucky (or stupid) enough to buy at the open. The loss was not limited to only a few "lucky" traders with over 38 million shares trading. Since there were only 23 million shares, or 4%, released to the public there was a lot of happy/sad trading going on. Picture the expression on the face of the happy trader as he gets a confirmation of his "market" purchase of PALM at $150, 140, 130, whatever, and only then to find out that it was already -$10, $20, $30 cheaper than he paid and dropping so fast you could not place an order to sell. I am sure there were many converts to the "I am not playing IPOs in the open market" church of destitution today and many speculators are licking their wounds tonight. The economic numbers today were a mixed bag and only set the stage for the Employment report on Friday. The New Home Sales came in with a drop of -4% which was great except that December was revised up +4.2% to make the whole thing a push. The numbers were skewed by weather and other seasonal factors. This is where I am pinning my hopes for tomorrow. The January Employment Numbers were much higher than expected and I think the weather skewed those numbers also. I would not be surprised if the employment numbers Friday come in much lower than expected to offset the very high January figures. If they do we could be off to the races again. The Fed meeting is still over two weeks away and some analysts are claiming that the soft market and easing economic numbers could actually hold the Fed back from raising in March. Don't hold your breath. Since everyone has expected the Fed to raise for sometime a non-raise event in March would be like yelling fire in a crowded theater. They will raise because they can without any market impact. It is already expected and priced in to the market. Friday's direction should be determined before the market opens by the Employment report. Anything but a larger than expected jobs number or lower than expected unemployment number should be the green light to start the March run into April earnings. The Dow is showing strength and the NASDAQ got its profit taking done on Thursday. With four of the last five Fridays producing a -200 point Dow day any positive close would be welcome. Trade smart and sell too soon. Jim Brown Editor Disclosure notice: Current long positions include; CMGI, EMLX, JDSU, GLW, HGSI ********** STOCK NEWS ********** The AMEX Finds Its Niche By S.P. Brown Not so long ago the American Stock Exchange (AMEX) seemed destined for the trash heap. The exchange used to be the place where young small-cap stocks matured before heading off to the NYSE. In fact, when investors thought of the two major stock exchanges, they used to think of the NYSE and the AMEX. That all changed with the advent of the Nasdaq stock exchange in the early 1970s. The Nasdaq became the place young companies went to mature. What's more, many stocks that grow up on the Nasdaq are content to stay there. Now, when investors think of the two major stock exchanges, they think of the NYSE and the Nasdaq. Since small-cap stocks went to the Nasdaq and large-cap stocks went to the NYSE, the AMEX could no longer compete as a pure equity trading market, continuing to do so would have been analogous to a local five & dime attempting to butt heads with Wal-Mart and K-Mart. So the AMEX decided to do a makeover. In addition to being a market for a few forgettable common stocks, the exchange became the principal market for index equity trading instruments. These instruments, or index shares as they are more commonly called, track most major domestic market sectors, as well as most foreign equity markets. Equity index shares come in over 50 flavors, allowing investors to trade a selected market with a single investment that is as easy to trade as a share of stock. But unlike mutual fund index shares, investors can buy or sell these index shares at any time during the trading day. What's more, investors can turn in their index shares for the underlying securities. This little feature virtually guarantees a premium or discount won't develop like it often does with closed-end mutual funds. Here's the real nifty feature, though, these index shares can be shorted without waiting for an uptick in price. Last week the AMEX introduced three new index shares that should be of particular interest to Internet investors. Let's face it, it can be a challenge to construct a diversified Internet portfolio when many of the Internet companies are trading at triple-digit levels. The AMEX has addressed this dilemma with securities known as HOLDRs, which are receipts for an interest in an Internet trust. Each HOLDR contains 20 different Internet companies. The three HOLDRs track Internet architecture (IAH), infrastructure (III) and B2B e-commerce (BHH). Internet architecture contains the likes of Sun Microsystems (SUNW), Cisco Systems (CSCO), Foundry Networks (FDRY) and Sycamore Networks (SCMR). Internet Infrastructure gives investors access to Inktomi (INKT), Broadvision, Inc. (BVSN), Vignette Corporation (VIGN), BEA Systems, Inc. (BEAS) and Exodus Communications (EXDS). And the B2B index shares gives investors exposure to high- flyers Commerce One (CMRC), Ariba (ARBA), Chemdex Corporation (CMDX) and Internet Capital Group, Inc. (ICGE). In addition to Internet index and market specific index shares, the AMEX also offers index shares that mimic the Dow Jones Industrial Average, the S&P 500, the S&P Mid-Cap 400 and the Nasdaq 100. Investors who wish to instantly construct a diversified portfolio, or cost effectively trade one market against another, would be well-served to take a closer look at the AMEX index offerings. ************** Market Posture ************** As of Market Close - Thursday, March 2, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,700 11,250 10,165 BEARISH 2.17 SPX S&P 500 1,400 1,450 1,382 BEARISH 2.18 OEX S&P 100 740 780 750 Neutral 3.02 * RUT Russell 2000 500 520 584 BULLISH 2.24 NDX NASD 100 3,800 4,000 4,234 BULLISH 2.24 MSH High Tech 1,850 2,000 2,070 BULLISH 2.24 XCI Hardware 1,300 1,460 1,532 BULLISH 2.24 CWX Software 1,200 1,470 1,470 BULLISH 2.24 SOX Semiconductor 800 900 1,136 BULLISH 2.24 NWX Networking 940 1,000 1,130 BULLISH 2.24 INX Internet 700 800 737 Neutral 1.06 BIX Banking 500 550 483 BEARISH 11.30 XBD Brokerage 400 450 472 BULLISH 2.31 IUX Insurance 500 550 472 BEARISH 11.30 RLX Retail 950 1,000 825 BEARISH 1.28 DRG Drug 340 380 319 BEARISH 2.18 HCX Healthcare 700 750 659 BEARISH 2.18 XAL Airline 120 140 115 BEARISH 5.21 OIX Oil & Gas 280 315 258 BEARISH 1.27 ***Posture Alert*** It was another big volume day for the NASDAQ, as 2-billion share days are becoming the norm. 3Com and its spin-off, Palm, led the action today, however, the broad market closed relatively unchanged. Individual sectors did see action however most were to the downside. Sectors making a move Thursday include Software (-4.10%), Semiconductors (-3.09%), Insurance (-2.50%), and Networking (-2.45%). With this most recent market action, we have upgraded the S&P 100 to Neutral from Bearish! **************** Market Sentiment **************** Palm This! Thursday, March 2, 2000 Strike up another 2-billion share day for the NASDAQ, as volume continues to show no signs of letting up. This influx of cash continues to pour in as well, as evidenced by the big surge in today's hot IPO, Palm. Palm, which was partially spun off by parent 3Com (COMS), also happens to be our topic du jour today, as sentiment for this issue was building up all month last month. Gauging investor sentiment can be a very rewarding and profitable endeavor. Here at Pinnacle Capital, we are always evaluating sentiment in hopes of finding the next rising star or falling angel. Today, we made some extremely profitable trades in 3Com, which we can thank due to our sentiment analysis! The sentiment for 3Com and its Palm spin-off was building all during the month of February. For those of you who don't know, 3Com was spun off 4% of Palm in an IPO, with the rest of the equity in Palm being