The Option Investor Newsletter Tuesday 3-7-2000 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) ************************************************************ 3-07-2000 High Low Volume Advance Decline DOW 9796.00 - 374.50 10229.10 9752.70 1,309,358k 968 2,075 Nasdaq 4847.84 - 57.01 5006.78 4829.88 2,143,828k 1,765 2,567 S&P-100 732.25 - 20.71 758.48 729.02 Totals 2,733 4,642 S&P-500 1355.62 - 35.66 1399.21 1349.99 37.1% 62.9% $RUT 595.47 - 6.17 606.86 595.15 $TRAN 2263.59 - 112.50 2376.09 2260.78 VIX 26.63 + 3.48 27.46 22.80 Put/Call Ratio .43 ************************************************************* Super "entry point" Tuesday! Proctor & Gamble washed out the Dow with an earnings warning but the rust stains still linger. Just when things were looking so lemon fresh with the fastest productivity growth in seven years the mother of all earnings warnings knocked the Dow back to April 1999. After PG painted a word picture that could have been scripted by Alan Greenspan the old economy met the new economy head on for a serious bout of mud slinging and the old economy may have won the battle but the new economy won the war. Enough word pictures? The warning by PG was everything Alan and company have been worried about. Decreasing sales, higher labor costs, higher materials costs, decreasing margins, etc. The mantra of the whining loser. It was not our fault. It was the economy. It was competition, it was inflation. Sorry, been there, heard that and the real answer always boils down to management not keeping up with the competition and not giving the customer what they want. Nobody will ever make me believe that the worldwide consumer is taking less baths, washing fewer clothes and suffering from fewer colds. With the population exploding worldwide and many emerging countries just coming into the global consumer age, it is not the economy stupid. It is the company. Now that we have the facts straight lets look at the damage. If you are a public company with factories rusting away it was a very bad day. If you were a tech company with eight days of just in time inventory that you cannot keep in stock because of consumer demand, it was a great day. The Dow opened up at 10229 on the positive productivity report but sellers flooded in as everybody tried to get out of the market before PG opened for trading 30 min later. Everybody knew what was coming and there was a rush for the exits. When PG finally opened at -$30 the impact on the Dow was striking. -$30 equates to -150 Dow points and we were already heading down at full speed. The first bounce came at 9850, a full -379 points off the high and then the bargain hunters stepped in to battle. After a valiant effort by the bulls the sellers pushed the Dow back to 9850 again for yet another bounce around 1:00. After failing to rally the Dow on three attempts the buyers simply stood aside for the final capitulation run just before the close. The damage, 9752, believe it or not. After giving the sellers one last unrestrained dive the buyers started easing back into position for the next relief rally. The bright spot for the day has got to be the Nasdaq. After breaking 5000 at the open, even in the face of sure Dow destruction, the Nasdaq fought for every inch of ground all day long. Think about it. -418 points on the Dow at the low, the fourth worst Dow point loss on record and the Nasdaq was positive until the very end. Many Nasdaq stocks and I am talking about stocks that have huge double digit profits ripe for the taking, held and even finished positive in many cases. BRCD +8 , JNPR +8, MSTR +21, CLRN +13, ARBA +7, EMC +7, MSFT +2 (-5.00 off the high but still positive), TERN +23, RMBS +38. Everybody knew there would be a sell off at 5000 from program trading but the Nasdaq roared back to +75 immediately after that drop. Part of the Nasdaq strength came from the news that VRSN was going to play the name game and buy Network Solutions for $14 billion. Simply incredible but it validated the direction of the Internet and proved again that companies who succeed will be rewarded. The transaction, 2.15 shares of VRSN for each NSOL share sent NSOL up to $437 from $360 on the news but the kill the buyer syndrome punished VRSN to the tune of -47 and NSOL fell back in reaction. Adding to the Dow problems today was the rocketing price of oil. Trading as high as $34.23 today the ripple through the transports was obvious and dramatic. Oil service companies soared on the news that OPEC may not increase production since they expect demand to drop by the end of March and the warm weather up north. Any increase in production now would take 90 days to be felt in the retail sector. If you have been putting off getting a fill up on that big tank SUV, you had better not wait any longer or you will have to sell options to pay for it. Where to from here? The almost two month decline in the Dow is looking for a place to rest. We are coming into some serious support from 9700 to 9200 and unless we are entering a bear market there should be technical buying soon. A -17% drop in the Dow has got to make Warren Buffett type investors happy. 9836 was the recent low back on Feb 28th and many analysts think we could have put in a double bottom here with the PG washout of that number. If it is not a double bottom then we are in deep trouble because I view it as a possible lower low confirmation of the current Dow down trend. I want to look at it as simply a news event to cap off the current selling with a needed capitulation event. The Dow stocks are so low you have to go back years on some for comparison. JNJ currently at a 2yr low, MRK 2yr low, KO 4yr low, EK 2yr, CAT 3yr, IP 5yr, MCD 1yr. 50% of the Dow transports are at a 52wk low. 26% of the S&P-500 are at their 52wk lows. Only 1% of the S&P is at or near new highs. Consider where the Dow would be without the few tech stocks it has? There is serious talk that the S&P is faltering because it does not have enough tech stocks to match the current move into the Internet economy and yet techs make up 34.3% of the S&P. Ordinarily I would be pounding the table to tell you to buy this dip. How many huge drops have you seen in your investing lifetime? If this is the fourth largest at -374 and the largest was -508 in Oct then my guess is not many of this magnitude. Unfortunately (or fortunately) the stocks you want to buy did not drop -374 points. The Nasdaq stocks are up +600 points from their recent lows. If the Dow continues to dive we could see more profit taking on the Nasdaq. Reluctantly, but still profit taking. The stocks that dropped may still drop farther. If eggs are $2 a dozen, how much are 30 worth if 24 are rotten? Don't bother, it is just an analogy to show that things are worth only what somebody will pay for them and right now it seems that nobody wants to buy the Dow at any price because of all the rotten eggs. This is the second steepest Dow decline in a decade and we now have had four bear trap rallies in two months. With the very steep drop today there is a very good chance that we will see another relief bounce. Consider that the Nasdaq is only 67 points from a new record high. This is the largest record of divergence between the Dow and Nasdaq and there appears to be no end in sight. If the Dow wants to join the party it will have to find its own ride because the Nasdaq express has already left. Another reason I feel like we just saw the Super "entry point" Tuesday is the bond market. Normally bonds would be up on a very bad day as money leaves the stock market to the "safety" of the bond market. Guess what? The bond was flat today at 6.14% yield due to lack of interest. The money that would normally "flee" to the bonds is now "fleeing" to the safety and "returns" of the Nasdaq. Who wants 6.14% when the Nasdaq is up +20% YTD and it is only March? Check out the volume today 1.3 bln NYSE and 2.14 bln Nasdaq. The money is flowing and it did not go to bonds. I am just as human as the next guy and that makes me fallible but I put my money on the line today and was very happy to do so. I beat my way to the bargain table at the close and my brokerage account is still smoking. If there is no bounce I will be singing the blues tomorrow but tonight I am very comfortable with my bargains. The VIX was not lying on Sunday at 21 and I don't think it is lying tonight at 27. When the VIX is low it is time to go and when the VIX is high it is time to buy. One more big drop at the open should do the trick and push it over my 28 threshold. Of course I would "vote" to skip that step and go directly to rally mode! We had over 1300 entries in the one day Nasdaq-5000 contest from Sunday and now all we need is a close over 5000 to identify the winner. Stay tuned! Trade smart and sell too soon. Jim Brown Editor Disclosure notice: Current long positions include; AFFX, ALLR, AMD, ARBA, BLDP, BRCD, BVSN, CIEN, CLRN, DSTM, ELON, GLW, MRVC, MSFT, MSTR, PEB, PHCC, RBAK, RMBS, SDLI, TXCC, WCG ***************************ADVERTISEMENT************************* Bring the Markets Home! ~ InvestIN.com http://www.investinoptions.com Is your broker limiting your options? Can you enter stop and stop loss orders on options? Options Trading with InvestIN.com is available for all accounts. Ranging from IRA's to Direct-Access accounts. Option Stop loss orders accepted. Streaming real time option quotes available with direct access accounts. InvestIN.com has your OPTIONS. 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What else could you ask for? ********** STOCK NEWS ********** Deutsche Telekom Seeks Its Qwest By S.P. Brown Qwest Communications (Q) ended a week of speculation Sunday by acknowledging that it is indeed engaged in merger talks with a "large telecommunications company." Few investors were surprised by the confession. Fewer, still, were surprised to learn the "large telecom" Qwest was referring to was Germany's Deutsche Telekom (DT), Europe's largest phone company. Investors were tipped to the possibility of a Qwest-Deutsche Telekom union last Thursday when USA Today reported that the German telecom giant had offered $80 billion for both Qwest and US West (USW) - two Denver-based companies who happen to be in the midst of their own $45 billion merger. In November, both companies' shareholders agreed to combine operations in a transaction that would give Qwest a 14-state local phone network with 25 million customers. The Deutsche Telekom offer has some analysts scratching their heads. It's no secret that Qwest has its hands full with US West (USW). What was purported to be a merger of "equals" has morphed to a straight purchased of US West by Qwest, with Qwest management running the show. In fact, just last last Monday, US West chairman Sol Trujillo announced he would be leaving once the merger was completed. Despite US West's subservience, there is discontent in the Qwest camp. Chairman Joseph Nacchio has expressed concerns over US West's conflicts with regulators in some of its 14- state territory, where it was ordered to refund $12.77 million to phone customers for service-quality violations. What's more, people close to the Qwest-US West situation are