The Option Investor Newsletter Tuesday 4-4-2000 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) ************************************************************ 4-04-2000 High Low Volume Advance Decline DOW 11104.70 - 117.20 11418.20 10717.80 1,515,466k 803 2,215 Nasdaq 4,148.89 - 74.79 4283.45 3649.11 2,888,308k 664 3,676 S&P-100 811.29 - 9.33 830.25 770.38 Totals 1,467 5,891 S&P-500 1494.73 - 11.24 1526.45 1416.41 19.9% 80.1% $RUT 506.12 - 9.92 520.13 464.08 $TRAN 2724.95 + 18.85 2750.98 2653.45 VIX 27.90 + 2.24 35.44 25.09 Put/Call Ratio .43 ************************************************************* Maximum Volatility Produces Stop Loss Tuesday If you were able to watch the market today you are probably still glazed over from the event. This was a historic day and not one you are probably going to see again anytime soon, I hope. Fed? What Fed? Interest rates? Who cares? After todays market event the volatility surrounding the non-farm payrolls this week will not even be noticed. If you worked all day and did not get to see the "dip" and you were fully invested then you probably saved a prescription refill on your blood pressure medicine. The straight facts are almost unbelievable. The Dow soared to 11418 or +196 points after the open and the Nasdaq was tame at +60 and 4283. That was the end of the common market. The Nasdaq started dropping like an Iridium satellite instead of a falling knife and the soaring Dow got caught in the vacuum as it fell. The Nasdaq dropped through 4200, 4100, 4000, 3900, 3800, 3700, dizzy yet?, before finally stopping at 3649 and -575 points. The Dow, racing to catch up, went to full afterburner and knocked off 11400, 11300, 11200, 11100, 11000, 10900, 10800 before S&P circuit breakers stopped it at 10717 for a -504 loss. Had we stopped there the record books would have logged back to back first place losses for the Nasdaq and a second place for the Dow. The real exciting part is next.... The dip buyers, who had been on a diet all last week, went on a feeding frenzy with the mother of all buying opportunities. The Dow and the Nasdaq went vertical again and with only a couple of pauses to catch their breath they erased almost all of the huge deficit. The Dow actually went positive again but cautious traders pulled back at the close and the Dow dropped to an insignificant -57. The Nasdaq rebounded to only -60 and then eased to close at -75. A miraculous recovery if there ever was one. A very emotional day for traders depending on which side of the market you were on. Today ranked as the most volatile day ever for both the Dow and the Nasdaq. The Dow traded in a 700 point range on record volume of 1.5 bln shares. The Nasdaq traded in a 634 point range on almost 3 bln shares (2.88B). This range for the Nasdaq was greater then any entire year prior to 1998 and within 200 points of equaling all of 1998. At one point today the Nasdaq had given up all of the +20% gain for the year. The Nasdaq started the year at 4069 and traded as high as 5132 in March. The almost -1500 point drop to today's low was the equivalent of -28.9% off its highs and more than qualified as a bear market. The Nasdaq was down -13% today alone at the worst point. Mary Meeker was quoted this morning as saying that "the serious excesses in the market needed to be ripped out before the market could move higher." Looks like she got her wish. The extremes were not just in the market numbers. Individual stocks exceeded known limits of support and yet bounced back to post strong gains in many cases. For instance: Stock Low/High VIGN 102/161 - WAS $238 LAST WEEK TERN 122/198 - WAS $237 LAST WEEK INKT 112/168 - WAS $227 LAST WEEK YHOO 132/168 - WAS $203 LAST WEEK INTC 119/134 - WAS $144 LAST WEEK JDSU 82/115 - WAS $137 LAST WEEK QCOM 124/147 - WAS $162 LAST WEEK EXDS 92/136 - WAS $179 LAST WEEK CMGI 70/102 - WAS $129 LAST WEEK BRCM 152/221 - WAS $253 LAST WEEK Target shooting anyone? On a day when trading volume set records you would expect brokers to be making large gains on the prospects of big earnings. Two things held them back, margin calls and venture capital concerns. Since many large brokers take stock in start ups as compensation for assistance and their venture capital arms invest in some as well, the implications were negative as many Internet stocks took -50% hits from just last week. Lehman lost -10, MER -8, MWD -7, GS -7, EGRP -3. The second problem of margin calls was responsible for much of the sell off today. With the Nasdaq already strongly negative last week the -360 point drop on Monday pushed many investors into margin shock. When things are going good many investors with limited capital will margin 100% and then every time their stocks soar they again take the additional buying power and buy more. This pyramid buying results in huge exposure in the case of a negative market event. An investor with $20,000 could actually be margined to $60K after a good run for the stocks they own. Once those stocks drop -30% to -50% their account has to be liquidated to cover the margin calls. Sometimes, in worst case situations, their original capital is lost and they are wiped out by the forced liquidation. Market events like Tuesday take stock away from weak investors and put it back into the hands of stronger investors. The net result, many people who were investors last week are not investors this week and will not be again any time soon. Investors with funds left after the margin calls may not be as aggressive as in the past and more careful about where they put their money. Some investors interviewed today on TV claimed to have lost more in the past week than they made in the last year due to margin losses. Today was a classic capitulation day. Massive selling, no bids, market orders going unfilled for long periods of time. Investors accustomed to instant trades were met by long periods of no fills or fills far below what they thought the price should be. Not only was the lack of fills on the downside but also on the upside. I had market orders for blocks of QQQ calls go unfilled for 20 min and I finally cancelled them. You should never be able to cancel a market order. Of course those are traded on the AMEX which is always behind even on slow days. Some AMEX bid/ask prices today were as much as $10 behind the other option exchanges CBOE, PHLX, PCX. Personally I would rather not trade an option that is only on the AMEX but that is another story. With capitulation before earnings and before tax day traders were obviously running for cover. With the Nasdaq up +80% last year and many stocks up more than that, many investors have large tax bills. These tax bills are put off until the last minute so investors can use the money for the April earnings run. With the market tanking many investors have been selling to cover the bill. I took a poll at the recent seminar and many attendees were still trading with their tax money. With this money leaving in the next two weeks AND tax refunds already assumed to be in the market, AND, the deductible contributions drying up daily, the market liquidity is evaporating. The mid-April sell off we were expecting may be accelerating into a serious problem. Where I would normally be screaming "buy, buy" I am more subdued tonight. This was the mother of all capitulation and rebound days but there may still be some more selling from margin calls and tax payment preparation tomorrow. Even with the massive rebound the advances were pounded by declines by 4:1. Normally another positive would be the VIX which soared to 35.43, the highest since January 14, 1999 when the Dow hit a low of 9087. Normally a number this high would be a screaming buy signal, and it might be, but the clouds still hanging over the market are clouding the picture. Don't get me wrong. I bought the dip with everything I had and will be watching my email for a REG-T myself in the morning. Still, with a trillion dollars lost this morning in the market and almost a $832 billion recovered on the rebound there are a lot of new holders and a lot of long term buyers who added to their positions from the bargain basement today. These investors will not be sellers on Wednesday. They wait all year for a buying opportunity like we had today. Even with the Nasdaq rebound it is still very oversold. Closing today down -900 points since the 5078 high on Mar-24th we are still due for a relief rally. The trick is to get past lunch. With margin selling normally by 11:00 if we can get past lunch we might be okay. Still we are going to face weakness as traders still in the market and playing with Uncle Sam's money just try to get even before they have to withdraw the funds. The severity of the drop has traumatized many investors and the shock may take days or weeks to wear off. Just to keep us on our toes Clinton is hosting a conference on the new economy tomorrow. Alan Greenspan, Bill Gates and Abbey Joseph Cohen will be in attendance. Greenspan will speak at 1:30ET with a speech titled "Technology and its Impact on the Economy." Before you rush back in to the market you should be aware of the new market conditions. First, the sell off today is only a warning of what may come. Where we have gone years in the past without this type of volatility we may only go days or weeks before we see it again. Just because it never happened before or just because it has always come back, DOES NOT MEAN IT WILL ALWAYS DO IT AGAIN. It can drop and close down -500 points just as easy. If I were going to name today I would call it "Stop Loss Tuesday." If you did not have stops then you would have been tempted to sell for an even greater loss when the market was down substantially. Developing a stop loss strategy will keep you from severe losses when these disaster days occur. Had you been stopped out early today, as I was, you would have been able to buy the dip instead of trying to "hope" your stocks back to even. Even though I lost six figures this morning from buying too early yesterday, if the rebound holds, the purchases I made at the bottom today may turn into my most successful trading day ever. I was able to apply capital at the right time in generous amounts to stocks that were clearly bargains. Did you do the same? Not if you were married to previous plays. Remember this trading axiom: Traders who will not take small losses early will end up taking big losses later. Both S&P and Nasdaq futures are down tonight. What is YOUR stop loss strategy for tomorrow? Trade smart and sell too soon. Jim Brown Editor Current long positions include: EBAY, AMAT, AMCC, EMC, QCOM, DISH, SUNW, TERN, ARBA, EXDS (Naked put session seminar attendees...intrinsic, intrinsic, intrinsic, I got a bunch today!) *************************Advertisement**************************** Options Traders ! Mr. Stock's new online trading site has been designed for you. Trade spreads, straddles, covered writes, and stocks online. Get real-time market data throughout our site. Advanced options tools include volatility graphs, implied volatilities, and more. http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ****************************************************************** ********** STOCK NEWS ********** Tech Rout Offers Internet Buying Opportunities By Cindy Christ Monday's sell-off in technology indexes after the Microsoft (MSFT) ruling was overdone, Goldman Sachs analysts said in a research alert Tuesday. On Monday, the Goldman Sachs Internet (GIN) index was down 19.3 percent since January compared to the Nasdaq, which was off about 7.4 percent year-to-date half way through Tuesday's session. "With general