rewarded to shareholders of 3Com stock 6 months down the road. So for the last month, 3Com stock has been trading up in anticipation of the Palm spin-off. As you can see from the graph below, the stock has more than doubled during the last 4 weeks alone. Having a gain of over 100% should be satisfying for most, especially given the short time frame. However, when we arrived at the office this morning, we kept hearing about the Palm spin-off on every medium available. Every on-line financial site was talking about it, CNBC hyped the event for weeks (not to mention all day), and even local radio stations were talking about the Palm. Everywhere we turned, we were getting Palmed! You couldn't pay enough money for the free publicity that this stock received! So we decided that the old adage of buy-the-rumor, sell-the-news might come into play on 3Com's stock. So, already knowing that this spin-off has gotten millions in free press, as well as 3Com stock appreciating over 100% in a few weeks, we decided to look at what the option speculators were leaning to. Below, we have made a chart showing volume for today, as well as previous open interest. As you can see by the chart, call options were trading off the charts! Not only is there two weeks left until March expiration, but call premiums were huge, and call volume/open interest was surpassing put volume/open interest by over 6 to 1! The sentiment was too overwhelmingly bullish, so we decided to sell 3Com stock, off the open. Never looked back. Sentiment analysis can be so rewarding, which is why Pinnacle loves earnings season. So when your favorite company is having a major news event (i.e. earnings, spin-off, buy-out), check the sentiment, it just may help! Open Open Option Volume Interest Symbol Option Volume Interest Symbol MAR-95C 2889 4367 THQ CS MAR-95P 901 1739 THQ OS MAR-100C 12391 14280 THQ CT MAR-100P 3428 1572 THQ OT MAR-105C 4510 6269 THU CA MAR-105P 777 1390 THU OA MAR-110C 8626 9313 THU CB MAR-110P 661 1464 THU OB MAR-115C 10432 10512 THU CC MAR-115P 680 850 THU OC MAR-120C 1559 1283 THU CD MAR-120P 114 20 THU OD MAR-125C 774 342 THU CE MAR-125P 22 0 THU OE MAR-130C 3324 777 THU CF MAR-130P 22 10 THU OF Totals: 44505 47143 = 91648 6605 7045 = 13650 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 (6.144): The current yield is now safely off of 52-week highs and is temporarily out of the danger zone. Mixed Signs: None 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. Volatility Index (23.90): 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 last week, and is now getting close to the selling range! 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 (2/25) (2/29) (3/2) Overhead Resistance (755-800) 3.28 4.68 6.23 Overhead Resistance (730-750) 1.15 1.28 1.05 OEX Close 719.78 738.64 750.26 Underlying Support (700-720) 5.70 4.92 6.09 Underlying Support (650-695) 8.11 10.20 9.80 What the Pinnacle Index is telling us: We stated on Sunday and Tuesday that we would rally on the OEX, and we got just what the doctor ordered. However, we believe that the OEX will start to stall starting at 755, and then stay trading range bound for the near term. Put/Call Ratio Friday Tues Thurs Strike/Contracts (2/25) (2/29) (3/2) CBOE Total P/C Ratio .41 .41 .41 CBOE Equity P/C Ratio .36 .36 .33 OEX P/C Ratio 1.19 .99 1.96 Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (2/25) (2/29) (3/2) Puts 700 / 7,704 700 / 8,177 700 / 9,538 Calls 800 / 7,965 750 / 8,182 750 / 8,248 Put/Call Ratio 0.97 .99 1.16 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 March 2, 2000 23.90 Investors Intelligence Major Percent Percent Date Turning Point Bullish Bearish October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top 58.3 30.0 March 4, 1999 Bottom 49.1 32.5 Oct. 13, 1999 Bottom 39.2 37.5 February 25, 2000 51.8 28.6 March 2, 2000 52.3 28.3 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Wed Thu Week Dow 10164.92 176.53 89.66 9.62 26.99 302.80 Nasdaq 4754.51 -12.65 118.84 87.39 -29.57 164.01 $OEX 750.26 7.97 10.89 4.90 6.72 30.48 $SPX 1381.76 14.69 18.37 12.77 2.57 48.40 $RUT 584.04 0.94 20.03 10.64 -4.31 27.30 $TRAN 2353.93 10.52 27.08 8.91 -43.84 2.67 $VIX 23.90 -1.98 -1.31 -1.91 0.22 -4.98 Calls Mon Tue Wed Thu Week DNA 214.50 7.72 11.38 20.00 1.63 39.50 Charged! INSP 261.06 -7.19 -1.13 21.00 23.06 35.75 Moon boots CLRN 128.00 3.06 7.19 12.75 6.00 29.00 New GLW 205.88 -10.94 8.25 15.00 3.06 18.06 Nice pop JDSU 273.00 3.81 10.63 17.25 -7.88 16.19 2:1 split CHKP 220.50 -4.13 2.44 7.81 8.75 14.88 Breakout EMLX 168.63 -8.38 11.25 15.56 -6.94 11.50 More up LHSP 116.88 -7.72 5.44 14.06 -3.13 8.66 Steps up VERT 234.13 -7.75 2.00 9.63 4.50 8.38 Up nicely HGSI 214.13 -1.19 13.44 7.00 -11.13 8.13 Entry point ENMD 83.13 11.38 11.00 -5.00 -10.38 7.00 Dropped CMGI 124.00 -1.13 13.19 -1.88 -3.69 6.50 Earnings NSM 73.50 5.50 1.63 -1.88 0.25 5.50 Earnings CCBL 44.97 1.00 4.22 1.59 -1.34 5.47 New ATML 47.88 0.44 5.88 1.31 -2.94 4.69 Breather ADIC 88.00 1.94 4.63 6.19 -8.81 3.94 Rewinds AFCI 61.00 10.31 0.38 -3.50 -3.63 3.56 Radar's on ERICY 100.50 0.38 -2.00 2.88 1.63 2.88 Answers COMS 81.81 -1.63 18.94 6.13 -22.31 1.13 Dropped INKT 145.50 -4.13 -3.88 3.94 4.44 0.38 No doubt SEBL 136.56 -3.69 4.00 -3.94 1.81 -1.81 Stuck? QLGC 140.69 -3.63 14.38 -7.25 -8.06 -4.56 Tidy profit NEON 80.13 -2.63 8.69 -1.69 -9.81 -5.44 Dropped Puts RNWK 64.25 -5.38 -2.69 -0.56 -5.50 -14.13 Slides DD 46.88 0.38 -1.38 2.13 -1.50 -4.63 New RHAT 63.78 -4.81 -2.88 -4.94 8.03 -4.59 Dropped PPG 47.13 0.00 0.31 -1.06 -1.19 -1.94 New JNJ 73.69 0.75 -0.75 1.38 0.31 1.69 Linger mode KMG 46.38 1.63 2.38 1.75 0.38 5.63 Still weak ************ WOMANS WORLD ************ There is no Womans World article tonight, Renee is still on vacation. ************** TRADERS CORNER ************** Trader's Euro Dispatches, Part Deux Well, here I am in that little Internet Cafe off of Hyde Park again. The last 5 nights have all been spent in bars, cafes, restaurants. Instead of ticker symbols, I have the names of beverages and other intoxicants running through my head. Guinness. Bordeaux. Beujoulais. A Girl Named Sam. Greek Places in Paris. Plates breaking, flaming skewers... And I am making money. The great thing about being a trader is that you can do it anywhere in the world. It is even better to do it in Europe because the markets open in the afternoon. Quite civil. Think of a nice place on the west coast of Ireland or up in the Swiss Alps, perhaps Grindelwald, or around Interlaken (literally, between the lakes). Put on some JDSU spreads. Hit the slopes, go for a bike ride along the Burren coast. Here's the basic equation that is going to drive my trading program in the future: selling options pays for buying options. There are two important variations: 1. 30 day (or less) credit spreads pay for longer term debit spreads. 2. 10 day short calls pay for LEAPs (Calendar Spreads). Right now, I just want to look at two credit spreads I put on right before I got on the plane for France: sold JDSU Mar 230 Put (currently 5.375) bought JDSU Mar 190 Put (currently .62) That thing is dying a beautiful death. I risked 1 to make 1 -- normally you would want to do better, but I also thought that I had a good chance of capturing the entire credit due to the 3/13 split. It is working out beautifully. Similarly, I put on another credit spread: sold IMNX Mar 185 Put (currently 11.25) bought IMNX MAR 165 Put (currently 4.5) With IMNX holding above 190 nicely, and a 3:1 split coming on Mar20, I am pretty confident that this play will expire worthless as well. Like the JDSU play, this play benefits from time decay, which has the effect of shrinking the spread, and increasing my profit on the play, if I do get out of it earlier than expiry. I want to use these types of credit spreads to "finance" my longer term debit spreads. I have 5 or 6 longer term spreads on, most of which are doing nicely (JDSU, AFFX, CMGI), and one of which I might have to repair or drop (ICGE). The basic idea is that I use the profits generated each month from the credit spreads to