The Option Investor Newsletter Tuesday 4-11-2000 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) ************************************************************ 4-11-2000 High Low Volume Advance Decline DOW 11287.10 + 100.50 11361.10 11102.50 977,074k 1,519 1,434 Nasdaq 4,055.90 - 132.30 4182.96 4009.52 1,679,266k 1,215 2,998 S&P-100 816.76 - 4.38 823.04 807.85 Totals 2,734 4,432 S&P-500 1500.59 - 11.89 1512.80 1486.84 38.2% 61.8% $RUT 510.13 - 8.53 519.24 502.46 $TRAN 2921.81 + 78.68 2921.81 2841.63 VIX 28.95 + 0.94 30.34 28.33 Put/Call Ratio .51 ************************************************************* Close, but not close enough. The Nasdaq continued to run away from the Dow and started the day with a drop to 4009 or -178. The bargain hunters jumped the starters gun and bought the dip only to bleed to death as the day progressed. If you were lucky enough to buy at the very bottom then you probably finished the day positive. Most who were waiting for a real entry point in front of the PPI/CPI should still be safely on the sidelines. I know it was tempting, I almost bought the dip myself but if you know why you are going to open a position then you are better off than those who simply jump into the melee. The Dow finally broke out of its trading range and added another +100 points to manage the best close since Jan-20th. The Dow is now only -440 points from a new high and continues to make gains on the back of the old economy stocks. There were only eight Dow stocks that lost ground today and the big losers were the techs, IBM -3.13, HWP -1.44, MSFT -2.19, INTC -.38 with WMT, T, EK and MO rounding out the group. How much farther the Dow rally will go is the million dollar question. The Dow stocks are only expected to post +18% earnings compared to 30% to 40% for the Nasdaq stocks. Once the Dow leaders announce the Dow will start to be top heavy. With earnings moving into full swing next week we will be faced with the quarterly sell or hold debate. While most new retail investors will hold over earnings most experienced investors will lock in their profits a day or two before and move into something else that will announce several weeks later. This strategy always causes us grief at OIN because there is always some stock that blows out earnings and runs up the next day. Although only about three out of ten stocks go up after earnings and only one goes up strongly the perception is burned into the collective investor consciousness that all stocks explode on positive earnings. Several recent disasters should make you reconsider this hold over strategy. BGEN announced this week and missed estimates by -.02 and promptly dropped -$11 before the open. This case of simply missed estimates shows the problem with trading the unknown. If all the major analysts miss the results with leading by insiders of BGEN then how can we, the retail investors, do any better in deciding when to hold over? Motorola announced last night and beat estimates by +.01 but then warned in the conference call that margins were slipping and profits would be down in future quarters. Here is the other scenario of a better than expected earnings event, a warning out of the blue from a sector that is exploding. If you had several sectors to choose from for exploding growth the cell phone sector would have been one you had expected. But exploding growth does not always mean exploding profits for everyone in the sector. If you had held MOT over earnings because of the hot sector you would have been burned at the open this morning to the tune of -$25. Every April call option $130 or above went to almost zero in the blink of an eye. The $130 call dropped -$19.75 to $3.00 and the ATM $150 call dropped -$6.63 to $.38. How much would that have hurt your long term strategy? Yahoo is a prime example of the "buy the rumor, sell the fact" earnings event. Yahoo ran up from $150 to $203 before earnings and then sold off before the actual event to around $170. After beating analysts estimates but missing the highly aggressive whisper number the stock has been dropping daily and closed today at $133. Had you held over earnings the stocked dropped -$11 the following day on record earnings. The reason I am repeating this basic strategy tutorial is due to my market outlook for the next two weeks. In reality it does not make any difference whether investors sell before earnings for a profit or after earnings for a loss, the key point here is most "option and stock traders" (as opposed to long term "stock holders") SELL their stock/options around the actual earnings event. Earnings announcements peak in the next two weeks and then taper off as we get closer to May. This means that there will be substantial selling in the next three weeks due to post earnings depression. Secondly, I still expect some selling pressure from the rapidly approaching tax event. This could be part of the problem we are experiencing with the Nasdaq slippage this week. As traders decide they are not likely to see higher stock prices between now and April-17th they are throwing in the towel and closing positions to pay taxes. This will also stunt any rally as traders sell into strength to gain that last tax dollar. Thirdly, the contributions to tax deferred plans will dry up by the middle of next week and market liquidity will suffer. The record inflows of cash YTD which have been almost a drug like daily fix to whatever ailed the market will dry up faster than a busted junkie. Now all of these events coming at the same time would seem like a death sentence to the market but we all know different. These events simply provide a new entry point for traders with cash on hand. Many funds have been holding cash until they see how the flow of tax redemptions and tax contributions will play out before committing this cash to stock positions. Once the paper flow eases they will put this cash to work. Other funds, which plan ahead for the April/May dip, are Hoping for another retest of the lows from last week to Provide another buying opportunity. Based on the points outlined above you would think I was bearish on the outlook for the rest of the week. However, I am leaning towards bullish. Now that I have totally confused you I will explain my thought process. I think we could see some more selling as these events develop but I think the selling for this week is about over. There is a conflict between my long term view and my short term view. After looking at hundreds of individual stock charts tonight more often than not there appeared to be a bottom forming on these individual issues. Since the market is made up of the individual stocks I think this is a leading indicator for the Nasdaq. There are two groups of stocks that have become readily apparent. There is a group that appeared to have bottomed at about half the drop from last week and there is another group that stopped dead at the same bottom we saw last Tuesday. Either group does not appear to want to drop any further. This "grass roots" support is the first step in forming a market bottom. Many buying opportunities come from index managers "reweighting" the different indexes or adding and subtracting individual stocks. In the last three weeks the Nasdaq has been reweighted by the retail investor using the well known method of supply and demand. Many stocks that had been beneficiaries of the buy at any price mentality have been destroyed and billions of dollars of market cap have evaporated. MicroStrategy for instance closed under $50 today after trading as high as $333 just weeks ago. Akamai (AKAM) closed at $107, down from $345. PDLI at $87, down from $340, HGSI $80 from $238. I could go on for pages. The point however is the excess has disappeared and hundreds of these stocks are now good buys again. Triple digit PE ratios are now back to double digits. Until greed has been replaced by some other emotion in the human psyche investors of all types will continue to buy stocks when they are perceived to be bargains. Many of these stocks are bargains again. The Nasdaq is also approaching oversold again. After the rebound rally from the Tuesday drop last week we have now dropped -390 points. This is half of the rebound gain and qualifies as a 50% retracement on an intraday basis. The bottom today at 4009 was the same bottom as last Wednesday after the dip. Analysts are pointing to 4000 as a bottom but I do not see it. I would love to believe it but the real bottom is closer to 3800 in my opinion. If we bounce off 4000 then I will believe it. Before you start wondering if I lost it by saying in one paragraph that individual stocks are bottoming but the Nasdaq is still 200 points away lets look at the facts. Indexes are made up of individual stocks and the top five Nasdaq stocks make up about 20% of the index. SUNW is at strong support and should not contribute to another drop but the other major pillars of the Nasdaq, INTC, MSFT, ORCL, CSCO could still suffer weakness. (SUNW does have earnings Thursday and the price is likely to be volatile.) While individual stocks traded on the Nasdaq exchange like, JDSU, ARBA, CMRC, are showing support the index could still lose ground. Since 85% of an individual stocks movement is related to market movement we are at the proverbial catch-22. The Greenspan talk today was a non-event and the last several PPI/CPI events have produced relief rallies. With Greenspan not using his podium appearance today to try and talk down the market, even just a little bit, we may be seeing a bit of easing in the Fed rhetoric. All these things provide subtle shifts in sentiment as we go forward. While I am not claiming to be able to forecast the market direction I do vote with my personal trading account. I am still flat, in cash and waiting. I would love to see another significant drop at the open tomorrow. I would buy it without any hesitation. I would love to see 3800 but I think it is wishful thinking. Anything under 4000 would be buyable in my opinion. But before you charge off and start looking for candidates I would stress that this is probably only a trading rally and I would look for it to last only a couple days depending on the depth of any drop on Wednesday. The deeper the drop the better a chance for a long term bottom. We still have to get past the post earnings, post tax depression period before we will see any long term rally. While analysts are touting the highest close for the Dow since Jan-20th and the lowest close for the Nasdaq since Feb-1st, I would tell you that the tables are about to turn. most of the Dow stocks have completed a 50% or better retracement of their previous losses and now every dollar will be harder to gain. Profit taking on the Dow will come more frequently and the Nasdaq may get to spend a few days in the limelight. The dive at the close tonight brought us closer to the bottom but just not close enough. Trade smart and sell too soon. Jim Brown Editor Current positions: None ********** STOCK NEWS ********** Rite Aid Receives Boost From Citibank By Matt Paolucci Rite Aid Corp. (RAD) said Citibank (C) will give the troubled drug store chain a $1 billion credit line. Rite Aid, the country's third largest retail drugstore chain (behind Walgreens and CVS), operates over 3,800 stores in 30 eastern, southern and western states and the District of Columbia. Rite Aid also owns PCS Health Systems, Inc., which provides pharmacy benefit management programs and services which help improve patient health and reduce health care costs. The senior secured credit line, which matures Aug. 1, 2002, will give RAD time to improve its performance under a turnaround plan launched by the management team brought in late last year. The Camp Hill, Pa.