The Option Investor Newsletter Tuesday 5-09-2000 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) ****************************************************************** 5-09-2000 High Low Volume Advance Decline DOW 10536.80 - 66.80 10684.80 10514.30 898,333k 1,282 1,580 Nasdaq 3,585.01 - 84.37 3708.74 3540.82 1,450,335k 1,365 2,703 S&P-100 757.82 - 5.77 768.49 752.01 Totals 2,647 4,283 S&P-500 1412.14 - 12.03 1430.28 1401.85 38.2% 61.8% $RUT 490.86 - 9.22 504.07 486.82 $TRAN 2904.16 - 31.71 2958.01 2890.17 VIX 31.71 + 0.59 32.68 30.10 Put/Call Ratio .50 ****************************************************************** Only one week left until Super Tuesday but the answer is out! Are you as tired of listening to and trading this pre-hike hysteria as I am? This is ridiculous. I can't remember a hike that caused this much aggravation in recent history. Give us a break here! Everyone knew there would be a +.25% hike already. Now it is almost a given that it will be a +.50% hike but so what? Fed member Perry today made the comment that a +.50% hike was consistent with a gradual approach to rate hikes as an inflation fighting tool. You heard it, right from the lips of someone that should know. You know the Fed always telegraphs the moves in advance and that was a personal email in my book. The Fed Funds Futures is now showing a 91% chance of a +.50% hike, up from 66% just last week. Just when you thought is was cast in concrete there were several analysts out this afternoon saying that there was now signs of the economy slowing and a weaker than expected PPI on Friday would hold the Fed to only a +.25% hike. Make up your mind please! Do you really think Greenspan will pass up a free +.50% hike? Actually yes! Confused yet? Remember, although Greenspan would like to shock the economy with a +.50% there are other considerations. Remember the Euro? The lackluster performance of the Euro has put pressure on the Fed to be moderate. Also a +.50% hike would cause a round of similar hikes overseas to prevent a flight of cash to the US. Many of the world economies cannot stand a .50% hike now and it would stunt their fragile economic recoveries. It is not a simple black and white answer for the Fed team. Did I forget to mention it is an election year? What would soaring interest rates and a crashing stock market do to the Gore election effort? Just another reason for the Fed to be moderate in their moves. In reality the damage has already been done. Just look at the markets. The Nasdaq is down almost -30% off its highs and the Dow is trading at the same level it was in April 1999. Despite all the volatility and the record highs in the middle it has really been trending sideways for a year. There is good news tonight. The first came in the form of the much anticipated CSCO earnings announcement. Yes, they beat the streets estimates of $.13 with $.14 actual but the real news was a +55% increase in revenue. Nothing shabby about one of the worlds largest companies to post increases like that. The valuation concern of course is still a problem for some. When Barrons did the chop job on them Sunday and they dropped -$7 intraday on Monday, they lost a huge chunk of their market cap. Actually the market cap they lost on Monday almost equaled half of the entire $48bln market cap of GM. Yes that's right. CSCO has 3.42 bln shares and a -$7 drop equates to almost $24 bln in market cap or half of GM. This is what is causing the old timers to curse valuations of the new Internet stocks. Should CSCO have a valuation that is 10 times GM but able to only produce a fraction of the profits? GM earns $8.52 per share but CSCO earns only $.73. GM has a PE of 9 and CSCO has a PE of 189. But I did say it was good news. By beating the street and posting a 55% increase in revenue CSCO shook off the clouds of suspicion from the Barrons article that trashed the tech markets this week. Single handedly CSCO should power the Nasdaq out of the dumps and back into the spotlight on Wednesday. While I am on the topic, almost, we really need to address the Barrons direction. While I am a fan of free speech the tabloid journalism they have started pouring out recently is atrocious. Remember these recent market killers, Amazon.bomb for instance. Or how about the one from three weeks ago about the Internet companies burning cash? You just felt the impact in your wallet from the CSCO expose. How much did these articles, based on questionable facts and even more questionable journalism take out of your pocket. You would have to be fully invested in bonds not to have felt the pain. Literally hundreds of billions in market value have gone up in smoke. Just let some company like Lucent prewarn that they are going to miss earnings by a penny or two and you would have a herd of class action lawyers frothing at the mouth to file suit. Nobody running after Barrons to the best of my knowledge due to the first amendment. Should they be able to fire at will and trash your retirement dollars without being held accountable? The conspiracy theorists out there are probably wondering if Barrons secretly signed up on the Fed payroll to accomplish the bubble bursting task that Greenspan and company had been unable to bring under control. The market impact from this tabloid is unbelievable. With a paid subscriber base of only 306,000 Barrons is not exactly a leader in the print community. We will send out more newsletters tonight than they have subscribers but we do not try to flame the market to get readers or attention. If you believe their journalistic bent of late is tabloid at best and not befitting of their name or their parent, the Wall Street Journal, then click here and send them an email telling them your feelings. If you agree with them then tell them that also. The rest of the good news is the amount of money piling up on the sidelines. The volume on the Nasdaq is still anemic. Four of the last five days have been the lightest of the year. The late rebound off the lows this afternoon added about 300 mln to yesterdays light total but still left us at about 65% of normal. I think there is light at the end of the tunnel. On Sunday I suggested the more aggressive players would probably see another buying opportunity this week. You saw it and it was today. The "we have to retest" crowd is still there but the money on the sidelines started to spill over into the playing field this afternoon. While we could still see some choppiness this week before the PPI the odds are getting better that the worst is over. The number of analysts now expecting a weaker PPI is growing. This is of course a worst case scenario if the PPI surprises to the upside with everyone expecting a downside. Still once the gold rush back into the markets starts it is likely to be strong. There is an old adage about "never short dull markets." They are dull because investors are waiting on the sidelines waiting for a directional signal. When the signal comes the moves can be explosive. The rate increase is already priced into the market even if it is +.50%. No real danger there. A +.50% is widely expected to be a sign of the end of the rate hikes. (wishful thinking) A +.25% now would be looked at almost like a rate cut. There is no severe downside from this point in my opinion. As others make this same judgement then cash will come off the sidelines. Remember the last Fed meeting? The markets rallied over +100 points during the meeting even though we knew there would be a rate increase. We only have three days left this week and traders like you and me as well as fund managers are looking for targets of opportunity. Once those targets start moving the race will be on. Sure things could be better. I wish the Nasdaq had held 3600 today. It didn't but I think it was fear of a CSCO disaster and tech backlash that created the weakness. We did rally off the low at 3540 to within 15 points of 3600. Close but no cigar. Technicaally we have a lower high and a lower low but I think it was entirely sentiment related to the CSCO article. The Dow has gone exactly sideways the last three days and it performing exactly as it normally does before Fed meetings. On Sunday I suggested 4000 as an entry point for the July earnings run. I am going to lower that to 3800 tonight. If we trade over 3800, closing would be better, then I would go long for July. Just my opinion but I voted with my money today. I bought the dip with half my capital and once I see confirmation tomorrow I may put the other half to work. The VIX was over 32 and the TRIN spiked to 1.35. If it was not an entry point it sure looked like one. The only notable earnings left this week are AMAT on Wednesday and Dell on Thursday. Lets keep our fingers crossed that they at least hit their numbers. Trade smart and sell too soon. Jim Brown Editor Current long positions include: NTAP, VIGN, BRCM, BVSN, CMTN, SEPR ITWO, JNPR, QCOM, RMBS, SDLI ********************************************* Technical Analysis, Stock and Option Seminars ********************************************* OptionInvestor Stock & Options Trading Seminars. 2 and 3 day Technical Analysis, Stock and Options Trading Seminars coming to you! We are responding to your requests to teach students how to pick stocks using all the analysis tools available on the Internet and how to maximize returns on those stocks with options. Learn to trade like the pros! Who Should Attend? -Investors wanting to take control of their own investment accounts And want to discover the power and profit potential that online Stock and option trading can bring. -These seminars were created to provide investors of all experience levels the tools and knowledge needed to supercharge their investment returns. Seminar Format -Day 1 will focus on learning and understanding the difference in types of Fundamental, Technical, Quantitative, & Predictive analysis, how and when to use each. The major indicators will be explained in detail with explicit examples of each. -Day 2 will consist of an in-depth study of the different option strategies and when to use each. 