plant longer term seeds with the debit spreads. Similarly, I want to sell 10 day calls against my LEAP holdings (SEBL, BRCM, NOK, GE, CSCO, QCOM, IMNX, GSTRF) in order to finance those also. Of course, you have to find good overbought entry points to sell OTM short term calls so that you don't get called out. Anyway, shooting off a quick email is a good way for me to organize my thoughts whilst cruising through my plays on my.yahoo.com and my online brokers. One of my travel companions just came in to check his email via a email pop server set to be accessible worldwide. My other two travel companions are a QCOM engineer and a San Diego attorney I boxed with in college. About time to get on the road to Soho.... When I get back, I am going to put together my outline for my trading program -- stock selection, strategy selection, entry point selection -- currently scribbled onto various back covers of books and the margins of print outs of the newsletter. Good Luck Contact Support *********** Back to Basics in a Big Way By: Harrison Frolick I have been getting several emails on a few issues that I feel need to be addressed. I am not trying to pick on anyone here, it is just that sometimes I know I have a tendency to write for the more somewhat seasoned traders. First off, if you do not know how to chart, you should not be trading options! You will lose your shirt and the one that you have to borrow after yours is gone. I have already lost a whole wardrobe so don't look at me. I suggest using a 3 day moving simple moving average. A freebie charting service is www.bigcharts.com. Although I suggest that you break down and spend $30 bucks a month and get one the premium services that are advertised in the Investors Business Daily. Then go to the book store and buy some books on how to chart. I have seen so many people worry about spending a few bucks a month and yet, they put thousands on the line while trading. Dollar wise and penny foolish. Spend the money on the charting or quote service. Paper trade first. Do it! Especially you newbies or if you have had a losing streak lately. Take a breather and paper trade. Don't give up. Your losses will teach you the greatest lessons. They are part of your tuition payments in the school of option trading. Don't got for the kill on every trade. I have seen this time and time again. People are up a couple of thousand dollars and they refuse to take it off of the table and end up in a losing position instead. Here is the biggy, figure out how much you want to make on a trade before you get into the position and as soon as you get into it, place your exit order. So what if it goes up after you get out? You are making winning trades and that is the first hurdle. Now it is a just a matter of tweaking your exits. When Jim talks about making 100% per year trading options I must tell you something, he is terribly wrong! No I am not calling him a liar. He is just being conservative. That is OK though. He is supposed to be. But, you can do 200%, 300%, or more. Everyone is mistaken when they think that they have to make a home run every time out. If you just pick one trade, lets say 10 contracts at $10 and you wait a whole month and you sell them for $11.50. You just made $1.50 on that option. Do you have any idea what your rate of return will be if you only go after that measly $1.50 in similar trades another 11 more times during the year? Excluding commissions your rate of return will 535% for the year. Think about how many times you have passed up $1.50 on calls that you got into for less than $10. Did you do 535% last year in your portfolio? If you only pull out a $1 on similar trades 12 times a year you will pull in over 300%. So go for a bunch of base hits. Don't go for the home run every time. DSLN is my latest favorite covered call stock that you can pick up 20% or more on doing just good old covered calls. And I think that I am long DSLN as I write this Yes, I still do them for the reasons listed above. Try doing 30% per month and figure your returns. This is why I trade options! And people ask me if you can make any money trading options........ Happy Trading! 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: ***** ENMD $83.13 -10.38 (+7.00) Is anyone else asking what happened? ENMD started looking sick early yesterday, dropping as low as $85.50 before recovering for the balance of the day. Any hope for a continued improvement was quickly dashed as ENMD dropped sharply at the open today, and then moved down for the rest of the day. Volume has been above the ADV and ENMD has lost over $15 in the past 2 days. There has been no news to drive the move. It just appears as though investors are taking their profits and heading for the next hot play. With today's drop, the 5-dma has failed as support for the first time since early February; until ENMD can get healthy, we have to let it go in favor of more robust plays. NEON $80.13 -9.81 (-5.44) That will teach us to open our big mouth! Remember on Tuesday, we asked "Is anyone was ever going to turn out this light?". Well somebody either turned it off, or it burned out. Yesterday's trading seemed to have established support at $90, but it evaporated at the open this morning. Losing almost $10 on above average volume is not the kind of performance we like to see in our Call plays. Adding insult to injury, this was the first day since February 14th that NEON has even been near its 10-dma ($82.25). Slicing through this level mid-day didn't even slow the descent and leaves us with no choice but to drop NEON until its future begins to brighten again. COMS $81.81 -22.31 (+1.13) Well it was fun while it lasted, and profitable too. Traders that were able to take advantage of our play in COMS, and the IPO of its PALM unit this morning, were provided with thrill of victory, and hopefully sold too soon, before COMS fell out of bed. The IPO of PALM certainly live up to all the hype surrounding its first day. After being priced at $30-$32 and getting bumped up yesterday to $38, shares of PALM opened at $145 per share and hit a high of $165 before the selling set in. COMS made a new high Wednesday at $119.75 before falling back to close at $104.13. COMS again gapped up this morning to $117 as PALM hit the market. This play was based on the expected run-up of COMS prior to the IPO. Now that PALM has made its debut, the enthusiasm has waned, and COMS ended the day down -22.31 at $81.81. That is what we expected now that the news is out and investors were ready to sell too soon. PUTS: ***** RHAT $63.78 +8.03 (-4.59) RHAT continued to reward us for our patience until today (as you may remember, we had RHAT on probation last week). However, the time has come when we must at last take RHAT off our put play list. RedHat offered some great opportunities for profit in yesterday's session, dropping nearly $5 for the day. Shares of RHAT shot up this morning and ran into resistance at $65. RHAT then pulled back a bit to test support at $60 before having another go at it. RHAT had strong volume backing today's gain and was able to make a move through it's 5-dma of $62.50. At this point, we don't think that even a probationary period will cut it. There are just too many indications emerging that are pointing in the direction of possible trend reversal. No matter, we are up big and will take our profits and go. ******************** PLAY UPDATES - CALLS ******************** ADIC $88.00 -8.81 (+3.94) Did somebody hit the rewind button? After gapping up yesterday morning, ADIC ran into solid resistance at $100 and has peeled off continuously since then. Closing at the low of the day today, ADIC is right at the $88 support level (near the spike high from last Friday), and just below the 5-dma ($89.13). This has the look of simple profit- taking as the drop has come on declining volume. Trading less than the daily average of 490K shares today, we will need to see a return of buyers to drive shares higher as the 2-for-1 split approaches on March 13th. The company continues to