financial growth prospects intact for leading Internet companies both in the current quarterly reporting season and beyond, the volatility provides opportunities to buy or add to positions in key names," analysts wrote. Top Internet names Goldman likes are America Online, Yahoo!, eBay , Real Networks and Inktomi. Among leading sectors with strong near- and long-term growth prospects, Goldman recommends portals America Online (AOL), Yahoo (YHOO), Lycos (LCOS) and NBC Internet (NBCI); Internet content providers CNet (CNET), ZDNet (ZDZ) and LookSmart (LOOK); business-to-consumer plays eBay (EBAY), Priceline.com (PCLN) and Amazon.com (AMZN); infrastructure companies Inktomi (INKT), Exodus Communications (EXDS), Digital Island (ISLD) and Double Click (DCLK); and broadband and wireless access providers RealNetworks (RNWK), NetZero (NZRO), Phone.com (PHCM) and InfoSpace (INSP). Analysts concede more volatility is likely in the near term but warned investors not to try and time a bottom on the beleaguered Nasdaq. "Market timing is a fool's game. There's very little scientific evidence that you can successfully time the market," Goldman research analyst Jamie Friedman told OptionInvestor.com. "You can't own stocks going up if you don't own them going down," Friedman added. No. 1 Web portal Yahoo is set to kick off the reporting season for the Internet group after the close Wednesday. Goldman projects first-quarter revenues of $205 million and per-share earnings of 8 cents for Yahoo. Friedman said Goldman recommends investors buy the leading Internet issues mentioned at Tuesday's levels. "In general, we view profit taking with the strong gains over the past few months, and again reiterate our emphasis on a long-term approach to investing in the 'best-of-breed' Internet companies," analysts said. At the close Tuesday, shares in America Online (AOL) traded down $3.25, or 4.9 percent, at $63.25. Yahoo (YHOO) jumped $7.25, or 4.5 percent, to $167.38. eBay (EBAY) surged $23.75, 16.6 percent, to $167. RealNetworks (RNWK) slid $1.31, or 2.6 percent, to $50.13. Inktomi (INKT) dropped $9.44, or 5.6 percent, to $158. ************** Market Posture ************** As of Market Close - Tuesday, April 4, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,850 11,250 11,165 Neutral 3.16 SPX S&P 500 1,410 1,475 1,495 BULLISH 3.21 OEX S&P 100 780 800 813 BULLISH 3.21 RUT Russell 2000 470 580 506 Neutral 4.04 ** NDX NASD 100 3,800 4,700 4,034 Neutral 4.04 ** MSH High Tech 900 1,150 1,000 Neutral 4.04 ** XCI Hardware 1,480 1,510 1,589 BULLISH 2.24 CWX Software 1,450 1,670 1,275 BEARISH 4.04 ** SOX Semiconductor 1,210 1,360 1,069 BEARISH 4.04 ** NWX Networking 1,050 1,190 955 BEARISH 4.04 ** INX Internet 800 940 742 BEARISH 4.04 ** BIX Banking 520 615 593 Neutral 3.16 XBD Brokerage 450 580 486 Neutral 4.04 ** IUX Insurance 520 620 605 Neutral 3.16 RLX Retail 900 1,000 985 Neutral 3.16 DRG Drug 330 380 377 Neutral 3.30 HCX Healthcare 680 760 753 Neutral 3.30 XAL Airline 130 150 145 Neutral 3.10 OIX Oil & Gas 265 300 295 Neutral 3.16 Posture Alert The NASDAQ broke a new trading record Tuesday, as the technology index traded 2.88-billion shares. Today's action may have been the capitulation that many were looking for, as the index was down -13% midday before staging a comeback. The weakness in technology finally gave way to the Dow, as the blue chip barometer got hit for -500 points before closing down only -57. As such, several sectors were downgraded due to the technical damage that occurred on Monday's sell-off. **************** Market Sentiment **************** Tuesday, April 4, 2000 Capitulation, or bubble bursting? The NASDAQ was flirting with disaster Tuesday, as the technology index was down over -13%, before rebounding on record-breaking volume of 2.88-billion shares. Granted, the index still closed down -1.77%, but the late day relief rally gave many bulls hope of the worst being over. During the trading day, CNBC and every other news medium were talking how the technology bubble had burst, and valuations were coming into play. The reporters were blaming this selloff on anything and everything, from the technicians who stated that support was broken, to Abby Joseph, to the Department of Justice vs. Microsoft, or to margin calls rising by 40% at Ameritrade. Whatever the reason, many traders saw opportunity today, as many issues were down by -25% or -30%, yet closed relatively unscathed. Today was definitely an opportunity, and hopefully emotions did not rule your trading activity today. Many professionals view this week's market action on the NASDAQ as the bubble bursting. However, today may have been the mother of all reversals, with many people tossing in the towel and letting the emotions take over just as the market was at the lows. This is the capitulation than many professionals look for, however, the next few trading days will be key in determining this outcome. What needs to be seen tomorrow morning is the market opening up higher than today's closing price. The NASDAQ needs to follow through from this afternoon's rally, and should this happen; you will see many bears quaking in their boots and running for cover. This is the scenario that Pinnacle is looking for, as fundamentally, this market didn't deserve to be taken down this quick this fast. But the pendulum swings both ways, and so far this week, it has swung in the negative direction. Before making any buy decisions today, some of the traders at Pinnacle wanted to look at some of the sentiment indicators for guidance. The first, which every one of you should always have on your quote screen, is the Volatility Index. The VIX continues to prove that the low 30's are an excellent buying opportunity, while the low 20's are a great selling opportunity. Tuesday, the VIX hit 35.44 before retracing, which also happened to be the lows of the day! If you traded just based on the VIX, you would have been a happy camper. You could have even been early to the party and bought many stocks or options when the VIX was trading at 30 (which was well off the high of 35), and still made out very well! Regardless, the VIX was flashing a major buy signal, so the next thing we looked for was the put/call ratio on the OEX. With the OEX trading down significantly, we looked for the option activity between 770-800, because this was where most of the action was. Put volume outnumbered call volume by almost 7.5 to 1 in this region. Pretty bearish implications! Now between the VIX being in buy territory, as well as bearish put/call ratio's, combined with the 30-yr treasury trading in the safety zone, we through it was prudent to step in and buy. The returns that some of our clients made was pretty phenomenal! Hopefully, all of our readers took advantage of this opportunity as well! Now, it is just a waiting game to see if the biggest reversal in NASDAQ history turns out to be the capitulation that we think it is, or if the air is being slowly let out of the tires! With Yahoo's numbers due out tomorrow, we still lean to the former. BULLISH Signs: Corporate Earnings: Major corporate earnings continue to come out strong and ahead of analyst expectations. General Electric is the latest bellwether to give positive comments regarding earnings. Short Interest NYSE: 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. Short Interest NASDAQ: Short interest jumped +3.49% to 2,710,141,156 shares on March 15. This bearish barometer would indicate further upside potential. Interest Rates (5.737): The current yield is in bullish territory. Volatility Index (27.90): The VIX continues to prove that the low 30's are an excellent buying opportunity, and the low 20's continue to be a great selling opportunity. Tuesday, the VIX hit 35.44 before retracing, which also happened to be the lows of the day! Mixed Signs: None BEARISH Signs: IPO Dilution: With so many IPO's hitting the market, there seems to be dilution occurring where shares of finally freed up to sell by insiders. $58.6 billion of stock was freed up for trading in March, $67.3 billion this month, and $118.3 billion in May. This is too much stock for the system to handle. 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 (3/31) (4/04) Overhead Resistance (830-860) 4.20 9.27 OEX Close 815.06 813.29 Underlying Support (800-825) 1.01 1.22 Underlying Support (770-795) 1.52 1.90 What the Pinnacle Index is telling us: Based on Tuesday's figures, overhead resistance is heavy and increased dramatically from Friday. Underlying support is still light, but we did witness heavy volume on the put side at support levels today, so we would expect these figures to increase by Thursday's readings. Put/Call Ratio Friday Tues Strike/Contracts (3/31) (4/04) CBOE Total P/C Ratio .48 .55 CBOE Equity P/C Ratio .35 .45 OEX P/C Ratio .79 1.66 Peak Open Interest (OEX) Friday Tues Strike/Contracts (3/31) (4/04) Puts 700 / 7,509 700 / 7,821 Calls 830 / 6,037 845 / 18,137 Put/Call Ratio 1.24 0.43 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 April 4, 2000 27.90 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week DOW 11164.84 300.01 -57.09 242.92 NASDAQ 4148.89 -349.15 -74.79 -423.94 $OEX 811.29 5.56 -9.33 -3.77 $SPX 1494.73 7.39 -11.24 -3.85 $RUT 506.12 -23.05 -9.92 -32.97 $TRAN 2724.95 -57.14 18.85 -38.29 $VIX 27.90 -1.55 2.24 0.69 Calls Mon Tue Week WLA 105.50 4.19 3.63 7.81 New, hot drug sector HWP 138.13 0.00 5.56 5.25 A real trooper today! CL 60.69 4.12 0.19 4.31 New, strong at $60 today AMAT 98.13 -5.00 8.88 3.88 New, buyers stepping in IBM 121.19 3.63 -0.81 3.19 Wide range, small change PCAR 52.75 -0.12 2.88 2.76 New, wasn't phased today BAC 54.19 3.06 -1.31 1.75 Resistance @ 200-dma INTC 132.75 -1.31 2.13 0.81 Still strong but volatile T 56.50 1.69 -1.50 0.19 Dropped, broke down QCOM 146.63 -8.56 5.88 -2.69 Bullish finish KSS 99.63 1.63 -4.50 -2.88 Shop for entries EXDS 136.94 -17.69 14.13 -3.56 Strong volume, big pop SUNW 90.00 -3.88 0.19 -3.69 New, ready to breakout YHOO 167.38 -11.25 7.25 -4.00 Dropped, earnings 04/05 AOL 63.13 -1.50 -3.50 -4.31 Dropped, retest of lows BBY 77.50 -3.06 -5.44 -8.50 Dropped, selloff casualty PCS 57.00 -3.50 -5.00 -8.50 Dropped, submarined DISH 68.38 -4.81 -5.81 -10.62 New, great late recovery CHKP 160.34 -36.19 25.47 -10.72 Surges on strong volume SEG 51.19 -9.00 -1.81 -10.81 Dropped, too uncertain NOK 207.00 -15.63 1.25 -15.00 Splits 4-1 on Friday 4/7 GMST 70.38 -11.31 -4.31 -15.63 Dropped, it's a coin flip MFNX 71.56 -12.94 -12.25 -25.19 Dropped, not tough enough LGTO 17.44 -24.75 -2.44 -27.19 Dropped, bad bookkeeping INKT 158.00 -27.56 -9.44 -37.00 Weak hands shaken out Puts ICGE 67.88 -12.15 -10.28 -22.43 New, trending down IIJI 55.50 -8.63 -5.63 -14.25 Yes indeed! Getting ugly ITXC 35.06 -2.43 -9.56 -11.99 New, looking at $30 next PSIX 31.63 -3.53 1.13 -2.41 Dropped, hit intraday low AT 63.56 0.69 -0.19 0.50 Dropped, held up too well CPQ 27.25 0.75 -0.25 0.50 Dropped, found buyers GTW 54.06 0.50 -1.44 1.03 Dropped, it's time to go ************ WOMANS WORLD ************ Market Humility By Renee White Are we humble yet? Hmmm. To buy or to sit out. That is the question. Are those really bargains I see or just a teasing temptress with bear trap candy bars? Is this market wild or what? I can't believe I just heard that the trading range for Nasdaq today was 634 points, which equaled the trading range for all of 1998! Can you believe that? 2.88 billion shares! An intra day 13% dip and 28% dip from the recent highs. Welcome home Renee! The Denver OIN seminar was superb. Those who missed it, really did missed a quality program. Of all the seminars on option investing