The Option Investor Newsletter Tuesday 3-28-2000 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) ****************************************************************** 3-28-2000 High Low Volume Advance Decline DOW 10936.10 - 89.70 11094.30 10932.80 954,242k 1,351 1,656 Nasdaq 4,833.89 - 124.67 4952.93 4833.89 1,487,892k 1,522 2,765 S&P-100 821.40 - 8.77 832.79 821.08 Totals 2,873 4,421 S&P-500 1507.73 - 16.13 1527.36 1507.09 39.4% 60.6% $RUT 559.04 - 14.61 573.65 559.04 $TRAN 2680.97 + 13.16 2727.34 2664.66 VIX 26.58 - 0.17 27.68 25.75 Put/Call Ratio .47 ****************************************************************** Abby Is Selling, But Will Funds Start Buying? Abby Joseph Cohen spoiled the markets today, but it may be time for other money managers to start their quarterly window dressing shopping spree. If you caught any of the action today, you know it was famed Goldman Sachs analyst Abby Joseph Cohen who brought a dark cloud to Wall Street today. In a somewhat confusing move before the market open, she changed her allocation in stocks from 70% down to 65%. It was confusing in that she had just upped her price targets for the DJIA and S&P 500 last week. How does she expect to hit those targets with everyone selling stocks? I guess what can be derived from this change in allocation is that she is expecting better gains in the non-Nasdaq stocks, which is in line with her comments about the switch. Still, ahead of what should be an incredible earnings month, the timing seemed suspect. Nevertheless, the futures were near +10 this morning until the news hit and they quickly dropped to -6 and set the tone for the day. The damage might not be as bad as it looks at first glance though. Sure the Nasdaq was -124 and closing right smack on the low, but volume was flat out anemic at 1.5 bln shares. Also, you had a lot of people talking over the weekend about a sluggish start to the week and then picking up ahead of March 31st and the end of the quarter window dressing. Throw in some decent support at 4800 on the Nasdaq supported by the 10-dma and we might just be a quick morning capitulation away from an entry point. Losers did almost double gainers by a 27-15 margin on the Nasdaq though. A bounce at 4800 will be the key before jumping back in with both feet. The DJIA held up better, but still gave up gains in the final 90 minutes of trading. The Industrials fell by 89.74 to close at 10936.11. Advancers beat decliners by a 17-12 margin on light volume of 952 million shares. Yep, back under 11,000 as the DJIA again failed at resistance of 11,100 during the past few days. The chart below is an updated version of the one from last week showing this resistance level. It is clear where the sellers are accumulating, but the light volume is suggesting there aren't a whole lot of sellers out there. It is probably more along the lines of some healthy profit-taking after a big run up on the DJIA. In fact, there was a lot of good news that went relatively unnoticed today. For instance, Oil tanked again on news that OPEC has reached an agreement in principle to increase output. There has been no formal announcement yet to just how many barrels they will send to market, but it is expected at any time. Oil prices finished down $0.70 cents to $27.09. Not bad compared to the $34 level we were looking at just over a week ago. The preliminary report is a 1.7 million barrels a day increase, which is closer to the high end of expectations. Although, the word crossing CNBC late this afternoon suggests that maybe the deal at 1.7 million is not final. Either way, oil continues to fall and that will help curb inflation. Also, consumer confidence fell for the second straight month on worries over inflation. If people start spending less, it is hard for prices and inflation to increase. In the treasury market, bond prices gained ground. The 10-year bond (the new bellwether) gained ground and saw its yield fall to 6.15% from 6.18%. Most of this was a flight to quality reaction to today's market, along with the positive economic numbers. The winners today could mostly be found in Airlines, Banking, Retail, Insurance and other Cyclicals. The losers were in High-Tech, Internet, and Utilities. The best bet was to stay in those stocks that were showing strength or holding support as they are likely to take off when the market recovers. Other- wise, finding an exit point on the losers is time well spent. You don't want to get caught watching something bleed to death. Sounds simple, but a reminder is always useful. You may remember what happened the week of March expiration when the entire Nasdaq bled all week long, leaving call-sellers happy and call- buyers mourning. The biggest joke of the day was rumors of an emergency Fed meeting that might be called to raise rates ahead of their next meeting. Come on guys, who starts some of these. I think it is a pretty safe bet that isn't going to happen. Alan and friends have been fairly systematic about the way they've been raising rates. They have had five, 25-point moves over a period of 9 months and are not likely to do anything so drastic. This could have sparked some selling, but not by smart money as they know the Fed will sit pat until their next scheduled meeting. PALM was our big earnings news after the close today. In their first report as a publicly traded company, PALM beat the street by two cents. First Call had an estimate of $0.01 and they earned $15.5 million, or $0.03. This was a pleasant surprise and hopefully the beginning of many more to come in the next month. PALM was trading up from their regular session close at $54.81 to $57 after-hours. Logical thought would lead us to believe that a negative open tomorrow is imminent, barring some market moving news. Despite PALM's solid earnings and some more late news that AT&T has set the range for the IPO on their wireless tracking stock, a close at the day-low is never good. As mentioned above, we may see a morning dip before stocks stage a mid-week comeback. Paul Cherney, market analyst at Standard & Poor's said it best today, "A lot of the mutual fund managers, especially those that are in the blue chips, are just biding their time, trying to pick a point to stuff the ledger with some of the better-name blue chips,". Agreed. The market has been trending lower for three days now and it may be time for a bounce. Watch the 4800 level on the Nasdaq for a bounce. The futures are down less than a point at the time of this writing, which isn't telling us anything except we will have to sign on a few minutes early tomorrow to figure out which way sentiment is leaning. If you are brave, look for a capitulation early confirmed by volume or a major support line. Others should watch for a breakout of the current downtrends in all major indices to confirm the reversal. A well-placed trend line along the falling intraday highs should be a good guide. See the one on the DJIA above as an example. A move above such a line will help to restore confidence for a short-term rally. In all cases, trade smart and sell too soon. Ryan Nelson Asst. Editor P.S. The first seminar concluded today in grand fashion and second one began this evening. That one will end this coming weekend and Jim will be back to work providing his market analysis starting next Tuesday, after using Monday to recharge his batteries from those 14-hour days. We like to give him one day off from time-to-time! ********** STOCK NEWS ********** Gas Prices Fuel Consumer Confidence Slide By Cindy Christ Rising gas prices may prove a boon to the Federal Reserve Board, which hasn't met its goal of curbing rampant consumer spending despite a series of interest rate hikes. Since June, the Federal Open Market Committee has raised interest rates five times in a bid to slow down consumer spending, which accounts for about two-thirds of the U.S. economy. On Tuesday, The Conference Board reported its closely watched Consumer Confidence Index fell in March for the second month in a row, a sign consumers may shut their pocketbooks amid a more cautious outlook for the future. The Index now stands at 136.7, down from 140.8 in February and a record high of 144.7 in January. The consensus forecast on Wall Street was 139.8. The Conference Board said the March decline was caused by a dip in the Expectation Index, which fell to 106.2, down from 114.6 last month. Although consumers are becoming more guarded, they're still upbeat about the current economy. The Present Situation Index actually rose to 182.4 in March from 180.1 in February. "While optimism about current economic conditions continues at high levels, consumers have turned cautious about prospects for the next six months," said Lynn Franco, Director of the New York group's Consumer Research Center, in a news release. "Analysts are waiting to see if a further erosion in confidence triggers a slowdown in consumer spending," Franco added. Overall, the survey showed significant increases in the proportion of respondents expecting business conditions, job prospects and income increases to worsen over the next six months. In addition, results showed that lowered expectations are affecting consumer purchases of big-ticket items, with the percentage of consumers planning to buy a car in the next six months dropping to 8.4 from 9.8 in February Higher mortgage rates also are helping undermine home sales, with the percentage of people planning to buy a home sliding to 3.8 from 4.5 last month. In an interview with CNBC financial television, conference board economist Delos Smith said rising gas and home heating oil prices are key factors eroding confidence levels. "136.7 isn't really all that bad," Smith said. "Fuel prices are what's driving consumer fear." Over the last year, fuel costs have surged, as the Organization of Petroleum Exporting Countries cut back production levels to pump up sagging oil prices. The average cost for a gallon of gas in the U.S. as of March 25 was $1.59 a gallon, up nearly 61 percent from 99 cents a year ago. At meeting in Vienna Tuesday, OPEC ministers tentatively agreed to ease oil restrictions by releasing an additional 1.7 