expand its market penetration, announcing yesterday that it is bringing Linux servers into the fold of Storage Area Network (SAN) data sharing applications that it supports. The new support, through ADIC's CentraVision File-sharing System (CVFS), will mean that Linux systems will be able to use SANs to share consolidated storage, increase workflow efficiency, and eliminate both bandwidth bottlenecks and the need for redundant data. Look for shares to move up from current levels on increasing volume before initiating new positions. Should we see more weakness, there is further support at $84, but wait for the bounce and volume increase before pushing the play button. LHSP $116.88 -3.13 (+8.66) Stepping up to the plate at the open yesterday, investors confirmed that the $100 level is solid support, as they shattered the mild $108 resistance level at the open. With the strong move and consolidation through yesterday afternoon and all day today, $115 is emerging as support again. Recall that we had a similar picture just 6 days ago, before LHSP dropped down to support at $100, giving patient investors a great entry point. Today's consolidation, (a loss of $3.13) came on only about 60% of the ADV, and has the feel of mild profit-taking. Presenting tonight at the Robbie Stephens Tech 2000 Conference should provide yet another opportunity for the company to impress investors with their strong product mix and growing list of industry alliances. Recall that part of the excitement is their announcement of a 2-for-1 split (shareholder approval and execution date pending), and anticipation of this event should continue to drive shares higher. Look for $115 to hold as support, and an increase in volume to trigger your entry. More conservative players may want to wait for a convincing move through the $120 level before jumping on board. QLGC $140.69 -8.06 (-4.56) We were wondering when the profit- taking would appear, and got our answer over the last 2 days. After re-testing resistance at $160, the selling volume began to overwhelm the buyers, dropping the price all the way to support at $140 by today's close. With almost a $20 drop in the past 2 days, open positions should have been stopped out, leaving you with some tidy profits. Presenting at the Robbie Stephens Conference this afternoon seemed to have little effect, as the stock closed right near the low of the day. Although volume has been steadily dropping over the past 3 days, today still saw 50% more than the daily average number of shares trading hands. Strong support exists at $135, and a bounce here would make for an ideal entry going forward. If the selling continues through this support level, we will be concerned about the viability of our play, and would recommend standing aside. Resistance should be seen near $150, and more conservative players may want to wait for prices to trade through this level before jumping back on board. ERICY $100.50 +1.63 (+2.88) Have you ever had the feeling that someone is listening in on your phone call? It is beginning to feel that way with ERICY because whatever we seem to request as an indication for continuing positive momentum, ERICY seems to immediately deliver. We mentioned on Tuesday that a break through the $100 level would be a nice bullish indication and another viable point for possible entry. Well, here we are. This morning, ERICY decided that it was time for it to be on the other side of $100. ERICY traded up to $101.63 before going another round with the bears and pulling back to test the support of it's 5-dma, which held nicely and provided the springboard for ERICY to bounce back from. The bulls then stepped in and traded ERICY up to a new high of $102. We are now looking to the $100 level to provide support. However, should ERICY pull back through, ERICY's 5-dma of $98.25 continues to hug tightly to ERICY and could provide additional support if needed. Watch for entry points at either one of these levels should ERICY continue right on with it's move. *********************************************** PLAY UPDATES - CALLS - CONTINUED IN SECTION TWO *********************************************** **************************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. 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The Option Investor Newsletter Thursday 3-2-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** ATML $47.88 -2.94 (+4.69) Pulling back today to $45.94, ATML is taking a breather. No problem though as the SOX also fell by 3.0%, likely a sympathy move for ATML. Volume was normal however, which could indicate that most investors will hang on to see if higher profits can be obtained. We had warned that besides being a hot group, Semiconductors are also a bit jumpy. If you are a little hesitant, watch the 5-dma at $47 for support. If it breaks that, support at $44 would be the next place ATML for to go. The more aggressive investor will use this pullback as a good opportunity to buy. On Tuesday, two analysts initiated favorable positions on ATML. Other than that, ATML has no fresh news. EMLX $168.63 -6.94 (+11.50) One day up, one day down. That's the pattern we've seen with EMLX so far this week. As long as the net result is more up than down we won't complain. The real plus on this play is the volume. Yesterday's gain to a new high at $179.81 had much better volume supporting the move. EMLX gained +19.81 before traders began to bank some profits. Today, with the Nasdaq struggling to show any signs of life, traders continued to take some money off the table, but the volume was fairly light. Volume Wednesday came in at 1.24 million shares, while today traders could only muster 597K. Tomorrow could be another challenge for EMLX. If you remember, the past three Friday's EMLX has been a great place for investors to park their money when the broader markets have struggled. With the jobs report out tomorrow, the major indices could again experience a lot of volatility. A good report and it could be off to the races once again. EMLX closed just below an intraday support level at $170. Check the jobs report in the morning and the movement in EMLX and the Nasdaq prior to entering a new play or adding any additional positions. NSM $73.50 +0.25 (+5.50) Tuesday's momentum in the chip sector and NSM carried through long enough Wednesday for our current best friend, NSM, to make a new high. Investors began to either loose interest or decided to take a some money out of their positions as NSM ended the session -1.88. Today in watching NSM trade it really appeared as though traders were a bit hesitant to get to excited about anything in the chip sector. The SOX gave back over 3.0%, while NSM managed to add $0.25. Another check in the plus column for our play, was the support level near $70 did just what it was supposed to do, provide support. Remember our current interest in NSM is for an earnings run. At this point all signs point to a very good earnings report, which would suggest our play could be getting ready to explode. NSM is scheduled to release earnings Mar 9th, and with the company's CFO coming out earlier this week and suggesting better than expected third-quarter results, we believe NSM could take off at any time. A move back through $74.50, with solid volume may provide a good entry point for new plays. CHKP $220.50 +8.75 (+14.88) Did we mention Tuesday that it appeared as though CHKP was about ready to breakout? We did and it did. Wednesday morning CHKP opened about $1 higher, and made a new high at $218 before ending the day with a gain of about 3.8%. Today proved to be more of the same as CHKP made another new high, and gained another 4.1%. Other than the drop early in the week, CHKP has just about performed on command. Besides being a great play, investors haven't forgot about what CHKP is in the business of doing. They help to protect us from Internet hackers. Their latest alliance was with CoreHarbor, an e-procurement solution. CHKP has signed numerous alliances recently, which has also helped bring this