-based company has been under scrutiny since it announced late last year a $600 million downward restatement of its pre-tax profits, related to accounting improprieties. Rite Aid's management team has undergone quite a facelift. The Company hired Bob Miller as its new CEO last December. Miller is a 30-year veteran of Albertson's and most recently served as the Vice-Chairman and Chief Operating Officer of Kroger, the nation's largest retail food company. RAD also appointed Christopher Hall as senior vice president and chief accounting officer. Hall previously served executive vice president and CFO at California-based Golden State Foods. Additionally, two long-time veterans from Fred Meyer, the nation's #5 food retailer, have joined Rite Aid as senior vice presidents. "Our new credit facility and the related transactions announced today, when completed, will provide us with the liquidity we need to support our turnaround plan," Bob Miller, chairman and chief executive officer of Rite Aid, said. The line will provide Rite Aid with more than $600 million in funding for general working capital purposes. The rest of the credit will be used to repay the company's existing $300 million asset securitization facility and to pay expenses associated with planned refinancing and debt modifications. Rite Aid said that after completing the transaction, the company will have almost no debt maturing prior to August 2002. One of RAD's principal lenders, J.P. Morgan & Co., has agreed to convert $200 million of the existing bank debt which it holds, into Rite Aid common stock, at a price of $5.50 per share in connection with the closing of the new facility. Rite Aid's management changes are impacting the Company's operations. Same store sales are on the rise. Aside from its anomalistic 7.6 percent rise in January due to the holiday season, RAD posted a 3.4 percent rise in February and a 4.8 percent rise in March. If you add up the financial commitment made by Citibank, the Company's new management team, the reorganization of its debt, and the steep discount the stock trades relative to its 52-week high, shares do look enticing. But before betting the "pharm" on this one, it may be prudent to see more follow through on the sales and earnings fronts. ************** Market Posture ************** As of Market Close - Tuesday, April 11, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,850 11,250 11,287 BULLISH 4.11 ** SPX S&P 500 1,410 1,475 1,501 BULLISH 3.21 OEX S&P 100 780 800 817 BULLISH 3.21 RUT Russell 2000 470 580 510 Neutral 4.04 NDX NASD 100 3,800 4,700 3,909 Neutral 4.04 MSH High Tech 900 1,150 987 Neutral 4.04 XCI Hardware 1,480 1,510 1,571 BULLISH 2.24 CWX Software 1,450 1,670 1,317 BEARISH 4.04 SOX Semiconductor 1,050 1,360 1,132 Neutral 4.07 NWX Networking 1,070 1,190 980 BEARISH 4.04 INX Internet 800 940 670 BEARISH 4.04 BIX Banking 520 615 576 Neutral 3.16 XBD Brokerage 450 580 506 Neutral 4.04 IUX Insurance 520 620 606 Neutral 3.16 RLX Retail 900 1,000 1,022 BULLISH 4.11 ** DRG Drug 330 380 377 Neutral 3.30 HCX Healthcare 680 760 755 Neutral 3.30 XAL Airline 130 160 154 Neutral 3.10 OIX Oil & Gas 265 300 290 Neutral 3.16 ***Posture Alert*** The "Old Economy" stocks chalked up another victory, as the Dow remained strong while the NASDAQ suffered more losses. Motorola and Biogen's earnings helped lead the technology and biotechnology sectors lower. Sectors getting hit today include Internet (-5.42%), Morgan Stanley High Tech (-3.45%), and Semiconductors (-3.07%). Winning sectors include Drugs (+2.69%), Oil & Gas (+2.04%), and Airlines (+2.02%). With this most recent action, we have upped the Dow and Retail sectors to Bullish from Neutral. **************** Market Sentiment **************** Tuesday, April 11, 2000 Two down, Thousands to go! The "Old Economy" stocks did it again, as the Dow flourished in the sunlight Tuesday while the "New Economy" stocks floundered like fish. Speaking of fish, has anyone watched CNBC? CNBC and the "professionals" that they aired these last two days were calling for the NASDAQ to go back and test last weeks lows. When was this next capitulation supposed to happen, today, yesterday, tomorrow, or next week? Please let us know guys, or Maria! As emotional as CNBC has become (one day raging bulls, next day huge bears), which is obviously for ratings, you have to wonder when they are going to hire Jerry Springer. Regardless of the media hoopla, technology shares were dampened today by earnings disappointments from Motorola and Biogen. These two giants stepped up to the plate and struck out; however, there are many other giants on-deck, and odds are, most people will forget about these two disappointments in a matter of days! Considering the major earnings run truly starts next week, we have two earnings down and thousands to go! In last Thursday's letter, we talked about investor's break-even psychology, and the importance it had on the short term. We stated that "you have millions of investors who bought stocks at higher prices before the big drop. What this creates is potential selling pressure (as investors wait to be break-even), in addition to the bears that are ready to jump back in and short the market." Well, the NASDAQ had a record up day Friday, which we were surprised at, but this week's reaction in technology has been completely expected. What is important at the moment is that the NASDAQ holds key support levels, preferable above 4k. On Sunday, we highlighted numerous companies regarding their earnings expectation and the Pinnacle Index for those issues. We looked at the numbers today, and the only major change was Advanced Micro Devices. The Pinnacle Index for AMD fell to 1.42, which may suggest that the stock would rally if they come in with a solid earnings report. Apart from that, the Pinnacle Index for the OEX suggests that we are going to be trading range bound in the near term, with a negative bias. Overhead resistance continues to be heavy, and support is light but growing stronger. Finally put/call ratios look a little more bearish today, which from a contrarian stance is actually positive. We will continue to monitor these statistics for any dramatic change. CBOE Total P/C Ratio .51 CBOE Equity P/C Ratio .42 OEX P/C Ratio 1.86 NASDAQ 100 2.55 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 (5.772): The current yield is in bullish territory. Volatility Index (28.95) 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. 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. 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) 9.83 10.91 OEX Close 821.52 816.76 Underlying Support (800-825) 1.25 1.43 Underlying Support (770-795) 2.17 2.47 What the Pinnacle Index is telling us: Based on Tuesday's figures, overhead resistance is still heavy. Put/Call Ratio Friday Tues Strike/Contracts (4/7) (4/11) CBOE Total P/C Ratio .37 .51 CBOE Equity P/C Ratio .32 .42 OEX P/C Ratio .71 1.86 Peak Open Interest (OEX) Friday Tues Strike/Contracts (4/7) (4/11) Puts 800 / 9,650 800 / 10,754 Calls 830 / 11,175 845 / 19,040 Put/Call Ratio 0.86 0.56 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 11, 2000 28.95 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Mon Tue Week Dow 11287.08 75.08 100.52 175.60 Nasdaq 4055.9 -258.25 -132.30 -390.55 $OEX 816.76 4.87 -4.38 0.49 $SPX 1500.59 3.72 -11.89 -8.17 $RUT 510.13 -24.32 -8.53 -32.85 $TRAN 2921.81 15.41 78.68 94.09 $VIX 28.95 1.07 0.94 2.01 Calls Mon Tue Week MER 104.63 3.44 0.38 3.82 New, financials strong WLA 107.50 3.31 0.19 3.50 Earnings run to Apr 19th CL 62.63 0.94 2.38 3.32 Validation: Going up! LTD 51.44 0.06 2.63 2.69 New, dressed for success UAL 65.13 1.06 1.19 2.25 New, flying higher KSS 106.00 2.56 -2.75 -0.19 Just off new highs IBM 119.00 -1.00 -3.13 -4.13 Still a stalwart in techs HYSL 29.31 -1.69 -2.50 -4.19 Mimicking the NASDAQ ADBE 119.50 -7.81 2.31 -5.50 New, a PE? Not too high! INTC 130.75 -5.69 -0.38 -6.07 Opportunistic trading NXLK 100.75 -4.75 -1.75 -6.50 Dropped, reversed & over HWP 145.81 -8.75 -1.44 -10.19 Off highs but very sturdy AMAT 104.63 -11.50 1.25 -10.75 Fell to the profit takers SUNW 87.88 -7.81 -3.13 -10.94 Dropped, earnings on 4/13 DISH 60.81 -9.00 -3.06 -12.06 Another helping? Sure SEBL 113.00 -16.43 2.63 -13.81 New, bucked the trend NXTL 128.25 -10.69 -3.50 -14.19 Following the market LXK 105.25 -4.31 -9.94 -14.25 Here we go again! SILK 84.13 -13.88 -4.69 -18.57 Tied into KANA MEDX 47.06 -14.50 -11.06 -25.56 Dropped, needs a medic!! CHKP 169.50 -16.03 -10.94 -26.97 Dropped, earnings on 4/12 INKT 135.06 -19.63 -26.19 -45.81 Dropped, internet pain Puts FIBR 46.75 -19.00 -4.50 -23.50 Numbers not a "typo" FDRY 101.56 -11.69 -6.88 -18.57 Dropped, earnings on 4/13 ICGE 57.56 -8.69 -6.44 -15.13 Busy breaking support LVLT 81.88 -3.75 -4.50 -8.25 Can't get back on feet IIJI 59.44 -4.38 -2.69 -7.07 Convincing performances LU 57.38 -1.19 -1.63 -2.82 Thank you MOT! KO 47.75 -1.19 2.75 1.56 An aberration? Entry pt. ************ WOMANS WORLD ************ For Sale: One Beat Up and Bloodied Option Trader. Cheap! By Renee White This is not your Mother's market. Are we having fun yet? How many of you were snickering at Warren Buffet just 2 months ago? How many would like to invite him to dinner tonight? If he came, would you have to hire someone to laugh at his jokes for you? By now, the pain and reality of trading should have hit everyone who trades the Nasdaq with the optimism of eternal youth. Any of you who have not been hit, but instead have continued to chug along with nice gains...please send me your address because I have a life-size package to send C.O.D. which needs food and water. I am sure this is a bad time to remind everyone that as option traders, we are never to trade with money we can't afford to lose. Now we know why, right? Thank goodness, I sent in extra money to the IRS in January, just in case. Thank goodness I took a little more off the table and kept it out of my trading account. I thought I was being pro-active. What I left in January, grew to a healthy level by mid March, mostly by staying out during the sell-off slides and entering on the violent bottoms. I was planning on quarterly extractions out of my account as I sent quarterly payments in to the IRS. Now, I can see that it was a bad idea. If I had taken profits monthly, or even weekly during big runs, I would have kept more money in my pocket, while risking less. Greed? It is painful, but I promise this: Anyone who has seen their fat profitable accounts, shrink to puny numbers during this damaging market sell-off, have been part of an intensive trading course. Your rewards for participating will come later, due to a better understanding of the market for years to come. These painful money-losing days actually have their own delayed rewards. With every major loss I have had since I started trading (and this is one of them), I have always come out of it with a clearer understanding of myself and as a better trader. These sell-offs create an opportunity for an accelerated learning curve. If you are indeed trading with money you can afford to lose, it should mean that although you are limping to your safe camp, you are wounded but not dead. The best lesson a trader learns is by looking at what he did wrong, given the information handed to him by the market. The worst thing a trader can do is to try to recoup the loss by jumping the gun on re-entry, trying to out-smart the market, while he suffers continued losses from over-trading. The devil of the deal surrounding trading is that when you make a big blunder...like when you're driving down the interstate, looking in your rear view window only to see your boat come un-hitched, bounce off the trailer and go sliding down the freeway on its belly... you may not have the opportunity to repair the damage for several months. Many times, general market cycles will prevent the rapid recovery recent traders have become accustomed. This is my concern for the period before us. In general, perennially April has been a strong trading month. This year, earnings are expected to be strong yet our bubble bursting tech correction came before earnings, instead of afterwards as I was hoping. Darn! There goes all my plastic surgery plans!! With the correction in front of earnings (if not in the midst of it), the aftermath is not as clear. Usually, after a major