million barrels a day on the world oil market. Soaring fuel prices notwithstanding, The Conference Board said it's unlikely that weakened confidence will put the brakes on a thriving U.S. economy. "A moderate cutback in consumer spending is unlikely to stifle still-strong economic growth," Franco said. ************** Market Posture ************** As of Market Close - Tuesday, March 28, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,850 11,250 10,936 Neutral 3.16 SPX S&P 500 1,410 1,475 1,508 BULLISH 3.21 OEX S&P 100 780 800 821 BULLISH 3.21 RUT Russell 2000 510 530 559 BULLISH 2.24 NDX NASD 100 4,000 4,150 4,583 BULLISH 2.24 MSH High Tech 975 1,000 1,130 BULLISH 2.24 XCI Hardware 1,480 1,510 1,733 BULLISH 2.24 CWX Software 1,430 1,670 1,557 Neutral 3.21 SOX Semiconductor 1,130 1,360 1,261 Neutral 3.21 NWX Networking 1,000 1,040 1,151 BULLISH 2.24 INX Internet 770 800 895 BULLISH 3.09 BIX Banking 520 600 579 Neutral 3.16 XBD Brokerage 450 480 551 BULLISH 2.31 IUX Insurance 520 600 556 Neutral 3.16 RLX Retail 900 1,000 925 Neutral 3.16 DRG Drug 340 380 339 BEARISH 3.28 ** HCX Healthcare 700 750 686 BEARISH 3.24 XAL Airline 130 150 143 Neutral 3.10 OIX Oil & Gas 265 300 273 Neutral 3.16 Posture Alert A longtime Wall Street Bull helped shake out some weak hands today, as Abby Joseph Cohen reduced her equity exposure by 5% to a mere 65% exposure rate. Regardless of how meaningless this news was, it did make enough news to become a self-fulfilling event, as the Dow and NASDAQ stumbled today. Sectors showing strength today include Airlines; which had a +4.30% gain thanks to United Airlines positive pre-release, and Banking +1.03%. With this most recent action, we have downgraded the Drug sector to Bearish. **************** Market Sentiment **************** Tuesday, March 28, 2000 Did you get Abby Greenspaned! So a big time bull lowered her recommendation in equities by 5% and the market sells off. Was today's lower close a byproduct of her recommendation, or just a little profit taking after a big run up? Now granted, Abby does have pull, but we would lean to the latter. Regardless, some issues did get hit today, including technology bellwethers Intel and Cisco Systems, which got hit for -7 and -2 3/16 respectively. However, both issues were up +24-25% just in the month of March, so to see these issues sell-off after Abby's comments was expected! One noticeable trend that everyone has witnessed this year has been the dramatic volatility in the market. Market corrections are starting to occur often, and now last for only a couple of days. Investors and traders switch from the bulls to bears camp as quickly as the weather changes in Chicago. This quick change in sentiment needs to be followed with close scrutiny, as one or two days can easily change perception. We highlighted several companies in Sunday's letter and gave the sentiment for those issues, including the Pinnacle Index, whisper number, as well as their earnings expectations. The two highest sentiment issues were Best Buy, and Cabletron Systems. Best Buy had a Pinnacle Index (as of Thursday 3/23) of 5.61, however, heading into today, it dropped to 2.63. Some of the best sentiment witnessed is the previous couple of trading days ahead of an earnings announcement. Obviously, in this case, the put buyers came marching in with a vengeance these last two days, and are paying the price today as Best Buy blew away even the infamous "whisper number" when they reported earnings. Because of this quick and dramatic change, we decided to revisit Cabletron, since they are due to report tomorrow. Now the Pinnacle Index for this stock has dropped as well, but is still very high and feverishly optimistic at 8.63. Now should Cabletron beat their whisper number of $.16 and have a rosy conference call, all bets are off, because with the dramatic increase in short interest, the stock could easily get squeezed and run higher. However, if earnings only come inline, combined with the high level of investor expectations, this stock may be poised for a pull back. Once again, we would lean to the latter, unless we get Abby Greenspamed. BULLISH Signs: Corporate Earnings: Major corporate earnings continue to come out strong and ahead of analyst expectations. General Electric and United Airlines are the latest bellwethers to give positive comments regarding earnings. Short Interest: Short interest continues to climb as quickly as the market. The short interest on the NYSE increased +5.7% to 4,110,510,698 shares on March 15. This bearish level would suggest further upside potential. Interest Rates (5.988): The current yield is in bullish territory. Mixed Signs: Volatility Index (26.58): 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. BEARISH Signs: Pre-Release Season: With April just around the corner, we have the beginning of pre-release season. Over the next several 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, followed by MicroStrategy and its 140-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. 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 (3/24) (3/28) Overhead Resistance (830-860) 7.14 3.22 OEX Close 832.65 821.40 Underlying Support (800-825) 1.22 1.02 Underlying Support (770-795) 0.82 1.37 What the Pinnacle Index is telling us: Overhead resistance has dropped significantly, which will help the bulls if this market decides to make another run. However, support is still light, so the chance for more of a pullback still exists. Put/Call Ratio Friday Tues Strike/Contracts (3/24) (3/28) CBOE Total P/C Ratio n/a .43 CBOE Equity P/C Ratio n/a .38 OEX P/C Ratio n/a 1.47 Peak Open Interest (OEX) Friday Tues Strike/Contracts (3/24) (3/28) Puts 700 / 9,113 720 / 8,654 Calls 830 / 4,363 830 / 4,637 Put/Call Ratio 2.08 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 24, 2000 26.58 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 10936.11 -86.87 -89.74 -176.61 Nasdaq 4834.00 -4.47 -124.56 -129.03 $OEX 821.40 -2.48 -8.77 -11.25 $SPX 1507.73 -3.60 -16.13 -19.73 $RUT 559.04 -0.36 -14.61 -14.97 $TRAN 2680.97 -20.34 13.16 -7.18 $VIX 26.58 0.94 -0.17 0.77 Calls Mon Tue Week QCOM 154.81 2.94 5.88 8.82 New, recent breakout MFNX 101.13 1.44 1.63 3.06 Lines-up major contracts NOK 226.25 5.50 -3.69 1.81 Still holding on IBM 122.50 6.25 -4.50 1.75 Big Blue on the move AOL 71.81 3.44 -2.63 1.13 It could have been worse YHOO 195.00 6.75 -5.75 1.00 Six days until earnings T 59.50 1.56 -0.81 0.75 New, wireless IPO soon! RATL 86.88 3.19 -3.06 0.13 Whiplash Alert!! DELL 55.88 1.44 -2.00 -0.56 In a channel here BMCS 52.19 2.19 -2.81 -0.63 Watch for better volume NT 140.56 1.81 -2.50 -0.69 Strategic B2B alliances SNDK 131.63 12.50 -13.44 -0.94 Up & down from the news BAC 53.56 -0.50 -0.56 -1.06 Still a pretty picture HWP 140.69 3.81 -5.50 -1.69 Third time's a charm INTC 135.69 3.63 -7.00 -3.38 Sitting at support SEG 67.25 0.75 -4.50 -3.75 Dropped, time to go NITE 55.00 -2.06 -2.00 -4.06 $60 = strong resistance RNWK 68.22 0.31 -4.41 -4.09 Dropped, like a rock ERICY 98.00 -3.19 -1.63 -4.81 Partners and contracts SCH 60.13 -5.44 0.63 -4.81 Bucking the trend today ALTR 87.69 -2.38 -5.81 -8.19 Price targets upped EXDS 162.25 -5.50 -5.56 -11.06 Poised to go higher Puts RHAT 50.13 -3.88 -6.50 -10.38 Down on strong volume AT 61.88 -2.56 -3.88 -6.44 New, ready to roll over ISLD 71.63 0.06 -4.44 -4.38 Rolling back underwater GTW 54.63 -0.25 -1.38 -1.63 Expecting shortfalls CPQ 28.50 0.56 -0.94 -0.38 Hoping for a warning PSIX 37.94 1.06 -0.94 0.13 Nearing support @ $36.63 FON 60.38 0.88 0.25 1.13 Dropped, good bye CKFR 65.50 12.56 -8.25 4.31 Dropped, letting this go ************** TRADERS CORNER ************** First 150% Challenge Trades and The Value of the Telephone in an Electronic World. By: Harrison Frolick After receiving several emails from one of the programmers at OIN concerning my receipt of an email on how to format my stories and then, a few emails later, about how everything that I had sent in was in 14 point type, I realized, once again, for the third time today that emails and technology still have some gaping holes in them. The end result was that it was neat to email back and forth; but, if we had picked up the phone and had a 20 second conversation, we could have figured out that the problem was that I had sent them a rough draft and NOT the 3 versions later, finished story as I had intended. Sorry folks, but you got the rough draft, again! As this happened with the last story that was published, as well, I was really miffed at myself. If there are cuss words in the version you are now reading, then I did it again. (darn *^%* dang)*)&& dingleberry#%@ whitehouse%$#politicians##^%~) This also happened earlier today with a principal of a trading house. Not the cussing part....well, actually that, too. About five emails into it, I got POD and got the president of the firm on the phone. I learned as a kid that bypassing the flunkies and starting at the top usually gets things taken care of. What surprised me was that we got the situation taken care of. In conversation, he was explaining how great that their electronic trading system was, (It is not that great. I have yet to find one that I am truly happy with), and I asked him about the long wait to get through to a broker on the phone. He thought that only a 5 minute wait was great. I was dumbfounded. Well, I have news for all of you brokers. Anything over 1 minute is unacceptable if you want my money and the loads of accounts that follow me, and you had better have more than 2 people on the phones. 5 minutes could cost me $5,000 or $50,000, you schmoe. Which is why I don't trade at 5 of the top 5 brokers. After reading my last article, getting one of my partners to put up the 25k sounded like a great idea. So, I am in the process of hitting up my partners for yet another 25k for my 15%, or did I say 150% challenge? They have all started laughing even before I finished saying, "I have another great idea." I am going to make them all draw straws before the weekend is over, so at least one of them is going to have to empty their change jar. They were actually relieved that I was only asking for 5 figures and not 7. That is the price that they have to pay for hanging around me. I have told them that they are going to get back a 15% return. (OK, so I will give them a couple of Wendy's gift certificates, too. I am not totally unfair you know, they will be able to "Biggie Size" that order all year) I am just telling them it is for one of my experiments. I only have one straw left.....I see my victim now........ One of my 4 readers emailed and, as he was a newbie, he asked what graphing was. My reply was such, "Charting was started in Japan several centuries ago to keep track of rice harvests. However, I now know that it is actually a measurement of how psychotic investors are at any given moment." I should have added that it also measures how psychotic I am at any given moment when I try to interrupt those squiggley little lines and numbers. Well, as I always say, when the coffee runs out, it is time to quit typing for awhile.......five hour break....... Now for the juicy stuff. I was amazed at the response that I got about the 15% return challenge. OK. I am joshing you. I know it was 150%. I just got one of my partners to draw a short straw. So, I did the first trades, for better or worse, before the close and today is Friday, March 24, 00. A couple of things first. One, I am not recommending any of the stocks or options that I am going to trade. By the time you read this I may be long or short or not hold any of the options or stocks that I am writing about. My trades in no way reflect what OIN does in any way. These are my picks and no one else's. I may use picks from OIN, but, as with everyone, I ultimately make the decisions to buy or sell the securities (unless I have a margin call I forget about and the broker does it for me). This is for educational purposes only. I don't want anyone saying they followed my trades and lost money! You won't be able to follow my trades as by the time you read them, I could be out of them. I also reserve the right to change my mind at any given moment. My trading style is definitely not for everyone!! Sometimes it's not even for me! I can afford, or in this case, my partner can afford to lose the whole 25k and not miss it. When it's your money, use your noodle. Don't be stupid with your moola, or in my case someone else's! Funny thing, they always want me to pay them back for some reason. Ok, here is the fun stuff. For better or for worse, here are the trades that I did and I will try to explain them to you the best I can. 03:40 PM Buy 5 RBF-JT $ 30 3/8 Option $ 15,187.50 Margin These are the MERQ October 100 calls. 03:51 PM Buy 500 DSLN $ 23 3/16 Stock $ 11,593.75 Dsl.Net Inc Margin. This is stock. I will end up doing covered calls on these. Here is the short explanation. I came to an Osmotic decision and purchased them. Ok. So, I bought both of these based on the chart and the fact that I have followed these guys for awhile and I like the sectors that they are in. There are better looking charts to be sure, but there are also worse ones. So, I have spent about 22k of the 25k, so far. No whining about the covered calls either! If this works out as planned, you will be amazed at the results (please, please, please work). While it might be prudent to have purchased only 2 or 3 calls and left some money for other plays, I do not want to try and change my trading style for this adventure. I normally play no less than 5 contracts at a time. So, that is what I am going to stick with. I know from past experience that if I change trading styles and I do make it a point to do so every 6 months if not sooner, it takes me a week or two to get into the swing of things. So, what I am trying to say is that I normally put no more than 15% of my account in any one position. Although, to be totally honest, I have been 100% in single trades and it is scary and not recommended. But, I really needed the money to save my hide many moons ago, but, that is a story for another time. I find that sometimes having fewer plays and watching them closely that I get better results than being all spread out. Please note that on the option play, I gave myself plenty of time to be right. I like to have breathing space. Stock play, ditto! So, for better or worse, we are off to the races! I want to thank all the people that sent E's of encouragement. Of course, if I blow this, I realize that I will probably get twice as many "I told you so's." Hey, its just another day in the life of a Stockaholic. You do all realize that if we pull this off, this should put us in the 1% percentile for all mutual fund returns. I'm just not sure if it will be the top or bottom percentile. Just so everyone is on the same page, the goal of the Saga is to turn the $25,000 into $62,500 in one year and not $62.50. Stay tuned to this same dot com for more Stockaholic Madness. Happy Trading! PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** SEG $67.25 -4.50 (-3.75) After providing a good run last week, Seagate appears to have run out of momentum. The stock edged up to $73.63 on Monday, only to drift down to $71.75. Today, SEG gapped down by 3 points and fell all the way to $65.50. Although the stock did rebound from day lows, there's too much risk to continue to hold any positions. The stock came under pressure today from an announcement by IBM. Big blue announced it would expand its sales force as part of a $400 mln push to sell networked storage systems for businesses to manage data. The infamous Cohen comments didn't help SEG any, as many of the old tech names suffered today as the influential analyst cut back her equity exposure. RNWK $68.25 -4.41 (-4.06) As a kid, did you ever try to skip a rock across the water to see how many bounces you could get only to see it sink in the end? Of course you did. Substitute RNWK for the rock. While we got the breakout over $74, RNWK immediately flat-lined, skipping off $74 a few times yesterday. Today, you'd think that with Dain Rauscher Wessels initiating coverage with a Buy rating and price target of $100, the momentum would kick in to move the issue up. Nope. Under market resistance, the rock sank under water to $67.50 by today's close. The short-term ascending triangle we thought would portend the breakout was grossly taken out to the downside. It should come as no surprise that we're dropping RNWK tonight under current market conditions. PUTS: ***** CKFR $65.50 -8.25 (-4.31) The last two days of trading for CKFR exemplify the old adage "Buy the rumor, sell the news." That's exactly what happened. CKFR was driven higher on Monday to as high as $74 and closed just a quarter below. So what lifted CKFR out of the $60s basement? Nothing yesterday. Yet today, CKFR announced that it closed a multi-year, non-exclusive extension to its existing electronic payment agreement with Chase Manhattan Bank. And with that good news, CKFR gave up most of its previous day's gains. Go figure. Although these recent price swings have offered plenty of entry points, there is too much uncertainty in the future of this downtrend. We will let this one go. FON $60.38 +0.25 (+1.13) Today we saw FON tag $61.31 before pulling back in the late afternoon. The penetration of the 200- dma ($59.77) was a bullish move and the close above $60 sealed the play's fate. It's possible the new coverage given to the company's wireless stock, PCS, has effected FON's share price. Today WR Hambrecht started Sprint PCS with a Buy rating and an $85 price target. Unfortunately for all of us, this put play didn't work out and we're putting FON out to pasture this evening. ******************** PLAY UPDATES - CALLS ******************** INTC $135.81 -6.88 (-3.25) We can blame this one on Abby. Just when everything was running smoothly, someone had to say something. There are two upsides to today's selloff though. First, volume was rather anemic, for the overall market and for INTC, 22 mln shares vs. ADV of 26 mln. Secondly, even as some took profits and put too much merit in Dear Abby's comments, INTC held above its support level of $135.25 which was established early last week. That support is the 10-dma and has provided nice bounces for INTC in the past. We feel that the combination of weak volume and historical levels should bode well for INTC. This appears to be a great opportunity to enter this play. A move through $140 would be a more conservative entry point. Use your personal risk levels. It is important to watch for market direction and strong volume tomorrow, indicating a conviction one way or the other. The past two trading sessions are not out of the ordinary considering last week's fantastic rally. BMCS $52.19 -2.81 (-0.63) Remember that trading channel we spoke about last week. Well, it's still in it and BMCS did trade in a wider range than normal. If you look at the intraday chart, you will find that in the final 15 minutes of trading, BMCS flopped down to $52.13. It was on light volume and must be taken with a grain of salt. The entire market had an accelerated selloff in the final moments. The $52 level has provided support for BMCS twice last week. Although the selling was uncomfortable overall, the market lacked real conviction. As we prepare for tomorrow, we will be watching the market direction and specifically, the volume. From there, choose entry points based on individual risk levels and keep an eye on the $52 and $51 support levels. MFNX $101.13 +1.63 (+3.06) MFNX continues to line-up major contracts to build high speed networks. The latest announcement came Tuesday as Lucent said it is launching a venture called GeoVideo Network. The new LU venture along with several partners will build a video network designed for the Internet. The new GeoVideo Network will allow business users to send and receive real-time video. The new venture will target markets such as university telemedicine, teleconferencing, and the long-distance video connections used by television stations. Consumer services such as video-on-demand and electronic cinema will be offered in the near future. One of those several partners in the new venture will be MFNX. Metromedia will supply the local and long-distance optical network equipment