company to the forefront. Looking for a reason CHKP could continue to move higher. Here's a good one. The last hour of the session today, CHKP jumped over $10 higher, with volume of over 288K supporting the move. That alone suggests there may be plenty of upside potential for CHKP. CHKP has now formed intraday support at $220 and $211. HGSI $214.13 -11.13 (+8.13) Sometimes its necessary to look for the silver lining in a play. That's the case in our new play in HGSI. HGSI gapped up Wednesday morning and made a new 52-week high before investors began to take some profits. Today the selling continued with HGSI loosing $11.81. Where's the silver lining you ask? HGSI made a low of $201, but found buyers waiting in the wings driving the price back up to close at $214.13. For those of you that didn't get in and out of this new play, the decline today and subsequent bounce provided a much better entry point. At this point it really appears as though HGSI and the Biotech sector have just taken a few days to off before getting back on track. Yesterday, Dr. William Haseltine, Chairman and CEO of HGSI said in an interview, that he sees a continued surge in the Biotech industry. He went on to say the new revolution in Biotech, is much more broad based than the one that occurred in the early 1990's. Volume on the decline today was fairly heavy, so it may be a good idea to confirm the strength of any further moves higher before entering a new play. GLW $205.88 +3.06 (+18.06) Yesterday looked terrific for GLW while today's action served as confirmation of the move. Solace can be found in the nice pop back over the 10-dma (currently $191.76). It looks even better when you consider that as the NASDAQ struggled a bit today, GLW tagged its 10-dma during an amateur hour descent, then moved up smartly to close at yet another new high. Chart watchers will appreciate today's long tail on the candlestick chart. Part of what may have spurred the move was the announcement that GLW, in efforts to shed its non- optical products, had entered an agreement in principle to sell its "metallic telecommunications cable" (read that, metal co- axial for cable television) division to the UK's Belden Inc. In our book, more optics equals more revenue. That's the future. Looking for support? Try $192, or consider $200, which served as intraday support today. 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 27th in order to make it happen. Earnings are scheduled for April 17th, which would make a great time to make the split announcement. SEBL $136.56 +1.81 (-1.81) Hmmm. Do we see the volume trending down? Yes! Despite trading over 4 mln shares yesterday, just 58% of the ADV (3.5 mln shares) traded hands today. That doesn't look good for a stock if it's supposed to setting new highs, and appears to be consolidating instead - probably not unreasonable considering the rise from $100 in the past 2 weeks. Unfortunately, SEBL is stuck in the $135 to $144 range. Nonetheless, that's plenty of room to profit from intraday moves. Still, you'd think that with a new e-business alliance announced yesterday with today's IPO giant, Palm Inc., SEBL might be getting some buying volume. In fairness, B of A Securities did raise their price target from $150 to $175 yesterday and reiterated their Strong Buy rating. Still looking for an entry? The good news is that $135 seems to be good entry support, while $144 provides resistance. Conservative types can buy the dips to $131 (the 10-dma). Otherwise $135 should work well. If you want to be really sure, wait for a high volume breakout over $144. 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 $234.13 +4.50 (+8.38) Still maintaining its low volumes compared to the ADV over the last two days, VERT has not yet gone vertical, but has moved up nicely on the coattails of the BBRS analyst conference. It is noted that VERT has created over 3000 store fronts across 55 industries, and continues to grow revenue at a 700% year over year rate. A BBRS analyst noted that of the sell side B2B companies, VERT holds the greatest opportunity. Any sway over the markets on that news? Nope. Even so, support remains at $225.50 and $225 intraday. If you want to get it better than that, try $220 with descending $2.50 increments to $215. Otherwise, we'd like to see the volume come back in and carry it over $235 convincingly. Not to worry though, there is still plenty of time to get into a position for the 2:1 split on March 31st. Split adjusted trading begins on April 3rd. JDSU $273.00 -7.88 (+16.19) From the BBRS conference yesterday, JDSU had hordes of people at their presentation. That would explain part of the volume increase significantly over the ADV, especially yesterday. At the conference, their CFO noted that internal production has been growing by 15% every three months yet, their customers continue to pressure them to grow faster. That's a nice problem to have and won't end soon with bandwidth demand doubling roughly every 4 months. But for now, the play is focused on the 2:1 split run scheduled to take place after the close of business on March 10th. Split trading begins on March 13th. Support is at $270 from the intraday bounces taken today and yesterday. Given the "event" at the end of next week, we'd expect this level to hold. If it doesn't, and JDSU gets caught in a NASDAQ downdraft, the next stop is $267 (fairly weak if the market is moving south), followed by strong support at $260. Target shoot to your risk tolerance and enjoy the ride. Be sure to keep an eye on daily volume. If it peters out, the ride may be nearing an end, and that's the time to move up your stops to protect your profits. One final note, yesterday SG Cowen raised their rating to a Strong Buy with a $300 price target for JDSU. DNA $214.50 +1.63 (+39.50) Even the extremely aggressive players who planned to jump into this play at Tuesday's support level of $187 and $190 couldn't get their foot in the door. DNA was already charged at the bell opening upwards $17.13 at $210! If you were looking for a way that day, then your best bet was on an intraday dip to $205. The momentum behind Wednesday's rally was likely connected to the early morning coverage initiated by CSFB. This WallStreet "darling" was rated a Strong Buy. Today DNA not only held the higher price levels, but also stretched farther into new territory claiming, for the second day in a row, another new 52-week record. Resistance is now at $220 and short-term support has risen to $210 and $212. Below that look to $205 which is still almost 10 points above the 5-dma ($195.59). We're looking for this momentum to continue in the wake of volatile markets. Earnings too are next month tentatively scheduled for April 12th. The icing on the cake would of course be a split announcement around that time. Currently, DNA is trading at more than 60% above historical split-levels. AFCI $61.00 -3.63 (+3.56) Ok it looks like a mild retracement is setting in after AFCI pinnacled at an all-time high on Monday ($71.38). The volume did taper off to moderate levels (below the ADV) and overall, AFCI is up a few dollars for the week. If you take it from a technical perspective, the stock is positioned firmly between the 10-dma ($56.80) and the 5-dma ($63.78), which for the most part is a fair place to consolidate. However, let's put up our radar antennas anyway. AFCI is moving strictly on investor momentum resulting from a BoD meeting last week and subsequent analysts' comments. Therefore we want to first verify that AFCI is, in fact, just taking a breather. Keep stops in place and be patient before opening any new plays. INSP $261.06 +23.06 (+35.75) Did you have your moon boots dusted off and a supply of Tang on hand for the rocket ride into space? INSP made two extraordinary moves since Tuesday with gains totaling $43.06, or 19.8%! Accordingly volume was respectable at about 2.35 mln shares exchanging hands each day. The surge was a welcome coming after the short period of consolidation between $215 and $225. This is especially true for