The Option Investor Newsletter Sunday 6-11-2000 Copyright 2000, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 6-9 WE 6-2 WE 5-26 WE 5-19 DOW 10614.06 -180.70 10794.76 +495.52 10299.24 -327.61 + 17.41 Nasdaq 3874.84 + 61.46 3813.38 +608.27 3205.11 -185.29 -138.65 S&P-100 779.70 - 12.99 792.69 + 56.61 736.08 - 16.87 - 8.72 S&P-500 1456.95 - 20.31 1477.26 + 99.24 1378.02 - 28.93 - 14.01 RUT 523.06 + 10.03 513.03 + 55.66 457.37 - 22.33 - 11.24 TRAN 2790.17 - 39.19 2829.36 +141.81 2687.55 - 54.45 -132.02 VIX 25.19 + 1.08 24.11 - 3.38 27.49 - 1.28 - 1.23 Put/Call .45 .41 .65 .89 ****************************************************************** The economy may be slowing but so are profits. These good news, bad news stories are killing us. The good news, the PPI was announced Friday morning and was unchanged from last month, which was lower than expected. Food and energy actually went down which surprised analysts. The market celebrated with the Dow soaring +95 points to 10763 with traders convinced that the Fed would not raise interest rates again. Party time, right? The bad news quickly deflated the rally balloon and sent traders to the sidelines again. The bad news was a flurry of earnings warnings from high profile companies. Warnings that prove the economy is slowing but call into question the most important aspect of stock prices, earnings. Without increasing earnings the entire market will grind to a halt and we have entered earnings warning season with a bang. Leading the parade today was McDonalds, which reported slowing sales of between -4% and -9% depending on the geographic area. MCD dropped almost -$5 to $31.63 on the news and knocked over -25 points off the Dow. If sales are slowing in this very low level consumer product then other areas are suspect. Analysts were divided on whether it was a sector problem or just a MCD problem. Still the results were the same, a drag on the Dow. Of course MCD is a food stock not a tech stock so who cares? It is strictly a sentiment reaction. The name is the key. A big name will elicit a big response regardless of the sector. Tech stocks were not immune either. EDS warned that revenue would fall into the low single digits but gains would continue to be made in cost savings and productivity improvements. OOPS! Not what investors want to hear. Making money by spending less is not music to investor's ears. EDS was punished severely with a -$14 drop. Retailers got hammered again with worries about sales at Walmart and Target after a warning from Lands End today. Dillards started the run with a huge earnings miss in May followed by news last week that sales were down again. Boise Cascade warned today after the close that slowing home sales and higher interest rates would cause it to miss estimates. This will further depress the wood and paper stocks on Monday. Financial stocks headed for the cellar again as analysts traded downgrades and concerns about profits going forward. JPM led the drop again with -4.19 followed by CMB at -3.19. Not to be out done, H&R Block, HRB, warned that earnings would not make estimates and dropped -$4 at the open. Almost every sector was represented today with even the hot biotech's having their own warning poster child. Mylan (MYL) warned they would miss estimates by about -50% and lost about -$7 at the open. We are just getting started in the earnings-warning season and the applications for ugliest contestant are piling up. Only one week into the season we have had PG, CC, MCD, EDS, HRB, LE, GPSI, MYL and several others I have already forgotten. As if the warnings were not enough, the follow on downgrades on the appropriate sectors are starting to take their toll. The economy is clearly slowing but that is a catch 22. The PPI report was flat from last month and the CPI is now expected to come in below estimates also. If it does it would be two months in a row that prices fell. Also, it is almost a given now that Retail Sales next Tuesday will come in less than expected and will mark the third month in a row that they fell. Isn't this what we want? Fed expert Lyle Gramley is now predicting no rise in June along with many others. If the Fed is on hold then why is the market falling? The earnings for the S&P-500 are still estimated to grow at +18% for the second quarter. This number has not changed recently but many think it is eminent. Ouch! It appears the Fed rate hikes are finally working too well. The old adage of don't fight the Fed is finally proving correct. Fed governor Poole said today that the Fed was in no hurry to change it's policy and would wait for a clear trend to emerge. While most think the Fed is on hold there is still noise from the Fed that maybe they still have a +.25% hike on their mind. They are probably thinking about this as an election year and don't want to be politically incorrect in raising rates the closer we get to November. By taking a last shot in June they risk over kill but also cement a no hike posture until after the election. Remember it takes 9-12 months to filter a rate hike through the system so we still have four working their way through. The challenge appears to be the profit squeeze. Companies are not able to raise prices due to the competition of the Internet even though their costs are going up. The great productivity of the Internet era meets the high price competition of the Internet era. The losers - corporate America and stock prices. The picture beginning to emerge is building overhead resistance. If profit estimates are going to start shrinking then prices are quick to follow. The tech stocks appeared to be immune to these problems this week with many adding decent gains even after a +20% tech gain last week. While the Nasdaq only managed a +61 points gain for the week it was still a gain while undergoing a consolidation. Unfortunately most of the gain was in the biotech sector but we will take it where we can get it. If it were not for tech stocks the Dow would have really been in the tank. HWP added +14 for the week and IBM added almost +11. This is +125 Dow points. Take those points out of the Dow and it would have been down over -300 points for the week to close under 10500. That is right I said 10500! Bear market rallies are short, sharp and die on low volume. The Nasdaq gained +800 points last week on only moderate volume. Friday the Nasdaq only managed 1.2 bln shares and the NYSE only 785 mln shares. While the volume was terrible the advance decline line was actually strongly positive. We have short, sharp and low volume but there is still an underlying positive sentiment. On Friday there was some institutional selling and no buying which drove down the prices. Retail buyers were still active. So what should we expect for next week? The right answer and $5,000 would pay for a Lexus by the weekend. We have two distinct possibilities. On the positive side you could point to the bullish wedge building on the Nasdaq, the strong advance- declines from today and the expected market friendly economic reports scheduled for next week and back up the truck. That would be quite a gamble but if you were right you could be amply rewarded. The key reports are the Retail Sales on Tuesday and the PPI on Wednesday and both are expected to be in our favor. Friday is also triple witching options expiration and expiration week normally has a bullish bias. On the negative side you could point to the same facts and say "so why did the market die on Friday?" All these things were already known and the market always moves in advance of the facts. So where was the move? The key here is of course the Fed and the profit warnings. The Fed will be less and less a factor as the reports are made public unless of course there is an upside surprise. So that leaves the earnings warnings. These are only trouble on the surface. The day they are announced they contain sentiment value which acts like a shot of poison to investors. While the news of the warning is bad for that stock price the overall benefit is more subtle. Each warning is a sign that the Fed hikes are working and everything is under control. The smart money knows from experience that when the Fed moves aggressively to raise rates for an extended period of time that there is a limit to what they can do without crashing the economy. That limit is here. In 1994/95 when the Fed raised rates in rapid succession the market actually firmed around the sixth increase because investors knew the hikes had to stop or slow for 9-12 months until the real impact to the economy could be evaluated. We are there. The meeting on June-27th is a non-event because they will either hold on further hikes or take one last +.25% shot. Either way they are done. The Fed is out of the long term picture. This will setup a longer-term outlook for investors but it does not mean that we may not move lower before we move higher. The earnings warnings for the next several weeks will cause sporadic sector events but in the long term be beneficial. While a strong dose of poison will kill you, a routine exposure to a smaller amount will actually make you immune to the poison. Warnings and Fed news may make us sick but hopefully these "vaccinations" will also make us well. Cash is still piling up on the sidelines. Trimtabs.com reported that over $3 bln in cash came into equity funds in the week ended on Wednesday. Only half of the $7 bln from the week before but the second week in a row that the number was positive. Investors waiting for a pull back from the monster gains from last week are growing tired of waiting and starting to nibble at the leaders. The market is still seeing strong gains in individual stocks even though the major indexes are flat. I want to be bullish but the weakness on the Dow is holding me back. Remember, without IBM and HWP the Dow would be below 10500 today. We experienced this divergence earlier this year and the end result was disaster. The only thing that could turn this around is the financial stocks. If they turn based on favorable reports next week then the Dow could firm. This would give support to the Nasdaq rally and we could see several weeks of decent gains. The wild cards of course continue to be the warnings. A steady stream of warnings will dull investor interest keep us range bound into the July earnings. I was encouraged by the Nasdaq failing to sell off this week. I think this is the most positive point in the entire picture. The Nasdaq, the QQQ and the IIX are all building a bullish wedge and showing no signs of retreat. Historically, IN MY OPINION, this is a bullish sign. There is no guarantee or we would all be driving a Lexus. The key to trading in this environment is to either be market neutral or out of the market. The Nasdaq is creeping up on 3900. I think that is the key this week. If the Nasdaq can breakout over 3900 on decent volume I would go long. If it falls back under 3900 I would stay flat. By setting an arbitrary entry point above resistance you avoid all those "should I or shouldn't I" questions. The decision is simple and precise. Of course I would also want the stock and sector positive also. By making your decision on Nasdaq 3900 you ignore the Dow problem until it impacts the Nasdaq. Once into the position be faithful about setting those stop losses in case the stock you bought is the next on the warnings list! My play of the day is on the QQQ. See the Editor's Plays section for the description. Because we have so many new readers we are updating and reprinting my ten part educational series from last fall. I started this week with Entry Point, Entry Point, Entry Point. Look for it in the Options 101 section of the website. Trade smart, sell too soon. Jim Brown Editor On a personal note, Jodi Mayo, a long time customer service employee here which thousands of readers have communicated with in the past, delivered her first child, an 8lb, 7oz baby girl named Abby on Friday. The baby was still born with the cord wrapped around it's neck. Please remember Jodi and her family in your prayers. Notes may be sent to jmayo@OptionInvestor.com. ***Attention OI Readers*** Starting today, we are proud to introduce a new section to further help guide you in the markets. This section is devoted to playing the HOLDRS, such as the QQQs. I have been very excited about the development of this new feature and have tapped the mind of our most tenured researcher, Buzz Lynn, to guide us through it. The section is called Sector Trader and will be updated on Tuesdays, Thursdays and Sundays. Look for it in section one of your email or in the Strategies section of the website. Enjoy, Ryan *************** SEMINAR RESULTS *************** 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. 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 2 day Aug 17-19 Orlando 3 day Aug 28-29 Detroit 2 day Australia coming soon! Has the market been beating you up? Did you give back your gains from April? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp *************************** OptionInvestor/Optionetics Summer Seminar Series Back by popular demand! *************************** We are proud to announce the summer OptionInvestor & Optionetics seminar schedule featuring options guru, money manager and best selling author George Fontanills. The OptionInvestor/Optionetics Seminar was designed to help you gain the know-how necessary to compete in the marketplace. Over the course of the last 7 years George Fontanills has developed a series of high profit, low risk, low stress trading techniques that will empower you to systematically approach the markets. Learn how to intelligently combine options to maximize profits and minimize risk. Designed to fit the needs of novice and seasoned traders, this workshop and home study course will show you how to use managed risk options strategies in today's highly volatile markets. The seminar and home study course materials include: Delta neutral non directional trading 28 options strategies including Spread Trading, Straddles, Strangles, Condors (low risk trades), Butterflies George Fontanills' "5 Minutes a Day to find a trade" How trade volatile markets 911 Repair Strategies - what to do when a trade goes wrong trade action plan "How to get Started". With our unique tuition package you will receive: Before the event: Home Study Course with 8 digitally mastered video tapes and a 500 page manual "Trading for the 21st Century" plus your personal coach available to answer your questions. Live Seminar: 2 days of live trading with George Fontanills and Tom Gentile plus FREE partner attendance - two people for the price of one. You may bring a friend, spouse and business partner to the event for FREE. Both teachers available for our personal questions and you get a full Money Back Guarantee. Venues: George Fontanills, together with his chief options strategist Tom Gentile, will personally teach two days live trading delta neutral strategies in the following cities: June 18 & 19 Chicago June 25 & 26 New York July 10 & 11 Atlanta (Tom Gentile only teaching) July 16 & 17 Houston July 23 & 24 San Francisco Our Home Study Course is available for the same price if you can't make these dates and you may attend a later seminar when your schedule allows. Order today as seating is strictly limited to first come first served basis. You will receive a $5,000+ value package, but pay only the special price of $2,400 for your tuition. Please reserve your place now to not be disappointed when we sell out. Click here for more info: http://www.OptionInvestor.com/seminar ************** EDITOR'S PLAYS ************** This is going to be exciting readng? I did not make a single trade last week. Unbelieveable! I had business meetings with out of towners all week. When I wanted to trade the market was down and when it was up I was in meetings. Sometimes things just don't work out but in light of last weeks activity I probably saved money staying out of the market. The only event worth mentioning was MSTR. I always have my Qcharts open just to keep track on the current market status. Since I was not in the market I was surprised on Tuesday morning with a "Your stop has been hit" alert voice when I was not even trading. I was not even in the room but heard it and went to check. The stop was on MSTR. I had set it back in April when I was waiting on MSTR to rebound from the big drop. I had set $30 as an alarm in my Qcharts to remind me when it broke out. I forgot it even existed since MSTR has been trading under $20 for ages. Well, the alarm went off on Tuesday morning and I looked at the chart and there was no real news and I thought "I will wait until it breaks $30, (it had just touched and fell back) then I will buy some. I looked at it several more times that morning but it had stopped just under $30. Oh well, on to other things, business was calling. When Ryan and Matt, the OIN editors, came in my office after the close on Friday to go over the picks for the weekend, the first thing they said was "did you see MSTR?" That ruined my entire day. MSTR closed at $62.56 on news of additional funding. +$32, +110% from where my faithful Qcharts alerted me on Tuesday. That would have paid for the Prowler my wife wants! PLAY OF THE DAY I had a reader email a suggestion for using the Internet Straddle- Strangle strategy on the QQQ instead of on an expensive and volatile Internet stock. Based on the bullish wedge on the QQQ right now I agreed. The concept for this play is to sell both a call and a put on the same stock and then cover either side of the play depending on the direction the play takes. I am going to write this up as a strangle. That means you sell an out-of-the-money call and an out-of-the-money put. For the example I am going to use a Jul-$95 call and the Jul-$90 put. The premium on the $90 put is $4.63 QVQ-SL The premium on the $95 call is $6.13 QVQ-GQ The QQQ stock is $93.56. To open the position you sell both naked. The margin required is 50% ($46.50) or less depending on your broker. The premium received is $10.75 or 23% of the margin requirement. Because you are short both a call and