correction, we have rebounded, right? Beware. The aftermath this time may be different. Usually, we see our usual post-earnings depression period. May and June are typically weak months according to historical market data, along with August, September and October. Typically, there is less money coming into the markets after early April. People have taxes to pay in mid April and school lets out in May. The sun begins to shine which motivates people to work less. Volume declines and people focus on life, liberty and pursuit of their summer vacations. August is post earnings depression again and also a time many pony up to pay their IRS extensions from April. September is still weak and this trader plays little in October due to the now famous, yearly October ghosts from Crashes-Of-the-Past. Thank you CNBC, for making that a good "put" month with all the fear your commentaries create reminding us of yesteryear. In essence, a major correction that basically wipes out our April earnings run, sliding into home base coming into the May-June depression months, does not feel like any fun. I could be wrong but I read this as a set up for a sideways consolidating market with minimal spurts and sell-offs, until after the June FOMC meeting. I hope I am wrong. Certainly, I'd enjoy an elevator ride right back to the tree-tops. While I am passing on my long shot hypothesis remember, this is an election year which usually bodes well for the markets the last half of the year. My uneducated economic mind tells me that this correction is a sigh of relief for Mr. Greenspan, for it facilitates "normal" market movement to occur in the later part of the election year. I played my gut in October when the markets were at their worst, anticipating his November rate hike would be his last due to fears of the unknown surrounding Y2K. It is my thought that he may pause once again from raising rates, due to the presidential elections and to give the economy time to digest the full effects of previous rate hikes. If that does occur, it could set off a summer rally beginning on the first FOMC meeting when he does not raise rates. This could reverse our normal trading pattern and carry us into October. All bets are off for October though, since elections are then one month away during a time CNBC haunts us with ghosts from the past. Keep in mind, I am just a trader with diverse backgrounds in business, real estate, science, medicine, construction and the financial markets, but no economics. What I say means nothing. These are just my thoughts while thinking through what is happening now, with a backdrop of what I think about the markets tomorrow. This is how I think through my near term trading comfort level. I am unaware of all the lessons I have learned this past month. Though, some are very clear. This is the second time I have lost money while attending a trading conference. Open positions were not the factor this time; it was buying the dips while not being able to watch the markets, expecting the correction that day to be the bottom. Also, having the big crash occur immediately upon my return did not give me time to re-acquaint myself with markets or charts, not to mention the total disarray one feels when they have been away for a week. Traveling and trading just don't mix! I will not need to learn this a third time. So, two new lessons to add to my trading rules include: 1. When I feel the urge to buy a dip while out of town and not watching the markets, I will go deep and go long. I use that theory during times of uncertainty anyway. Deep (ITM) and Long, meaning LEAPS. I may not be able to buy as many contracts at one time, but I will be participating on strong upside, while protecting myself with time, for temporary downside. If the market turns against me, I can sell calls against the LEAPS. The alternative play will be a medium term straddle position, which will give me time to get my bearings after returning home, without fear of market punishment. 2. The biggest change to my account may not have the opportunity to be utilized for several months, yet I know it will make me the most money. I will not wait a whole quarter again, before taking money off the table. By "off the table" I mean, transferring it out of my trading account. Money in that account is at high risk, no matter what. Short term options get whacked and premiums may never return, but at least the stocks are still there. Granted, they may suffer for several months too, but their demise is not tied to implied volatility or decreasing time decay. Also, some strategies are available using the equities, if you want to sell them for a little more cash. So, I will no longer watch my account swell up waiting on the end of the quarter, before sending a check home. I have now learned that lesson, since a chunk of my profits have recently vaporized like many of yours. I must plug that hole from draining again. These are not the type of markets beginners should be practicing in. Even if we do get a brief rally, there is possibly more danger ahead. Be careful. Recovery into a sideways markets will be tough to play, especially for an option trader and especially if you are trying to day-trade with the spreads we have been seeing. No matter what your strategy, perfect discipline is hard for all of us. When we are busy looking to the left, we usually get hit from the right. The best plan may be to sit out, watch, think and decide what lessons you should have learned recently. Write them down for future review, in a journal of its own. There will always be more lessons to add to it...during the next unexpected correction. Remember, we are all just works in progress. In your journal, just so we all start on the same page, make sure rule #1 is: I never trade with money I can't afford to lose. Contact Support ************** TRADERS CORNER ************** Please welcome tonight Traders Corner writer, Molly Evans. I met Molly at the recent Denver seminar and I think you will enjoy her articles from a slightly different perspective. Jim Learning The Ropes By Molly Evans As I sit here at my desk this morning, the NAS is down 140 points to 4047 and the Dow is up 90 to 11277. I've read all the business news and newsletters I could get my hands on last evening and know thatthe NASDAQ would gap down. And that we might even "retest the lows of last week today". Well, as I write now in the afternoon, we know that didn't quite happen. If you play the NASDAQ, you know that nearly everything was down and stayed down. I have to wonder if everyone is thinking the same thing I am, which is, "I'm not selling and then have this thing jump up 500 points!" and yet at the same time, "And I'm certainly not buying and have this thing go down 500 points!" So where does that leave us? It leaves us with a day like we witnessed today, fairly tight ranges, tiny breakouts only to fall right back down. All of us were wishing, hoping, and praying that the other guy will blink first. How many of you bought yesterday? There were a lot more sellers yesterday, that I know! I sold pretty much everything into the rally on Friday, you know, the largest point gain on the NAS in history. Am I not so smart?!? Well, not quite! I also went right back in and bought big on Monday when the NAS offered such incredible opportunities at -100 and then again at -150. Then still again on that oh so brief pause of -200 that I just knew was "the bounce". Uh huh. Right. By the time we were to -258, I was cussing. There's a fool born every minute and I admit it, I am in the family! I knew it was too late for damage control as finishing on the low of the day is ominous. Today was no prettier, though I did get to play puts and calls on AMAT and QLGC. As they bounced around, I was doing the hoping and praying thing for another capitulation or a violent breakout. Not today I'm afraid. Since I've become a much more active trader, the days fly by yet a week in options trading is an eternity. So lest you think it's taking forever for the NAS to turn around as I do, remember it's only been two days! The market is truly the great humiliator. I believe this emphatically. I was so sure of a late day sell off last Friday and so sure of a late day rally today. Nope! This is where we get into trouble as traders, trying to outguess the market instead of allowing it to show us what it's going to do. We painstakingly learn to read charts and draw our conclusions but a chart is simply a diagram of past events. We make inferences into the patterns, of course, but it is difficult to not "read into it" what we want or think we should see. We as individuals are but leaves in a stream. We have to go with the flow and where it takes us. While it's been a tumultuous ride for the NASDAQ players, there's been a plethora of lessons to be learned. Whether you're a seasoned veteran of options trading or newly discovering this venue of investing, you've no doubt had to pay some dues. I paid for put lessons sometime ago when we were still in a raging uphill climb. Wow! Puts just don't really work in that environment unless you're REALLY right about the pick. I had picked a very top-heavy stock: all-time high, weakening volume, and a fading good story. Seemed like a no-brainer to me, bought my puts and waited for the "correction". The correction was a 10% pullback yet my put appreciated by about only $0.50. As a novice, I was quite disgruntled and unclear about the factors affecting the short side of option trading. First of all, in a charging bull market, you have to consider the other side of the trade. Who's selling the put? Wouldn't he want to charge you the highest of premiums for your right to put the stock to him at said strike? Lesson: Be very picky about that entry point price. Know what you pay for! Secondly, a put's time value premium is working against you just as a call would but presumably you've bought the put when the stock was topping and not quite over the edge yet. It takes a little bit of rolling overthe top to get the put to start appreciating. In a bull market, that can be a little bit of time before the bears are able to wrestle the control. Lesson: Would that be...wait for the bounce or in this case, the carnage to begin??? Third, I didn't realize that ATM options have the highest premium for time value. See, I made all the mistakes. Today, I bought ITM puts and calls just to simply play the range of my two chosen stocks. It worked beautifully. The calls were being sold about the same time that the puts were being purchased and vice versa. The implied volatility factor made the ranges on the options fat on either side. What fun! Made a couple of trips in fact. Not big money but it's entertaining while sitting there waiting for major positions to get up and move. A girls gotta have some fun! I don't pretend to know what tomorrow will bring. I'm simply a leaf in a stream. Or is that a minnow swimming upstream? Good luck to you all. Pick your entry points carefully and be too quick rather than too late to the exit. Contact Support *************** An Osmotic Technical View on Penguin Guano By Harrison Frolick Thank you flightless birds, for my best laugh in quite some time. Flightless birds, i.e. Penguins, being Wall Street Analysts. I have to thank them and the person that sent an Email that said I was making up my trades in my last article. Talk about rich Both parties made statements without any basis of fact and in spite of information to the contrary. One of the worst offenders is "Gabby Abby". Is she running for office or what? The "Penguins" are telling one and all that people should invest in the "Old Economy" stocks and divest of the "New Economy Stocks". Here is the best quote that I have seen. "It seems like every single analyst on the Street is on the Old Economy bandwagon and determined to drive the last nail in the coffin of highflying techs and arrogant investors," as per Charles Payne head analyst at Wall Street Strategies. Arrogant investors??? Since I speak fluent Penguinese I will give you