and its AboveNet subsidiary will supply global Internet Protocol services. MFNX bounced off support at $99 Tuesday afternoon and rallied sharply into the close, gaining $3 in the last half-hour of trading. The stock looks ready to make new highs after the late-day rally today. Overhead resistance is just above at $102, look for a bounce off support in the $100 - 101 level as an entry into MFNX. ERICY $98.00 -1.63 (-4.81) Rumors circulated at trading desks this morning that ERICY may come out with a pre-announcement of an earnings shortfall. Company officials quickly denounced the rumors with a press release out of Sweden. The stock gapped down 3 points this morning in light of the rumors and moved higher throughout the day to regain lost ground. Volume picked up towards the end of the day as traders dismissed the rumors. In the news today, ERICY announced a breakthrough contract with international operator Tele2. Ericsson will install the new Broadband Wireless IP Access System - Beewip. ERICY's Beewip system is a high performance broadband wireless IP access system intended for small and medium business customers. Also today, ERICY announced a partnership with White Pine Software (WPNE). Ericsson will uses White Pine's CU-SeeMe@ Web technology in its messaging product to create the first commercially available instant messaging with video capability. We are still looking for ERICY to move higher as we approach Friday, when shareholders are expected to approve the proposed 4-for-1 split. Wait for the stock to regain momentum before entering any new positions. Look for directional confirmation and volume to pick up as we approach Friday. NT $140.56 -2.50 (-0.69) B2B is big! Leading research firms project the business-to-business market to grow between $2.7 tln and $7.3 tln by 2004, from about $131 bln last year. That's trillions of dollars! Those figures explain why today Nortel announced a new B2B initiative. NT today launched the Clarify e-Business Applications Unit, which will provide enterprises and service providers with business-to-business applications for managing customer relationships and building virtual Internet marketplaces. In conjunction with the new unit, NT formed an alliance with Andersen Consulting to deliver professional services to help companies implement advanced e-Business strategies and technologies. NT created the new unit by combining the recent acquisitions of Clarify and Periphonics. The first products and services that Nortel will deliver through the new unit will help companies to access customer and inventory information in real-time, using hand-held wireless Net devices. Although the announcement didn't move the stock higher today, this is a strategic move by Nortel. The stock has found strong support at $140 level. Volume has been decreasing, as traders digest the run-up from last week. Look for a bounce off $140 and volume to pick up as the stock moves higher. SCH $60.13 +0.63 (-4.81) Profit taking was the phrase of the day yesterday as the finance sector sold-off, especially the e-finance sector. The stock was due for a breather after the incredible rally last week. Schwab was also hurt Monday by a downgrade of competitor DLJ. Morgan Stanley cut its rating to neutral from outperform, as analysts believe the shares of DLJ are fully valued. The profit warning from financial services firm Finova (FNV) didn't help the cause. Tuesday provided better news for online brokers as Deutsche Bank said it will take a 14.6% stake in National Discount Brokers (NDB). The announcement may have helped SCH to buck the trend today as many analysts still believe the company may be a take-over target. Technically, SCH has found solid support at $60 and is trading well above its major moving averages. The sell-off yesterday has provided a good entry into the play. Look for the upward trend in SCH to continue with a bounce off support at $60. EXDS $162.25 -5.56 (-11.06) Over the past two days, some good and bad news has developed for our EXDS play. First, the bad. IBM and Qwest announced Monday that they have formed a $5 bln venture to build 28 CyberCenters in order to meet the growing demand for companies using the Internet. The CyberCenters will provide a variety of e-business services such as Web hosting and application services. The story should sound familiar since Exodus is the industry leader in providing Web hosting and services. It remains to be seen what impact the new venture will have on EXDS. Now for some good news. Tuesday EXDS announced a partnership with Netergy Networks (EGHT), formerly known as 8X8. The new agreement will provide voice over IP through Exodus Internet Data Centers. The alliance will add to EXDS's portfolio of products and services of Internet applications. Even with the announcement from Q and IBM, EXDS still looks poised to move higher. EXDS should benefit from end-of-the-quarter window dressing, which traders expect to start taking place as early as tomorrow. Wait for the stock to turnaround and for volume to regain before entering into any new plays. A move back above $166 with healthy volume would provide a good entry point. RATL $86.88 -3.06 (+0.13) Whiplash Alert! On Monday if you had a position in RATL you undoubtedly were pleased to see the software company trading $5-$6 higher as it approached the $93 level late in the day. If you check you position after the the close you saw RATL had gained $3.19 for the day after profit taking set in near the close of business. Still, a decent start for the week. Today with the weakness in the NASDAQ, RATL fell back to the $86 area before buyers stepped in, bidding the price back up near the $90 area, only to experience another round of late day selling, sending the price back down to close with a loss of $3.06 for the day. The volume today was very light, as only 336K shares changed hands. While we realize if you had a position in RATL, a loss is still a loss, no matter how light the volume. Light volume and volatility unfortunately go hand in hand. For now we aren't going to get to excited about today's decline for a couple of reasons: the lack of volume and the $86 area, which has provided good support in the last few sessions. If you had a position, depending on your entry, you either have been stopped out, or may be looking to enter again. The 10-dma sits tonight at $86.16. Another bounce off that area would provide a good entry for a new play. With a close below that area, it may be time to step aside. AOL $71.81 -2.63 (+0.81) It could have been worse. A 3% loss is bad enough, but at this point not enough to throw a good play out the window. Technically everything is still intact and looks very good as AOL really was due for a pullback. Today the markets drifted lower for most of the session. After Monday's move to $74.63, the decline today came on light volume and with no real conviction. There is one plus as we see it: the intraday chart is still showing a pattern of higher lows, with the $71 area providing good support. AOL also continues to distance its self from its 100-dma, now found at $69.28. During the past two days, the broader markets have experienced light volume as traders seemed to want to take a breather. With the negative headlines today, the drop in the Dow and NASDAQ could certainly have been worse as well. As we head into the end of the week, analysts are suggesting that end of the quarter window dressing should appear. We would expect AOL to participate with continued momentum to the upside. Probably not a big deal in the overall picture for AOL, but on Monday AOL Europe and T-Online ended a recent quarrel, which could benefit AOL in the long run. Overall bounces off the $70-$71 area should be viewed as buying opportunities as well as continued moves higher. BAC $53.56 -0.56 (-1.06) The chart still shows a pretty picture for BAC. With the "Abby" effect blindsiding the markets before the open, BAC sold off to $52.63 in the opening moments of trading today. Buyers stepped in bidding shares of BAC higher, but the holding company could never really get untracked after buyers jumped ship at the $54.69, leaving BAC to drift lower for the rest of the session. This is not necessarily a negative as the sentiment and trading was lackluster in not only BAC, but the broader markets as well. BAC did close down just $0.56, on thin volume of 5.4 million shares. It's very easy on days like yesterday and today to try to find reasons why a stock move higher or lower, especially sitting in front of a quote screen all day. So far this week, very few traders have wanted to come out and play. Volatility for some issues has been extreme. But for BAC and others to continue to move higher, or move lower on profit taking, we are going to need players to return to the table. Not much news to move BAC higher or lower so far this week. BAC is forming intraday support near $53, but should find additional buyers if we see a decline back to the $52 area. If the momentum can continue, we would look for BAC to challenge its 200-dma now seen at $57.10. SNDK $131.63 -13.44 (-0.94) Monday the headlines brought buyers to the market to move SNDK +$12.50 for the session. Today, the headline news seemed to take them away just about as quickly. On Monday, SanDisk announced that Toshiba Corp. had introduced the world's first product designed to use the SD(Secure Digital) Memory Card, a high capacity, high-security flash card. The device is an mobile Internet audio player, the first in a series of products that SNDK expects to be introduced with the SD Memory Card. Today, the Goldman Sachs strategist put fear into the tech arena saying investors should lighten their load a bit in tech issues. Well, investors did just that, as they sold shares of SNDK and others. SNDK gave back all of Monday's gains losing over 9.0% for the session. The plus for this one is that the $130 area held up pretty well, actually finding a few buyers late in the session. We are sticking with SNDK to see what the mood will be the next couple of days as the momentum going into this week appeared to be in our favor. Today's decline could be just a bump in the