a put with a $5 difference in the strike price only one will be executed at expiration. The key here is to cover which ever side is likely to be in the money. To do this you will buy the QQQ stock if it moves up over $95 and you will short the QQQ stock if it goes below $90. Because of the $5 spread between the strike prices you can be uncovered for quite some time. If the stock moves back and forth between $90 and $95 without breaking either strike then you stay uncovered. THE KEY IS TO AVOID TRADING THE STOCK. You don't want to keep going long, short, long, short, etc. This is the reason for the $5 spread. It gives you breathing room between trigger points. The ideal execution is to launch the trade as it crosses the midpoint and hope it never comes back again. The best stocks are stocks going in one direction where you never have to trade the stock after you cover the first time. This strategy is not for everyone but is you have the capital to execute it and pick the right entry point then you may never have to cover but one side and never worry about it. The maximum return on the play is 23% and it is fairly low risk. Your return depends on how many times you have to cover the position but with $10 of premium you have quite a bit of wiggle room. ********** I am still holding my VIGN, YHOO calls and my leaps on NOK, VOD, MSFT. I did not sell calls against my leaps as planned since NOK and VOD were basically flat. I have plenty of time and haste makes errors. Good Luck Jim **************** MARKET SENTIMENT **************** Sunday, June 11, 2000 A Trend that Will Continue! The market ended on a boring note Friday, as the Producer Price Index turned out to be a non-event, and the markets just yawned in anticipation of the number. Traders and investors must have gotten a good head start on the weekend, as volume on the NYSE was a paltry 787 million, while the NASDAQ traded 1.28 billion. Most of the major indexes were trading range bound this past week, but after such a phenomenal week before, this market action is actually positive. The NASDAQ, which had that spectacular +608 point advance the week before, gained only +61 this last week. Now after such a big run-up, many technicians thought we might have a moderate retracement, but so far, this has not been the case. Now during the huge run-up, we saw the "Generals" leading the way (i.e. Cisco Systems, Intel's, Oracle's, Sun Micro's, etc.). This last week, we witnessed many of the second and third tier performers leading the way, while the "Generals" stayed trading range bound. This is a trend that we believe will continue in the short term, as the short sellers get nervous while the bulls take aim and fire. Margin calls have been greatly diminished as well, so extra selling pressure has all but dried up, which benefits the bulls on every front. Cash continues to increase on the sidelines, but what is going to propel investors to use it? It obviously wasn't Friday's Producer Price Index, so are investors waiting for Retail Sales number next week, or the Consumer Price Index? The Fed Meeting, or Oracle earnings in two weeks? Whatever issue it is, when this market moves again, it will go in a hurry. With money managers and mutual funds managers' bonus's looking a little weak, the fear of missing an opportunity is significant. What we will continue to see this next week is the 2nd and 3rd tier technology companies coming back to life. Whether this is due to short covering, buying a golden opportunity or just random speculation remains to be seen. But this last week we saw dozens of depressed equities that came back to life and had huge percentage returns in a matter of days. We think this trend will continue in the short term. Lastly, (we will continue to hammer this issue home) we are getting to the heart of negative prerelease season, and it is already stacking up to be a big one. Negative earning announcements have just occurred this past week, as Circuit City, Electronics for Imaging, Proctor & Gamble, Lands End, H&R Block, McDonalds, Electronic Data Systems, and Mylan Labs have all warned of poorer times ahead. Citrix Systems (CTXS) got pounded for about $20 in two days as investors worried about their upcoming quarter as well. It is still to early to tell, but it looks like there might be a rocky road ahead for the July earnings run, so stay cautious, and stick with the sectors that look to perform well even in a slowing economy. Have a good trading week! BULLISH Signs: Interest Rates (5.890): 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 (25.19): 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, Lands End, H&R Block, McDonalds, Electronic Data Systems, Mylan Labs have all warned of poorer times 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 (6/9) (6/13) (6/15) ***************************************************************** Overhead Resistance (805-825) 16.42 Overhead Resistance (775-800) 2.53 OEX Close 779.76 Underlying Support (745-770) 1.89 Underlying Support (715-740) 5.71 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 (6/9) (6/13) (6/15) ***************************************************************** CBOE Total P/C Ratio .45 CBOE Equity P/C Ratio .42 OEX P/C Ratio .77 Peak Open Interest (OEX) ***************************************************************** Friday Tues Thurs Strike/Contracts (6/9) (6/13) (6/15) ***************************************************************** Puts 740 / 8,917 Calls 795 / 9,394 Put/Call Ratio 0.95 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 9, 2000 25.19 ************** MARKET POSTURE ************** As of Market Close - Friday, June 9, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,200 11,400 10,615 Neutral 5.05 SPX S&P 500 1,350 1,500 1,457 Neutral 5.30 OEX S&P 100 725 800 780 Neutral 5.30 RUT Russell 2000 450 550 523 Neutral 5.05 NDX NASD 100 3,000 4,000 3,761 Neutral 5.30 MSH High Tech 800 1,050 1,007 Neutral 6.06 XCI Hardware 1,250 1,600 1,503 Neutral 5.30 CWX Software 1,050 1,300 1,286 Neutral 6.06 SOX Semiconductor 850 1,200 1,169 Neutral 5.30 NWX Networking 900 1,100 1,139 BULLISH 6.02 INX Internet 500 800 618 Neutral 5.30 BIX Banking 530 640 584 Neutral 6.09 ** XBD Brokerage 400 500 478 Neutral 5.05 IUX Insurance 540 620 636 BULLISH 5.16 RLX Retail 900 1,000 836 BEARISH 6.09 ** DRG Drug 355 400 379 Neutral 4.28 HCX Healthcare 710 800 778 Neutral 4.28 XAL Airline 140 155 171 BULLISH 5.25 OIX Oil & Gas 265 300 308 BULLISH 5.11 Posture Alert Friday's PPI ended up being a non-event, and traders must have headed home early for the weekend, as volume on the major indexes dried up substantially. For the week, most sectors made very little movement in either direction, while many stayed within a very narrow trading range. However, the Retail sector ended off the week on a sour note, by closing down -3.11% to end with an - 8.5% loss. As such, we have lowered Retail to Bearish from Neutral, and have lowered Banking to Neutral from Bullish. ************* SECTOR TRADER ************* By Buzz Lynn ************ Introduction ************ You say you don't want the responsibility of picking the winning stock, but you know the sector is on fire? (Is that what's eating you, Bunky?) If so, you've come to the right place! Tonight we kick off the new Sector Trader section containing the diversification benefits of a sector mutual fund, and all the liquidity of the fast-paced equity market. Have you ever tried to pick the sure-fire winning stock in an emerging sector only to have it go belly up? Sadly, we all have. Murphy is alive and well. But there is a solution. Our objective in building this section is to give you a source for trading hot sectors while minimizing the effects of picking the losing issue - in short, your one-stop shop in the fight against Murphy. While there are many sector instruments, including indices to trade, we will stay mostly focused on equity-backed issues in the most active and tradable sectors. We may from time to time list other active indices like SPDRs or DIAs, but not yet. Unfortunately for us option traders, options aren't always available on some issues. But until they are, we invite you consider long or short positions for your long or short-term portfolios. (Note: make sure you understand and can accept the unlimited risk of shorting a stock. It is not a strategy for those new to trading, and we do not endorse it in all instances. However, it is an effective tool for market neutral and experienced traders.) Anyway, the most prevalent of these equity-backed sector trackers are called "holders", which is where we begin tonight. Never heard of "holders"? It's a hot new way to play a sector without the stress of having to pick individual winners! The work is already done for you! You can thank Merrill Lynch for the work and the moniker, which comes from the condensed version of "HOLding company Depository ReceiptS (HOLDRS). HOLDRS got their start in 1998 when Merrill issued a single stock to track the various components of the Telebras (Brazilian phone company) breakup. Those shares offered the buyer undivided ownership rights in each of what would become individual phone companies after the breakup, all in one convenient little package trading under the symbol TBH. TBH and all HOLDRS created since can literally be traded for a basket of their component stocks. Ownership of a HOLDRS is similar to owning a sector index except that with HOLDRS, you actually own the underlying shares. The difference is that the index settles in cash where the HOLDRS settle for actual shares - a NON-taxable conversion we might add, according to Merrill Lynch (we aren't in the tax advice business, so you better see your own tax accounting professional on that one). Convertible and non-taxable are two of the big benefits of ownership. Say you own HOLDRS and five of the twenty underlying issues are starting to suck down yesterday's canal water. All you need to do is call your broker and ask him/her to convert your HOLDRS into underlying shares - tax free. Then sell the five losers in the open market and ride the remaining 16 winners. It also works in reverse. If you happen to own all 20 underlying issues of a particular HOLDR in the right ratio, you can convert them to actual HOLDRS shares in order to gain the ease of trading just one instrument. (Click on the link in results below to see the underlying issues and their relative weights.) Realizing the success Merrill was having, why not create tracking stocks similar to an index backed by and convertible to the top 20 stocks of the hottest sectors? No longer would investors be forced to do the paperwork of index mutual funds, or the homework of picking individual winning stocks. Management fees would be virtually eliminated, and HOLDRS could be bought and sold at will on the AMEX, creating a more liquid market for a basket of goods. The light bulb went off. In September 1999, Merrill issued Internet HOLDRS called HHH, which comprised shares of the top 20 Internet companies (mostly B2C, online brokers, ISPs, and portals) like AOL, YHOO, AMZN, and EBAY, plus 16 others. Success begets success, and the rest, as they say, is history. Since then HOLDRS have been issued for the following sectors. Symbol Sector BBH Biotech (issued November, 1999) PPH Pharmaceuticals (issued February, 2000) TTH Telecom (issued February, 2000) IAH Internet Architecture (issued March, 2000) IIH Internet Infrastructure (issued March, 2000) BBH B2B (issued March, 2000) BDH Broadband (issued April, 2000) SMH Semiconductors (issued May, 2000) Excepting TBH, which trades on the NYSE (we won't be tracking that one), all HOLDRS trade on the American Exchange (AMEX) just like regular shares of stock. The only exception is that you have to buy round lots of 100 shares - no odd lots allowed. There you have it - hot sectors with minimal individual stock risk! Be sure to click on the links in the results section to see which stocks and how many shares of them make up each HOLDR. We're building this section for you, the sector trader! So, let us know what you think at sectortrader@OptionInvestor.com. ------ Index Last Mon Tue Wed Thu Week QQQ nasdaq-100 93.56 +0.31 -2.50 +2.38 +0.38 +0.25 HHH Internet 124.56 +0.63 -3.75 +6.06 -1.56 -0.31 BBH Biotech 160.00 +8.25 +5.13 +0.75 -5.06 +15.19 PPH Pharm. 94.25 -0.44 +1.44 -0.38 +0.25 +1.75 TTH Telecom 76.75 +0.38 +0.56 +0.75 -0.19 +2.25 IAH I-net Arch 90.13 -0.19 -1.63 +3.31 +0.69 +2.56 IIH I-net Infr 58.38 +0.81 -2.31 +3.19 +0.44 +2.25 BHH B2B 41.75 +2.75 -2.44 +1.44 +0.81 -2.94 BDH Broadband 85.56 -0.44 -1.56 +0.56 +0.63 -1.94 SMH Semicon. 98.63 -0.63 -4.06 +1.56 +0.44 -0.69 ************** Recent Updates ************** QQQ - NASDAQ 100 $93.56 (+0.25) optionable. Would someone please wake us up when the NASDAQ breaks out of stagnation? Seriously, with range-bound trading from roughly $92 to $95 all week, it's been tough to get a profitable trade off in either direction. MSFT anti-trust woes and interest rate/inflation fears are helping to keep a lid on this index. The PPI news showing no inflation at the wholesale producer level did not give traders the strong rally they had hoped for. Not to sound like a growling bear, but with the economy slowing, an FOMC meeting in about two weeks, the CPI due out this week, and technical resistance now firmly at $95 with the stochastic in overbought territory, QQQ looks heavily favored to roll over and retest support at $91. If that doesn't hold, look for $88 or even $86. (Now that we've said that, contrarians will be looking for a rally.) Though unlikely to rally, should the market for whatever reason move back up, look for mild resistance at $94, strong resistance at $95 and again at $98. If QQQ can get through $98 and hold, that would be a super strong indicator for the future as that was a former support level prior to April 11th. But don't bet on it. We tend to think the better immediate play is to the downside. At Support: BUY CALL JUL-86 YQQ-GH OI= 526 at $11.88 SL=9.00 BUY CALL JUL-88 QVQ-GJ OI= 720 at $10.63 SL=7.75 BUY CALL JUL-91 QVQ-GM OI= 421 at $ 8.63 SL=6.00 SELL PUT JUL-86 YQQ-SH OI=20413 at $ 3.25 SL=5.25, Huge OI At Resistance: BUY PUT JUL-98 QVQ-ST OI= 341 at $ 9.00 SL=6.25 BUY PUT JUL-95 QVQ-SQ OI= 501 at $ 7.38 SL=5.25 BUY PUT JUL-94 QVQ-SP OI= 672 at $ 6.88 SL=4.75 Average Daily Volume = 26.6 mln /charts/charts.asp?symbol=QQQ ------ BBH - Biotech $160.00 (+15.19) Not optionable. Despite some profit taking on Thursday in front of what turned out to be a benign PPI, biotechs have made a strong recovery since late May, tacking on 25% from its' $120 low. With AMGN, DNA, and IMNX making up a huge part of this index, it's no wonder it was up on Friday - lack of bad news equals good news for this group. DNA shares gained $8.69 but were surprisingly unhurt by the filing of a Herceptin patent infringement suit by Chiron. While much smaller players in the BBH composition, MLNM (+$13.69), AFFX (+$26.50), HGSI (+$22.00), and CRA (+$14.25), also threw their collective move behind Friday's gain. Notice that these issues all fall in the subsector of genomics. Technically, holding at $160 is good sign since it happened at the March support level of about $160. This level may be resistance for a short period of consolidation, but the support level will now likely be closer to April and May's resistance of $148 to $150. Watch that level for new support and consider a long position if it bounces up from there. If we get a break over $160 as the rest of the NASDAQ breaks out with renewed volume, that could also be a good entry. Keep your eyes balls on the stochastic though, it is flashing an overbought signal telling us that the sector may be subject to a larger consolidation or pullback if the market heads south from here. Average Daily Volume = 711 K /charts/charts.asp?symbol=BBH ------ IAH - Internet Architecture 90.13 (+2.56) Not optionable. Making its debut in late February, IAH has had nowhere to go but down overall since reaching its March peak of $107. However that didn't stop components HWP (+$2.12), SUNW (+$2.44), and FDRY (+$11.63) from adding to Friday's slight gain. JNPR was the big loser at -$13.94. The bigger technical picture is that IAH had been finding intraday support over the last week at $85 following it's gap up from $82 the previous Friday. However, buyer beware - it may need to fall back to $82 in order to backfill the gap. Thursday's doji star following Wednesday's big move up, not to mention an overbought stochastic are telling us that IAH may be in for a reversal. Solid resistance is at $90, a level of previous support that could be tough to break unless we see the overall market react positively this coming week. With the CPI next week and the FOMC meeting on the 28th, don't bet on it just yet. Volume has fallen off this week too. It looks like a short candidate (not yet elected) to us at this level. Average Daily Volume = 78 K /charts/charts.asp?symbol=IAH ------ IIH - Internet Infrastructure $58.38 (+2.25) Not Optionable. Like its brother, IAH, introduced to trading at the same time (late February), IIH is looking like an overbought short candidate on the stochastic, and running into firm resistance at $60. However, we like the prospects for this sector going forward as its components, including three of its larger holdings and biggest gainers Friday (AKAM +7.44, VRSN +3.00, and INKT +2.12), are the plumbing necessary for the Internet's growth. IIH has been strong on a short-term basis. Even so, it still has the capability to backfill the gap down to $50 from the previous Friday. Technically, IIH found support mid-week at $53.50 and held well at $57 on Thursday and Friday. That's a good sign of strength. But with the CPI out this week (which probably means nothing given traders underwhelming reaction to the PPI), and the FOMC looming at the end of June, not to mention the sequentially decreasing volume, it looks ready to roll over. Unless the overall market goes into rally mode (unlikely), a breakout over $60 looks unlikely. Keep this one on your short candidate list. Average Daily Volume = 312 K /charts/charts.asp?symbol=IIH ------ BDH - Broadband $85.56 (-1.94)) Not optionable. With LU and NT making up the greatest percentage of this index, and those two trading flat for the last six weeks, it should be no surprise that BDH looks just like these two on the chart and probably will for a while. The good news is that there are whole bunches of likable companies in the makeup that took deep hits in the tech selloff - names like QCOM JDSU, SCMR, MOT, SDLI, TERN, GLW and others. We like this index a lot and think this could be a good bottom fishing opportunity to play the sector. Some of the components, though they are small in the BDH composition, are already on a tear (GLW, SDLI). Technically, BDH held up well this week finding support at an old resistance level of $84. We think it can hold again and move up from there depending on the fortunes of LU and NT, which look pretty good long-term. $88 to $89 is looking like resistance right now. So consider dips to $84-$85 as a buying opportunity - likewise too if it breaks over $90 on increased volume. This could be one for your long-term portfolio. Average Daily Volume = 203 K /charts/charts.asp?symbol=BDH ------ SMH - Semiconductor $98.63 (-0.69) Not optionable. Even when the overall tech sector is ice cold, the semiconductors manage to outpace the rest of the market. INTC, AMT, and TXN, all leaders in their fields are the biggest components of SMH and really make this HOLDR look good. Even smaller names like AMD and NSM pull their weight. Only trading since early May, it doesn't have much of a track record yet, but it should develop as its components continue to be purchased by fund managers. Technically, SMH looks great, especially since finding support at $94, its trading high set on its second day of trading - a perfect case of old resistance becoming new support. While it does have a $2 gap to fill down to $93 from the previous Friday, we think any bounce from $93 and up is buyable. Resistance is at $100. With any market strength on good economic news, that figure could easily be broken. Careful. The stochastic has been flashing an overbought condition for the last two weeks (though we'll subjectively put less faith in that indicator in this particular case since everybody wants the issues that make up SMH.) We don't expect investor interest to diminish since higher lows back up the hypothesis. Watch for volume to confirm the move and feel free to take a position at the breakout, or at a bounce off support. Average Daily Volume = 208 K /charts/charts.asp?symbol=SMH ************* COMING EVENTS ************* For the week of June 12, 2000 Monday None Scheduled Tuesday Retail Sales May Forecast: 0.0% Previous: -0.2% Retail Sales ex-auto May Forecast: 0.4% Previous: 0.0% Wednesday CPI May Forecast: 0.2% Previous: 0.1% Core CPI May Forecast: 0.2% Previous: 0.2% Business Inventories Apr Forecast: 0.4% Previous: 0.3% Fed Beige Book --- Forecast: ---- Previous: ---- Thursday Initial Claims 06/10 Forecast: 285 K Previous: 309 K Industrial Production May Forecast: -0.3% Previous: 0.9% Capacity Utilization May Forecast: 81.6% Previous: 82.1% Philadelphia Fed Jun Forecast: 13.0% Previous: 20.2% Friday Housing Starts May Forecast: 1.615M Previous: 1.663M Building Permits May Forecast: 1.590M Previous: 1.574M Michigan Sentiment Jun Forecast: 110.0 Previous: 110.7 Week of June 19th 06/20 Trade Balance 06/20 Current Account 06/20 Treasury Budget 06/22 Initial Claims ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Sunday 6-11-2000 Sunday 2 of 5 ************** TRADERS CORNER ************** Liquidity Is Improving But People Are Still Hoarding Cash By Mary Redmond Liquidity was one of the key factors which contributed to the precipitous decline in the market in March and April. Liquidity generally refers to cash flows to the overall market and to individual stocks and sectors. The main cash flows which liquidity analysts use include cash flows to equity mutual funds, cash takeovers, share buyback programs, and initial and secondary public offerings. It is possible that initial and secondary offerings issued during 1999 and the first part of 2000 caused the most damage to the market. During the period from May 1999 to April 2000 approximately $320 billion dollars was raised in initial and secondary offerings. During this period, domestic equity mutual funds took in approximately $237 billion in new cash, and money market funds took in approximately $165 billion in new cash. If every dollar which went into an equity mutual fund during these twelve months went into a new issue there would be a big deficit of cash. However, we must consider that the total amount of stock in US equity funds during this period was in the range of $4 trillion dollars, or $4000 billion. The funds could have raised cash to buy ipos by selling current holdings. In addition, there are many large private investors and private institutions which buy ipos and secondaries. Nonetheless, the level of dollars raised in ipos nearly doubled from 1998 to 1999, and a heavy ipo schedule can drain cash from the market. The liquidity issue might not have been enough to crash the market alone. However, if you throw a concern about the Fed raising rates aggressively into the equation, it was obviously too much for the market to handle. The ipo schedule has lightened up considerably, and this could free up extra cash to go into equities. You can find ipos scheduled to come out every week in most major newspapers. In March, weekly ipo pricings were in the range of $15 billion, and are currently in the range of $2 billion. In addition, cash corporate takeovers have are accelerating to the range of $7 billion weekly. Both of these factors could help the market. We want to see cash in to the market from equity inflows, cash takeovers and share buybacks higher than cash outflow from ipos and fund redemptions. The NASD has reported that block trades comprised between 20 and 22.4% of the overall trading activity on the Nasdaq in 1999 and the first few months of 2000. This means that institutional buying comprised about 20 to 22.4% of the cash buying on the Nasdaq. During this period, the cash flows to funds averaged around $8 billion weekly, with $2 billion going into the tech funds. If fund flows in the range of $2 billion dollars weekly were responsible for about 20% of the Nasdaq volume, this can mean that retail and professional traders can be comprising the other 75%. It is not always possible to account for all this money from other sources. However, the investment company institute tracks flows in and out of money market funds weekly, and this can give an indication. AMG Data Services reported that the week ending June 7th showed a net inflow to equity funds of approximately $500 million. This is slow, but it included net redemptions of over $1.1 billion from international funds. The investment company institute's web site reported that retail money market mutual funds took in $5.53 billion in cash last week, to total $983.5 billion. Taxable money market retail funds took in $3.03 billion in cash, and institutional money market funds took in $8.70 billion in cash to total $709 billion. The total money market fund assets totalled $1.693 trillion as of June 8th. Between the retail, taxable retail, and institutional money market funds the flows totalled $17.26 billion in cash. A lot of people are keeping their money in cash. Many option traders wonder if they should sell their leaps if they have a profit. Generally, it is best to sell any option which is at a profit. A leap will usually have to rise by a few more points than a short term option in order to be sold at a profit. This is because leaps usually have a larger spread, or difference between buy and ask than shorter term options. For example, a two year leap may be quoted at a price of bid 20-ask 22, versus a short term option which may be quoted at bid 20 ask 20.5. I have found that it is more difficult to sell a leap over the bid price than with a short term option or stock. If you want immediate execution you usually have to sell at the market. Because of this, you could buy an option at the ask, in this case 22, and if the stock went up 2 points tomorrow, you could end up selling it at the bid, and the quote might be 22 to 24. In this particular example you might not profit by selling the leap. However, if an option goes up 5 or 10 points I think it is always a good idea to take a profit. If you are trading leaps, you could always sell at a profit and buy a leap on the same stock with a higher strike price. For example, if you bought a QCOM Jan 80 leap and it went up 10 points, but you thought the stock had further to go, you could sell the 80 leap and buy a 90 leap for probably about 5 to 10 points less. This way you have a certain amount of protection against loss if the stock drops, but you can also profit from further upside potential. Contact Support ****** Bullish Indexes - A Look Inside By Molly Evans Indexes are labeled with the actual numbers for which breachment constitutes bullish or bearish implications. Whether you're playing the call or put side of a stock or an index, you should at least know what stage and the magnitude of which it is at. Last week, I talked about the banking sector, which had just turned bullish. Say, for example, you saw that American Express (AXP) was about at it's all time high, but you've noticed that there was another time it was also at that same level back in December (weekly chart). In fact, there's a number of times in the past few months that it's touched that illustrious number but can't get through. It's right back there again, knocking on the door but not getting through with conviction yet. "Aha!" You say. "That's another failed attempt to take out the highs because there's no volume to carry it through. I'm going to buy puts on that baby." Well, you go right ahead. I'll sell them to you. Well, ok, maybe I wouldn't but let's light this candle and have a closer look, shall we? Now you tell me which way you may want to play. I think that a put or a call player here would be very frustrated. Yeah, it's been rising, and yes, it has down days, but in this past week there's not been enough movement in either direction to even cover a spread. Yet, we know that the financials are in bullish mode. But wait, AXP is in the Dow 30. It's neutral. What to do, what to do? The thing to do on this one is either nothing OR set an alert for AXP at or around $56.50 to begin watching to see if it will move on volume beyond $57, it's all time high. At that point you could go long to play the breakout if in fact the Dow is rolling along nicely. On the flip side, support for AXP could be the ten-day moving average, which is where it sits right now or at about $52.50 where it broke through a two month consolidation to get to this present level. Barring a market meltdown, I just don't see big dollar signs in a put play on AXP. But this at least gives you the idea of how you marry a stock to its index and play it based on support and resistance. Just remember that an AXP breakout isn't going to behave like an SDLI breakout but then again, you're not going to have to pay sky-high premiums for volatility either. You don't have to pick a certain stock out of an index either. You CAN just play the sector itself with options on the index. "Aahh!" you say, "This is very cool!" And yes, it is. As Pinnacle Capital Advisors states, "An industry sector affords investors the opportunity to participate in market trends without having to research and select specific stocks or groups of stock. A market sector index is a simpler, more efficient measure of movement within a given industry. A contract within a market sector index affords investors to focus efforts on overall market movement rather than the risks behind a specific stock." According to Thursday night's accounting in the Market Posture, only five of the nineteen indexes tracked were bullish. All of the rest were neutral. Those bullish indexes were: Networking (NWX), Banking (BIX), Insurance (IUX), Airline (XAL) and Oil and Gas (OIX). Pinnacle relates that the time frame for their calls are two to three weeks into the future. The Oil and Gas and Insurance indexes have been bullish since the middle of May. Support for the OIX is at 300. It closed Friday at 308.28 or right on it's ten day moving average. Does it bounce from there or does it go on to breakdown? Oil and Gas are typically up when the overall market is down as investors rush to defensive plays. Does it mean the overall market is becoming more bullish as this one pares back? So much to think about. The IUX is another one that's struggling to break free. Here's a weekly chart of the IUX: Pinnacle says this one is bullish down to 620 - it's sitting on 636 presently. This was a sideways week, as 70% of them are. Let's look at the stocks that are in that index. Wow, AIG exerts an almost 43% influence on that index. ALL and AGC have the next highest weights. Only AIG is significantly above its 200 day moving average and had a down day on Friday instead of pushing on through it's resistance. ALL breached its 200-day ma on Friday and indecision looks to rue the day for AGC. I'm not a buyer here but I'm too chicken for puts. Aaarrgh! Got to move on to warmer waters. Check out Networking (NWX). Labeled bullish on June 2nd when it crossed the 1100 mark. Hot sector here. Resistance will be about 1183 for this one. We've got a little room to play. Let's look closer. What's in this one? Click on NWX on that page on the OIN site. Oh yeah! I love some of these symbols. That page doesn't say how much weight each company is given but look at the companies in there: Lucent (LU), Ciena (CIEN), Cisco (CSCO), ADC Telecom (ADCT), 3Com (COMS) to name a few. The LU chart looks ugly to me but there are several that I'd take a closer look at with my money. CIEN is a good old friend of mine. The ADCT chart has one of those beautiful left lower to right upper corner looks. Don't count on it coming down with a thud anytime too soon. Coverage by PaineWebber was just initiated on Friday with a "Buy" rating and target of $95. PE is high as they always are at 124 but it's 76.5% owned by institutions. I like the story. COMS also looks interesting. This guy has a PE of 20 but it's got a huge float of 333M so it isn't going to move like a high flyer but it bears watching. If it starts moving on volume, the institutional buyers may be looking for value and are picking it up. Keep looking at the sectors for market leadership and perhaps take an easy route by playing indexes. Within the indexes, you can start looking to what's leading the pack within. There's so many ways to pick and choose and to develop your own system. Even if you have a system, it might pay to open the door to looking at something different. Here's to a profitable week ahead. Contact Support *********** OPTIONS 101 *********** Entry Point, Entry Point, Entry Point By Jim Brown I wrote this article as part of a ten part series late last year and due to the large number of new readers requesting them we are going to update and reprint them over the next ten weeks. The charts and analysis are just as valid today for learning how to pick stocks as they were when the article was first written. It is the principle I am trying to get across not a specific stock for trading on Monday. For the entire article, including charts, please visit... http://members.OptionInvestor.com/options101/061100_1.asp *********** IN THE NEWS *********** Those REITs Aren't As Safe As You May Think By S.P. Brown Let's face it, the stock market could use a mega-dose of Ritilin, particularly in the new-economy sector where 3 to 5 percent daily price swings have become the norm. Understandably, such intemperate behavior has sent many investors in search of a safe haven. Of course, the term "safe haven," like most investment terms, is open to personal interpretation. For one investor a safe haven can mean a money market fund, while for another it can mean a B2B Internet stock fund. It all depends on one's risk tolerance. One investment sector that has been pushed recently as safe haven is real estate investment trusts (REITs). In fact, over the past three months, the Dow Jones REIT Index (DJR) has advanced 14 percent, partly due to many investors ditching the new-economy roller-coaster. In comparison, Nasdaq Composite Index (COMPX) has tanked 20 percent. To say real estate is one red-hot market, is like saying Catherine Zeta-Jones has pleasant features - it's an understatement. The booming economy has pushed office rents through the roof. In San Francisco and Manhattan, office rents have hit all-time highs, fetching up $100 per square foot in both metropolises. So, with the real estate market in full-bloom, many investors are giving REITs the once over. And why not? At first glance they appear to be a cheap and easy way to add real estate exposure to a portfolio. Furthermore, they boast high dividend yields, which makes them a surrogate bond for many investors, and they can be a safe temporary store of value for those folks waiting for new-economy issues to settle down. For other investors, REITs look like compelling contrarian play. From early 1998, REIT stocks have tumbled 17 percent, while the COMPX has nearly tripled. So battered are REITs that they now trade at 85 percent of their estimated net asset value, an historical low. All of the above can be legitimate reasons for investing in REITs. However, there are definite risks to owning REITs, and these risks can be quite considerable. First, it's important to realize that REITs aren't the same as corporations. REITs pool the money of many investors for the purchase of real estate, much as mutual funds do with stocks and bonds. Investors in REITs are called beneficiaries and they purchase beneficial interests, which is similar to the purchase of corporate stock. Hence, the liquidity of REIT shares. Most REITs are run so trust officers, with the aid of paid advisors, can buy, sell, mortgage and operate real estate