the traders who risked the entries earlier on in the week. Now that Friday's all-time high at $231 is just dot in the rear-view mirror, we have today's record at $264.88 as resistance. Firmer support is near the rising 5-dma (now at $231.90) but intraday the $250 mark showed strength. Remember the exhilarating space ride won't last forever. INSP is splitting its stock 2:1 on March 15th so be prepared to exit before then. In the news, InfoSpace.com is dropping the dot.com from its name to better reflect its position as a global provider of infrastructure services online and off. INKT $145.50 +4.44 (+0.38) No doubt about it, INKT traded flat yesterday while others shot upwards. But did you notice how well it managed at its near-term support level of $138 and $140? This demonstrated strength at the higher price levels. The payoff came in today's market as the stock's momentum resurfaced. This infrastructure stock hit two birds with one stone. First it shattered Friday's all-time high of $148.25 and then it cleared a psychological path as it moved above the $150 mark. Overhead opposition is now at $151.56. The only dissenting factor in this scenario is that volume was rather mild. But again on the brighter side of this momentum play, SG Cowen upped its price target to $200 from $150 citing that Inktomi "continues to see strong demand for its traffic server". At present the firm has a Strong Buy rating for INKT. Today intraday support was solid at $145, but lower near the 5-dma ($141.96) still serves as a better support level. Remember please, INKT is a NOT a conservative play. In other news, e-lingo, the leading Internet-based translation platform, and INKT announced they will integrate their resources and provide a comprehensive multi-lingual search solution to Internet portals and destination sites. CMGI $124.00 -3.69 (+6.50) The question recently resurfaced about this stock's price. What is CMGI really worth? According to Prudential Securities the stock is worth about $216 while Lazard Freres took a more conservative stab at $170. Although it's unlikely that we'll reach those price levels ahead of CMGI's earnings' report on Thursday, Mar 9th, it's always nice to dream. For those who jumped into this earnings' play early you were sufficiently compensated on Tuesday afternoon. There's still time to trade this play so let's take a look at entry points. During the past two trading sessions, CMGI has pulled back and honestly this is a blessing. Currently it's hovering just above the 5-dma ($123.03) and an upward bounce from here is a relatively reliable signal that CMGI will climb in the near- term. Of course keep stops in place for protection. Overhead, watch Tuesday's intraday high at $131 for resistance and remember close all your position BEFORE next Thursday to avoid post-earnings' depression. In the news yesterday, CMGI along with Hicks, Muse, Tate & Furst Inc and Pacific Century CyberWorks Ltd announced the formation of a new venture capital partnership, @Ventures Global Partners. They have agreed to invest up to $500 mln each to support emerging Internet companies in Asia, Europe, and the Americas. ******************* PLAY UPDATES - PUTS ******************* KMG $46.38 +0.38 (+5.63) Yes, KMG did manage a breakthrough of its 10-dma during yesterday's session. As you may remember, it was KMG's inability to breakthrough this level that granted it a stay of execution on Tuesday. So what is our reason for offering KMG an extended stay despite its recent breakthrough? Though KMG continued to ascend today, the gain was slight, resistance held firm and the volume backing today's move was unimpressive. KMG's weak relative strength against it's peers has managed to capture the focus of this play, rather than the all of the recent oil crisis news. However, we have seen some recent developments in this arena, which may also help to drive KMG back down. On Thursday, oil ministers from Mexico, Saudi Arabia, and Venezuela came together, claiming that oil exporting countries should boost production to help alleviate some of the pressure behind inflated global oil prices. The Saudi Arabian oil minister Ali Naimi stated that though further discussions were needed, the decision would be made at the upcoming OPEC meeting. In other words, relief is imminent and this could very well have a negative impact on the sector. KMG's 10-dma is at $44.25, and a drop below this level would be a nice bearish indication. KMG found intraday resistance at $47 and we are looking for this level to continue to hold. RNWK $64.25 -5.50 (-14.13) Does today's intraday trading chart for RNWK make anyone else want to go skiing? RNWK gapped up slightly at the open and quickly began to slide downhill. If you were paying attention this morning, entry points were yours for the taking. We believe that RNWK has the potential to fall to $60 and it seems to have its mind set on getting there. Exercise caution as we get closer to $60. This level looks to be a pretty solid level of support and though RNWK may have the momentum backing it to carry it through, why risk it until you know? Along those same lines, be sure to tighten stops on any open positions to protect your profits against a possible bounce. Your best bet for new entries is to try and make your way in toward the earlier part of the session, once the direction for the day looks to be set. JNJ $73.69 +0.31 (+2.50) Two large block trades at $73 on Wednesday and JNJ has been in "linger" mode ever since. Volume still remains robust with trading levels at or exceeding the ADV of 3.5 mln. And so the battle of the bears and bulls continues. Today was a little nerve-wracking as JNJ flirted with $75 tagging $74.94 at one point. Yesterday too saw the stock close smack on its daily high. In all candor these are not bearish signs. Yet JNJ still positioned below the 10-dma ($74.65) and this is the saving grace of our sector play. If it blows through this technical indicator, it may be a good idea to abandon the pirate ship and move on to better treasures. For now, keep the life preservers in tote and watch for a convincing dive under Monday's intraday low of $70.06 for confirmation. ************** NEW CALL PLAYS ************** CCBL - C-COR.net Corp $44.97 -1.34 (+5.47 this week) As makers of fiber optic equipment and RF devices, customers include cable television operators, telephone companies, and installers of broadband communication networks for manufacturing plants, offices, campuses, institutions, airports, and traffic control systems. In support of its products, C-COR offers technical customer services, including network engineering, installation and maintenance assistance, and training. The latest in manufacturing processes and techniques including surface mount technology and an integrated MRP II system, enable C-COR to produce high quality, value-added products for the worldwide communications market. That's the long way of saying they are in the optical component and broadband access infrastructure business. Here's another low-cost optical play. Having more than doubled since tagging $20 on January 31, CCBL has been on a jet ride. A word of caution before we get started - the pilot has hiccups and has been know to deploy thrust-reversers, causing unusual flight characteristics. That said, after hitting a new all-time high of $48.75 yesterday, profit-takers stepped in to do their job. Fortunately, the volume was lower than yesterdays' move, indicating no serious attempt to jettison the issue. The good news is that on a technical chart, CCBL bounced back above its 5-dma ($43.20) in a strong display of support. As the dip to $42.50 bounced up, it left a long candlestick tail behind it on the technical chart, despite the red body. With institutional ownership increasing month over month and now at 82%, we think the low float of 16.7 mln shares will keep the issue moving as retail investors dive on the bone. Earnings are a ways off, currently estimated at April 13th. The one risk in this deal is the diminishing volume, which