The Option Investor Newsletter Tuesday 5-02-2000 Copyright 2000, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 5-02-2000 High Low Volume Advance Decline DOW 10731.10 - 80.70 10824.50 10710.00 1,015,196k 1,288 1,694 Nasdaq 3,785.45 - 172.63 3948.63 3784.54 1,437,720k 1,502 2,636 S&P-100 779.25 + 9.70 790.30 778.82 Totals 2,790 4,330 S&P-500 1446.29 - 21.96 1467.58 1445.22 39.2% 60.8% $RUT 505.35 - 13.58 520.32 504.97 $TRAN 2842.53 - 16.15 2861.08 2833.55 VIX 30.87 + 3.55 31.27 28.33 Put/Call Ratio .58 ****************************************************************** Investors Still Playing It Safe It's tough to find any buyers on Wall Street as every trader in a funny colored jacket is standing around with nothing to do. The buyers strike has forced traders to sit around talking about the Mets instead of taking orders. When will this buyers strike end? These people have families to feed and Mercedes payments to make! Besides, it's hard to make money in this market with such indecision. The decision in question was...does the Nasdaq want to breakout over 4000? It had been knocking on the door for the past two days, but ran out of gas this afternoon. You could feel the wall of worry about the upcoming April jobs report and pending FOMC meeting. The Jobs report is set to be released this Friday, before the open. Another dagger on the economic front could send us right back to the lows on the Nasdaq Composite. With today's close right at the low, it is easy to envision. The Nasdaq was down 4.4% to end at 3785.45, -172.63. Light trading too with only 1.4 million shares traded. Fueling the rumors that the Fed will raise rates by 50-basis points this month are comments from the Fed governors. They typically try to pre-announce such moves with hawkish comments and we have seen that lately. Last night came comments from Federal Reserve Bank of Dallas President Robert McTeer that he was concerned about inflation and the U.S. economy's ability to grow without overheating, which hurt interest-rate sensitive issues. The housing starts numbers today didn't help either. New home sales jumped 5% in March to a new 16-month high of 966,000. The thinking behind a 50-point move is the 25-point moves have done little to nothing to slow inflation. With that said, keep in mind that it takes time for the results to be seen. That is exactly why they started raising rates before we even saw a hint of inflation. It's hard for me to believe that Alan Greenspan would make such a big move and risk putting the economy in a tailspin. Also, remember that we have had five 25-basis point moves in the last nine months and Greenspan did seven 25-basis point moves in 1994. The 50-pointers don't seem to be his style. The DJIA suffered today as well, but not as bad. Which is a change from the pattern we've seen the past few days. Although, a loss is a loss no matter what spin you put on it. It closed at 10731.12, -80.66 and, yes, volume was still weak. Can you tell it is almost summer time with this volume? Once tallied, the NYSE reported just over 1 billion shares traded. Note the lower-highs forming, but support at 10,700 is holding equally as strong. The big drag on the DJIA came from AT&T and Microsoft. They both had healthy drops on individual news. First, T released their quarterly results this morning with EPS of $0.53, right in line with First Call. But, they suffered on costs associated with the purchase of Tele-Communications last year and a decline in its consumer long-distance business. Corporate sales growth also came in on the weak side and they announced plans to cut up to 6200 jobs. The stock plummeted $7.13 to $41.88. Some analysts are less concerned though as it is all part of a bigger plan to transition from older, less profitable businesses to the new high-growth areas such as wireless and broadband. Second, MSFT sunk on news that Morgan Stanley Dean Witter analyst Mary Meeker (who is a long time supporter of MSFT) said she likes the stock, but finds it more attractive in the sixties. MSFT finished at $69.88, down $3.56. There weren't a lot of winners today with the exception of defensive plays such as Gold and Silver. Everything that had some gains posted by midday rolled over, such as Semis, Net stocks and Banking. In fact, the biggest point gainer for the day was BRCM (current call play) up $7.56. It's rare when the biggest gainer comes in under a double-digit gain, but it reflects the sentiment from this afternoon. The bottom line is, the Nasdaq will likely gap down unless we get some market moving news. The question is whether or not it is a small gap near support at 3735 and a recovery for the rest of the day, which would obviously be very positive. Or a gap down that just keeps sinking. Support at 3600 deserves a bounce, but who knows how long that will last. If we get this second scenario, the bears will be strong and you don't want to fight them trying to pick a bottom. Instead, wait for a more clear trend. This buyer's strike we talk so much about has changed the way you should approach the market. My gut feeling doesn't exist today. It is on strike too, I guess. I am always up for a rally and here are some thoughts to keep in mind. If the ECI from last week couldn't tank this market, there is a good chance that most sellers have been exhausted. It is hard to go lower without sellers. Quite frankly, this current correction has already lasted six weeks and if you haven't sold by now, you aren't likely to. Also, if the Fed does move 50-basis points, some say it is already priced into the market. The bond market echoed that sentiment somewhat today as well. Finally, a lot of stocks I was watching retreated to support only to find a good amount of volume ready to buy it up. If this volume holds those individual stocks at support, the sell-off is effectively over. These signs point to a market bounce off the 10-dma on the open tomorrow. On the flip side, today's sell-off was swift and decisive. Clearly, no one was waiting to find out what was wrong. They wanted out and they got out. The Fed is hinting to strong action at the May meeting and investors are getting scared. Could it be that Greenspan will break the 25-point trend and hike by 50 points? This unknown is making investors nervous. No one wants to jump back in too soon. On that thought, and with the futures down at the time of this writing, you are better staying sidelined than getting run over. And...when in doubt, get out. Ryan Nelson Asst. Editor ********** STOCK NEWS ********** Technology Will Trump Politics By: S.P. Brown Of all the great things to come from the Internet, the greatest may be the ability of this new media to render politics obsolete. Through most of the world's history, people have been enslaved to political whims, whether it be communist, excessive taxation or conscription. The ideology is often presented to be in society's best interest. More often than not, though, it's been in the best interest of the ruling political class. Now, thanks to the Internet, it appears that the ability of politicians to render oppressive edicts is becoming seriously impeded. In the past, if we didn't like a government structure, we had to physically pack our belongings and move. Now, in the new digital world, we no longer have to vote with our feet. We can vote with our modems. For example, moving one's wealth offshore was a once a luxury available only to the vert rich. Today, thanks to the Internet, millions of ordinary people can move their wealth between countries as easily as they can sign on to a computer. In the future, this same freedom of movement will likely be adopted by business. If government steps up its attacks on businesses (think Microsoft) those businesses will be more inclined to domicile their operations in a more friendly environment. In a quickly digitizing world where the Internet and the global market have come together, financial markets have surpassed politics as being the most important factor in how we live. Global economic decisions made by individual investors are undercutting governmental mandates, and such usurpation is shifting the mantle of leadership away from politicians to the individual, where it belongs. No wonder the latest crop of politicos quiver in fear over the Internet, and tout scheme after scheme for reining it in. ************** MARKET POSTURE ************** As of Market Close - Tuesday, May 2, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 11,000 11,400 10,731 BEARISH 4.28 SPX S&P 500 1,500 1,550 1,446 BEARISH 4.14 OEX S&P 100 800 850 779 BEARISH 4.13 RUT Russell 2000 550 600 505 BEARISH 4.14 NDX NASD 100 4,000 4,500 3,627 BEARISH 4.13 MSH High Tech 1,000 1,150 947 BEARISH 4.13 XCI Hardware 1,600 1,700 1,488 BEARISH 4.13 CWX Software 1,500 1,670 1,204 BEARISH 4.04 SOX Semiconductor 1,200 1,300 1,109 BEARISH 4.13 NWX Networking 1,070 1,190 1,014 BEARISH 4.04 INX Internet 800 940 601 BEARISH 4.04 BIX Banking 530 620 550 Neutral 3.16 XBD Brokerage 500 580 468 BEARISH 4.14 IUX Insurance 540 620 596 Neutral 3.16 RLX Retail 900 1,000 934 Neutral 4.13 DRG Drug 355 385 375 Neutral 4.28 HCX Healthcare 710 775 761 Neutral 4.28 XAL Airline 130 155 146 Neutral 3.10 OIX Oil & Gas 265 300 291 Neutral 3.16 Posture Alert AT&T's slow growth coupled with the Microsoft saga helped lead the major indexes down Tuesday, as sectors of "old" and "new" both felt the selling crunch. Sectors leading the way down include Internet (-8.14%), NASDAQ 100 (-5.29%), Software (-5.15%), and Semiconductors (-4.75%). There are no current changes in posture. **************** MARKET SENTIMENT **************** Tuesday, May 02, 2000 NASDAQ Short Interest! The month of May is off to a sleeper start, as Monday's gains were given back today with volume slowly on the decrease. Shares of AT&T led the downdraft today, as Ma Bell announced earnings in-line with expectations. However, AT&T also led analysts to lower their earnings expectations for the remainder of the year. This is not the type of forecasts analysts wanted to hear, and as such, the market swiped $22 billion off the market capitalization in just a few hours. After the close today, Novell announced negative comments on their current quarter, and as such, was trading down substantially in after hours. This is not the type of back-to-back news that this market needs, especially now that we are getting close to a fed meeting where a 50 basis point hike may be coming. Maybe if we are lucky, Mr. Greenspan will disclose that he is long shares of AT&T and Novell, and that due to their poor performance, the economy must be slowing down. Then he will not have to raise rates as anticipated. Well, nice thought, but we'll