reporting that Qwest officials had been exploring options to strike a trans-Atlantic deal without US West. Supporting that notion is Philip Anschutz, Qwest's principal shareholder, who recently stated that he would support a transaction with a "major telecommunications company." Qwest's interest in exploring avenues sans US West is a sharp contrast from its position last summer, when the company literally pursued the Baby Bell like a lovestruck teenager, and wooed it out of the arms of Bermuda-based telecom Global Crossing (GBLX). After being belle-of-the-ball, it should come as no surprise that US West isn't taking kindly to the prospect of becoming a lonely old maid. The company has threatened to sue if Qwest backs out of the planned merger. A $800 million break-up fee is already due US West if the merger doesn't go through. But if US were to sue and win, Qwest could wind up owing the company billions of dollars. In response, Qwest stated that it won't agree to terms with another company unless US West also reaches an agreement with that company, too. Still, US West is concerned that Deutsche Telekom isn't as interested in it as it is in Qwest. Reputations are also at stake. If the Qwest deal falls through, US West would have two strikes against it and no merger partner, something the company desperately needs to pursue its aggressive Internet strategy and expand the its market presence. But US West and Qwest aren't the only ones under pressure. Deutsche Telekom is beginning to feel some heat. The company is fast developing a reputation for being gun-shy. Last summer Deutsche Telekom CEO Ron Sommer stumbled badly in a failed attempt to acquire Italia Telecom. To make amends Sommer has stated publicly that his company needs to make acquisitions quickly and has named several targets, including Global Crossing and Cable & Wireless (CWP). A Deutsche Telekom-Qwest merger would make sense for the German telecom. The company wants desperately to enter the US market. Qwest would enable it to do so with it's fiber-optic lines and its interest in KPNQwest, an Internet joint venture with Dutch phone company royal KPN. It's obvious investors like a Deutsche Telekom-Qwest combination more than they do a Deutsche Telekom-Qwest-US West amalgamation. Last week, shares of Deutsche Telekom and Qwest soared 12 and 39 percent, respectively, while US West inched ahead only 2 percent. Nevertheless, many analysts believe that US West must be part of the equation. Qwest simply can't afford to get out at this point. Tom Friedberg, telecommunications analyst with Janco Partners, predicts that a Deutsche Telekom offer for Qwest will include a share price for US West somewhere between its $50 to $60 price last July when the merger was announced and the $135 or more it would command under the 1.72 exchange ratio originally agreed upon. "If US West is offered $90 to $105, they have a fiduciary duty to look at that," Friedberg said. Some investors looking at this complicated triumvirate might be wondering if there's still a risk-arbitrage play lurking in there somewhere. The usually way to play these things is to short the acquirer and go long the acquired. At this point, it's difficult to say because there is more risk to Deutsche Telekom stock if it doesn't go through with the purchase than if it does. If Deutsche Telekom doesn't follow through, all three stocks could come falling down. If it does follow, through, there's a chance all three could rise higher. With that said, the significant movement in all three stocks probably took place last week. Given Deutsche Telekom's penchant for bailing at the last minute, there just doesn't seem to be enough reward for the risk investors would be undertaking to play this potential deal. ************** Market Posture ************** As of Market Close - Tuesday, March 7, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,700 11,250 9,796 BEARISH 2.17 SPX S&P 500 1,400 1,450 1,356 BEARISH 3.07 * OEX S&P 100 740 780 732 BEARISH 3.07 * RUT Russell 2000 500 520 595 BULLISH 2.24 NDX NASD 100 3,800 4,000 4,391 BULLISH 2.24 MSH High Tech 1,850 2,000 2,122 BULLISH 2.24 XCI Hardware 1,300 1,460 1,551 BULLISH 2.24 CWX Software 1,200 1,470 1,568 BULLISH 2.24 SOX Semiconductor 800 900 1,264 BULLISH 2.24 NWX Networking 940 1,000 1,129 BULLISH 2.24 INX Internet 700 800 791 Neutral 1.06 BIX Banking 500 550 468 BEARISH 11.30 XBD Brokerage 400 450 479 BULLISH 2.31 IUX Insurance 500 550 445 BEARISH 11.30 RLX Retail 950 1,000 780 BEARISH 1.28 DRG Drug 340 380 293 BEARISH 2.18 HCX Healthcare 700 750 608 BEARISH 2.18 XAL Airline 120 140 111 BEARISH 3.07 * OIX Oil & Gas 280 315 273 BEARISH 1.27 ***Posture Alert*** Proctor & Gamble helped lead a near 400-point drop in the Dow, as all blue chips were affected by the negative earnings release. With oil topping $34/barrel, the woes only got worse as the day wore on. The only bright spot today was in the Oil & Gas and Semiconductor sectors. The OIX rose 7.19% while the SOX rose 1.61%. Losers were plentiful, and with this most recent action, we have lowered Airlines, S&P 100, and S&P 500 to Bearish from Neutral. **************** Market Sentiment **************** Tuesday, March 7, 2000 It's Super Tuesday! Who is going to feel worse on Wednesday, Senator Bill Bradley or P&G shareholders? Sorry, couldn't resist that one. Anyway, as you already know, Proctor & Gamble helped lead an assault on the Dow, as the bellwether index got clobbered for -375 points, it 4th biggest drop in history. Volume was strong on the NYSE with 1.3 billion, and the NASDAQ cracked the 2-billion threshold once again. The selling pressure witnessed on the Dow this morning soon started to spread, which led to selling pressure in the S&P 500, the S&P 100, and then finally the NASDAQ. To make things worse for the big name conglomerates, the price of oil hit $34/barrel. This one-two punch was too much for the blue chips. Technology stocks on the other hand, held up for most of the day, but during the final hour, it gave way to some eager profit takers. In major pullbacks in the past, one would witness a flight-to-quality, where investors would flee technology issues and purchase consumer stocks, pharmaceuticals, and other major multi-national companies. This trend is definitely changing! Today, as well as the recent past, it has been a role reversal. In today's action, P&G led the consumer issues down; pharmaceuticals were down about -5.00%, and the rest of the large global companies were singing the blues! Technology has continued to hold up extremely well! Two sectors that were even up today were Semiconductors and Software, which two years ago would have been unheard of. So the trendy adage of "New Economy" vs. "Old Economy" is really becoming a role-reversal when flight-to-quality is concerned. So the big question remains, will this flight-to-quality in the "new economy" stocks continue? So far, technology stocks have been a safe haven (as I bite my tongue). However, this sentiment can change dramatically. We have witnessed recent corrections on the NASDAQ to occur in days, where stocks free- fall as everyone rushes to lock-in profits at the same time. In an age where investors can place trades anywhere in the world, on their pager, cell-phone, or laptop, the speed at which sentiment changes can be overwhelming. This can happen, and happen very quickly, so be careful, be diligent, and set your stops. On Sunday, Pinnacle highlighted how the Volatility Index and the Pinnacle Index were indicating an overbought market, and that locking in some profits was the most prudent thing to do. Hopefully, some of you took advantage of this quality advice. As it stands now, the VIX is in the middle of its trading range, and where it goes from here in the short term will help define the markets ever changing sentiment. The Pinnacle Index for the OEX now seems to be indicating that we are nearing support, so any continuation in a major sell-off is highly unlikely. More than likely, we will once again see some sort of bounce as the bulls' rush in and the quick-trigger shorts run to cover. Super Tuesday 2000 will definitely go down as a memorable one, however, the next several trading days will be extremely important to the sentiment of this marketplace, so if the new economy stocks continue to hold, stay with the trend, but place your stops! 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 (6.148): The current yield is now safely off of 52-week highs and is temporarily out of the danger zone. Mixed Signs: Volatility Index (25.14): 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. At current levels, the VIX is in neutral territory. BEARISH Signs: Pre-Release Season: With April just around the corner, we have the beginning of pre-release season. Over the next 3 to 4 weeks, companies will let Wall Street know that their profit/sales goals are not being met, and their stocks will get brutally punished. The first major corporation to do just this is Proctor & Gamble, with it's 27 point decline. 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. With crude over $34/barrel, the effects will be ever increasing. 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 (3/3) (3/7) Overhead Resistance (790-820) 16.85 16.53 Overhead Resistance (765-785) 6.23 5.26 Overhead Resistance (740-760) 0.69 1.01 OEX Close 765.95 732.25 Underlying Support (700-735) 2.71 4.68 What the Pinnacle Index is telling us: On Sunday, we stated that the OEX was due for a breather, and boy did it get one. The index got hit hard thanks to P&G, but at current levels, we would look for the index to start building support. Overhead resistance (740-760) is light, so a solid bounce is possible. Put/Call Ratio Friday Tues Strike/Contracts (3/3) (3/7) CBOE Total P/C Ratio .40 .43 CBOE Equity P/C Ratio .32 .35 OEX P/C Ratio 1.36 2.04 Peak Open Interest (OEX) Friday Tues Strike/Contracts (3/3) (3/7) Puts 680 / 9,154 705 / 10,844 Calls 750 / 7,497 750 / 7,277 Put/Call Ratio 1.22 1.49 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 7, 2000 25.14 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 9796.03 -196.70 -374.47 -571.17 Nasdaq 4847.84 -9.94 -57.01 -66.95 $OEX 732.25 -12.99 -20.71 -33.70 $SPX 1355.62 -17.89 -35.66 -53.55 $RUT 595.47 3.76 -6.17 -2.41 $TRAN 2263.59 -58.36 -112.50 -170.86 $VIX 26.63 1.86 3.48 5.34 Calls Mon Tue Week QLGC 189.25 19.50 14.31 33.81 Tech conference news CHKP 253.06 6.75 16.56 23.31 Continues to fly CLRN 159.75 8.50 13.25 21.75 Great 2-week trend EMLX 206.69 13.75 2.69 16.44 "clear market leader" NTAP 212.63 12.13 0.56 12.69 Entry for a splitter AMD 53.25 5.63 5.75 11.38 New, hot Semi play JDSU 287.38 13.06 -5.69 7.38 Dropped, run ending?? SEBL 161.00 -3.28 9.56 6.28 Bucked the trend today CMGI 140.00 12.94 -7.00 5.94 Dropped, earnings RRRR 72.44 0.50 3.94 4.44 New, picking up ATML 56.56 1.19 2.94 4.13 What market sell-off? NSM 81.38 7.56 -3.63 3.94 Dropped, earnings WCG 58.00 3.00 0.75 3.75 New, broadband play AFCI 69.00 10.25 -6.75 3.50 Volatile, but going ADIC 97.44 2.06 -1.56 0.50 Calm before the storm ANDW 29.75 2.13 0.13 0.13 Monday trading alert CCBL 49.75 1.91 -1.88 0.03 Consolidating INSP 259.50 -6.31 6.00 -0.31 More split run time MDT 49.50 -1.88 0.00 -1.88 Held its own today ERICY 102.44 -0.75 -1.63 -2.38 Looking for entry MER 104.44 -0.19 -2.38 -2.56 3 bounces off $104 INKT 158.25 13.53 -16.25 -2.72 Dropped, more selling CSCO 132.06 -1.31 -4.06 -5.38 Split run ahead GLW 197.00 4.38 -12.63 -8.25 Sell-off, but entry?? LHSP 107.50 -3.81 -6.94 -10.75 Dropped, out of gas VERT 237.50 -6.59 -7.63 -14.22 Upgraded to a Buy DNA 211.50 -19.00 -4.00 -23.00 Entry for a Biotech Puts DD 46.31 -1.00 -3.44 -4.44 Old economy stock MRK 53.94 -1.00 -2.56 -3.56 P&G domes sector CTS 49.50 -5.81 3.00 -2.81 No reversal in trend PPG 46.50 -1.06 -1.50 -2.56 Acting like a turkey RNWK 70.13 2.56 -2.63 -0.06 Back to support?? ************ WOMANS WORLD ************ Breaking Rules, Profitably By Renee White I broke a cardinal-trading rule recently, "Never Leave Town With Open Positions". Let me share my thinking, along with the value of good entry points because this time it proved to be incredibly rewarding. Pull out your charts and look at this with me. I'm a better trader than I was last year, or the year before that, or the year before that. That's what's exiting about this game. We are continuously learning, improving and practicing. Buying and selling is more planned now and I've learned to stack more odds in my favor. I had learned to not leave town with large open positions due a really stupid move in the past, which cost me more than just a bundle. At the end of January, I left for 10 days, returning to a market that had been selling off. I sat on my hands in cash, uncomfortable with the new bond yield inversion and yet conscious of the historical February sell-off. I was hoping to enter at the sell-off bottom, for some good April earning's plays. Returning to a bizarre bond market made me feel out-of-the-trading-rhythm causing me to miss good opportunities by being overly cautious while the Nasdaq continued it's rise. I had another 10 day trip scheduled at the end February, but I was getting anxious to play with my cash pile. Then, it happened and it happened fast! On February 18th on option expiration Friday, the Dow which had been selling off, began a nose dive. Helped by the expiration day, it grabbed The Nasdaq pulling it under with it, to the bottom of the deep blue sea. Poor Nasdaq didn't have time to catch its breath, also not helped by some electrical problem preventing The Nasdaq quote from being able to be posted leaving traders in the dark for several hours. The sell off was nasty that Friday and Monday was a holiday, which makes any Friday sell-off always worse. Computer problems kept me out that Friday and all weekend. I was frustrated thinking everyone else was planning their entry points and I couldn't get online to research mine. Tuesday, after the holiday, both markets initially continued their slide down. Whenever I have been away from the markets and don't have time to do research on each stock I follow, I look at the broader market to ground me. Since I am mostly a tech bull player, that means Nasdaq daily, 15, 5, 1 min charts of the last day's trading activity and of course, always the VIX. From there I go to the sectors, then to the stocks on my stock lists that are strongly up or down on that day, then to the smaller movers on my list. When things are happening quickly, like that Tuesday morning, decisions have to be made quickly if you are going to catch an opportunity that falls in your lap. It doesn't happen very often and naturally, usually when you are least prepared. In my quick Nasdaq review that morning, Nasdaq opened around 4430 and I saw the sharp Friday sell-off continuing on both markets. I looked back through the Nasdaq charts and found a dip & bounce on February 15th to 4300, that I would use as a possible support level, thinking maybe it would occur in a day or two. I entered alerts at 4350, 4325 and 4300 on my Qcharts right then and moved on to the VIX. (Yes, I enter multiple alerts around the main number. This is just my obsessive insurance system, in case I am on the phone or doing something else. It gives me time to get my trigger finger ready and focus on all parameters.) The VIX had climbed sharply that Friday and now was continuing its climb to the key 30 level, on this Tuesday morning. I entered my alerts at 29, 29 ½ and 30. For me, 30 and over is a time I go shopping and load up with plays I've been prospecting. The key this time would be if Nasdaq bounced or continued through the support level. I was in a quandary since I was leaving town at the end of the week. I don't tend to repeat old mistakes, so why was I thinking about buying when I was soon to leave town? The answer was in the sell-off. I have not lost money YET, if I time my entries with the VIX and a major market correction. Although I was not expecting things to occur that morning, in the first couple of hours of trading, both of my targets were hit. Since I had not completed my review of charts on my watch list, I immediately prepared to load-up on QQQ March 186 options, a little in-the- money, for whatever that would be worth as soon as a bounce off that level occurred. I paid 15 3/4. I invested a lot in this play but felt the risk was in my favor with the broader Nasdaq, due to the overly extended sell-off and fear factor in the air. I watched the market the rest of the day, I did not want to be caught with my pants down, on a sell-off into the close. The bounce was strong at 4300, but I was ready to exit at the close if needed. But, the worst appeared to be over with Nasdaq closing around 4377 and the VIX having come back down from roughly 30 1/2 to 27 1/2. The next morning I went shopping for more buys. Actually, this was the more dangerous day because Nasdaq gapped-up on the open. This is when bear traps fake buyers back prematurely, only to swallow them up in pain. But I loaded with March & April plays during a quiet market listening to Mr. Greenspan. I don't remember what he said now, but something he said made me feel the market would rally after he was finished. A lot of my plays were consolidating after selling off with the market, which is another signal for me. I entered MOT, MLMN, VIGN and BVSN all nicely up by the end of day rally. Over the next two days, weakness did resurface with the VIX moving higher. I saw Nasdaq bouncing off the 4500 level, bouncing 3 times on a 5 min chart. I entered VRSN (an ouch for today), NSOL (jubilation today), CREE, AMAT, INSP, ARBA and VERT. I tried to enter each play at what I thought would be good entries. There was so much activity, I was late preparing to leave town. By the close of Friday I finally breathed and thought, "Girl!! What in the world did you do!?" I had completely loaded up. "Don't try this at home", is the disclaimer I should add for all new traders. This load could have been the kiss of death if I was wrong. Naturally, the cable service at the hotel went out and my connection speed was a mere 28,000 bps, but I checked my positions a couple of times a day, not much different than a full time employee could trade. Actually, all entries made rapid advances, only exiting my MLNM. Last week, holding during periods of profit taking due to wide stops, caused my biggest mistake to be my inability to churn these good plays. I had set stops instead of profit limits. It felt great to see 250% gains while gone 10 days, but I could have doubled that by churning. On the other hand, churning that many plays is probably unrealistic...it's just too much to watch. I usually don't play that many different plays at one time. Since returning yesterday, I have been selling anticipating profit-taking as we get close to 5,000. I've sold 3/4th of my QQQ for 40 and 2/3 of BVSN bought at 20 6/8 for 76, ARBA bought at 45 1/8 for 90 and INSP bought at 28 7/8 hitting 109 today. At mid-day today as I write this, I still have many plays over 250% gain. I'll exit these on any major Nasdaq pullback or as we get closer to closing over 5000......which my bet, will be on Thursday. At this point, it is past the time to churn because of the 5000 level. I will not be buying more, until the 5000 profit taking comes and goes.(Except for the JDSU I bought at the close). In general the rule is sound. Don't leave town with open positions when you can't watch your plays. But, if you do break a trading rule, know why. Play when the odds are in your favor and be careful how you stack your deck. Renee White Contact Support ************** TRADERS CORNER ************** First Trades Back for the Pretender By Janar Wasito After taking a vacation, veteran trader Marty Schwartz cautions that the first trades back should be small. So, today, I basically focused on writing calls against my LEAP holdings. Only two made sense -- BRCM and SEBL, which were both up big over the last few days, and looked technically over extended. I wish that I waited, but I jumped in a bit too soon during amateur hour, writing the BRCM Mar 250 and the SEBL Mar 160. I bought them back when the stock went up to that price. No free lunch -- there are good premiums on these calls because they are stocks that can move 10 points in a half hour. I used my checklist to evaluate the market after I rolled out of bed and grabbed my DSL line equipped computer. (Yeah, in a former life, I was a Marine, but I don't mind making money in bed!) I ran through the check list and the market, sectors, and stocks were still saying overbought, but some were up big. In fact, almost all of my plays were still up. That, itself, is a big warning sign. I was a bit disgusted with myself for playing the amateur hour two step against my experience and judgment. Oh well. I found myself watching the market a little more closely than I would like to. I was already beginning to feel like I need another vacation, and I just came back from one. That is some thing to resist: the temptation to watch the market, as if a tick by tick monitoring will make up for mistakes. My road bike was stolen, and that bummed me out. Great bike, 5 year old Trek with a carbon frame. Had to file another police report as my other bike, a mountain bike, was stolen a few weeks ago. I was having a good morning in the market, and could probably buy about ten of the bikes some kid took last night, but it was still getting to me. I received wiring instructions for my favorite, fast broker. I went downtown, and did wire transfers from three different brokers into my single broker. Now that I am not selling naked options, I am comfortable putting all my cash in one place. When I was selling naked options, I felt like I was sitting on top of a Russian rocket with a motor that could blow up at any time for the sake of slightly better performance. Now that I am a spread trader, I can control my risk more precisely. I can do my two-stage, space shuttle trades in which credit spreads give the lift off that allows me to do longer term debit and credit spreads. My two JDSU plays are turning into textbook examples of this. Remember this formula: earnings or splits near expiry + credit spreads = $$$$. I shut down one of my accounts with another broker that specializes in options. I can leg into any spread I need