that I have attended in the past, this one stood out in a league of its own. I'm proud that I am associated with the team. This seminar truly emphasized the factors that help an option trader stack the odds in their favor. From basic strategies, to technical analysis, entry points, hedging, spreads and advanced strategies, this seminar had it all whether you liked being naked or spreading with leaps. And unlike other seminars, this team also fed you while you learned. Jim Brown was right when he told the attendees at the opening reception, "For the next three days, we own your mind." Serving breakfast, lunch and dinner, your mind was kept focused on trading issues until late into each evening. And for those who think our Sunday newsletter is long, just imagine having those writers captive for a week in a seminar environment! Our Keynote Address speakers were excellent. They included: Mark Leibovit, well known market timer and author of the Volume Reversal method of market timing; Harry Browne, a well known investment advisor and author of eleven books with over 2 million copies sold (New York Times Best Selling Financial Advisor); John Dessauer, editor of John Dessauer's Investor's World and a regular panelist (and winner of their investment competition) on Wall $treet Week with Louis Rukeyser; and Howard Ruff, who began The Ruff Times, a financial advisory newsletter. We were fortunate to have these excellent speakers share their views of this bull market, at each of our luncheons. After the carnage in the market lately, it seems appropriate to include a little about Harry Browne's talk. Mr. Browne is also the 2000 Libertarian candidate for President and was the Libertarian candidate in 1996 also. He was a very interesting man, with a wealth of information to share. In his latest book, Fail-Safe Investing, Harry combines his 30+ years of investment experience and delivers it to us in 17 key rules for financial investment safety. Unfortunately, he was unable to review all 17 at the luncheon. So like you, I will have to buy the book to completely appreciate the depth of his knowledge. Below are 13 rules I captured in his talk. 1. Your career is your wealth. What we do best is what we will make money in. 2. Never assume you can replace your wealth. What was possible at one time, may not be possible again at a different time. Treat what you have respectfully. 3. Recognize the difference between speculating and investing. Don't assume you are smarter than other people. Never speculate with money you can't afford to lose. Build on things through investing. 4. No one can predict the future. Don't look for a fortune teller with a perfect record. He will lose his touch the minute you start following his advise. Past performance is no indication of future performance. There is an endless amount of data that affects tomorrow's markets; world events, economics here and around the world, oil, gold, wars, corporate news, etc. 5. Never borrow to invest. Limit your loss by incorporating. 6. Never let anyone make decisions for you, with money you can't afford to lose. 7. Never give signature authority to anyone on money you can't afford to lose. Or if you do, limit the amount of money at risk. 8. Don't do anything you don't understand. 9. Never put all your eggs into one basket; one investment, one institution, one account, one country, one piece of property, with one person, one industry, one sector, or one anything. 10. Money that is precious to you (your investing money, not your speculating money), this is the money you can't afford to lose so diversify and balance that portfolio. Adjust this "fixed" portfolio when it is out of balance due to splits, mergers, sell-offs, or other market conditions. 11. With money you can afford to lose, set up a separate account with money you can afford to speculate with. (This is where his option trading money is... secondary money he can afford to lose.) 12. Have a budget for pleasure set aside for you to enjoy life with. Life is short. Use it freely for rewards and knowing it is not interfering with other account. Don't put off enjoying life. 13. Whenever you are in doubt about investment decision, if the answer is not obvious, and two people have different opinions, err on the side of safety. Don't do it. Remember Rule #2, "Never assume you can replace your wealth". That is also true for any important decision in your life. Always err on the side of safety. Mr. Browne sounds like a very wise man, doesn't he? Check out his book, at the OI bookstore, Fail-Safe Investing for a through discussion of all of his points. Actually, all the speakers were excellent but Mr. Browne's rules just hit home. For tomorrow, read number 13 a few more times. If we must err, let us all hope it is on the side of safety. Renee White Contact Support ************** TRADERS CORNER ************** An Osmotic Technical Point of View of Your $10,000 loss Harrison Frolick Thanks Guys and Gal? But, I really can't see how getting my web browser for free 3 years ago versus my paying $39 for one that still to this day I consider a piece of junk, hurt me as a consumer. Just so that everyone knows where I stand on this subject, I almost became physically ill as I watched the debacle as non-elected representatives of our government were telling me how they were protecting me from the evil Microsoft concerning my choice of browsers and that they had my best interests at heart. I am not picking on this administration per say. First off, I dislike all politicians, period. I have worked for several from both parties. Some are just worse than others with very few exceptions. I especially do not tolerate fools nor liars and I witnessed both on TV during the press conference. Anyway, the soapbox has almost collapsed once again but, for those of you that caught my Sunday article, this is exactly what I feared when speaking about the Feds, Moore's Law and not understanding the big picture. You can do all the charting and research that you want but, when you have a Federal Government and in this case 19 States that either do not understand or care about the impact of their policies, you can watch your portfolio go up in a puff of smoke in a few days as has happened. And some of you thought I was Chicken Little. While they said that they were out to punish Microsoft, the idiots (and I am being nice here) did not realize that because of the Net, Microsoft's competition also saw their market cap drop by billions of dollars as well. Punishing Microsoft has the same effect as shooting yourself in the foot to cure an ingrown toe nail. You may get rid of the toe nail but, you create a far bigger problem. Except they shot the foot of every investor and retiree in America and there investment accounts and IRAs dropped by hundreds of billions of dollars. Or as near I can figure about $10,000 for every man, women and child in America. Way to go!!! You guys created the largest loss of wealth in the History of Man! (someone check my math but, I think I am right) For those of you that have never read "Atlas Shrugged" by Ayn Rand., I cannot recommend a more applicable book for what has happened to he market in the last few weeks. For those of you that pick it up and read it for the first time and those that already have, it would be great to hear your opinions. I believe that I was pretty bent after reading it for about three weeks. In fact, I think that I will read it again starting this evening. This melt down started when the President and Tony Blair of Great Britain suggested the biotech companies give away billions of dollars of research a few weeks back. It was further helped by the Federal Reserve Boards rhetoric and the icing on the cake was the Microsoft case. I hope that all of you that got margin calls were able to cover them. This too shall pass believe it or not. However, I can assure you that I will have 100% cash before the next Fed meeting as I am convinced that if the price of admission to the Super Bowl were 3 neurons that worked, that you would not see anyone there with a US Government ID. I will give an update in my next article on the 150% challenge. We are actually not doing too bad considering! Happy Trading! Mumble mumble grumble grumble.. (Editor's note: The following represents the views of the writer not necessarily the views of OIN. Please send your comments to him not to OIN. Thanks.) Contact SupportHarrison 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: ***** AOL $63.13 -3.50 (-4.31) Investors continued to roll out of Internet issues on Monday, dropping AOL back to the $64 area. Not exactly the way we wanted to see this one start the week, but still a potentially profitable situation. Today's bloodbath dropped AOL to $59.06 before buyers stepped in, attempting to save the day. AOL did bounce back $3.94 to end to the session at $63, but well below support levels that would keep it on our list of plays. This morning's announcement that they had launched AOL Plus, which delivers multimedia content and features could not help prop up the company's stock. We believe over the long-term AOL may move higher, but a retest of today's lows may be in order, before AOL can gather the momentum necessary to get back on track. GMST $70.38 -4.31 (-15.63) This is one of those plays that even after we've decided to drop we want to say "I still think it may be a potentially profitable play." That's what happens when you form too strong of an opinion about a company and its future. Could GMST bounce from here and go higher? Absolutely, but if the past two days are any indication of the near term direction for the GMST, the outlook is not bright. Regardless of our opinion of the company, and the optimism for the interactive programming guide, traders choose to sell the past two days dropping GMST to $62 at its worst level. Again, was the selling overdone? Perhaps, but this one may need to cook a while longer before finding its way back on our list of favorites. Simply put, the potential reward at this time is not worth the risk. LGTO $17.44 -2.44 (-27.19) LGTO's share price was halved and then some yesterday after they told the Street that they would have to restate sales and earnings. Fourth-quarter revenues involving about $7 mln may be effected because auditors uncovered evidence that sales representatives of the company negotiated deals outside their authority. The shock wave sent LGTO down $24.75, or 55.5% with trading volume reaching more than 7 times the ADV. Investors then dodged the legion of analysts who hurled their dissenting remarks on the situation. On Monday Bear Stearns cut LGTO from Buy to Neutral, Merrill Lynch from a NT Accumulate to NT Neutral, and Tuesday wasn't much different. SunTrust Equitable Securities downgraded the stock from Strong Buy to Attractive and Robertson Stephens from Buy to LT Attractive. Fortunately there wasn't any time to get into this new call play on Monday morning. LGTO is written as a drop tonight, but honestly, why would anyone have ever gotten in? YHOO $167.38 +7.88 (-4.00) YHOO's given us a wild ride right up to the eve of its earnings' release. The official numbers are due tomorrow after the bell and they better be good! Estimates range from 8 cents to 9 cents a share, but the so-called whisper number is much higher at 12 cents. If YHOO disappoints then look out below! Any hint of bad news from this powerhouse could easily spark more butchery amongst the whole Internet sector. Many traders profited during the first couple weeks of this earnings play and enjoyed the lucrative gains in this volatile market. Not too