road for a very good play. SNDK has support at $130 and at its 10-dma at $126.12. A bounce off either spot could be a good entry point for our play. Be sure and check the volume before entering a new position. HWP $140.69 -5.50 (-1.69) Hopefully the third time is a charm, as today was HWP's third visit to $140 support in the past 6 days. Today's drop came on light volume (only about two-thirds of the ADV), and looks like it was just a side effect of the overall market weakness. HWP hasn't come close to its ADV of 3.64 million shares since this consolidation began a week ago. To move higher, we need the buyers to come back and pump up the volume. Earnings season has commenced, but HWP doesn't report until mid-May, so don't look for any help from that direction in the near term. Recall that the $140 area is potential split territory for the computer maker, and with plenty of shares authorized, an announcement could come at any time between now and earnings. The company has been coming out with regular positive news items about products and alliances, and if the broad markets can move higher, HWP should be able to ride the wave. If prices can bounce from here, current levels represent an attractive entry point. Resistance is still at $150, so more conservative players may want to wait for a move through this level before pulling the trigger. ALTR $87.69 -5.81 (-8.19) PLD stocks were on the move Monday aided by strength in shares of IBM. Initially ALTR tested the waters at its 52-week high ($99.25) in the morning session. However, after settling back to near-term support at $94 and $95, the stock since succumbed to some profit taking despite CSFB's comment that the company is likely to meet or beat 1Q expectations. Analyst Eric Rothdeutsch of Merrill Lynch also came forward on Monday (the second time this month) and reiterated his Near-Term Accumulate and Long-Term Buy ratings for ALTR. He also upped the price target to $120 from $110. Another good sign that ALTR was merely pulling back with the market was that volume was low at only about 60% of its ADV. With all that said and done, we're left with entry points into this earnings' play! For those that want better confirmation, wait for a positive move off the current level near the 10-dma ($88.76) and look for upward bounces off the 5-dma (now at $91.52). This latter indicator is a sensible tool to use in an uptrend. Altera is scheduled to report after the bell on April 12th. *********************************************** PLAY UPDATES - CALLS - CONTINUED IN SECTION TWO *********************************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter Tuesday 3-28-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** YHOO $195.13 -5.63 (+1.13) Six days and counting until Yahoo! reports earnings. The announcement is scheduled for next Wednesday April 5th, after the bell. This week started off with a bang! YHOO flirted with its resistance and pushed above $205. Although in the long run, our compensation was a variety of entry points near the 5-dma ($195.54). Honestly this is a pretty good performance in an environment where many of the Nasdaq stocks were trying to shake off the "market moving" comments by Abby Joseph Cohen today. In other news, Yahoo! is requesting that the SEC exempt them from regulation as a mutual fund. If approved, this decision could set a precedent for other Web companies that have stock holdings representing at least 3/4 of total assets. FYI - Mutual funds have many regulatory restrictions such as debt limits and a ban on employee stock options, which is not a prospect a regular operating company wants. But in the meantime, Smile! Yahoo! Photos launched today. Shutterfly, an online digital photo service, is providing an easy-to-use service for the photo enthusiasts. And on the global front, mobile users in the UK and Ireland can now access the Yahoo! portal from their wireless handsets. To wrap it up, this play is a simple earnings' run on an Internet powerhouse that has volatile moves and great potential for large profits. In other words this equals HIGH- RISK! IBM $122.50 -4.38 (+1.00) The question now is it momentum or upcoming earnings that is accelerating IBM's uptrend? At its peak on Monday, the share price rose $7.00, or 5.8% on news it signed a $5 bln seven-year pact with Quest Communications International. In a joint effort they will build 28 new Internet data centers to provide Web site management. The rally was also a direct reaction to MSDW's analyst, Tom Kraemer's upgrade. He raised the stock to an Outperform from a Neutral and issued a price target of $140 citing the company's diversity as an overall strength. Currently IBM's price level is the highest it's been since September 1999 and this in itself could pump up the momentum. Intraday $122 held up as a bottom while it's more likely $125 and $126 will evolve as near-term support under better market conditions. Looking at a chart it's obvious $115 is much firmer support, but a slide to this old resistance level at the 10-dma ($115.18) should ring your warning bells. A nice balance would be to catch an entry on dips near the 5-dma (currently at $119.90) in conjunction with upward bounces on strong volume. Above the first line of opposition is at Monday's high of $128.50, then the 52-week record at $139.19. In regard to earnings, the company is expected to report around April 19th (not yet confirmed) and the whispers are that IBM will easily meet the Street's numbers. In the news today, IBM announced it won a $370 mln contract with Jaccs, a Japanese financial-services company, to maintain its network for the next six and a half years. And look out EMC...IBM is hiring 1,000 sales people to sell its new data storage products. The $400 mln effort is aimed at slowing the momentum of the #1 maker of storage systems and gaining market share. DELL $55.88 -2.00 (-0.56) DELL is currently channeling at these higher levels while volume continues to be moderate. Intraday $57 and $58 near the 5 and 10 DMAs are proving to be strong, although $55 is holding up well as bottom support. Dips to this level are good points of entry for the more aggressive players who don't want to wait for a breakout. Resistance continues to be tested just above $59, but the real challenge is for DELL to move through $60 and stretch into new territory once again. On Monday, Mort Topfer, a director and counselor at Dell, assured money managers that the parts shortages are now behind them and are no longer a threat to near-term results. Additionally he said Dell is "very comfortable" with analysts' expectations for the 1Q. It's anticipated the company will report around May 11th. This is the kind of news traders need to hear if the momentum is to be sustained. Today Dell lost a few dollars and its likely the news that CEO, Michael Dell, filed to sell 4 mln shares of his stock was the culprit. NOK $226.31 (+4.56) Though NOK splits 4:1 after the close on April 7th and set an all-time high yesterday at $233.38, it couldn't escape today's sell-off. Aside from the split, NOK may have been partially supported by their announcement of an operational Internet browsing phone. According a to a news release, the phone allows instant access to the Net with an HTML browser, a built-in modem and infrared connectivity that enables data exchange with computers and other Nokia phones. While there was a nice bounce off the low today of $225, the recovery didn't last as NOK faded into the close. $220 and $215 offer some historical support. However the 5-dma, currently $223.83, has held up nicely in the recent 8-day gain. Careful -- the 10-dma, which offers the next level of technical support is down at $213.05. Even NOK, as strong as it's been on its split run won't likely hold up if the market continues its downtrend. We suggest you consider waiting for a convincing bounce backed up by increasing volume, and a clear signal that the market has reversed to the upside. Earnings are tentatively set for May 2nd and are not a part of the play. NITE $55.00 -2.00 (-4.06) Just as we thought, $60 proved to be strong resistance. A negative market helped make it worse. No high volume either. Perhaps that explains how NITE managed a fall below its 5-dma of $55.75. If it can't quickly recover from here, we'd expect NITE to nose down to the 10-dma of $52.07, which also happens to be near the lower side of the channel. However, $54-$57 has provided historical support. Despite Abbey's comments today that she favors financials, the electronic brokerage sector didn't benefit much. Thus, we suggest waiting for the market to fill its sails again before taking a position. Otherwise, if you feel like you just can't sit still, at least target shoot at a level of commensurate with your risk tolerance. Earnings are scheduled for April 19. ******************* PLAY UPDATES - PUTS ******************* PSIX $37.94 -0.94 (+0.13) If you slept in today you missed a good opportunity. PSIX shares went as high as $40.94 early this morning creating a great premium. Once they hit that high it was a fast drop down into $38 territory. This seems to be a trend for PSIX. Monday's trading was the same story. Investors still haven't forgiven PSIX for their decision to acquire Metamor Worldwide. Evidence of that is the volume backing point drops. Analysts are silent, not changing their minds about the downgrades given PSIX last week. Circumstances don't look favorable for PSIX and support at $36.63 should continue to be tested. A trend is not absolute so be cautious. As we noted before, PSIX usually creates premiums early in the trading day, which is a benefit of this play. Today, PSIX announced a spin-off of their consumer business, Inter.net, which will begin operations April 1, 2000. GTW $54.63 -1.38 (-1.63) Not that we want to wish GTW any bad luck, but investors returned this week with the same idea we had, sell. The story on Gateway is anticipated revenue and earnings shortfalls. Since late November, the hardware maker has struggled with this issue. Most bounces since that time have been met by sellers ready to get out. At some point there will be buyers