investments on behalf of the beneficiaries, which, in theory, isn't much different than the way a corporation is run for the benefit of its shareholders. The most significant difference, though, between the REIT and corporate structures is taxes. If a REIT confines its activities to real estate investments, and if the REIT has at least 100 beneficiaries and distributes at least 95 percent of its net income every year (90 percent in 2001), the IRS will collect taxes on the distributed income only once - at the beneficiaries' level. However, failure to follow the rules results in double taxation, and therein lies the problem. Because of the strong incentive to distribute all earnings to investors, most REITs carry little reserves on the balance sheet. If the market experiences a downturn, which it always does, there is nothing in the till to support those juicy dividends, which makes them highly variable. What's more, like a bond, the value of REIT shares are highly correlated with its dividend yield. If the payout is increased, the price goes up. If the payout is cut, the price goes down. Admittedly, many common stocks are also correlated with their dividend. However, common stock dividends don't fluctuate to the same degree that REIT dividends do because most corporations have enough cash or short term investments to fall back on to support the dividend until the economy picks up again. This is why most corporations are able to maintain their dividend while posting zero, or even negative, earnings. Another disadvantage of foregoing retained earnings is that management can't fund expansion internally. This can be particularly frustrating for investors who have purchased a REIT with outstanding management. To grow the business, management must either issue more equity or more debt - both are unpleasant alternatives for current investors. If more stock is issued, their position is diluted. If more debt is issued, the financial risk of their investment increases. Most REITs prefer the latter option to the former, which is why most of them have high debt-to-equity ratios, sometimes as high as four times equity. A high debt load adds an additional risk. After all, the debt must be serviced, which means REITs are very interest rate sensitive. The more it costs to service the debt, the less that remains to pay shareholders. And as explained previously, the smaller dividends equate to smaller share prices. So, in a REIT you basically have an investment tied to a variable rate coupon payment. However, unlike a variable rate bond that usually increases when interest rates increase, REITs move the opposite direction; when interest rates (meaning costs) rise, dividend payments often fall, and vice versa. But what about REITs as a proxy for real estate? Unfortunately, they don't work that way. REITs often act more like stocks than real estate. In fact the average REIT correlation coefficient with the stock market is 0.70, meaning REITs returns are more closely tied with the stock market than with physical real estate, which has historically had a 0 to 0.35 correlation with sticks. Oddly enough, though, over the past two years, REITs have actually moved in the opposite direction of both real estate and stocks. So, in a nutshell, REIT investors need to keep in mind that REITs are highly exposed to business risk, default risk, interest rate risk and, not to mention, sector risk. In fact, last year when the economy was hitting on all cylinders and six Federal Reserve interest rate hikes were just a distant nightmare, REITs sold off for most of the year. That doesn't sound like a particularly safe haven to me. ************* DAILY RESULTS ************* Index Last Week Dow 10614.06 -180.70 Nasdaq 3874.84 61.48 $OEX 779.70 -12.99 $SPX 1456.95 -20.31 $RUT 523.06 10.03 $TRAN 2790.17 -39.19 $VIX 25.19 1.08 Calls Week PDLI 165.56 40.44 Tip-toed through the tulips. HGSI 139.56 33.63 Surged 32% for the week! ABGX 121.50 25.31 Welcome to Splitsville! MUSE 144.38 19.38 Acting like a market shadow RMBS 233.56 16.19 A 7.4% weekly gain ain't bad! BRCD 147.00 13.00 Friday's pullback may be good entry MRVC 46.00 10.44 New, many things drew us to this one PLXS 99.19 9.25 New, a new 52-week high, no problem YHOO 143.19 8.69 Party invitations were sent out Friday SEPR 116.50 7.69 Analysts showed up right on cue Friday CMTN 95.56 6.63 "BUY" would be the correct answer ADI 94.72 5.75 Ample opportunity to enter this play EXDS 92.75 5.63 Shot of adrenaline with confirmed split SEBL 144.31 5.38 New, the king of CRM is back! ITWO 133.44 4.32 B-2-B leading the charge higher RBAK 115.88 3.31 We'll take the flat-line for the day. GLW 212.00 3.12 "Glow Worm" lights the Street CIEN 139.88 1.56 Great way to play the fiber-optics LLTC 67.13 1.13 New, if you like relative strength, then. MU 80.00 -0.06 Semiconductors have been sizzling hot! TQNT 113.75 -0.62 Dropped, enthusiasm subsided CHKP 225.50 -8.19 Is the glass half empty or half full? SDLI 250.00 -10.38 Just a breather we call consolidation SCMR 97.69 -12.31 Dropped, broke $100 psychological level Puts CTXS 41.19 -17.25 MSFT's fate worrying investors NXLK 74.38 -13.13 New, closed well below its 200-dma MMC 100.94 -9.88 New, so much for support! TGT 56.25 -9.75 New, retail sales data hurts MMM 81.94 -2.38 How quickly the tide can change CAH 65.94 2.38 Dropped, not going to fight the tape STOCKS ADDED TO THE PICK LIST ***************************** Calls MRVC - MRV Communications LLTC - Linear Tech SEBL - Siebel Systems PLXS - Plexus Puts MMC - Marsh and McLennan Inc NXLK - Nextlink Communications TGT - Target *************************** PICKS WE DROPPED THIS WEEK *************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS SCMR $97.69 -4.06 (-12.31) Unlike the NASDAQ which managed to hold its ground in a week of choppy trading, SCMR continued to slip from its recently gapped up plateau. Friday, the stock gapped up to open at $106.38 and quickly sold off from there. It is beginning to look like the deal to acquire Sirocco is wearing on SCMR. With the NASDAQ staying in positive territory and SCMR's inability to continue holding above the $100 psychological level, we feel that it is a good time to take our gains from this play and put our money to work elsewhere. TQNT $113.75 (-0.63) As one of the first Semiconductor stocks to break out, TQNT was instrumental in helping to push the NASDAQ back above the 3800 level on June 2nd. After the enthusiasm subsided, the buying volume dried up and TQNT began consolidating its monster gains. Our play gave us some great profits, but the momentum that accompanied the breakout appears to have dissipated. Rather than wait for it to return, we will take our profits and move on to other plays. PUTS CAH $65.94 (+2.38) The anemic selling volume in CAH last week kept us from getting a decent entry point as the stock meandered lifelessly between $61 and $64. Then on Thursday afternoon, the buyers came out of hibernation and pushed CAH up through the $64 resistance level on increasing volume and the upward pressure kept up throughout the day on Friday. It looks like the stock has put in a bottom in the low $60's, and rather than fight the tape, we are dropping CAH this weekend. STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date RHI - Robert Half Intl 2:1 06-12-00 ex-date 06-13 HC - Hanover Comp. 2:1 06-13-00 ex-date 06-14 RMBS - Rambus 4:1 06-14-00 ex-date 06-15 HSP - Hispanic Broad. 2:1 06-15-00 ex-date 06-16 CKH - Seacor Smit Inc. 3:2 06-15-00 ex-date 06-16 IFIN - Investors Fin. 2:1 06-15-00 ex-date 06-16 CYBE - CyberOptics 3:2 06-15-00 ex-date 06-16 MXT - Metris Companies 3:2 06-15-00 ex-date 06-16 JNPR - Juniper Networks 2:1 06-15-00 ex-date 06-16 IPAR - Inter Parfums 3:2 06-15-00 ex-date 06-16 NXLK - Nextlink 2:1 06-15-00 ex-date 06-16 CHP - C&D Technologies 2:1 06-16-00 ex-date 06-19 DLTR - Dollar Tree 3:2 06-19-00 ex-date 06-20 RHB - RehabCare Grp. 2:1 06-19-00 ex-date 06-20 MTZ - MasTec Inc. 3:2 06-19-00 ex-date 06-20 SEIC - SEI Investments 3:1 06-19-00 ex-date 06-20 POOL - SCP Pool Corp. 3:2 06-19-00 ex-date 06-20 MEAD - Meade Inst. 2:1 06-19-00 ex-date 06-20 EXDS - Exodus Comm 2:1 06-20-00 ex-date 06-21 AAPL - Apple Computer 2:1 06-20-00 ex-date 06-21 KG - King Pharma. 3:2 06-21-00 ex-date 06-22 CDWC - CDW Computer 2:1 06-21-00 ex-date 06-22 NVDA - NVIDIA Corp. 2:1 06-26-00 ex-date 06-27 MRCL - Micrel Inc. 2:1 06-27-00 ex-date 06-28 BRL - Barr Lab. 3:2 06-28-00 ex-date 06-29 GMH - Hughes Elec. 3:1 06-30-00 ex-date 07-03 REMC - REMEC, Inc. 3:2 06-30-00 ex-date 07-03 AMFC - AMB Financial 3:2 06-30-00 ex-date 07-03 ABGX - Abgenix, Inc. 2:1 07-07-00 ex-date 07-10 TQNT - TriQuint Semi. 2:1 07-11-00 ex-date 07-12 IWOV - Interwoven 2:1 07-13-00 ex-date 07-14 XETA - Xeta Corp 2:1 07-17-00 ex-date 07-18 TBL - Timberland Comp. 2:1 07-17-00 ex-date 07-18 TIF - Tiffany and Co. 2:1 07-20-00 ex-date 07-21 INTC - Intel Corp. 2:1 07-28-00 ex-date 07-31 AIG - American Intl. 3:2 07-28-00 ex-date 07-31 POS - Catalina Mktg. 3:1 08-17-00 ex-date 08-18 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************** CIEN - Ciena Corp $139.88 (+1.56) See details in sector list Chart = /charts/charts.asp?symbol=CIEN Put play of the day: ******************** TGT - Target Corp $55.94 (-10.06) See details in sector list Chart = /charts/charts.asp?symbol=TGT ************* DEFINITIONS ************* SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. TP/P= True premium or Time premium RRR = Risk/Reward/Ratio ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume Numbers within ( ) are the amount of change for the week. Numbers within ( ) may be designated with PxW, like P3W, prior 3 weeks The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ********** CALL PLAYS ********** ******** HARDWARE ******** RBAK - Redback Networks $115.88 (+3.31)(+40.50)(+9.13) Founded in 1996 and headquartered in Sunnyvale, Calif., Redback Networks is a leading provider of advanced networking solutions that enable carriers, cable operators, and service providers to rapidly deploy broadband access and services. The company's market-leading Subscriber Management Systems (SMSs) connect and manage large numbers of subscribers using any of the major broadband access technologies such as Digital Subscriber Line (DSL), cable, and wireless. To deliver integrated transport solutions for metropolitan optical networks, Redback's SmartEdge multi-service platforms leverage powerful advances in application-specific integrated circuit (ASIC), IP, and optical technology. With this product portfolio, Redback Networks is the first equipment supplier focused exclusively on developing integrated solutions for the New Access Network. We'll take the flat-line on Friday, given the spectacular gains RBAK has tacked on since making the call list. If you throw out the first hour of trading on Friday, RBAK traded in a narrow range between $117.56 and $115.88. This consolidation stage over the $115 level is smartly building a support that we'll watch closely going forward. As for the first hour on Friday, RBAK gapped open to $119.44, traded to a high of $120.56 and within ten minutes, it reversed course and traded to the low of the day at $115.19. Now there is a perfect example of the type of volatility we talk about in "amateur hour." RBAK put in its high and low of the day ten minutes into the session! Technically, RBAK's nearest resistance level lies at $120. This is a very significant level because if it can move through $120 convincingly, overhead resistance is slim up to $150. The reason being is on April 10th and 11th, RBAK sold off from $155 to $115 in the panic. Another technical aspect looks very positive for the stock. RBAK is now well over its 100-dma of $109.59. Watch this level for support and bounces if RBAK slides. It is imperative that you watch the market to see if the techs remain in favor on the Street, given the massive gains during the past two weeks. The consolidation we have seen is encouraging, yet this market requires a bit of skepticism. If sellers do step in strongly, consider a breach of $105 and downward a possible gap-closing move to $95. Bounces from $105 certainly provide good entry. Remember we have been in since $72, so protect profits and trade the intraday swings. Broadband and fiber-optic stocks have been hot lately. With such a streaky market, they can put on impressive gains relatively quick. Investors love these stocks and will chase for them. Given that there is really no news for RBAK, other than the investment in Telica mentioned on Thursday, watch these sectors as well as the Internet sector to see if they continue their advances after CPI on Tuesday. ***June contracts expire Friday*** BUY CALL JUL-110 BUK-GB OI= 134 at $20.50 SL=16.00 BUY CALL JUL-115 BUK-GC OI= 106 at $17.88 SL=14.00 BUY CALL JUL-120*BKK-GD OI= 273 at $15.88 SL=12.25 BUY CALL JUL-125 BKK-GE OI= 90 at $14.00 SL=11.25 BUY CALL OCT-140 BKK-JH OI=1383 at $23.00 SL=18.00 SELL PUT JUN-105 BUK-RA OI= 71 at $ 2.25 SL= 3.25 (See risks of selling puts in play legend) Picked on May 28th at $72.06 P/E = N/A Change since picked +43.81 52-week high=$198.50 Analysts Ratings 9-3-1-0-0 52-week low =$ 20.00 Last earnings 04/00 est= 0.03 actual= 0.05 surprise = 33% Next earnings 07-12 est=-0.06 versus=-0.05 Average Daily Volume = 2.7 mln /charts/charts.asp?symbol=RBAK BRCD - Brocade Communications $147.00 (+13.00) Brocade Communications is a provider of Fibre Channel switching solutions for Storage Area Networks (SANs), which apply the benefits of a networked approach to the connection of computer storage systems and servers. The company's family of SilkWorm switches enables companies to cost-effectively manage growth in their storage capacity requirements and improve the performance between their servers and storage systems. This provides the ability of increasing the size and scope of a company's SAN, while allowing them to operate data-intensive applications, such as data backup and restore, and disaster recovery on the SAN. Along with many beaten down NASDAQ stocks, BRCD put in one final bounce at its 200-dma in late May and very quickly proceeded to break out of its bearish chart pattern. The past 2 weeks have been very encouraging, as BRCD has moved up more than 50%. With such a strong move, a little consolidation was to be expected and Friday's pullback may be giving us an attractive entry. Support near $145 held up well in light of the anemic volume in the overall markets on Friday. The next level of support at $140-141 would provide an even more attractive entry point. We would use an intraday dip to this level as an opportunity to play at a better price. Volume in BRCD was light on Friday, with only two-thirds of the average number of shares trading hands, but the double bounce at $145 gives the appearance that investors are certainly not in a rush to sell their shares at current levels. An upgrade (see below) always seems to help, and BRCD confirmed this pattern as the stock held its ground on Friday. Granted, the stock did give up over $4 on the session, but in light of the strong gains over the past 2 weeks, it seems a small price to pay. Resistance still sits at $156-158, but once this level has been cleared, BRCD could make a quick trip to $170, especially if the NASDAQ cooperates and heads higher as well. Giving an additional boost to the price of BRCD, on Thursday, DB Alex Brown raised their rating on the stock from Buy to Strong Buy. This followed Monday's announcement of David de Simone's appointment to the newly-created position of vice president of Platform Development. With over 20 years of experience in managing hardware and software development, testing, and program management, de Simone will be responsible for the hardware strategy for BRCD's SilkWorm family of FibreChannel fabric switches. BUY CALL JUL-145 UBZ-GI OI= 327 at $21.38 SL=16.00 BUY CALL JUL-150*UBZ-GJ OI=4427 at $19.00 SL=13.75 BUY CALL JUL-155 UBZ-GK OI=1001 at $16.75 SL=12.00 BUY CALL OCT-155 UBZ-JK OI=1042 at $31.75 SL=23.75 BUY CALL OCT-160 GUF-JL OI= 124 at $28.50 SL=21.25 SELL PUT JUN-140 UBZ-RH OI= 18 at $ 3.00 SL= 4.00 (See risks of selling puts in play legend) Picked on June 6th at $138.88 P/E = 694 Change since picked +8.13 52-week high=$185.00 Analysts Ratings 8-4-2-0-0 52-week low =$ 12.91 Last earnings 05/00 est= 0.08 actual= 0.11 Next earnings 08-14 est= 0.12 versus= 0.01 Average Daily Volume = 3.09 mln /charts/charts.asp?symbol=BRCD CMTN - Copper Mountain Networks $95.56 (+6.63) 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. What do you do with a networking company with triple-digit revenue growth and continues to blow away earnings estimates every quarter? If CMTN's chart is any indication, "buy" would seem to be the correct answer. Strong growth in the company's client base, along with impressive April earnings helped the stock to begin a nice recovery in late April. Moving strongly off the 200-dma (then at $57), CMTN had a nice run all the way to $92. Some consolidation was necessary, and the stock went along with the weakness in the broad markets until late May, when the latest advance began. The rally continued last week, pushing CMTN through the $92 resistance level and it was encouraging to see the stock hold those gains in the face of Friday's market weakness. The benign PPI report did little to help the stock, but looking at an intraday chart, it is clear that investors didn't want to let their shares go at current prices. Intraday support is building near $94, with stronger support between $90-92 (old resistance). The stock continues to be supported by the 5-dma (currently $92.06), adding to our conviction of this level as support. A volume-backed bounce at either of these levels would be a good point to initiate new positions as CMTN gets ready to head even higher. CMTN likely got an added boost last week from its positive showing at the last 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 Friday*** BUY CALL JUL- 90 KUA-GR OI= 84 at $14.75 SL=11.00 BUY CALL JUL- 95 KUA-GS OI= 137 at $12.25 SL= 9.00 BUY CALL JUL-100*KUA-GT OI= 157 at $ 9.88 SL= 