The Option Investor Newsletter Thursday 6-8-2000 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) ****************************************************************** 6-08-2000 High Low Volume Advance Decline DOW 10668.70 - 144.20 10823.70 10635.70 849,391k 1,334 1,587 Nasdaq 3825.56 - 13.70 3890.02 3797.41 1,394,997k 1,822 2,125 S&P-100 785.33 - 5.80 794.03 782.73 Totals 3,156 3,712 S&P-500 1461.67 - 9.69 1475.65 1456.49 46.0% 54.0% $RUT 514.54 - 2.00 519.63 513.59 $TRAN 2750.68 - 46.67 2798.55 2746.49 VIX 25.71 + 0.52 26.87 25.40 Put/Call Ratio .40 ****************************************************************** It was not pretty but the Nasdaq held the line. Everything was going according to the plan until the Dow opened down this morning. The Nasdaq continued to consolidate with a small pull back on Wednesday morning, rallied right on cue into the close with a strong finish at 3835. Moving past 3800 was our buying signal and with the gap open this morning it looked like we were right on target. The odor you smelled during the day was the Dow. The Dow gapped down over -100 points and then traded sideways for the rest of the day. We tested 10650, under 10700 support, twice today. The Dow stink from lack of deodorant sales by PG, caused Nasdaq investors to hold their nose and not their stock today and the index bled points all day accelerating just before the close. The tone was set before the open as Proctor & Gamble warned that they would miss earnings substantially for the second quarter in a row. The reasons given were over aggressive growth, restructuring, sales targets too aggressive and new brands with no name recognition. It was odd they did not blame anything on the Fed which would have been a natural scapegoat. Instead the CEO resigned after seeing the stock price drop by half in the last five months. 35 points of today's Dow drop was due to the drop in PG stock. Microsoft tried to help. On the day after the judge reacted as expected with a breakup demand the stock opened up +$2 but lost ground during the day as dueling analysts argued over the impact of the verdict. Some are calling it dead money while others still maintain price targets between $100 and $140. I vote for the $140 level to maximize value on my leaps! Adding to the Dow slide was the financial sector. Investors afraid of more rate hikes are moving money back into the tech sector and out of financials. This is a no-win situation. No real long term rally has ever materialized without help from the financial stocks. JPM led the drop with a -4.38 loss. Motorola had their estimates cut by -.01 shortly after 11:AM and promptly lost -$3 intraday but appeared to find a bottom at $35.50. It was only one analyst and only -.01 but the impact was dramatic. On a side note, did anyone see Ron Ensana on CNBC last Tuesday report that growth estimates for NSM had been cut to only +6% to +8%? I saw it and reported the estimate drop in the Tuesday newsletter. But, I had several readers write in and ask me where I got the info and when I went to the news services I could not find any confirmation. None, zero, zip, nada. Did anybody else see this or was I day dreaming in the Twilight Zone? I am serious, if you heard this or have any news links for it, I would love to see them. The PG warning today was a big, ugly, highly visible event. This should be ample sign that we are moving into that trying period called earnings warnings season. PG was not the first and surely will not be the last. The problem is the current rate hike scenario. Of the past six rate hikes only two have really been felt in the economy. Fully 9-12 months is required to see the impact of any rate increase. The last four are nowhere near being felt yet and the Fed is still on the firing line with at least one increase left in their gun. This means a total of five hikes still have to filter down from the Fed level. This equates to weaker profits, higher unemployment and lower stock prices. Since the market discounts events in advance the future hike still needs to be factored into stock prices. The Fed can almost raise rates in June for free since it is almost a 100% chance according to analysts. This would be seen as the last hike and clear the decks for the rest of the summer and fall. With an election in progress the Fed is not likely to want to take any further action until after the winner is known. The only unknown now is the +.25% or +.50% discussion. With the PPI scheduled for Friday the Fed watchers will be looking for signs that will dictate the size of the rate increase. The PPI is expected to be +.2% and anything in that range would only rate a +.25% hike. The PPI is a leading indicator for the CPI next week and a tame number tomorrow would point to a tame number on the CPI as well. The sell off today was probably heightened by cautious investors moving to the sidelines with some of the +26% Nasdaq gains since June began. Historically today's close would have been bullish and the lack of a closing rally today is confusing. The Nasdaq did hold over 3800 and I think that is bullish. The Nasdaq has been trading in a 170 point range since the big gains last week and it is showing no signs of a sell off. I like that! The longer we hold at 3800 the more support we will create. When we do start moving up from here it is likely to be explosive. The strong moves by many independent stocks is a sign of growing investor optimism. Pray for a tame PPI and CPI and the bottom will definitely be behind us. Good luck and sell too soon. Jim Brown Editor Current long positions include: NOK, VOD, VIGN, MSFT, YHOO *********************** Regional Seminar Series *********************** Technical Analysis, Stock and Option Seminar Three days of indepth education. The next seminar is a three day event in Los Angeles on June 22-24th. We guarantee you will not be disappointed. The class size is only 20 so you will get plenty of individual attention from Chris Verhaegh and the staff. At less than the cost of a bad trade you can learn how to analyze stocks and trade options like the pros. Don't wait, do it now. Future Seminars June 22-24 Los Angeles 3 day June 27-28 Washington DC 2 day July 13-15 New York 3 day July 21-23 Seattle 3 day July 27-29 Atlanta 3 Day Aug 11-12 Pittsburg PA 2 day Aug 17-19 Orlando 3 day Aug 24-26 Dallas 3 day Aug 28-29 Detroit 2 day http://www.OptionInvestor.com/seminar/seminar.asp ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** **************** MARKET SENTIMENT **************** Thursday, June 8, 2000 Don't Fight the Tape! Stocks finished on a sour note Thursday, thanks to an earnings warning from Proctor & Gamble as well as the Microsoft verdict. The Dow slumped -144 points, while the NASDAQ gave up minor gains to close slightly in the red. Volume was lighter than average, as many traders are preparing for Friday's Producer Price Index. Earnings warnings continue to come in at an above average rate this week, as Circuit City, Electronics for Imaging, Proctor & Gamble, Lands End, and H&R Block have all warned of poorer times ahead. Electronic Data Systems (EDS, -5 3/8) earnings were trimmed by several major brokerage firms today as well, which is a nicer way to lower the expectation bar than by having the company prerelease later in the quarter. However, the result is usually the same, but the means differ. Now, we are still a few weeks away from the major prerelease season, but if the early going is any indication, we may have a large number of corporations missing expectations this quarter or indicating some pessimism about future quarters. Regardless, for those of you who don't fight the tape (Greenspan), the tape may be truly indicating a slowing economy. Obviously, we'll have more information after tomorrow, and there are several key indicators next week, but the early tally seems to be indicating that the rate hikes are working, and when looking at the bond market, they seem to be indicating that rate hikes may already be done with. We'll have more data to digest very shortly, but enjoy Friday's trading action, as it may be the most active day of the week! BULLISH Signs: Interest Rates (5.875): With the long bond breaking below the crucial 6% benchmark, fears of higher rates may finally be subsiding. NASDAQ Short Interest: As of May 15, the level of short sales not yet closed out, known as short interest, climbed 4.80% to 2,780,161,105 shares. With the tame inflation numbers posted this past week, it was quite evident that a major short squeeze was occurring. Volatility Index (25.71): The VIX has proved that the low 30's are an excellent buying opportunity, and the low 20's continue to be a great selling opportunity. Mixed Signs: None BEARISH Signs: Slowing Economy: If the economy is truly slowing down, we will start feeling the effects once corporate earnings report over the next couple of quarters. This has just occurred as Circuit City, Electronics for Imaging, Proctor & Gamble, and Lands End all warned of slower growth ahead. 