long ago, YHOO powered above $205 from the depths below $160! But now is not the time to try and squeeze out a few more dollars, especially in this chaotic environment. And remember historically YHOO dives after the report! So please, if you haven't already, consider closing any open call positions before the announcement. BBY $77.50 -5.44 (-8.50) Another casualty of the selloff, BBY beating their earnings estimate by $0.04 held no sway over frightened investors during the last two days. This play was really over yesterday when BBY gapped up at the open, then pulled back all day long into the close, never giving us a really good entry. Adding insult to injury, BBY fell through its 10-dma and never recovered. While it managed to spare us from big losses as it fell to just $73.50, a level of support reached on March 27 too, the rebound was not strong enough for our liking, especially given the volume of 50% in excess of the ADV. It should have performed better. But since it didn't, it's good bye to Best Buy. PCS $57.00 -4.31 (-8.50) Despite what we think is good future for wireless stocks, PCS went along for the technology-sponsored under water submarine ride. The problem in the end is that its boat didn't float with the rising tide once it hit the bottom. While both the NASDAQ and Dow staged a nice recovery, PCS did not participate, reclaiming only $2 from the low of the day. The ascending wedge pattern did not hold right from the start of yesterday's trading and just got worse today even though PCS should have been making a run into its earnings date of Apr 18th. That and the eagerness of the street for the AT&T wireless spin- off were the reason for the play. With investors no longer taken in by those original premises, this play has taken on too much water. Time to bail. T $56.50 -1.50 (+0.19) Valiantly trying to get moving, T broke out of its recent range today. Unfortunately, the break was down, not up. On a little more than average volume, T followed the DJIA lower to tag $54 before recovering into the close. Although still technically at support, the wild gyrations of the past 2 days have really taken the wind out of T's sails. The Telecom giant may have a hard time gathering momentum going forward, so we are cutting it loose tonight. SEG $51.19 -1.81 (-10.81) Our play in SEG hinged upon the performance of VRTS. VERITAS has proved to be a weak link as the stock has been hammered in the last two days. VERITAS' chief competitor Legato Systems (LGTO) announced a profit warning yesterday. The bad news from LGTO only added to the weakness in VRTS shares Monday. As VRTS moves lower, so goes SEG. The stock lost $9 Monday, breaking through a key support level at $60. SEG found support today at $50, after dropping down to $42. After thoroughly reviewing the proposed buyout of SEG, many investors are beginning to question management's motives. Shareholders of SEG feel that they are not getting the maximum value for their shares. They feel that the investment bankers and the management of Seagate are capturing most of the value from the deal while the shareholders are left empty-handed. Due to the recent developments in the SEG transaction, we are stepping aside. We'll watch the deal closely, as a re-negotiation is possible, especially in light of the recent market conditions. For now, there exists too much risk to continue to hold SEG as VRTS continues to look weak, and uncertainty surrounds the buyout. MFNX $71.56 -12.25 (-25.19) The momentum from last week reversed Monday as MFNX drifted lower throughout the day. Today, we reached a capitulation in selling. Liquidity dried up in MFNX as traders evacuated, causing the bid to drop with each 100 share trade. The culprit in today's massive sell-off was the M-word. The financial media spoke of margin today as if it were a four letter word. The record margin levels that the FED has been mulling over for the last several months came to light today. It appears that MFNX fell victim to the revered margin clerk. Traders sold with conviction today as volume was more than robust, over three times ADV for MFNX. We mentioned that MFNX might bounce off support at $90 and provide a good entry point. The stock never found support due to the NASDAQ meltdown. MFNX plunged through key technical levels Monday, and again today, before stopping all the way down at $59. Although we have a split coming soon, we don't want to stay around to answer any calls from the margin clerk. PUTS: ***** GTW $54.06 -1.44 (+1.03) It's time to go. We aren't exactly sure what analysts at Morgan Stanley saw, but on Monday they initiated coverage of GTW, with a Strong Buy. An order imbalance at the open was the result and GTW finally opened about $3.72 higher at $56.75, which was near the high of the day. Today the buying continued as traders bid the price of GTW to $57.38 before selling set in. Coupled with the Strong Buy rating, they set a price target of $80. GTW is scheduled to report earnings April 13th so we may have seen the bottom for now. Fundamentally things really haven't changed but sentiment seems to no longer be in our favor so we will let the hardware maker go for now. PSIX $31.63 +1.13 (-2.41) Today's steep intraday decline was rough for the call holders today but the put plays really paid off. PSIX fell steadily to $24, its intraday low, and then recovered along with the rest of the market. As the selling seemed to capitulate today, we saw most issues finding extreme bottoms and bouncing off them. For PSIX, we feel that $24 is about as low as it can go for the time being. It's time to look for a rebound in the markets and leave this put play. AT $63.56 -0.19 (+0.50) ALLTEL and Bell Atlantic announced Monday that they have completed the first phase of a transaction to swap wireless interests in 13 states. The new properties are expected to strengthen AT interests in the southwest region of the US. The agreement will allow AT to bundle communications services at a good value to customers. Today, AT announced an agreement with InteliData Technologies to develop a suite of electronic bill payment services to connect and support financial institutions. AT held up relatively well in today's harsh trading. The stock has settled into a trading range, between $60 and $65. In what was a record day for trading volumes, traders left AT untouched. In light of the recent announcements and the stable trading pattern, we're dropping our play in AT. We'll continue to monitor the story from AT, and the fate of the information services division. However, we don't want to stand in the way of a broad market relief rally which may carry AT higher. CPQ $27.25 -0.25 (-0.50) Headline reads, "Perennial Put Play Defies Market Odds". What else can you say about a tech stock that goes up while carnage overtakes both the Dow and the NASDAQ? Actually for those able to catch it this morning, CPQ rolled over with the rest of the market following a gap up to $28.13, then fell to the cellar before finding support at $24.75. That could have been a very profitable trade. But did it stay there? Nope, CPQ had the audacity to recover 10% from the low of the day - not a very good sign for a put play. While we still expect an earnings warning, it won't have much effect if CPQ's potentially worst day (today) can't sink it like a stone. One thing is for sure. CPQ has lots of buoyancy right now, so we're dropping it from our put list. ******************** PLAY UPDATES - CALLS ******************** BAC $54.19 -1.31 (+1.75) Our play in BAC started the week off in great shape. The action today didn't do much to help, but frankly it could have been much worse. We were encouraged to see buyers enter when BAC fell to $53.31 early this afternoon. With the Nasdaq dragging most everything in sight lower today, BAC faired pretty well losing only 3.9% at its worst levels of the session. This morning BAC and Ariba said they are forming a broad based strategic alliance to provide an e-commerce platform for business-to-business customers. Although the financial terms were not disclosed, a press release said the two will develop a "comprehensive suite of Internet-centric, B2B financial services and a new B2B marketplace for BAC's more than 2 million customers." So where do we stand on this one? Well, BAC is exactly where we added it on March 23rd. We would look to the $53 area to provide support and then again at $52. Volume has been starting to pick up, which is a positive considering how BAC hasn't really been hit by major sellers. INTC $132.75 +2.13 (+0.81) Wow! The NASDAQ traded in a 634 point range today and INTC had a $15 range. Although it may have been scary for a while, the market's continued resilience was calming. These dips represent prime buying opportunities. And with this much needed correction, INTC looks even stronger. These kind of days that provide remarkable opportunities for trading. Volatility is the name of the game. INTC found buying support today at $119, which was originally established in mid-March. That is above its 50-dma at $116.63. Fortunately, INTC did have to go that low to find buyers. Given the volatility in our market, there is a distinct possibility that we will retest the lows on the NASDAQ. INTC will take cue from the NASDAQ and will present plenty of entry and exit opportunities. Be on your toes and don't be afraid to trade in and out for the fast profit in a market environment like this. Use stop losses and trade based on individual risk levels. QCOM $146.63 +5.88 (-2.69) Except for a swift and frightening slide to $124 in mid-afternoon trading today, QCOM bucked the trend. For the most part, it held its own above $140. It's a good sign that QCOM managed so well amidst the turbulence on the Nasdaq. Of course it'd be better to see the stock rise above $145 and demonstrate it has the intensity to stay clear of the tight trading range of the previous three-months ($125 to $145). Recollect this play is based on that strong breakout and upcoming earnings. Qualcomm is confirmed to report in two weeks on April 18th, after the bell. Therefore we have time to pick our entries and this is certainly crucial to maximize profit potential! If QCOM were to lose its momentum, there's a long way to fall (as you've seen from the intraday dips!) so be careful. It'd be prudent to watch for volume levels to back a definite move above $145, or even $150, before you jump into this HIGH-RISK play. NOK $207.00 +0.25 (-15.00) Nothing like a nice market crash to derail a 4:1 split run, darn it! If you are just joining this play, NOK splits 4:1 this Friday, Apr 7th, after the close. You may have noticed we dropped lots of play tonight, but NOK stays on our list due to the split and the nice recovery. Check this out. Technically, while falling into the well with the rest of the market and testing $182 in the process, NOK pulled itself all the way back up to close positive for the day, and formed a positive doji (a right side up "T" with an extremely long tail) on volume nearly three times the ADV of 3.7 mln shares. The close over the 50-dma of $203.48, and at the lower line of the ascending channel ($206) is a strong positive in our book, and particularly impressive given the pain in today's market. Assuming the worst is over, we still think any pullbacks are buyable for the split run. Just make sure you see a bounce from the bottom. Today's selloff is a good reason not to try to catch a falling knife. *********************************************** PLAY UPDATES - CALLS - CONTINUED IN SECTION TWO *********************************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. 