to without special entry screens. I moved money out of my two nationally recognized, high profile brokers. I am a gold customer at one of them. They must be using gold leaf to write my orders because the commissions are astronomical! I feel a little nostalgic about taking cash out of my other broker because I have been with the Beantown based firm since being a young officer in the Marines. I couldn't bring myself to liquidate all the stock positions I have held since 1998. I am vaguely thinking about using the margin there to do buy-writes on VRSN as I am doing in my IRA. Not a bad return for a no brainer strategy -- huge premiums, great stock. Coming home, I listen to another Jackson Browne tune, and ponder whether cash really will make anyone happy. I'm going to be a happy idiot and struggle for the legal tender Where the ads take aim, and lay their claim to the heart and soul of the spender And believe in whatever may lie, in those things that money can buy For true love, could have been a contender... Are you there, say a prayer for the Pretender Who started out so young and strong, only to surrender The last time I threw some JB lyrics into a column, I got mostly positive responses, one negative response ("stop rambling"), and a question from a classmate ("What are you smoking up in San Fran?") But, I think the question is worth asking in a column devoted to making money: What will make you happy? Just as you shouldn't look for excitement in the market, you shouldn't look for happiness in money alone either. End of sermon, back to making money Back to my apartment for the last quarter hour of the market. I hit the checklist again. Sure enough, the market is rolling over. I can here George Jefferson now: This is the big one! (Not really.) I do think that the DOW will have a really hard time holding up. It would be fine to get some killer buying opportunities in the next few weeks. When I ran my checks on the market, the sectors, and the stocks, I came up with no reason to close any of my spreads. The two credit spreads (JDSU & IMNX) have max reward points (ie, where I sold the higher priced put) that are 50+ points in the dust -- actually my limit order to buy the higher priced JDSU put (Mar 230) back at a limit of 1/2 filled, so that play is closed for a ROI of about 105%. Not bad for two weeks. The other longer term spreads are actually holding up quite well in the down draft. We'll see how they do in the next few days. 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: ***** CMGI $140.00 -7.00 (+5.94) Profits! Profits! That's what this earnings' run reaped for many traders. From initial entry points in the $115 and $120 range, the share price steadily climbed to an intraday high of $151.50 in this morning's session. We couldn't have asked for a better play! But the time has come for us to exit CMGI. The company is reporting earnings this Thursday and is presenting its 4Q results during a Webcast which begins at 5pm EST. Please consider closing any open positions. OIN never holds over an announcement due to the risk of a post-earnings' decline. INKT $158.25 -16.25 (-2.72) We decided to make our exit from this momentum play tonight. Today we saw INKT power up to $190.88 reaching (for the fourth consecutive time) yet another new all-time high. Unfortunately, the subsequent downward spiral that followed knocked INKT down more than just a few notches. Today's sell-off put the stock in a very precarious position just above the 5-dma (now at $156.06). This mark on one hand could serve as a nice springboard in a rally, but on the other it may very well be a tell-all signal of impending gloom and doom. In consideration that the swift decline was on more than double the ADV and the DOW may invariably drag down the Nasdaq, we're putting more weight on the latter speculation. We could be adding INKT back to our call list later in the month for an earnings' run. The company is expected to report around April 20th. NSM $81.38 -3.63 (+3.94) The countdown to earnings has began. On Monday, NSM gained $7.00 on strong volume of 2.7 mln shares. As we mentioned this weekend it appeared as though investors may have waited until the last minute to jump into NSM for its earnings run. Today was a whole different story as NSM could never really get out of the starting blocks. NSM gave back better than half of Monday's gains, but did manage to bounce off support at the $80 level in the last hour of the day. Volume today was fairly heavy as well with over 2.3 million shares changing hands. NSM is scheduled to report earnings after the close on Thursday. If you still have a position in NSM we would use the $80 level as a guide for support, however the SOX did manage to hang onto small gains today, while NSM lost over 4.0%. If NSM can regroup tomorrow and move higher we may see a last minute spurt. If not keep your stops close. For now we will let NSM go, and concentrate our efforts elsewhere. LHSP $107.50 -6.94 (-10.75) Maybe investors are going tone-deaf, or maybe they just don't like what they hear, but they seem to have a lack of conviction when it comes to LHSP. They have driven the price up into the $120 range twice now and both times, the sellers have emerged to push the price all the way down to support at $105. There doesn't seem to be any reason for the emerging trading range except that neither the bears or the bulls feel strongly enough to push the price outside the range. As option traders, this kind of action can eat our lunch, and rather than give it to the playground bully (time decay), we'll go find some other playmates while LHSP takes its nap. JDSU $287.38 -5.69 (+7.38) While we consider the long tail on today's candle stick chart to most likely represent a good entry, we're dropping JDSU tonight. It fell below support of $290 in the final hour reaching as low as $271 before staging an incredible recovery in the last 15 minutes of trading. It's since regained its composure to $292 in after hours trading. Talk about a scare! It's been an outstanding split play. However, on Friday, March 10, JDSU will split its shares 2:1 and there is little time left to execute another play. Look for your exit between now and then. The skilled trader might be able to squeeze a bit more $$$ from it. But for now, we'll re-deploy our capital into a longer-term play. Look for JDSU to return to our list as earnings approach on April 26. PUTS: ***** No dropped put plays tonight. ******************** PLAY UPDATES - CALLS ******************** ATML $56.63 +3.00 (+4.13) What sell-off? There wasn't one in the shares of ATML today, although the market did probably hold it back from further gains. The SOX index was up nearly 20 points today, but that is small relative to ATML's 5.5% gain on the session. The gains have been purely momentum driven for this stock in a hot sector. No fresh news to propel it. The volume continues to be strong with today's doubling the 3-month average daily for ATML. The one nice part to the market sell- off was for entry points. Atmel pulled back to $55 twice this afternoon before rocketing into the close. $60 looks like a walk in the park from here, but watch out for more market-wide selling to possibly hinder the play. ANDW $29.75 +0.13 (+2.25) Nothing like an OptionInvestor trading alert to put the life back into a stock. We were watching ANDW all morning Monday, waiting for our entry point. When the stock began to round up from $26.50, we knew it was time. The influx of new buyers quickly sent ANDW to a new 52-week high at $30 where it ran into resistance. It has generally moved sideways near this mark for the past day, but upward trend is still in tact. In the news today, California Amplifier refuted some allegations from Andrew of patent infringement for the design of certain products. This will have little impact on ANDW's stock as it will be a long and drawn out process and ANDW is on the right side of this lawsuit. In the news yesterday, was an article on Rueters after the close about the increase of option volume. These are my favorite as they interview traders and call the company trying to figure out what is going on. Maybe we should send them a free subscription to OI. We still like ANDW going forward. Those of you that were able to grab the April 30s around $2 got a great bargain. Look for more bargains on the dips or a strong breakout on good volume over the $30 level. A positive market may be what Andrew needs to get the breakout we want. ERICY $102.44 -1.63 (-2.38) Here is another momentum play that made an intraday high of $105.25, yet succumbed to the negative sentiment that plagued the markets today. That resistance point will remain our target point to break through the next few trading sessions. Last week we spoke about the importance of breaking through the resistance level of 100 as a bullish indicator. ERICY delivered on that as the bulls ran the stock upward to new highs on Friday and Monday. Today's slight pull back appears to be natural as the bears had the upper hand on the market as a whole. With its 5-dma at $101, watch for this support as a good entry point. During this run, ERICY has consistently been bouncing off its 10-dma and today's small pullback could provide attractive entry points. Tomorrow let's keep our eyes open to see whether ERICY tests its $101 support and if so, watch for the bounce as confirmation for a conservative entry point. MER $104.44 -2.38 (-2.56) MER had some selling today in conjunction with the Dow sell off, yet nothing of which to be too terribly afraid. Even with extraordinary selling today, there was solid support at $104 where it bounced 3 times. With all this in mind, watch for moves off this level to confirm. We are still bullish on this play, feeling that this simply was the market weighing down on some of the blue chips. MER actually made a run to a 52-week high of $111.75 on Monday where it ran our of gas and pulled back. Today's trading range represents a good basing for another attempt to close at a new 52-week high and MER does appear to be poised for more upside potential. Let's hang in there. With the earnings season kicking off again and a pending relief rally after today's bloodbath, MER could get to that next range. Don't forget support at $104 as a good entry point and a bounce from there confirms an up 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. Do you have a website now that is not succeeding like you think it can? 