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The seminar team is led by Chris Verhaegh, Option 101 writer for OptionInvestor.com who has also taught over 50 option seminars. -Winning option strategies you can put into action immediately to supercharge your investment returns. -A thorough understanding of technical, fundamental, fundamental and quantitative analysis and how to apply this information to your stock and option investing. -A comprehensive seminar workbook complete with examples and work study pages. This workbook will double as a reference book which you can refer to over and over as you try new and more complicated strategies. -A cd containing the on screen examples and presentations Along with extra features like definitions, examples and Reference material not in the seminar manual. -A hearty breakfast and lunch is provided each day as part of the package. Personal Instruction These seminars are designed to be smaller and provide more personal interaction than is available in our recent 600 person Denver Expo. To achieve this personal attention the seating must be limited. Not everyone requesting admission will be able to attend but we feel the quality of the education for everyone will be much appreciated. If you are ready to take the next step to improving your investment returns then don't wait any longer. Reserve your seat now. Click here for a list of all the cities and dates: http://www.OptionInvestor.com/seminar/seminar.asp ****************************Advertisement************************* Do You Trade Options? Mr. Stock offers state-of-the-art trading capabilities & specialized options tools designed by experienced market makers. Trade spreads, straddles, covered calls and stock online. Get real-time market data throughout our site. Learn basic to complex option trading strategies. www.mrstock.com http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ****************************************************************** ********** STOCK NEWS ********** NTT DoCoMo Takes Stake in KPN Mobile By Cindy Christ Japanese mobile phone giant NTT DoCoMo confirmed Tuesday it would take a 15 percent stake in Dutch-based KPN Mobile for 5 billion euros in a move to gain a foothold in Europe's lucrative wireless communications market. Five billion euros is equal to roughly $4.5 billion. A unit of Royal KPN NV, KPN Mobile is a holding company representing a group of cellular operators in Germany, Belgium, Hungary, Indonesia and the Ukraine with more than 10 million subscribers. Under terms of the deal, NTT DoCoMo will have the right to nominate at least one representative to KPN Mobile's supervisory board and will provide technical support to help KPN develop third-generation mobile phones and mobile multimedia services. The move comes on the heels of a failed merger attempt last week between NTT DoCoMo and Spain's Telefonica SA that fizzled after the Dutch government refused to divest its 43 percent stake in KPN to win approval for the deal. Along with U.S. partner BellSouth (BLS), KPN and NTT DoCoMo now are expected to make a bid for Orange, the UK's No. 3 cell phone operator, which will be sold-off later this year by Vodafone AirTouch Plc as part of its acquisition of Germany's Mannesmann. Experts say KPN will be competing with France Telecom SA and WorldCom in its efforts to acquire Orange. By linking with NTT DoCoMo, the mobile arm of Japan's Nippon Telegraph & Telephone Corp. (NTT), KPN Mobile also hopes to improve its odds of winning prized third-generation phone licenses now up for bid in Europe. Third-generation, or 3G, technology enables users to access the Internet from mobile phones and other wireless devices. 3G services are slated to debut in Europe at the beginning of 2002. NTT DoCoMo leads the world in mobile Internet technology with its i-mode line of cell phones allowing users to send and receive e-mail, reserve airline and concert tickets, check bank balances or transfer money, play games, find restaurants and get driving directions, and automatically receive weather updates and news. "We are investigating all further possibilities to fill in the Internet and data segments as well. We want to move fast so you can count on us to come out with a next step pretty soon," KPN CEO Paul Smits said at an Amsterdam news conference. Smits told reporters that KPN also is seeking to ally with French media and telecoms firms Vivendi and Bouygues and with other European operators as well. KPN said the deal with NTT DoCoMo would force it to delay its planned spin-off of KPN Mobile for six to eight weeks until the deal closes. Shares in NTT DoCoMo (NTDMY) closed up $0.52, or 0.30 percent, at $177.31. KPN (KPN) fell $9.31, or 8.5 percent, to $99.88 in New York. ************** MARKET POSTURE ************** As of Market Close - Tuesday, May 9, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,000 11,400 10,536 Neutral 5.05 SPX S&P 500 1,400 1,500 1,412 Neutral 5.05 OEX S&P 100 750 800 758 Neutral 5.05 RUT Russell 2000 450 550 491 Neutral 5.05 NDX NASD 100 3,200 4,000 3,445 Neutral 5.05 MSH High Tech 860 1,000 890 Neutral 5.05 XCI Hardware 1,360 1,600 1,398 Neutral 5.05 CWX Software 1,100 1,300 1,152 Neutral 5.05 SOX Semiconductor 960 1,200 994 Neutral 5.05 NWX Networking 900 1,100 1,006 Neutral 5.05 INX Internet 550 800 579 Neutral 5.05 BIX Banking 530 600 542 BEARISH 5.04 XBD Brokerage 400 500 463 Neutral 5.05 IUX Insurance 540 620 595 Neutral 3.16 RLX Retail 900 1,000 877 BEARISH 5.04 DRG Drug 355 400 388 Neutral 4.28 HCX Healthcare 710 800 787 Neutral 4.28 XAL Airline 140 155 149 Neutral 3.10 OIX Oil & Gas 265 300 295 Neutral 3.16 Posture Alert Technology shares put in another poor performance, as the weak hands continue to fold ahead of several major earnings as well as the Fed announcement. The Semiconductor sector was the loser of the day, as that index fell -5.06%, which was followed by the Morgan Stanley High Tech (-2.26%), and the NDX (-2.17%). There are no changes in posture. **************** MARKET SENTIMENT **************** By Pinnacle Capital Advisors Tuesday, May 9, 2000 Is a rally around the corner? Tuesday's trading was once again anemic, however; things may pick up very soon. On the earnings front, we have Cisco Systems, Dell Computer, and Applied Materials all reporting in the next 48 hours. We are also a week away from the Fed Meeting, which may lift the lid off of this market or at least bring some traders back into play. Regardless, we thought highlighting the sentiment surrounding the 3 technology bellwethers would be useful topic this evening. Company: Symbol: Pinnacle Expected Whisper Put/Call Index: Earnings: Number: Ratio: Cisco Systems CSCO 1.57 .13 .14 .46 Dell Computer DELL 1.36 .16 .16 .75 Applied Materials AMAT 1.98 .55 .60 .52 All 3 companies above have a relatively low Pinnacle Index, which would indicate the potential of a rally if the whisper number is met and the conference call is positive. Now as we write this article, Cisco Sytems reported earnings in-line with the whisper number, and was trading down fractionally. However, if their conference call is positive and without any negative surprises, we will keep an eye on this issue as it may have strong potential to rally tomorrow. Dell Computer is easily the lowest expectation issue this week, as their Pinnacle Index is the lowest and their whisper number is in-line with the expected earnings. We are also starting to hear the talking heads on CNBC reporting the rumor that Dell may miss earnings expectations. Reports such as these only help lower the expectation level of investors/traders, and thus, may give more potential for a relief rally should they deliver on earnings. Lastly, Applied Material is the highest expectation stock of the three, as their Pinnacle Index is the highest, but more importantly, their whisper number is a nickel higher than expected. What this suggests is that every analyst on the street has been raising the expectations, while the average has yet to catch up with reality. For a better description of the Pinnacle Index and how it relates with sentiment, just click below. http://members.OptionInvestor.com/marketsentiment/042300_1.asp Also, these three issues all have high levels of short interest. Cisco Systems 61.9 million Dell Computer 40.5 million Applied Materials 10.6 million Due to these high levels of short interest, a squeeze may easily occur which would then help lead the broad market higher. Combine this with the fact that the markets have rallied at or after the previous Fed hikes, and we are beginning to see signs for a potential rally! BULLISH Signs: Corporate Earnings: Major corporate earnings continue to come out strong and ahead of analyst expectations. Walmart and Cisco Systems are the latest bellwethers to beat expectations. 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: BEARISH Signs: Interest Rates (6.208): With the long bond breaking significant support levels, new highs may be attempted in the near future. 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 (5/5) (5/9) (5/11) ***************************************************************** Overhead Resistance (805-830) 5.40 5.54 Overhead Resistance (775-800) 1.53 1.88 OEX Close 767.79 757.82 Underlying Support (745-770) 2.10 2.23 Underlying Support (715-740) 10.54 12.81 What the Pinnacle Index is telling us: Based on the above statistics, direct overhead resistance and direct underlying support both remain light, while OTM support and resistance levels are extremely strong. Put/Call Ratio ***************************************************************** Friday Tues Thurs Strike/Contracts (5/5) (5/9) (5/11) ***************************************************************** CBOE Total P/C Ratio .53 .50 CBOE Equity P/C Ratio .46 .42 OEX P/C Ratio 1.25 1.07 Peak Open Interest (OEX) ***************************************************************** Friday Tues Thurs Strike/Contracts (5/5) (5/9) (5/11) ***************************************************************** 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 9, 2000 31.71 ************* WOMAN'S WORLD ************* Rational Exuberance By Mary Redmond The new book "Irrational Exuberance" is a New York Times best seller, and makes some interesting and valid points about the risks of market investing. However, I think that there are a number of important factors which were left out and need to be considered in evaluating investment decisions. For example, the author uses the price/earnings(PE) ratio of stocks in the S & P 500 today and compares the ratio to that of previous "speculative bubble" periods which were followed by devastating crashes and flat market periods. However, the PE ratio alone does not give enough depth of analysis or information upon which to make such a conclusion. Many more stocks in the US are growing their shareholders' equity at a rate of 50 to 100% or more annually than in prior decades. Also, many stocks have low PE ratios because there is something fundamentally wrong with the company. PE ratios are best used in combination with other analytical tools. It is also dangerous to assume that prior decades in the stock market can give us an indication as to what the stock market is going to do at any point in the future. Just because the market corrected in the 1970s doesn't mean it will correct next year. Just because the market was slow last summer does not mean it will be slow this summer. There are far too many other variables in the equation, especially when you are talking about past decades. In the 1970s, OPEC had a far greater control over oil prices than it does now. In the 1920s, we did not even have an SEC or a Federal Reserve which set margin requirements, so people were buying stocks on 5% margin. We don't know what is going to happen either in the US or internationally to impact the stock market in the future, either positively or negatively. No one could have predicted decades ago the impact the internet would have on all of our lives or the markets. Mankind does make some progress over the years, and some of this technological progress is reflected in the stock market. We can't even begin to fathom what new technology will change our lives in decades to come, or how this will effect stock prices. The only certain thing about the market is that the market is uncertain, particularly in the long run. It might be even more dangerous to take an overly pessimistic attitude about stock prices long term than an overly optimistic one. If you look at a 50 year chart of the S & P 500 in 1950 it was approximately 16. Now it is in the