stay ready for at least a 25 basis point hike. One important gauge of sentiment is the level of short interest on the major exchanges. Investors who sell securities "short" borrow stock and sell it, betting that the stock's price will decline and that they will be able to buy the shares back later at a lower price for return to the lender. Short interest reflects the number of shares that have yet to be repurchased to give back to lenders. In the past, stocks that have heavy short interest, when combined with some sort of positive news, has witnessed very quick and powerful up-moves. At times, short sellers are forced to cover, which only helps the buying pressure, and this is known as a "short squeeze." As the NASDAQ market fell in April, so did the short interest. This is not surprising given the urge for shorts to take profits; however, this decline in April did break a string of six consecutive new monthly records. Now the short-sales report came out Friday, which was delayed from its original release date last week because of a technical problem at NASDAQ. Regardless, here is a quick list of the big movers. Largest Short Positions (As of April 28th) Rank Apr. 14 Mar. 15 Change 1 Cisco Sys 61,940,785 74,621,338 -12,680,553 2 Dell Computer 40,546,215 47,048,407 -6,502,192 3 Oracle 35,110,226 45,164,314 -10,054,088 4 JDS Uniphase 30,320,678 19,133,105 11,187,573 5 E*trade Group 30,041,915 32,009,032 -1,967,117 6 MCI Worldcom 29,919,167 35,580,800 -5,661,633 7 Microsoft 29,368,032 33,050,557 -3,682,525 8 Global Crossing 28,652,536 29,720,627 -1,068,091 9 Intel 28,378,693 35,897,177 -7,518,484 10 Amazon.Com 27,916,784 32,970,344 -5,053,560 11 Yahoo 27,539,018 28,703,223 -1,164,205 12 Globalstar Tele. 25,145,028 20,150,284 4,994,744 13 Veritas Software 23,914,205 18,733,949 5,180,256 14 Nextel Comm. 22,399,413 27,671,790 -5,272,377 15 PSINet 19,736,330 13,727,941 6,008,389 Largest Changes Rank Apr. 14 Mar. 15 Change 1 JDS Uniphase 30,320,678 19,133,105 11,187,573 2 Palm 12,509,990 5,120,669 7,389,321 3 PSINet 19,736,330 13,727,941 6,008,389 4 Veritas Software 23,914,205 18,733,949 5,180,256 5 Broadvision 9,763,849 4,627,989 5,135,860 6 Globalstar Tele. 25,145,028 20,150,284 4,994,744 7 Smurfit-Stone 11,603,954 8,000,007 3,603,947 1 Cisco Sys 61,940,785 74,621,338 -12,680,553 2 Flextronics Intl 4,109,851 15,585,685 -11,475,834 3 Exodus Coms 7,456,231 18,663,424 -11,207,193 4 Oracle 35,110,226 45,164,314 -10,054,088 5 Metromedia Fiber 7,225,341 14,954,439 -7,729,098 6 Intel 28,378,693 35,897,177 -7,518,484 7 Comcast Cl A Spcl 6,378,814 13,817,993 -7,439,179 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. Volatility Index (30.87): 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. Short Interest (NYSE): Short interest on the NYSE fell 1.33% to 4,055,931,190 shares on April 14; however, this is still a high level and from a contrarian viewpoint, would be considered bullish. Mixed Signs: Interest Rates (6.019): A close above 6.021 may indicate a more substantial move to the upside, which would be negative for equities. BEARISH Signs: Liquidity Crunch: With the fear of inflation, and the most likely scenario of several more rate hikes, liquidity in the marketplace will become a more significant issue and put more pressure on equities. 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 sell-off 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 Thurs Benchmark (4/28) (5/2) (5/4) ***************************************************************** Overhead Resistance (805-830) 3.03 3.43 Overhead Resistance (775-800) 1.04 1.05 OEX Close 781.42 779.25 Underlying Support (745-770) 2.22 2.49 Underlying Support (715-740) 8.19 4.95 What the Pinnacle Index is telling us: Based on the above statistics, direct overhead and direct underlying both remain light, indicating we could either way with relative ease. Put/Call Ratio ***************************************************************** Friday Tues Thurs Strike/Contracts (4/28) (5/2) (5/4) ***************************************************************** CBOE Total P/C Ratio .51 .58 CBOE Equity P/C Ratio .41 .49 OEX P/C Ratio 1.29 1.98 Peak Open Interest (OEX) ***************************************************************** Friday Tues Thurs Strike/Contracts (4/28) (5/2) (5/4) ***************************************************************** Puts 660 / 5,521 710 / 5,506 Calls 800 / 5,916 800 / 5,440 Put/Call Ratio 0.93 1.01 Market Volatility Index (VIX) ***************************************************************** 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 14, 2000 Bottom? 39.33 May 2, 2000 30.86 ************ WOMANS WORLD ************ The Law of Numbers By: Mary Redmond In the last several months there has been a lot of publicity about several famous money managers which have had losing years or quarters, some of whom were deemed to be legendary by their peers and have ended up leaving the business. While the reasons for each of their failures seemed to have been different, there was one recurrent theme which was brought up repeatedly: Their funds grew too big. In his 1998 annual report, Warren Buffet made the following quote: "One thing is certain: Our future rates of gain will fall far short of those achieved in the past. Berkshire's capital base is now simply too large for us to earn truly outsized returns. If you believe otherwise you should consider a career in sales but avoid one in mathematics." Or read the following quote by George Soros when asked to comment on the poor performance of one of his funds: "A large hedge fund like Quantum fund is no longer the best way to manage money. Quantum is far too big and its activities are too closely watched by the market to be able to operate successfully." Do the comments sound similar? They should. Take a look at the five largest mutual funds in the U.S. and their performance record over the last five years. They are almost identical, and mimic the performance of the S & P 500. It is a mathematical certainty that the larger a fund grows, the less likely it is to show performance which varies greatly from the overall market. The reasons for this are many. One of the reasons is the fact that a fund trying to manage $50-100 bln or more will have a more limited available basket of stocks to chose from. A very large fund usually cannot take a substantial position in an illiquid or very small cap stock. The shares are not easily purchased and sold, and the performance of such a stock will have little impact on the performance of a very large fund. The holdings of the largest funds tend to be the largest capitalized and most liquid growth stocks available, usually names like Cisco, Microsoft, GE and Intel. It is also debatable whether one person can even keep track of 100 billion dollars worth of stocks, and pay attention to the subtleties in company management, industry changes, and the overall market conditions. Usually big fund families have a team of analysts and consultants, but one or two people end up making most of the decisions. In the last few years there have been many mutual funds which have shown outstanding years and attracted a flood of new cash only to disappoint the shareholders the following years with mediocre returns. When you are using derivative strategies like options, size can severely impact performance. If you have a hard enough time trying to get execution on a 10,000 option trade, think how cumbersome it would be to try to buy a billion dollars worth of options. Market makers would increase the volatility on those options to the point where it wouldn't even be worth buying. This is one of the reasons very large funds don't use options, and thus don't have the ability to take advantage of the leverage and different strategies offered by options. In addition, it is usually not possible for a very large fund of $50 bln or more to have the agility to be able to move in and out of large positions of stock as markets move up and down. For example, if you were managing a very large fund and saw the NASDAQ correction coming, you might not have been able to do anything about it in terms of selling billions of dollars worth of tech stocks to raise cash without impacting the market and the price of the stock. As you sold, and others saw that large blocks were being sold, this would push the price down further. It is very difficult to sell a large block of a few million dollars worth of stock without attracting attention. Once the traders on the floor notice this, rumors start and volatility increases. Contact Support ***** What A S-l-o-w and B-o-r-i-n-g Day By: Renee White In typical Pavlovian style, I realized I have become conditioned to the wild daily swings of the markets. Until the final hour, today was about as boring a day as any intra-day trader could tolerate. The narrow trading range made plays difficult until late day. The FOMC meeting is still 2 weeks away. Other than the spike up or down from the economic report coming out Friday, it looks like this low volume will continue for a while. With low volume, comes a drift downward. Lately, I have received several emails from brand new option traders telling me they can't get anything to work. In case you have not been told yet, this is NOT the market that beginners should be trying their new skills in. For the majority of you, trying to practice the theories you think you've just learned, will accomplish little more than eating away at your trading capitol. Trading options successfully means knowing how to read the market AND how to trade it. For most right now, that means either staying out, being sophisticated in spreads, very long term strategies, or only day-trading. I am holding very few plays over night, myself. Today it proved profitable but boring. At the moment, this is a sideways market at best with poor volume. The low volume will get you every time with a slow melt. Option traders need strong volume for their options to perform day to day or else the slippage from time decay of holding over night will bite like ants in your pants. Don't be fooled into thinking that now you have learned a few basic strategies, you can deploy them in a consistently profitable way while the market is sick with the flu. Understanding the option strategy is only one small part to trading successfully. Take it from a veteran who has already learned the respect of a sideways market; this is the time that most should just sit out. The markets will give you plenty of opportunities in the future to play, when the odds are more in your favor. I hate to harp on this again, but the low volume is telling us loudly, that few want to buy right now. If the pension fund