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The Option Investor Newsletter Tuesday 3-7-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** DNA $211.50 -4.00 (-23.00) Our prediction that consolidation was imminent was right on the money, so to speak. DNA methodically slithered from a 52-record high at $245 to its first level of support at $210 and $215. The current level shows promise with upward bounces off $208 and $209. Volume was very active, but not overbearing indicating DNA is poised to hold its current position. If all does take a turn for the worst and there is a further correction, then buckle up because old resistance is way down there at $195. Consider waiting for upside confirmation. For the moment DNA is a pure momentum play, but we're hoping this powerhouse will carry us through into an earnings' run. The anticipated earnings' date is still about five weeks away on April 20th. Although if all the stars are properly aligned, perhaps there'll be a split announcement to boot (more info on this aspect in Sunday's write-up). In the news, Genentech and Novartis announced two new Phase III studies show their drug anti-IgE can almost cut in half the number of asthma attacks suffered by adults and children alike. The drug could be on the market as soon as next year. AFCI $69.00 -6.75 (+3.50) Volatility is the name of game for this momentum play. AFCI set new record highs in the past two days. The stock pinnacled at $77 and $77.19, respectably, while still offering solid bounces off intraday lows between $70 and $73 for entries. Near-term support is firm at $69 and $70 (just a notch above the 5-dma at $67.18) has so far proved strong, but let's keep stops in place. AFCI is strictly a momentum run and since there hasn't been any earth-shattering news, we want to see if there's adrenaline left to pump up the share price again. There was however a small bone thrown to AFCI by a recent Robertson Stephens' report. AFCI was listed along with CIENA (CIEN) and Carrier Access (CACS) as smaller companies in the communications industry that have "the advantage of focus". Senior Analyst Paul Silverstein, also noted "Advanced Fibre, has a product that not only is extremely technologically capable but also has been out in the field for several years now" and "has the benefit of an impressive base of reference accounts". INSP $259.50 +6.00 (-0.31) Looks like we've got more time to play our split run than previously anticipated. Initially the stock was expected to split 2:1 on March 15th, but on Friday the company announced it would go ex-div on April 7th. This is good news at a time when INSP is currently at a premium entry level. The proximity of $250 has proved to be firm near-term support over the past four trading sessions. Entries off the rapidly rising 5-dma (currently at $254.38) are now also proving to be solid. Even with a momentary slip today to $245, INSP quickly regained composure. For those that prefer to play these HIGH- RISK Internets a bit more on the cautious side, wait for INSP to make a move through $270. On the news front, US West Wireless announced it chose InfoSpace's wireless Internet platform to handle its suite of wireless Internet services. Other good tidings came today from SG Cowen. The firm started INSP with a Strong Buy recommendation. EMLX $206.69 +2.69 (+16.44) "The clear market leaders in end nodes are Emulex and QLogic. They have the lions share of the OEM wins in my view." That's a quote from Dane Lewis, Senior Research Analyst on data storage and peripheral companies, with Robertson Stephens. The "clear market leader", that's quite a strong endorsement for a company who just happens to be one of our top plays as well. EMLX took off Monday and didn't stop until hitting a new high early this morning at $218.44. Traders began to take some profit at that time, which isn't all that unusual considering the recent run we seen in EMLX. It was very encouraging to see an orderly decline, as EMLX really traded in more of a sideways pattern for most of the day. EMLX almost drifted lower, rather than the sharp volatile corrections seen many times when investors begin to take some money off the table. EMLX finished the day $2.69 to the good but was heading lower as the session ended. With the move the last two days, EMLX now has support at $203 and $200. If the Nasdaq can regain its footing tomorrow we would look for shares of EMLX to get back on track as well. CHKP $253.06 +16.56 (+23.31) A famous sportscaster by the name of Dick Enberg coined the phrase, "Oh My", when broadcasting events on national television. As we watched CHKP trade the past two days, that same phrase kept coming to mind. As a trader or researcher, sometimes we have are own pre-conceived ideas as to the strength or weakness of companies we follow. CHKP began the week making a new high and ending the day with a gain of +6.75. We thought maybe CHKP might see some profit- taking set in Tuesday. As trading began today, all we could say was "Oh My". CHKP opened almost $6 higher and didn't stop until making another new high at $259. On a day the wheels were coming off the Dow, and the Nasdaq held on as long as it could, CHKP gained 7.00%. How do we play this one? CHKP has broke out of its channel so a pullback would not be out of line. Support is found at $250, $243 and $236. If you have a position, move your stops to where you are comfortable. If you are considering a new play, a bounce off a support area would be a great place to enter a new play. This morning analysts at Prudential upgraded CHKP from an Accumulate to a Strong Buy, which may account for part of the strength seen today. CLRN $159.75 +13.25 (+21.75) A gain of $13.25 or 9.0%. That's what you would see if you looked at just the closing price for CLRN. But that doesn't begin to tell the whole story. CLRN's closing price was $16.25 below its all-time high, set earlier in the session. That's right CLRN pulled back after gaining $29.50. This on a day when the DOW was headed towards its 4th largest point drop ever, and the Nasdaq was clinging to gains after crossing 5000. Now we realize CLRN has nothing to do with the DOW or the stocks getting clobbered at the NYSE. But investor sentiment or psychology in the overall markets does play a part in the big picture. If CLRN can gain 20% on day when investor sentiment is lousy, where can it go if traders aren't so skittish. Actually CLRN did sign a deal with a company named Insors, a Chicago based business to business integrated communications solution provider. Insors plans to package Clarent's gateways and the Clarent Command Center with routers, hubs and other products. Isors is targeting Fortune 1000 sized companies. The strength may have also come from traders anticipating a split announcement from CLRN, as the board did ask for shareholder approval to increase the number of authorized shares. Support for CLRN is found at $156 and $146 so adjust your stops according to your own risk profile. NTAP $212.63 +0.56 (+12.69) Did you sell too soon? Our split run got off to a great start Monday and provided us with several good entry points in the last two days. With the Dow and Nasdaq under pressure today shares of NTAP fell from a new high at $230 set late this morning. NTAP gave back most of the gains seen earlier today finishing up just $0.56. The retracement may be providing us with another entry point for our split run play, however it may be prudent to check out the mood of traders tomorrow before entering a new play. NTAP closed right on support at $212. Additional support for our new play is found at $202, with a bit of resistance seen at $220. If the major indices can regain their footing, we believe NTAP can move to new highs. We have plenty of time for this one to develop, as NTAP doesn't split until Mar 23rd. Actually with the sentiment in the DOW so negative we are very pleased, if not surprised, NTAP and many of the stocks in the Nasdaq held up as well as they did. If you entered this play and took a quick profit, good for you. If you are waiting to take a position, be patient, as any further declines could provide a great entry point for a split run that we feel should continue to develop. ADIC $97.44 -1.56 (+0.50) Looks like the calm before the storm. While many stocks are moving up or down strongly, ADIC has settled into a nice tight trading range between $96 and $100. Volume, slightly below the ADV confirms that investors are taking a break before deciding which way they want to drive this boat. Remember, we are in this play for the split run, which should get moving any time now. The company is splitting its shares 2-for-1 on March 13th, so there isn't a lot of time left for the run. In light of the strong run that the stock has already seen since early February (doubling from $50 to $100), there may not be enough wind left to fill ADIC's sails for a split run. Support is strong at $90, and seems to be solidifying near $96, with resistance sitting firmly at $100. We need to see volume come back into the picture to support the run; any move higher in its absence should be viewed with suspicion. If volume picks back up, look to enter new positions on a bounce at support, (the $90 level would be a nice gift), or a breakthrough of resistance at $100. Just remember, with the split occurring next Monday, we will be dropping ADIC on Thursday to allow time to exit any open positions. MDT $49.50 +0.00 (-1.88) Given the carnage on the NYSE, MDT has held up pretty well this week. Tagging a new 52-week high of $52.94 early yesterday, shares sold off for the remainder of the day as investors took profits, pulling MDT all the way down to support at $49. The trading today was more sedate (encouraging in light of the action at the Big Board), as shares traded in a narrow range on light volume (25% below the ADV), and confirmed support at $49. The direction of the broader markets will likely determine MDT's direction for the rest of the week. Tiered resistance appears to be at $51, $52, and then $53 (just above yesterday's high of $52.94) and increasing buying interest will be necessary to push MDT through these levels. Support looks good at $49, but today's close near that level leaves us with an unsettled feeling. Further weakness could drop MDT through to lower support, found at $47.50. Remember we are playing MDT on the momentum that carried it to new 52-week highs last week. Entries can be considered on a solid bounce of either of these support levels, but pay attention to volume. If there aren't buyers to drive the price up, MDT could turn into a falling knife - don't try to catch it until it finds a bottom. QLGC $189.25 +14.31 (+33.81) Did somebody say there was a correction over at the NYSE? Nobody told QLGC investors, as they continued to bid the shares higher on very strong volume. After spending a week consolidating between $140 and $150, investors seem to have gotten the picture from the company that growth is rampant. With frequent announcements about industry alliances and new products, QLGC is becoming difficult to ignore. As an indicator of the company's dominant role in the industry, QLGC's director of planning and technology, Skip Jones, has been elected president of the Fibre Channel Industry Association (FCIA). Of course, the primary mover in QLGC's price the last 2 days seems to have come from the Robbie Stephens Tech 2000 conference last week. Dane Lewis of Robertson Stephens, in an interview with The Wall Street Transcript called QLGC and EMLX the leaders in the emerging new wave of storage solutions, namely Storage Area Networks (SANs) and Network Attached Storage (NAS). Shooting out of the gate first thing Monday morning, investors grabbed shares with a vengeance, starting the day out above resistance at $159.50 and moving up from there on almost double the ADV. Without losing a beat today, QLGC gapped up