range of 1400. This means if you had put $10,000 in the S & P 500 in 1950 you would have approximately $870,000 today. One important point in the book was that public policy makers should be aware of the risks of stock market investing, and should not use the market for government funded programs like the Social Security trust fund. This is a point I agree with for reasons not mentioned in the book. No mention is made of how this could potentially impact market mechanics and stock prices. For instance, a major fund or institution's buying patterns often affect stock prices to the point of disrupting the entire market. If the government were to begin to buy billions or trillions of dollars of stock, this type of disruption would magnify to an extreme level. Before long, many companies would become majority owned by the government, and this could cause conflicts of interest in many ways. This is one of the reasons why we need the government to continue to issue debt instruments to invest in the social security trust fund. There is a plethora of information available for anyone who wants to learn about the stock market nowadays, and that is one of the reasons the investing public is more savvy and sophisticated than in prior decades. How the public uses this information is the key. In some cases, it creates a greater efficiency in the market, and in others it can result in misinformed decisions. That's why it is important to discern between good information and bad when making investment decisions. Contact Support ***** Here's Something That's Working...For This Week Anyway By Renee White Do you have a negative feeling about the overall market right now? If you do, then why not put one of our "rules" to work? As many readers know, I'm having a hard time feeling bullish these days. Don't laugh. Some of my friends are very bullish, even for May. There's room for all of us who want to play this month. I find myself stuttering as I defend the reason for a brief rally next week because we are suffocating, dying for a relief rally. At some point, it will come. This week? Next week? Afternoon of Greenspan's speech? That one would make sense to me. Nevertheless, looking at the bigger picture, I still feel negative going into June with the next June FOMC meeting looming overhead also. There's a lot of economic numbers which come out between here and there, with one of the more important being the CPI on the day of the Fed meeting on Tuesday. Kudos to any brave souls willing to risk a play right in front of those numbers. I have been surviving with successful plays on mostly an intra-day basis, mostly by scalping both to the up and downside. Only a few times in the last 3 weeks have I chosen to hold over until the next day. With the markets so different day-to-day, I have felt more secure with the 1/2 to 4 point moves intra-day. I can sleep well at night because my profits have been consistent. Since any good day has been followed by bad days, any play that has gone against me has generally worked out the next day. When volume is low, markets usually drift lower. So as long as this volume pattern continues, I will feel a comfort level playing the downside by either shorting, buying puts, or a combination play with a bias to the downside. There's more talk this week than last that we will probably retest our recent lows. That would make a lot of sense to me and in fact, could be the precedent to rejuvenate things with real volume for a while. Until then, my thinking will continue to concentrate on ways to play the downside profitably and consistently. We are basing now and the low volume tells us we are on track to building a nice strong base for future bulls. In the long run, it's good. It just hurts now because many can only play momentum bullish patterns. On the brighter side, not only is it an election year which historically has a strong market in the latter six months, but we have another cushion that may save our continued fall: the weak Euro. That could be the cause of a smaller rate hike than expected. For now, I feel comfortable making 2.5% to 6.75% a day by shorting. Or the 83% returns in 24 hours that I made today with my Nortel put play, something you may want to try yourself. Being able to make money in this narrow market has given me new confidence in my trading skills. As I've said many times before, I always improve my trading when I lose money during a nasty market reversal. This one is paying off. During our typical bullish periods over the last several years, patterns have proven to consistently benefit most option traders with minimal effort. These patterns were so forgiving that they falsely made beginners think they were wizards at trading. The two most profitable patterns have been earnings runs and split-runs on highly favored companies. Our "Rules" have taught us that we should: "Never hold over earnings" and "Never hold over a split." Why? We never hold because there is typically a steep sell-off after these two events. Many traders help run the price of the stock up artificially, only to try to exit at the peak of excitement they helped cause. Well, earnings fizzled this quarter, which was a shock to many. Also, a ton of split runs have had "erratic" movement at best. Many have been afraid to play the typical split-run 10 days in advance due to the erratic market eating away at the time decay of their premiums. Watching these split-runs fade has been depressing. But wait! "Erratic"? Hmmmm, nice word. Isn't that word close to the word "volatility" that option traders like so much? I think so. Although I haven't felt like playing options lately, a light went off yesterday when I remembered why we don't hold over splits: momentum players exit right before or shortly after the split. The splits also put many portfolios out of balance and selling becomes a way to keep things in proportion while taking some profits off the table. The usual post-split pattern is a sell-off. On rare occasions, the sell-off is limited. But since most equities move with the market, a market with a downward bias should enhance the post-split depression. It would take a WHOLE lot for a company to rise up against the odds right after their split, especially with low volume in a downtrending market. Since every-other-day we are bouncing positive and negative, I think it is possible to buy slightly OTM puts at the intra-day high, on the day before or day of the split. It would be best to try to enter when the equity is reaching its last positive day, as close to the high as you can get. If the markets are biased to the downside, this will certainly help your post-split put plays. Yesterday, I bought Nortel May 110 puts @ $4.50 when Nortel was at $112. The better entry would have been Friday, but I didn't think of it then. Nortel split last night after the close, so I felt sure that people would be selling today especially on a weak day. Today, I awoke owning 10 May 55 puts. I could have sold 1/2 of the position and let the rest ride but I was afraid if Cisco reported good numbers, a brief relief rally might steal profits in the morning. So I exited a little early, 10 puts @ 4 1/8 for a 83.3% profit in less than 24 hours. Not bad, huh? I also bought American Express puts, before its 3 for 1 split coming Wednesday after the close. I thought that was a no-brainer play due to the interest rate worries. At the close of today, they are up 38% but I expect much more by Thursday, the first day post split. This is when I plan to exit. I didn't think any brief intra-day tech rally would hurt my financial sector play in front of the Fed meeting. In fact, I may add to the play tomorrow. Playing both sides and feeling good about CSCO, I did buy QQQ today to hold overnight for the brief rally I expect tomorrow. Trading a bearish market doesn't have to be a scary dilemma. All it takes is teaching your brain to think in the opposite direction. Then it will clue your gut into placing confident plays. You will always have more success if you can back up your plays with historical insight, instead of wishing and hoping. By using the historical post-split sell-offs during a downtrending market with low volume, I am stacking the deck in my favor. I am in a risk-averse mood these days so any play that gives me consistent profits is good enough for me. I'll be checking the split list for other strong companies to play in this manner until my market bias changes. Contact Support ************** TRADERS CORNER ************** Chasing Rabbits By Austin Passamonte I knew for a fact when beginning to write for OIN that I would learn much more from the readership than you ever would from me. That's just how sharing information goes; I'm outnumbered many, many thousands to one and am grateful for it! Here's a note I received this weekend that makes a very important point to a lesson I need reinforced in my trading, and perhaps others do also. As follows: "Austin- thought you might enjoy hearing the results of your OEX educational articles. I have been standing aside studying after a not so good series of trades. I have been at it about 3 months now, so I'm still able to learn and have a lot to learn. After your article, which positioned the Skybox as a benchmarking tool for the OEX as opposed to a mechanical series, I decided to get my feet wet again. My Theory: after trading sideways Thursday in advance of the economic numbers, I figured any early trend Friday morning would be tradable. Execution: 1. Confirmed first hour trend with Yahoo volume-advance decline numbers-trend up. 2. Picked up 770 at OEX benchmark 762 just after 10:00 for 14 3/8. Good entry point on a little dip. 3. OEX immediately took off for 772. This is good! 4. Found congestion at 770 -772 and stalled. 5. After watching OEX bounce from 770-772 several times, started thinking about an exit. 6. Set sell at 18 3/4 and watched OEX bounce one more time off 771 and got filled at the high on that bounce. 