7.00 BUY CALL SEP-100 KUA-IT OI= 159 at $16.63 SL=12.00 BUY CALL SEP-110 KUA-IB OI=2114 at $12.88 SL= 9.75 SELL PUT JUN- 90 KUA-RR OI= 115 at $ 1.88 SL= 2.50 (See risks of selling puts in play legend) Picked on June 8th at $94.19 P/E = 205 Change since picked +1.38 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 = 1.59 mln /charts/charts.asp?symbol=CMTN MRVC - MRV Communications $46.00 (+10.44) MRV Communications, Inc. is a world-class leader in optical network components and systems. The company has leveraged its early leadership in fiber optic transmission into a well-focused range of solutions, integrating switching, routing, access servers and optical transmission systems. MRV has initiated and funded cutting edge start-up companies including Zaffire, Inc., Charlotte's Networks, Hyperchannel, Zuma Networks and most recently RedC Optical Networks, Inc., Optical Crossing and All Optical, Inc. With so many companies to choose from, what drew our attention to MVRC? To start with, a quick look at the chart shows a stock that 3 months ago was selling for a pre-split price near $194.00. Six weeks later you could have purchased your very own piece of this communications company for about 79% less. That's right, the sell-off this spring saw shares of MVRC bottom out near $40 in mid-April. Again, we remind those of you looking at the chart, the prices mentioned above are pre-split levels. In early March the company announced a 2-for-1 split, which took place on May 30th. The sell-off, or "correction," and the split have brought investors to what we feel is a heck of a buy. The normal post-split depression was a non-event for MVRC. MVRC has been on a shopping spree so far this year picking up three companies in late April, with its latest acquisition coming the last week of May with Geneva, Switzerland-based CES. Another indicator that drew us to the chip company was the volume on the recent move up the chart. Since the day of the split, MRVC has traded an average of about 2.6 mln shares compared to the 1.7 mln seen the past 90 days. The chat rooms are a speculating that an important announcement could be forthcoming from the company. At this point, we have to view that information as strictly rumors. It appears that we have a company that was beaten up badly and has found new strength from the recent shift in broad market sentiment, sector strength, and the belief that MVRC is a great buy at current levels. Technically, MRVC has support at $44.75, $42 and $40, with minor resistance near $48. Economic data due out next week could light a fire under the major indices and our new play. However, if traders return with the sell button in their sights, stand back, and allow MRVC to find support while patiently waiting for a bounce prior to entering new plays. On May 10th, MVRC held a special stockholders meeting, asking for approval to increase the number of authorized shares from 80 mln to 160 mln. Although no announcement has been made, another split certainly could be in the works. BUY CALL JUL-40 VQX-GH OI= 573 at $10.50 SL= 7.50 BUY CALL JUL-45 VQX-GI OI= 513 at $ 8.00 SL= 5.75 BUY CALL JUL-50 VQX-GJ*OI=1092 at $ 6.00 SL= 4.00 BUY CALL OCT-50 VQX-JJ OI= 926 at $12.25 SL= 9.25 SELL PUT JUL-40 VQX-SH OI= 114 at $ 3.88 SL= 5.00 (See risks of selling puts in play legend) Picked on Jun 11th at $46.00 PE = N/A Change since picked +0.00 52 week high=$97.44 Analysts Ratings 1-1-0-0-0 52 week low =$ 5.00 Last earnings 04/00 est=-0.01 actual= 0.03 Next earnings 07/27 est= 0.03 versus= 0.01 Average daily volume = 1.76 mln /charts/charts.asp?symbol=MRVC GLW - Corning Inc. $212.00 (+3.12) Corning provides communications technology at light speed. The materials pioneer is one of the world's top makers of fiber-optic cable, which it invented more than 20 years ago. Corning's Telecom unit (about 50% of sales) makes optical fiber and cable and photonic components. The company's Advanced Materials unit makes industrial and scientific products, including semiconductor materials. Its Information Display segment makes glass products for TVs, VCRs, and flat-panel displays. The company operates 40 plants in 10 countries. GLW is known as the "glow worm" by Wall Street. And the stock has given investors reason to glow. Despite the hardships for tech stocks in 2000, GLW is up 92%. The company has gained popularity over the past two years for its fiber optic equipment, but GLW operates in two other successful business segments. Originally known as Glass Works, GLW has held onto its heritage as a glass maker. But in the 21st century, its glass products are used in more than beakers and measuring cups. The company is a leading manufacturer of high-performance glass for computers and display applications. In fact, sales of flat-panel display glass used in computers continues to grow at a rate of 50%. The company also makes advanced materials for the semiconductor industry, polymers for biotechnology applications, and ceramics for the automotive industry. GLW operates in several of the fastest growing segments of the economy, and the result has been enviable earnings growth that has carried the stock higher. After breaking out from its trading range two Fridays ago, GLW spent the last week consolidating its gains. Over the course of last week, GLW formed a flag pattern. That is, lower highs and higher lows. The constricted price was formed on decreasing volume. This "coiled spring" sometimes gives way to an explosive burst, usually in the direction of the most recent trend. If we get another tame inflation report next week, GLW might be in a position to retest its 52-week high. Two possible ways to gain entry into the play would be first to watch for a bounce off support at $210 or wait for a move above $220 on good volume. A move above resistance at $220 might signal a break-away from its flag pattern. GLW has more than enough shares for a split after shareholders approved the proposal to increase authorized shares at the company's last meeting. If the stock continues to climb next week past the $200 level, GLW officials may decide to declare a stock split. It's been a long time coming, since the company last split back in 1992. BUY CALL JUL-200 GRJ-GT OI=145 at $25.63 SL=18.50 BUY CALL JUL-210 GRJ-GB OI=355 at $20.25 SL=14.50 BUY CALL JUL-220*GRJ-GD OI=675 at $15.75 SL=11.25 BUY CALL AUG-220 GRJ-HD OI=915 at $22.63 SL=16.50 BUY CALL NOV-230 GRJ-KF OI=222 at $32.38 SL=23.50 Picked on June 6th at $217.25 P/E = 113 Change since picked -5.25 52-week high=$226.44 Analysts Ratings 8-5-0-0-0 52-week low =$ 54.56 Last earnings 04/00 est= 0.55 actual= 0.64 Next earnings 07-24 est= 0.67 versus= 0.49 Average Daily Volume = 3.00 mln /charts/charts.asp?symbol=GLW ******************************** CALLS CONTINUED IN SECTION THREE ******************************** ************************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
The Option Investor Newsletter Sunday 6-11-2000 Sunday 3 of 5 *************** CALLS CONTINUED *************** ************* SEMICONDUCTOR ************* CIEN - Ciena Corp $139.88 (+1.56)(+38.63)(-16.81) Ciena makes multiplexing systems that increase the capacity of long-distance fiber-optic telecommunications networks. The company's systems transmit signals simultaneously over the same circuit. Customers such as Sprint, Bell Atlantic, and MCI Worldcom, use its lines for long-distance optical transport and for shorter distances. The company is expanding its product and geographic breadth as it transforms itself from niche market specialist to optical networking supplier. The Telecom sector moved higher Friday on the heels of a tame inflation report. The telecom business is a cash intensive operation, thus sensitive to the cost of money, namely interest rates. It's a bit of a paradox, as the economy slows, Wall Street cheers. But signs of a slowing economy lessens the threat of inflation, which should lead to fewer interest rate hikes. And companies operating in the Telecom sector like that idea, and so do analysts. PaineWebber initiated coverage on CIEN with a Buy rating Friday morning, suggesting that the stock is a great way to play the fiber optic area. Analysts said that CIEN will continue to grow as the demand for optical networking equipment expands, they expect the company to grow sales by 66% in 2000. PaineWebber added a 12-month price target of $175 on the stock. CIEN gapped $6 higher Friday morning after the analyst comments. But the gap was the extent of the action Friday as traders started the weekend early and CIEN settled around $140, churning near that level into the close. With its wide intra-day swings, CIEN provided several entry points last week, but was unable to stay above resistance at $140. However, a week of consolidation might be healthy for our play. Since the stock closed near support Friday, you might consider an entry if CIEN bounces from its current levels. A more conservative entry point might be found if CIEN clears congestion at $145 on healthy volume. If traders get nervous ahead of the CPI next week, look for CIEN to find support at $136 and again at $132. If CIEN bounces from support, confirm direction and use its intra-day volatility to target shoot for an entry point. SuperComm 2000 provided fireworks last week for investors in the Telecom sector. CIEN was one of the crowd favorites at the conference. The company reaffirmed its claim as the leader in optical networking services. Gary Smith, CIEN's COO, said, "These service concepts CIEN is showing at SuperComm are only the beginning." CIEN's impressive showing prompted SG Cowen and Robertson Stephens to make favorable comments and push the stock. ***June contracts expire Friday*** BUY CALL JUL-135 UEE-GG OI=419 at $21.13 SL=15.50 BUY CALL JUL-140*UEE-GH OI=477 at $18.38 SL=13.25 BUY CALL JUL-145 UEE-GI OI=761 at $16.38 SL=11.75 BUY CALL OCT-140 UEE-JH OI=207 at $31.38 SL=22.75 BUY CALL OCT-145 UEE-JI OI=703 at $29.63 SL=20.25 SELL PUT JUN-130 UEE-RF OI=345 at $ 2.50 SL= 4.00 (See risks of selling puts in play legend) Picked on May 25th at $104.50 P/E = 794 Change since picked +35.38 52-week high=$189.00 Analysts Ratings 11-8-1-0-0 52-week low =$ 26.81 Last earnings 04/00 est= 0.10 actual= 0.12 Next earnings 08-17 est= 0.16 versus= 0.01 Average Daily Volume = 6.67 mln /charts/charts.asp?symbol=CIEN RMBS - Rambus Inc. $233.56 (+16.19)(+54.38)(-10.75) Rambus Inc. develops and licenses high bandwidth chip connection technologies to enhance the performance of computers, consumer electronics and communications products. Current Rambus-based computers supported by Intel chipsets include Dell, Compaq, Hewlett-Packard, and IBM PCs and workstations. Sony's PlayStation video game system uses Rambus memory. Providers of Rambus-based integrated circuits include the world's leading DRAM, ASIC and PC controller manufacturers. Currently, eight of the world's top-10 semiconductor companies license Rambus technology. The action, or lack thereof, in the broader markets was indecisive on Friday, yet our play continued to gain ground. A 1.6% gain may not sound like much, but considering the lack of follow-through buying elsewhere on tame inflation data, we were very pleased with the way RMBS ended the week. RMBS started out Friday making a new high for the week at $242, but retraced to $226. The plus, as we see it, was the buying that showed up early in the afternoon as traders bid the price back up going into the end of the session. The volume came in a bit light, but still respectable with 4.98 mln shares traded. For a Friday in the summer, we'll take it. Our play ended the week with a gain of 7.4%. RMBS and others in the sector survived a downgrade of industry giant Intel. The news was that the launch of INTC's first integrated processor, code name Tinma, would be delayed because it needs to develop a new method for connecting the chip to standard memory. The processor had originally been designed for Rambus. RMBS's 4-for-1 split scheduled for Thursday seems to have kept Rambus on track. For now, we would expect more of the same from RMBS, especially if the inflation data is benign on Tuesday. Be aware that the company expects to begin trading on a split adjusted basis Thursday, June 15th. If we do see the momentum continue, open positions should be closed by the end of business on Wednesday. The major buzz for RMBS is the upcoming split. Other than what we mentioned above, the last release of major importance came in late May when the company announced Vitesse Semiconductor had licensed the Direct Rambus ASIC Cell for use in network ICs. ***June contracts expire Friday*** BUY CALL JUL-220 BYQ-GD OI=443 at $43.63 SL=31.50 BUY CALL JUL-230 BYQ-GF OI= 54 at $39.00 SL=28.25 BUY CALL JUL-240*BYQ-GH OI=105 at $34.75 SL=25.25 BUY CALL AUG-240 BYQ-HH OI=279 at $43.00 SL=31.25 BUY CALL AUG-250 BYQ-HJ OI=330 at $38.88 SL=28.25 SELL PUT JUN-220 BYQ-RD OI=559 at $ 7.75 SL=10.00 (See risks of selling puts in play legend) Picked on May 28th at $163.00 PE = N/A Change since picked +70.56 52 week high=$471.00 Analysts Ratings 1-1-2-0-0 52 week low =$ 58.50 Last earnings 04/00 est= 0.14 actual= 0.15 Next earnings 07-12 est= 0.16 versus= 0.08 Average daily volume = 4.08 mln /charts/charts.asp?symbol=RMBS SDLI - Spectra Diode Laboratories Inc. $250.00 (-10.38)(P2Wk +86.38) SDL's products power the transmission of data, voice and Internet information over fiber optic networks to meet the needs of telecommunications, DWDM, cable television and satellite communications applications. They enable customers to meet the bandwidth needs of increasing Internet, data, video and voice traffic by expanding their fiber optic communications networks more quickly and efficiently than would be possible using conventional electronic and optical technologies. SDL's optical products also serve a variety of non- communications applications, including materials processing and printing. SDLI spent most of the week consolidating recent gains and waiting for the green light to resume the upward momentum. Investors may have to wait another day or two as SDL finished the week in much the same way it had spent the first four sessions. Some traders suggest we may be in for more of a pullback with several of the technical indicators just now beginning to come off the top of the scale. At this point, we really believe investors are really just taking a break waiting for more inflation data next week. The volume on Thursday and Friday would suggest that the current trend is intact. Combined shares traded the last two days of the week barely matched any of the first three days. As we said, it can be nerve-wracking with open positions not knowing whether to wait it out or just take profits and come back another day. That decision is a matter of personal preference. We do believe if the data this week is friendly, SDLI and the chip stocks should be able to regain their footing and continue up the chart. There was little in the way of company news this week. The only item of any significance came on Monday when SDL announced it had completed its acquisition of Photonic Integration Research, which was announced in early May. Our play has built good support near $242. A decline through that level with better than average volume and it may be time to stand aside. A bounce off the support area between $242 and $245 again with solid volume could be an attractive entry point for new plays. A strong move back through the $263 mark or the $270 area and our play should be back on track. This week's downgrade of chip giant INTC may have caused some investors to take a second look at stocks in the semiconductor business. Several other brokerage firms came to the aid of INTC and the sector. Although no analysts commented on the SDLI, most still have the company rated a Strong Buy. The latest price targets for the company remain near $325. ***June options expire Friday*** BUY CALL JUL-240 QJV-GH OI=104 at $41.00 SL=29.75 BUY CALL JUL-250*QJV-GJ OI=378 at $36.63 SL=26.50 BUY CALL JUL-260 QJV-GL OI=118 at $32.25 SL=23.50 BUY CALL SEP-250 QJV-IJ OI=441 at $55.38 SL=40.00 SELL PUT JUN-230 QJV-RF OI=503 at $ 5.13 SL= 6.75 (See risks of selling puts in play legend) Picked on May 21st at $196.00 PE = 500 Change since picked +54.00 52 week high=$272.63 Analysts Ratings 13-8-0-0-0 52 week low =$ 21.63 Last earnings 04/00 est= 0.16 actual= 0.22 Next earnings 07-19 est= 0.27 versus= 0.09 Average daily volume = 3.55 mln /charts/charts.asp?symbol=SDLI ADI - Analog Devices $94.72 (+5.72)(+21.06) ADI is a semiconductor company. They design, manufacture, and market analog and digital integrated circuits (ICs) including digital signal processors. Most of the company's components are used by original equipment manufacturers (OEMs) and include such clients as 3Com, Hewlett-Packard, and Electrolux. Analog Devices has operations in the US, the Philippines, Taiwan, and Ireland. About two weeks ago, ADI joined its semiconductor index ($SOX) in a rally that has yet to subside. However, traders were provided with ample opportunities to enter this momentum play at the beginning of this week. ADI experienced a mild consolidation period where the share price buoyed at $85 and $88. Then on Thursday, the stock closed above former resistance ($95.31) and hit a new high. While $96.25 now serves as overhead resistance, the psychological century mark is the real test. If it can breakout above $100, then ADI should be considered a split candidate too. Alright, if we must get technical about it, ADI is a bit shy of the historical split range of about $130. But, taking a look back over time, it's evident Analog Devices likes to split its stock. The company affected 12 stock dividends since 1979 with the most recent in March 2000. Currently, there's 600 mln shares authorized and about 354 mln outstanding. This isn't quite enough for a 2:1, but plenty for a 3:2 split. So perhaps in the near future, the zeal behind this play will take on a new twist. For now, pick your entry and exit points carefully. The first level of support is at $92 and $94, while $88, just under the rising 5-dma ($90.03), is