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: $58.6 billion of stock was freed up for trading in March, $67.3 billion April, 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. ***************************************************************** 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 (6/2) (6/6) (6/8) ***************************************************************** Overhead Resistance (805-825) 24.20 25.40 15.35 Overhead Resistance (775-800) 5.74 2.25 2.36 OEX Close 792.69 783.39 785.43 Underlying Support (745-770) 1.28 1.45 1.77 Underlying Support (715-740) 3.47 3.89 5.10 What the Pinnacle Index is telling us: Both overhead resistance and support are light, indicating that the OEX can move 15 points in either direction with relative ease. However, both OTM support and resistance are strong, indicating that these levels should hold. Put/Call Ratio ***************************************************************** Friday Tues Thurs Strike/Contracts (6/2) (6/6) (6/8) ***************************************************************** CBOE Total P/C Ratio .41 .47 .40 CBOE Equity P/C Ratio .32 .41 .36 OEX P/C Ratio 1.18 1.08 1.36 Peak Open Interest (OEX) ***************************************************************** Friday Tues Thurs Strike/Contracts (6/2) (6/6) (6/8) ***************************************************************** Puts 740 / 8,382 740 / 8,897 720 / 8,910 Calls 800 / 6,553 800 / 8,703 795 / 8,988 Put/Call Ratio 1.29 1.02 0.99 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 June 8, 2000 25.71 ************** MARKET POSTURE ************** As of Market Close - Thursday, June 8, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,200 11,400 10,670 Neutral 5.05 SPX S&P 500 1,350 1,500 1,462 Neutral 5.30 OEX S&P 100 725 800 785 Neutral 5.30 RUT Russell 2000 450 550 515 Neutral 5.05 NDX NASD 100 3,000 4,000 3,707 Neutral 5.30 MSH High Tech 800 1,050 1,006 Neutral 6.06 XCI Hardware 1,250 1,600 1,496 Neutral 5.30 CWX Software 1,050 1,300 1,281 Neutral 6.06 SOX Semiconductor 850 1,200 1,143 Neutral 5.30 NWX Networking 900 1,100 1,136 BULLISH 6.02 INX Internet 500 800 616 Neutral 5.30 BIX Banking 530 600 601 BULLISH 6.01 XBD Brokerage 400 500 478 Neutral 5.05 IUX Insurance 540 620 644 BULLISH 5.16 RLX Retail 850 1,000 863 Neutral 6.02 DRG Drug 355 400 376 Neutral 4.28 HCX Healthcare 710 800 771 Neutral 4.28 XAL Airline 140 155 167 BULLISH 5.25 OIX Oil & Gas 265 300 310 BULLISH 5.11 Posture Alert A negative earnings announcement by Proctor & Gamble and the Microsoft verdict sent the Dow lower Thursday, as traders used these events as excuses to clear positions ahead of Friday's Producer Price Index. The recent trading range will most likely be tested tomorrow, as a heavy weighting on the economic indicators will propel this market in either direction. There are no current changes in posture. ************** TRADERS CORNER ************** Vroom Vroom! Well...Not Quite That By Molly Evans Are we going to tank or are we going to get on with it? We need to know these things. It's just dumbfounding the number of conflicting views concerning market direction in print and press. I'm so sick of the noise. CNBC is turned on in the early morning and off at the opening bell when Maria starts screaming out initial numbers. I watch the market. It tells the tales. Higher highs and higher lows in selected issues, unconvincing volume overall and definable trading ranges. Oh come on institutions! You know you want a bite! Got all that money under your tufts and you think us lemmings are going to crater it for you so you get better entries, eh? We're holding it up on our own. Nobody sell! If this market does actually find its bull legs, I don't know if I'll be able to write for you. It's been such a headache in the marketplace since I started writing about it. I'm afraid I wouldn't know what to say. You wouldn't know me anymore! Last week was confusing early on. We had been told by those in the know that we'd retest lows, stay low, and that everyone was on vacation. Well, they must have phoned orders in from their sunny beachside lounges. The NASDAQ advanced 800 points. Ok fine. I turned the TV back on. I promised the kids we'd go bowling or to the pool because I'd have discipline to not bargain hunt since the sale would still be there when I got back. Hmmph! Wait a sec boys, go wait in the car, I just have to see something here. Here comes Joe Battipaglia. "Interest rate hikes are done. The good numbers being seen in this market are a result of the public's confidence of a good economy and sound federal policy. We'll see the NASDAQ at 5500, the Dow at 12,500 and the S&P at 1625 by year end. The Fed need not be feared. We're going to have a huge summer rally. Go 40% tech and pharmaceutical stocks, 20% financials, 20% consumers and durable goods. We've retraced the lines of advancement back to November of '99 and we should be smooth on out to the end of the year." That was the essence of his message. Next up...Harry Dent, author of "Roaring 2000's". Oh, he's a bull alright but surprisingly enough he was saying that this correction would go further. We'd find trading ranges in the 3100 - 4100 range for a bit on the NASDAQ and (gulp) a tank down to the upper 7000s for the Dow was not out of the question. But don't despair, unless you're holding summer option contracts because the Dow will still be a conservative 25,000 by January 2009. The high estimate is 35,000 for that date. Wow. I liked Roger McNamee of Integral Capital Partners best. This guy talks in a language I understand. He basically said that there were a lot of sound and solid companies whose stock prices had seen tremendous correction. In view of the economy, the forecasts for their future and the exciting time of technological advancement we're in right now, there are many good buys in the marketplace. He said that now is not the time to be a hero and they weren't interested in calling a market bottom. Instead, they just wanted to be buying it. I loved that. Me too. It's interesting that the VIX is stuck right in the middle of it's customary range too. I think that the VIX is just like all the forces of the media, half on this side and half on the other. VIX means "Voice Index," doesn't it? Every commentator makes convincing arguments and I can be swayed by whatever I'm reading or listening to at the moment. Anyone can make his or her point sound logical, as there are a lot of "facts" out there to support each theory. Depending what you believe, it can make for either some great entry points or catch you in a plain ol' lousy trap. Personally, I'm impressed by the number of stocks in various sectors that are breaking out of their trading ranges and setting up to burst out of their bases. It's happening, we just need to get the broader market to quit being all jittery about every little number that's due out in the next day or two. Today, it's tomorrow's PPI. Then, it'll be Tuesday's CPI or something else after that. Aarrgghh! Enough already. If you're in a quandary and don't know what to do...well, you've heard it a thousand times here...when in doubt, stay out. A summer rally would be rather nice for everyone's mental health, but then again...that might be too "pretty"; we haven't gotten to enjoy many gifts in the first half of this year. Safe is on the sidelines. In my own little world, I've always got that bit of doubt. Yet, each day I'm becoming more and more of a bully and I simply can't keep myself out of the quarrel. We've given back precious little ground to that tremendous run last week and it looks like we're just digesting those gains. Investors hate to think that they're buying the very tip of a rally, so a little give back in the frontrunners is very healthy for continued strength. That's fine as long as it isn't overdone. On the flip side, it's summer: a typical time for the stock market to go to sleep as traders are all too happy to take their profits. Let's say I'm just cautiously optimistic. I'm certainly not in up to my neck, but I'm not playing front month contracts either. That little insidious sick feeling of fear leaving the screen unattended is slowly dissipating as the markets behave a little more rationally now. Fingers are crossed and the boys are in the car waiting to go to the pool. It's really nice to be able to leave without having too much fear that you'll return home to find you're worth half of what you were when you left. Continued good fortune to all of you. Contact Support ************* READERS WRITE ************* Regarding: Calculations for Covered Calls - Monthly Returns.... Dear OIN, I am a relatively new subscriber and trying to understand the Covered-Call section of your site. How do you calculate the monthly return on your covered call picks? When I plug your numbers into the covered-call calculator on the investor advantage site I get much lower numbers for profit. Your monthly returns seem inflated to me. Am I missing something? Your insight is much appreciated. Thanks, I look forward to hearing from you. ----- Concerning Covered-Call Returns (ROI): Return On Investment (ROI) for covered calls is determined by two circumstances, Return if Called (RC), and Return not Called (RNC). Most traders use RNC to evaluate plays since there is no assumption made on the movement of the underlying equity. Essentially, you take the net premium received and divide it by the cost basis. The cost basis is the cost of the stock minus the premium received which is the amount of equity tied up for the duration of the play. For in-the-money (ITM) RC, net premium is the option premium 'minus' the difference between the cost of the stock and the strike price. RNC is the same as RC since the sold strike is already in the money...and this is the best return possible. ITM