7. Watched the OEX go straight sideways for the rest of the day and close near 770 but premium down on 770 call at 17+ I now have $4500 in my account to the plus, some needed confidence and a new way to look at the Skybox. I think I'm going to rest on my laurels for a little while to study and learn." Doug C. Rest away Doug, you've earned the right to do so. Considering the trade was over by noon, I hope you took the rest of the day off. As a matter of fact, that sum is roughly two months median income for the average U.S. worker so I guess you don't need to take any more trades until early July, anyway. Make no mistake...I saw that trade coming a mile away. Watched it happen from start 'til finish as well. Watching is about all I did since my capital is spread out and tied up in a number of different equity plays. Near Thursday's close I picked up some May GE calls and June QQQ puts. Before Friday's bell I also placed a limit-buy order on ADBE June calls as well. Then I watched the futures melt as the countdown to our starting bell began. Why did I do that, you ask? Good question! The answer is nothing other than sheer boredom. Too much time on my hands watching the markets trade a tight range away from any OEX entries I felt really good about. Hey, I'm a trader--traders trade. All these other plays start looking really good when the broker's page reads, "You have no positions open". Truth is, I didn't do badly. Q puts were gone 10 minutes into Friday's session for a fair gain. Made a little on the GE calls, did fine with the ADBE calls by afternoon. Closed out GE calls and used profit on June GE puts for a free play to fade the split event. Bought more June QQQ puts near close on Friday to sit on for next dip. Tried another half-dozen entries that were cancelled or left unfilled. Whew, that's a lot of work. No time for boredom Friday. Oh yeah, the OEX play. I was tempted to buy when it hit 754 and started steaming due North, but had little cash left open. The way I had the market planned, I'd ride the OEX in the afternoon instead. You see, that trade just wasn't convenient for me this morning... I was too busy avoiding boredom. Well, the markets didn't care what I had planned for them this time. They went ahead and moved on their own accord. Can you believe it? I did try to enter the OEX when it hit 770, seemed like it might pass 900 by the close at the rate it was moving. Alas, that play got stopped out well before then. Moral of the story? I was too spread out to make real money! Oh sure, a few dollars were added to the pile but I worked my tail off for them. Doug on the other hand sat very patiently, had a plan, was focused and executed with surgical perfection when the opportunity arose. Me? I was all over the place scattered hither and yon. Doug was out enjoying the fine weather, I was still jiggling the mouse and grumbling over market-makers. One of us was trading to perfection and the other was inefficiently playing options Nintendo. I'm sure you know who was which. Focus, patience, preparation, execution. Lessons I need to be reminded of often these days. Thank you Doug for doing exactly that. Sunday's OIN was chock full of excellent articles from all of it's talented writers, but did you take the time to read and study those from Janar Wasito and Lynda Schuepp? Two exceptional examples on how to pinpoint trades stacked heavily in one's favor. They also demonstrate laser-sharp focus and discipline in trading to win. These two exemplary writers can flat-out trade! You and I are blessed to have OIN at the click of a finger every day, guiding us successfully in our pastime. The best thing about OIN is that it's bursting with strategies and plays of every imaginable kind. When given a choice, I want them all. Am I alone? Time for me to focus again. The OEX has treated me well as have other indexes and countless stocks. Each of us could make money from any of them, but not simultaneously. "Don't chase two rabbits, you'll catch neither" I continually chant to myself. Here's hoping it sinks in real soon! Get ready for "Super Tuesday" next week! ************* DAILY RESULTS ************* Index Last Mon Tue Week Dow 10536.75 25.77 -66.88 -41.11 Nasdaq 3585.01 -147.44 -84.37 -231.81 $OEX 757.82 -6.20 -5.77 -11.97 $SPX 1412.14 -8.46 -12.03 -20.49 $RUT 490.86 -12.76 -9.22 -21.98 $TRAN 2904.16 59.76 -31.71 28.05 $VIX 31.71 0.73 0.59 1.32 Calls Mon Tue Week SEPR 106.75 1.19 2.31 3.50 Bucking market trend BSX 28.31 0.81 0.94 1.75 New, breaking out WLA 123.56 2.84 -1.53 1.31 New, drugs looking hot BVSN 45.13 -3.31 -1.19 -4.50 Holding on with light vol EPNY 84.75 -1.75 -2.88 -4.63 Look for upcoming B-week QCOM 105.00 -6.75 2.00 -4.75 Recouping losses NTAP 63.44 -6.69 0.25 -6.44 Dropped, moving on HIFN 36.13 -3.50 -3.50 -7.00 So stay on your toes MERQ 77.94 -3.88 -3.19 -7.06 Following broader trend ADBE 112.31 -10.31 2.94 -7.38 Relative strength amazing KANA 46.38 -2.66 -6.31 -8.97 Good recovery potential AMD 83.00 -3.38 -5.75 -9.13 Looking for a bounce MEDI 160.56 -12.00 2.31 -9.69 Weak volume is the culprit EMLX 52.25 -5.94 -4.31 -10.25 Dropped, flat lined SCMR 73.63 -0.19 -12.19 -12.38 Dropped, take profits TER 93.75 -7.19 -7.69 -14.88 Dropped, slipping away ABGX 97.50 -5.88 -9.50 -15.38 Following NASDAQ lead BRCM 161.94 -6.56 -9.31 -15.88 Dropped, done for now JNPR 177.00 -4.38 -12.00 -16.38 Dropped, time to go AFFX 139.50 -7.94 -8.63 -16.56 Support at $130 RMBS 178.56 -16.88 -12.19 -29.06 Dropped, downtrending Puts EBAY 121.19 -5.50 -7.31 -12.81 New, free fallin' RBAK 57.44 -6.25 -5.81 -12.06 New, downward channel SNE 213.38 -2.25 -5.94 -8.19 Signs point to...down CMRC 47.75 -4.82 -3.31 -8.13 New, rolling over SBL 44.19 -1.75 -3.81 -5.56 New, 200-dma at $38 CTXS 41.06 0.56 -2.88 -2.31 Sliding toward $40 GCI 59.25 -0.50 -1.00 -1.50 Selling with high volume LOW 49.25 1.25 0.19 1.44 Dropped, perhaps a bottom 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: ***** EMLX $52.25 -4.31 (-10.25) Not only was our EMLX play tarnished by a weak tech sector, the stock suffered from the announcement that Qlogic (QLGC) would acquire Ancor (ANCR). Buying ANCR will add to QLGC's existing portfolio of fiber channel technology. It just so happens that EMLX is the leading provider of fiber channel products. Analysts believe that the merger between the QLGC and ANCR will cut into EMLX's commanding market share. The announcement caused EMLX to gap lower Monday morning, and the selling continued into Tuesday's trading. EMLX's CFO appeared on CNBC Tuesday afternoon, but was unable to deliver any appeasing comments for traders. Ironically, we were looking for EMLX to fill its gap from April, but the most recent gap down Monday and the concerns over valuations has us selling too soon. TER $93.75 -7.69 (-14.88) Barron's is once again the culprit, publishing detrimental stories that send leading tech stocks lower. The article in last weekend's Barron's questioned CSCO's high valuations. Renewed fears of high valuations swept through the semiconductor sector like wild fire, sending the chip equipment makers like TER sharply lower. Fellow chip equipment maker KLAC made positive comments about the company's upcoming quarter. But the upbeat remarks had no effect on the Semis. Though traders are highly anticipating the earnings report from AMAT later in the week, the valuation concerns have overcome the tech sector. The selling in the Semi sector was especially heavy Tuesday, as TER traded well above its ADV. The stock fell through several key support levels, most notably the $100 mark. The recent dip in the chip stocks has caused us to step aside. NTAP $63.44 +0.25 (-6.44) The headlines read "Network Appliance forecasts continued growth." In a presentation at the Chase H&Q Technology Conference, NTAP CEO, Dan Warmenhoven said the company intends to capitalize on the increasing demand for storage by the Internet and corporations. Nice presentation, but it didn't stop investors from taking the opportunity the past two days to lighten their load of shares of NTAP. The one positive to come out of the past two sessions, is once again the $62 level seemed to be the point where the sellers passed the baton to the buyers. But one positive with a better than $6 drop, just aren't enough to keep NTAP on our list. Networking grandfather CSCO reported better expected results after the close today, and headed south in the after market hours. For now it's time to go our separate ways. RMBS $178.56 -12.19 (-29.06) Unfortunately the downtrend line that began to be drawn at the beginning of May can be extended another two days. We said unfortunately, however traders that entered this play shortly after being added to our list, in late April have seen the company's stock run from $167.50 to $248. We are now just about back where we started, and the current downtrend, even though it comes on lighter than average volume, has put an end to our play. Keep in mind if RMBS did bounce, it may or may not mean the return to the levels seen earlier this month. It could be just a quick pop to the upside, which is met by more selling. Although we look forward to its return to our list of favorites, the risk-reward simply isn't in our favor at this time. JNPR $177.00 -12.00 (-16.38) JNPR confirmed on Friday the 2:1 stock split will indeed happen next month on June 15th. That's not too far away and we're sure looking forward to a split run. But at the moment it doesn't look too promising for JNPR. The violation of the 10-dma ($197.12) and 5-dma ($187.46); plus today's slide below $180 bottom support to an intraday low of $170.63 is just too perilous. Granted it's likely if the market trends up after the Fed meeting next week, JNPR will snap back. But that's a big IF to bet on. So we're taking this volatile Internet off our plate for the time being. The tid-bit of news this week was the company's announcement it standardized all of their company sites, including international operations, on Nokia's patented CryptoCluster technology for secure site-to- site communications. SCMR $73.63 -12.19 (-12.38) Sycamores may be sturdy trees, but there's nothing attractive about the investors hanging from a noose after a $12 drop today. It's weakness became apparent right after today's opening gap up and steady $14 descent without missing a beat to its low at 2:00 p.m. Volume was heavy - 33% in excess of the ADV. Despite a weak attempt at recovery in the final two hours, SCMR closed at its low of the day. Investors were using every minor pocket of stability (let alone strength) to unload the issue. SCMR sits right on historical support. While it could rise from here, consider exiting on any strength since sentiment seems to be changing for the worse - increased volume and big declines aren't usually good going forward. That's especially true on the heels of yesterday's BBRS reiteration of their Buy rating while raising their 2000 EPS estimate from a loss of $0.01 to a profit of $0.06 and their FY01 from $0.08 to $0.18. Even that didn't help. Earnings are scheduled on May 18th, which may help with a better exit. Still a nice play thought when you consider the entry at $53. BRCM $161.94 -9.31 (-15.88) Yesterday's introduction of another two-way cable set-top communications chip and its adoption by set-top box manufacturers for use on Time Warner's system could not keep BRCM afloat. It took a beating despite the news, closing at good support near $160 on stepped up volume of 10% over the ADV. While brave traders would consider this an entry in a different market, we think it's akin to a stop at the Bates Motel in search of a good night's sleep. Technicals have reversed course and the new trend appears to be downward. If you didn't have a stop set (we hope you did), consider using pockets of strength for a better exit. Investors holding big stock positions are finding it tough to make an exit themselves as any volume on the sell side is met with a lack of buyers, thus sending the price lower. So too with the options business. Time to move on. PUTS: ***** LOW $49.25 +0.19 (+1.44) Like we said, the stock was trading like one that's trying to find a bottom. That may just be what's happened to our put play. From last Wednesday until early Monday, Lowe's traded in a narrow range between $47 and $48. Yesterday afternoon, the volume picked up and so did the price. Some say the sell-off, after Goldman Sachs downgraded the retail sector was overdone, while other suggest today's better than expected earnings announcement by Wal-Mart, helped lead LOW and the sector our of the hole. Whatever the reason, Lowe's may have found new life. With earnings due to come out in less than a week, it's time to step aside and look elsewhere. For those wanting to hang on to Lowe's remember April retail sales will be reported on Thursday and could drive this on and the sector either way. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. 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. 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The Option Investor Newsletter Tuesday 5-09-2000 Copyright 2000, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. ******************** PLAY UPDATES - CALLS ******************** SEPR $106.75 +2.31 (+3.50) Another bad day for the NASDAQ, and another good day for SEPR. We saw some weakness in shares of SEPR early Tuesday morning. After bouncing for the second time from the $101 level, the stock edged higher towards the end of trading Tuesday. But the final five minutes of trading provided the fireworks. A massive wave of buying pushed SEPR nearly $3 higher in the final moments of Tuesday's trading. Traders may have been positioning themselves ahead of the Healthcare 2000 Conference. SEPR is scheduled to be a key presenter at the Deutsche Bank Alex Brown event taking place this week. Yet another event that could carry SEPR higher is the company's upcoming shareholder meeting, to be held on May 24th. Investors will vote on a proposal to increase authorized shares, possibly paving the way to a split announcement. After the late-day rally Tuesday, an aggressive trader might look for SEPR to build momentum from its current level. If you're looking to minimize directional risk, wait for SEPR to clear resistance at $110 on healthy volume. ADBE $112.31 +2.94 (-7.38) ADBE's relative strength is simply amazing. Over the last 12 months, ADBE has managed to outperform over 93% of stocks in the market. Though a strong performer, ADBE isn't completely immune to external factors affecting stock prices. The Barron's article proved to be one of the events that can push ADBE lower. The stock gapped down Monday morning, and sold-off into Tuesday. Traders fearing that ADBE is overvalued remembered that the stock sports a P/E of 53, much lower than the average tech stock. That revelation by investors sent ADBE into rally mode late Tuesday, as the stock gained over $7 in less than an hour of trading. However, the stock did give back much of its early gains in the last ten minutes of trading Tuesday. It appears that the selling was nothing more than profit taking, noting the weak volume in the last ten minutes. The scare by Barron's wasn't enough to knock ADBE out of its ascending channel that we've come to love. From here, an aggressive trader might look for ADBE to rebound quickly from its current levels. A conservative trader might wait for the valuation concerns to dissipate and watch for ADBE to clear resistance above $117 before entering the play. AFFX $139.50 -8.63 (-16.56) It is a rare stock that can escape the decline of neglect being experienced on the NASDAQ, and AFFX has not been that stock this week. As the markets continue to see the lowest volume of the year, it is clear that buyers are just not ready to jump in ahead of the impending Fed meeting. Investors are not in a rush to sell at these levels either, and so the waiting game continues. Dropping both days this week, AFFX finally saw a bit of a bounce at the end of the day near the $135 support level. If this level can hold as support, it will keep alive the fledgling recovery, which began in mid- April. This support level is backed up by the 30-dma ($130.69) and the 50-dma ($125.63), which is also at a strong support level. Resistance is found at $145 and then $150, but challenging these levels will likely require the return of buyers. Any move up will be difficult to sustain without solid volume backing it up. Consider using intraday dips to support as buying opportunities, but keep in mind the importance of confirming volume. HIFN $36.13 -3.50 (-7.00) The buyers' strike continues and HIFN was not immune over the past 2 days. After moving up strongly at the end of last week, it became clear that the conviction was not there and the stock fell through the tenuous support at $40, giving back the majority of last week's gains in the process. Even announcing new state of the art products is failing to attract buying interest. Yesterday HIFN announced the industry's first complete DSL and Cable modem security processor for the widely-deployed PCI-Bus system and today investors continued to sell. Volume is still anemic (less than half the ADV today), indicating investors are not necessarily negative on the stock, they are just nervous about the direction of the markets in the near term. This week's losses have brought HIFN back to the $34-35 support level, and today's close is just fractionally above the 10-dma ($36.25). If some buyers wake up and create some volume near this level, it could be an attractive entry point. Unfortunately, volume is unlikely to pick up significantly until the other shoe drops, (Greenspan and the Fed announce the outcome of their meeting next week) so stay on your toes. MEDI $160.56 +2.31 (-9.69) It is sounding like a broken record, but the culprit behind the drop in MEDI this week is the weak volume pervading the broad markets. Although only slightly below the ADV on yesterday's decline, today saw only about half the average number of shares trade hands. Shares of the Biotech company are finding some support at the 30-dma ($157.88) and bounced intraday today at the 10-dma ($154.44), helping the stock to actually move up by the end of today's session. The markets are nervous about interest rates, MEDI has already reported earnings (strong, but now the news is out), and consequently the stock is having a hard time moving up without some fresh motivation. That motivation (in the form of volume caused by improved investor sentiment) is unlikely to be forthcoming until we get the results of the Fed meeting next week. Following that meeting, we have another one that could be much more positive. On May 18th, the company will hold its Annual Shareholder Meeting, and on the agenda is a vote to increase the number of shares outstanding. Upon approval, the company will be free to complete its 3-for-1 split, payable on May 18th as well. Consider nibbling on new positions if support can hold near $159, supported by 30 and 50-dmas, but keep your eye on the volume. Without it, MEDI isn't likely to go very far. MERQ $77.94 -3.19 (-7.06) We said Sunday, next week could be a bit tricky. Well for traders with MERQ in their sights it really hasn't been tricky at all. MERQ has followed the rest of the tech stocks lower for the first two days of the week. We are somewhat disappointed that the $80 area wasn't able to hold up, but were pleased to see a few buyers appear as MERQ approached its 100-dma at $75.92. Many are looking for answers as to what's going on in the broad markets and why? We won't attempt to dissect the broad market here, but the fact is there simply are no buyers. For now, investors have decided to lighten their load in stocks and wait, which may be the most prudent way to play MERQ. We are not trying to scare anyone off, but for more conservative types that may be the best course of action. For traders that prefer to play, then the support levels formed near $76 today could provide a suitable entry for a short-term play. MERQ did announce today Topaz 2.0, the first Web application performance management solution that can correlate end-users performance issues to the source of the problem, while a presentation at the Chase H&Q Tech Conference did little to help prop up the stock. For those wanting to enter the arena, be prepared to sell too soon, until a liquidity returns to the markets. AMD $84.31 -4.44 (-7.94) AMD is holding strong amid investors' fears and the dubbed "buyers' strike". AMD's momentum however did let out a much needed exhale in the last two sessions. Over the past couple of weeks this stock powered higher, and on Friday, it set the latest 52-week record at $93. The downdraft brought AMD to a firm support level at $82 and $83. This consolidation is fine as long as there isn't any further decline. On the upside, volume is respectable with trading at moderate levels. The converged 5 and 10 DMAs also remain close at $88.50 and $87.54, individually. Conservatively look for a move through these technicals. There's no doubt that would give us with a solid indication that AMD may once again make a charge for newer heights. KANA $46.38 -6.31 (-8.97) KANA was a stellar performer in yesterday's market. It couldn't be beaten down below $50.25 demonstrating its liquidity was better off than most. It's recovery potential clearly remains intact. Even today it was resilient. we can understand about a mild pullback to near- term support at $45 and the 10-dma ($45.96). Entry points, entry points. But please, wait for a definitive upward bounce for evidence that KANA is not entering a consolidation phase. A break through the 5-dma ($49.74) would be even better. In the news today KANA announced that Office Depot (ODP), the global office product leader, is implementing Kana's eBusiness System across all communication channels. ABGX $97.50 -9.50 (-15.38) ABGX is a newcomer to our call list, so let's give it a chance to show us its true potential. Yes the 15+ point drop over the past two days is nothing to sneeze at or dismiss. However considering the devastation that occurred on the NASDAQ so far this week and the stock's recent break out above $100 we'll keep it on probation. Why? Because yesterday it maintained an intraday support level at $105 and $106 (damn good!) and today, despite profit-taking, it shot back off a low of $91 recouping $6.50 on decent volume. Wait for another move through $100, or better off the 5-dma at $103.28 before opening new positions; and especially if you'd rather not take an aggressive approach to into this momentum play. QCOM $105.00 +2.00 (-4.75) While it didn't escape yesterday's NASDAQ whirlpool, QCOM kept its head above water today tacking on $2 while its tech brethren struggled to no avail to keep themselves from getting sucked down the drain. While it finished weak in the last 30 minutes with volume of only 69% of the ADV (yet an amazing 93 block trades) on the day, that tells us that institutions were buying the stuff instead of selling it. In this case, it's the quality, not the quantity of volume that figures positively going forward. Sunday, we noted that $100 and $105 might be support targets at which to shoot. While there was a brief opportunity at $102, $104 provided a number of bounces at which to take a position (sure, hindsight is 20/20, but we weren't far off the mark). Depending on your risk profile, you still may want to wait to se $100. Still, we need the market's cooperation for this to become a successful play and that may not happen until after the FOMC meeting next Tuesday, or perhaps Friday following the PPI at the earliest. Tread carefully. But based on today's technical indicators coupled with volume, QCOM is setting up to become a great play if the market comes around a bit and shows us the volume. Earnings are not until mid-July. EPNY $84.75 -2.88 (-4.63) Uh oh. EPNY seems to have begun a slight downtrend, though on only average volume. But then again, very few companies have escaped the market's southward move. While intraday support remained