and moved up strongly, tagging a new 52-week high of $203.25 before succumbing to profit-taking. Bouncing in the final half hour at $180, gives us the notion that QLGC may find support there tomorrow. If not, we could see $174 or $166, all intraday support levels that are new in just the past 2 days. Mild resistance looks to be found near $190 and then up at today's high. Use QLGC's volume and the health of the NASDAQ as indicators of the longevity of this move. A deterioration of either could be your first sign of a shift in direction. Target shoot new entries on intraday dips to your risk tolerance and watch out for profit-taking. CSCO $132.06 -4.06 (-5.38) New readers, CSCO is an upcoming 2:1 splitter. The stock goes ex-div in a little over two weeks on March 23rd. This gives us ample time to make our trades and position ourselves for lots of potential profits. If you take a look at a chart you may be thinking...why is OIN adding CSCO now? Granted it hasn't broke out yet, but we're anticipating split excitement to accelerate in the coming days. Therefore, following along those lines, it makes absolute sense to get in now while CSCO is at a strong support level. Currently the stock is just a snippet under the intersecting 5-dma ($134.04) and 10-dma ($134.16), which in this case is a relatively safe place to linger. Let's however watch CSCO. The markets are likely to be very volatile over the next couple of days so keep a close eye on CSCO. It'd be a shame if the DOW perpetually pulled the Nasdaq into its spiral and you bought too soon. Here's a few of the highlights swirling around Cisco this week. Cisco won a $280 mln equipment bid from Cogent Communications, a specialized Internet Service Provider (ISP). This fiber optic gear order is the largest optical networking sale to date. Notably it will provide Cogent with the first end-to-end all optical network to deliver Internet access service with speeds 100 times faster than a T-1 connection. Yesterday Cisco Systems Capital Corporation (CSC), a wholly owned subsidiary of Cisco, and Diyixian.com, a leading corporate ISP in Greater China, announced a joint equipment financing agreement to build-up a next generation IP broadband network in Greater China over the next 3 years. GLW $196.81 -12.81 (-8.44) Yesterday was fine; today, NOT! Apparently, today's 19th annual GLW media briefing did nothing to support the stock by the market's close. In case you missed it, GLW took a $12 nosedive with a half-hour left to go in the trading day. While that never looks good, it still managed a $1.50 rebound from the low - enough to get it back over the 10- dma of $195.50. If it turns out to be safe to get back in the water tomorrow, then this would make a good entry. If you'd rather enter off historical support, then wait for a move back over $200, followed by $203. One bright spot was Warburg Dillon Read announcing they had upped their target price from $175 to $260 - late to the party, but that's OK. Anyway, GLW is a split candidate at this level. With earnings on April 17, that would be the likely announce date, followed by a special shareholder meeting on April 27 (from DEF 14A) to increase the authorized shares in order to effect the split. Confirm market direction before playing. Today's action confirms that the OFC 2000 Conference isn't enough to support this sector in a downdraft. SEBL $161.00 +9.56 (+6.29) At least somebody bucked the trend today. Volume made a comeback over the last two days and never let us get that entry in the $130's, so we had to be happy with $147 yesterday and $150 today. SEBL looked technically strong by managing a bounce and a close well above its 5-dma of $147.69. As long as technology remains out in front, SEBL should continue to move up. Unfortunately, other than an article noting that Home Shopping network is standardizing on SEBL systems software, there is no news to explain today's gains. But if SEBL can do this while even the NASDAQ goes in the tank, it will be one of the strongest when the market turns around for earnings season. SEBL is also a split candidate at these levels, but will need shareholder approval to authorize more shares should management opt for anything greater than 3:2. Earnings are not until April 25. You may consider target shooting at $150 again, or if you don't mind a bit more risk, $160 (near its current level) could also make a good entry. Just make sure the market is moving in your favor. VERT $237.50 -7.63 (-14.22) Nothing goes up in a straight line forever. Accordingly, after a 25% gain in price over the last two weeks, VERT was due for some correction, especially after reaching nearly $265 yesterday. We hope you followed our suggestion to keep your stops in place. However, we expected that $245 might hold as support. B2B is still a hot sector, and as suggested, we consider this pullback a gift, and even more so that it occurred on diminished volume - nobody lining up at the exits. Remember VERT is on a run into its 2:1 split date of March 31. VERT typically finds support at its 5-dma (currently $239.62), but is now below that figure. We'd like to see a move back over that figure to confirm an entry point. Of if you are more risk averse, you can wait for $229.57 (current 10-dma), but the chances of a fill diminish if NASDAQ resumes its trek to 5000. Confirm market direction before playing. CCBL $49.75 -1.88 (+0.03) While the market may not think we've collectively been buying enough soap (PG -26.44), it can't accuse business of buying too little optical equipment. That CCBL has help up well, as the market does its best submarine imitation, conveys that it will be one of the first to rise on any reversal, especially in light of the OFC 2000 conference (optical fiber conference) this week. While we can find no specific news on CCBL to justify its durability, it's probably just in the right sector - optical equipment. We don't put much credence in Emerald Research's announced Buy rating today, however, every little bit helps. Technically, $48.50 is holding up well as intraday support. Given the tapering off of volume in the last two days, there appears to be no mad rush for the exits. That's a plus. For technical traders, note that the 5-dma of $48.48 provided excellent support today too (same as intraday), while the 10-dma is $43.67. Pick your favorite target. However, if the NASDAQ market turns around and moves smartly up to 5000 as earnings approach, we may not get that low of an entry. Breakout occurs over $54.50. ******************* PLAY UPDATES - PUTS ******************* RNWK $70.13 -2.63 (-0.06) Today we saw small gains throughout the day, yet RNWK made its low of the day in the final moments of trading on lighter than normal volume, about 1.7 mln shares. $64 appears to be the next support level. That point represents a slight support level with a stronger support at $60. We feel a retest of these levels is eminent. The past two sessions have brought closes near the intraday lows and this downtrend should continue. Tomorrow's session should be mixed one so watch closely as to RNWK's direction in the early going. Entry points into these puts may be attractive. Keep in mind the support levels when RNWK drops and set your limits accordingly. DD $46.32 -3.44 (-4.44) Well, the downtrend continues, and with great vigor. The old economy seems to be weakening rather quickly, and with today's Dow sell-off, many of these "old economy" stocks don't show much hope. DD was not an exception today. On heavier volume than its ADV (4.1 mln vs. 3.3 mln shares), DD truly asserted its dramatic downtrend. As we stated in our original play, the 10-dma has provided consistent resistance and continues to depress the stock price. The strong volume coupled with a new 52-week low, makes for a free fall. DD is now at a price level that has not been seen since early 1997. Along with the continued divergence between "old economy" and "new economy" stocks, the lack of money flow into these value plays (and value funds for that matter), does not bode well for DD. We still believe we will see lower prices in the short run. Keep riding the trend until we see a clear sign of a reversal. MRK $53.94 -2.56 (-3.56) Thanks to the Proctor & Gamble earnings warning this morning, not to mention downgrades of many other DOW components, stocks like MRK took a bath. Yesterday's "trickle" of sellers (at 30% over the ADV) became a regular flood at the open this morning, dropping MRK as low as $52, before the bottom-fishers started to appear. Today's more than 12.9 million share volume, more than doubled MRK's ADV and confirms the strength of the move. Apparently there are still investors out there looking for value, and they helped the beleaguered drug-maker to recover some of its losses, closing down $2.56 at $53.94. Today's plunge takes MRK down to yet another 52-week low, and today's range (after the initial drop) is reminiscent of MRK's trading range between $51 and $54, last seen in December 1997/January 1998. More time will be necessary to see if either the $54 resistance or the $51-52 support will hold, but given the continued weakness in anything non-tech, there could yet be more downside. If support at $51 fails to hold, the next help for MRK should be seen at $48 and then $46. Look to enter new positions as MRK tests the $54 resistance level and rolls over. PPG $46.50 -1.50 (-2.56) As the saying goes, "It's hard to soar like an eagle, when you are surrounded by a bunch of turkeys". Such was the case for PPG today, announcing the creation of an e-commerce unit (remember when this type of announcement was guaranteed to juice a stock's price?), and being recognized for two innovations in automotive coatings. How did investors respond? What started as indifference in the morning, turned to capitulation in the afternoon as pressure from the DOW selloff spooked investors and PPG dropped through the $47 support level (Yep, that's right...another 52-week low). We have to go all the way back to July of 1996 to find support ($45) below today's low of $46. Also adding to the bearish tone today is the volume picture; although the day saw about 20% less volume than average, as the price dropped in the final hour, the volume picked up. Then when the recovery began to emerge in the last 10 minutes, volume dropped off. PPG still looks like it could have trouble mounting a recovery, but with the degree to which it has already sold off, use caution. Consider opening new positions as PPG bounces south from resistance, now found at $48 (right between the 5-dma and 10-dma). If the trend continues, consider moving your stops down also, to protect your profits when PPG finally recovers. CTS $49.50 +3.00 (-2.81) CTS bucked the market trend today with a 6.5% rise in its stock price, shrugging off the rest of the market debacle. But don't be misled because this certainly is not a reversal in the downtrend for CTS, which began in early February. What today's price move does indicate is a very nice entry point to buy puts just a little bit cheaper. This rise does not overshadow the fact that on Thursday and Friday, CTS blew right through its 200-dma around $55.50, which