example: XYZ @ $12.00, strike = $10.00, option premium = $2.50 net premium = 2.50 - (12 - 10) = 0.50 cost basis = 12.00 - 2.50 = 9.50 RC = 0.50/9.50 = 5.26% after multiplying by 100. RNC = the same. For OTM (out-of-the-money) RC, the net premium is the option premium 'plus' the difference between the cost of the stock and the strike price, and assumes the stock will move up! OTM RNC uses just the option premium and assumes the stock price remains unchanged. OTM example RC: XYZ @ $12.00, strike = $12.50, option premium = $1.00 net premium if called = 1.00 + (12.50-12) = 1.50 cost basis = 12.00 - 1.00 = 11.00 RC = 1.50 / 11.00 = 13.64% RNC = 1.00 / 11.00 = 9.09% (stock price unchanged). Since all of our recommendations are ITM, which fits with our very conservative approach, and no stock movement is required for maximum profit, we just show a monthly-based return. To calculate a monthly return: divide the potential return of the covered call by the number of days to expiration, multiply by 365, and then divide by 12. A return of 4% for 20 days equates (4 / 20 * 365 / 12) to a 6.1% monthly return. Our goal is to target 5% (without margin) each month. Good Luck! OIN PS: We have a free calculator for Covered Calls, Naked Puts and other combination strategies available for download. ************* DAILY RESULTS ************* Index Last Mon Tue Wed Thu Week Dow 10668.72 20.54 -79.73 77.29 -144.14 -126.04 Nasdaq 3825.56 8.38 -65.37 82.89 -13.70 12.20 $OEX 785.33 -1.94 -7.36 7.74 -5.80 -7.36 $SPX 1461.67 -9.63 -9.79 13.52 -9.69 -15.59 $RUT 514.54 0.27 -1.65 4.89 -2.00 1.51 $TRAN 2750.68 -29.02 -33.80 30.81 -46.67 -78.68 $VIX 25.71 0.79 0.24 0.05 0.52 1.60 Calls Mon Tue Wed Thu Week MUSE 146.00 0.69 3.44 4.50 12.38 21.00 New BRCD 151.38 3.50 1.38 10.75 1.75 17.38 Remarkable PDLI 142.00 8.38 4.38 9.13 -5.00 16.88 Biotech ABGX 112.00 4.00 9.81 -4.69 6.69 15.81 New RMBS 229.75 -3.38 -12.00 11.50 16.25 12.38 Splitter HGSI 117.56 7.56 8.50 -5.88 1.44 11.63 New YHOO 144.00 2.81 -2.25 9.44 -0.50 9.50 Earnings EXDS 94.50 -0.13 -4.94 7.81 4.63 7.38 Momentum ITWO 135.00 5.69 -7.81 11.25 -3.25 5.88 Volatile ADI 94.69 -1.75 -2.38 3.75 6.06 5.69 Nice move CMTN 94.19 -0.50 2.00 1.19 2.56 5.25 New GLW 213.00 2.12 6.25 -6.00 1.75 4.13 At support RBAK 116.13 1.00 -7.56 11.31 -1.19 3.56 Entry?? SEPR 112.00 8.06 -6.25 0.75 0.63 3.19 Biotech MU 80.75 1.94 -4.19 -1.06 4.00 0.69 Earnings TQNT 111.88 2.75 -9.13 0.69 3.19 -2.50 Semi play CIEN 135.13 -4.69 4.25 -6.44 3.69 -3.19 Fiberoptic CHKP 226.25 -17.69 -10.06 15.06 5.25 -7.44 Climbing SCMR 101.75 -7.06 -0.94 -2.50 2.25 -8.25 Use caution MERQ 83.50 0.31 -7.75 0.13 -1.63 -8.94 Dropped SDLI 250.00 -8.38 3.00 3.06 -8.06 -10.38 Still up Puts CTXS 51.56 2.25 -5.44 4.44 -8.13 -6.88 New MMM 81.75 0.75 -2.75 -0.56 0.00 -2.56 Falling CAH 63.00 -1.44 0.81 0.56 -0.50 -0.56 Still weak MRK 69.31 0.25 0.41 0.91 -1.19 0.38 Dropped BUD 78.69 1.69 -0.19 2.56 1.63 5.69 Dropped 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: ***** MERQ $83.50 -1.63 (-8.64) The reason we're dropping MERQ is simple, yet very disappointing. OIN added this potential powerhouse because of its ability to make the money. Unfortunately as it turned out, we weren't able to get a solid entry into the play. The quick spike through resistance during amateur hour on Monday was a head fake. For those just joining us, the ensuing slide did bring MERQ to an optimum entry level by Tuesday, but the following days didn't produce even a small bounce, never mind a solid move through the 5-dma ($87.76), for upward confirmation. Therefore, we have no choice but to exit this play tonight. If you keep an eye on the company news, Mercury Interactive and Akamai announced that they're teaming up their respective technologies and forming a strategic alliance to maximize how Web properties manage and evaluate site performance. PUTS: ***** BUD $78.69 +1.63 (+6.00) Perhaps investors got thirsty during the dry spell this week, and maybe it was an upbeat analysts meeting that one of its competitors held Tuesday. Although the volume hasn't really been stellar shares of BUD have managed to gain about 8% this week. The move up looks as though it could have more room to go. Coors came out late Tuesday saying they are anticipating better earnings and revenues, which seem to have ignited a fire under BUD as well. It could be just a head fake, but for now the momentum seems to have switched to the bulls. If strength returns to the broad markets, BUD could become a whipping boy again, but for now we will focus our efforts elsewhere. MRK $69.31 -1.19 (+0.38) Wednesday's announcement that research at Merck identified an enzyme that plays a key role in the chemical process thought to cause Alzheimer's disease, has put an end to our play in the drug company. Experts warned the research won't lead to a quick new treatment, but did seem to bring a few buyers back to the market. Although MRK did fall back over 1.5% today, the 50-dma at $69.12 did provide support. The other reason it's time to say so-long to this play is it simply isn't going anywhere. With so many other opportunities, we will turn our attention elsewhere for now. ******************** PLAY UPDATES - CALLS ******************** GLW $213.00 +1.75 (+4.13) Like our Play of the Day write-up suggested Wednesday, GLW shot out of the gate Thursday morning. The stock continued to rally through the morning, reaching an intraday of $217.94. However, the weakness in the tech sector finally reached GLW and dragged the stock lower through late-day trading. GLW briefly dipped below support at $210, but rallied back above that level in the final moments of trading Thursday. JP Morgan helped our cause by reiterating its Buy rating on GLW and raising its profit estimates. Also, GLW lined up two more contracts in past two days. LightSpeed Network announced it would use GLW's technology to build a fiber optic network and Telergy said it planned to deploy GLW's MetroCor to create a broadband network in the Northeastern US. The fundamentals are in place for a rally, if we get cooperation from the economic data released Friday morning, GLW could move higher. Target shoot for entry points Friday morning if GLW rallies and momentum returns to the stock. A conservative trader might wait for GLW to clear resistance in the $217 range or again at $220. Consider your risk level when picking an entry point. ITWO $135.00 -3.25 (+5.88) ITWO rallied Wednesday on the heels of positive analyst comments made by ING Barings. The brokerage house reiterated its Strong Buy rating and raised its earnings estimates for fiscal 2000. Additionally, ITWO said Wednesday that it had joined forces with ARBA to provide technology services for an e-marketplace for the computer, electronics and telecom industries to be called E2Open.com. The rally pushed ITWO past resistance at $135 Wednesday afternoon. ITWO stumbled at the opening Thursday, and continued to slide throughout the day. It appears the stock fell victim to profit taking combined with weakness in the tech sector as their was no news to induce the selling. ITWO dipped below $135 twice Thursday, but managed to climb back above resistance in the final hour of trading. If the tech sector rallies Friday morning, you might consider entering the play at current levels. Otherwise, wait for a strong move above resistance at $140 for a more conservative entry point. CIEN $135.13 +3.69 (-3.19) CIEN struggled in Wednesday's trading as the telecom equipment sector drifted lower. After the closing bell Wednesday, Robertson Stephens suggested buying CIEN, saying the company received heavy traffic at the SuperComm 2000 conference. Additionally, SG Cowen added their two cents by reiterating their Strong Buy rating on the stock and saying they see no slow down in the demand for CIEN's products. After the bullish comments from analysts Wednesday evening, CIEN gapped higher by $4 Thursday morning. The stock then fell into a trading range between $132 - 136, ahead of the PPI report Friday. CIEN did manage to climb towards the high-end of its range in the final ten minutes of trading Thursday in conjunction with a spike in volume. Watch closely for an entry point Friday morning if CIEN rallies above $136. If the stock stumbles, watch to see if support holds at $132, and consider an entry if CIEN bounces from that level, but make sure to confirm direction in the sector. SEPR $112.00 +0.63 (+3.19) After closing near its support levels Tuesday, SEPR slid during Wednesday's trading. The stock did provide a nice entry point Wednesday afternoon after establishing solid support at $110 and bouncing higher into the close. SEPR slightly extended its gains Thursday by showing impressive relative strength despite the profit taking seen in the Biotech sector. The stock edged higher in mid-day trading, ahead of the company's presentation at the PaineWebber Life Sciences conference Thursday afternoon. We didn't hear any official comments from analysts after the meeting. But, we'll look for any positive announcements Friday morning that may act as a catalyst for SEPR. The stock ran into resistance twice at the $114 level Thursday. If we get a positive PPI report Friday morning, you might consider an entry if SEPR breaks out above $114. A more conservative entry point might be found if SEPR rallies above $118 on healthy volume. BRCD $151.38 +1.75 (+17.38) Defying gravity after Tuesday's