managers, heavy hitters and experienced traders aren't buying and keep telling you that this is a dangerous market to trade, then trying to trade contrary to their painful historical experiences could prove very expensive. I hope you beginners really aren't expecting to double your money regardless of market direction, straight out of the gate. Don't fool yourself. Have you ever heard the saying, "If it seems too good to be true, it probably is?" I don't mean to be harsh, but most will lose money in this environment from: a lack of understanding of the overall markets, poor entries, being on the wrong side of the trade, not taking immediate & minimum profits, refusing to exit a losing trade, not watching plays carefully, not understanding economic effects on the markets & sectors, an inability to read charts & indicators, buying the wrong options because they are cheap, or just not being able to react fast enough. The most profitable thing many of us can do right now is to use this time to study more. Nobody can ever take away your knowledge. Not by insults, or by trading. Talk about a "wealth effect". Preserving my account during this weakness has been very important to me after the recent damage done in April. Therefore, I have drastically cut back on the number of trades I make per day or week. A few well-chosen trades a day, have been fine. Instead of staying out or playing options, I am buying or shorting a few equities and QQQ because there is less slippage between the bid-ask spread and there is no time decay if I decide to hold over-night. With markets up one day then down hard the next, options just seem too risky to me until I know that the last market bottom won't be tested again. I was hoping for a brief rally with volume this week, but the up volume was not there yesterday, so I have changed my mind. I'll enter options when volume returns to the upside and it feels like it will hold longer than a day or two. There is a ton of money on the sidelines and once those players all feel comfortable jumping back in again, we should all make some easy money. I've been asked why I am not playing puts right now. It's because of the whipsaw up & down market without a clear direction, low volume which increases the pain of time decay; the same thing that affects calls. Even basic spread strategies become hard in this market. Last week was profitable for me and so far this week, I have surpassed last weeks gains. Most of the more successful plays have been from playing QQQ, although the only bad trade I had last week was a whopper on Thursday with QQQ. Yesterday, I shorted QQQ at 96 and held overnight because I expected a sell-off today. I was able to add to the position early this morning. I chose to exit the trade at today's close, by buying back the shares at 90 1/4. In this environment, I was more than happy to make $575 per 100 shares owned. I could have considered holding again over night for the gap down at the open, but I did not want to risk losing such a nice profit if we gapped up on the open for a brief rally. The money is now in my pocket and I can look at things fresh, again in the morning. If a gap up occurs, I will expect it to be a bear trap and I will probably short it again expecting more weakness tomorrow afternoon and Thursday. This is not the market I feel comfortable taking big risks in. In fact I feel proud that I have been able to trade both directions for consistent gains. Granted, they are not as big of gains as option gains, but any successful trade these days counts. This is an improvement in my own trading since last year. While on the OIN website recently, I saw an advertisement for a book I enjoyed reading in the past. Stan Weinstein's, Secrets For Profiting In Bull And Bear Markets. Dusting the book off, I found it interesting that I opened it to a page where I had underlined several sentences; "Volume confirmation on a breakout is crucial." "Volume is a gauge of how powerful the buyers are." And of course, "Never trust a breakout that isn't accompanied by a significant increase in volume." Boy, do those quotes sound familiar or what?! This was one of the first books I read on technical analysis. I think it is a great introductory book. For students new to technical analysis the first few chapters will teach you the 4 stages of major market cycles. He clearly discusses the basing pattern, advancing stage, the top area and the declining stage along with using volume to interpret where we are in each stage. I think this book is timely, since we expect our markets to be choppy for a while. He shows you how to decide entry points, think through moving averages, find support and resistance levels and how to quick view a chart to either play now, or ignore. By just understanding the dynamics of cycle patterns alone, one could greatly improve their returns by following his basic advise on entry points discussed in the first few chapters. It reads quickly, has self tests at the end of each chapter with great explanations and is full of market tidbits that one can review time and again. In fact, I'm going to review the book myself, again tonight. If you order it now, you could probably receive it and have those chapters read before this market stabilizes. Use it to your trading advantage. Visit the OIN bookstore to order one. Trade carefully. Contact Support ************** TRADERS CORNER ************** Grading Your Performance By: Janar Wasito I am going through a very useful exercise which I highly recommend to all traders--putting all my monthly closing balances on a spreadsheet and figuring out my return and profits each month. I am going back to 1998, when I started investing in stocks, and tracking my performance through 1999 and the first few months of 2000. The results are very interesting and highly instructional. Most of us do not take the time to do this. If you are like me, the statements come from the brokerages, and they pile up. If I am lucky, I put the statements and confirmations in the same pile. But at certain times, you have to clean up your records, and arrange them. I have a milk crate with several binders of information. The papers are all stacked together. It's ugly. I can barely get the energy to cut open all the statements and to stack them up by brokers. So, why I am I sifting through the paper fortress to locate those statements which tell me how I did? The key is spotting trends and performance. Without getting into a level of detail that is too personal, I am going to share some lessons learned. Some of these are mistakes, but some are bright spots. In 1998, I executed a buy and hold strategy with blue chip stocks, mostly technology companies. This strategy worked in the first few months of the year, but was subject to sustained draw down in the second half of the year. That's the danger with buy and hold if the market in general turns against you. In 1999, I started trading options with 15% or so of my portfolio. This resulted in big spikes up in January, July, and December. In the other months, I had draw downs. The lesson learned here is to use the strategy which is appropriate to the market. Bullish directional strategies only worked last year approximately 25% of the time. In 2000, so far, January was a positive month, but the gains mainly came in trades I held over from December and closed early in the month. So, the gain is not that impressive. In February, I lagged the market, and in March and April, I dropped, with the indexes. The main lesson learned here is that one should only trade when it is profitable. In general, if you are not printing black and winning, then the right move is to reduce position size. I made a critical mistake in early March in increasing my position size as my trades were not working. This resulted in a hole that I will have to work through the end of this year, probably, to dig myself out of. That's not the position you want to be in. Going through this exercise can be painful and hard, but if you want to improve as a trader, you need to do this. Contact Support *********** OPTIONS 101 *********** Hedging By: David Popper Like many of you, I have a trading partner. I have known Tim for many years because our children go to the same school. I never knew that Tim was an aggressive trader until we both ended up in the local Borders purchasing a Barron's in May of 1998. We talked that day for about a half an hour and have talked every Monday night since. Tim has done extremely well in the market and could easily retire at this point. However, he, like many others, love the game. Last year, our strategy was simple. Buy stocks going into earnings or splits. Sell on the day of the event. Buy stocks going into an event, such as an analyst meeting. Sell after the spike. Buy stocks on dips, sell after a reasonable gain. For the last two years, these strategies worked like a charm. Yearly returns were in the triple digits. Then came March 2000. Splits meant nothing, earnings meant nothing. In March, stocks taking dips did not have springs, they were trap doors. Something changed. I do not know if it is temporary or permanent, but it has changed. It does not matter if the change is temporary or permanent, it is a trader's duty to play the market at hand. Over the past several weeks, Tim and I have discussed the market changes and how to adapt to the new environment. We have discussed missed opportunities, mistakes and perhaps better methods of trading. We realize that many of our trading strategies over the last year, though profitable, were perhaps not as precise as they should be. Bull markets, however, do not punish traders for purchasing stock at improper entry points. Bull markets do not often punish traders for purchasing too large a position or for behaving in an emotional manner. When the market turns, however, a trader's every weakness is immediately exposed. We concluded that the market, between now and May 16 will be volatile. There will be endless discussions on whether the Fed will increase interest rates 1/4 point or 1/2 point. The emotions of the market will be not unlike that of a teenager. Somedays teenagers are human, somedays they are not. We concluded, as traders who cannot watch a screen all day in this volatile environment, that perhaps covered call writing would be appropriate for the next two weeks. I personally have purchased quality stocks and written covered calls with one-half of my cash portfolio leaving the other one-half in cash. This cash is available to buy quality stocks on dips to support level. Currently, I purchased PMCS, BRCM, JDSU, SUNW, ORCL and CHKP on dips and have sold calls on the spikes. All have provided me with a 