a translation from Analyst speak to English. "We have only recently figured out what almost everyone that has used a PC in the past 8 years already understands the benefits of the New Economy. That is everyone except us and the Feds. Since we have done in many cases criminal disservice to our clients to the point that they got fed up and now invest on their own and have blown away the measly returns that we gave to them, we can't blame ourselves. It's our clients fault for leaving us! So we have to do everything that we can to screw them to the wall, even if it takes blowing all the money that we still control. We get paid no matter what our performance is and we stuck our own money in the New Economy stocks that were much too risky for our clients even though these companies gave us a 1000% return. We are experts, we can invest in companies like this (at least since we figured this out a few years ago). We want to cash out of our own portfolios now as we know that we are going to be out of business in a few years due to the New Economy. We are going to punish all of those people, especially the widows and retirees that did not allow us to squander their life savings. Anyone that has the audacity to invest on their own is arrogant and should suffer the wraith of Penguin droppings. Besides, if we can help manipulate the market enough, we can pick up these great companies that are growing at 100% each year at bargain prices. Then we can convince people to buy up the dogs that we are selling in the Old Economy companies that are only going to grow at a whopping 10% per year. That is the icing on the cake for us"! Penguinese is kind of like French, a few words can mean a lot when translated. That is basically the gist of it. Now you can see why the first four letters of ANALyst are what they are! Here is a an Email that I received that I want to share. I am not picking on this person this time but I want to point out a few things to that him or her and anyone else that is thinking about sending me an email that is negative in nature. "Hi, you sound like the women in Woman's Corner Dept. Telling us what you did. "I did pick up some MERQ at 61 and sold it at 85.50." I can say that too. Let's have credibility and say what you are going to do, not fictional I dids." (no signature included-HF) Here is a portion above the paragraph in the story reporting on the MERQ trade. "I picked up 5 contracts of RBF-JT's at $30.38. These are the MERQ October 100 calls. The last trade was around $25 but the current ask is $20.13. I also picked up 500 shares of DSLN at $23.19 with the ask at $18.25. Can everyone say crater?" Logic dictates that if I was going to put in fictional trades, I would not have included those for Pete sake. Besides, I left another $6 dollars on the table with MERQ as my original sell was going to be when it hit $90. Which it did today by the way. But then again, why let logic stand in the way of saying something negative. As far as accusing me of lying about trades, this person does not have a clue as to what makes me tick. I nearly laughed until I had tears in my eyes on that one. My partners were howling! Truly, thank you, whoever you are. I have a hunch that this person is a guy. One of my partners says she agrees with me. What do you think? Do women think like this? As I said, I don't mind people that disagree with me, but if you send me an E that is illogical and insulting, it will get deleted from now on. However, intelligent disagreements are welcome! (In that vain, Richard H. I will get back with you just as soon as I can.) Ok, enough fun and Frolick! I had a very interesting interview with the CFO of DSL.Net (DSLN) this morning and I will try and get it ready for Thursdays Email. Yes, I am still long DSLN for disclosure purposes. I am also going to be interviewing the President of ISPD next week and I should have a few others, as well. Pretty interesting stuff! I was reminded in an Email from Doug that there is still some money to be made in the ETEK-JDSU acquisition. If you have the time you might want to look at that as a possible play. Now the exchange ratio is 2.2 shares of JDSU for every 1 share of ETEK due to the split. I have to check the charts first and see what is going on. Went down to the Sun-N-Fun Fly-In in Lakeland, FL yesterday and sucked in a bunch of Jet-A fumes and finally got to go up in the World's only 1930 New Standard D-25 Biplane. I had a blast spending my $0.38's money with friends!!! It is quite an event. I saw the most Paraplanes(parachutes with motors, wheels optional) in the air at one time that I have ever seen, there were 29 of them flying at sunset. I am a Paraplane pilot and highly recommend the sport. If you are going down to Florida in the next week or live there, it is an absolute blast to see. To find out more information go to www.sun-n-fun.org . Remember, watch out for Penguin Guano, there is a lot of it out there these days! Happy Trading! 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: ***** CHKP $169.50 -10.94 (-26.97) As we mentioned in the weekend write-up, this roller coaster ride comes to an end tonight because of the earnings announcement tomorrow morning. Unfortunately, the move on Friday was all we got on this play due to the deteriorating market conditions. Good entry/exit techniques were critical to this play as it has been all over the map in the past couple weeks. Patience has been rewarded with some very profitable 2 or 3 day runs, but the trend appears to be down now. With the arrival of earnings and market internals continuing to deteriorate, we'll bid farewell to CHKP for now. INKT $135.06 -26.19 (-45.81) The second week of Internet stock abuse is well under way. Helped along by several noted analysts cutting back on their exposure to tech stocks, former high- flyers in the Internet sector are feeling the pain. Seeing nearly $45 disappear from INKT's stock price in the past 2 days is not encouraging. Heap on the additional insults of nearly double the ADV today and posting the lowest close in over 6 weeks (also just fractionally above the low of the day), and you can see why we are letting INKT go today. Investors don't seem to be interested in helping out with an earnings run, so rather than fight the crowd, we'll move on and look for other opportunities with more positive sentiment. MEDX $47.06 -11.06 (-25.56) Quick! MEDX needs more than just a medic if it's going to recover anytime soon. We never saw a good entry over the last two days of trading, and it doesn't help that the whole sector is moving into sickbay. As Jim noted over the weekend, even a helium balloon won't go up in a downward moving elevator. Comparing the chart of the NASDAQ to the MEDX chart shows a nearly identical pattern for both. There hasn't been any news on the company for a week. So it is that we say good bye to MEDX tonight. SUNW $87.88 -3.13 (-10.93) This SUNW is setting tonight. So much for the earnings run into April 13. While we had a nice run at the end of last week, SUNW has faltered in the last two days of trading. Even if it had performed better, we would still be dropping it in front of earnings on Thursday. Veteran readers will recall that we never recommend holding a position through earnings since more often than not, stock prices fall thereafter. Need current evidence? Look no further than Motorola who reported a penny ahead of expectations and reported greater than expected revenues. It got clocked for negative $27 today because a few analysts chose to focus on low margin handsets instead of their otherwise great showing. Besides that, what if Michael Dell is proven right sooner rather than later, and SUNW's hype has exceeded it's ability to deliver? Time to move on. NXLK $100.75 -1.75 (-6.50) In our write-up last Sunday, we mentioned that NXLK showed resilience last week when the telecom sector fell victim to profit taking. That situation reversed Tuesday as stocks such as SBC, GTE, and BLS showed impressive strength as NXLK continued its decline from Monday. NXLK fell through support at $105 on Monday and could never manage to climb back above that level on Tuesday. The stock made a run several times to break $105 today, but never managed to gather enough momentum. The stock ended Tuesday positioned just above the critical support level of $100. We see continued weakness in NXLK, especially with its poor showing Tuesday relative to the rest of the telecom sector. We don't see much help should NXLK breakdown and fall through support of $100. There's too much risk to continue to hold any positions in NXLK from here, we don't want to hang around to see what happens below $100. PUTS: ***** FDRY $101.56 -6.88 (-18.56) Looks like that lack of relative strength really paid off for this put play. All the market had to do was roll over, then FDRY said, "how deep?" Right down to $100 please, if you don't mind. That's where FDRY found strong support. We hope you made an exit there because FDRY sprang back to $113 within 30 minutes and inched its way to $114 before rolling over again in the afternoon. Even as this put play continues on its way down, we must exit the play due to the fact that earnings are on Thursday. If you choose to play, just be out by Thursday's close. It has been a nice slide. ******************** PLAY UPDATES - CALLS ******************** INTC $130.75 -0.38 (-6.06) Keeping in line with its trend, INTC was choppy and volatile. It traded between $127.50 and $134.25, choosing to close right about in the middle. The Semiconductor Index($SOX) was down 3.3%. The good news is that INTC has been holding up relatively well and has allowed for opportunistic entry points. Looking at a chart, INTC sold off in the final ten minutes from its intraday high. Be aware of this tomorrow as we may see initial selling at the open. This could be a good entry yet a more conservative entry would be after the first hour. Two down days for the NASDAQ...could we see a rebound before the PPI on Thursday? Quite possibly. Remember that INTC has earnings on Tuesday, April 18th after the close and we may see a short run prior to the weekend. Enter on the intraday dips suited to individual risk levels. This play has been strong and a NASDAQ recovery could push INTC back through $135. DISH $60.81 -3.06 (-12.06) It seems that investors had one too many helpings of DISH last week and are still feeling a bit ill. Maybe a little food poisoning or maybe the bearish comments about the tech sector on CNBC add nauseum. If that isn't enough, Motorola ruined the effects of a strong earnings report this morning by raising caution flags about its revenue stream and investors suddenly lost their appetite. After losing $8.50 yesterday, we were praying that buyers would step in and provide some support at the $60 level. With enough conviction to attract more buyers, DISH found support near $58 and bounced up to the high side of $60. Yet, that was the end of the good news as the stock rolled over and dropped all the way to $55 (only $2.25 above the low from last Tuesday). So why are we keeping it? As the NASDAQ waffled late in the day, DISH caught the attention of some hungry investors and rallied strongly to close over the afore-mentioned $60 level. Going forward, we need to see that DISH has put in a bottom; risk-takers can attempt to target shoot intraday dips near $55, but more conservative players will want to wait for a convincing move (strong volume) through the gap created at today's open. If DISH can stay above $64, we may be willing to sit down for another helping. *********************************************** 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! Harrison@OptionInvestor.com ************************************************************** 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. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 DISCLAIMER ********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter Tuesday 4-11-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** HWP $145.81 -1.44 (-8.69) What the market gives, the market takes away. Those of you that were hoping for our computer hero to charge through to new highs will have to wait a bit longer. Hampered by bearish analyst comments towards tech stocks and Motorola's cautionary statements this morning, HWP had an uphill battle to wage. For those of you that thought yesterday's $6 retreat was enough, the markets demonstrated the error of your ways this morning by pulling back to solidify near $141 before running higher. Buyers re-emerged and helped the beleaguered stock recover to just below $150 before the sneak attack from the broader markets dragged HWP back for another small daily loss. What is encouraging is that the $140 support level held up today without much of a challenge. However, the $150 level will provide resistance going forward. Look to open new positions as the stock bounces near $140, or for the more risk-averse, wait for a powerful charge through $150. Once the broader markets figure out which way they want to march, HWP should benefit from the positive sentiment created by the pending spin-off of the remainder of its stake in Agilent and the fact that the stock is in split territory above $140. In any case, confirm market direction before playing; even a winner like HWP will get caught in a market downdraft. LXK $105.25 -9.94 (-14.25) Here we go again! Patient investors are being rewarded as the market gives them another shot at entry points that evaporated all too quickly last Tuesday. Many of the pundits on CNBC, as well as many of us in the office feel that a retest of the lows we saw last week will be necessary before we can move higher. Applying this logic to LXK puts us close to another entry point. Although last week's intraday low was $99, at $105.25, we don't have too far to go. LXK may find support near current levels, but vigilance may yield a nice entry into this earnings play near the $100 level (also the location of the 100-dma). Earnings are confirmed for April 24th, so start looking for your entry now. Erasing all of last week's gains in only two days is not a particularly encouraging sign, so make LXK prove itself by forming a bottom and moving higher. Volume on today's decline was slightly below average, but picked up considerably as the decline accelerated in the afternoon, so exercise caution going forward. Wait for the bounce and confirm its strength with increasing buying volume before putting your cash at risk. KSS $106.00 -2.75 (-0.19) Our retailer made another new high late Monday at $109.56. The volume Monday continued to be a bit light, following the trend seen in the broader markets. This morning traders pulled some money off the table at the opening bell. As we mentioned this weekend, for KSS to sustain it recent upward momentum, we wanted to see new buyers enter the market. The 5-dma at $105.15 provided support for KSS, with a few buyers entering the picture late in the day. Volume was light again today with 710K shares changing hands, which could be viewed as a plus. It is somewhat concerning that on a day when the retail sector and many stocks at the NYSE were enjoying solid gains, KSS gave back 2.5%. Kohl's added about 15% the previous 4 sessions so at this point we will view today's action as profit taking. The close today at the $106 level of support may have provided a buying opportunity, while the next level is seen between $103 and $104. The upcoming split on April 25th may bring also buyers back to the table. Keep your powder dry, as we are expecting the momentum to return on this one. WLA $107.50 +0.19 (+3.56) After a tough start, through no fault of its own, WLA began the week making a new high in each of the past two sessions. The moves this week have at least given us some breathing room. Whether WLA can continue the momentum seen so far this week remains to be seen. WLA shot up to its high right out of the gate this morning, and traded in a narrow range for the balance of the day. A look at intraday charts shows that WLA continued to make higher lows on each pullback during the session today, which is a definite plus. ABN AMRO said Tuesday it was maintaining its hold rating on merger partner and Viagra manufacturer, Pfizer, after U.S regulators yesterday recommended marketing approval of Uprima, a rival impotence treatment. They believe the competition may continue to heat up in key therapeutical areas in the industry. If profit taking sets in, we would look for the $106 or $104 to bring fresh buyers to the market. WLA is also scheduled to report first-quarter results on April 19th, so we could still have time for a run into earnings. Indications are for a nice increase over last year, with estimates of $0.56 per share. NXTL $128.25 -3.50 (-14.19) Well, we are just about right back where we started our play in NXTL. Some may view this as a good thing, while others may be concerned that there was little or no follow-through so far this week. NXTL did give us a chance to jump in on Friday. Depending on your entry, it also gave us a chance to pull some profits out of the play as it began to come back yesterday. On the bright side the support at today's low of $124.50 did hold. It was a volatile session as NXTL shot up to $138.88 in the first thirty minutes of the session, and began to head south. Another buying opportunity? It could be as investor sentiment did seem to improve late in the day. This morning NXTL announced the signing of a marketing alliance with ServiceHub Corporation that will put ServiceHub wireless intelligence applications on Nextel handsets and the Nextel Website. We do we go from here? We are at a crossroads on this one. If investors continue to shift away from NASDAQ stocks, our play could come to a pre-mature end. If sentiment at the NASDAQ improves, NXTL should be back on track. SILK $84.13 -4.69 (-18.57) SILK showed impressive strength in the first half of trading Monday as it held firmly above $105. Traders came back from lunch yesterday with a bad taste in their mouths as SILK sold-off sharply after 1:00. The stock lost $15 in the latter half of Monday's session. The selling pressure continued Tuesday as SILK opened the morning with a gap down by $1.81, falling to $80 before finding support. The weakness in SILK can be attributed to the selloff in KANA. The two companies plan on completing their merger in the coming months and our play is a leveraged one. As KANA loses ground, so goes SILK. However, KANA has found solid support at its current level which has stabilized shares of SILK. And we are looking at the volume very carefully in the last few days. KANA's volume all but dried up on Tuesday as traders left the stock untouched. We're looking for SILK to rebound from its recent slide as traders refocus on earnings and renew their interests in the leading tech stocks. Watch for SILK to bounce off its current support level of $85. The stock could run into resistance at $90 and again at $95. Again, confirm direction in KANA before entering into SILK, and watch volume closely as traders participate in any rally. If the NASDAQ rebounds from its recent decline, SILK and KANA can move quickly. But if the rotation out of tech stocks spills over to Wednesday, look for SILK to find support at $80. AMAT $104.63 +1.25 (-10.25) We mentioned last Sunday that AMAT may fall victim to profit taking. Well, the profit takers were in full swing Monday as the stock gave back $11.50 of its gains from last week. However, Tuesday was a new day, and AMAT prevailed in the face of a Motorola (MOT) meltdown and a weak tech sector. In fact, if there was one bright spot in the NASDAQ Tuesday it was the chip equipment sector, led higher by AMAT. Wall Street continues to find solace in the semis, noting analyst actions Tuesday. Advest upgraded shares of AMAT from a Buy to Strong Buy and Morgan Stanley raised their price target to $120 from $105. Along with AMAT, Morgan Stanley raised price targets for several other semis today, including LRCX, KLAC, and TER. Technically, AMAT fell through the support level of $105 on Monday, a level that now appears to be resistance. Watch for AMAT to clear $105 on heavy volume as an entry point. Also look for resistance at $110, if AMAT can clear that level it could very well retest its high of $115 reached last Friday. If we see the NASDAQ rebound in the next few days AMAT could take-off, noting its relative strength Tuesday. However, set your stops carefully after entering into the play, as we saw on Monday, AMAT could fall to $100 before finding support. HYSL $29.31 -2.50 (-4.19) HYSL's chart pattern mimicked the Nasdaq's movements over the past two days. Coming off a three- day uptrend last week, HYSL retreated a few points on low volume. Natural consolidation is fine in and of itself, however the danger of this play is the power of market sentiment. In the short-term, it's essential you pay close attention to the Nasdaq swings to foreshadow this stock's ultimate direction. Additionally, watch for another positive move through the converged 5-dma ($30.59) and 10-dma (now at $30.40) before adding or opening new positions, unless you're the more aggressive type. Upcoming earnings may also help pump up the momentum. Hyperion is confirmed to report on April 25th, after the bell. In the news today, they announced an expansion to its global partnership agreement with IBM that includes their Hyperion Essbase OLAP Server technology being part of every copy of IBM's DB2 Universal Database Version 7. Hyperion also reported it began shipping its Customer Interaction Center, a solution used in worldwide call center operations. CL $62.63 +2.38 (+3.31) Validation! Investors are indeed showing some favor to the old stand-by stocks, like CL. We saw the evidence again this week as the trading volume perked back up and CL cleared the formidable resistance at $60. Yesterday the stock eeked out a fractional close at $60.25, but today it firmed just a smidgen off its intraday high of $62.88. These are certainly bullish sentiments; especially in front of earnings next week. The company is scheduled to report on April 19th, before the bell. This gives us only five more trading sessions to profit from this equity rotation play. Solid bounces off $61 and $62 provide new entries, but be careful if there's a slip back to the 5-dma ($59.93). Overhead the opposition is now at $66.75, the 52-week record high set in January. IBM $119.13 -3.00 (-4.00) IBM managed well on Monday while other hardware and chip equipment makers followed EMC and Hewlett- Packard in a descent. Overall IBM lost a mere dollar throughout trading and even popped over that hard-line $125 mark at the open. Today's performance however was a bit more daunting. In light of Motorola's (MOT) cautious earnings' outlook not only did MOT suffer a severe lashing from investors (down $27.50), but also the news effectively dragged down the tech sector as a whole. IBM shed $3.00, or 2.5% bringing it below the 5 and 10 DMAs, $122.43 and $121.54 respectively. It's likely that IBM will recover before its earnings' announcement next Tuesday on the 18th (after the bell); however it'd be prudent to wait for a confirming bounce off the technical indicators before opening new positions. On the analyst front Monday, CSFB's Amit Chopra sees weak hardware sales putting a "drag on growth in software and services" for IBM and "hurting first quarter revenues". Yet Salomon Smith Barney raised its EPS estimate for the company. Plus, the firm reiterated its Buy rating and $155 price target citing "the current highly volatile market environment, its steady earnings growth and conservative accounting practices offer investors a safe haven". ******************* PLAY UPDATES - PUTS ******************* ICGE $52.44 -5.50 (-20.25) While competitor SFE was busy telling the street that they would no longer focus on B2B, and would instead focus on Net infrastructure, ICGE was making a comedian- like (think Chevy Chase) stumble down a flight of stairs into the basement. ICGE commiserated with the