firmer. Definitive bounces off the latter are reasonable entries, although keep a sharp look out for profit takers at these higher prices. At the Supercomm 2000 on Tuesday, ADI announced that its ADSL sales for 2000 are growing at three times the rate of the industry. They also took it a step further and reiterated expectations for xDSL silicon sales to grow by as much as 700% from 1999. Investors just love this kind of revenue talk! The company also joined the CDMA Development Group (CDG), a consortium of more than 115 companies joined together to lead the global adoption and evolution of CDMA (Code Division Multiple Access) wireless technology. BUY CALL JUL- 90*AKI-GR OI= 435 at $12.38 SL=9.25 BUY CALL JUL- 95 AKI-GS OI= 448 at $ 9.88 SL=7.00 BUY CALL JUL-100 AKI-GT OI= 154 at $ 7.75 SL=5.50 BUY CALL JUL-105 AKI-GA OI=1566 at $ 6.00 SL=4.00 Picked on May 30th at $75.00 P/E = 104 Change since picked +19.72 52-week high=$96.25 Analysts Ratings 12-7-0-0-0 52-week low =$20.82 Last earnings 03/00 est= 0.28 actual= 0.32 Next earnings 08-16 est= 0.37 versus= 0.15 Average Daily Volume = 2.65 mln /charts/charts.asp?symbol=ADI MU - Micron Technology Inc $80.00 (+0.75)(+14.63) Micron is one of the world's leading makers of semi-conductor memory components. They design, manufacture, and market a variety of complex circuit boards, memory modules, system level assemblies, and PCs. Although approximately two-thirds of its sales revenues come directly from the dynamic random-access memory (DRAM) components and other related chips. To keep competitors Hyundai and Samsung on their toes, Micron is developing embedded memory for the digital video market. Texas Instruments and Intel both have interests Micron. If you aren't a fan of ADI, then take a look at MU. This stock is definitely a favorite of the crowd. Semiconductors as a whole have been sizzling hot! First off, they're the sexy stocks of the month and second, chips are in short supply. Many chip companies are struggling to meet customer's demands. And to put the icing on the cake, as the supply increases, the DRAM prices keep rising. So it goes that MU has magnified its share price by over 33% in just two weeks time. Moreover, the positive remarks by analysts certainly aren't hindering MU's progress. Again this week, Dan Niles of Lehman Brothers came forward with his Buy recommendation and six-month price target of $100. Another analyst, Gregory Mischou at UBS Warburg LLC joined the ranks and reiterated a Buy rating for MU as well as issued a 12- month price target of $110. Trading this week however was rather tame, with the exception of Monday's late day push into new territory. For the third consecutive session, investors' excitement set the stage for a new level of resistance. The 52- week record to beat is now $82.50. It's also good news that $75 and $76 proved to be a solid level of support during Wednesday's pullback. Although, the $80 mark should serve as the next launching point, just above the 5-dma ($79.15). The speculation is for another breakout ahead of the company's earnings' report. Currently, Micron's Corporate Affairs doesn't have an earnings date nailed down. The company is targeting the week of June 19th to report after the market close. A confirmed release date will be available very soon. Keep this time frame in mind as you plan your strategy. OIN never recommends holding over the announcement. It's better to exit early then to take the unnecessary risk of a post-event decline. BUY CALL JUL-75*MUY-GO OI=2145 at $12.75 SL=9.50 BUY CALL JUL-80 MUY-GP OI=1327 at $10.00 SL=7.00 BUY CALL JUL-85 MUY-GQ OI=1395 at $ 7.63 SL=5.25 BUY CALL JUL-90 MUY-GR OI=2363 at $ 4.00 SL=2.50 Picked on June 1st at $74.00 P/E = 100 Change since picked +6.00 52-week high=$82.94 Analysts Ratings 10-5-4-1-0 52-week low =$18.69 Last earnings 03/00 est= 0.81 actual= 0.58 Next earnings 06-20 est= 0.31 versus=-0.05 Average Daily Volume = 5.76 mln /charts/charts.asp?symbol=MU LLTC - Linear Technology Corp. $67.13 (+1.13) Linear Technology designs, manufactures, and markets a broad line of standard high performance linear integrated circuits. These circuits translate analog data (such as sound, pressure, temperature, and speed) into digital information that can be used by electronic devices, and to regulate and control power and voltage. The company's amplifiers, regulators, interface circuits, and other chips are used in a wide variety of products, including cellular phones, radar systems, satellites, computers, and factory automation systems. Primarily through its distributor network, LLTC sells its products to more than 15,000 manufacturers, with more than 50% of sales generated by non-US customers. If you like relative strength, then you're going to love LLTC. After breaking out above the $60-61 resistance level on June 2nd, the stock followed the broad markets as they spent most of last week consolidating their strong gains from the week before. Friday was a very quiet day on the NASDAQ, but LLTC investors weren't paying attention. Bidding the share price higher by more than $5 on volume 30% greater than the daily average is enough to get our attention. The real clincher was posting a new all-time high of $67.38, and closing just a fraction below that level. As the NASDAQ continued to flatline throughout the afternoon, LLTC saw volume increase smartly, right up to the close. With an ADV of 3.87 mln shares, it was really encouraging to see over 1.5 mln shares trade hands in the final hour. So where do we go from here? LLTC will need to move convincingly above the $67 level, as the stock may see some resistance here. With intraday support near $64, and stronger support at $61, look for intraday pullbacks to provide better entry points. Wait for the selling to abate, and then enter on the strength of increasing buying activity. If the buying volume is still strong on Monday, (entirely possible, given Friday's strong close) consider new positions as LLTC moves up through $68. This play is entirely momentum and technically driven, as there hasn't been so much as a peep in the news about LLTC since the company posted record sales numbers with its April earnings report. The company's CEO, Robert H. Swanson impressed investors by stating, "The March quarter was an outstanding quarter for us as we achieved record levels of bookings, sales and profits with sales increasing 14% and profits 17% sequentially from the December quarter." With numbers like that, it's easy to see why investors are making a bee-line for shares of LLTC. BUY CALL JUL-65*LLQ-GM OI=610 at $ 7.63 SL=5.25 BUY CALL JUL-70 LLQ-GN OI=385 at $ 5.13 SL=3.00 BUY CALL JUL-75 LLQ-GO OI= 92 at $ 3.50 SL=1.75 BUY CALL AUG-70 LLQ-HN OI=509 at $ 7.63 SL=5.25 BUY CALL AUG-75 LLQ-HO OI=487 at $ 5.75 SL=3.75 SELL PUT JUL-60 LLQ-SL OI= 99 at $ 2.63 SL=4.00 (See risks of selling puts in play legend) Picked on June 11th at $67.13 P/E = 80 Change since picked +0.00 52-week high=$67.38 Analysts Ratings 7-10-2-0-0 52-week low =$27.63 Last earnings 04/00 est= 0.22 actual= 0.23 Next earnings 07-18 est= 0.25 versus= 0.17 Average Daily Volume = 3.87 mln /charts/charts.asp?symbol=LLTC ******** INTERNET ******** ITWO - I2 Technologies $133.44 (+4.31)(+33.63)(-2.75) I2's RHYTHM supply chain management software helps manufacturers plan and schedule production and related operations such as raw materials procurement and product delivery. Companies that use RHYTHM include: 3M, Dell, Ford, and Motorola. Maintenance, training, and other services account for more than a third of sales. I2 is using acquisitions of complementary technologies and companies to position itself as a leader in the market for Internet-based production process applications. The B-2-B sector has led the charge higher since the market hit bottom on May 23rd. The CS First Boston B-2-B eCommerce Index is up an amazing 33% since that time. The rebound in the group reflects growing investor bullishness for the leading companies in the sector. Analyst seem upbeat about the group and are expecting upside revenue and earnings surprises in the near-term. Wall Street's bullish outlook can be seen in all the noise the analysts have been making recently. Just last Friday, CS First Boston reiterated its Buy rating on ITWO, DLJ reiterated its Buy and raised its price target, and finally, CIBC World Markets reiterated its Buy rating, raised it target price to $150, and raised its 2000 earnings estimates to 39 cents per share. The rise in earnings estimates is warranted considering the rapid pace at which ITWO continues to ink contracts. Last week, Best Buy (BBY) said they had bought supply chain and e-commerce tools from IWTO. BBY will use the ITWO tools to integrate its merchandising and financial planning to improve its customers' experience. The deal came on the heels of an announcement by ITWO to create an electronic marketplace for technology industries, to be called E2Open.com. Analysts love the fact that ITWO is increasing its profitability and executing efficiently. Despite the host of analyst comments Friday, ITWO edged lower along with the rest of the B-2-B sector in what appeared to be a sweep of profit taking. If the selling spills over into Monday's trading, watch for ITWO to find support at $130 and consider an entry if the stock rebounds from that level. Otherwise, wait for a bold move above resistance at $140 to look for an entry. ITWO said late Thursday that shareholders had approved the proposed buyout of Aspect Development (ASDV). ITWO officials said they expected the deal to close within the next five days. With the merger coming to a close, ITWO may be alleviated from the arbitrage pressure the stock has been under since the deal was announced. We may see some short positions covered in the coming days which would give the stock a nice pop. BUY CALL JUL-130 QYJ-GF OI=125 at $20.63 SL=14.75 BUY CALL JUL-135*QYJ-GG OI= 87 at $18.00 SL=13.00 BUY CALL JUL-140 QYJ-GH OI=151 at $15.88 SL=11.25 BUY CALL AUG-135 QYI-HG OI= 49 at $24.13 SL=17.50 BUY CALL NOV-140 QYI-KH OI= 55 at $34.13 SL=24.75 Picked on May 27th at $95.50 P/E = 642 Change since picked +37.94 52-week high=$223.50 Analysts Ratings 8-17-2-0-0 52-week low =$ 13.06 Last earnings 03/00 est= 0.05 actual= 0.07 Next earnings 07-20 est= 0.08 versus= 0.05 Average Daily Volume = 4.03 mln /charts/charts.asp?symbol=ITWO YHOO - Yahoo! Inc. $143.19 (+8.69)(+22.44)(-8.25) Yahoo! Inc. is a global Internet communications, commerce and media company that offers a comprehensive branded network of services to more than 145 million individuals each month worldwide. As the first online navigational guide to the Web, www.yahoo.com is the leading guide in terms of traffic, advertising, household and business user reach, and is one of the most recognized brands associated with the Internet. The company also provides online business services designed to enhance the Web presence of Yahoo!'s clients, including audio and video streaming, store hosting and management, and Web site tools and services. The company's global Web network includes 22 local World properties outside the United States. The invitations to the party were sent out Friday in the form of tame inflation data. The problem? Very few chose to attend. Just when it appeared as though we may have a repeat of the previous Friday's performance in the YHOO and the broad markets, someone turned the lights out. YHOO gapped up about $2 and promptly faded from there. Some traders seem to believe that until next week's data is released, we would see little if any follow-through to the recent momentum in the market. As we said, very few chose to participate in the session on Friday. How bad was the attendance? Less than half of what was expected. The first four days of the week, YHOO averaged about 8.7 mln shares per day, while Friday just 4.3 mln were traded. Another factor indirectly affecting YHOO and others is earnings warning season. Several influential analysts have recently "called a bottom" in the NASDAQ and also attempted to direct investors back to the "quality" Internet companies like our favorite, Yahoo!. The analysts may be on target, but all it takes is a big name or two to come out with an earnings warning, and the apple-cart can be quickly upset. We certainly aren't upset about this week's gains for our play. After all, finishing 6.4% to the good is still a respectable move given the current market environment. What's in store for the week ahead. More data to digest. Favorable news and our play could challenge and take out the resistance level at the 50-dma of $151.84, with the next hurdle coming up near $160 area. During the past two sessions, YHOO has formed support between $141 and $142, but don't forget the 200-dma back at $136.30. For the time being, move you stops up if you have existing positions. As for new plays, we would suggest considering scaling into positions based on your individual risk tolerance. Don't forget to check the volume prior to participating in any move higher. On Wednesday, Gomez Advisors, a leading e-commerce authority for both consumer and e-business, announced a new content agreement with YHOO. Under the terms of the agreement, Gomez's proprietary Internet Banker Scorecards will be profiled in the banking center on Yahoo!. Gomez Scorecards assist consumers who want to conduct business on the Internet by helping them identify firms whose Internet offerings best meet their needs. ***June contracts expire Friday*** BUY CALL JUL-135 YMM-GG OI=3912 at $19.38 SL=14.00 BUY CALL JUL-140*YMM-GH OI=2766 at $16.88 SL=13.00 BUY CALL JUL-145 YMM-GI OI=1441 at $14.63 SL=10.50 BUY CALL JUL-150 YMM-GJ OI=4788 at $12.38 SL= 9.75 BUY CALL OCT-150 YMM-JJ OI= 825 at $23.63 SL=18.50 SELL PUT JUN-140 YMM-RH OI=2293 at $ 3.00 SL= 4.00 (See risks of selling puts in play legend) Picked on May 28th at $112.06 PE = 651 Change since picked +31.13 52 week high=$250.06 Analysts Ratings 16-13-3-0-0 52 week low =$ 55.00 Last earnings 04/00 est= 0.09 actual= 0.10 Next earnings 07-11 est= 0.10 versus= 0.05 Average daily volume = 10.2 mln /charts/charts.asp?symbol=YHOO EXDS - Exodus Communications $92.75 (+5.63)(+25.13)(-9.19) Exodus provides Internet system and network management solutions for enterprises with mission-critical Internet operations. They have pioneered the Internet Data Center (IDC) market and is one of the leading providers of Internet server hosting to the growing number of companies using the Internet. At present, Exodus also has twenty Internet Data Centers where clients store their servers in secure vaults. Clients include CBS Sports, eBay, Lycos, Yahoo!, MSNBC, and Hewlett-Packard. The dynamic momentum that thrust EXDS upwards over the past couple weeks got a shot of adrenaline on Wednesday. Exodus announced that its shareholders approved an increase in authorized shares to 1.5 bln and confirmed a payable date of June 20th for a 2:1 stock split. This gives us just six more sessions to make our trades. If you want to open new positions there's light support at $92, then $90, but confirm a bounce with volume first. A break over the 50-dma ($91.59) is a bullish sign and may signal the start of a profitable split run. Once we see the upside of Friday's intraday high tackled ($98.75), then resistance lies at the sometimes illusive $100 level. Because life isn't always fair, we can't rule out the possibility of a pullback, so take precautions or be on the sidelines if EXDS dips under $90. A slide back to old resistance at $80 near the 10-dma ($81.28) isn't out of the question in an uncertain market. The next week, however, should fare well with Friday's economic data further indicating a benign outlook. So if all the stars move into alignment and the momentum continues to mount, you'll want to look for an exit no later than the split date. OIN never recommends holding over the event as the risk of a depression far outweighs the potential gains. Exodus also made some management changes this week. Ellen M. Hancock was appointed Chairman of the Board and Don Casey, credited with the Wang turnaround, joined the company as president and COO. On Thursday, Source Track, an e-purchasing company, announced they chose EXDS for their hosting needs. ***June options expire Friday*** BUY CALL JUL- 85 DUB-GQ OI= 707 at $16.75 SL=12.00 BUY CALL JUL- 90*DUB-GR OI= 878 at $14.25 SL=10.50 BUY CALL JUL- 95 DUB-GS OI= 579 at $12.13 SL= 9.00 BUY CALL JUL-100 DUB-GT OI=1816 at $ 9.88 SL= 7.00 BUY CALL SEP-100 DUB-IT OI=1079 at $17.38 SL=13.50 SELL PUT JUN- 90 DUB-RR OI= 771 at $ 2.75 SL= 4.50 (See risks of selling puts in play legend) Picked on May 28th at $62.00 P/E = N/A Change since picked +30.75 52-week high=$179.63 Analysts Ratings 22-9-0-0-0 52-week low =$ 17.75 Last earnings 03/00 est=-0.26 actual=-0.23 Next earnings 07-21 est=-0.24 versus=-0.14 Average Daily Volume = 7.92 mln /charts/charts.asp?sysmbol=EXDS ******* BIOTECH ******* ABGX - Abgenix Inc. $121.50 (+25.31) Abgenix uses genetically engineered mice to develop antibody therapeutics for inflammatory and autoimmune disorders, cancer, and transplant-related conditions. The company's four antibody products use the XenoMouse technology, which Abgenix bought from Japan Tobacco. Treatments for disorders, cancer, and psoriasis are in clinical trials. The company has alliances with Millennium Pharmaceuticals, Pfizer, and Amgen. Welcome to Splitsville! Last Friday, ABGX's Board of Directors approved a 2-for-1 stock split. The payable date for the split was set for July 7th. ABGX's split announcement added fuel to an already strong Biotech sector last Friday. The AMEX Biotech Index ($BTK) surged 6.99% higher in Friday's subdued trading. Shares of ABGX have come a long way since Memorial Day, and Friday's split announcement helped the stock to clear resistance at $115. ABGX's return of momentum came after Wall Street re-examined the company's prospects and realized the potential its proprietary technology holds. The company plans to use its XeonMouse technology to build a large and diversified product pipeline. ABGX has established corporate partnerships with the biggest