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The Option Investor Newsletter Tuesday 4-4-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** CHKP $160.34 +25.47 (-10.72) The illness that began a little over a week ago, got worse before it got better. Dragged down by the ailing NASDAQ, CHKP fell below $116 before buyers could come to its rescue. As quick as the decline was, the recovery was even quicker, as CHKP had two one-hour surges of almost $20 this afternoon. Volume was very strong at 4 times the ADV, and it was encouraging to see CHKP move up to close strongly positive, especially in light of the carnage seen in many of the Internet stocks. The strong move this afternoon puts CHKP back above the $155-157 support level. Tomorrow will tell whether this level will hold, as CHKP investors try to decide if they want to hang around and wait for earnings on April 12th (notice the date has changed, but is now confirmed). If things get ugly in the markets again, we could see a return to intra- day support between $134-136. With the volatility that is possible in this issue, make sure the market is moving in your direction before you play. Intraday dips to support will make for the best entries, but depending on your risk tolerance, you may want to wait for a confirming move through the $170 resistance level before playing. INKT $158.00 -9.44 (-37.00) A $37 loss in two days and we're keeping INKT? You bet we are. For the explanation, all you have to do is look at an intraday chart. Up until about 1:15pm EST, things were looking ugly. But then the last of the weak hands were shaken out near $112, and the recovery began. Moving up nicely for the balance of the day, buyers really stepped up to the plate as INKT recovered $45.50 from its low of the day. Many stocks saw record intraday moves today and INKT was no exception. Posting volume more than triple the daily average and losing almost $10 would normally be grounds for a drop. Of course we are concerned and need to see INKT stay positive as we go through the remainder of the week. The motivation for our play remains unchanged though; Earnings are scheduled for April 18th, and with the depression in the share price recently, there is plenty of room to run. Oh, and don't forget, INKT is a split candidate over $150, so we could get a little bonus with the earnings announcement. Look for a bounce near support at $150 or a break through resistance at $162 to trigger new entries. HWP $138.13 +5.56 (+5.25) What a trooper HWP was for us today. While the rest of the market was going through a nuclear meltdown, HWP held rock-solid at the $130 support level. Although there was a brief dip to $129 as the NASDAQ hit its lows for the day, the rebound was quick and strong. Recovering on strong volume, HWP managed to tack on almost $6 by the end of the day. That's pretty impressive when you consider that all the major indices finished the day in the red. Moving along the top of the 50-dma ($129.75), HWP is likely still being supported by the fact that earnings are expected to be strong when they are reported in mid-May. Of course, it doesn't hurt that they just steam-rolled Compaq in February retail PC sales, grabbing over 42% of the market. So where do we go from here? Today's strong bounce is quite encouraging, with support confirmed at $130 and resistance confirmed at $140. There is still a fair amount of uncertainty in the markets, so exercise caution in the days ahead. A fear-driven return to the $130 level is buyable, but a more cautious approach would be to wait for the breakout above $140. Remember that over $140, HWP becomes a split candidate. If the NASDAQ can get healthy again, look for HWP to reap the benefits. KSS $99.63 -4.50 (-2.88) All things considered we really are pleased with the first few days of this play. With the action going on in the Dow and Nasdaq today, two very good things happened to one of latest retail plays. KSS made a new high this morning at $104.94. Profit-taking set in but was fairly orderly, although selling in the broad markets hit panic levels. The next plus for KSS came late in the day. Kohl's bounced off the $98 area as buyers entered to begin to prop up the stock. The volume wasn't great, but with the sentiment in the markets today, we consider the bounce an opportunity to re- enter this play. Traders will be keeping an eye on KSS and retailers, when they report same store sales on Thursday. Analysts say the numbers for retailers could be flat for March, due to the Easter holiday being late this year. Easter has come to symbolize the start of the Spring shopping season. Pre-holiday sales which normally fall into March, won't hit until April, which may spell trouble for the sector as a hole later this week. We believe traders will take into account the late holiday and continue to buy shares of KSS. Support for KSS is found at $98 from the 10-dma which hasn't been pierced in a month, despite the market woes. IBM $121.19 -0.81 (+3.19) Once again there's only good things to say about IBM. Near-term support is clearly established at $120. On one hand this is a solid level to perch, which is at the converged 5-dma ($120.66) and 10-dma ($120.28) techinicals. Although looking back over the past five trading sessions there's concern that IBM could be range bound between $118 and $122. This morning's performance however provided us with optimism that this may not be the case. IBM immediately shot up to challenge $125. It cleared that formidable mark of resistance and made a charge for $130. Unfortunately the 700- point swing in the DOW stopped IBM out at $126.94. Our play is for IBM to power higher in the short-term on more good news and anticipation of a solid earnings report. The company is expected to report on April 18th. This week IBM announced it developed a process to make microchips up to 30 percent faster, which ultimately will make for faster Internet access and more powerful wireless devices. According to Bijan Davari, VP of IBM Microelectronics' Semiconductor Research & Development Center, this new process "is an absolutely essential process without which you couldn't continue making both the Internet and its devices more powerful and capable". On the global front, IBM and KPNQwest (KQIP) announced a 10-year deal to deliver next generation e-business services and applications throughout Europe. The alliance is expected to generate more than $4 bln in revenues for the two companies. EXDS $136.94 14.13 (-3.56) We found an exodus (pun intended) today in a less than friendly environment. What a day for EXDS. After hitting a bottom at 1:00, EXDS managed to gain 45 points and close higher by 11%. We mentioned last Sunday that $136 was a major support level for EXDS. We view a close back above that level as a very positive sign. From here, EXDS has light resistance just above at $140 and major resistance at $150. Aggressive traders will again look for a bounce off support at $136 while conservative traders could wait for a move above $150. Watch the wide intra-day swings for an entry point, but wait for momentum to pick-up before entering new positions. In the coming days, several events could act as a catalyst to propel EXDS higher. Yahoo will report earnings after the close Wednesday. Investors are expecting a good report from Yahoo as it could help move Net stocks higher. We'll watch EXDS closely in the next few days as traders re-focus on the upcoming earnings season. Also of note, EXDS filed a proxy statement with the SEC Tuesday to increase the total number of authorized shares to 1.5 bln from 300 mln. The additional shares are needed for the proposed 2-for-1 stock split, announced on March 3rd. Shareholders are expected to vote on the proposed stock split on June 6th. ******************* PLAY UPDATES - PUTS ******************* IIJI $55.50 -5.63 (-14.25) Yes indeed! Things got even uglier for IIJI the past two days. IIJI ran through the first line of defense at $67.13 (Friday's daily low) and then tackled support at $65 with ease by mid-afternoon in Monday's session. The momentum kept on rolling and IIJI dived to $50. This big upset in the share price was much quicker than anticipated, but certainly welcome! The upward bounce off this bottom support level is not too unusual, especially when you consider investors haven't seen the stock dip to these levels for many moons. So while the downward trend is intact and the momentum quite forceful, be alert for further signs of a rebound. Some investors may see the 32.3%, or $26.50 drop of late just too good of a deal to pass up! Although from a technical perspective the MACD, Momentum, and Stochastic indicators are still pointing south suggesting further declines. ************** NEW CALL PLAYS ************** SUNW - Sun Microsystems $90.00 +0.19 (-3.69) Since its inception in 1982, a singular vision -- "The Network Is The Computer(TM)" -- has propelled Sun Microsystems to its position as a leading provider of industrial-strength hardware, software and services that power the Internet and allow companies worldwide to "dot.com" their businesses. OK, they make servers, but the above is what branding is all about. With $13 billion in annual revenues, Sun can be found in more than 170 countries This one will be short and could be sweet too. For the more conservative tech player, we offer the big cap, SUNW that holds less volatility than many of its smaller tech peers. SUNW reports earnings on April 13 (confirmed but subject to change), which could propel the play from here. Technically, SUNW has formed a nice base of support at $87.50. Even today as it was whacked to $71.75 in the tech selloff, the almost $20 recovery was spectacular. That it closed fractionally positive on volume of more than 2.5 times the ADV of 17.1 mln shares is even better on a day like this. We think this is a less risky "buy the dip" issue. If there is additional margin call selling tomorrow that takes the price under $88, that may be the buying opportunity we need to take a position. First though, confirm that a reversal is at hand following the dip. If you want to play this conservatively, wait for a break back above the 50-dma of $91.67 or (for the more conservative) today's high of $93.13, and be sure that any move up is backed with volume. Some bad sentiment reflecting on the opposing team: What's bad for Microsoft is good for Sun, and the shot in the gut to MSFT by Judge Jackson yesterday in the landmark anti-trust case should help SUNW a bit. BUY CALL APR-85*SUX-DQ OI=3214 at $10.38 SL=7.50 BUY CALL APR-90 SUX-DR OI=7561 at $ 7.63 SL=5.25 BUY CALL APR-95 SUX-DS OI=6939 at $ 5.50 SL=3.50 BUY CALL MAY-90 SUX-ER OI=1031 at $11.88 SL=9.00 BUY CALL MAY-95 SUX-ES OI=1220 at $ 9.38 SL=6.50 Picked on Apr 04th at $90.00 P/E = 117 Change since picked +0.00 52-week high=$106.75 Analysts Ratings 9-11-1-0-0 52-week low =$ 24.88 Last earnings 01/00 est= 0.20 actual= 0.21 surprise=5% Next earnings 04-13 est= 0.22 versus= 0.18 Average Daily Volume = 16.55 mln /charts/charts.asp?symbol=SUNW **** CL - Colgate-Palmolive Co $60.69 +0.19 (+4.31 for the week) Colgate-Palmolive manufactures and markets a wide variety of products for the consumer. They have two distinct business segments: oral and personal care products and pet nutrition. CL is the #1 seller of toothpaste - everyone brushes! And their Hill's Science Diet brand is a leading premium pet food worldwide. Almost 70% of their total sales revenue come from foreign accounts. Investors are rotating equity holdings out of the high-flying tech sector and moving back into "old economy" stand-by