10% premium and a chance to earn even more if the options are exercised. Again, the key point here is not necessarily to persuade you to try to write covered calls. The purpose is to convince you that it is important to trade the market as it is today, not how it was three months ago or how it will be three months hence. The issue du jour is the Fed meeting on May 16th and all short term trading must be done in light of that meeting. Contact Support ************* DAILY RESULTS ************* Index Last Mon Tue Week Dow 10731.12 77.87 -80.66 -2.79 Nasdaq 3785.45 97.42 -172.63 -75.21 $OEX 779.25 9.70 9.70 19.40 $SPX 1446.29 15.82 15.82 31.64 $RUT 505.35 12.68 -13.58 -0.90 $TRAN 2842.53 8.67 -16.15 -7.48 $VIX 30.87 -1.54 3.55 2.01 Calls Mon Tue Week BRCM 182.00 1.88 7.75 9.63 Bucking the trend today KANA 49.31 3.75 3.00 6.75 Recovering nicely QCOM 113.69 1.31 3.94 5.25 New, rumors and technicals GE 161.06 2.13 1.69 3.81 Split run until Friday SCMR 82.06 7.69 -4.13 3.56 Next support @ $78 NOC 72.94 2.63 -0.56 2.06 Shooting for 52-wk high AMD 89.50 0.88 1.13 2.00 Still a HOT stock SFE 44.00 7.63 -5.75 1.88 Profit-taking on strong vol DHR 57.75 1.75 -1.13 0.63 Consolidating recent gains ARBA 74.56 9.75 -9.38 0.38 Waiting for buyers...again GM 93.38 -0.94 0.69 -0.25 New, revving up it engine TER 108.00 -0.69 -1.31 -2.00 Semi has sights set on $115 TIBX 84.44 3.69 -8.31 -4.63 Sellers aren't lining up ADBE 115.50 9.75 -15.19 -5.44 Still in ascending channel ADI 71.31 0.88 -6.38 -5.50 Dropped, gave it up today MERQ 84.44 -1.25 -4.31 -5.56 The time is coming again ADCT 55.06 1.13 -6.81 -5.69 Dropped, broke below 10-dma CMVT 82.06 0.88 -8.00 -7.13 Dropped, sold off w/techs NTAP 65.25 -2.94 -5.75 -8.69 Could have a silver lining CMGI 62.38 -1.75 -7.13 -8.88 Who pulled the rug out? JNPR 197.88 6.25 -21.06 -14.81 Sitting right on 10-dma RMBS 209.50 2.94 -23.44 -20.50 When will the knife stick? Puts CTXS 48.63 -5.06 -7.38 -12.44 New, beautiful descent BOBJ 94.88 2.93 -5.94 -3.00 New, rolled over late today HNZ 33.94 0.19 -0.25 -0.06 Ketchup or blood letting? PG 59.81 -0.06 0.13 0.06 Dropped, selling dried up ADRX 51.81 2.75 -2.13 0.63 Plummetted in mere minutes LOW 50.88 2.50 -1.13 1.38 Nibbling is the key word 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: ***** CMVT $82.06 -8.00 (-7.13) The buyer's strike Tuesday caused detrimental harm to our CMVT play. The stock had been holding up quite well relative to the broader market. Then traders came back from lunch and refused to step in and prevent CMVT from sliding lower. In fact, the stock experienced a surge of volume in the last hour of trading as the sellers came out in full force. With today's selling, CMVT plunged below its 10-dma and its critical support of $84. The stock is now precariously positioned above a major support of $80. The break of the upward trend and heavy selling towards the end of trading Tuesday has us exiting our play in CMVT. Kudos to an alert reader who notified OI that we had printed the wrong earnings date for CMVT last Sunday. We apologize if this caused any confusion and appreciate the prompt response. ADCT $55.06 -6.81 (-5.69) ADCT announced several key partnerships Tuesday and unveiled the first real-time customer management and billing solution for communications providers. But, the announcements didn't matter much to traders as ADCT fell victim to Tuesday's sellers. Like many leading tech stocks, ADCT drifted along much of Tuesday only to fall in the final hour of trading. The late day plunge pushed ADCT below its moving averages and below its major support levels. ADCT had major support at the $56 level, but fell through it Tuesday without hesitation. The selling in ADCT came with more conviction than the rest of the tech sector Tuesday. Traders exchanged nearly a half million shares in the final thirty minutes of trading Tuesday. The mass exodus late Tuesday has us concerned that the selling isn't over for ADCT. It's time to exit too soon and leave ADCT for the sellers. ADI $71.31 -6.38 (-5.50) ADI never came off its lofty pedestal on Monday to offer reasonable entries into this momentum/pre- earnings play. And today's late day descent was so sharp and quick that we're dropping it tonight. Initially it was smooth sailing today with ADI testing resistance above $79. Merrill Lynch even came out and reiterated a Near-Term Accumulate and Long-Term Buy, but to no avail. The intense sell-off shot ADI down 8.2% in a mere hour. And considering ADI's chart pattern of the past two months, the slide below the 30-dma ($73.98) is in and of itself is a very bearish sign. But don't 'throw the baby out the window with the bath water'. ADI could perk back up in a couple weeks. The company is expected to report earnings on May 17th, before the opening bell. At the Merrill Lynch Hardware Heaven conference, Jerald Fishman, president and CEO of Analog Devices restated that "his company expects revenue to rise 50 percent in fiscal 2000 to roughly $2.3 billion" as a result of "its focus on the faster-growing communications market (data processing)". For now though, we will move elsewhere. PUTS: ***** PG $59.75 +0.13 (+0.06) After getting brutally punished, first for an earnings warning and then for the actual earnings numbers, it seems that the selling in PG has just about dried up. Selling volume was very light today posting less than a third of the ADV, and with the broad markets weak, we would have expected PG to break through $59, a level which is looking stronger as a support level. With the conditions that attracted us to the play rapidly disappearing, we'll take our cash and move on before the buyers return and PG moves against us. ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Tuesday 5-02-2000 Copyright 2000, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. ******************** PLAY UPDATES - CALLS ******************** ARBA $74.56 -9.38 (+0.38) If you didn't watch the markets the past couple days, you might think trading in ARBA has been really quiet this week with a gain of only $0.38. Nothing could be further from the truth as shares of the Internet software shot up $9.75 on Monday and then gave up all but a fraction of that gain today. Following the lead of the Internet sector, ARBA saw strong buying volume yesterday, and suffered from a lack of buyers today. As the NASDAQ weakened late in the day, there was nothing to support the gains from Monday and the price dropped to support at $75 as volume increased. The decline finally halted and bounced in the last 5 minutes, but use caution as the week progresses. Interest in the Internet sector and the NASDAQ will likely dictate ARBA's near-term fate as the April earnings cycle winds down. Wait for the buyers to return and confirm a bottom for the stock before playing - a drop to the next support level at $70 may be necessary before the bounce occurs. CMGI $62.38 -7.13 (-8.88) Is anybody else wondering who pulled the rug out from underneath the Internets? Rather than calling it a definable event, it appears that investors are still very nervous about the long term direction of the market and sector and the looming interest rate hike. After the beating meted out to many investors in the past 2 months, they are quicker to take their money and stand aside. Moving up to resistance at $75 early on Monday, CMGI had no buyers remaining and the slide began in earnest during the last hour of the day. Falling to support at $68 near the close, CMGI showed some stability for the first part of the day today, before the stock once again fell victim to the lack of buyers in the Internet sector. As the volume increased, the price dropped quickly and is now challenging the next level of support at $60. Consider entering new positions on a bounce from support, but confirm that it is backed by strong volume and corresponding market strength. With earnings still a month away, CMGI will likely trade at the mercy of the NASDAQ and the Internet sector as investors wait for direction from the remaining economic reports ahead of Greenspan's next market-spooking appearance. DHR $57.75 -1.13 (+0.63) Well, nothing lasts forever, and the consistent daily gains in DHR ran into that reality today. Pressured by broad market weakness, the stock retraced the majority of yesterday's $1.75 gain, and closed the day at $57.75. The culprit today is the light volume we have been concerned about recently as DHR barely topped 250K shares. Weakness in both volume and price pervaded the markets today, due to a lack of buyers, rather than a flood of sellers. Closing at the low of the day is not encouraging, but at least the decline stopped just above the recent $57.50 support level and the 5-dma ($57.38). Stronger support is found at $56 and a bounce at this level could provide a good entry going forward. This was the first day we have seen DHR respond to market weakness and this could be another indication that some consolidation of recent gains is necessary before continuing higher. A more cautious approach would be to wait for volume to return and push DHR through resistance at $59 on its way to the $62 resistance level. TER $108.00 -1.31 (-2.00) It seemed that Tuesday was a replay of Monday for TER. The stock showed impressive strength throughout the day only to fall in the final two hours of trading. Executives from TER presented to analysts Tuesday. The company told Wall Street to expect continued strength from the semis. Analysts went on to say that bookings for the semi equipment companies are sustainable for the next two quarters. Also on tap, a semiconductor industry watch group will be releasing sales figures for the month of March later this week. Traders are saying a positive report may help to perpetuate the semis further. TER's momentum carried the stock to an all-time high of $115.44 Monday, but the stock followed the broader market lower towards the end of trading. Tuesday was a mirror image of the prior day's trading, the stock hit $114.69 then sold-off in the latter part of trading. From here, TER will face resistance at the $115 level. The stock has major support at $105 should the broad market weakness continue. Look for a bounce off support for a possible entry or wait for TER to clear resistance for a more conservative entry point. Wait for volume to pick-up, and confirm direction before entering into a new play. NOC $72.94 -0.56 (+2.06) We saw heavy buying in NOC early Monday morning as the stock surged in the first half-hour of trading. The momentum carried over into Tuesday as NOC sailed past resistance at $74, falling just short of its 52-week high. The stock held up relatively well Tuesday until the last hour of trading when