names in the biotech and pharmaceutical industries. Most recently, ABGX linked with Abbott Labs, SmithKline Beecham, and with Pfizer to combat cancer. ABGX has established itself as a leader in the development of monoclonal antibodies. Analysts estimate that ten years from now, there could be more than 100 products on the market, up from 8 today. They estimate the potential revenue from monoclonal products to be more than $50 bln. The tremendous potential has investors running to accumulate shares of ABGX and moving the stock higher. ABGX gapped $6 higher Friday morning, and continued to climb into the weekend. Feel free to look for entry points at current levels if momentum carries over next week, the next level of resistance is at $130. If the profit takers return from hiding, look for ABGX to trace a higher low, and find support at its 5-dma, currently at $110. Consider an entry at that level if the stock bounces. Recently, ABGX inked a deal with Abbott Labs (ABT) to generate fully human antibodies to target several diseases using its XenoMouse technology. Under the agreement, ABGX could receive research and license fees, and royalty payments. ABT will manufacture and market any products developed. The contract marks yet another savvy move by ABGX's management to take full advantage of its technology, and generate revenues. ***June contracts expire Friday*** BUY CALL JUL-115 AXY-GC OI= 5 at $22.75 SL=16.00 BUY CALL JUL-120*AXY-GD OI=67 at $20.13 SL=14.50 BUY CALL JUL-125 AXY-GE OI= 3 at $18.13 SL=13.00 BUY CALL OCT-125 AXY-JE OI= 0 at $32.00 SL=23.25 Wait for OI! BUY CALL OCT-130 AXY-JF OI=30 at $30.25 SL=21.75 SELL PUT JUN-110 AXY-RB OI= 0 at $ 2.75 SL= 4.50 (See risks of selling puts in play legend) Picked on June 8th at $112.00 P/E = N/A Change since picked +9.50 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 = 786 K /charts/charts.asp?symbol=ABGX SEPR - Sepracor $116.50 (+7.69)(+17.63)(-8.56)(P3wk +7.75) Sepracor develops and commercializes new, patented forms of existing pharmaceuticals by purging them of nonessential molecules. The company's products can reduce side effects, provide new uses, and improve safety, performance, and dosage. Sepracor focuses its efforts on gastroenterology, neurology, psychiatry, respiratory care, and urology. The company is also developing its own new drugs to treat infectious diseases and conditions of the central nervous system. The analysts showed up right on cue Friday morning after SEPR executives delivered bullish comments at the PaineWebber Growth & Technology Conference Thursday evening. First Union initiated coverage on SEPR with a Buy rating and set a near-term price target of $130. Analysts from First Union said SEPR is poised for strong growth, particularly from internal operations and product development. Analysts also said that consolidation within the Biotech sector is not far off, suggesting that big pharmaceutical companies such as PFE/WLA, GLX, and SBH are likely acquirers of young, fast-growing firms such as SEPR. After the positive analyst comments Friday morning, SEPR gapped higher by over $2 at the opening bell, clearing resistance at $114. The stock continued to rally into the weekend on slightly above average volume, but failed to test resistance at $118. SEPR is still sitting on enough authorized shares for a stock split. As the market has somewhat stabilized, a few brave companies are announcing splits. We'll watch for SEPR executives to further help our cause and possibly announce a split in the coming weeks. Technically, SEPR is looking strong. Momentum is gaining in the Biotech sector as investors continue to move capital into the group. Last week's rally boosted the stock back into its ascending channel which began in early April. SEPR still faces overhead congestion at $118, but a move above that level might position the stock to retest its 52-week high. Watch for the momentum in the Biotech sector to continue next week, and look for an entry if SEPR clears resistance at $118. If the stock stumbles, look for the pattern of higher lows to prevail, and consider an entry if SEPR bounces from support at $114 or below at $112. SEPR executives will be presenting at yet another analyst meeting that begins Monday. The company is a keynote presenter at the Goldman Sachs Healthcare Conference in California. Last week's conference worked in our favor, if SEPR's management delivers more bullish comments to Wall Street, the analysts might follow suit and deliver more upgrades. ***June contracts expire Friday*** BUY CALL JUL-110 ERU-GB OI= 512 at $16.75 SL=12.00 BUY CALL JUL-115 ERU-GC OI=1028 at $14.00 SL=10.50 BUY CALL JUL-120*ERU-GD OI= 309 at $11.75 SL= 8.75 BUY CALL OCT-120 ERU-JD OI= 963 at $22.88 SL=16.50 BUY CALL OCT-125 ERU-JE OI= 2 at $20.75 SL=15.00 SELL PUT JUN-110 ERU-RB OI= 155 at $ 2.38 SL= 4.00 (See risks of selling puts in play legend) Picked on May 7th at $103.25 P/E = N/A Change since picked +13.25 52-week high=$126.81 Analysts Ratings 5-4-2-0-0 52-week low =$ 27.50 Last earnings 03/00 est= -0.96 actual= -0.76 Next earnings 07-24 est= -0.55 versus= -0.56 Average Daily Volume = 986 K /charts/charts.asp?symbol=SEPR HGSI - Human Genome Sciences $139.56 (+33.63) 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. Our play in HGSI certainly got off to a nice start. Actually, HGSI surged about 32% for the week. A look at the chart shows Monday's move through resistance at $120 was impressive. The breakout over resistance in the $132 area was equally impressive. With the volume and sentiment in the broad markets in question, investors weren't skittish at all about pouring money into HGSI and others in the genomics field. Much of the enthusiasm came from an announcement earlier this week that Celera could finish the complete sequencing of the human genome by the end of the month, nearly a year ahead of original estimates. With a complete sequencing of the human genome, drug makers can attempt to identify genes linked to diseases and develop medicines to stop them. We said above that the "enthusiasm" is what is driving the price higher, and that's the key to this play and others in the industry. Investor enthusiasm, plain and simple. In this momentum situation, many times technical indicators and earnings are put on the shelf while traders and investors stumble all over themselves to jump into a stock with "enthusiasm." Please don't misunderstand, we aren't saying that its a bad thing. Compare the energy behind the $22 gain on Friday which came on better than average volume to the sentiment in the broad markets where traders couldn't wait to get out and start enjoying the weekend. HGSI closed near its high of the day, which certainly bodes well for early next week. If the "enthusiasm" continues, there's not much in the way of resistance until about the $170 level. Intraday support comes into play between $134 and $132, followed by $128 and $122. These would provide a suitable entry on bounces accompanied by solid volume. HGSI received two mentions from analysts this week. One from Merrill Lynch, who upgraded the company to a Long-term Accumulate, and the other from AG Edwards. Analysts at AG Edwards initiated coverage of the genomics company with an accumulate rating and a price target of $140-$150. The rate HGSI is going, that kind of price target should not be too tough to achieve. ***June contracts expire Friday*** BUY CALL JUL-130 HHA-GF OI=343 at $26.63 SL=19.25 BUY CALL JUL-140*HHA-GH OI=237 at $21.88 SL=15.75 BUY CALL JUL-150 HHA-GL OI=246 at $18.00 SL=13.00 BUY CALL OCT-140 HHA-JH OI=106 at $38.38 SL=27.75 SELL PUT JUN-130 HHA-RF OI= 0 at $ 3.50 SL= 5.00 (See risks of selling puts in play legend) Picked on June 8th at $117.56 PE = N/A Change since picked +22.00 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 = 2.20 mln /charts/charts.asp?symbol=HGSI PDLI - Protein Design Labs $165.56 (+40.44)(+25.07) 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. During this week's trading, PDLI "tip-toed through tulips" and came out smelling like a rose while other high-flyers stepped on mine fields. With the human-genome industry moving closer to a key breakthrough in mapping and decoding the human gene, the sector is starting to take the limelight once again. There's no doubt PDLI is leading the revival. Just take a peek at the daily chart! Rising from the trenches of $93 and $95 just a couple of weeks ago, PDLI amplified its share price by an astonishing 78%, or $72. Can't beat those apples by a long shot. The favorable piece of inflation data on Friday gave PDLI the green light to jump out of the gate. It swiftly moved through light resistance at the $150 level and captured $23.56 in total gains. And it gets a medal for finishing just a fraction from its intraday high. So why not just hop on the bandwagon and see the money roll in? For starters, PDLI is primed to take a breather at some point. Therefore, while the momentum is intensifying, entries become much more riskier as the play progresses. To put it plainly, a sharp pullback could see PDLI freefall to $150, or lower to $140 (and that's conservative). Take notice that bottom entry points have been in-line with the rising 5-dma indicator - currently at $145.19. So erring on the side of caution, be patient. Oh, you're one of the high rollers with an aggressive risk-oriented portfolio to match! Well then, you may want to look for additional plays on a breakout off Friday's intraday support of $157 to $160, but be forewarned of the perilous exposure. Remember this is a pure momentum run, although it's possible that PDLI could turn into a split play in the very near future. On Thursday June 15th, shareholders will vote on a proposal to increase the number of authorized shares from 40 mln to 90 mln at the company's Annual Meeting of Shareholders. An approval would clear the way for the BoD to announce a stock dividend. There aren't any guarantees, but PDLI is a candidate above the $150 price level. PDLI's CEO, Laurence Korn, reported to investors on Tuesday that company revenues are expected to reach $35 mln in the first half of 2000, which matches revenues in all of 1999. He said in the interview that revenues were "bolstered by growing royalties from monoclonal antibodies it has licensed to other pharmaceutical firms, including Genentech's (DNA) breast cancer treatment Herceptin and MedImmune's (MEDI) Synagis for the prevention of a respiratory virus common in infants". The good cheer extended into Thursday too. Matthew Geller of CIBC World Markets came forward with a Strong Buy reiteration and a whooping price target of $309! ***June contracts expire Friday*** BUY CALL JUL-160 RPV-GL OI= 5 at $30.75 SL=24.00 BUY CALL JUL-165 RPV-GM OI= 2 at $28.25 SL=22.00 BUY CALL JUL-170*RPV-GN OI=65 at $26.50 SL=20.75 BUY CALL JUL-175 RPV-GO OI= 6 at $24.63 SL=19.25 SELL PUT JUN-140 PQI-RZ OI=50 at $ 2.13 SL= 3.75 (See risks of selling puts in play legend) Picked on June 4th at $125.13 P/E = N/A Change since picked +40.43 52-week high=$338.00 Analysts Ratings 2-2-4-0-0 52-week low =$ 19.25 Last earnings 03/00 est=-0.04 actual= 0.04 Next earnings 08-04 est= 0.19 versus=-0.14 Average Daily Volume = 1.45 mln http://www.optioinvestor.com/charts/charts.asp?symbol=PDLI ******** SOFTWARE ******** CHKP - Check Point Software $225.50 (-8.19)(+71.19)(+1.13) Check Point Software Technologies is a worldwide leader in securing the Internet. The company's Secure Virtual Network (SVN) architecture provides the infrastructure that enables secure and reliable Internet communications. SVN secures business-to-business(B2B) communications between networks, systems, applications and users across the Internet, Intranets and extranets. Check Point's Open Platform for Security (OPSEC) provides the framework for integration and interoperability with "best-of-breed" solutions from over 200 leading industry partners. The economic data came out and was viewed with, "Is the glass half full or half empty scenario." Those that perceived the news as half full bid shares of CHKP up to $235 in the first fifteen minutes of trading. Then, those that saw the glass as half empty took over. CHKP fell back to support just above the $220 level late in the day, and that's where our play finished the week. For now, we won't drink from either side of the glass as the volume on Friday left something to be desired since only 954K shares traded. CHKP will likely be on hold until a new round of data hits the Street. We see a couple of things coming to light with this one. First, Check Point did fall back early last week filling the gap from the previous Friday's open. The buying that came as a result was encouraging, and suggested the our play could be preparing for its next leg up. We will need to see the volume return and a convincing penetration of the high near $235 to confirm a breakout. This week two new viruses reportedly found their way to computers and cell phones. The fact that we didn't see a bit more interest in CHKP on news of the "hack attacks" is interesting. Many times that kind of scare is usually good for a short-term pop in the price. At this point, it appears as though investors chose to remain focused on the inflation data and Fed rather than the new viruses. How do we proceed? Support is still near the $220 level and at the 5-dma of $218. Resistance shows up near $235.75. Most traders will continue to take their cue from the reports due out Tuesday and Wednesday. For traders with existing positions, keep your stops in place. For those interested in new plays, in may be prudent to ease your way into new positions, depending on your risk tolerance. There was little in the way of news this week. Thursday, Wayne Johnson III, at Robinson-Humphrey initiated coverage of CHKP with a Buy rating. His 12-month price target for the software company came in at $280.00. Johnson joined 15 other analysts that currently have the company rated as either a Strong Buy or a Buy. BUY CALL JUL-210 YKE-GB OI=188 at $38.00 SL=27.50 BUY CALL JUL-220 YKE-GU OI=356 at $33.13 SL=24.00 BUY CALL JUL-230*YKE-GV OI=364 at $28.50 SL=20.75 BUY CALL OCT-220 YKE-JU OI=200 at $54.88 SL=39.75 SELL PUT JUN-210 YKE-RB OI=248 at $ 3.88 SL= 5.00 (See risks of selling puts in play legend) Picked on May 25th at $160.25 PE = 194 Change since picked +65.25 52 week high=$295.00 Analysts Ratings 12-4-0-0-0 52 week low =$ 21.34 Last earnings 04/00 est= 0.35 actual= 0.40 Next earnings 07-12 est= 0.42 versus= 0.26 Average daily volume = 1.83 mln /charts/charts.asp?symbol=CHKP MUSE - Micromuse Inc $144.38 (+19.38) 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. Some stocks buck the market trend and some act like its shadow. MUSE tends to correlate more with the latter characteristic, as was the case on May 30th. When the NASDAQ resurfaced above 3400, MUSE followed the market's lead and rose above its light resistance at $80. By the following day the share price eased its way through stubborn opposition at $100 and was poised to run. And run it did. Support is now at much higher levels of $125 and $130. And short-term, support could very well develop between $135 or even at Friday's intraday level of $143 and $144. Currently, the closest technical indicator, the 5-dma ($135.76), is a dot in the rearview mirror. Obviously, the technical breakthrough got the attention of a variety of traders. While volume's been respectable, it's been by no means outstanding. Therefore, look for heavier trading activity to propel it through the next hurdle of $150. This move would be a bullish indication that the momentum can tow the mark. If nothing else, analysts cheered for MUSE this week. First, there was Wendell Laidley at CSFB who reiterated his Strong Buy recommendation and issued a target price of $150. And on Wednesday, Hampton Adams at CIBC World Markets initiated new coverage with a Strong Buy rating. Then Bob Lam at Bear Stearns & Co finished off the week with his Buy recommendation for MUSE. We're betting too that MUSE will continue to rise to the occasion in the coming days. Play it smart though and don't buy too soon. The company announced that it recently added a bunch of new clients and extended its services. Urban Media selected Micromuse's Netcool(R) software to manage its nationwide voice and data network 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 website currently running in the UK. In the product arena, Micromuse and Singlepoint LTD, a leading provider of critical event notification software, jointly 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. BUY CALL JUL-140 UZQ-GH OI= 6 at $22.50 SL=17.50 BUY CALL JUL-145*UZQ-GI OI=48 at $19.13 SL=13.75 BUY CALL JUL-150 UZQ-GJ OI=25 at $16.88 SL=12.25 BUY CALL JUL-155 UZQ-GK OI 0 at $15.75 SL=11.25 Wait for OI! Picked on June 8th at $146.00 P/E = N/A Change since picked -1.63 52-week high=$206.00 Analysts Ratings 9-5-0-0-0 52-week low =$ 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 = 651 K /charts/charts.asp?symbol=MUSE SEBL - Siebel Systems $144.31 (+5.38) Siebel is a leading provider of sales automation and customer service software. Its main product, Siebel Sales Enterprise, offers client information and decision support across a corporation's worldwide computer network. Field personnel can access Siebel applications through wireless devices as well. Glaxo Wellcome, Prudential Insurance, and Lucent are among Siebel's clientele. You may have heard of customer relationship management (CRM). It's a hot topic among corporate America. The idea behind CRM is to enable organizations to sell to, market to, and service their customers across multiple channels, including the Web, call centers, and dealer networks. Wall Street likes the idea of CRM, investors especially like the companies that provide software and applications to implement CRM. With a commanding 17% market share, SEBL is the king of CRM. SEBL continues to awe Wall Street with its impressive growth due to strong sales of its e-CRM applications. Since SEBL was the first-to-market with its e-business applications, the company has been able to leverage its product base, and