could be a precursor to further "dippage" and consolidation. This play is not for the conservative trader. But if you are a conservative trader, and you've got that wild hair, at least confirm that the volume is moving back up from the recent tapering. While March strikes are available, you may want to consider Aprils to capture a potential earnings run. News is scarce, but the last upgrade by CE Unterberg Towbin was to a Strong Buy and a $52 price target on February 17. It's also worth noting that on February 22, they received a $33 mln order from Adelphia Communications - about 15% of their trailing 12-month revenues of $228 mln. BUY CALL MAR-40 LQE-CH OI=254 at $7.38 SL=5.50 BUY CALL MAR-45 LQE-CI OI=146 at $4.00 SL=2.50 BUY CALL MAR-50 LQE-CJ OI= 25 at $1.63 SL=0.75 BUY CALL APR-45*LQE-DI OI= 87 at $6.38 SL=4.50 BUY CALL APR-50 LQE-DJ OI= 50 at $4.38 SL=2.75 Picked on Mar 02nd at $44.97 P/E = 59 Change since picked +0.00 52-week high=$48.75 Analysts Ratings 1-4-1-0-0 52-week low =$ 8.00 Last earnings 01/00 est= N/A actual= N/A Next earnings 04-13 est= N/A versus= N/A Average Daily Volume = 591 K /charts/charts.asp?symbol=CCBL **** CLRN - Clarent Corp. $128.00 +6.00 (+29.00 this week) Clarent makes Internet-based telephony systems that transfer voice, data and faxes. Their telephony systems permit the simultaneous transmission of voice, fax and data over the Internet and similar communications networks. The method of technology uses network space more efficiently than traditional circuit systems, because it takes up space only during transmissions. Clarent has three distinct components in their system, which is comprised of Clarent Gateway, Clarent Command Center, and a third party relational data base. Their revenues come primarily from telecommunications service providers such as AT&T, although about half of their customers are outside the U.S. Clarent's competition is found in Cisco Systems and Lucent. Their website says they fuel the telecommunications revolution minute by minute. The past few days the price of CLRN stock has risen minute by minute as well. CLRN seems to have found their way into the hearts of many investors on Wall Street. AT&T accounts for about a third of CLRN's revenue. With the rumors circulating early in the week on DT having interest in Qwest and US West, many of the telecom stocks have seen renewed interest as well. CLRN has added $29 so far this week and appears to be headed higher. CLRN is not followed by a great number of analysts, but those that do follow them have rated the company a Buy or Strong Buy. Their popularity among institutions has increased in the last few months as well with institutional ownership increasing about 41% in the last quarter. We've added CLRN to our play list based on the renewed interest in the Telecom sector and the current momentum behind the recent moves. The gains this week have come with more than 4.5 million changing hands. Not bad for a company whose AVD is only 580K. The technical picture is bright for CLRN as MACD and Stochastics have just turned positive as well. CLRN has support at $124 and $120. Although the chart is shows CLRN pointing higher, a pullback to one of the support levels would also provide a good entry point for our new play. Part of the recent popularity seen in CLRN came last month when the company signed memorandums of understanding(MOU's) with five companies in Taiwan to build the new broadband local access device targeted at any broadband media. Last week Clarent was chosen by gecco.net an emerging wholesale international long distance provider headquartered in Germany, to be its IP telephony supplier for a network that Gecco intends to build throughout Europe, the Middle East and Asia. BUY CALL MAR-115 KGQ-CC OI= 39 at $19.13 SL=15.00 BUY CALL MAR-120 KGQ-CD OI= 47 at $16.25 SL=12.75 BUY CALL MAR-125*KGQ-CE OI= 95 at $13.25 SL=10.25 BUY CALL MAY-120 KGQ-ED OI=105 at $30.00 SL=23.75 BUY CALL MAY-125 KGQ-EE OI= 5 at $28.00 SL=22.00 low OI SELL PUT MAR-105 KGQ-OA OI= 19 at $ 3.75 SL= 5.50 (See risks of selling puts in play legend) Picked on Mar 02nd at $128.00 P/E = N/A Change since picked 0.00 52-week high=$132.13 Analysts Ratings 2-3-0-0-0 52-week low =$ 19.88 Last earnings 01/00 est-=0.10 actual=-0.05 Next earnings 04-20 est=-0.04 versus= N/A Average Daily Volume = 580 K /charts/charts.asp?symbol=CLRN ************* NEW PUT PLAYS ************* DD - DuPont $46.88 -1.50 (-4.63 this week) DuPont is a leader of global industrial companies that produce and engineer products such as pharmaceuticals, chemicals, high performance materials, and agriculturals. Some of their products include Teflon, Dacron and Lycra. The company is mainly focused in the life sciences area and its work includes the finding of treatment for the H.I.V virus. It is the number one chemical firm in the U.S. The company operates globally through some 20 strategic business units. Unfortunately for DuPont, it has found itself lumped into the category of "old economy" stocks. Though DD claims to be a participant in the life sciences arena, the fact of the matter is that DD is largely a chemical company. A chemical company with management that many investors don't seem to be all that impressed with. DD is what you would call an interest rate sensitive stock, and as you probably know, rising interest rate fears have played a key role in recent market volatility. DD has been having a rough go of it since the beginning of January, when DD was flirting with it's 52-week high of $75.19. Since then, DD has trended steadily downward and has been eking out new 52-week lows on a fairly regular basis. Today was no exception as DD traded down to a new 52-week low of $46.88. The volume has remained strong backing DD's decline, which is a nice bearish indication that there are plenty of willing sellers out there for DuPont. DD closed today's session smack dab on it's low for the day, which could have DD positioned well to continue right on with it's decline tomorrow. DD does tend to post a rather volatile intraday trend so you may want to try and target shoot your way in on one of the intraday mini-rallies met with holding resistance. DD looks to have immediate resistance overhead at its 5-dma of $50, a level which could provide some rather formidable resistance going forward. Until we see a change in investor sentiment toward the cyclicals in general and more investor confidence in the management of DD, we could be cleared to continue on with this downtrend. BUY PUT MAR-55 DD-OK OI=750 at $8.25 SL=6.25 BUY PUT MAR-50*DD-OJ OI=901 at $3.75 SL=2.00 Average Daily Volume = 2.99 mln /charts/charts.asp?symbol=DD **** PPG - PPG Industries $47.13 -1.19 (-1.94 this week) PPG manufactures a variety of products for the manufacturing, construction, automotive and chemical processing industries. The company also helps do-it-yourself homeowners brighten up their house with its Lucite brand of house paints. Paints, stains, and other coatings account from almost half of the company's sales, with the balance coming from the glass products and chemicals divisions. PPG has over 75 manufacturing facilities in 16 countries, but North America accounts for 70% of company sales. Another victim of the continuing preference for tech stocks over old-line manufacturing stocks, PPG has been in a downtrend for most of the year. Completing a double-top near $65 in mid- January, shares have been weak ever since. Finding support at $48 in mid-February, it looked like PPG might be able to stage a recovery from the lowest levels seen since 1996. Alas, it wasn't to be. After fighting its way back up to the low 50's, PPG has once again succumbed, not so much to selling pressure as to lack of interest. The stock price has dropped below $48 on anemic volume (about 60% of the ADV) to post a new 52-week low of $46.63. Sitting on support at $47 (which isn't found until you go back to late 1995), PPG will either find its legs from here or continue to drop due to investor disinterest. The next level of support is near $41.50, and an increase in selling volume could take us there rather quickly. The 5-dma ($48.50) is providing consistent resistance, and all the other moving averages are far above. Look to enter new positions on either another southward bounce from the 5-dma or a penetration of today's low. Keep an eye on volume, as an increase in buying interest could signal life returning to this beaten down issue. BUY PUT MAR-55 PPG-OK OI= 50 at $7.00 SL=5.25 BUY PUT MAR-50*PPG-OJ OI=109 at $2.69 SL=1.25 Average Daily Volume = 515 K /charts/charts.asp?symbol=PPG ********************** PLAY OF THE DAY - CALL ********************** GLW - Corning Inc. $205.88 +3.06 (+18.06 this week) Corning is a premier provider of optical fiber, cable, and photonic products for the telecommunications industry; high- performance glass for computers, television screens, and other information display applications; advanced optical materials for the semiconductor industry and the scientific community; ceramic substrates for the automotive industry; specialized polymer products for biotechnology applications; and other advanced materials and technologies. Pots and pans (housewares) have been a division of Borden since their sale in April 1998. Most Recent Write-Up Yesterday looked terrific for GLW while today's action served as confirmation of the move. Solace can be found in the nice pop back over the 10-dma (currently $191.76). It looks even better when you consider that as the NASDAQ struggled a bit today, GLW tagged its 10-dma during an amateur hour descent, then moved up smartly to close at yet another new high. Chart watchers will appreciate today's long tail on the candlestick chart. Part of what may have spurred the move was the announcement that GLW, in efforts to shed its non-optical products, had entered an agreement in principle to sell its "metallic telecommunications cable" (read that, metal co-axial for cable television) division to the UK's Belden Inc. In our book, more optics equals more revenue. That's the future. Looking for support? Try $192, or consider $200, which served as intraday support today. 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 27th in order to make it happen. Earnings are scheduled for April 17th, which would make a great time to make the split announcement. Comments Almost the entire Fiberoptic group retreated today with the exception of GLW. It held $200 well for most of the afternoon despite the Nasdaq weakness and then pulled away into the close. A positive Jobs report should unleash the buyers that were hesitant this afternoon. BUY CALL*MAR-190 GRJ-CR OI= 926 at $22.63 SL=17.50 BUY CALL MAR-200 GRJ-CT OI=1165 at $16.75 SL=13.00 BUY CALL MAR-210 GRJ-CB OI=1022 at $11.38 SL= 9.00 BUY CALL APR-210 GRJ-DB OI= 22 at $21.75 SL=16.75 SELL PUT MAR-200 GRJ-ON OI= 602 at $ 9.25 SL=12.00 (See risks of selling puts in play legend) Picked on Feb 17th at $191.06 P/E = 107 Change since picked +15.81 52-week high=$207.25 Analysts Ratings 7-6-0-0-0 52-week low =$ 47.69 Last earnings 01/00 est= 0.48 actual= 0.51 Next earnings 04-24 est= 0.47 versus= 0.36 Average Daily Volume = 2.35 mln /charts/charts.asp?symbol=GLW ************************ COMBOS/SPREADS/STRADDLES ************************ Markets End Mixed As Inflation Woes Continue.. Over the past few weeks, that description fits almost any day on Wall Street. It's certainly a common theme in the headlines. The problem is, I have no idea whether that's accurate or not, as I am on the other side of the planet and eight hours ahead of Eastern Standard Time. For those of you expecting another article on option trading techniques, I will apologize now for blatantly avoiding the subject. While I am in Moscow, the opportunity to explore a new subject is just too overwhelming. I ask that you simply excuse this diversion and join me in a brief review of a very unique culture and the economic difficulty in which it is enveloped. A famous leader once described Russia as "A riddle wrapped in a mystery inside an enimga." For most foreigners, the mystery still exists. Despite the fall of communism and the oppressive soviet regime, the new era of glasnost has yet to produce a significant change in the world's view of Russian cultures and society. The people of the region are torn between the cultures of the East and the West. The city of Moscow, while striving to be modern and technologicaly advanced, is deeply rooted in its peasant past. It is the current capital and occupies a central position in all aspects of Russian life; historical, political, economic, and cultural. Located near the center of the densely populated Russian plain, Moscow forms the nucleus of this great empire and houses the present government. With the largest population in the country (almost 10 Million residents), it is also the industrial core of the region's most developed area. Moscow is the cultural heart of this vast nation with the seat of the Russian Orthodox Church and the majority of Russian art and architecture. Vistors to the capital city come from all over the world and as you might expect, a large percentage of the tourists are native Russians. People come to Moscow to see the massive brick walls of Kremlin, the ancient fortress and symbol of Russian power. East of the Kremlin lies Red Square, the giant parade ground where the military might of the Soviet Union once marched beneath the watchful gaze of the Politburo. At the south end of Red Square is St. Basil's Cathedral, probably the most famous site in all of Russia. Together these landmarks house a majority of the churches, museums and galleries in the county. There are some striking and noticable suprises awaiting the first time visitor to this unique region. The major difference is the lack of consumer electronics among the general public. In every major city in America, the underlying theme of any candid snapshot is leading-edge techology. More than half of the people you encounter while traveling in United States are linked to the world through cellular and satellite communication systems. The ability to retrieve instant global information is paramount to success in our society. That is not the case in this region. Their system of finance is also vastly different than most Western (or European) countries. One recent undertaking, the Russian Stock Market has been plagued by crisis almost continuously since inception. Obviously, the central role of any financial system is to pool savings and transfer the funds to companies for investment. All economies have such a system and most combine the best known methods of leading societies to create a working mechanism. Of course the internal coherence of any successful system relies in large part on a functioning economy. In this area, Russia is sadly lacking. One obvious example; the standard of living in the area surrounding our hotel is somewhat disconcerting. Poverty persists in even the richest countries in the world but it is surprising to see it on such a large scale in the capital of a "super-power." In Russia, being poor is a problem for the majority; young and elderly alike. In 1999, the average monthly income was about 1500 rubles ($65), well below the offical subsistence level. The Russian Goverment has been in debt for years and with the IMF unwilling to resume its lending program, funding shortages for their infrastructure will continue for some time. With this kind of economic squalor to overcome, it's difficult to expect any major improvement in Russia's financial system. Surprisingly, foreign interest in the Russian stock market is significant. The problem it seems, is the ownership structure of Russian corporations. The most recent solution (American Depository Receipts), is under attack and once again, the issue can be traced to the political scene. The problem with leadership appears to be a common theme... Next time: The Russian Stock Market - Boom or Bust? **************************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. 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