stocks like CL. The world's largest toothpaste maker has seen a steady increase in its share price since mid-March. Although CL jumped up significantly in the last two trading sessions. CL left its comfortable zone near the 10-dma ($55.93) and moved through resistance at the 5-dma ($58.04) yesterday. Today amid the torrent of the 700-point swing on the DOQ, it firmed at $59 and $60 demonstrating it can hold the higher share price. The ultimate challenge is for CL to power beyond its 52-week high at $66.75 (set in January). The near-term does look promising for this consumer stock. The tech traders are now pondering "portfolio diversification" and CL offers a low P/E for the value investor. Earnings are also quickly approaching. The company is expected to report positive results on April 19th (not yet confirmed). A definitive bounce off $57 and $58 on an intraday pullback is a solid entry into this sector play assuming the uptrend remains intact. Be patient and make sure there's volume to back the climb. In recent company news, Colgate-Palmolive filed with the SEC to sell as much as $800 mln of Debt Securities. The proceeds will be used for general corporate purposes. And on Friday the S&P raised the company's Senior Unsecured Rating to an A-plus from a Single-A. BUY CALL APR-50 CL-DJ OI=2058 at $11.25 SL=8.25 BUY CALL APR-55*CL-DK OI= 806 at $ 6.50 SL=4.50 BUY CALL APR-60 CL-DL OI= 414 at $ 3.13 SL=1.50 BUY CALL MAY-60 CL-EL OI= 588 at $ 4.75 SL=2.75 BUY CALL MAY-65 CL-EM OI= 519 at $ 2.75 SL=1.25 Picked on April 4th at $60.69 P/E = 41 Change since picked +0.00 52-week high=$66.75 Analysts Ratings 3-10-5-0-0 52-week low =$40.50 Last earnings 12/99 est= 0.40 actual= 0.41 Next earnings 04-19 est= 0.37 versus= 0.32 Average Daily Volume = 2.2 mln /charts/charts.asp?symbol=CL **** DISH - Echostar Communications $68.38 -5.81 (-10.63 this week) Serving up multimedia to the masses, DISH and its subsidiaries deliver direct-to-home satellite television products and services. With four satellites, its DISH Network has the capacity to provide over 300 channels of digital video, audio, and data services. The company offers direct broadcast satellite (DBS) TV dishes and integrated receivers that receive programming for about 3 million DISH Network subscribers. Echostar also provides satellite delivery of local network stations in a few large markets and has partnered with Microsoft to provide WebTV access through its DBS system. Serving up every viewing choice a couch potato could ask for, DISH seems to be adding to its programming repertoire on a daily basis. (see news below) After breaking out of its broad consolidation between $40 and $50 in late February, DISH surged and dipped its way to the high side of $80 in advance of the company's 2-for-1 split, which occurred March 22nd. The first stage of the post-split depression was over and DISH was moving higher when, out of nowhere comes the NASDAQ disaster of the last two days. If nothing else, the action today forced every tech stock to demonstrate where the serious support existed. For DISH, this level is $52.75, and along with the bulk of the NASDAQ, bounced strongly from this level. It was a long trip to the low of the day, as DISH started out above $75, and even after a recovery of almost $16, the stock was still -$5.81. The good news though, is all buried in the chart. Trading over 8 million shares (4 times the ADV), the volume really confirmed the move up today. As the price stair-stepped its way to recovery, we saw volume pick up on the uptrends and drop off during the consolidations. The road to recovery established intraday support at $65, and then $61. By the close of the day, DISH had moved up to where it was trading last Friday ($68.75), and only time will tell if it has the strength to move through this resistance. With the broader markets still unsettled, let DISH show you whether it is going to challenge support or resistance first, then pull the trigger accordingly. Today the company announced the delivery of local channels in Charlotte, North Carolina, bringing to 27 the number of cities where DISH provides local programming. Yesterday, DISH announced that it now offers over 20 Spanish-language channels, making the move to serve the fast-growing U.S. Spanish-speaking audience. On March 27th, DISH struck a deal to acquire 12% of privately held Isky in an attempt to develop its broadband Internet business. BUY CALL APR-65 HSW-DM OI=1631 at $8.38 SL=6.00 BUY CALL APR-70*HSW-DN OI=1705 at $5.75 SL=4.00 BUY CALL APR-75 HSW-DO OI=2288 at $4.00 SL=2.25 BUY CALL MAY-70 HSW-EN OI= 140 at $8.63 SL=6.25 BUY CALL MAY-75 HSW-EO OI=1333 at $6.75 SL=5.00 Picked on Apr 4th at $68.38 P/E = N/A Change since picked +0.00 52-week high=$81.25 Analysts Ratings 9-6-1-0-0 52-week low =$ 9.72 Last earnings 03/00 est=-0.55 actual=-0.97 Next earnings 05-15 est=-0.35 versus=-0.29 Average Daily Volume = 2.03 mln /charts/charts.asp?symbol=DISH **** AMAT - Applied Materials $98.13 +8.88 (+2.06 this week) Applied Materials is the world's #1 maker of complex manufacturing equipment used in semiconductor factories. Its machines have a big share in most industry segments, including deposition (layering film on wafers), etching (removing excess material during patterning), and ion implantation (altering electrical characteristics of certain areas of wafer coating). Applied Materials also makes metrology systems and inspection equipment. Their customers include Advanced Micro Devices, Intel, Lucent, and Motorola. If this bull market is going to keep rolling, the chip stocks could lead the way. The Philadelphia Semiconductor Index (SOX) has had a major pullback and could stabilize as many of the individual stocks that make up the index are showing strength. After losing a massive 7.4% Monday, the SOX closed 1.6% lower on Tuesday. The recent correction in the semi's has led many analysts to believe that there exists attractive valuations in the sector, and see the recent events as a buying opportunity. AMAT is one of the stocks in the SOX that is showing strength. The stock benefited today from an announcement that the company will partner with Ericsson Microelectronics to develop a multi-system technology that will be used to fabricate telecommunication chips using Ericsson's 0.25 and 0.18 micron advanced RF (radio frequency) devices. The effort will combine AMAT's product line and experience with Ericsson's expertise in RF applications. Technically, the chart on AMAT looks pretty good considering the recent debacle in tech stocks. The stock briefly dipped below major support at $89 today, then charged back to take out overhead resistance at $97. AMAT looks as if it wants to move higher from here. Volume was impressive Tuesday, as traders moved 23 mln shares vs. 8 mln ADV. If we can get above $100 with momentum, the stock could retest its high of $110. The intraday chart reveals that the AMAT has found support along its 5-dma where an aggressive trader might look for a bounce off support at $97. A convincing move above $100 might provide a better entry-point for those of you looking to minimize risk. The entire semiconductor sector has benefited in recent months and expectations are that earnings will exceed estimates, and help maintain momentum in the sector. Watch for AMAT's competitors such as KLAC and TER ahead of earnings and use any move as confirmation before entering a new play. BUY CALL APR- 95*ANC-DS OI=3536 at $10.25 SL=7.25 BUY CALL APR-100 ANC-DT OI=3315 at $ 7.88 SL=5.25 BUY CALL APR-105 ANC-DA OI=5985 at $ 5.75 SL=3.50 BUY CALL MAY-100 ANC-ET OI=1431 at $12.00 SL=9.00 Picked on Apr 4th at $98.13 P/E = 70 Change since picked 0.00 52-week high=$110.00 Analysts Ratings 14-15-2-0-0 52-week low =$ 24.19 Last earnings 01/00 est=0.38 actual=0.40 Next earnings 05-10 est=0.54 versus=0.18 Average Daily Volume = 8.13 mln /charts/charts.asp?symbol=AMAT **** WLA - Warner-Lambert Co. $105.50 +3.63 (+7.81 this week) Warner-Lambert has undergone a dramatic business transformation during the last decade, a transformation marked by dynamic sales and profit growth. The introduction of breakthrough health care and consumer products has helped lead the company's rise in prominence. To foster future growth WLA is expanding its role in medical care by developing innovative pharmaceuticals. They also are striving to further bolster their position as a leader in over-the-counter health care products. WLA finds its top competition coming from Bristol-Myers Squibb, Gillette and Merck. The new week and quarter has been very good to one of our latest additions to our play list. Did you hear there was a huge sell- off in the major indices today? Well, if you owned stock in Warner-Lambert since late last week, you would never have known the blue chips and Nasdaq were getting clobbered today. Actually WLA began the week, shooting out of the starting blocks to a new high today and hasn't looked back. What's the story? We will call the latest beneficiary of sector rotation for now. Investors began to dabble in shares of WLA and several other Drug stocks on March 8th. While some of the others have fallen prey to profit taking, WLA has continued to gain momentum. Again it's a real company, with real earnings, which seems to have garnered investor attention as the Nasdaq and tech stocks have struggled for the last few weeks. Today news hit the streets that research is showing a drug being developed by Pharmacia Corp, appears to shrink or stop tumor growth in mice by blocking the formation of cancer-feeding blood vessels. The drug appears to be potent against a range of cancers and helped shrink tumors in mice with lung, colon, skin, brain and ovarian cancer. WLA, Pharmacia and several others are working on treatments that target blood vessels feeding a tumor, rather than the tumor itself. WLA has gained about 8.0% so far this week. After making its new high WLA did see a pullback to $102.63, but had buyers waiting with open arms. Volume the first two days of the week has been heavy with just over 12.5 million shares changing hands. Closing in the upper end of today's range suggests WLA should move higher. If we see a retracement, support should come in near $103 and $100 and would be acceptable levels to target shoot an entry. Late last week, WLA said it expects one-time costs of about $100 million to cover the withdrawal of its Rezulin diabetes drug. The cost cover product returns and inventory write-off for the drug, which has been linked to 63 deaths since 1997. WLA pulled the drug in late March at the demand of the FDA, ending almost two years of debate over the drug's link to cases of fatal liver damage. BUY CALL APR- 95 WLA-DS OI=6703 at $10.38 SL=7.25 BUY CALL APR-100*WLA-DV OI=5027 at $ 6.25 SL=4.25 BUY CALL APR-105 WLA-DA OI= 908 at $ 3.25 SL=1.50 BUY CALL JUL-100 WLA-GV OI=1618 at $11.88 SL=9.00 BUY CALL JUL-105 WLA-GA OI=4023 at $ 9.25 SL=6.50 SELL PUT APR-100 WLA-PV OI= 348 at $ 1.31 SL=2.50 (See risks of selling puts in play legend) Picked on Apr 04th at $105.50 PE = 54 Change since picked +0.00 52-week high=$106.75 Analysts Ratings 12-4-7-0-0 52-week low =$ 60.81 Last earnings 01/00 est= 0.52 actual= 0.55 Next earnings 04-19 est= 0.56 versus= 0.45 Average daily volume = 3.63 mln /charts/charts.asp?symbol=WLA **** PCAR - Paccar Inc $52.75 +2.88 (+2.63 this week) Paccar may not sound familiar, buy you've seen its trucks in your rearview mirror. Paccar is a diversified, mult-national company that manufactures heavy duty, on and off road trucks sold around the world. Trucks manufactured by Paccar are marketed under the Peterbilt, Kenworth, DAF, and