bearish candle formation, BRCD moved higher all day yesterday. Continuing higher with the open today, the stock succumbed to selling pressure, but held nicely above $148. Tuesday's high of $147.50 is looking like it will provide support going forward, as investor nervousness in the tech sector appears to be dissipating ahead of the upcoming PPI/CPI reports. BRCD's pattern of higher highs and lows, which began in late May, is still intact and the stock is continuing to stay above the 5-dma (currently at $142.25). Resistance at $155 is proving to be a difficult level to scale without market strength backing it up, but benign PPI/CPI numbers could be just the catalyst for BRCD to break out to the upside. It is encouraging to see the stock hold onto its gains, especially with the solid trading volume seen all week. Aggressive traders can consider new entries on a renewed bounce from the $147-148 level, although any market weakness could cause a retest of support between $138-140 before the upward move can continue. TQNT $111.88 +3.19 (-2.50) Everybody loves an entry point! The late-day weakness on Tuesday had dissipated by the open on Wednesday, and TQNT headed higher from the $100 support level (then the site of the 10-dma). Continuing strength early today acted to push the stock back above $110, where it spent the rest of the session consolidating. The market was fairly quiet today, as investors wait for tomorrow's PPI report, which will hopefully provide more evidence that the economy is slowing. This would make it harder for the Fed to raise interest rates at its June meeting, and if the recent cycle of rate hikes comes to an end, investors could have a party as they put their cash to work again. TQNT found resistance early in the week near $120, but a benign PPI report could be just the ticket to push prices through this level. We'd like to see the $110 support level hold going forward, but intraday weakness could cause a retest of support at $100, giving us another attractive entry point. Consider target shooting intraday dips, but pay attention to volume and the direction of the overall market. It won't do to try catching a falling knife if investor sentiment deteriorates. RBAK $116.13 -1.19 (+3.56) On Wednesday, sellers showed up early and sold RBAK, just like we thought. But, the good news was that the bears could only take the stock down to $105 before the bulls bellied up to the table. At midday, they lifted RBAK from those levels and it soared to close just off its highs, while breaking through previous resistance at $115. While RBAK briefly dipped through $115 today, it managed to hold that level for the most part. Support at $105 appears to be solid, but that gap from last Friday still remains. Covering that gap would take RBAK to the $100 level. Resistance is fairly light on the upside and if the market decides to rally tomorrow on the PPI number, RBAK could see clear sailing to $125. Look for entry on pullbacks to support levels at $110 and $105. A move through $120 with decent volume would be confirmation of a continued uptrend. Yesterday in the news, Telica, a broadband switching system developer, announced a strategic relationship with, and an investment by RBAK. This will strengthen RBAK's market presence, yet tomorrow's trading will be dictated by the PPI number and the broad market's reaction. SCMR $101.75 +2.25 (-8.25) After weakness on Wednesday when the stock slipped to $95, SCMR bounced from that level. It traded as high as $107.88 and retreated with the broad market, bouncing several times at $100. SCMR has seen a sideways trading pattern throughout the week, showing a lack of conviction before the PPI number due out tomorrow. That will be the driving catalyst for the direction on Friday. News of the Sirocco deal had little impact on the actual stock price. If the market reacts positively to the PPI, this incredible two-week rally may continue. Look to enter the play on any intraday dips. More conservatively, a move through the 100-dma at $104.80 would be opportunistic. If the market heads south after the PPI, watch to see if $95 holds as support. Bounces from that level with volume spikes would provide good entry. Yet, keep in mind that an aggressive sell-off tomorrow may result in closing that gap from last week. That would bring SCMR to $90, and a bounce from there certainly would provide a great entry into this call play. YHOO $144.00 -0.50 (+9.50) We mentioned last weekend we would like to see our play break through the $140 area and hold. Late today, YHOO traded down to $140.50 when traders began to once again enter buy orders. The move up on Wednesday in the broad markets, showed Yahoo! join in quite nicely with the volume exceeding 10.3 million shares. Wednesday's bounce off of $135 ended up providing traders with a chance participate in a better than $12 move. Today proved to be a bit of a grind, although the $0.50 loss came on light volume suggesting the short-term trend could remain intact. The pullback today could very well have been setting up for a repeat performance from last Friday, if the economic data due out in the morning is positive. Overall YHOO has held up very well, considering the profit taking that was expected to take place this week. Technically overhead resistance comes in at the 50-dma at $152.12 with the support at $140 and the 200-dma now sitting at $135.98. SDLI $250.00 -8.06 (-10.38) Very few stocks ever go straight up, without stopping to catch their breath. That seems to be the case with SDLI. SDL made a new high on Monday and has spent most of the week back-filling. While it can sometimes be a bit nerve-wracking its a natural course of events. Some analysts are questioning whether SDLI and many of the Nasdaq stocks can regain the momentum that began late last week. At this point several technical indicators suggest we could see more of a pullback or profit taking. However as we've pointed our before, technical indicators don't buy stock, investors do. If a positive sentiment returns, the bulls will more than likely be standing in line to add shares of SDLI to their portfolio. A plus for our play shows the area between $242 and $245 providing good support the past two days, although the volume was a little light with only 3.3 million shares traded today. If we see strength in the morning, we would look for a pullback and bounce prior to entering a new play RMBS $229.75 +16.25 (+12.38) Some analysts suggest the strength RMBS and others in the chip sector is due to increasing consumer demand for PCs. As one commentator today said when describing today's better than 7% move, "Well it's Rambus, what else can you say." RMBS has recently began to find buyers willing to test the waters. Some suggest since its fall from $471 in early March, the chip company is a screaming buy at current levels. The move through $220, on just under 6.0 million shares certainly suggest there may be more of the same ahead. We believe the current momentum is probably more a result of the upcoming 4-for-1 split, which is scheduled for June 15th. Another plus for our play showed up on Wednesday when RMBS fell below the $200 level and not only found buyers waiting in the wings, but in pretty good numbers as well. Need another sign of the strength? With the bulls taking the day off in many of the Nasdaq stocks and at the NYSE, RMBS found more traders ready to put their money on the line going into the last thirty minutes of the session, which is definitely a plus. Support is now found at $220, 215 and could be viewed as potential entry point should we see any profit taking. CHKP $226.25 +5.25 (-7.44) Our play in CHKP managed to buck the trend today. Chat room participants indicated the strength came on the heels of another virus warning for consumers who receive e-mail on their telephones. As we've mentioned most when word of a virus is in the air. Check Point and others seem to do well for a few days. Whatever the reason behind the move it certainly hasn't gone unnoticed by the brokerage companies. This morning analysts at Robinson-Humphrey initiated coverage of Check Point with A Buy rating. The twelve month price target came in at $280.00, according to Wayne Johnson III, the analyst initiating the coverage. So what's in store for our play? Today's close is just $10 below last Friday's high. With wholesale inflation numbers due out in the morning, we believe the our play could be on track to challenge last weeks high. If for some reason the data is negative, then we would stand back and be observers rather than participants in the session tomorrow. Technically support shows up at the 5-dma at $220.58 and near $217.00. EXDS $94.38 +4.50 (+7.25) Another rebound by EXDS! In two sessions, the share price shot up 15%, or $12.31 in heavy trading. Near-term support is established at $85 and $87, yet today EXDS first tested the waters at $90, then $93. So what's behind the momentum of this strong recovery play? Yesterday it hit the press that shareholders approved an increase in the company's number of authorized shares of common stock to 1.5 bln. The runway is now clear for the previously approved 2:1 stock split to commence! EXDS will split on or about June 20th. So let's put on our rocket suits in anticipation that traders' excitement will propel the stock back into space. Separately, Exodus announced that Don Casey joined the company as President and