rest of the B2B stocks yesterday and found support at $62.50. Today, that support turned to vapor as ICGE gapped down and traded under $60, its previous support (now presumed resistance), by the close. That said, there may be a retest of $60 to see if it might offer resistance before any further move down. Assuming $60 offers some resistance from now on, the next level of support should come at $50-$53, a level from which ICGE broke out last October. You can consider taking a position at a bounce south of $60, or wait until there is a clear break below $56 with an increase in volume. No news on this issue, except the announcement of a stake in CentriMed and IndustrialAmerica - presumably more B2B auction sites. LU $57.38 -1.63 (-2.38) Thank you Motorola! As you probably have heard MOT reported better than expected earnings yesterday. This morning before the open they said in a conference call that next quarter won't be so darn good. That seemed to set the stage as tech stocks and communication equipment stocks had a rough go of it today. LU lost another 2.0% today. Lucent did bounce off the $56.50 area early in the session, but is a long way from reversing its current trend. Over the long term, several analysts said the MOT problems could eventually help others in the industry. As we mentioned this weekend, Lucent is going to have prove to investors it has turned the corner before we can expect any significant moves higher. Since the first of March, traders have used every bounce to sell shares of Lucent stock. LU has closed lower four of the last five sessions. The 5 and 10-dma are back at $60.16 and $61.13, respectively. A bounce back to the $58 area or the moving averages, followed by further weakness could provide another opportunity to buy puts. FIBR $46.75 -4.50 (-23.50) No, the prices to the left are not not a "typo." If you entered this play late Monday morning as FIBR began to fall out of bed, then a quick look at your account will tell you the same thing. Unfortunately no real news to hang our hat on, just another 33% drop in price in the first two days. Rumors in the chat rooms suggested their may have been some institutional selling, but could not be substantiated. The carnage continued today at the opening bell as FIBR dropped to a low of $39 in the first thirty minutes of the session. Over 384K shares were traded in the first half-hour indicating FIBR may have put in a short-term bottom. Remember this is a stock that closed on March 31st at $112.25. FIBR did announce this morning that Sync Research a provider of Wide Area Networking solutions had signed a definitive agreement to merge Sync and Osicom's wholly owned Network Access subsidiary. The combined public entity is expected to be named Entrada Networks. Traders did bid the price back up to $52.13 only to see more sellers enter the market. FIBR has once again reached an oversold condition, but we would use further weakness as an opportunity to join this play. KO $47.50 +2.50 (+1.31) KO benefited from a broad based rally in blue chips Tuesday. Traders continued their mass exodus from tech stocks and moved into consumer staples, drugs, financials, and the like. KO bottomed at $45 on Monday, a level that continues to provide support for the stock. After hitting bottom on Monday, investors sought value on Tuesday, bidding shares of KO higher. The stock opened today with a gap up by $1.44 and rolled higher as investors fled the tech sector. Traders weren't completely convinced with the KO's advance today as volume was lukewarm. There is no news out on KO and nothing has fundamentally changed in the last two days, making the advance Tuesday look a little artificial. It appears that some bottom- fishing combined with blue chip strength helped lift KO higher. With the gap open this morning the stock managed to climb above its 10-dma, previously a resistance level. Watch for selling to resume as investors remember the dismal situation KO is currently facing. Look for the stock to fall through its 10-dma, currently at $47.50, as a sign the selling has resumed. Confirm any weakness in KO as the stock fills its gap from this morning at $46.50. Firm support has been established at $45 for KO, so watch the stock carefully as it approaches that level, as a breakdown below $45 would provide a good entry point. IIJI $59.44 -2.69 (-7.06) A convincing performance two days in a row restored our faith in IIJI. We didn't get the big upset like last Tuesday and Wednesday (dives to $50), but a 10.6% correction is acceptable! And technically this put play is still sound with the MACD, MOM, and STO still indicating a further descent. If you're looking for entries into this volatile Internet play, then watch for downward moves off $61 and $60. At $63.99, the 5-dma technical is a bit high to use an entry devise; however, you may want to consider it as a mental stop-measure. The entry ultimately depends on your personal strategy and risk portfolio. It's true IIJI is not without wide intraday swings, which makes it a target shooting candidate for day trading. But let's not leave this one without its rightful attention. LVLT $81.50 -4.88 (-8.63) Banc of America Securities must be trying to get this stock back on its feet, but its not working. Just last week their analysts went to bat for LVLT and now again today, analyst Andrew Hamerling reiterated his Strong Buy recommendation and issued a $146 price target. LVLT continues to shed its skin this week losing another 9.6% of its share price. The Nasdaq's bearish behavior of the past two days is, of course, aiding the stock's descending momentum. Recall from Sunday's write-up, we need to keep an eye on the 200-dma ($78.94) which is historical support and may pose some opposition. The current trading range between $78 and $83. This play is based purely on technical momentum and not any devastating news event. Yet, next week the company is reporting its earnings on April 18th, before the bell, so head's up for some possible excitement. ************** NEW CALL PLAYS ************** SEBL - Siebel Systems $113.00 +2.63 (-13.81 this week) Providing sales automation and customer service software through its main product, Siebel Sales Enterprise, SEBL offers its customers the ability to access client information and decision- making support across a corporation's global computer network. The company's e-commerce applications deliver the first entirely Web-based, enterprise class family of sales, marketing and customer service applications. Among the company's heavyweight clientele are Lucent Technologies, Glaxo Wellcome, and Prudential Insurance. What's this, an Internet software company that actually went up today? Well, it wasn't a huge gain, but at least it was in the right direction and came on strong volume. That alone should be enough to get your attention in this market. SEBL is beating the old Enterprise Resource Planning (ERP) companies at their own game, by providing automated solutions that dinosaurs like SAP, PeopleSoft, and J.D. Edwards are just beginning to think about. It isn't just about resource planning anymore; the industry now encompasses customer relationship management, supply-chain management and e-commerce. It is ironic that the core of SEBL is the sales-force automation product that Larry Ellison declined to sell a decade ago. That is all well and good, but why is this a good play now? How about earnings next Tuesday after the close and the fact that SEBL is finding support at its 100-dma ($103.50). With earnings so close, we normally don't pick up a new play, but SEBL has been severely beaten up with the rest of the Internets over the past month. Starting out at a high of $175.13 on March 8, SEBL has pulled back far enough that, even in the current schizophrenic market environment, buyers may emerge to give us a quick earnings run. Granted, this play is not for those prone to ulcers, as SEBL can easily move $20 in a day. We are looking for SEBL to hold support at $103 as buyers return to push upwards into earnings. Target shooting intraday dips can be profitable, but make sure you know your risk tolerance before playing. A more conservative approach would be to await a strong move through resistance at $120 before jumping on board. One final note: SEBL becomes a split candidate above $120 and the company has plenty of shares authorized. If the stock can get moving, there could be an announcement in the near future. Continuing to form powerful alliances, SEBL announced a global distribution agreement with Lawson Software yesterday. In the terms of the alliance, Lawson will integrate and sell its new line of enterprise applications with SEBL's comprehensive suite of e-business applications for sales, marketing and customer service. ***April Strikes expire in less than 2 weeks*** BUY CALL MAY-110*SGW-EB OI=1270 at $18.25 SL=14.25 BUY CALL MAY-115 SGW-EC OI= 535 at $16.13 SL=11.50 BUY CALL MAY-120 SGW-ED OI= 873 at $13.88 SL=10.25 BUY CALL MAY-125 SGW-EE OI= 380 at $12.25 SL= 9.50 SELL PUT APR-105 SGW-PA OI=2386 at $ 4.50 SL= 6.50 (See risks of selling puts in play legend) Picked on Apr 11th at $113.00 P/E = 207 Change since picked +0.00 52-week high=$175.13 Analysts Ratings 14-5-0-0-1 52-week low =$ 15.75 Last earnings 01/00 est= 0.15 actual= 0.19 Next earnings 04-18 est= 0.15 versus= 0.10 Average Daily Volume = 4.09 mln /charts/charts.asp?symbol=SEBL **** LTD - Limited, Inc $51.44 +2.63 (+2.69) Ever been to a store in the shopping empire that retail concept developer, Leslie Wexner built? If you've shopped at Lerner New York, Express, Lane Bryant, The Limited, Henri Bendel, Structure, The Limited Too, and Galyan's Trading Co., you've been to a Limited owned store. LTD also owns an 84% stake in Intimate Brands, the parent company of Victoria's Secret and Bath &Body Works. The Limited is principally engaged in the purchase, distribution, and sale of women's apparel in 2,861 stores. Bucking the technology market trend, retailers are finding new respect on Wall Street. Listen to leading expert, Stacy Pak, First Vice President at Prudential Securities as reported by Bloomberg News. Pak is beginning to see better times for the retail sector. "We've seen a bounce in retail, and there is a little bit of blue sky out there. So investors are looking around and they're seeing some very attractive valuations, which we definitely have in this sector. They are seeing some actual green on the screen in the retail sector, so there is some optimism." Priced at a reasonable 30 times earnings, and sporting over an 18% return on equity, The Limited owns some of the best branded apparel stores in the world (see above). But the real story is in the chart. Having been beaten down so badly over the last few months, LTD barely registered a hiccup as it dropped to $35.31 last Tuesday, a previous level of RESISTANCE for most of the month of March! Ever since, it's been on the move, stacking up gain after gain for the last five days on strong volume. Though down from levels seen in the previous few sessions, volume even today registered 50% greater than the ADV of 1.1 mln shares while LTD broke out to a new all-time high. The trend looks strong for now. You can consider target shooting at $48 or $50, depending on your risk profile, or wait for a volume-backed breakout over $52 before taking a new position. Earnings are not scheduled until mid-May tentatively, so you won't have to dodge that bullet. Analysts lately have come out to support LTD too. Robbie Stevens upgraded the issue from Attractive to Buy, while B of A Securities upgraded from Buy to Strong Buy, and DB Alex Brown did the same. The first two made their announcements last week following the tech wreck. BUY CALL MAY-45*LTD-EI OI=282 at $7.50 SL=5.25 BUY CALL MAY-50 LTD-EJ OI=330 at $4.00 SL=2.50 BUY CALL AUG-45 LTD-HI OI=198 at $9.50 SL=6.50 BUY CALL AUG-50 LTD-HJ OI=403 at $6.63 SL=4.75 Picked on Apr 11th at $51.44 P/E = 24 Change since picked +0.00 52-week high=$51.75 Analysts Ratings 9-9-5-0-0 52-week low =$28.88 Last earnings 