Foden nameplates in the United States. The company also provides replacement truck parts. Through Paccar Leasing Corp, the company franchises Paccar truck dealers, providing inventory financing for independent dealers and lease financing for new and used trucks. The company has plants in Australia, Belgium, Canada, Mexico, the UK and the US. PCAR keeps trucking its way to higher-highs in the face of broad market weakness. You've gotta love a stock that opens higher and actually trends higher on a day like Tuesday, especially a four- letter stock. Our play in PCAR is pure and simple momentum. Investors have been seeking solace in any form recently, even value stocks. PCAR provides plenty of value, sporting a single digit P/E. Looking at the chart for the past three months, it shows that the stock tends to build a base after rallying, then break out of that base to move higher. PCAR broke out of its recent trading range Tuesday, and now looks positioned to move higher. The stock had been bumping up against resistance of $50 recently, but managed to clear that obstacle with ease today. The next level that PCAR will encounter resistance is at $55, a level not seen since last August. The stock has been using its 10-dma in its effort to move higher. Look for a bounce off that level, currently at $53. We have strong support below at $52 and again at $51 should any profit taking ensue. We're looking for momentum to continue in PCAR as investors continue looking for companies with earnings. Watch the volume carefully on PCAR, it tends to increase as the stock moves higher, use it as confirmation before entering a new position. In the news last week, PCAR announced its ePaccar division formed a business-to-business ecommerce company called Truckxchange.com. The new company will create the first global electronic marketplace for the commercial vehicle industry. The best of both worlds, old economy value with a B-2-B twist. BUY CALL APR-50 PAQ-DJ OI=222 at $4.13 SL=2.50 BUY CALL MAY-50*PAQ-EJ OI=120 at $5.63 SL=3.50 BUY CALL MAY-55 PAQ-EK OI=103 at $3.13 SL=1.50 Picked on Apr 4th at $52.75 P/E = 7 Change since picked +0.00 52-week high=$63.00 Analysts Ratings 3-1-6-0-0 52-week low =$39.75 Last earnings 12/99 est=1.89 actual=2.06 Next earnings 04-25 est=1.81 versus=1.52 Average Daily Volume = 477 K /charts/charts.asp?symbol=PCAR ************* NEW PUT PLAYS ************* ICGE - Internet Capital Group $67.88 -10.27 (-22.42 this week) Like a little CMGI, Internet Capital Group is an Internet company actively engaged in business-to-business e-commerce through a network of partner companies. It provides operational assistance, capital support, industry expertise, and a strategic network of business relationships intended to maximize the long-term market potential of more than 60 business-to-business e-commerce partner companies. Headquartered in Wayne, Pa., Internet Capital Group also has offices in San Francisco, Boston, Seattle and London. Wow! Check out the chart on this Internet incubator. While fundamentally, its business is just like CMGI's, the chart has more of an ugly factor to it. Though ICGE has violated every moving average it possesses (5, 10, 50, 200-dma), there was solid support at $80. Sadly for ICGE, even that was violated today as the issue sank to $55.69 before staging a weak recovery to just $67.88 where it closed - still substantially under $80 support, and on volume of more than twice the ADV of 3.9 mln shares. Mild support may take hold at $60, however, if the market keeps its wobbly legs for the next few days, ICGE could easily tag $55 again, and may find $45 on a dip where it encounters strong support. Simply stated, ICGE did not recover well with the rest of the sector and looks like it will continue the weakness exhibited today. Also, earnings are not scheduled until late in May tentatively, and thus, won't interfere with the play, allowing ICGE free access down the stairway to the basement. More good news is that if you are looking for a sympathy company that might derail the descent, CMGI won't report earnings either until early June - similar chart pattern as well. BUY PUT APR-70*EUG-PN OI= 72 at $9.00 SL=6.25 BUY PUT APR-65 EUG-PM OI=153 at $6.38 SL=4.25 Average Daily Volume = 3.87 mln. /charts/charts.asp?symbol=ICGE **** ITXC - ITXC Corporation $35.06 -9.56 (-12.00 this week) ITXC Corp is the service providers' service provider for voice on the Internet. ITXC WWeXchange Service provides phone-to- phone wholesale call completion for carriers and resellers and has been chosen by ten of the top twelve U.S. facilities- based carriers, leading European competitive carriers and PTTs worldwide to complete their customers' calls. From love to hate, Internets are currently taking a beating from investors. ITXC is lumped into this sector too, as they bridge the gap between telephone and Internet with their networks that allow for phone calls to be passed inexpensively via the Net. One look at the chart will tell you why we like this as a put play as the sellers are dominating the action. Even a recent upgrade by CIBC couldn't help curb the slide. The question here is where to enter. Rational thinking would tell us that it is not after today's massive move. But a bounce back up to resistance by the 5-dma at $44.88 or the 10-dma near $50 would be prime. With the recent volatility, moves of that magnitude could happen by tomorrow afternoon. Nevertheless, entry points are key. Stocks like this that have stretched valuations and extremely low revenues are the ones really getting left behind. Any rallies will bring back the sellers in full force. Like the investors that bought 4 million shares on Feb 10th at $85. How would you have liked to been stuck holding the bag on that secondary offering? The lack of any signs of a rally will likely bring out those sellers at the first possible chance. So watch for a Nasdaq and Internet rebound for the next entry point. Aggressive investors can jump in on the continuing downtrend though. Next support looks like $30. Look for new contracts with at-the-money strikes to be created tomorrow. BUY PUT APR-50*UXI-PJ OI=107 at $15.63 SL=11.00 BUY PUT APR-45 UXI-PI OI= 0 at $11.13 SL= 8.50 Today's vol=55 Average daily volume = 293 K /charts/charts.asp?symbol=ITXC ********************** PLAY OF THE DAY - CALL ********************** INKT - Inktomi $158.00 -9.44 (-37.00 this week) Hidden behind the scenes of many of the world's largest portal sites is INKT, providing scalable software applications designed to enhance the performance and intelligence of large-scale networks. Its applications fall into two broad categories, network products and portal services. Traffic Server is a large-scale network caching application licensed to Internet Service Providers (America Online) and corporations to mitigate capacity constraints in high-traffic network routes. Current portal service applications include search, shopping and directory services, which are offered to Web site customers and Internet portals such as Yahoo!. Most Recent Write-Up A $37 loss in two days and we're keeping INKT? You bet we are. For the explanation, all you have to do is look at an intraday chart. Up until about 1:15pm EST, things were looking ugly. But then, the last of the weak hands were shaken out near $112, and the recovery began. Moving up nicely for the balance of the day, buyers really stepped up to the plate as INKT recovered $45.50 from its low of the day. Many stocks saw record intraday moves today and INKT was no exception. Posting volume more than triple the daily average and losing almost $10 would normally be grounds for a drop. Of course, we are concerned and need to see INKT stay positive as we go through the remainder of the week. The motivation for our play remains unchanged though; earnings are scheduled for April 18th, and with the depression in the share price recently, there is plenty of room to run. Oh, and don't forget, INKT is a split candidate over $150, so we could get a little bonus with the earnings announcement. Look for a bounce near support at $150 or a break through resistance at $162 to trigger new entries. Comments No news to report for INKT. No economic data. Tomorrow's market direction will be the dominant catalyst for equities. There's no doubt that it will be a volatile session so watch carefully and choose your entry points wisely. Target shoot based on personal risk levels and keep in mind that INKT traded in a $56 range today. BUY CALL APR-150 KYQ-DJ OI= 607 at $21.88 SL=17.00 BUY CALL APR-160*KAY-DL OI= 129 at $16.88 SL=13.00 BUY CALL APR-170 KAY-DN OI= 259 at $12.38 SL= 9.50 BUY CALL MAY-170 KAY-EN OI= 124 at $20.75 SL=16.00 BUY CALL MAY-180 KAY-EP OI=1127 at $17.38 SL=13.50 SELL PUT APR-130 KYQ-PF OI= 766 at $ 4.25 SL= 6.50 (See risks of selling puts in play legend) Picked on Apr 2nd at $195.00 P/E = N/A Change since picked -37.00 52-week high=$241.50 Analysts Ratings 8-10-1-0-0 52-week low =$ 42.75 Last earnings 01/00 est=-0.04 actual=-0.02 Next earnings 04-18 est=-0.02 versus=-0.05 Average Daily Volume = 2.59 mln /charts/charts.asp?symbol=INKT ************************ COMBOS/SPREADS/STRADDLES ************************ Volatility Rules The Market! Monday, April 3 The Nasdaq suffered record losses Monday as investors unloaded technology issues in the wake of the failing Microsoft antitrust settlement discussions. In contrast, the Dow industrials posted big gains with old economy stocks leading the flight to quality. The Dow closed up 300 points at 11,221 while the Nasdaq fell 349 points to 4223. The S&P 500 was up 7 points to 1505. Volume on the NYSE hit 1.02 billion shares, with advances beating declines 1,578 to 1,486. Nasdaq volume was heavy at 1.6 billion shares with declines beating advances 3-to-1. In the bond market, the long bond rose 10/32, bid at 106 3/32, where it yielded 5.81%. Sunday's new plays (positions/opening prices/strategy): California Amp. CAMP APR45C/APR40C $1.00 credit bear-call Intl. Rectifier IRF APR50C/APR45C $1.12 credit bear-call Triquint TQNT APR115C/110C $0.00 credit bear-call Sun Micro SUNW APR75P/APR80P $0.50 credit bull-put Sun Micro SUNW APR115C/110C $0.75 credit bear-call There was little time to take advantage of the premiums in the suggested positions as the technology market quickly began its record fall. Although Triquint moved as expected, the target credit was unavailable. Sun Microsystems had much larger premiums in the bearish credit spread later in the session. Portfolio plays: The weakness in technology issues became very apparent today as the Nasdaq endured its biggest point drop in history. Microsoft shares led the way, falling to $90 after the company's attempt to settle their antitrust lawsuit failed over the weekend. The loss in capital was significant, shaving $80 billion off the firm's market value, and the effects on the industry were widespread. The Nasdaq index closed below a crucial technical support level near 4400, signaling another potential downward move in what has become a full scale correction. Computer Hardware and Software, Internet, Semiconductor and Telecommunications stocks all moved lower. Analysts said that as stocks plunged, brokers demanded payment from investors with margin calls. Faced with these cash outlays, investors liquidated more shares, which exacerbated the decline. Our portfolio was significantly affected by the selling in technology stocks and a number of positions were closed or rolled forward (and down) to limit losses and protect profits. Despite a steep decline in the Nasdaq, industrial stocks managed to post