COO and Sam Mohamad was promoted to President of Worldwide Sales and International Field Operations. If you're interested in finding an entry into this play, be cautious ahead of the economic data. Look for intraday pullbacks to the 5-dma (currently at $87.95) and watch for the bounce. The overall market will play a significant role in trading over the next few days, so be patient for an entry. ADI $94.69 +6.06 (+5.69) After hitting the wall at the $90 mark yesterday, ADI quickly returned to the fast track today. Taking off with a bang, ADI accelerated to a higher level of short-term support at $92. Then our racer steadily made its way to the winner's circle with another all-time high! ADI shattered Friday's record of $95.31 by almost a full point when it sprinted to $96.25 on robust volume towards the end of the trading day. Yesterday, a big player in the industry, Texas Instruments (TXN), forecasted acceleration in 2Q revenue growth as a result of an explosion in wireless communications. While this announcement didn't effect ADI directly it's good news for chipmakers. And ADI tooted its own horn today. Not only is Analog Devices the fastest growing DSP supplier, but also it just came out with a new member of its DashDSP Family, the ADMCF5xx, which is based on breakthrough low power and ADI's distinguishing flash memory. Good news always makes for a more favorable momentum play as is evident by ADI's recent progress in the markets. But let's not forget the importance of overall conditions. There's economic data to consider as well as normal cycles. Granted ADI is pumping up its share price with style, but support is still firmer at the lower levels of $85 and $87, which is just below the rising 5-dma ($88.89). So be choosy of where you enter this play in the upcoming sessions. And if ADI doesn't make a pit stop, expect some resistance at the illusory $100 mark. MU $80.63 +3.88 (+1.38) Analysts comments can surely pump up investor's interest. Earlier in the month it was Dan Niles powerful comments that initiated this momentum run. And again today another analyst put in his two cents. Gregory Mischou at UBS Warburg LLC reiterated his Buy rating and issued a 12-month target price of $110. Shares of MU traded as high as $80.94 before settling for a strong close just a fraction from the daily peak. Still the number to beat is Monday's all-time high of $82.50. Resistance is formidable at this level, so conservatively look for a break through here before opening any new positions. For those who are betting the company's earnings' release during the week of June 19th will generate another run-up, perhaps you too may want to play more on the side of caution. The current level at the 5-dma at $79 is indeed a nice launching point. Although if there's a pullback in front of the economic reports, then $74 and $75 are more likely to hold up as firm support. PDLI $142.00 -5.00 (+16.88) The renewing sentiment amongst the Biotechs in the past couple weeks sent PDLI on sizzling pace to recovery. Coming from devastating lows of $93 and $95 at the end of May, PDLI developed a clear uptrend advancing an astonishing 52.7%, or $49 in record time. So it's not too unnerving to see PDLI give back a few dollars today. The share price too has held firm at a higher support level of $140 and $142 in recent days. Perhaps the Strong Buy reiteration and $309 price target issued by analyst Matthew Geller of CIBC World Markets helped sustain PDLI. Nonetheless, the stock is rising to the occasion. If you want in, consider target shooting intraday for quick in-and-out moves at these levels. Or else, play it safe. Be patient and look for pullbacks to the $135- 137 range, near the rising 5-dma ($137.10) then enter on a definitive bounce. Although even this strategy doesn't provide a safeguard against a reversal. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter Thursday 6-8-2000 Copyright 2000, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. ******************* PLAY UPDATES - PUTS ******************* CAH $63.00 -0.50 (-0.56) Watching grass grow is more exciting than watching the CAH chart this week. Support and resistance levels at $61 and $64 respectively, are keeping the stock tightly corralled and investor interest has been anemic. Volume is only hitting 50-60% of the ADV, as investors appear to be waiting for direction from tomorrow's PPI report. This apathy has infected the whole Pharmaceutical sector, so use the sector direction as a confirmation before initiating new positions. An increase in volume will also provide some confirmation of investor sentiment towards CAH. The 10-dma ($64.13) has now rolled over and will likely pressure the stock price going forward. Consider new entries as CAH rolls over near the $64 resistance level. More cautious investors may want to wait for a drop through $61 to confirm the stock's weakness before playing. MMM $81.34 -0.00 (-2.56) MMM barely saw the upside of $83 in early trading on Monday and has since edged lower. If you didn't catch an entry off that rise, then unfortunately $82 proved to the only choice. As it turned out, this mark is now serving as strong overhead resistance. A definite pattern of lower-lows and lower-highs is evolving since MMM's insidious tumble under historical support of $84 on Tuesday. Volume levels are still only at average levels, but the downward moves are nonetheless encouraging. We're still anticipating further downdrafts in coming sessions. Storm clouds are brewing ahead of the economic reports and MMM is technically poised to move lower. Stack as many odds in your favor - confirm market sentiment and stock direction before adding new positions. ************** NEW CALL PLAYS ************** CMTN - Copper Mountain Networks $94.19 +2.56 (+5.25 this week) Copper Mountain develops and markets a comprehensive family of DSL solutions that enable high-speed internetworking over existing copper facilities. The company's mission is to enable carriers and other service providers to offer a full range of high-performance, cost-effective data and voice services over DSL that are easy to deploy, manage and use. A leader in DSL communications products for telecommunications and Internet service providers, CMTN sells its products directly (77% of sales) and through manufacturers and distributors. The company has partnerships with 3Com and Lucent, with Northpoint Communications accounts for about 40% of CMTN's sales. CMTN managed to hold its own rather well while the rest of the tech sector continued to deteriorate after the April earnings cycle. What kept the stock afloat? Strong growth in the company's client base helps, but the real key seems to be the strong earnings growth (beating April estimates of $0.11 by a full 9 cents). After bouncing near the 200-dma (then at $57) in mid-April, CMTN showed its true colors by beginning to scale the wall of worry built up in investors' minds. After moving as high as $92 in early May, the stock began to consolidate its gains in deference to concerns about the economy. After falling back to confirm support near $70, CMTN has moved up strongly over the past 2 weeks, and today's trading pushed the DSL provider through the $92 resistance level. The 5-dma (currently $90.75) is supporting the stock's rise over the past 2 weeks, with the 10-dma perched comfortably at $85.88 (just below longer-term support at $86). Increasing volume accompanied the move until Tuesday, when investors began standing aside, allowing volume levels to atrophy while they wait for the latest round of economic numbers (PPI on Friday and CPI on Tuesday). As long as the stock remains strong and the economic numbers are benign, consider intraday pullbacks to support near $86 to be good entry points. A more conservative approach will be to wait for the return of strong buying volume to push the price through resistance at $95. Expectations for a summer rally are increasing and CMTN looks poised to participate in a big way as July earnings approach. CMTN likely got an added boost this week from its positive showing at the this week's Supercomm 2000 conference in Atlanta. On Tuesday, Paul Johnson of Robertson Stephens raised his 2000 earnings estimates from $0.91 to $0.93, citing strong financial performance and the company's growing customer base. ***June contracts expire next week*** BUY CALL JUN- 90 KUA-FR OI=1834 at $ 7.63 SL= 5.25 BUY CALL JUN- 95 KUA-FS OI= 826 at $ 4.75 SL= 2.75 BUY CALL JUN-100 KUA-FT OI= 368 at $ 2.94 SL= 1.50 BUY CALL JUL- 95*KUA-GS OI= 87 at $11.63 SL= 8.75 BUY CALL JUL-100 KUA-GT OI= 141 at $ 9.75 SL= 6.75 BUY CALL SEP-100 KUA-IT OI= 159 at $16.13 SL=11.50 SELL PUT JUN- 90 KUA-RR OI= 118 at $ 3.00 SL= 5.00 (See risks of selling puts in play legend) Picked on June 8th at $94.19 P/E = 199 Change since picked +0.00 52-week high=$115.00 Analysts Ratings 3-5-0-0-0 52-week low =$ 26.13 Last earnings 04/00 est= 0.11 actual= 0.20 Next earnings 07-18 est= 0.22 versus= 0.05 Average Daily Volume = 1.60 mln /charts/charts.asp?symbol=CMTN ABGX - Abgenix Inc $112.00 +6.69 (+15.81 this week) Abgenix uses genetically engineered mice to develop antibody theraputics for inflammatory and autoimmune disorders, cancer, and transplant-related conditions. The company's four antibody products use the XenoMouse technology, which Abgenix bought from Japan Tobacco. Treatments for disorders, cancer, and psoriasis are in clinical