that enter the picture but for now the stock continues to move lower. Investors may have began to nail the coffin shut as GTW closed today below its 200-dma at $55.14. According to a market maker at the Chicago Board of Options Exhange, the busiest options yesterday were the April 60 and 55 puts. Early on Monday, about 440 calls were bought, while over 1982 puts changed hands on the CBOE, American Stock Exchange and the Pacific Exchange. Definitely not a good sign for those expecting a reversal of the current trend. GTW did find a few buyers in the early going on Monday, but it was short-lived as the bears jumped back in and GTW went to $57.50. Technically, a bounce up to the $56 area could see the bears enter again. Further weakness would also provide an opportunity to buy puts. If GTW continues its descent, it may not find much support until the $51.50 level. ISLD $71.63 -4.44 (-4.38) Every few days ISLD pops up, as it attempts to break out of its continuing downtrend. Each time, the sellers are waiting just around the corner, ready to beat the tar out of the buyers, sending the price down to new yearly lows. The cycle that is forming is 5-7 days down and 2-3 days up. Each cycle is smooth and provides nice entry points as the sellers take control and the price rolls over. Although this pattern has been repeating all month, we must exercise caution at this point. Volume has been dropping over the past 3 days, posting less than 60% of the ADV today. Sitting just above the $70 support level, ISLD could be touching bottom here, so exercise caution - make sure a continued down move gets confirmed by increasing volume. Look to enter new positions as sellers manage to penetrate this support level. Otherwise, look for buyers to float the price up to resistance near $76 or the 10-dma ($78.75). As ISLD rolls over, feel free to jump aboard and help push it back underwater. RHAT $50.13 -6.50 (-10.38) As RHAT lead off the April earnings cycle yesterday, we got a stark reminder of why we exercise so much caution during amateur hour. The company reported earnings slightly better than expectations, causing a gap up to $64 at the open. This was quickly followed by a drop below $60, and then a slow, steady decline for the remainder of the day. RHAT gave up over $6 from its daily high and then tacked on a $6.50 loss today. Adding insult to injury, the volume was strong, topping 4.5 million shares today. Today's drop sliced through support at $55 without a second thought, opening the door for RHAT to test support at $44-45. Look to enter new positions if bottom-fishers push the price up to resistance near $55 or the 5-dma (up at $56.50) and then run out of steam. The downward momentum seems to be building, but strong volume will continue to be the key. Tighten your stops if it starts to dry up, as it could be our first sign that RHAT has found a bottom. CPQ $28.44 -0.88 (-0.25) In essence we're playing CPQ for an anticipated earnings disappointment and a negative chart trend. Typically, when CPQ reaches $32 it heads south again to support of $24 on the low side of the trending channel. In the short term, there is support at $28.50, a level from which CPQ began to break down into the close. We are comfortable holding existing positions here. However, we need to see how CPQ will open tomorrow. One other factor that we'll keep our eye open is the volume, which has been declining for the last three days to just 63% of its ADV. That's an indicator that the sellers may have already done the damage and CPQ could begin to form a base at this level causing us to assess keeping CPQ on the put list. Ideally, CPQ would bounce up to $29 and begin to fade again, or drop below $28 with intensified selling right from the start. Either would constitute an entry in our opinion. There is no news to turn CPQ around for the positive, but it doesn't mean positive news couldn't reverse the trend. Earnings are now confirmed for April 25. That said, CPQ still has two weeks to give us an earnings warning. ************** NEW CALL PLAYS ************** T - AT&T $59.94 -0.38 (+1.19 this week) With over 90 million customers, AT&T is the US's #1 Telecom company. The services offered by the company include long distance, wireless phone service, Internet access, and local and international phone services for businesses. In an attempt to dominate the domestic cable TV market, T will become the #1 US cable operator with its planned purchase of MediaOne. Are you ready for the largest IPO in US history? Today, AT&T set the IPO terms for its wireless business. After being beaten down for the first two months of the year, T finally found support near $45 in late February. The upward move ran into some resistance near $55, but has left that level in the dust. The action over the past 2 days has brought T to its next level of resistance ($60) which is also the high seen back in November. There will likely be additional resistance at $62 and $64, as T attempts to move higher. The real driver for this play is the anticipated enthusiasm for T's IPO of their wireless services (see news below). Tentatively scheduled for April 26th, the IPO will occur in close proximity to earnings (4/25). The confluence of these two events should allow the Telecom giant to push higher as the dates approach. The strong move upwards over the past 2 weeks may require some profit-taking. Look for a pullback to $58 to trigger your entry, but wait for the bounce first. A more conservative entry would be to wait for T to close above resistance at $60 before throwing your hat in the ring. AT&T is looking to raise more than $11.5 billion by selling 360 million shares of a tracking stock to represent its wireless voice and data operations. Announcing the pricing today, T set an estimated price of $26-32 per share. After the offering, T will retain between 82 and 85 percent of the economic interest in the AT&T Wireless Group. If the recent 3Com/Palm spinoff is any indication, it could be an exciting month. BUY CALL APR-55*T-DK OI=65889 at $5.13 SL=3.00 BUY CALL APR-60 T-DL OI=45185 at $2.25 SL=1.00 BUY CALL MAY-60 T-EL OI=13725 at $4.13 SL=2.50 BUY CALL MAY-65 T-EM OI= 4674 at $2.44 SL=1.25 Picked on Mar 28th at $59.94 P/E = 35 Change since picked +0.00 52-week high=$63.00 Analysts Ratings 16-8-7-0-0 52-week low =$41.50 Last earnings 01/00 est= 0.56 actual= 0.57 Next earnings 04-25 est= 0.42 versus= 0.61 Average Daily Volume = 11.00 mln /charts/charts.asp?symbol=T **** QCOM - Qualcomm Inc $154.81 +5.88 (+8.81 for the week) Qualcomm develops and manufactures communications technologies and products. It's best known for its CDMA (code division multiple access) technology which is the industry standard for mobile communications. This technology and is used in cellular phones, wireless telephone system equipment, and satellite ground stations. Qualcomm also provides the trucking industry with a monitoring system call OnmiTRACS and is currently in a joint venture to develop a low-earth-orbit satellite communication system called Globalstar. They are also the #2 supplier of digital cell phones following Nokia. Their largest competitor is Motorola. After an astounding performance in 1999, QCOM is again making the headlines. The stock's recent break out its channel and the company's upcoming earnings is the basis for this play. Last Thursday QCOM broke free of its bindings and emerged from its trading range of the last three months. Oscillating between $125 and $145 did prove quite frustrating for investors, but now QCOM appears to be on the move again. The 10, 30, and 50 DMAs, which all converge around in the proximity of $134 to $139, are now dots in the rear-view mirror. The nearest technical indicator is the 5-dma ($145.75) and is the mark of old resistance, which QCOM blasted through on Friday. This week the stock signal to us that this run is no head-fake. Granted, if QCOM did dive it has a long way to fall so protect your profits with trailing stops. Entries can be found at near-term support of $145 and $150, but if you're playing on the side of caution watch QCOM trade consistently above $153 on good volume. Be patient, there's plenty of time to find your entry. QCOM is reporting earnings in three weeks on April 18th, after the bell. For those that watch for potential splits around earnings, this stock may very well be a hopeful. QCOM becomes a candidate at $160 and the company has plenty of shares for a stock split. Today Qualcomm and Motorola settled a three-year legal battle over patents covering QCOM's wireless communication technology. According to the terms, neither is making financial restitution and both have agreed to a three-year moratorium on patent- infringement suits. However, Motorola will now pay royalties to Qualcomm for use of its CDMA technology. BUY CALL APR-150 AUA-DJ OI=15656 at $13.25 SL=10.00 BUY CALL APR-155 AUA-DK OI= 5664 at $10.88 SL= 8.25 BUY CALL APR-160*AUA-DL OI=11751 at $ 8.50 SL= 6.00 BUY CALL APR-165 AUA-DM OI= 4224 at $ 6.75 SL= 4.75 BUY CALL MAY-160 AUA-EL OI= 1508 at $15.13 SL=11.00 BUY CALL MAY-165 AUA-EM OI= 305 at $13.25 SL=10.00 Picked on March 28th at $154.81 P/E = 36 Change since picked +0.00 52-week high=$200.00 Analysts Ratings 7-7-6-0-0 52-week low =$ 13.56 Last earnings 12/99 est= 0.24 actual= 0.25 Next earnings 04-18 est= 0.24 versus= 0.10 Average Daily Volume = 19.1 mln /charts/charts.asp?symbol=QCOM ************* NEW PUT PLAYS ************* AT - Alltel Corporation $61.50 -4.25 (-7.00 this week) Alltel is a customer-focused information technology company that offers telecommunications services to 8.5 mln customers in 25 US states, mainly in the Southeast and the Midwest. The company provides local phone service over nearly 2 mln local lines in rural areas, and has gained approval to offer competitive local access. Alltel's cellular operations serve about 5 mln customers. Alltel also offers long-distance service to more than 500,000 customers, as well as Internet access and paging services. The company operates in two principal areas, communications and information services. Alltel is divided into two divisions, communications and information