the broader market weakness finally pulled NOC down, back below $74. There hasn't been any news in the last two days to propel NOC higher. But, we're looking for the momentum to continue if the broader market strengthens. Even with Tuesday's downdraft, NOC is still trending above its 5-dma, which has provided strong support during its recent run. NOC will find major support at the $72 level should the market weakness continue. The $74 level will prove to be resistance for NOC again before the stock can move higher. Watch for a bounce off the 5-dma as an aggressive entry into the play. A move above resistance would provide an entry point for a more conservative trader. Whichever strategy you choose, pay close attention to the volume and the broader market direction. ADBE $115.00 -15.19 (-5.44) ADBE led the tech charge Monday as the stock hit an all-time high of $131. Come Tuesday, buyers disappeared along with the gains from the previous day. The stock fell from a combination of no buyers and concerns over Microsoft's upcoming software releases. MSFT will release its new Windows Millennium Edition later this summer, it will include features such as digital video editing and enhanced graphics capabilities. Some analysts believe the push into graphics by MSFT will cut into market share for companies such as ADBE. The concerns may be short lived, as many believe ADBE has a superior product. Accounting for Tuesday's sell-off, ADBE remains in its pattern of higher highs and higher lows that we have come to know. The stock found support at its ascending 10-dma Tuesday, and could bounce from the level should the buyers step back in. However, if the selling continues, ADBE will most likely find support at $110, within its ascending channel. Volume has been anemic recently, confirm any move higher with increasing volume as a sign that the buyers have returned. Watch for a strong move back above $120 for a possible entry point. An aggressive trader might look for a quick rebound in the next few days as ADBE has very little resistance above its current level. SCMR $82.06 -4.38 (+3.56) As we've said before, nothing goes up forever in a straight line, but with 4-day chart leading from $55 to $91, we should expect a bit of profit taking. That's especially true if the rest of the NASDAQ does a 172-point rollover. That the damage was limited to slightly over $4 is commendable. Despite the beating it could have taken, SCMR remained well above its 5-dma of $74.73 and the 10-dma of $65.25. Both still need to play catch-up. But that's only one side of the coin. The flip side is that SCMR opened near its low at $81, moved up $10, then finished near its low, thus creating a bearish candlestick pattern. We wouldn't be concerned if the volume was low, but at 54% greater than the average, more sellers may emerge tomorrow. You may want to consider tightening up your stops at the next level of support around $78. The story is still good, so if you get stopped out, you can always buy it back cheaper (say at the 5-dma or 10-dma depending on your risk profile). There is still the strong possibility of a sympathy move as CSCO approaches earnings on May 9th, though SCMR won't report until May 18th. Just make sure to confirm the market direction before taking a position. TIBX $84.44 -8.31 (-4.63) Yes, a big loss looks bad. However the good news is that TIBX took its lumps on relatively low volume - just 72% of the ADV. In other words, nobody is lining up to sell this Internet portal plumber. That may be because TIBX software, originally developed by Reuters, continues to win business from B2B companies in need of a platform (CSCO, ORCL, HWP, ARBA all use TIBX products). Also CSCO has integrated the stuff into some of their new equipment. The more they sell, the more TIBX makes. We may get a glimpse of TIBX's success when CSCO reports earnings on May 9th. Technically, TIBX tagged the low side of the ascending channel and should theoretically bounce back up given their good story. But don't dive in just yet (unless the market conditions change back to positive) since TIBX also now sits below its 5-dma of $85.09 (also previous support) and still has room to fall to find its 10-dma at $74.89. Historical support is in the middle at $80. With such a volatile issue, you may want to tighten up the stops a bit so you don't backslide right out of the profit. Hopefully $85 will be crossed to the North and will hold tomorrow. Otherwise you can target shoot to your favorite level of support, depending on your risk profile. Next resistance is at $88, then $95. BRCM $182.00 +7.75 (+9.63) Hmmm. . .there's that pesky $180 resistance we wrote about Sunday. While it was a problem yesterday, today the technical hurdle was cleared as volume picked up to 58% over the ADV on news from Hardware Heaven (Merrill Lynch conference) that BRCM would introduced a 10- gigabit optical networking chip. That's up to 10 times the rate currently possible over the same media and distance according to the company. The stock has been aptly rewarded. Technically, ascending red candlesticks are unusual. It shows that sellers are winning at the end of the day, while next morning buyers are pushing the price up another level. While in the end the stock closes higher than the previous day, it's hard to predict that the upward trend will remain in tact. After hours trades were already going off in the $176 range. Since it closed at its low of the day, you may be well served by placing a tight stop and attempting re-entry at the 5-dma of $170.71 or target shoot $165 and $160 support. This company is also a split candidate. But don't let enthusiasm for the issue (a sentiment we share) cloud good trading strategy by making you think, "it will come back". Watch for strong volume to confirm the move up, and weak volume to confirm that any dip is just a buying opportunity. Big volume and a big price drop means find another play. GE $161.06 +1.69 (+3.81) ZZZZZ. . .You'd think that a 3:1 split, the likes of which GE hasn't seen for a while, would make a great catalyst for a price run. Not this time. While $157 would have made a good entry on Friday, the best we got Monday was around $158 at the open from where it traded fairly flat, never exceeding $162 yesterday and today. The good news is that GE, normally a barometer for the rest of the market, bucked the downward trend today by gaining $1.63. That's a positive in our book despite the low volume. However, if GE is going to give us that big move up with the potential for breakout at $166, we're going to have to see more volume. There isn't much time since the split will occur after the close on May 5th with split adjusted trading to begin on May 8th. Support has eked up to $158. Nonetheless, tread with caution. If the market continues to show weakness, we may be able to get a good entry, but a deadline of Friday may keep us from seeing much appreciation. Pray that initial jobless claims on Thursday and the non-farm payroll figures on Friday don't cause the market to dig a bigger hole. Forget the stock specific news. This is all about a split run vs. a temporary market pullback. NTAP $65.25 -5.75 (-8.69) We had a more positive move in mind for NTAP when selecting it to our list. The drop in price so far this week could be the silver lining for our new play. Investors turned a bit skittish again today, and a much better entry point could be in store for traders with patience. Need to be convinced? First of all we have the 10-dma showing up at $63.58, as well as good support in the $61-$62 area. NTAP gained about 69% last week from its low near $44, so some profit taking is not unexpected. Compared to the move up, the volume has dropped off the first two days of the week. That said, NTAP could continue to see profit taking occur if the sentiment in the broad markets begins to erode further. Again we suggest patience when looking for an entry point for this play. Confirm any moves higher with volume. As expected NTAP did introduce on Monday the Netcache C1100, a thin specialized server. This would normally have helped the momentum continue, however, with the present market conditions, don't fight the tape. SFE $44.00 -5.75 (+2.00) Not a bad start to a new week and a new play. Yesterday, SFE announced IBM and Compaq Computer each invested $50 million in the company. Commenting on the IBM and Compaq investment, Joel Krasner, an analyst at First Albany Corp, said "people are recognizing that whether you're in B2B or B2C your going to need more broadband, more infrastructure, more network services, and companies that support that development will get investor support." SFE got great support on Monday as investors bid the price $7.50 higher, with the Internet incubator company gaining nearly 18%. Today was a different story as traders sold shares of SFE right out of the gate. By the closing bell, our new play gave back all but $2 of Monday's gains. No specific news, just profit taking and what seemed to be broad market uncertainty. The volume was strong both yesterday and today, and the pullback could be providing a good entry point. Target shooting an entry off the 200-dma which now sits at $41.78 could produce favorable results as long as there is good volume behind the move. RMBS $209.50 -23.44 (-20.50) You've heard the term, "don't try to catch a falling knife?" Well that's the case here, BUT, be prepared to pick it up when it sticks. The sticking point could be coming soon. Let's face it, RMBS is a volatile play, and not for the faint of heart. Since being added on April 23rd, at $167.50, RMBS peaked out on Monday at $248 before profit taking set in. No company specific news so far this week, just a lack of interest in RMBS and the $SOX in general. The semiconductor stocks have struggled since late Monday morning, but we would look for opportunity's to jump on board once RMBS finds support. The area between $190 and $200 could be the sticking point we are looking for. The 10-dma is now found at $191.23. As many analysts suggest, we may be range bound for a while, which could provide numerous opportunities for those following RMBS. Once interest in the $SOX returns, RMBS should begin to thrive as well. If we see a bounce, be prepared to pull the trigger and sell too soon, to protect profits on any new positions. MERQ $84.44 -4.31 (-5.56) Hang in there, our time is coming again and perhaps very soon. Wouldn't it be nice if every position, in every play went straight up and never paused to catch its breath? Honestly, probably not. The $80 area we mentioned last week may now become a reality. Investors have turned cautious heading into this week's reports, and the Fed meeting, which