02/00 est= 1.20 actual= 1.31 Next earnings 05-23 est= 0.23 versus= 0.19 Average Daily Volume = 1.1 mln /charts/charts.asp?symbol=LTD **** ADBE - Adobe Systems Inc. $119.50 +2.31 (-5.50 this week) Adobe Systems is a leader in desktop publishing software, the company's Acrobat Reader is popping up all over the Internet as users clamor to display portable document format (PDF) documents on the Web. Three of Adobe's products, Photoshop, Illustrator, and Page Maker generate about 60% of its sales. The company also markets print technology to OEMs and has stakes in a string of technology firms whose products complement its own offerings. Adobe is hoping a restructuring effort and the introduction of its InDesign publishing package will spur sales and accelerate its product growth track record. ADBE is one of the few high-flying Internet companies to actually sport a P/E ratio. With a P/E of 58, some consider ADBE a value play in the volatile tech sector. That low P/E could be the very reason ADBE has showed resilience in the face of an unforgiving tech sector. Its relative strength helped to buck the trend Tuesday as the NASDAQ continued to sink. The momentum stems from last week when ADBE said it raised its revenue growth targets for the second half of 2000 to 25% from 20%. The company said it will maintain its targets for its upcoming second fiscal quarter ending June 2 at 20% revenue growth. CEO John Warnock said, "The growth of the Web continues to fuel our business and we are now in the strongest position in our history." The good news prompted Chase H&Q to upgrade ADBE from Market Perform to Buy. The chart for ADBE looks stellar, as the stock continues to make new highs using its 10-dma as support. Although ADBE is showing impressive strength, the stock did run into light resistance Tuesday at $122. Watch for ADBE to break that resistance level and confirm any move with heavy volume. Should ADBE fall to profit taking or succumb to broad market weakness, the stock has support at $115 which might provide an additional entry point should the market rebound. As if ADBE needs any help, traders may began to focus on the upcoming Annual Shareholder Meeting on April 26th. Investors are expected to approve the proposal to increase the number of authorized shares from 200 mln to 500 mln. The increased number of shares is most likely a precursor to a stock split which could further boosts shares of ADBE. ***April Strikes expire in less than 2 weeks*** BUY CALL MAY-115 AXX-EC OI=1935 at $15.75 SL=12.25 BUY CALL MAY-120*AXX-ED OI= 82 at $13.38 SL= 9.75 BUY CALL MAY-125 AXX-EE OI= 82 at $11.13 SL= 8.75 BUY CALL JUL-125 AXX-GE OI= 65 at $18.13 SL=14.00 SELL PUT APR-110 AXX-PB OI= 234 at $ 2.50 SL= 3.50 (See risks of selling puts in play legend) Picked on Apr 11th at $119.50 P/E = 58 Change since picked 0.00 52-week high=$125.00 Analysts Ratings 4-7-3-0-0 52-week low =$ 27.50 Last earnings 02/00 est=0.43 actual=0.47 Next earnings 06-15 est=0.47 versus=0.35 Average Daily Volume = 2.41 mln /charts/charts.asp?symbol=ADBE **** UAL - UAL Corporation $65.13 +1.19 (+2.35 this week) UAL is the holding company for United Air Lines, the #1 air carrier in the world. United flies more than 570 jets to some 130 destinations in the US and 27 other countries. It has hubs in Chicago, Denver, London, San Francisco, Tokyo, and Washington. UAL's United Express connects passengers from regional carries to United's system. United leads a sharing partnership called Star Alliance with Germany's Lufthansa and several other airlines. Employees own 47% of UAL, making it one of the world's largest employee-controlled companies. Like UAL's flights, its stock made a smooth landing and is now ready for take off. UAL is ascending with little interruption after bottoming last March. The stock had been on a steady decline in the face of rising oil prices. Now that oil has come down substantially from its highs, the transportation sector has been set alight. Early last week, ING Barings said it raised its rating on UAL to Buy from Hold based on strong industry conditions, its leadership position, decreasing fuel, and an expected spring rally in airline stocks. Analysts believe that UAL is likely to lead the way in the airline sector due to its powerful franchise. One cautionary note, UAL's employee stock ownership plan expires at the end of April. The expiration has the potential to result in a large-scale wage increase as labor contracts are renegotiated. However, analysts believe that UAL will offset some of the costs through increased automation of their operations. Turning to the chart, UAL has had a smooth flight with little turbulence in the last month. The stock has not fallen below its 10-dma in that time. Look for a bounce off the 10-day as a possible entry point. Volume has been light in the last week and could lead to profit taking. Watch for volume to pick-up as UAL heads skyward. Service on US airlines continued to decline in 1999 in all areas except baggage handling, authors of an annual airline study said on Monday. Researchers said consumer complaints jumped 130% in 1999 from 1998. UAL ranked dead last in the survey of 10 major US airlines. The announcement didn't have any impact on shares of UAL, I guess we'll take the bad service as long as the stock serves us well. BUY CALL MAY-60*UAL-EL OI=834 at $7.25 SL=5.50 BUY CALL MAY-65 UAL-EM OI=637 at $4.25 SL=2.50 BUY CALL MAY-70 UAL-EN OI=637 at $2.19 SL=1.00 BUY CALL AUG-70 UAL-HN OI=465 at $5.50 SL=3.75 Picked on Apr 11th at $65.13 P/E = 6 Change since picked 0.00 52-week high=$87.38 Analysts Ratings 3-5-2-0-0 52-week low =$45.75 Last earnings 12/99 est=1.75 actual=1.91 Next earnings 04-19 est=1.32 versus=1.54 Average Daily Volume = 845 K /charts/charts.asp?symbol=UAL **** MER- Merrill Lynch $104.63 +0.38 (+3.81) Ever since the 1970's, they've been bullish on America. Anyone unfamiliar with this financial behemoth? Merrill Lynch, public since 1971, serves a wide array of clients ranging from individuals and small businesses to the world's largest corporations and governments. With over 67,000 employees in more than 40 countries, the company provides investment, financing, advisory, insurance and related services, through its subsidiaries and affiliates. First of all, do yourselves a favor. Call 212-449-1000 to confirm the earnings date. While the date is tentatively set for April 18, we were not able to confirm it from MER's Web site or with Investor Relations prior to the decision to play it for an earnings run. That said, let's get to the meat of the play. Considering the blowout earnings reported in January, and that trading volume has jumped dramatically since the last quarter of 1999, we think the new revenue will be nicely reflected in earnings and that other investors will take positions with the same expectation. It doesn't hurt that the financial sector has been on a roll and considered a safe haven for those fleeing tech stocks. The real beauty though is in the formation of an ascending pennant or wedge since last week. Volume is low indicating sellers are not turning up to unload at these levels. The lows keep getting higher as MER nudges up to resistance at $105. It's there right now and we expect that earnings will drive it to break out of the trading range with any volume increase. As long as the financial sector remains in favor for the short term, we consider dips to support as buying opportunities. Where is support? Historically, it's at $100 since early-March. However, the 5-dma (currently $102.50) may work too. If it slips under $100 in a market selloff, you may want to nibble on the bounce. However, if it slips while the rest of the market is moving up (financials included), you may want to move on to a new play. Remember to check earnings until we can update you on Thursday. We haven't seen an upgrade or reiteration of a rating on Merrill since early March. On the downside though, MER has been barred from trading until October 1, and "severely reprimanded" for failing to prevent improper warrant trading on the Hong Kong stock exchange. Not much else that will move the stock. BUY CALL MAY-100 MER-ET OI= 670 at $10.75 SL=8.00 BUY CALL MAY-105*MER-EA OI= 685 at $ 8.00 SL=5.75 BUY CALL MAY-110 MER-EB OI=5397 at $ 6.00 SL=4.00 BUY CALL JUL-105 MER-GA OI=3127 at $12.50 SL=9.50 BUY CALL JUL-110 MER-GB OI=2744 at $10.25 SL=7.25 Picked on Apr 11th at $104.63 P/E = 17 Change since picked +0.00 52-week high=$115.19 Analysts Ratings 9-9-5-0-0 52-week low =$ 62.00 Last earnings 01/00 est= 1.36 actual= 1.80 Next earnings 04-18 est= 0.23 versus= 0.19 Average Daily Volume = 3.1 mln /charts/charts.asp?symbol=MER ************* NEW PUT PLAYS ************* No new puts today. ********************** PLAY OF THE DAY - CALL ********************** AMAT - Applied Materials $104.63 +1.25 (-10.75) (+20.63) 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. We mentioned last Sunday that AMAT may fall victim to profit taking. Well, the profit takers were in full swing Monday as the stock gave back $11.50 of its gains from last week. However, Tuesday was a new day, and AMAT prevailed in the face of a Motorola meltdown and a weak tech sector. In fact, if there was one bright spot in the NASDAQ Tuesday it was the chip equipment sector, led higher by AMAT. Wall Street continues to find solace in the semis, noting analyst actions Tuesday. Advest upgraded shares of AMAT from a Buy to Strong Buy and Morgan Stanley raised their price target to $120 from $105. Along with AMAT, Morgan Stanley raised price targets for several other semis today, including LRCX, KLAC, and TER. Technically, AMAT fell through the support level of $105 on Monday, a level that now appears to be resistance. Watch for AMAT to clear $105 on heavy volume as an entry point. Also look for resistance at $110, if AMAT can clear that level it could very well retest its high of $115 reached last Friday. If we see the NASDAQ rebound in the next few days AMAT could take-off,noting its relative strength Tuesday. However, set your stops carefully after entering into the play, as we saw on Monday, AMAT could fall to $100 before finding support. It feels like the NASDAQ is ready to come back a little and if that happens, AMAT could continue leading the tech rally. With an overall strong trend and a good bounce in today's early going, AMAT may be poised to go higher. It's 10-dma at $100.50 is the support level to watch to see if buyers are stepping in to retest its highs. ***April contracts expire in two weeks*** BUY CALL APR-100*ANC-DT OI=2671 at $8.75 SL=6.50 BUY CALL APR-105 ANC-DA OI=5483 at $6.00 SL=4.25 BUY CALL APR-110 ANC-DB OI=6050 at $4.00 SL=2.50 Picked on Apr 4th at $98.13 P/E = 70 Change since picked +6.50 52-week high=$115.00 Analysts Ratings 14-15-2-0-0 52-week low =$ 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 ************************ COMBOS/SPREADS/STRADDLES ************************ Here We Go Again... Monday, April 10 The Nasdaq posted another record loss Monday as investor concerns over the value of technology stocks sent the index reeling. The The Dow enjoyed modest gains amid a move to safety issues. The technology index fell 258 points to 4188 while the industrial average rose 75 points to 11,186. The S&P 500 index slipped 11 points to 1504. Volume on the NYSE was light with 856 million exchanged. Declines beat advances by 1,612 to 1,381. The Bond market was boosted by the Nasdaq's losses. The 30-year Treasury rose 15/32, bid at 108 8/32, where it yielded 5.66%. Sunday's new plays (positions/opening prices/strategy): Computer Assoc. CA APR75C/APR70C $0.43 credit bear-call Computer Assoc. CA APR50P/APR55P $0.50 credit bull-put Visual Networks VNWK APR80C/APR70C $1.00 debit bear-call Apple Comp. AAPL APR110C/A120C $8.38 debit bull-call Warner Lambert WLA MAY85C/MAY95C $8.75 debit bull-call The market volatility provided some assistance in our position entries. Computer Associates moved higher in early trading but eventually fell to profit-taking. Visual Networks also