intact at $87 yesterday, EPNY could not escape the market pressure that took it under $85, near a more solid level of support at $80. Still, we don't yet have an entry unless you target shot $85. The good news is that EPNY remained above its 10-dma of $81.93. Consider target shooting there or at another level of support commensurate with your risk tolerance $80 or $85 as suggested earlier. Keep your eyes open too for the next copy of BusinessWeek (May 15 issue) where EPNY will be featured as one of 10 "Up-and-Coming" companies poised for tremendous success. Be patient and wait for the market to come to you. BVSN $48.13 -1.19 (-1.50) Here's another one rolling over, but low volume is keeping the damage to a minimum. If you keep your head down while bullets are flying overhead, there is less of an opportunity to be hit. Particularly striking too is the nice rebound off $43.50 coupled with a $2 rise into the close. That's a real show of strength in this market and a clue that BVSN should one of the first to rally when uncertainty eases, presumably next week. It helps confirm that there are currently few sellers, and helps explain why BVSN isn't falling with the rest of the market. It helps a lot too that BVSN announced a launch of a new B2B site with Boeing for airline customers and a new consulting venture to advise clients on Internet strategy with Deloitte Consulting. Nonetheless, support levels $45 and $48.50 did not hold. However $42.50 did. $40 is much stronger, but the 10-dma also held today, currently at $44.81. Pick your favorite, but no matter what, wait for the bounce. ******************* PLAY UPDATES - PUTS ******************* CTXS $41.06 -2.88 (-2.31) BSQUARE (BSQR) announced Monday that the company has licensed CTXS's application server technology. Investors reacted positively to the news, and bid CTXS slightly higher. After enjoying a small up-tick Monday, the sellers returned in full force Tuesday. CTXS fell below support at $42 early Tuesday morning and continued to slide, finding support just above $40. The stock bounced twice from its critical support level of $40. Traders have warned that if CTXS falls below $40, it would signal a full fledged breakdown by the stock. The trading activity remains steady in CTXS as volume continues to be heavy as traders exit CTXS. The company is scheduled to present at the much publicized H&Q conference late Tuesday. If CTXS rallies from any positive analyst comments Wednesday, wait for the sellers to step in, and look for an entry near the descending 10-dma. But if the sellers show up early Wednesday morning, watch for a move below major support at $40 on heavy volume. SNE $213.38 -5.94 (-8.19) What do you get when you combine poor earnings, a rocky new product launch, negative currency issues and a weak stock market? If you said a put play, you were right. After the strong run up in advance of the Playstation2 release, SNE was looking great. After the much-publicized problems with their new game unit though, investors took their money elsewhere. Then the company reported earnings along with a forecast of increasing revenues and decreasing profits in an already negative market. More investors jumped ship and the downtrend is continuing this week. Support near $220 failed to hold and this morning the stock plunged to $212.25 before finding support. Volume remains light, near 50% of the ADV, as buyers sit on their hands in advance of the Fed meeting next week. The lower highs and lower lows pattern remains intact, indicating that SNE may have further to fall. Support could be stronger near today's lows, which are near the bottom of the big gap up that occurred in late December. Look to initiate new positions if SNE rolls over at resistance at $216 and then $220. More conservatively, wait for a move down through today's low and then jump on board for the trip down. GCI $59.25 -1.00 (-1.50) Very little news and few buyers so far this week for one of our new plays as Gannett has continued to slide into territory not seen in the past eighteen months. The loss today came with 1.7 million shares traded, nearly twice the norm. A quick check of the technicals continues to show GCI is getting a bit oversold. Gannett will need buyers to enter from somewhere to pull it out of the whole, for even a technical bounce, and right now we aren't sure just exactly where they would come from. Does that mean GCI will go straight down? Nope, but with the recent downgrade, the legal problems, and the resignation of the company's CEO last week, they are definitely a company that could use a boost. A British regional newspaper group said today it had pulled out of the takeover battle for News Communications & Media Plc, after Gannett had raised its offer. Investors apparently aren't too sure of the direction of the company over the near-term and continued to sell stock for the first two days of this week. Technically speaking, $60 could provide resistance followed up by the $62 mark. Should some buyers appear, a bounce followed by weakness could provide a good entry for our play. ************** NEW CALL PLAYS ************** BSX - Boston Scientific Corp $28.31 +0.94 (+1.81 this week) Boston Scientific makes medical supplies used in surgical procedures. Its products are minimally invasive, inserted into the human body through natural openings or small incisions. Their products are used to diagnose and treat conditions in a wide variety of medical fields. Products made by BSX included catheters, surgical grafts, ureteral stents, and lithotripsy devices. More than one-third of the company's sales come from international business. Hopefully you haven't had to use any of BSX's products lately. But if you have, and you owned BSX stock over the past two months, you're probably feeling much better. After hitting bottom in early March, BSX bucked the market trend and rallied over 50%. The medical product makers have seen renewed interest from investors as of late. Most recently, a positive report on BSX competitor, Baxter International (BAX), published in Barron's last weekend, gave the group a lift. Money managers are once again returning to the medical equipment stocks, looking for earnings momentum and double-digit sales growth. Stocks such as SYK and BAX, along with BSX have been under accumulation by professional investors for the past two months. We're looking for the momentum to continue to build in shares of BSX as excitement about their improving product pipeline and increasing earnings potential carries the stock higher. The momentum from the Barron's article Monday carried over into Tuesday's trading as BSX easily cleared resistance at $28 on nearly double its ADV. From here, look for an entry point at current levels if momentum continues. But if the profit-takers come out of hiding, wait for BSX to bounce from support at $28, or lower at $26. As we mentioned above, trading in BSX was especially active Tuesday. Confirm any move higher with above average volume. In the news recently, BSX joined an online healthcare exchange formed by five of the largest global healthcare companies. The business-to-business exchange will be launched in the third quarter of this year. The online enterprise is expected to cut costs for healthcare providers and medical equipment makers. ***May contracts expire in less than 2 weeks*** BUY CALL MAY-20 BSX-ED OI=3413 at $8.63 SL=6.00 BUY CALL MAY-25 BSX-EE OI=5556 at $3.63 SL=2.50 BUY CALL MAY-30 BSX-EF OI=6206 at $0.56 SL=0.00 High Risk! BUY CALL JUN-25*BSX-FE OI=3900 at $4.38 SL=2.75 BUY CALL JUN-30 BSX-FF OI= 816 at $1.56 SL=0.75 Picked on May 9th at $28.31 P/E = 30 Change since picked +0.00 52-week high=$47.06 Analysts Ratings 4-12-14-0-0 52-week low =$17.56 Last earnings 04/00 est= 0.24 actual= 0.26 Next earnings 07-18 est= 0.28 versus= 0.27 Average Daily Volume = 1.85 mln /charts/charts.asp?symbol=BSX WLA - Warner-Lambert Co $121.38 -3.72 (-0.88 for the week) If you've ever experienced heartburn, bad breath, or one of those colds you just can't shake then you're likely familiar with Warner-Lambert. Some of the popular consumer health care products include Zantac, Listerine, Clorets, and Certs, and Sudafed. The company operates three main business segments: consumer health care products, confectionery products, and pharmaceuticals. Its Parke-Davis and Goedecke pharmaceuticals divisions make analgesics, anesthetics, and homeostatic agents, as well as cholesterol treatments, which includes best-seller Lipitor. This division accounts for more than 60% of sales. There's not many stocks escaping the menacing clutch of the bear trap, but then there's WLA swaggering around in the bullpen. And why not, the company has a lot to flaunt. On April 19th, they reported earnings showing a 35% gain in operating profits, confirming a strong trend in pharmaceutical sales throughout the industry. WLA came in at $0.58 and beat consensus estimate by $0.02 p/s and the whisper number by $0.01. Analysts at Dain Raucher Wessels liked the numbers enough to tag the stock with a Strong Buy rating. And just a week later on April 27th, Pfizer's shareholders overwhelmingly backed the merger acquisition to ultimately create the US's largest drug firm and the world's second largest and. When it was first announced on February 7th, the deal was valued at $93 bln and ended a three- month takeover battle that revolved around Lipitor. Under the terms of the agreement, Warner-Lambert shareholders will receive 2.75 Pfizer (PFE) shares for each share of WLA they own. Shareholders of Morris Plains, NJ-based Warner-Lambert will vote on the deal this Friday, May 12th. Recently the watch dog, European Commission extended a deadline to rule on plans by the drug giants to May 22nd from May 10th after receiving concessions to deal with potential competition problems. The acquisition is expected to be approved and to close by the end of May. Technically the chart is very bullish and appears to have shrugged off the violent gyrations of the market. And there is a pattern of higher-lows and higher-highs clearly evolving. Overhead resistance at $120 was shattered during Friday's "rally" and yesterday, WLA was propelled to a another all-time high at $126.25 on respectable volume. The stock remained perched on its lofty pedestal today to confirm its strength at the new heights. Never once did it dip under the 5 or 10 DMAs ($120.43 and $118.27). Near-term support is at $121 and $122. Look for solid moves off this level before jumping in head-first. We don't want our glasses to take on a rose- colored hue with the PPI coming up on Friday and the Fed meeting next Tuesday, May 16th. In the news, Japanese drug maker Yamanouchi Pharmaceutical said it would start marketing the blockbuster anti-cholesterol drug Lipitor in Japan this week. Lipitor is currently available in about 70 countries and had global sales of $3.7 bln in 1999. With the introduction into the Japanese market, sales are expected to jump to $5 billion in 2000. ***May contracts expire in less than 2 weeks*** BUY CALL JUN-115 WLA-FC OI=162 at $12.88 SL=9.75 BUY CALL JUN-120 WLA-FD OI=190 at $ 8.63 SL=6.00 BUY CALL JUN-125*WLA-FE OI=334 at $ 5.88 SL=4.00 BUY CALL JUL-125 WLA-GE OI= 71 at $ 8.38 SL=5.75 BUY CALL JUL-130 WLA-GF OI=130 at $ 6.00 SL=4.00 Picked on May 9th at $121.38 P/E = N/A Change since picked +0.00 