is not necessarily a bad thing. Frustrating maybe, but not bad. Since being added at $58.75 we've had several chances to take some money off the table, and now it's time to rest, and prepare for another entry into this play. Actually MERQ's bounce off the $86 area this morning appeared to be a good entry point. However, at the end of the session MERQ gave way to the sellers, and fell to close near its low of the day. There's not much support now until the $80 level, with the 10-dma residing at $79.60. If the bears continue to have their way with MERQ, we would look to establish new positions near support if bounces are accompanied by solid volume. AMD $89.69 +1.31 (+2.19) AMD is maintaining its high altitude and hovering around the $90 mark. The glass ceiling now lies in broken pieces shattered by AMD's strong momentum! The intraday accelerations gave way to AMD striking new 52-week highs in both sessions this week. The record now stands at $92.38. These positive moves amid a "buyer's strike" on the NASDAQ today and profit mongers taking some chips off the table confirm AMD is still a hot stock. Near-term support is firm near the 5-dma ($86.61), but is establishing itself higher at $88 and $89. The shareholders' meeting last Thursday didn't net a split announcement, but the company did file with the SEC to increase their number of authorized shares; thus clearing the path for a future stock dividend. So in the meantime while the BoD may or may not make a split announcement, look for AMD to continue powering higher on pure momentum. In other news yesterday, AMD joined a consortium of high-tech companies led by Compaq Computers (CPQ) and Hewlett-Packard (HWP) to create an Internet market exchange for electronics and computer components. The companies expect this venture to reduce costs and speed delivery. KANA $49.31 +3.00 (+6.75) Buyers were hot on the trail of this sizzling infrastructure stock. KANA tacked on another 15.9% to its recovering share price. This strong momentum is keeping it on the upside of the 10-dma (now at $40) which is very important. Remember KANA hasn't seen the upside of this technical since it began its freefall back on March 13th. Even the unwavering sell-off late day couldn't bring KANA to its knees today. The stock's intraday low of $47 clearly outpaced yesterday's strong close. So chalk up another one for KANA. Goldman Sachs was also hot for this stock too. The firm upped its rating from a Market Outperform to the Recommended List. In other news, Kana Communications announced it's providing Firstdoor.com, an emerging human resources and benefits center, with the technology needed to develop a B2B online source. JNPR $197.88 -21.06 (-14.81) Yup...that's an Internet for you. Up $44.38, or 25.4% in five sessions and down $21.06, or 9.6% in one brutal day at the market. Honestly it's not as bad as it sounds. JNPR simply returned to firm support near $200 and is now sitting on the 10-dma ($197.49). Plus we can't expect such a high-flyer not to take a breather after such lucrative gains. If the pullback continues tomorrow then it's possible JNPR could experience another 20-point drop to $180, so be prepared with trailing stops (whether real or imagined). But at the moment we're left with a great launching point for entries into this momentum play. Of course you want to wait for upward confirmation after amateur hour opening new positions. News was scarce this week and so far there's nothing company-specific to effect trading. ******************* PLAY UPDATES - PUTS ******************* HNZ $33.94 -0.25 (-0.06) Tuesday was a good day to be long a put. HNZ edged lower with the broader market weakness Tuesday, falling to $33.13 before slightly rebounding in the last hour of trading. HNZ could have fallen lower, but traders said that some money was shifted from the tech sector into defensive stocks such as HNZ. With the long bond moving above 6%, inflation worries entered the minds of traders, and some found solace in buying a basket of inflation immune stocks. HNZ is still trending lower, finding resistance at its 10-dma. A bump against the overhead 10-day may provide a good entry point into the play. If buyers decide to step back into the tech sector, HNZ could fall further, possibly past support at $33. That level has proved to be major support for HNZ. A move below $33 may provide an entry point for a more conservative trader. Another sign that the food companies are facing problems came Monday when Nabisco said it would cut about 130 jobs and close two warehouses. ADRX $51.81 -2.13 (+0.63) Volume was moderate to strong and ADRX couldn't crack the $55 level, which is great. It did trade narrowly between there and $53, near the 10-DMA. So from a technical standpoint this wasn't the best either. Essentially ADRX is stuck between a rock and a hard place. However, we're keeping ADRX on the OIN put list for the interim because the intense drop in share price of over $2 in mere minutes implies there may be more to come. Conservatively, let's wait for a breakdown below $50. It'd be better to see this level of previous support dissolve before committing to new positions. Otherwise, more aggressive traders can enter on downward moves off the 10-dma($53.44). Confirm ADRX is still channeling in a lower range. LOW $50.88 -1.13 (+1.38) After getting beat up last week LOW and many of the retail stocks began to find buyers nibbling at their feet early this week. Nibbling is the key word here. We mentioned this weekend LOW could see a bounce up to the $52-54 area. In the first hour of trading today buyers did bid the price up to $52.69 before sellers stepped in again. The decline today wasn't huge, but could be just what we were looking for as far as an entry for this new play. The buying earlier came on anemic volume, but picked up as the selling began. Lowe's and others were named as defendants in a lawsuit in Georgia. Probably not big deal in the overall scheme of things, but not something anyone ever wants to deal with. Sentiment in the broader markets may now be the key for our play. With the DJIA and NASDAQ each weaker today, the economic data and the Fed will continue to be on the mind of most investors. If LOW continues to show weakness, we would look for opportunities to buy puts. If buyers appear from somewhere, we would still look for the $52-$54 area to provide resistance for Lowe's. ************** NEW CALL PLAYS ************** GM - General Motors $93.38 +0.69 (-0.25) Maintaining its position as the world's #1 maker of cars and trucks, GM has managed to diversify its business so that it is more than just a car company. Its automotive business encompasses the Buick, Cadillac, Chevrolet, GMC, Oldsmobile, Pontiac and Saturn brands, as well as others through its affiliations with Suzuki, Saab, and Isuzu. Non-automotive operations include Hughes Electronics (satellites, communications), Allison Transmission (medium and heavy-duty transmissions), and GM Locomotive (locomotives, diesel engines). GM has successfully spun off Delphi Automotive Systems, the world's #1 auto parts maker. After posting stronger than expected earnings on April 13th, shares of GM have been marching steadily higher and over the past week the stock has been revving its engine for a run at the 52-week high of $94.88. Now supported by the 5-dma ($92.88) and fueled by positive news (see below), GM could be driven higher as investors search for strong companies with rational valuations. As an added incentive, GM is historically a split candidate above $90 and has more than enough shares authorized to announce at any time. Volume would seem to confirm the strength of interest in shares of the auto maker, as today's gain (in a weak market) was supported by volume more than 75% over the ADV. The drop at the open this morning confirmed the $90 support level (also the site of the 10-dma) and GM recovered nicely for the balance of the day as investors sought out stocks with any sign of strength. Stronger support is found near $88, and a bounce near this level could provide a very attractive entry point. Look for intraday pullbacks to initiate new positions, but confirm the bounce before playing. More conservatively, wait for shares to trade to new highs and break through the $95 resistance level before taking a seat. Today, GM announced strong vehicle sales for the month of April, posting a 2% increase for all vehicles. Light trucks continue to gain market share and GM is seeing strong performance across many of its major brands. Of particular note is the 16% year-over-year increase in retail sales of mid-size cars. Allaying investor fears, GM appears to have avoided a labor dispute at its Morraine, Ohio, sport utility vehicle manufacturing plant. The two parties have reached a tentative agreement on a four-year contract ahead of the looming May 3rd deadline. BUY CALL MAY- 90*GM-ER OI= 4468 at $5.13 SL=3.25 BUY CALL MAY- 95 GM-ES OI= 3089 at $2.31 SL=1.25 BUY CALL MAY-100 GM-ET OI= 2794 at $0.94 SL=0.00 BUY CALL JUN- 95 GM-FS OI= 1449 at $4.88 SL=3.00 BUY CALL JUN-100 GM-FT OI=20118 at $3.50 SL=1.75 SELL PUT MAY- 90 GM-QR OI= 1517 at $2.00 SL=3.75 (See risks of selling puts in play legend) Picked on May 2nd at $93.38 P/E = 11 Change since picked +0.00 52-week high=$94.88 Analysts Ratings 6-7-5-0-0 52-week low =$59.75 Last earnings 04/00 est= 2.66 actual= 2.80 Next earnings 07-13 est= 2.70 versus= 2.66 Average Daily Volume = 4.58 mln /charts/charts.asp?symbol=GM QCOM - Qualcomm Inc. $113.69 +3.94 (+5.25) Ever heard of CDMA technology? QUALCOMM Incorporated is a leading developer and supplier of digital wireless communications products and services and is the innovator of CDMA, a technology that has become the world standard for the wireless communications industry. Just as Microsoft gets paid almost every time a PC is sold, QCOM gets paid the same way every time a Sprint PCS or GTE phone is sold in the U.S. The rest of the world adds more. China is likely to adopt the standard soon too, which will open up CDMA's potential to 1 bln people. Let's see...Qualcomm buys a 10% stake in Netzero for $144 mln, while Lehman Bros reiterates a Buy rating and the Street goes nuts? Not really. Don't get us wrong. Every little bit helps. The fact is that QCOM's business story keeps getting better as its CDMA technology is adopted as THE new standard in wireless protocol throughout the world. Technically, QCOM bounced off its 200-dma on April 27 and hasn't looked back - a strong bullish sign. In fact, it's cleared and been finding support in the last three days at its 10-dma, currently $108.15. While the technical picture alone makes for a good story, the real horsepower