now poses resistance. Technically, CTS is poised to continue its downfall and as we mention in our play, the next support level is around $44. Tomorrow may be a good chance to take advantage of this slight price rise and bargain shop for some puts. Be patient and pick your put once you see the direction of CTS. Remember CTS's support level when placing limits and watch closely to see if it holds. ************** NEW CALL PLAYS ************** AMD - Advance Micro Devices $53.25 +5.75 (+11.38 this week) AMD is a global supplier of integrated circuits for the personal and networked computer and communications markets. They produce processors, flash memories, programmable logic devices, and products for communications and networking applications. the company ranks #2 in the microprocessor market behind Intel, however it has captured about a 60% share of the sub-$1000 PC market. AMD also makes embedded chips and nonvolatile memories. They have manufacturing operations in Europe, China and Japan, with about 55% of its sales outside the U.S. AMD gets about 12% of its revenues from Compaq Computers. They may be #2 in the microprocessor market, but Monday they beat Intel to the punch. Investors rewarded one of our latest additions to our play list with a 27% increase in the price of their stock in the past two days. On Monday, AMD released their new Athlon processor for PC's. The new processor runs at 1-gigahertz, which makes it the fastest PC processor on the market. AMD has overcome production problems and delays, which have accounted for losses for seven of the last 10 quarters. In making the announcement, AMD said that Compaq computers and Gateway already started selling computers with the 1GHZ Athlon chips. What attracted us to AMD as well, was a report from Reuters which said personal computer unit shipments are expected to grow by 20% in the first quarter of 2000, compared to the same period in 1999. Shipments made during the 1st quarter are traditionally a slow period. With Y2K fears over for the most part, and the introduction of Microsoft's Windows 2000, demand should pick up for new PC's and those wanting to upgrade. If that's the case, then AMD will be well positioned to capture more than its share of business. On Monday, analysts at Gruntal, reiterated their short-term Outperform rating of AMD. Need further proof of the new-found popularity of AMD? In the past two sessions AMD has seen over 24.1 million shares of their stock traded. AMD made a new high today at $59 before seeing some profit taking set in. Due to the gaps up the past two days, we would look for $49 or $46 to provide support for AMD, should we see any further profit taking. AMD did bounce off the area at $50 late today, so a bounce back to higher levels may have already began. The news of the new 1GHZ processor has captured the headlines in the last day or so, however AMD also recently announced a flash memory agreement with Cisco Systems. Under the terms of the agreement AMD will supply CSCO with the majority of their flash memory devices requirements over the next three years. BUY CALL APR-45 AMD-DI OI=3469 at $10.88 SL=8.75 BUY CALL APR-50 AMD-DJ OI=4016 at $ 8.00 SL=6.25 BUY CALL APR-55*AMD-DK OI=2112 at $ 5.88 SL=4.25 BUY CALL APR-60 AMD-DL OI=5309 at $ 4.13 SL=2.50 SELL PUT MAR-50 AMD-OJ OI= 208 at $ 2.06 SL=4.00 (See risks of selling puts in play legend) Picked on Mar 07th at $53.25 PE = N/A Change since picked +0.00 52-week high=$59.00 Analysts Ratings 8-6-8-0-0 52-week low =$14.56 Last earnings 01/00 est=-0.06 actual= 0.43 Next earnings 04-19 est= 0.35 versus=-0.81 Average daily volume = 3.74 mln /charts/charts.asp?symbol=AMD **** WCG - Williams Communications $59.00 +1.75 (+4.75 this week) WCG is 85% owned by Williams Company (WMB), a gas utility transmission company whose rights of way have been filled with ubiquitous strands of fiber optic cable. In 1985, WMB became the first energy company to harness its core competency as a builder of networks to enable competition in the communications industry Williams Communications is North America's only exclusively carrier- focused fiber-optic network and the largest independent source of end-to-end integrated business communications solutions-data, voice or video. Based in Tulsa, Okla., Williams Communications operates primarily in North America, with offices in Europe and Asia and investments in South America and Australia. Can't you just taste the broadbandy goodness? Over the past week, pure optical transmission networks have found their way to the dinner plate, as Deutsche Telekom was rumored to have an appetite for Qwest Communications, then Global Crossing, both as acquisition targets. While the market was preparing DT's meal, it also cooked up some nice gains in QWST and GBLX competitors, namely WCG. All have core competency in leasing out access in their fiber backbones to other carriers. Recently, WMB announced deals to purchase 2200 miles of fiber in Michigan, Ohio, Indiana, Illinois and Wisconsin from SBC's Ameritech division. Similarly, they recently swapped network capacity with Sweden's Telia in a deal valued at $440 mln. Technically, WCG experienced a breakout five days ago at $46 and has moved up to current levels, unabated by turbulent markets. If you squint at the chart, support can be seen intraday at $50, $53 and its current level of $58. But it's tough to see since the gains have been steady with little interruption. Take solace in knowing that even the tip of the long candlestick tail in today's action couldn't get down to the 5-dma of $54.31. Target shoot to your comfort level - it's looking really strong. Though we don't list them, you can consider playing WMB strikes too since the street values their energy business at about $3 per share, net of their 85% interest in WCG. It's a lot like BCE's interest in Nortel You want analyst recommendations? We got'em right here: Lehman Bros. raised their price target to $62 from $52, while Solomon Bros. reiterated their Buy rating and raised their target to $70 from $46. CSFB was the first to notice two weeks ago when they raised their target from $38 to $65 and reiterated their Buy rating. ***March strikes expire in less than 2 weeks*** BUY CALL MAR-50 WCG-CJ OI=144 at $8.63 SL=6.50 BUY CALL APR-55*WCJ-DK OI=117 at $7.63 SL=6.00 BUY CALL APR-60 WCJ-DL OI=101 at $5.13 SL=3.25 Picked on Mar 07th at $59.00 P/E = N/A Change since picked +0.00 52-week high=$58.38 Analysts Ratings 2-3-1-0-0 52-week low =$23.25 Last earnings 02/00 est=-0.23 actual=-0.16 Next earnings 05-13 est=-0.42 versus= N/A Average Daily Volume = 956 K /charts/charts.asp?symbol=WCG **** RRRR - Rare Medium Group $72.44 +3.94 (+4.44 this week) Originally known as ICC Technologies, the company divested itself of its old business (air-conditioning operations) in favor of newer technology after purchasing Web-site developer, Rare Medium in 1998. RRRR provides planning, consulting, technology, marketing and Web-hosting services to large and mid-sized corporations looking to develop their e-commerce businesses. The company employs a service delivery methodology that ensures rapid speed to market of business solutions, iterative refinement of the solution, and a solution that is linked to business benefit. The company runs six offices in the U.S., one in Canada, and another in Australia and has the ability to conduct projects on either fixed price, fixed time, or a time and materials basis. No, the company's name does not refer to an elusive psychic or an answer to the question of how you want your steak cooked. This dynamic company is positioned in the middle (medium?) of the red-hot e-business sector. This is a purely technical play, based on momentum and a strong chart. Along with the NASDAQ, RRRR has been marching higher since early February, during which time its share price has more than doubled. Volume seems to be a particularly accurate indication of Re's strength on any given day, as down and consolidation days have produced volumes significantly below the daily average, while up days commonly see double or triple the ADV. Marching up the chart, RRRR provides a beautiful stairstep picture as it moves up $5 at a time before consolidating for the next move up. Resistance now sits at $75, near today's 52-week high, and the stock may need to consolidate near $70 before moving higher. Support is found below at roughly $5 increments, and a bounce at either $65 or $60 is buyable. Frequently bouncing near the 5-dma ($66) on its move up, RRRR provides investors with their best entry points on the occasional bounce at the 10-dma ($60.44). Target shoot entries according to your risk tolerance, but remember to watch the volume. Strong volume on an up-day is a good indication the move is for real. The latest news for RRRR occurred on February 24th. Sylvan Learning Systems, Inc. announced that it plans to launch a venture subsidiary that will invest in and incubate emerging internet technology companies in the education and training marketplace. RRRR is one of several companies that will invest in and support the venture. ***March contracts expire in less than 2 weeks*** BUY CALL MAR-70 RRU-CN OI=368 at $ 7.75 SL=6.00 BUY CALL MAR-75*RRU-CO OI=590 at $ 5.25 SL=3.50 BUY CALL MAR-80 RRU-CP OI=104 at $ 2.63 SL=1.25 BUY CALL APR-75 RRU-DO OI= 70 at $10.13 SL=7.50 BUY CALL APR-80 RRU-DP OI= 65 at $ 7.13 SL=5.25 Picked on Mar 7th at $72.44 P/E = N/A Change since picked +0.00 52-week high=$75.75 Analysts Ratings 0-1-1-0-0 52-week low =$ 4.44 Last earnings 02/00 est=-0.21 actual=-0.24 Next earnings 05-15 est= N/A versus=-0.22 Average Daily Volume = 1.53 mln /charts/charts.asp?symbol=RRRR ************* NEW PUT PLAYS ************* No new puts today. ********************** PLAY OF THE DAY - CALL ********************** SEBL - Siebel Systems $161.00 +9.56 (+6.28 this week) Siebel Systems, Inc. is the world's leading provider of eBusiness applications software. Siebel Systems provides an integrated family of eBusiness application software enabling multi-channel sales, marketing and customer service systems to be deployed over the web, call centers, field, reseller channels, retail and dealer networks. Siebel Systems' sales and service facilities are deployed locally in more than 28 countries. Most Recent Write-Up At least somebody bucked the trend today. Volume made a comeback over the last two days and never let us get that entry in the $130's, so we had to be happy with $147 yesterday and $150 today. SEBL looked technically strong by managing a bounce and a close well above its 5-dma of $147.69. As long as technology remains out in front, SEBL should continue to move up. Unfortunately, other than an article noting that Home Shopping network is standardizing on SEBL systems software, there is no news to explain today's gains. But if SEBL can do this while even the NASDAQ goes in the tank, it will be one of the strongest when the market turns around for earnings season. SEBL is also a split candidate at these levels, but will need shareholder approval to authorize more shares should management opt for anything greater than 3:2. Earnings are not until April 25. You may consider target shooting