services, where the latter is holding back the former. The information services division of AT provides services ranging from systems integration for financial services firms to marketing and mortgage servicing systems for residential lenders. Many investors are beginning to question the ability of the information services division to deliver revenues. Some analysts project the growth rate of the division to be a dismal 3%. The management of AT has contemplated a spin-off of the division, but have yet to find a buyer. Although the communications division of AT is somewhat promising, the information services division continues to drag the company lower. Traders have expressed their feelings about the stock recently, as heavy selling has pushed AT lower. After a sharp decline Monday on healthy volume, traders passionately sold AT on Tuesday turning-over 4.8 mln shares, nearly three times ADV of 1.3 mln shares. The heavy volume suggests that the institutions are unloading shares of AT. While management decides what to do with the ailing information services division, we'll look for the stock to continue its downward slide. The stock has support just below at $60. Look for entry into AT as the stock falls through support en route to its 52-week low of $55.88. Watch for volume to continue to be high as the stock moves lower. BUY PUT APR-65*AT-PM OI=228 at $5.50 SL=3.50 BUY PUT APR-60 AT-PL OI=285 at $2.63 SL=1.25 Average Daily Volume = 1.38 mln /charts/charts.asp?symbol=AT ********************** PLAY OF THE DAY - CALL ********************** QCOM - Qualcomm Inc $154.81 +5.88 (+8.81 for the week) Qualcomm develops and manufactures communications technologies and products. It's best known for its CDMA (code division multiple access) technology which is the industry standard for mobile communications. This technology and is used in cellular phones, wireless telephone system equipment, and satellite ground stations. Qualcomm also provides the trucking industry with a monitoring system call OnmiTRACS and is currently in a joint venture to develop a low-earth-orbit satellite communication system called Globalstar. They are also the #2 supplier of digital cell phones following Nokia. Their largest competitor is Motorola. After an astounding performance in 1999, QCOM is again making the headlines. The stock's recent break out its channel and the company's upcoming earnings is the basis for this play. Last Thursday QCOM broke free of its bindings and emerged from its trading range of the last three months. Oscillating between $125 and $145 did prove quite frustrating for investors, but now QCOM appears to be on the move again. The 10, 30, and 50 DMAs, which all converge around in the proximity of $134 to $139, are now dots in the rear-view mirror. The nearest technical indicator is the 5-dma ($145.75) and is the mark of old resistance, which QCOM blasted through on Friday. This week the stock signal to us that this run is no head-fake. Granted, if QCOM did dive it has a long way to fall so protect your profits with trailing stops. Entries can be found at near-term support of $145 and $150, but if you're playing on the side of caution watch QCOM trade consistently above $153 on good volume. Be patient, there's plenty of time to find your entry. QCOM is reporting earnings in three weeks on April 18th, after the bell. For those that watch for potential splits around earnings, this stock may very well be a hopeful. QCOM becomes a candidate at $160 and the company has plenty of shares for a stock split. Today Qualcomm and Motorola settled a three-year legal battle over patents covering QCOM's wireless communication technology. According to the terms, neither is making financial restitution and both have agreed to a three-year moratorium on patent- infringement suits. However, Motorola will now pay royalties to Qualcomm for use of its CDMA technology. BUY CALL APR-150 AUA-DJ OI=15656 at $13.25 SL=10.00 BUY CALL APR-155 AUA-DK OI= 5664 at $10.88 SL= 8.25 BUY CALL APR-160*AUA-DL OI=11751 at $ 8.50 SL= 6.00 BUY CALL APR-165 AUA-DM OI= 4224 at $ 6.75 SL= 4.75 BUY CALL MAY-160 AUA-EL OI= 1508 at $15.13 SL=11.00 BUY CALL MAY-165 AUA-EM OI= 305 at $13.25 SL=10.00 Picked on March 28th at $154.81 P/E = 36 Change since picked +0.00 52-week high=$200.00 Analysts Ratings 7-7-6-0-0 52-week low =$ 13.56 Last earnings 12/99 est= 0.24 actual= 0.25 Next earnings 04-18 est= 0.24 versus= 0.10 Average Daily Volume = 19.1 mln /charts/charts.asp?symbol=QCOM ************************ COMBOS/SPREADS/STRADDLES ************************ A Trend Coming To An End? Monday, March 27 Profit-taking plagued Wall Street stocks Monday with major indices ending lower. The Dow Jones Industrial Average fell 86 points to 11,025 and the Nasdaq composite slipped 4 points to 4,958. The S&P 500 stock index slid 3 points to 1,523. Declines led advances on both the New York Stock Exchange and the Nasdaq. The 30-year U.S. Treasury bond rose 8/32 pushing the yield lower to 5.98%. Sunday's new plays (positions/opening prices/strategy): Jabil JBL APR65P/APR70P $0.62 credit bull-put Nvidia NVDA APR55P/APR65P $1.25 credit bull-put Titan TTN APR35P/APR40P $0.62 credit bull-put Ubid.com UBID JUL30C/JUL30P $10.62 debit straddle Monday's volatile session did little to help our new positions. Jabil and Titan offered favorable entry opportunities for only a brief period during the morning session before moving higher. Nvidia traded lower most of the day but our target credit was unavailable until late in the afternoon. The entry price for the Ubid straddle was difficult to estimate with the relatively low volume. There was a small block of contracts traded near 10:00 AM at $10.75 debit. Portfolio plays: Stocks were mostly lower today in a quiet and listless session that lacked significant news. A few issues moved higher as fund managers concluded "end-of-quarter" buying to help push up the prices of some of their bigger portfolio holdings. Most traders remained subdued on the sidelines while economists evaluated news of housing sales and the effects of rising oil prices on consumer products. Analysts were also monitoring the meeting of the OPEC in Vienna. With no definitive announcement on production quotas, there was little influence on Wall Street activity. In a speech before a Senate Commission, Greenspan said the rise in crude oil prices over the past year has not had a serious impact on the U.S. economy. Based on that statement, it's obvious he hasn't paid for airfare or gas in the family car for quite some time. There were a few news items concerning portfolio positions. Bank One (ONE) named former Citigroup star James Dimon as the new CEO, giving the Wall Street insider the job of fixing the credit card operations and boosting its share price. The new CEO said that he was not interested in selling the bank or the credit card unit but rather bringing it back to significant profitability. He is also buying 2 million shares of the bank's troubled stock, giving him a huge personal stake in its performance. The stock price closed up $3.62 on the announcement and our new LEAPS/CC's play is already at a break-even credit. The next step is to correctly judge the outcome of the new trend and make the necessary adjustment. The easiest way to protect for future upside movement is to roll up and forward in the position. With the added cost of $1.25-$1.38, the spread could be changed to LJAN20C/MAY30C at a debit of $9.12. The adjustment produces a position with no upside risk and retains a favorable margin of downside protection. Another of our recent additions to the long-term section, American Online (AOL) has also been on the move. The stock is trading well above our sold strike in the diagonal spread and as mentioned last week, our plan is to roll up and forward to the MAY-70 or 75 calls. Any future consolidation should provide another chance to make that adjustment with a favorable debit and our target will be in the $1.12-$1.25 range for the move to MAY-$70 options. Of course our new position might be considered too conservative for those of you that believe the issue will continue higher in the next few weeks and as an alternative, there is also a favorable premium for the MAY-$75 options. Philip Morris (MO) slipped lower during the session after a jury in California ordered the company to pay $10 million in punitive damages to a smoker dying of lung cancer. Philip Morris said it will appeal the verdict but the potential for future lawsuits may damage the stock's current recovery. Fortunately, our calendar spread positions are low risk with ample time for additional premium selling and both are expected to close profitably. The recent slide in biotechnology issues and diagnostic drug stocks has affected a number our small-cap positions and this week's casualty was Epitope (EPTO). On Monday, the stock opened higher but failed to capitalize on a 5-day consolidation pattern with a close below the 30 DMA. That's generally our signal to exit but in this case there is substantial support below the current price. Our decision was to employ a break-even strategy with a move to the MAY-$12.50 series and the new debit is $5.12. Another issue in that group is also a candidate for adjustment. Organogenesis (ORG) is technically hanging over the precipice but luckily, the option premiums are favorable for a move down to the MAY-$12.50 series. Once again we will simply attempt to protect the downside and the $1.75 credit will reduce the cost of the overall position, JUN10C/MAY12C to $11.62. Tuesday, March 28 The major equity averages endured significant losses today with technology stocks leading the way. The Dow Industrials lost 89 points to close at 10,936. The Nasdaq Composite slid 124 points to 4,834 on profit-taking in the leading issues. The S&P 500 Index and the Russell 2000 Index of small-cap stocks also moved lower. Volume was light with 951 million shares traded on the NYSE and losers outpaced winners 18 to 12 on the Big Board. The bond market finished with minor gains in a choppy session as the 30-year bond rose 2/32 to yield 5.97%. Portfolio Plays: The majority of stocks fell today