in the play comes from a rumor circulating on the Street that Nokia, Finland's wireless behemoth sporting over $200 bln in market cap (Europe's biggest market cap company) will make an offer for QCOM. We have no idea if that's true or not, but that didn't stop a huge surge of volume in the last hour of trading on a previously lackluster day, including a total of 233 block trades. The price went from $114 to $120 in a matter or minutes, and back down again into the close. Strong support is at $105, $110 and $113. Even if the rumor is false, there's a tradable story and a technical chart to back it up. The rumor is gravy. In the news, DDI, Japan's third largest wireless carrier is likely to adopt the CDMA standard. To us it looks like a sure bet since Kyocera, the Japanese wireless handset firm that bought QCOM's handset operations last year is a 25% owner in DDI. A country a week - that's all we ask! BUY CALL MAY-105 AAF-EA OI=5696 at $12.63 SL=9.50 BUY CALL MAY-110*AAF-EB OI=9249 at $ 9.50 SL=6.50 BUY CALL MAY-115 AAF-EC OI=3377 at $ 7.13 SL=5.00 BUY CALL JUN-115 AAF-FC OI=1632 at $12.25 SL=9.00 BUY CALL JUN-120 AAF-FD OI= 334 at $10.00 SL=7.00 SELL PUT MAY-100 AAF-QT OI=1072 at $ 2.00 SL=3.50 Picked on May 2nd at $113.69 P/E =141 Change since picked +0.00 52-week high=$200.00 Analysts Ratings 8-6-4-0-0 52-week low =$ 21.50 Last earnings 04/00 est= 0.24 actual= 0.26 surprise = 8% Next earnings 07-18 est= 0.27 versus= 0.19 Average Daily Volume = 17.8 mln /charts/charts.asp?symbol=QCOM ************* NEW PUT PLAYS ************* CTXS - Citrix Systems $48.69 -7.31 (-12.44 this wk) Citrix Systems helps juice up Windows-based computer networks. The company's WinFrame and MetaFrame software products enable networked computers such as Macintoshes, UNIX machines, and pre- Windows PCs to run Windows-based applications from a central server. Customers outside the US account for about a third of sales. Co-founder and chairman Edward Iacobucci led the IBM-Microsoft engineering team that created the OS/2 operating system back in the mid-1980s. Microsoft accounts for about 15% of the company's sales and owns about 6% of CTXS. As the King of Software slides, so goes the little softees. The antitrust suit against MSFT has caused problems for the rest of the software sector. MSFT took another punch Tuesday from a Morgan Stanley analyst, who set a price target for the stock between $60 and $70. The MSFT meltdown has dragged the software stocks sharply lower over the past two months. And CTXS is no exception. The stock has fallen nearly 60% from its high of $122 reached last March. The selling Tuesday pushed CTXS below support of $50. In a day when the broad market volume was bleak, the downward spiral for CTXS came on extremely heavy volume. Traders turned over nearly three times the ADV en route to forcing CTXS through support Tuesday. The heavy selling and broken support could lead to lower prices for CTXS. The next level CTXS will find support is at $45.50. Below that level, the stock could very easily retest its lows from last Fall at $40. Should CTXS enjoy a relief rally in the coming days, the stock will most likely find resistance at its descending 10-dma, currently at $49.50. Two ways you might consider playing CTXS is to wait for the stock to fall through support or watch for a bump against the 10-dma. With the former being more conservative strategy and the latter more aggressive. Watch the action in the other software stocks, especially MSFT, and look for heavy volume on any downward move. The action in MSFT could set the tone for CTXS since the two companies are so closely linked. BUY PUT MAY-50*XSQ-QJ OI=731 at $5.25 SL=3.25 BUY PUT MAY-45 XSQ-QI OI=640 at $3.00 SL=1.50 Average Daily Volume = 4.53 mln /charts/charts.asp?symbol=CTXS BOBJ - Business Objectives S.A. $94.88 -5.94 (-3.00 this wk) Business Objects S.A. develops, markets, and supports "Web Intelligent" software. Their suite of software tools are geared towards non-technical end-users and allow them to easily access, analyze, and report information in relational databases. The company's clientele include blue-chip companies like AT&T and Walt Disney. Over 70% of sales come from outside of France. Despite recent analyst coverage and outstanding earnings' numbers, BOBJ can't run through overhead resistance at $102 and $103. So along those lines we're starting coverage on BOBJ as a technical play. In every recent attempt it inevitably was shot down to its current level or lower near $90. That by itself is a decent spread. For the DMA watchers, the outlook appeared very bearish today. BOBJ violated the 10-dma ($98.56) in trading and is now perched precariously on the 30-dma ($94.68). The latter technical could effectively be a decisive factor in the near-term. During the March-April chaos, BOBJ fell significantly after it slipped below this line. As mentioned earlier, BOBJ received coverage recently. Last Friday, Prudential Volpe Technology Group reiterate an Accumulate recommendation following the company's earnings report. Business Objectives came in at $0.16 p/s versus $0.08 same quarter last year beating estimates by $0.03. And today, First Security Van Kasper started BOBJ with a Strong Buy and a $120 price target per ADR. So while we still expect BOBJ to continue its descent over the next few days, it's important to know all the variables that have or may effect BOBJ's trading behavior. BUY PUT MAY-100 BBJ-QT OI= 6 at $13.00 SL=9.75 BUY PUT MAY- 95 BBJ-QS OI=15 at $ 9.88 SL=7.00 BUY PUT MAY- 90*BBJ-QR OI=43 at $ 7.38 SL=5.25 Average Daily Volume = 702 K /charts/charts.asp?symbol=BOBJ ********************** PLAY OF THE DAY - CALL ********************** GE - General Electric Co. $161.00 +1.69 (+3.75) Unless you've been a cave dweller for the last 100 years, you probably know what GE does. Just in case you need a refresher, GE is a diversified services, technology and manufacturing company that operates in more than 100 countries and employs nearly 340,000 people worldwide. They make light bulbs, jet engines, medical equipment, however they are mostly a finance company from which they derive most of their profits. If you are in the financial markets, you probably know them as the parent company of the CNBC business television. Most Recent Write-Up ZZZZZ...You'd think that a 3:1 split, the likes of which GE hasn't seen for a while, would make a great catalyst for a price run. Not this time. While $157 would have made a good entry on Friday, the best we got Monday was around $158 at the open from where it traded fairly flat, never exceeding $162 yesterday and today. The good news is that GE, normally a barometer for the rest of the market, bucked the downward trend today by gaining $1.63. That's a positive in our book despite the low volume. However, if GE is going to give us that big move up with the potential for breakout at $166, we're going to have to see more volume. There isn't much time since the split will occur after the close on May 5th with split adjusted trading to begin on May 8th. Support has eked up to $158.00. Nonetheless, tread with caution. If the market continues to show weakness, we may be able to get a good entry, but a deadline of Friday may keep us from seeing much appreciation. Pray that initial jobless claims on Thursday and the non-farm payroll figures on Friday don't cause the market to dig a bigger hole. Forget the stock specific news. This is all about a split run vs. a temporary market pullback. Comments GE is splitting after the close on Friday. Given that the NASDAQ has been trading in a range with light volume, calling which way the next move is difficult. Yet today, the DJIA really was better than it looked, as most of its losses were from T, INTC and MSFT. GE has held up well and has been finding support at $158. This may be a good play with only a few sessions left before the split, given the recent market uncertainty. Target shoot on intraday pullbacks. BUY CALL MAY-155 GE-EK OI= 1992 at $ 9.75 SL=7.25 BUY CALL MAY-160*GE-EV OI= 3529 at $ 6.63 SL=4.75 BUY CALL MAY-165 GE-EM OI= 4576 at $ 4.13 SL=2.50 BUY CALL JUN-160 GE-FV OI= 3520 at $10.25 SL=7.50 BUY CALL JUN-165 GE-FM OI= 2291 at $ 7.75 SL=6.25 SELL PUT MAY-150 GE-QU OI=10270 at $ 1.75 SL=2.25 (See risks of selling puts in play legend) Picked on Apr 25th at $166.00 P/E = 48 Change since picked -5.00 52-week high=$166.31 Analysts Ratings 7-15-1-0-0 52-week low =$ 91.81 Last earnings 04/00 est= 0.76 actual= 0.78 surprise=3% Next earnings 07-18 est= 0.97 versus= 0.85 Average Daily Volume = 7.50 mln /charts/charts.asp?symbol=GE ************************ COMBOS/SPREADS/STRADDLES ************************ Title: Equities Fall On New Inflation Fears.. Monday, May 1 The markets rallied today with technology issues leading the way. The Dow closed up 77 points at 10,811 and the Nasdaq moved up 97 points to 3958. The S&P 500 Index climbed 15 points to 1468. The volume on the NYSE was a relatively light 950 million shares, with advances beating declines 1,959 to 1,044. Nasdaq volume hit 1.49 billion shares with advances beating declines by 2,576 to 1,575. The 30-year U.S. Treasury bond fell 13/32, with the yield rising to 5.99%. Sunday's new plays (positions/opening prices/strategy): Mattson MTSN MAY40C/MAY45C $4.00 debit bull-call Ocular Science OCLR MAY15C/MAY17C $1.50 debit bull-call Oxford Health OXHP MAY15C/MAY17C $2.06 debit bull-call Halliburton HAL MAY35P/MAY40P $0.50 credit bull-put Protein Des. PDLI MAY60P/MAY70P $0.00 credit bull-put The majority of our new positions offered favorable entry points in today's session. Unfortunately, our new Protein Design Labs play was one day too late as the rebounding issue climbed over $20 during the biotech rally. The bullish move did not allow a favorable opening credit. Portfolio plays: Technology issues helped investors regain confidence today and the enthusiasm boosted the industrial group as old economy stocks came back into favor. Many of the classic issues are exhibiting new signs of strength with some recently downtrodden companies now seen as attractive investments. The top performers on the Dow included Hewlett-Packard (HWP), AT&T (T) and Walmart (WMT). Biotech stocks also continued to recover with traders attributing the advance to momentum buying after a period of consolidation In the broad market, tobacco, footwear and textiles advanced, while cosmetics, office equipment and industrial power companies moved lower. Gains in Microsoft supported both the Dow and the Nasdaq as analysts came out in support of the stock after the government's proposal to split the company. A number of brokerage stocks rallied and analysts say that may be a signal that