trials. The company has alliances with Millennium Pharmaceuticals, Pfizer, and Amgen. Who's afraid of a little mouse? ABGX isn't! The company has developed a technology that uses the cells of mice to create humanized monoclonal antibodies. There are a lot of companies in the biotech arena that need ABGX's technology. Because of the huge demand for its technology, ABGX's management decided to license it as much as possible. And with management's savvy decision, ABGX is on the fast track to profitability, unlike many biotech companies. There's no hiding the fact that the biotech sector has taken investors for a wild ride this year. After the massive sell-off in the sector last spring, Wall Street is re-examining the prospects of leading biotech firms. ABGX has caught the eye of analysts because of the company's increasing cash flow which should lead to profitability within one year and its $500 mln in cash on its balance sheet. The company's strong fundamentals helped carry the stock higher from its April lows. As Wall Street re-embraces the biotech sector, ABGX could lead the rally higher as momentum builds within the group. The stock is in the process of emerging from a three month consolidation, and with Thursday's rally, ABGX is poised for a breakout. The stock will face resistance at $115 before moving higher. After that level, ABGX will again face congestion at $120. Consider your risk tolerance and look for entry points as ABGX clears its various resistance levels. The stock has had a nice run since late June, if the profit takers spoil things look for ABGX to find support at $110 and again at $105. If the stock does retreat, consider an entry if the bulls step in and buy the dip as they have done in the past, confirm direction before doing so. Analysts love ABGX's management team and its shrewd business strategy of licensing its technologies to more than 20 partners, which could eventually lead to royalties on as much as $5 bln in sales. The company is estimated to have over 250 target uses for its technology, which in theory would give ABGX one of the broadest pipelines in the Biotech sector. ***June contracts expire next week*** BUY CALL JUN-105 AXY-FA OI=43 at $13.00 SL= 9.75 BUY CALL JUN-110 AXY-FB OI=50 at $ 9.00 SL= 6.25 BUY CALL JUL-110*AXY-GB OI=13 at $18.25 SL=13.25 low OI BUY CALL JUL-115 AXY-GC OI= 0 at $16.25 SL=11.50 Wait for OI! BUY CALL OCT-120 AXY-JD OI= 6 at $27.50 SL=19.00 low OI Picked on June 8th at $112.00 P/E = N/A Change since picked +0.00 52-week high=$206.50 Analysts Ratings 3-3-0-0-0 52-week low =$ 7.38 Last earnings 03/00 est= -0.11 actual= -0.09 Next earnings 07-27 est= -0.05 versus= -0.11 Average Daily Volume = 783 K /charts/charts.asp?symbol=ABGX MUSE - Micromuse Inc $146.00 +12.38 (+21.00 this week) Founded as a network management solutions reseller, Micromuse today is a leading provider of real-time fault and service- level management software. Its Netcool suite helps telecommunications and Internet service providers ensure the uptime of network-based customer services and applications. The company's software is used in the OSS and NOC centers of many of the world's leading service providers such as AOL, Cellular One, and Charles Schwab. When the NASDAQ said "jump", MUSE asked "how high?". That was back on May 30th and ever since, MUSE's been a loyal constituent. Rising out of the trenches at $80, to an easy passage through tough resistance at the $100 level, prompted momentum and technical traders alike to join the ranks. The slew of new clients and upgraded services shouldn't go unnoticed either. MUSE is, without doubt, a leader in its sector. In the past two days alone, MUSE got the attention of analysts. First Wendell Laidley at CSFB reiterated his Strong Buy recommendation and issued a target price of $150. And yesterday, Hampton Adams at CIBC World Markets initiated new coverage with a Strong Buy rating. Today's break out of its mild consolidation sparked our interest. We're adding MUSE simply as a pure momentum play. After marching through all the technical DMAs with confidence last week, MUSE continued to cover more ground. Granted the next few trading sessions may be treacherous, but we're betting MUSE will rise above the others. Of course, don't buy too soon. Wait for the signals: advancers beating decliners, positive market sentiment, and stock direction for starters. Near-term support is much lower than today's close. But $125 and $130, in the proximity of the 5-dma ($131.89) should hold firm, so look there for possible entries. As mentioned above, Micromuse announced the addition of new clientele in the past week. Urban Media selected Micromuse's Netcool(R) software to manage its nationwide voice and data network as well as did Demon, an Internet service provider in the UK. Also the leading communications company, Cable & Wireless, selected it to provide real-time monitoring of its Web hosting center in London. The new center, which is one of Europe's largest, will have the capacity to host every Web site currently running in the UK. In other news, Micromuse and Singlepoint LTD, a leading provider of critical event notification software, announced an agreement to integrate Singlepoint's AlarmPoint natural language network event notification system with the Netcool suite. But the company's big news is the availability of Netcool/OMNIbus for Voice Networks(TM), a real-time fault monitoring solution designed specifically for carrier-class network environments. ***June contracts expire next week*** BUY CALL JUN-125 UZQ-FE OI= 0 at $13.50 SL=10.00 BUY CALL JUN-130 UZQ-FF OI=16 at $19.25 SL=14.00 BUY CALL JUL-140 UZQ-GH OI= 7 at $22.20 SL=17.50 BUY CALL JUL-145 UZQ-GI OI=12 at $20.00 SL=14.50 BUY CALL JUL-150 UZQ-GJ OI=25 at $11.38 SL= 8.50 BUY CALL JUL-155 UZQ-GK OI 0 at $ 9.75 SL= 6.75 Picked on June 8th at $146.00 P/E = N/A Change since picked +0.00 52-week high=$206.00 Analysts Ratings 8-5-0-0-0 52-week low =$ 18.63 Last earnings 03/00 est= 0.07 actual= 0.08 Next earnings 07-19 est= 0.09 versus= 0.05 Average Daily Volume = 654 K /charts/charts.asp?symbol=MUSE HGSI - Human Genome Sciences $117.56 +1.44 (+11.63 this week) Human Genome Sciences, Inc., founded in 1992, is a pioneer in the use of genomics, the study of all human genes, and the development of new pharmaceutical products. They are a leader in moving these genomics-based drugs into patient-based clinical trials. In 1999, three HGS drugs were tested in patients. Their goal is to become a global pharmaceutical company that discovers, develops, manufactures and sells our own genomics-based drugs. If you follow HGSI then you know it's been a volatile ride for investors in the genomics company. Since the first of the month HGSI has gained about 35%. After its fall from a high of $232 in early March, investors began testing the waters in mid April and into early May. After the decline its seems as though traders were less willing to jump back into a company that had made many a small fortune during its run to unprecedented levels earlier this year. It's the kind of the "burn me once shame on you, burn me twice shame on me" mentality, that has gripped not only the Biotech sector but the broad markets as well. Last Friday with the better than expected economic data one of the stocks that attracted better than expected attention was HGSI. HGSI has managed to climb another 15% this week. It has been and still is a favorite among some of the fund managers that spend their money and time focused on bio-tech stocks. One of the most widely noticed funds has been the Fidelity Select Fund, which has gained approximately 18.4% year to date. One of its top holdings? You guessed it HGSI. HGSI has also received recognition from the analysts this week. One from Merrill Lynch, who upgraded the company from a Long-term Accumulate to a Long-term Buy. AG Edwards initiated coverage of the company with an accumulate rating, and a $140 to $150 price target. They called the genomics company a top pick, due to the recent enthusiasm for the company and the industry as a whole. So how do we approach our new play? HGSI's low today was near its 100-dma at $113.98. Support is also seen near $107. If we see any profit taking either level could provide a good entry, on a bounce supported by good volume. If the economic data due out in the morning is positive, HGSI could continue to climb up the chart. If that's the case we would then look for opportunities to buy calls. ***June contracts expire next week*** BUY CALL JUL-115 HHA-GC OI=245 at $21.25 SL=15.50 BUY CALL JUL-120*HHA-GD OI=389 at $19.13 SL=13.75 BUY CALL JUL-125 HHA-GE OI=150 at $16.88 SL=12.25 BUY CALL OCT-120 HHA-JD OI=256 at $33.13 SL=24.00 BUY CALL JAN-120 HHA-AD OI=204 at $41.63 SL=30.00 SELL PUT JUL-115 HHA-SC OI= 50 at $17.25 SL=24.00 (See risks of selling puts in play legend) Picked on June 8th at $117.56 PE = N/A Change since picked +0.00 52 week high=$232.75 Analysts Ratings 1-5-2-0-0 52 week low =$ 19.38 Last earnings 04/00 est= -0.33 actual= -0.35 Next earnings 07/27 est= -0.21 versus= -0.05 Average daily volume = 2.22 mln /charts/charts.asp?symbol=HGSI ************* NEW PUT PLAYS ************* CTXS - Citrix Systems $51.56 -8.13 (-6.88 this week) Supplying application server products and technologies that enable effective and efficient enterprise-wide deployment and management of Microsoft Windows applications is Citrix Systems' core