started higher but fell significantly by the end of the session. Apple opened lower, and within a few minutes the stock was trading down $3. The move offered a favorable entry with a slightly lower debit, but unfortunately the issue closed down $6 in the Nasdaq sell-off. If the technology exodus continues, our exit signal will be the next support level near $118. Warner Lambert was the portfolio standout, rising $3 to a new all-time high. Portfolio plays: Technology issues succumbed to heavy selling pressure Monday with high-priced stocks enduring the biggest losses. Valuation in the group continues to worry investors and new indications suggest that quarterly earnings may not live up to previous expectations. Analysts are now saying the recent move out of growth into value is not a brief trend but the beginning of a long-lasting change. Regardless of the eventual outcome, technology stocks have begun an important correction and it may be time to move into classic, more stable issues such as consumer-cyclicals and financials. In the broad market, air freight, agricultural products and paper stocks advanced, while semiconductor, computer and telecom issues fell lower. Oil stocks continued to slide as crude prices fell to their lowest point since last November. May crude fell to $23.85 a barrel and commodity traders said the petroleum market is still reeling from OPEC's decision to increase production. A number of positions in our portfolio benefited from the move to classic issues. Renewed investor interest in "old economy" value revived the recently slumping Procter & Gamble shares, enabling the consumer products giant to survive a rout on Wall Street and end with solid gains. Proctor & Gamble (PG) was the leader in the conglomerate group with a $2.50 rally to a high at $66. Navistar (NAV) has weathered the storm, remaining comfortably in a trading range near $38-40, and Kroger (KR) has surpassed all previous expectations, up $4 since February and now testing resistance near the $20 mark. Financial companies are also considered safe haven issues and most of our positions in that sector are trading above the maximum profit range. The group standouts are Northern Trust (NTRS) and Bank One (ONE). Bank of Tokyo, Mitsubishi (MBK) and Summit Bancorp (SUB) are also performing very well. There were a number of significant losers in the Spreads Section. Fortunately, the majority of positions that can be affected are closed or have been adjusted forward and lower (to May positions). A few of the more conservative credit and debit spreads (those with little or no potential for loss) remain open and of course the bearish plays have excellent probability of success. One of today's casualties was Qualcomm (QCOM). Today the issue, along with shares of other mobile phone makers fell in sympathy with Motorola's pre-earnings announcement. Before the open, Motorola warned that second quarter and full-year earnings would come in shy of expectations. Additionally, the company said its goal of 10% operating margin is at risk, due to lower handset selling prices. For Qualcomm (QCOM), the news was negative and after the recent slump, there was little support for the issue. The stock opened flat and never recovered, falling $11 during the session. A timely exit during the morning trading should have yielded a small closing loss (near $7 debit). Tuesday, April 11 Technology issues fell precipitously in today's session with the volatile biotech sector leading the way down. Blue-chip stocks rallied on strength in safety issues, pulling the Dow industrials to a recent high. The Nasdaq Composite fell 132 points to close at 4,055 while the resurgent blue-chip average rose 100 points to finish at 11,287. The S&P 500 Index slipped 3 points to 1,500. Advancing issues outnumbered declining issues 10-to-9 on the New York Stock Exchange, with 1,530 up, 1,456 down and 481 unchanged. NYSE volume totaled 967 million shares. The 30-year Treasury bond was off 1-18/32 with the yield at 5.77%. Portfolio plays: With the rotation to quality issues, many of our blue-chip plays advanced significantly. Nervous investors are continuing to shed technology stocks that may not be worthy of their valuations and the effects on our target "flight to quality" groups; Financials, Major Drugs and Consumer Products have been favorable. Today's leaders were Abbott Labs (ABT), Bank One (ONE), Kroger (KR), and Northern Trust (NTRS). Other bullish issues were Proctor & Gamble (PG), Warner Lambert (WLA), and Summit Bancorp (SUB). Even with the blue-chip recovery, the difference between rising and falling stocks (market breadth) remains very narrow. There were only a few groups participating in the rally and that negative technical aspect may eventually lead investors to avoid the equity market in greater measures. The corporate earnings season also begins this week and as the sell-off in Motorola (MOT) and Biogen shares (BGEN) demonstrated, traders in a nervous market are proving unwilling to tolerate any disappointment. The technology group also showed its true colors with numerous failed rally opportunities. The volatile trading that has plagued the market recently returned, with the Nasdaq paring an early loss of almost 200 points to fewer than 10 before heading lower again. After weeks of tumultuous selling, the high-flying index is actually lower than it began the year and now it is struggling to find a technical bottom. The majority of traders are shifting money from sector to sector on a daily basis, and that makes for a difficult effort in longer term strategies such as spreads. Our biggest disappointment today was the new (aggressive) position in Apple Computers (AAPL). The issue fell another $5 to end near a recent support level at $119. A move below that range would suggest the stock is no longer in a bullish trend and unfortunately, a losing exit would be the likely outcome. Of course there are a number of ways to limit potential losses or even capitalize on the new downward trend. The common alternatives range from "legging-out" or rolling into a long-term spread to "shorting" the underlying issue. In all cases, you must be prepared for further draw-downs and have thorough knowledge of the strategy. As with any technique, it must also be evaluated for portfolio suitability and reviewed with regard to your basic approach and trading style. Based on the Nasdaq's condition, our suggestion would be to monitor the issue for a break below the technical support (near today's low) and adjust the position when the stock fails to recover through the (new) resistance level. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - NEW PLAYS - ****************************************************************** HAL - Halliburton $40.18 *** Disparity Play *** The Halliburton Company provides a variety of services, equipment, maintenance and engineering construction to energy, industrial and governmental customers. Halliburton offers its products and services through three business segments: Energy Services, which provides discrete services and products and integrated solutions to customers in the exploration, development and production of oil and gas; Engineering and Construction, which provides services to energy and industrial customers and government entities worldwide; and Dresser Equipment, which designs, manufactures and markets highly engineered products and systems, primarily for the energy industry. We found this position while sorting for neutral, calendar-spread candidates and based on the favorable chart pattern and inflated front-month premiums, the play offers an excellent risk/reward ratio. The advantages of a neutral calendar spread are; low cost and large potential profit. The basic premise in this type of spread is simple; time erodes the value of the near-term option at a faster rate than it will the far-term option. If the issue remains in a relatively small range, the position will profit. Our outlook is based solely on the current price and trading range of the underlying issue and the recent technical history or trend. Current news and market sentiment will have an effect on the issue so please review it thoroughly and make your own decision about the future outcome of the position. PLAY (conservative - neutral/calendar spread): BUY CALL MAY-40 HAL-EH OI=1980 A=$3.88 SELL CALL APR-40 HAL-DH OI=7156 B=$1.81 INITIAL NET DEBIT TARGET=$1.88 TARGET ROI=25% Chart = /charts/charts.asp?symbol=HAL **** R - Ryder $23.94 *** Takeover Rumors! *** Ryder System provides a continuum of leading-edge logistics and transportation solutions and services to local, regional and multi-national businesses. Ryder's product offerings range from full-service leasing, commercial rental and programmed maintenance of trucks, tractors, trailers and special-use vehicles to integrated services such as dedicated contract carriage (buses) and carrier management. Additionally, Ryder offers overarching supply chain consulting and lead logistics management services which support clients' entire supply chains, from inbound raw materials through distribution of finished goods. At first glance, it appeared that Ryder's rally last month came after a strategic alliance with Qualcomm (QCOM). Looking back, the issue may have also been affected by speculation of a merger. Regardless of the cause, investors have pushed Ryder's stock above its 150 dma on heavy volume and the recent correction has yet to affect the bullish trend. Thursday's announcement that Ryder is combining the Company's two European business units, may have helped the stock eclipse the March high but the take-over rumors certainly played a significant role. Now the options are again active and Friday's $2 move suggests the January high may soon be breached. With favorable disparities in the front-month premiums, this position offers a favorable speculation play for those who are bullish on the issue. PLAY (speculative - bullish/diagonal spread): BUY CALL MAY-15.00 R-EC OI=490 A=$9.62 SELL CALL APR-22.50 R-DX OI=721 B=$2.75 INITIAL NET DEBIT TARGET=$6.75 TARGET ROI=11% Chart = /charts/charts.asp?symbol=R **** NVLS - Novellus $55.12 *** Technicals Only! *** Novellus Systems manufactures, markets and services advanced automated wafer fabrication systems for the deposition of thin films within the semiconductor equipment market. Novellus is a leading supplier of high productivity deposition systems used in the fabrication of integrated circuits. The company employs a number of primary film deposition systems: the Chemical Vapor Deposition (CVD), the Physical Vapor Deposition (PVD) and the electrofill systems. CVD systems employs a chemical plasma to deposit all of the dielectric or insulating layers and certain of the conductive metal layers on the surface of a semiconductor wafer. PVD systems are used to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source via high DC power. Electrofill systems are used for depositing copper conductive layers in a dual damascene design architecture using an Aqueous solution. This position was discovered with one of our primary scan/sort techniques; identifying potentially failed rallies on issues with bullish options activity. In this case, the premiums for the (OTM) call options are slightly inflated and the potential for a successful (technical) recovery is significantly affected by the resistance at the sold strike price; a perfect condition for a bearish credit spread. Once again, the play is based on the current price or trading range of the underlying issue and the recent technical history or trend. Please review the issue carefully and make your own decision about the future outcome of the position. PLAY (conservative - bearish/credit spread): BUY CALL APR-70 NLZ-DN OI=1534 A=$0.68 SELL CALL APR-65 NLZ-DM OI=2701 B=$1.12 INITIAL NET CREDIT TARGET=$0.50 ROI(max)=11% B/E=$65.50 Chart = /charts/charts.asp?symbol=NVLS ************************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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