the worst of the recent market turmoil is over In contrast, finance stocks were less bullish as investors were still concerned about what the Federal Reserve is going to do with interest rates later this month. Most experts believe the market has factored in a 25-basis-point move but not a 50-point increase. A larger increase is not out of the question because the Fed would like to raise rates significantly but not during a time when it can have an effect on the presidential election. In any case, most investors no longer perceive we are facing a bear market and based on recent trends, the best place to invest for the long-term is still in growth stocks, which are mainly technology companies. The Spreads/Combos Portfolio performed very well today and the big winners were Sepracor (SEPR) and Adobe Systems (ADBE). The recent recovery in major drug stocks continued with SEPR rising over $10 after a technical break-out. Our bullish LEAPS/CC's spread is at maximum profit and with the short option at $90, we will look for a pullback to roll up and forward to a June option. Adobe moved to a new all-time high with a $10 rally to close at $130. Our bullish credit spread achieves maximum profit at $100. The speculation play on Temple Inland (TIN) has received added attention and the technical indications suggest it may be bracing for an attempt at a new high. Our position is at maximum profit with the stock below $55 but it can also be profitable if the stock breaks to a new trading range. The key resistance area is near $52.50-$53.00 and a close above that price (on increasing volume) would likely signal a new trend. Tuesday, May 2 The market consolidated today as investors took profits from the recent rally in technology stocks. The Dow Industrial Average slid 80 points to end at 10,731 while the Nasdaq Composite fell 172 points to close at 3,785. The S&P 500 Index was pulled down by both indices, closing 21 points lower at 1,446. On the NYSE, declining issues outnumbered advancers 9-to-7, with 1,702 down, 1,313 up and 421 unchanged. The NYSE trading volume was active at 1.01 billion shares. On the Nasdaq, trading was subdued with 1.43 billion shares exchanged. The 30-year bond was off 10/32 with the yield rising to 6.02%. Portfolio plays: Technology stocks finally gave way to profit-taking after three days of solid gains. The broad market was also down on concerns of a potential interest hike. The Federal Reserve holds its next policy-making meeting later this month and many investors expect the Fed to raise interest rates by 25 basis points. In addition, recent signs of booming economic growth have amplified worries that the FOMC might increase rates by as much as 50 basis points. Of course higher interest rates are generally bad for stocks, so fears of a sharper-than-expected increase are going to affect the market for the next two weeks. Many traders have moved to the sidelines to wait for next Friday's economic report, which concerns employment data and with recent surveys showing little evidence of an economic slowdown, the new fears may have basis. In fact, some analysts say the FOMC would appear timid if it raises the rates only 25 basis points. If that's the case, lets all pray that Mr. Greenspan remains unaffected by public opinion. There were a number of portfolio winners today, even as the broad market consolidated from recent gains. Halliburton (HAL) led our group of hedge positions, up over $3 to close near $37. The new "bull-put" credit spread has a break-even cost basis of $39.50. Unocal (UCL) has also been quietly on the move, closing at $38.38 in today's session. The conservative, oil industry issue is now trading almost $10 "in-the-money" with a maximum position profit achieved above $27.50. Warner Lambert (WLA) and Johnson & Johnson (JNJ) led the Major Drug group and Medtronic (MDT) continues to be a solid performer in the Health Services sector. Another of our many safety issues, General Electric (GE) moved higher today. The market bellwether rallied above the $160 mark, a recent area of support and a good base for the upcoming split rally. The issue splits 3:1 on or about May 8, 2000. A surprising recovery was observed in Mattson Technology (MTSN), which managed a bullish close while the majority of semiconductor stocks moved lower. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - NEW PLAYS - ****************************************************************** NBR - Nabors Industries $40.68 *** Oil Sector Rally! *** Nabors Industries is the largest land-drilling contractor in the world, with over 500 actively marketed land rigs. Nabors has oil and gas land drilling operations in the United States, Canada, and internationally primarily in South and Central America and the Middle East. The company markets platforms, jackup and barge rigs in the Gulf of Mexico and several international markets. It also offers well-site services, including oilfield management, engineering, transportation, construction, maintenance, logging and other support services in selected domestic and international markets. In short, Nabors participates in most of the significant oil, gas and geothermal markets in the world. Oil drilling stocks advanced today as the crude oil contract for June rose $1.02 to $26.89 per barrel. For now, the oil industry continues to look promising and NBR has demonstrated that it can perform well in a bullish environment. Last quarter, the company announced record operating income of $33.2 million versus $22.0 million in the first quarter of 1999 and nearly double the $16.6 million recorded during the fourth quarter of 1999. Revenues for the quarter were $289.7 million versus $153.0 million and $216.9 million in the first and fourth quarters of last year. That's an incredible gain for just twelve months and the CEO says he is very pleased with the way things are progressing. All of NBR's unique business units are seeing solid improvements with record results from Canadian operations, a strong construction season in Alaska, the beginning of a significant increase in international activity, and further improvement in offshore and well servicing operations. With all of this positive activity, it's no wonder that Nabor's share value has moved to a new all-time high. With the volume increasing on the rally, the short-term trend should continue. Our position is relatively conservative at a cost basis near the middle of the current trading range. PLAY (conservative - bullish/credit spread): BUY PUT MAY-35.00 NBR-QG OI=336 A=$0.38 SELL PUT MAY-37.50 NBR-QU OI=10 B=$0.68 INITIAL NET CREDIT TARGET=$0.38 ROI(max)=17% B/E=$37.12 Chart = /charts/charts.asp?symbol=NBR ***** ASH - Ashland Oil $35.19 *** A New Trading Range? *** Ashland is a specialty chemical and crude oil refining firm. The company's businesses are divided into numerous industry segments. These include APAC, which performs contract construction work; Ashland Distribution, which distributes industrial chemicals, solvents, ingredients, thermoplastics and resins, fiberglass materials and fine ingredients in North America and plastics in Europe; Ashland Specialty Chemical, which manufactures and sells performance chemicals, resins, products and services and certain petrochemicals; Valvoline, a marketer of branded, packaged motor oil and automotive chemicals, automotive appearance products, antifreeze, filters, rust preventives and coolants; Refining and Marketing, which involves the operation of seven refineries; and Arch Coal, a coal producer in the United States. Additionally, Ashland recently formed the Service Businesses Division. This new division will be responsible for managing businesses that provide a wide range of unique services to their customers. Ashland reported earnings last week and although second quarter income rose sharply, the results were still shy of Wall Street expectations. The company reported net income of $25 million, or $0.35 a share compared with net income of $0.08 a share, for the same quarter a year ago. Analysts were forecasting $0.36 per share, slightly above the actual earnings, but investors appeared to focus on the outlook rather than past performance. With the industry's profit margins expected to increase during the next few months, revenues for the top companies in this group should continue to improve. Our position is based on the recent bullish trend and today's move above the previous trading range. When the broad market falters, investors generally pour money into the hedge sectors and oil stocks are currently one of the leaders in that group. PLAY (aggressive - bullish/diagonal spread): BUY CALL JUN-30 ASH-FF OI=0 A=$6.00 SELL CALL MAY-35 ASH-EG OI=958 B=$2.06 INITIAL NET DEBIT TARGET=$3.75-$3.88 TARGET ROI=28% Chart = /charts/charts.asp?symbol=ASH ***** TBI - Tuboscope $18.88 *** Break-out Coming? *** Tuboscope is the world's leading supplier of oilfield internal tubular coating and tubular inspection services; oilfield solids control equipment and services; and coiled tubing and pressure control equipment to the petroleum industry. Additionally, the company provides in-service inspection of pipelines; constructs high pressure fiberglass tubulars; leases/sells advanced in-line inspection equipment to makers of oil country tubular goods; and provides quality assurance and inspection services to a diverse range of industries. In mid-April, Tuboscope reported excellent earnings with revenue increasing 14% year over year and 7% above the previous quarter. Tuboscope's gross earnings increased to $19 million, a 41% rise over the prior year's period. The CEO said that the company's strong operating leverage is a result of the increased volume of activity in oil services, along with the benefits of previous cost reductions. Tuboscope is also beginning to experience an increase in demand for coiled tubing capital equipment, a bonus for future revenues. The bullish report reflects the continuing improvement in the Oil Equipment Industry and the company's well-known market and technology leadership. Of course the recovery in crude oil prices has a major effect on the success of this industry and fortunately, the current trend is expected to continue through the summer months. This position is very conservative but we will need a small pullback in the issue to help reduce the initial debit. PLAY (conservative - bullish/debit spread): BUY CALL MAY-15.00 TBI-EC OI=200 A=$4.12 SELL CALL MAY-17.50 TBI-EW OI=206 B=$1.75 INITIAL NET DEBIT TARGET=$2.12 ROI(max)=17% B/E=$17.12 Chart = /charts/charts.asp?symbol=TBI ************************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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