business. The company's MetaFrame and WinFrame product lines, developed under license and strategic alliance agreements with Microsoft, permit organization to deploy Windows applications without regard to location, network connection, or type of client hardware platforms. It's products are marketed through multiple indirect channels such as distributors, value-added resellers and original equipment manufacturers in the United States, Europe and the Asia-Pacific region. Unable to dodge the weakness in the broad technical markets over the past 3 months, CTXS is being further pressured by its close association with the beleaguered giant, Microsoft. The NASDAQ recovery last week helped to lift the stock off its early-May lows near $40, but the continuing jitters related to the MSFT judgment was too much, and the sellers prevailed. Running into resistance at $62, CTXS began declining on Tuesday and today was then things got truly ugly today. The stock gave up over $8 on heavy volume, nearly triple the ADV, and closed under the $55 support level. Today's decline also puts the price under the 200-dma ($57.38) and this opens the door for a retest of support at $45, followed by $39, near the lows from a month ago. The MSFT situation will likely continue to create downward pressure, so look for entry points as the stock rolls over near $55 again. There is tenuous support near $49, and a more conservative entry strategy would be to wait for sellers to push the price below this level before playing. Volume will be key to our play, so use it as your guide for both entry and exit points. When the selling begins to abate, it will likely be a sign that the downward momentum is beginning to slow. ***June contracts expire next week*** BUY PUT JUN-55 XSQ-RK OI=1182 at $5.75 SL=3.75 BUY PUT JUN-50 XSQ-RJ OI=1298 at $3.00 SL=1.50 BUY PUT JUL-55*XSQ-SK OI= 104 at $9.00 SL=6.25 BUY PUT JUL-50 XSQ-SJ OI= 125 at $6.25 SL=4.25 Average Daily Volume = 5.98 mln /charts/charts.asp?symbol=CTXS ********************** PLAY OF THE DAY - CALL ********************** PDLI - Protein Design Labs $142.00 -5.00 (+16.88 this week) Protein Design Labs develops human and humanized monoclonal antibodies to prevent and treat diseases. The FDA approved the company's first humanized antibody product, Zenapax (daclizumab), for the prevention of kidney transplant rejection and there are seven other antibodies in the developmental pipeline. Global patents have been issued for the PDLI's humanization technology and currently they have business agreements with Eli Lilly and Genentech. Most Recent Write-Up The renewing sentiment amongst the Biotechs in the past couple weeks sent PDLI on sizzling pace to recovery. Coming from devastating lows of $93 and $95 at the end of May, PDLI developed a clear uptrend advancing an astonishing 52.7%, or $49 in record time. So it's not too unnerving to see PDLI give back a few dollars today. The share price too has held firm at a higher support level of $140 and $142 in recent days. Perhaps the Strong Buy reiteration and $309 price target issued by analyst Matthew Geller of CIBC World Markets helped sustain PDLI. Nonetheless, the stock is rising to the occasion. If you want in, consider target shooting intraday for quick in-and-out moves at these levels. Or else, play it safer. Be patient and look for pullbacks to the $135-137 range, near the rising 5-dma ($137.10) then enter on a definitive bounce. Although, even this strategy doesn't provide a safeguard against a reversal. Comments What a great week for PDLI and the biotechs! Simply put, the entire market will be nervously awaiting the PPI number due out at 8:30am EDT. The broad market will set the trend for the day. With the NASDAQ closing at 3825, any test of 4000 should spark some profit taking. Keep this level in mind if you are intraday trading PDLI in order to determine when this market may turn around. ***June contracts expire in 1 week*** BUY CALL JUN-140*PQI-FZ OI=590 at $12.88 SL=10.25 BUY CALL JUN-145 RPV-FI OI= 16 at $10.25 SL= 7.50 BUY CALL JUL-145 RPV-GI OI= 7 at $23.75 SL=18.50 BUY CALL JUL-150 RPV-GJ OI= 19 at $21.63 SL=16.75 SELL PUT JUN-125 PQI-RV OI= 12 at $ 2.75 SL= 4.25 (See risks of selling puts in play legend) Picked on June 4th at $125.13 P/E = N/A Change since picked +16.88 52-week high=$338.00 Analysts Ratings 2-2-3-0-0 52-week low =$ 18.25 Last earnings 03/00 est=-0.04 actual= 0.04 Next earnings 08-04 est= 0.19 versus=-0.14 Average Daily Volume = 1.41 mln http://www.optioinvestor.com/charts/charts.asp?symbol=PDLI ************************ COMBOS/SPREADS/STRADDLES ************************ Wake Me When Something Happens... Wednesday, June 7 Strength in technology and financial stocks helped the market rally today in another session characterized by light volume. The Dow closed up 77 points at 10,812 and the Nasdaq ended 82 points higher at 3839. The S&P 500 Index added 13 points to end at 1471. Trading volume on the NYSE was 851 million shares, with advances beating declines 1,619 to 1,297. Activity on the Nasdaq was slightly below average at 1.41 billion shares traded. Technology advances led declines 2,307 to 1,699. In the bond market, the 30-year Treasury rose 3/32 pushing its yield down to 5.89%. Tuesday's new plays (positions/opening prices/strategy): Interstate IBC OCT12C/JUN17C $3.88 debit diagonal Celgene CEGE JUL22C/JUL25C $2.00 debit bull-call Texaco TX JAN60C/JUN60C $4.75 debit calendar Texaco TX JAN45C/JUN60C $13.75 debit calendar Our new plays offered a mixed lot of opportunities during the subdued session. The Interstate Bakeries position did not reach our target debit but a relatively favorable entry was available near 1:00 P.M. There were two possible positions in Texaco; a bullish diagonal spread and a calendar spread. We currently have a long-term diagonal spread in the issue so we chose the latter. The target debit in the bullish calendar spread was observed near 10:00 A.M. Portfolio plays: The market moved higher today as investors shopped technology stocks in anticipation of a rally after the release of Friday's economic report. On the Nasdaq, biotech issues continued their recent ascent with shares of Immunex (IMNX) enjoying a surprise rally amid news the company received FDA approval for its new arthritis drug Enbrel. Semiconductor equipment stocks were also generally strong after Lehman Brothers said several the leading companies could benefit from significantly higher earnings over the next 12 months. Financial stocks also put in an impressive performance Wednesday after being pummeled Tuesday on the heels of negative comments from Merrill Lynch. Online brokerage issues rallied after Donaldson, Lufkin & Jenrette initiated coverage of the e-finance group and said that the recent dips have presented a buying opportunity. In the broad market, agricultural product and computer stocks advanced while building materials, electronic and metals and mining issues consolidated. Oil stocks were also lower after an impressive performance Tuesday. Our portfolio enjoyed a number of bullish moves in the technology group and many of the cyclical issues also rallied during the session. Vodaphone (VOD) and Covad Communications (COVD) were the hi-tech leaders while Medimmune (MEDI) topped the drug group with a surprising $2.38 move in its 5th consecutive day of gains. Nabisco (NGH) edged up another $1.25, taking center stage in the current Food and Beverage Group "merger wars" and remarkably, Campbell Soups (CPB) bounced back, up $2 to $31.62. Our bullish calendar spread achieves maximum profit at $32.50. The finance group performed well and our new bullish position, Paine Webber (PWJ) was the leader in that group, up over $2 to a recent high near $50. Allstate (ALL) moved $1.25 to close just below $30 and Bank One (ONE), Keycorp (KEY) and Summit Bancorp (SUB) also participated in the upside activity. The surprise of the day was Novoste (NOVT), which gapped to $44 on no news. Our bearish call-credit spread is short at $45 but the issue has yet to move above the technical resistance at that price. Based on previous rallies (followed by failures) and the current trading history, we expect the issue to consolidate in the next few sessions. Thursday, June 8 The market retreated today as investors displayed caution ahead of Friday's Producer Price Index. Concerns about the upcoming economic data sent the Dow Industrials into a dive with the Blue Chip average finishing down 144 points at 10,668. The composite of technology stocks also ended in negative territory, down 13 points to 3825. The S&P 500 fell 9 points to 1461. Activity on the NYSE was light at 854 million shares, with declines beating advances 1,595 to 1,344. Trading volume on the Nasdaq hit 1.39 billion shares, with declines edging advances 2,125 to 1,828. In the bond market, the U.S. 30-year Treasury rose 8/32, pushing its yield down to 5.89%. Portfolio plays: Industrial stocks fell precipitously today led by steep losses in Procter & Gamble (PG). The company warned of possible shortfalls in future earnings and investor concerns spread to other sectors. Traders sold for profit in chip, networking and computer hardware issues while financial and retail stocks pulled the Dow Average lower. Most of the major groups slumped with the exception of Oil Service stocks, which enjoyed favorable gains. The market consolidation was attributed to a simple "lack