at $150 again, or if you don't mind a bit more risk, $160 (near its current level) could also make a good entry. Just make sure the market is moving in your favor. Comments Siebel had a great today before finally succumbing to market weakness. Support looks solid at $160 and that justifies an entry here despite a $9 plus gain today. Make sure you confirm the market direction as it could be volatile in the morning, but SEBL's trend should continue higher once the spotlight turns back to the Nasdaq 5000 run. Resistance is at $170 and then it is smooth sailing. ***March contracts expire in 2 weeks*** BUY CALL MAR-150 SGW-CJ OI= 412 at $15.25 SL=10.50 BUY CALL MAR-155 SGW-CK OI= 88 at $12.00 SL= 9.50 BUY CALL MAR-160*SGW-CL OI=1361 at $ 9.25 SL= 7.00 BUY CALL APR-155 SGW-DK OI= 124 at $20.88 SL=14.00 BUY CALL APR-160 SGW-DL OI= 208 at $18.50 SL=12.50 Picked on Feb 22nd at $121.88 P/E = 298 Change since picked +39.13 52-week high=$171.00 Analysts Ratings 9-5-0-0-1 52-week low =$ 15.75 Last earnings 01/00 est= 0.15 actual= 0.19 Next earnings 04-25 est= 0.14 versus= 0.10 Average Daily Volume = 3.4 mln /charts/charts.asp?symbol=SEBL ************************ COMBOS/SPREADS/STRADDLES ************************ A Weakening Dow Plagues The Market.. Tuesday, March 7 The blue-chip average plummeted 374 points to close at 9,796 as Proctor & Gamble (PG), the consumer products giant, plunged $27 to $60. The technology-driven Nasdaq Composite slid 57 points to end at 4,847, after spiking above 5,000 near the open. The S&P 500 Index lost 35 points to 1,355. More than 1.3 billion shares traded on the New York Stock Exchange and breadth was negative with declining stocks beating advances by more than 2-to-1. The 30-year U.S. Treasury bond fell 1/32 with its yield closing at 6.15%. Portfolio plays: Blue-chip stocks began a new slide this week after comments from Federal Reserve Chairman Alan Greenspan renewed concerns that interest rates are heading higher. The Dow Industrial average was also affected by profit-taking Tuesday as investors sold for gains from the recent rally. The majority of stocks ended on a high note last Friday after a benign employment report suppressed fears of rising inflation. Now the selling pressure has returned after Greenspan insinuated that higher stock prices are fueling capital spending and that growth cannot continue to exceed supply growth. He also noted that the rise in productivity is causing demand growth to eclipse supply and that labor market imbalances may harbor a potential for inflation. The end result; there is a much stronger belief that interest rates will be raised higher in the near-term. There have been a number of big announcements regarding portfolio issues over the last few days and fortunately, all of them were positive. One of Monday's reports affected our new position on Mirage Resorts (MIR). The MGM Grand (MGG), a hotel and gaming company controlled by billionaire investor Kirk Kerkorian, has agreed to buy Las Vegas rival Mirage Resorts for $6.4 billion in cash and assumed debt. The merger/buyout virtually guarantees maximum profit in our recent diagonal spread. U.S. Foodservice jumped $6 today after the company announced it would be acquired by Royal Ahold for $3.6 billion in cash and stock. Royal Ahold will exchange $26 in cash per share for USF's 101 million shares outstanding. The deal gives Royal additional reach in the U.S. and will turn them into a $30 billion multi-channel food provider. Our bullish combination position is profitable above $12.50. Web security firm VeriSign (VRSN) said it would buy leading Internet domain name registrar Network Solutions (NSOL) in a $17 billion stock deal creating a one-stop shop for the basic ingredients of electronic commerce. The surprise pact combines one of the top names in security services for Internet commerce with the company that until recently held a monopoly on assigning and recording names for the millions of dot-coms, dot-orgs and dot-nets that populate the Internet. The combined company will have the scale and range of services to take e-commerce to the next level and NSOL's 8 million customers will create huge opportunities for expansion of its Internet security services. Our position is at maximum profit above $220. The majority of portfolio positions have fared very well since my departure and there is little to be said about the positive plays. As always, if there is an opportunity to close a position early for a favorable profit it should be exploited. If the underlying issue changes character and the play is in danger of significant loss, it should also be closed. While I won't attempt to uncover all of the potential exits over the past few days, it is safe to say that a number of spreads should have been exited to protect gains. In addition, there were numerous upside adjustments that could have been made in the longer-term positions. In our case, these moves will be recorded as they become available or at the March expiration. Questions & comments on spreads/combos to Click here to email Ray Cummins ********* NEW PLAYS ********* Even as I traveled abroad, requests for credit spreads continued to dominate my incoming Email. While I remain confused over the insatiable appetite for this specific approach, there are a number of excellent candidates for the strategy. The following plays are based on well-known companies in favorable industries. Each position is evaluated for probability of profit using the current price and trading range of the stock and the recent technical history or trend. News and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. **** LVLT - Level 3 Communications $124.93 *** On The Move! *** Level 3 Communications engages in the information services, communications and coal mining businesses through ownership of operating subsidiaries and substantial equity positions in public companies. Level 3 also offers, through its subsidiary PKSIS, computer operations outsourcing and systems integration services to customers located throughout the U.S. and abroad. LVLT's systems integration services help customers define, develop and implement cost-effective information services. They offer a number of reengineering services that allow companies to convert older legacy software systems to modern networked computing systems. Ownership interests include: Commonwealth Telephone, a public utility providing local telephone service to a 19-county service territory in Pennsylvania. RCN, a full service provider of local, long distance, Internet and cable television services primarily in the northeast and KCP, a company engaged in coal mining. Level 3 has been on the move recently and their option volume and volatility has also remained firm as the stock reached a new 52-week high. With the technicals suggesting a potential breakout, this issue is one to watch in the coming sessions. Traders who favor the credit spread strategy can participate now with this bullish, OTM position. PLAY (aggressive - bullish/credit spread): BUY PUT MAR-110 QHN-OB OI=603 A=$1.12 SELL PUT MAR-115 QHN-OC OI=738 B=$1.88 INITIAL NET CREDIT TARGET=$0.75-$0.88 ROI(max)=20% Chart = /charts/charts.asp?symbol=LVLT **** KLAC - KLA-Tencor $84.00 *** Hot Sector! *** KLA-Tencor supplies process control and yields management solutions for the semiconductor and related microelectronics industries. KLA-Tencor's Wafer Inspection Group offers unique products including Intelligent Line Monitor and Stationary Beam Technology, IMPACT/Online and CRS/Offline. The Yield Management Solutions group provides products such as the Quest Defect Data Management System, Klarity and YieldLink Systems Software. The company's Reticle Inspection and Data Management systems include the 353UV Ultraviolet and the 301 Pattern systems. The company also offers metrology tools and analysis software, which include E-beam and Optical products for Windows, and the Prometrix and OmniMap systems and film stress measurement products, as well as the HRP-220 and P-22 profiling products. KLAC is another issue that recently achieved a new 52-week high and with the bullish analyst's outlook, there is little to oppose the trend. On Monday, Lehman Brothers raised its 12-month price target for KLA-Tencor to $110, along with increasing its earnings per share estimates. The brokerage based its change on the fact that KLAC's orders are accelerating across virtually all product lines and geographic areas. Third quarter 2000 orders could be as high as $525 million, a 17% sequential increase and a new record. That's great news for investors and the report should provide plenty of interest to support the upward movement in the issue until next week's expiration. PLAY (aggressive - bullish/credit spread): BUY PUT MAR-70 CKV-ON OI=132 A=$0.75 SELL PUT MAR-75 CKV-OO OI=260 B=$1.50 INITIAL NET CREDIT TARGET=$0.88 ROI(max)=20% Chart = /charts/charts.asp?symbol=KLAC **** CMGI - CMG Incorporated $140.00 *** An Old Favorite! *** CMGI develops and operates Internet and direct marketing companies as well as venture funds focused on the Internet. CMGI Internet Group includes majority owned subsidiaries ADSmart Corporation, Engage Technologies, Accipiter, InfoMation Publishing Corporation, NaviSite Internet Services Corporation, Planet Direct Corporation and Password Internet Publishing Corporation, as well as minority investments in Magnitude Network and Open Market. CMGI's first Internet venture fund is CMG@Ventures I, which has investments in Blaxxun Interactive, Lycos, Parable LLC and Vicinity Corporation. The company's second Internet venture fund is CMG@Ventures II, which holds equity investments in companies such as Chemdex, Critical Path, KOZ, Parable, Reel.com, Sage Enterprises, Silknet Software, Softway Systems, Speech Machines, Universal Learning Technology and Visto Corporation. Today CMGI outlined their plans for financing the next stages of the Internet revolution, including wireless Web access and other Web-enabling businesses, moving well beyond its earlier focus on consumer Internet investments. The company also plans to make a number of new acquisitions in hopes of capturing the hyper-growth markets. CMGI's leading corporate strategist said the company will focus on the areas that provide high-speed Internet access over cable and phone lines and links to consumer devices such as cell-phones. He also suggested they would devote attention and investments toward online services that connect businesses to their suppliers and customers, an area expected to become much larger than most current consumer-focused Internet industries. A conference call scheduled later this week should provide some new interest in the company and with technical support near our break-even point, this position offers favorable, short-term speculation on the volatile Internet sector. PLAY (aggressive - bullish/credit spread): BUY PUT MAR-115 GCD-OC OI=1825 A=$2.31 SELL PUT MAR-120 GCD-OD OI=2531 B=$3.00 INITIAL NET CREDIT TARGET=$0.75-0.81 ROI(max)=17% Chart = /charts/charts.asp?symbol=CMGI **************************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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