52-week high=$126.25 Analysts Ratings 13-4-7-0-0 52-week low =$ 60.81 Last earnings 03/00 est= 0.56 actual= 0.58 Next earnings 07-24 est= 0.51 versus= 0.63 Average Daily Volume = 3.48 mln /charts/charts.asp?symbol=WLA ************* NEW PUT PLAYS ************* CMRC - Commerce One $47.75 -3.31 (-8.13 this week) Providing global e-commerce solutions for businesses, CMRC is endeavoring to create a network of interoperable marketplaces, trading communities and commerce portals called the Global Trading Web. The company has developed the Commerce One Solution to automate the procurement cycle between multiple buyers and sellers. The company also provides services including content management, order availability information, status tracking and transaction support. After recovering somewhat in late April, CMRC is following the B2B sector lower. Investor nervousness, prompted by fears of what the Fed will do with interest rates at its meeting next week is causing a general buying strike, and CMRC has not been immune from the weakening effect. After a brief pause at the 200-dma (just over $56), the decline continued this week, causing the stock to shed an additional $8.13. Volume had been declining for the past few days, but today saw it move up again to just under the ADV. That is just one more negative factor, given the extremely light volume in the broader market. CMRC is now sitting just above support at $46.50, and if this level fails, the stock may have trouble holding above $40. Overhead resistance sits at $52 and further pressure will likely come from the 5-dma,which is just over $53. Consider entries on either a violation of support or a failure to penetrate resistance. Keep an eye on the volume, as it should continue to confirm the strength of any move, whether up or down. ***May contracts expire in less than 2 weeks*** BUY PUT MAY-50*RJC-QJ OI=2128 at $5.50 SL=3.50 BUY PUT JUN-50 RJC-RJ OI= 100 at $8.13 SL=5.75 BUY PUT JUN-45 RJC-RI OI= 63 at $5.25 SL=3.25 Average Daily Volume = 4.86 mln /charts/charts.asp?symbol=CMRC EBAY - eBay, Inc. $121.19 -7.31 (-12.81 this week) Credit the founder, Pierre Omidyar's wife, Pam's need to buy and sell Pez dispensers to a wider audience as the seed of success for this undisputed leader in online auctions. eBay Inc. is now the world's largest and most popular person-to-person trading community on the Internet. eBay pioneered online person-to- person trading by developing a web-based community in which buyers and sellers are brought together in an efficient and entertaining auction format to buy and sell personal items such as antiques, coins, collectibles, computers, memorabilia and toys. The eBay service permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items in a fully automated, topically-arranged, intuitive and easy-to-use online service that is available 24 hours a day, seven days a week Unfortunately for eBay, they are experiencing technical difficulties of the stock chart type, not the site outages of last year. Nothing particularly wrong with the company (it is in the minority of profitable B2C and C2C companies) except that sequential revenue growth is falling (still over 30% though), which makes a $17 bln market cap harder to justify with only $13 mln in profit available to common shares. Much noise has been made too about the founder recently selling about $64 mln worth of his holdings, though that isn't the real issue with a few billion dollars still to go. No, the real issue is the technical breakdown below support today. Today was also the eighth day of sequential price declines. eBay has not closed this low since August 30, 1999 when it hit $119.44. Volume, while matching the ADV was also the highest in the last eight days. There is nothing left to hold EBAY up - no more earnings season or company stock events like earnings/split runs, the threat of higher interest rates, and an overall tech selloff - until its next level of support at $80, and earnings are not until July 25th. The stock has not been able to pull out of its last five days of descent either since falling below its 200-dma of $147, and the pace has accelerated. If eBay heads further south from here, feel free to take a position as long as the market remains in a sour mood. Otherwise, you can consider an entry if you see it bounce south of mild resistance at $125 or previous support at $130 (now presumably new resistance). ***May contracts expire in less than 2 weeks*** BUY PUT MAY-125*QXB-QE OI=103 at $11.25 SL=8.25 BUY PUT MAY-120 QXB-QD OI=165 at $ 8.25 SL=5.75 BUY PUT MAY-115 QXB-QC OI= 91 At $ 6.13 SL=4.00 Average Daily Volume = 3.3 mln /charts/charts.asp?symbol=EBAY SBL - Symbol Technologies Inc. $44.19 -3.81 (-5.56 this week) Symbol Technologies is the world leader in portable data terminals (50% of sales) and bar code scanners (40%). Its products retrieve data, such as product and price information, everywhere from the grocery store to the stock market. The company serves customers in such industries as warehousing and distribution, postal service, retail, and health care. The company has recently attempted to increase its distribution, reseller, and manufacturing channels. Investors have taken SBL to the checkout line recently. The problems for SBL began in late February when a large shareholder began selling massive blocks of stock. The 10% beneficial owner of SBL distributed over 3.5 mln shares of stock in less than a month. After the enormous liquidation, and sharp decline, SBL stabilized, and even rallied from its trading range lows. Then came the downgrade from Merrill Lynch, and SBL fell faster than before. Merrill downgraded the stock from a buy rating to an accumulate in late April. That warning sent investors running for the exit, as SBL stumbled. As if heavy insider selling and a downgrade weren't enough, traders now have to contend with the idea that SBL is overvalued at its current levels. The now infamous Barron's article placed heavy pressure on second-tier tech stocks such as SBL. What's more, there are rumors circulating trading desks that a professional short-selling firm has targeted SBL. Though just rumors, the volume Tuesday suggests that there were far more sellers than buyers for the day. Tuesday's 8% decline places SBL just above its critical support level of $43. Below that level, SBL will find support again at $40, but not much thereafter. Look for an entry if SBL falls through support at $43, confirm a move lower with heavy volume. A more conservative trader might wait for SBL to cross $40 before entering into the play. If investors decide a relief rally is in order, SBL will face major resistance at $48, where you might find another good entry point. BUY PUT MAY-50 SBL-QJ OI=27 at $6.38 SL=4.50 BUY PUT MAY-45*SBL-QI OI=22 at $2.81 SL=1.50 BUY PUT JUN-50 SBL-RJ OI=59 at $7.63 SL=5.25 Average Daily Volume = 724 K /charts/charts.asp?symbol=SBL ********************* PLAY OF THE DAY - PUT ********************* SNE - Sony Corporation $213.38 -5.94 (-8.19 this week) If you like to be entertained, Sony has your fix. Its PlayStation home video game system alone accounts for about 11% of the electronics and entertainment giant's worldwide sales. As the #2 consumer electronics firm, SNE makes a host of products including cameras, DVD players, MiniDisc and Walkman stereo systems, computers, TVs, and VCRs. Rounding out the company's assets are Columbia TriStar and record labels Columbia and Epic. Most Recent Write-Up What do you get when you combine poor earnings, a rocky new product launch, negative currency issues and a weak stock market? If you said a put play, you were right. After the strong run up in advance of the Playstation2 release, SNE was looking great. After the much-publicized problems with their new game unit though, investors took their money elsewhere. Then the company reported earnings along with a forecast of increasing revenues and decreasing profits in an already negative market. More investors jumped ship and the downtrend is continuing this week. Support near $220 failed to hold and this morning the stock plunged to $212.25 before finding support. Volume remains light, near 50% of the ADV, as buyers sit on their hands in advance of the Fed meeting next week. The lower highs and lower lows pattern remains intact, indicating that SNE may have further to fall. Support could be stronger near today's lows, which are near the bottom of the big gap up that occurred in late December. Look to initiate new positions if SNE rolls over at resistance at $216 and then $220. More conservatively, wait for a move down through today's low and then jump on board for the trip down. Comments With the techs falling out of favor for the moment and the lack of good news for SNE, this stock very well may slide to its 200-dma of $201. That's our goal. Today, SNE found support between $212 and $213. Targetshoot on intraday spikes and remember that the trend is your friend. ***May contracts expire in 2 weeks*** BUY PUT MAY-220 SMW-QD OI=144 at $11.00 SL=8.75 BUY PUT MAY-210*SMW-QB OI=143 at $ 5.88 SL=3.25 BUY PUT MAY-200 SMW-QT OI=294 at $ 2.75 SL=1.25 Average Daily Volume = 396 K /charts/charts.asp?symbol=SNE ************************ COMBOS/SPREADS/STRADDLES ************************ Will We Test The April Lows? Monday, May 8 The Nasdaq posted a triple-digit loss Monday amid concerns over valuations in technology stocks. The composite index plummeted 147 points to 3,669.38, pulled down by Cisco, the market's most heavily weighted issue. Industrial stocks managed slim gains, aided by strength in financial and major drug stocks. The Dow rose 25 points to end at 10,603. Broad market measures trended lower, with the S&P 500 Index sliding 8 points to 1,424. Volume suffered with only 783 million shares traded on the NYSE, a new low for 2000. The Nasdaq also logged its slowest session of the year with 1.139 billion shares traded. The U.S. Treasury 30-year bond fell 24/32, pushing the yield up to 6.25%. Sunday's new plays (positions/opening prices/strategy): Applied Mat. AMAT MAY70P/MAY80P $1.00 credit bull-put Antec ANTC MAY65C/MAY60C $0.75 credit bear-call Scm Micro. SCMM MAY75P/MAY80P $0.88 credit bull-put Smith INtl. SII MAY70P/MAY75P $0.50 credit bull-put Best Foods BFO MAY65C/MAY60P $2.88 credit strangle Today's slump in technology issues provided a number of favorable opportunities in our new spread positions. Unfortunately, with the concerns of over-valuation, many of the bullish issues may suffer additional downside movement in the coming sessions. Portfolio plays: The market ended mixed today as technology stocks slumped while industrial issues rallied, helping to offset the worries over the upcoming FOMC meeting. Fear of the unknown was the major reason for the sell-off with most analysts expecting the volatility to continue until the interest rate decision is announced. As the day of reckoning moves closer, confidence that the Fed will move rates up by 50 basis points is growing and some experts believe that will be a motive for another rally after the news is public. Additional data on retail sales and inflation pressure at the wholesale level is due out later this week and for that reason, most traders are waiting patiently on the sidelines for the next trend to emerge. Based on today's activity, it appears that the market has already