of participation" as traders moved to the sidelines to await the Producer Price Index data, due out on Friday. The chip sector kept the Nasdaq positive even as the Microsoft news weighed heavily on the computer sector. Shares of the software giant traded lower after Judge Thomas Penfield Jackson ordered the company to be split into two separate entities, one centered on the Windows operating system and another based on products in their application software businesses. The ruling places conduct restrictions on business negotiations and requires Microsoft to submit a break-up plan within 4 months. Technology stocks in our portfolio were relatively unaffected but there were some positive moves. Ditch (DITC) rallied $7 after Wednesday's big drop and our bullish credit spread has yet to require any adjustments. Globespan (GSPN) also rebounded from a recent slump and it appears that our call-debit position (near $90) may finish profitable. Excite@Home (ATHM) rallied almost $2 as new interest in web-based telephony made the headlines. IP telephony is the technology that allows consumers to place phone calls over data networks rather than traditional circuit-switched telecom networks and the unique technology is expected to be a strategic component to maintain site traffic for major Internet portholes. In the meantime, shares of consumer companies were under attack but Johnson & Johnson (JNJ) managed a small gain. Those of you interested in moving to the JUL-$85 calls have a new opportunity to sell the position for a favorable premium. Banks and finance stocks retreated today, relinquishing most of their recent gains. One analyst had an optimistic view however, commenting that the sector is simply consolidating after its recent healthy run-up. Today's slide in J.P. Morgan (JPM) helped our bearish position and once again, it appears that we are out of immediate danger. The issue that gave us such a scare yesterday, Novoste (NOVT) retreated to the middle of a recent trading range and for now, it is no longer a threat. Southdown (SDW) was our big winner, up $5 following a report that Portuguese cement group Cimpor (CMPR.IN) was preparing a new takeover offer for the company in alliance with Brazil's Votorantim. Southdown, which hired Lehman in March to help it explore a possible sale of the company, declined comment on the report in the Portuguese financial daily Diario Economico. The issue ended at $67 and our spread is at maximum profit above $55. Oil stocks also rallied and our top performers were Texaco (TX) and Falcon Drilling (FLC). The bullish position in FLC is once again trading at a favorable (closing) return. Don't let it get away! Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - This week I received two new requests for bullish credit spreads. With favorable disparities in the July premiums, these positions offer favorable returns for those who are bullish on the issues. ****************************************************************** NTAP - Network Appliance $85.31 *** Hot Networking Sector! *** Network Appliance and its subsidiaries are engaged in the design, manufacturing, marketing and support of high performance network data storage and access devices, which provide fast, reliable and cost effective services for data-intensive network environments. The company is a supplier of network attached data storage and access devices called "filers." Network Appliance's first filer product was specifically designed to improve the storage and accessibility of data stored on a network. Their products include entry-level filers targeted for workgroups and smaller application environments along with systems for larger departments; and a new enterprise class filer. The company also has an Internet caching appliance, NetCache, which achieves Internet bandwidth savings and improves performance by moving data closer to end-users. NTAP is one of the leading companies in the Networking group and fundamentally, they are near the top of the heap. Last month, the data access services provider reported earnings that were ahead of market expectations. The company said net income rose 128% in the first quarter to $24 million, up from $10 million a year earlier. Sales more than doubled to $200 million and based on the positive report, a number of brokerages upgraded the issue. Merrill Lynch, Needham, Solomon Smith Barney, SunTrust and A.G. Edwards all moved their future earnings estimates higher with bullish price targets. From our viewpoint, the sector outlook is excellent and the issue appears to have made a successful technical recovery, moving above a recent resistance area near $70-$75. It appears there is little chance the stock will test our sold strike during the next month in this bullish, low risk position. PLAY (very conservative - bullish/credit spread): BUY PUT JUL-60 NUL-SL OI=190 A=$1.62 SELL PUT JUL-65 NUL-SM OI=82 B=$2.12 INITIAL NET CREDIT TARGET=$0.62-$0.68 ROI(max)=15% B/E=$64.31 Chart = /charts/charts.asp?symbol=NTAP ****************************************************************** ASWX - Active Software $67.75 *** On The Move! *** Active Software is a leading provider of eBusiness infrastructure software that provides its customers with a platform to automate end-to-end business processes inside their enterprise, with other business-to-business trading partners and with customers over the Internet. Its unique ActiveWorks Integration System enables its customers to accelerate their time to market for products and services, enhance their relationships with customers, suppliers and partners and substantially reduce their online operating and information technology costs. Active designed the ActiveWorks Integration System to provide a highly flexible and adaptable eBusiness infrastructure that can be deployed quickly and changed easily in response to evolving business requirements. ASWX also partners with a broad range of system integrators and hardware, software and service providers in order to offer its customers a comprehensive eBusiness solution. This bullish issue has made significant gains in the last week and obviously, there is a potential for consolidation. The first test of technical strength will come near the January highs and as the stock pulls back to attempt a continuation rally, we expect the bottom will emerge near $45-$50. Our long-term outlook for the group is favorable and with leading B2B companies garnering new interest, Active Software should eventually finish in range near the trading boundaries defined earlier in the year (from $65-$85). PLAY (aggressive - bullish/credit spread): BUY PUT JUL-45 QGO-SI OI=0 A=$1.81 SELL PUT JUL-50 QGO-SJ OI=5 B=$2.68 INITIAL NET CREDIT TARGET=$1.00 ROI(max)=25% B/E=$49.00 Chart = /charts/charts.asp?symbol=ASWX ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** JNPR - Juniper Networks $238.00 *** Split Rally! *** Juniper Networks is a leading provider of Internet infrastructure solutions to Internet service providers and other telecom service providers. Juniper delivers next generation Internet backbone routers that are specifically designed for service provider networks. The company's flagship product is the M40 Internet backbone router. The M40 combines the features of the JUNOS Internet Software, high performance ASIC-based (application specific integrated circuit) packet forwarding technology and Internet optimized architecture into a purpose-built solution for service providers. Unlike conventional routers that are developed for enterprise applications and are increasingly inadequate for service provider use in public networks, Juniper's routers are specifically designed to accommodate the size and scope of the Internet. Juniper is on the move and the recent news that Nortel Networks (NT) is discussing a co-marketing arrangement with the company has bolstered the share value in recent sessions. The meetings are seen as an indication that the telecommunications equipment company is retreating from the competitive market for now, and that is viewed as a positive event for Juniper. Investors are also excited about the upcoming stock split. Shareholders have approved an increase in authorized shares which enables Juniper to effect a two-for-one split of the company's outstanding stock. The transaction will entitle each stockholder of record at the close of business on May 15, to receive one additional share on or about June 15, with the issue trading on a split-adjusted the next day. The recent activity has resulted in new interest in OTM options and we will use the current speculation to profit from slightly over-priced premiums with this relatively conservative, credit strangle. The probability of the share value reaching our sold strikes is rather low but the pre-split rally should continue through next week so monitor the position daily. If the issue moves through the resistance area near $300, we will simply buy the stock to cover our sold options, creating a bullish position. PLAY (conservative - neutral/credit strangle): SELL CALL JUL-350 JUD-GJ OI=78 B=$5.00 SELL PUT JUL-165 JUX-SM OI=43 B=$4.25 INITIAL NET CREDIT TARGET=$9.50 ROI(max)=21% UPSIDE B/E=$359.50 ($179.75) DOWNSIDE B/E=$155.50 ($77.75) Chart = /charts/charts.asp?symbol=JNPR ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************ See Disclaimer in section one ************
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