impressive gains amid safe-haven buying. The start of a new quarter and bargain-hunting in the classic issues helped the blue-chip average move higher. The rotation back to traditional stocks, such as banks and major drug companies, pushed the Dow to its highest close since January. The winners in the broad market included retail, building materials and tobacco stocks, and our standout in that group was Phillip Morris (MO). The stock moved up $2 during the session, providing a number of opportunities to close both of our bullish calendar spreads for a favorable profit. Another big mover was Kroger (KR), which rose $1.68 to close at $19.25. The move provided some great premiums for our expected move to the $20 strike. Our debit for the transition to MAY-$20 options (on the short side) was $0.50. The new diagonal spread is JUL17C/MAY20C at a cost basis of $1.43. Navistar (NAV) has once again moved above $40 and both of our bullish spread plays are trading at favorable profits. The calendar spread position can be closed for a $1.12 return (on $2.00 invested) and the diagonal spread offers a $10.12 credit against the original cost basis of $9.00. Banking issues also participated in the blue-chip rally and our new positions in Bank One (ONE) and Summit Bancorp (SUB) were among the group leaders. The bullish LEAP/CC'S position in ONE is at maximum profit above $30 and has no upside risk. Summit is also trading above the sold strike and remains positive above $26.25. Northern Trust Bank (NTRS) traded up $4 near $72 before consolidating to a recent high near $70. Our new bullish credit spread profits above $59.18. The surprise of the session was Legato Systems (LGTO) which fell $20 to $19.88 after the firm filed to delay its 10-K filing and said it expects to revise downward the $251.1 million in revenue it previously reported. The maker of storage management software said much of the problem was the result of unauthorized transactions by certain sales representatives. In addition, Legato said it expects quarterly revenues to be lower. Our calendar-spread position was easily closed last week for a profit but unfortunately, Monday's move was before the open and the diagonal spread suffered significant losses. Wednesday, April 4 A record-setting fall in technology stocks pulled the Dow into a powerful decline during a wild, panic-stricken session. The Dow Industrial Average recovered to lose 46 points, closing at 11,175 while the Nasdaq Composite rebounded to a 74 point loss, ending at 4,148. The S&P 500 was relatively unchanged at 1,493. Declining issues outnumbered advancers by a nearly 2-to-1 margin on the New York Stock Exchange with total volume at 1.5 billion shares traded. Volume on the Nasdaq hit 2.88 billion, beating a former record of 2.23 billion shares. Losing issues outpaced winning issues on both exchanges. The 30-year U.S. Treasury bond rose 18/32, with the yield moving down to 5.77%. Portfolio plays: In the most active day ever for U.S. stocks, the Nasdaq Composite and the Dow Jones Industrial Average each plunged more than 500 points before recovering late in the day. Bargain-hunting buyers flooded the market in the last hour of trading, lifting stocks from session lows. Widespread pessimism among investors started the technology slide just after the open, sending the index to a midday bottom near 3650 before the recovery began. The downward move spurred a steep sell-off in the broader market, pulling the blue-chip index down 503 points at one time. The 700-point swing from high to low was the biggest on record for the Dow. Traders said the Nasdaq was long overdue to drop from its recent heights and a well known analyst said today's pressures came from three M's: Microsoft, margin calls and mounting anxiety. With stocks falling to correction levels, investors who bought securities on margin, or on credit, have had to sell their shares to repay their loans to brokerages. Now the question is who will be left to buy the recovering issues when the selling pressure finally abates. Those investors who were unaware of the movement in today's market will probably never understand what its like to witness such a shocking financial event. Traders with open (bullish) positions on margin must have seen their whole lives pass before them in a matter of minutes. I for one, was absent during the most of the carnage and was amazed to learn that both indexes had fallen 500 points during the session. I don't know how I would have reacted if I had personally watched the sell-off and today's activity brings to light a unique difficulty associated with producing this section. That is, how to determine when to exit a position (or when one should have been closed) without the added mental baggage that comes with the potential for financial failure. It's easy to trade successfully based on simple, unemotional technical analysis, when your actions are not affected by the possibility of monetary loss. Without actually trading the positions, the best I can do is follow the basic rules (Jim's "Top-Ten" on the web-site are ageless!) and try to manage the position just as I would if it were in my portfolio. I mention this because each week I receive numerous requests for advice or assistance with various positions and unfortunately, the answer I must give is simple: "Deciding when to enter and exit a play is a matter of personal preference." Fortunately, that's one secret to winning in this game. You must trade based on your own terms and knowledge! You must not let the effects of outside opinion or extraneous information influence your judgment! You are the only one who should decide how YOU will trade. While most professional traders strive for consistent monthly returns of 10% to 15%, your specific style or risk/reward attitude may require a less aggressive approach. If you can not afford the potential loss associated with a position, then don't make the trade. It's hard to believe (after today) but success will come when you create a favorable balance of strategies and sound money management techniques. Of course that requires lots of hard work and patience, and the fact is too many traders give up after a few losing plays, long before they have time to learn and absorb the various methods required for profitable trading. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - READER'S REQUEST - One of our subscribers was kind enough to point out the increased bullish activity in the Food and Beverage Group and in Consumer Non-durables. He also requested that we identify some favorable spread positions in those issues. Here are three candidates for your review and based on the new technical outlook and increased option interest, the easiest way to profit from any future upside movement may involve the most common forms of debit spreads. These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. **** PG - Proctor & Gamble $63.44 *** On The Rebound? *** The Procter & Gamble Company manufactures and markets a broad range of consumer products in many countries throughout the world. Their products fall into a number of business segments: Laundry and Cleaning, Paper, Beauty Care, Food and Beverage, and Health Care. Laundry and Cleaning products include dish care, fabric conditioners, hard surface cleaners and laundry. Paper products include diapers, feminine protection, tissue and towel, and wipes. Beauty Care products include cosmetics, deodorants, fragrances, hair care, personal cleansing, and skin care. Food and Beverage products include all of your favorites: coffee, juice, peanut butter, shortening and oil, snacks, and other commercial services. Health Care products include general health, oral care, pharmaceuticals and respiratory care. Companies such as consumer products giant Procter & Gamble have enjoyed solid gains recently as investors rotate to historically consistent performers. Today the stock moved up almost $4 after a Donaldson, Lufkin & Jenrette analyst raised her rating on the issue to "buy" from "market performer." The bullish opinion for the downtrodden stock is based on its oversold condition and the potential for significant gains. Technically, that outlook has merit. PLAY (conservative - bullish/debit spread): BUY CALL MAY-50 PG-EJ OI=206 A=$13.38 SELL CALL MAY-60 PG-EL OI=2278 B=$4.75 INITIAL NET DEBIT TARGET=$8.50 ROI(max)=17% Chart = /charts/charts.asp?symbol=PG **** K - Kellogg Company $26.25 *** Here's Your Special K! *** Kellogg manufactures and markets ready-to-eat cereal and other grain-based convenience food products. The company's principal products are ready-to-eat cereals and other convenience foods, which are manufactured around the world and distributed in more than 160 countries. These products are generally marketed under the Kellogg's name and are sold principally to the grocery trade through direct sales forces for resale to consumers. They also use broker and distribution arrangements for certain products in less developed market areas. In addition to ready-to-eat cereals, the company produces and distributes toaster pastries, bagels, frozen waffles, crispy marshmallow squares and cereal bars in the United States and Canada. Kellogg also markets these and other convenience food products in various locations throughout the world. This position is based solely on the recent technical change in character in the issue and the short-term bullish outlook for the Food and Beverage industry. During the past few trading sessions, the issue has posted significant gains and today it closed near the top of its recent range. The stock has also demonstrated new bullish momentum with a break above its 50-day moving average. The daily chart also reflects a small positive divergence from a short-term MA and the trend in the sector may help it move higher in the coming weeks. PLAY (aggressive - bullish/debit spread): BUY CALL MAY-22.50 K-EX OI=438 A=$4.38 SELL CALL MAY-25.00 K-EE OI=231 B=$2.31 INITIAL NET DEBIT TARGET=$1.88-$1.93 ROI(max)=29% Chart = /charts/charts.asp?symbol=K **** HNZ - H.J. Heinz $36.68 *** Cheap Speculation! *** H. J. Heinz manufactures and markets an extensive line of processed food products throughout the world. Their products include ketchup and sauces/condiments, pet food, tuna and other seafood products, baby food, frozen potato products, soup, lower-calorie products (frozen entrees, frozen desserts, frozen breakfasts and other products), beans, pasta, full calorie frozen dinners and entrees, chicken, vegetables and fruits, coated products, meats, edible oils, pickles, vinegar, nutritional and performance drinks, margarine/shortening, juices and other processed food products. They also operate and franchises weight control classes and operates other related programs. The company intends to continue to engage principally in the business of manufacturing and marketing processed food products and the ingredients for food products. This giant in consumer staples has garnered some attention in recent weeks as its trading activity has begun to show new life. Option trading has increased and with a favorable disparity in premiums, this position offers a conservative, low-cost method to speculate on the future trend in the Food and Beverage group. PLAY (conservative - bullish/calendar spread): BUY CALL JUN-40 HNZ-FH OI=663 A=$1.38 SELL CALL APR-40 HNZ-DH OI=537 B=$0.31 INITIAL NET CREDIT TARGET=$0.93 TARGET ROI=25% 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=HNZ ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************ See Disclaimer in section one ************
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