after one of Wall Street's most influential analysts suggested a reduction in the weighting of equities in a model portfolio. Abby Cohen of Goldman Sachs said recent gains in the market warranted a reduction in the equity weighting to 65% with the resultant funds being moved into cash. Her target groups for the model stock portfolio were financials, pharmaceuticals and selected basic-material and energy-related stocks. The signal was obviously bearish to many investors and the profit-taking continued in earnest. The blue-chip technology sector was hardest hit with Intel (INTC), International Business Machines (IBM) and Hewlett Packard (HWP) leading the way down. Microsoft (MSFT) managed to avoid the bulk of selling after news the judge in the antitrust lawsuit against the software giant had delayed his decision in the case for a week or more. In the oil industry, shares were mixed as members of OPEC appeared on the verge of approving a deal to hike oil production that would lead to a reduction in crude prices. World oil producers have come under pressure from the United States to increase output to help prevent a gasoline crisis this summer. As the day's discussions ended, no official word was available but insiders at the Vienna meeting said OPEC ministers were about to reach a deal on a 1.7 million barrels per day increase. Unfortunately, most analysts believe that number has already been factored into current prices. Cohen's remarks sparked buying in financial shares, helping the sector bounce back from large losses on Monday. One of the most heavily traded shares was our new long-term issue Bank One (ONE), which climbed $2.75 to $34.75 as traders welcomed the news that former Citigroup President James Dimon had been named Bank One's new chairman and chief executive. The company received upgrades from Morgan Stanley Dean Witter, Advest and Donaldson, Lufkin & Jenrette. Another stock that rallied with the group was Northern Trust (NTRS). The issue rose $3.19 to $66 and based on the new outlook for the sector, our speculative credit spread may survive the current consolidation. There were a number of other issues that enjoyed positive moves in today's volatile session. MetroMedia Fiber Network broke the $100 mark and held the range, closing near $101. Our bullish diagonal position is at maximum profit above $80. American Power Conversion (APCC) also traded against the trend in the technology group, closing up $2.50 at $42. Jabil Circuit (JBL) continued to rally ahead of its upcoming 2-for-1 split. The chip-sector issue finished near an all-time high today and with the upcoming split this Friday, it may climb to a new trading range. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - New Plays - ****************************************************************** QCOM - Qualcomm $154.81 *** An Old Favorite! *** Qualcomm is a global provider of digital wireless communications products, technologies and services based on its Code Division Multiple Access technology. QCOM designs, develops, manufactures and markets CDMA subscriber products and designs, develops and markets CDMA chipsets and system software. They also license and receive royalty payments on CDMA technology from major domestic and international telecommunications equipment suppliers. In addition, Qualcomm designs, manufactures and distributes products and provides services for its OmniTRACS system. The company also has contracts with Globalstar, a low-Earth-orbit satellite system utilizing CDMA technology, to design, develop and manufacture subscriber products and ground communications systems and to provide contract development services. Today's big news was the long-awaited settlement between Qualcomm and Motorola regarding a series of patent infringement lawsuits that began in March 1997. The agreement terminates the complex litigation comprising a number of separate federal court cases alleging claims and counterclaims for patent infringement, breach of the license agreements, misappropriation of trade secrets and unfair competition. In the settlement, each company agreed to dismiss its claims and counterclaims against the other and extend their CDMA cross-licenses. In addition, the companies said they have agreed to a three-year moratorium on lawsuits with respect to CDMA subscriber products, network equipment, chipsets and test equipment. They have also agreed to the terms of their original 1990 royalty-bearing license agreement. As part of the agreement, Motorola will again pay royalties to Qualcomm at rates that are consistent with newly licensed patents. The news of the Motorola settlement along with a number of recent agreements and licensing deals has brought QCOM back into favor with technology investors. The bullish technical trend and the favorable fundamental outlook (potentially higher royalties) are excellent reasons for the issue to continue higher. Our position is relatively conservative with a reasonable margin for downside consolidation. PLAY (conservative - bullish/debit spread): BUY CALL APR-130 AUA-DF OI=6421 A=$27.50 SELL CALL APR-140 AUA-DH OI=11144 B=$19.00 INITIAL NET DEBIT TARGET=$8.25-$8.38 ROI(max)=21% Chart = /charts/charts.asp?symbol=QCOM **** LGTO - Legato Systems $43.38 *** Something Is Up! *** Legato develops, markets and supports advanced enterprise-strength storage management software for the network computing market. The company maintains offices throughout the United States and around the globe. The core elements of their storage solutions include scalability, heterogeneity, performance, ease of use and central administration. Legato's storage management solutions have been designed for both network administrators and end users, and can be accessed through a number of graphical user interfaces, including Windows, Windows NT and Motif. The company's flagship product, Legato NetWorker, offers a family of easy-to-administer storage management applications that protect network-wide data across enterprises consisting of multiple operating systems such as NetWare, Windows NT, Solaris, HP-UX, AIX, Macintosh, OS/2 and DOS/Windows. You may remember back in January when shares of Legato dropped $20 after the company missed earnings estimates. The cause for most of the grief was simply that $13 million in sales revenues from two new contracts had to be recognized in fiscal 2000 rather than last year. Of course investors also reacted negatively to the downward revision in future earnings and that issue also took time to evaluate. Now the company is recovering with the rally in data storage issues and analysts are starting to take notice. Industry experts are predicting enormous growth rates for data storage with estimates for the storage area network to grow to over $13 billion by 2003. The demand for storage will increase with demand for bandwidth and Legato's product offerings are well suited to meet emerging needs in the area of data security and information management. Monday's $8 move and the recent bullish activity suggests a new trend is beginning. Both of these positions are based on rising activity in the stock and underlying options. These plays offer favorable risk/reward potential but they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (conservative - bullish/diagonal spread): BUY CALL MAY-30 EQN-EF OI=108 A=$15.75 SELL CALL APR-40 EQN-DH OI=1896 B=$7.25 NET DEBIT TARGET=$8.25-$8.38 INITIAL ROI TARGET=19% -or- PLAY (conservative - bullish/calendar spread): BUY CALL JUN-50 EQN-FJ OI=728 A=$6.00 SELL CALL APR-50 EQN-DJ OI=1948 B=$3.25 NET DEBIT TARGET=$2.50-$2.62 INITIAL ROI TARGET=50% The basic premise in a calendar spread is simple; time erodes the value of the near-term option at a faster rate than it will the far-term option. The bullish calendar spread is used when the underlying issue is some distance below the strike price of the options. This position is speculative with low initial cost and large potential profits. Two favorable outcomes can occur: the stock rallies in the short-term and the position is closed for a profit as time value erosion in the short option produces a net gain or; the underlying stock consolidates, allowing the sold option to expire and then eventually rallies above the long option strike price. It is generally best to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in this spread play; selling time value in the options when they are overpriced (high implied volatility) and buying it back (if necessary) when they return to intrinsic value. Chart = /charts/charts.asp?symbol=LGTO **** MBK - Bank Of Tokyo Mitsubishi $14.00 *** Technicals Only! *** The Bank of Tokyo-Mitsubishi is a commercial banking organization in Japan that provides a broad range of domestic and international banking services from its offices in Japan and around the world. The company is one of the nine city, as opposed to regional, banks in Japan. The company offers its products and services through seven business units that are comprised of Domestic Customers, Overseas Customers, Investment Banking, Asset Management, Global Service Banking, Treasury and Administration. With the banking sector's recent recovery in the United States, traders are also looking to foreign issues and emerging markets for additional investments. While there are a number of unique difficulties in this style of trading (lack of information is one), the interest in overseas markets is growing rapidly. In the case of MBK, it appears the company has turned the corner technically and is well on its way to a test of the all-time highs. Our goal will be to gain a short-term favorable return (as the stock moves higher) in this aggressive but low cost/risk position. There is a very informative article concerning stocks that trade on both the U.S. and Asian exchanges at: http://biz.yahoo.com/ts/000313/fund1_000313.html PLAY (aggressive - bullish/debit spread): BUY CALL MAY-12.50 MBK-EV OI=670 A=$1.88 SELL CALL MAY-15.00 MBK-EC OI=10380 B=$0.50 INITIAL NET DEBIT TARGET=$1.25 ROI(max)=100% Chart = /charts/charts.asp?symbol=MBK ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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