factored in a 50-basis-point move next Tuesday. In the broad market, healthcare, oil issues and airline stocks advanced but trading volume hit lows for the year, continuing a recent lull ahead of key earnings reports and upcoming economic data. Our portfolio was a mix of slumping technology stocks and bullish safety issues. The top sectors were Finance, Oil Service and Major Drugs. Johnson & Johnson (JNJ), Sepracor (SEPR), and Warner Lambert (WLA) led the Spreads/Combos section as investors moved back into safe-haven stocks. The rally in JNJ propelled the issue to a recent high and with the bullish outlook, we adjusted the position up and out to the next strike at $90. Our LEAPS/CC's play is now a JAN85C/JUN90C at $8.25. The Oil Service Industry issues; Halliburton (HAL), Nabors (NBR), Tuboscope (TBI) and Unocal (UCL) all moved higher and banking stocks; Bank One (ONE) and Summit Bancorp (SUB) also participated in the rally. Today's surprise was the rally in Magna International (MGA). Our bullish calendar spread on the issue is now profitable and with the stock trading at a recent high, our next move will be to take profits or roll the play to June options. Tuesday, May 9 Technology stocks tumbled ahead of key earnings reports and the upcoming FOMC policy-meeting. The Nasdaq Composite dropped 84 points to 3584. Industrial stocks also faltered in a session characterized by very thin volume. The Dow ended down 66 points at 10,536. The S&P 500 Index fell 12 points to 1412. Trading was light on both the Nasdaq and the NYSE. The Nasdaq saw 1.45 billion shares traded while the Big Board exchanged 893 million shares. The bond market rose with the 30-year U.S. Treasury up 13/32 while the yield dropped to 6.22%. Portfolio plays: The majority of stocks fell lower today in a subdued session that was plagued with comments about the valuation of technology issues. The downdraft in the Nasdaq pulled other market indices lower and even with the thin volume, there was little optimism for a rally in the near-term. With additional economic data due out Friday and the next meeting of the FOMC a week away, trading activity has been slow. In fact, Monday's session was the quietest of the year. In the broad market, investors continued to reduce their holdings of hi-tech issues, storing their money in traditional safety stocks such as Major Drugs and Food Makers. Oil Industry Service companies have also performed well with the price of crude oil recovering to recent highs and real-estate holding companies (REITS) are beginning to attract attention with the anticipated rate hike. Our portfolio continues to offer a mixed bag of results with most technology stocks slumping while Oil, Major Drug, Food and Bank issues enjoyed small rallies. One of the most surprising issues of the day was Ocular Sciences (OCLR) which rebounded $1.43 to $17 after Wesley Jessen VisionCare received a "best and final" offer from Bausch & Lomb (BOL) to buy the contact-lens maker for $35.55 per share in cash. Bausch made its first bid for the company in March in a move to block Wesley's proposed merger with Ocular Sciences but Wesley has since announced that the initial pact will ultimately be included in any new merger and that discussions were taking place with a third party. Today's move may be short-lived depending on Wesley Jensen's reply so monitor the proceedings on a daily basis. Another speculative issue continued higher during the bearish session. Magna International (MGA) rose $1.06 to $50 and the bullish issue appears poised for further upside movement after breaking through a recent resistance area near $47. Our new calendar spread position has doubled in value in just under one month and it may be prudent to take those profits now. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - NEW PLAYS - ****************************************************************** BSX - Boston Scientific $28.31 *** On The Rebound! *** Boston Scientific is a worldwide developer, manufacturer and marketer of minimally invasive medical devices. Their products are used in a broad range of interventional medical specialties including cardiology, electrophysiology, gastroenterology, neuro-endovascular therapy, pulmonary medicine, radiology, urology and vascular surgery. Their products are generally inserted into the human body through natural openings or small incisions in the skin and can be guided to most areas of the anatomy to diagnose and treat a wide range of medical problems. These products provide effective alternatives to traditional surgery by reducing procedural trauma, complexity, risk to the patient, cost, and recovery time. Medical device manufacturers have been on the rebound in recent months after posting strong first-quarter profits with solid double-digit top-line growth. Boston Scientific's revenues for the quarter came in just as expected, and the company delivered on the earnings line while adding an optimistic outlook for the future. The company made progress in a number of areas such as cost control and inventory management. They are also preparing a group of promising products for launch in the second quarter and throughout the year. The approval of the NIRŪ with SOX(TM) coronary stent system late in the first quarter was a bonus and the company expects to see the financial benefit in the second quarter. International sales growth was also excellent and the company delivered strong results while extending their lead in key overseas markets. Technically the Medical Device industry is starting to rally and it appears that many of the issues, including Boston Scientific, have excellent upside potential. With the long-term outlook of this position, the probability of profit is high and a favorable risk/reward ratio exists for those who like to participate in time selling strategies. PLAY (conservative - bullish/diagonal spread): BUY CALL JAN01-22.50 ZSX-AX OI=987 A=$8.62 SELL CALL JUN00-30.00 BSX-FF OI=816 B=$1.50 INITIAL NET DEBIT TARGET=$6.88-$7.00 TARGET ROI=50% Chart = /charts/charts.asp?symbol=BSX ****************************************************************** FLC - R&B Falcon $24.06 *** Technical Break-out! *** R&B Falcon provide marine contract drilling and other oilfield services. R&B furnishes the equipment and personnel for drilling wells and conducting operations on wells in marine environments. Work-over operations involve efforts to repair damage to, or stimulate production from, an existing well and most of their rigs are capable of providing both drilling and workover services. The company owns and operates power vessels and barges used to transport and store equipment and material. These assets are primarily deployed in the barge rig business and are used to move barge rigs to their operating location, transport materials and personnel to barge rigs, and provide storage adjacent to barge rigs. R&B also engages in providing such equipment for ocean transportation of materials and in connection with marine construction projects. Oil stocks rallied again this week, lifted by news of the oil workers strike in Norway and the belief that OPEC members won't boost production anytime soon. A general strike among workers in Norway is the country's first major labor walkout in more than a decade, making it difficult to assess its affects on the market. Additionally, Algerian oil minister Chakib Khelil said that OPEC might raise production toward the end of the year, implying that a hike in output at the cartel's summer meeting is unlikely. Saudi Arabia also voiced doubts of an OPEC hike in June, giving an additional lift to the price of crude. In short, oil prices could climb this month based on three factors; the Norwegian labor strike, increased seasonal use of gasoline and the rising Asian demand for crude oil. Companies in the Oil Service group have been on the move in recent weeks and most industry analysts believe the trend will continue. The industry is said to be in the early stages of an up-cycle that should eclipse the rally of the mid-90's, in terms of earnings and share value performance. Based on the technical condition of most stocks in that group and the recent bullish earnings, that outlook appears to be correct. With R&B's price break-out on heavy volume, the character of the issue firmly supports the fundamental optimism and it appears there is little to hold the share value down in the short-term. PLAY (aggressive - bullish/debit spread): BUY CALL JUN-17.50 FLC-FW OI=3885 A=$7.00 SELL CALL JUN-22.50 FLC-FX OI=3711 B=$3.25 INITIAL NET DEBIT TARGET=$3.50-$3.62 ROI(max)=42% B/E=$21.12 Chart = /charts/charts.asp?symbol=FLC ****************************************************************** ATHM - ExciteAtHome $19.94 *** Reader's Request *** At Home Corporation (@Home) provides Internet services over the cable television infrastructure and leased digital telecom lines to consumers and businesses. The company currently offers two Internet services: @Home for consumers and @Work for businesses. ATHM's technology foundation of the @Home Experience is their national Internet network; a parallel Internet that optimizes traffic routing, improves security and consistency of service, and facilitates end-to-end network management. The content foundation of the @Home Experience is provided by the company's @Media group, which aggregates content, sells advertising to businesses and provides premium services to @Home subscribers. For businesses, ATHM's @Work provides managed connectivity for Internet, intranet and extranet solutions over a variety of transport media including the cable infrastructure and leased digital telecommunications lines. Implied volatility in options rocketed Tuesday on web-access provider ExciteAtHome as the stock price gyrated on confusing takeover talk. The company's share value rose over $10 at one point as comments by the CEO of cable systems operator Comcast (CMCSA) were construed by the media as an offer to buy AT&T's (T) controlling stake in the company. Options volume ballooned on the news, far eclipsing the average daily turnover. After the announcement, an Excite@Home spokesperson reported that Comcast had not submitted a bid of any kind, and analysts suggested that the comments behind the speculation were taken out of context. One of our readers requested a play on this issue and strangely enough, situations like these often result in bullish outcomes even when the rumors eventually prove incorrect. The renewed attention simply brings optimism to the share value and with the short-term technical bottom near $17, this play may indeed have merit. Our approach will be to "target shoot" the entry at a slightly lower debit and hope for a small consolidation before the issue moves higher. This position is based on recent increased activity in the stock and underlying options. The position offers favorable risk/reward potential for those who are bullish on the issue but as with any speculative play, it should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (speculative - bullish/debit spread): BUY CALL JUN-15.00 AHQ-FC OI=69 A=$6.12 SELL CALL JUN-17.50 AHQ-FW OI=357 B=$4.12 INITIAL NET DEBIT TARGET=$1.75-1.88 ROI(max)=32% B/E=$16.88 Chart = /charts/charts.asp?symbol=ATHM ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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