expand into new markets. SEBL has over 65 corporate partnerships with tech heavyweights such as IBM, ARBA, ITWO, and PALM. The company is expected to grow earnings at a brisk 41% annually over the next five years. Analysts aren't shy about endorsing the company, just last week, CIBC World Markets reiterated its Strong Buy rating and set a $155 near-term price target. DLJ said SEBL is the dominant player in its space, and Robertson Stephens raised its rating to a Strong Buy. The strong support from Wall Street helped SEBL to quickly rebound from the tech-wreck last spring. The stock has been on a steady march higher using its 5-dma as support. SEBL finished Friday near its day high, you might consider an entry at current levels as long as the momentum continues. A bounce off support at $140 might provide an additional entry point if SEBL stumbles. The next area of resistance for the stock is just above at $148, a conservative trader might wait for SEBL to clear congestion before entering the play. In the coming weeks, SEBL is scheduled to present at several tradeshows and analyst meetings. The company will meet with customers and analysts at the e-Business Conference & Expo, scheduled to begin Tuesday. Thereafter, SEBL will visit Mexico, Australia, and Canada to showcase its suite of e-business offerings at a variety of meetings. BUY CALL JUL-140 SGW-GH OI= 201 at $17.50 SL=12.50 BUY CALL JUL-145*SGW-GI OI=1753 at $15.00 SL=11.00 BUY CALL JUL-150 SGW-GJ OI= 42 at $12.88 SL= 9.75 BUY CALL AUG-145 SGW-HI OI= 279 at $19.75 SL=14.50 BUY CALL NOV-150 SGW-KJ OI= 607 at $27.38 SL=19.75 Picked on June 11th at $144.31 P/E = 222 Change since picked 0.00 52-week high=$175.13 Analysts Ratings 13-4-0-0-1 52-week low =$ 23.44 Last earnings 03/00 est= 0.14 actual= 0.17 Next earnings 07-21 est= 0.18 versus= 0.12 Average Daily Volume = 5.00 mln /charts/charts.asp?symbol=SEBL **** MISC **** PLXS - Plexus Corp $99.19 (+9.25) Plexus is a contract developer and manufacturer of electronic products for companies in the medical, telecom, industrial, and computer markets. The company operates in two divisions: product design and engineering, and assembly of circuit boards, memory chips, and other electronic components. Lucent and GE account for 16% and 12% of sales respectively. Plexus is ramping up manufacturing in efforts to establish an international presence. You want a new 52-week high, no problem. PLXS has shown unrelenting strength despite a down market, analyst downgrades, and rising interest rates. PLXS was downgraded last Wednesday by AG Edwards to a Maintain from a Buy. Analysts justified their actions by saying PLXS had reached their price target. DB Alex Brown said they had suspended coverage on PLXS, along with several other stocks in the Semiconductor sector. PLXS moved about $6 higher after the downgrades to set a new 52-week last Friday. Maybe the analysts should have checked the stock's high relative strength rating and the company's stellar earnings before making their comments. PLXS is a little know electronics firm that has been moving higher without much hesitation this year. Wall Street expects the boom in the Semiconductor sector to last another 18 months. And analysts agree that since PLXS diversified its product offerings over several industry segments, the company is positioned well for future growth. Institutional money managers are warming up to PLXS as well. Professionals currently own about 57% of the stock, but that number could move higher noting the surge in volume over the past month as PLXS has traced new highs. The stock has used its 10-dma for support during its climb this year, currently at $91. As PLXS edged ever-so-close to $100 last Friday, we're looking for the stock to extend its gains as it moves past the psychologically important century mark. Watch closely Monday morning to see if PLXS can hurdle the $100 level, look for an entry if the stock clears that level. PLXS has consistently traced higher highs and higher lows this year. If the stock falters, watch for a bounce off support at $95 or at the 10-day for a possible entry. Along with its building momentum, there is another possible event that may act as a catalyst for our play. PLXS is yet another stock on the split docket. The stock is trading well into split territory, and has plenty of shares to authorized for a split. The last time PLXS split was in 1997, when the stock was trading around $56. ***June contracts expire Friday*** BUY CALL JUL- 90 QUA-GR OI=19 at $16.88 SL=12.25 BUY CALL JUL- 95*QUA-GS OI=65 at $14.25 SL=10.50 BUY CALL JUL-100 QUA-GT OI=27 at $11.75 SL= 8.50 BUY CALL SEP-100 QUA-IT OI= 0 at $17.25 SL=12.25 Wait for OI! BUY CALL DEC-105 QUA-LA OI=23 at $21.38 SL=15.00 SELL PUT JUN-110 QUA-RS OI=10 at $ 2.88 SL= 5.00 (See risks of selling puts in play legend) Picked on June 11th at $99.19 P/E = 73 Change since picked 0.00 52-week high=$100.00 Analysts Ratings 9-5-1-0-0 52-week low =$ 24.44 Last earnings 03/00 est= 0.45 actual= 0.49 Next earnings 07-19 est= 0.52 versus= 0.39 Average Daily Volume = 304 K /charts/charts.asp?symbol=PLXS ************************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
The Option Investor Newsletter Sunday 6-11-2000 Sunday 4 of 5 ***** LEAPS ***** By Mark Phillips Contact Support Is it still a rally? After posting a 600+ point gain the week before last, the NASDAQ seemed mired in fast-drying cement last week. Although we would have liked to see the index continue its run right through the 4000 level, there remains a nagging concern that the June 2nd 150 point gap up (between 3580 and 3730) will have to be filled before we can really get moving any higher. The DJIA headed lower all week, plagued by one earnings or revenue warning after another. Companies like PG, CC, MCD are seeing slowing sales, lending credence to the theory that the economy is slowing and the recent spate of interest rate hikes is having the desired effect. But here's the rub; most of the recent hikes have yet to be felt in the economy, and the Fed isn't giving any indication that it is done yet. The latest round of economic reports is all pointing to a slowing economy, and hopefully the CPI report on Tuesday will continue the pattern. There is still a ton of money on the sidelines and if we get an indication that the Fed is happy with the slowing of the economy, investors will likely start putting their money to work. The money is likely to flow into those high-growth stocks on the NASDAQ, since they are not as sensitive to interest rates as those stodgy old NYSE stocks. Refusing to clarify the murky picture, the VIX barely budged last week, mired between 24.50-27.00. Drifting lazily with the broad markets, our volatility indicator closed out the week right in the middle of its normal range at 25.19. So where do we go from here? I hate to keep harping on this issue, but volume is likely to be your best indicator of the direction of the market. We need to see strong volume to push the market significantly higher or lower, and this may not be forthcoming until the June FOMC meeting when Greenspan takes what we hope will be his last shot at the equity markets for awhile. Until then, this continues to be a stock-pickers market, and good entry points will continue to be rewarded. If you profited from the recent move up in the market, don't be afraid to take some money off the table. As Jim frequently reminds us, taking small profits on a regular basis is a much more reliable road to capital appreciation than waiting for that home run that nets a 1000% gain. LEAPS give us lots of time to be right, so pick your favorite plays, and decide what entry point you would be happy with. There's a pretty good chance that your patience will be rewarded, and getting those attractive entry points makes money management a lot easier. Watch the VIX for a trip back into the buy-zone near 30, look for buying volume to pick up, and check your predetermined entry points. If everything lines up, pull the trigger; otherwise stand aside. This is not the time to back up the truck, but rather to nibble at attractive plays as your entry points come to you. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 40 EMB-AH $ 7.69 $32.38 321.07% JAN-2002 $ 45 WUE-AI $ 9.50 $34.50 263.16% IBM 11/07/99 JAN-2001 $100 IBM-AT $13.63 $28.63 110.05% JAN-2002 $110 WIB-AB $16.50 $34.00 106.06% CSCO 11/14/99 JAN-2001 $ 40 CYQ-AH $ 9.56 $28.00 192.89% JAN-2002 $ 45 WIV-AI $11.00 $31.13 183.00% NT 11/28/99 JAN-2001 $37.5 ZOO-AU $11.13 $25.63 130.28% JAN-2002 $37.5 WNT-AU $15.13 $31.00 104.90% TXN 12/12/99 JAN-2001 $ 55 TNZ-AK $11.13 $32.50 192.00% JAN-2002 $ 60 WGZ-AL $14.25 $38.25 168.42% SUNW 12/19/99 JAN-2001 $ 80 SUX-AP $17.63 $23.38 32.61% JAN-2002 $ 90 WJX-AR $22.00 $30.50 38.64% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $19.25 110.84% JAN-2002 $ 40 WSY-AH $12.63 $24.75 95.96% ERICY 01/30/00 JAN-2001 $16.3 RQC-AO $ 4.94 $ 8.00 61.94% JAN-2002 $16.3 WRY-AO $ 6.75 $10.25 51.85% NSM 02/27/00 JAN-2001 $ 70 ZUN-AN $18.50 $16.25 -12.16% JAN-2002 $ 70 WUN-AN $24.25 $26.25 8.25% AOL 03/12/00 JAN-2001 $ 60 AOO-AL $14.00 $ 8.13 -41.93% JAN-2002 $ 65 WAN-AM $18.63 $13.75 -26.19% AXP 03/12/00 JAN-2001 $43.3 AXP-AP $ 7.25 $15.88 119.03% JAN-2002 $46.6 WXP-AQ $ 9.33 $18.50 98.29% WM 03/19/00 JAN-2001 $ 25 WM -AE $ 5.00 $ 6.75 35.00% JAN-2002 $ 30 WWI-AF $ 5.38 $ 6.38 18.59% QCOM 03/26/00 JAN-2001 $150 AUA-AJ $39.25 $ 5.50 -85.99% JAN-2002 $160 XQO-AL $52.88 $15.50 -70.69% AMD 04/16/00 JAN-2001 $ 70 AMD-AN $17.50 $32.00 82.86% JAN-2002 $ 70 WVV-AN $26.00 $42.88 64.92% CMGI 04/16/00 JAN-2001 $ 50 ZB -AJ $21.50 $22.38 4.09% JAN-2002 $ 55 WCK-AK $27.75 $30.88 11.28% JDSU 04/16/00 JAN-2001 $ 80 XJU-AP $27.50 $45.50 65.45% JAN-2002 $ 80 YJU-AP $39.63 $60.38 52.36% VSTR 04/16/00 JAN-2001 $ 90 ZTB-AR $23.88 $50.88 113.07% JAN-2002 $ 90 WWP-AR $35.00 $65.88 88.23% YHOO 4/30/00 JAN-2001 $140 YMM-AH $32.13 $35.50 10.49% JAN-2002 $140 WYZ-AH $46.38 $54.88 18.33% MOT 5/14/00 JAN-2001 $33.3 MOT-AY $ 6.58 $ 7.88 19.76% JAN-2002 $36.6 WMA-AZ $ 9.54 $11.13 16.66% NOK 5/21/00 JAN-2001 $ 50 NZY-AJ $10.25 $15.63 52.49% JAN-2002 $ 50 IWX-AJ $17.25 $22.50 30.43% HD 5/28/00 JAN-2001 $ 50 ZHD-AJ $ 6.25 $ 6.63 6.08% JAN-2002 $ 50 WHD-AJ $11.38 $12.00 5.45% XLNX 5/28/00 JAN-2001 $ 70 ZIZ-AN $14.63 $29.50 101.64% JAN-2002 $ 70 WXJ-AN $23.38 $39.50 68.95% To review the play description on any of our current plays, go to the LEAPS section for the date the play was added. Option Selection: Notice that many of our LEAP plays have moved considerably since initially being picked. The listed options may therefore be deep in the money and very expensive. When entering a new position, look to buy LEAPS according to your suitability level, but note that we typically initiate strikes that are slightly out of the money from the stock's current price. Leap of the Week YHOO - Yahoo! Inc. $143.19 All hail the hero of the Internet! We're counting on this Internet mainstay to lead the tech sector higher into July earnings. YHOO will announce its numbers on July 11th, making this the ideal time to enter new positions, before the usual run-up into earnings. After shadow-boxing with its 200-dma for the past 2 months, YHOO looks like it finally has the upper hand. Not only has the stock moved above this moving average, but it is also above the 50-dma ($131.63) and is using the 5-dma ($140.81) for support as it climbs back into the spotlight. The recent strength on the NASDAQ and in the Internet sector have helped to push the stock above resistance at $140, and repeated bounces at this level look like good entry points. Alternatively, if you prefer to enter on strength, wait for buyers to push YHOO through resistance at $147 before putting jumping into the fray. BUY CALL JAN-2001 $140.00 YMM-AH at $35.50 BUY LEAP JAN-2002 $150.00 WYZ-AJ at $51.38 New Plays NXTL - Nextel Communications $57.38 Emerging as one of the future 800lb gorillas in the race to provide wireless Internet access, NXTL spent several months on our play list, before being booted off. April earnings came in strongly, but the negative market environment was too much. NXTL plunged through the 200-dma at $50, and didn't stop falling until it hit the high $30's. Now, only a month later, the picture is much rosier; the stock has been moving nicely higher for the past 2 weeks, crossed effortlessly through the 200-dma (now at $51.83), and closed above the 50-dma ($54.75) on Friday. Investors are showing their conviction for all things wireless by pumping up the volume; in an anemic market Friday, NXTL posted more than double its ADV, gaining $4.50. In the event of a market pullback, NXTL should see strong support between $50-52, reinforced by the 200-dma. This looks like an excellent level to set your sights on for target shooting new positions. If the run continues next week and you can't keep from playing, wait for a volume-backed move through resistance at $60 (also the site of the 100-dma) before jumping in. BUY CALL JAN-2001 $60.00 ZFG-AL at $12.25 BUY LEAP JAN-2002 $60.00 YFG-AL at $19.25 Drops None ********* PUT PLAYS ********* Put plays can be very profitable but have a larger risk than call plays. When a stock is falling the entire investment community (except the shorts) is hoping it will reverse and start back up. The company management is also doing everything they can to shore up their stock price. The company issues press releases, brokers talk it up, analysts try to put a positive spin on everything. Then of course there is the death knell, the "buy recommendation" simply because the price has dropped to some level that analysts feel attractive again. Buyers who like the stock wait until it appears a bottom has been reached and then jump on it in a feeding frenzy. They may already have a large position and are averaging down. Many factors can stop a free falling stock in mid drop. **** CTXS - Citrix Systems $41.19 (-17.25) 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. Continued worries about the fate of Microsoft is adding to the downward pressure on CTXS. The newswires on Friday were full of this theme as the stock got slammed for the second day in a row, giving up over $10 on extremely heavy volume of more than 50 million shares. Dain Rauscher Wessels analyst Sarah Mattson jumped on the bandwagon and cut the stock from Strong Buy to Buy, citing indications that CTXS' business might experience a lag during the current quarter. Mattson left her revenue and earnings forecasts unchanged, but cut her 12-month price target from $135 to $90. Investors have become increasingly concerned with the fate of CTXS, due to fact that the company relies so heavily on adapting MSFT software for networks. Adding insult to injury, the company's CFO failed to show up for a speech at the PaineWebber investor conference on Thursday, and CTXS VP and General Manager, Chris Phoenix gave a speech instead. Although there was nothing eventful in the speech, the irregularity added to investor concerns and the selling continued fast and furious on Friday morning. Falling as low as $40.63 during amateur hour, the stock saw very little strength for the remainder of the session. After recovering to $43.50, shares of CTXS drifted lower for the balance of the day, closing fractionally above the day's low. Friday's drop puts the stock below the late-May lows near $44, and this level will create resistance going forward. Use rallies to resistance as a good point to initiate new positions, but wait for volume and price action to confirm that the rally is losing strength before playing. Support appears near $39 and conservative traders may want to wait for continuing weakness to push the price through this level before jumping aboard. BUY PUT JUL-45*XSQ-SI OI= 91 at $9.63 SL=6.75 BUY PUT JUL-40 XSQ-SH OI=741 at $6.13 SL=4.00 Average Daily Volume = 6.15 mln /charts/charts.asp?symbol=CTXS MMM - Minnesota MNG & MFG Inc $81.94 (-2.38) The Minnesota Mining and Manufacturing Company (3M) is a leading manufacturer of a variety of industrial, consumer and medical products. With operations in more than 60 countries, 3M is a major player in the global economy. The Company's technologies have spawned a seemingly endless flow of groundbreaking products with more than 50,000 products in its cache. From Scotch tape to industrial sandpaper, 3M has had an influence on the daily lives of consumers worldwide. The company was founded at the turn of the century in 1902 in Two Harbors, MN. So what happened to the defensive stocks that were supposedly enticing the beaten down tech traders of not long ago? How quickly the tide can change when the high-flyers are once again making golden promises. As the NASDAQ and DOW are lifted higher by the pristine techs and leading bluechips chips, MMM is in anguish. Tuesday's slide under a rather firm support of $84 was the "technical" clincher. Courting the depths of its all-time low ($78.19), MMM is currently establishing a pattern of lower- lows and lower-highs. While this is a good sign, we'd like to see an increase in the stock's trading volume. Our expectations are still for further downdrafts in a cooperating market, but play it safe. For confirmation, look for MMM to make a definitive move under $81, or better yet through Thursday's low of $80.44 before adding new positions. The price range is rather tight with overhead resistance at $82 just below the 5- dma ($82.56) and 10-dma ($83.69). This narrow channel could indicate MMM is finding a bottom or on the flip side, preparing for a sharp downward move. So if you have open positions, keep stops in place. News is rather scarce for MMM, but there was a tidbit at the end of May. The BoD of the 3M Foundation approved over $7.5 mln for educational institutions and programs throughout the US and over $1.7 mln for the support of art organizations. BUY PUT JUL-90 MMM-SR OI=128 at $9.25 SL=6.25 BUY PUT JUL-85*MMM-SQ OI=535 at $5.63 SL=3.50 BUY PUT JUL-80 MMM-SP OI=500 at $2.88 SL=1.50 Average Daily Volume = 1.62 mln /charts/charts.asp?symbol=MMM MMC - Marsh & McLennan Companies $100.94 (-9.88) As the world's largest insurance brokerage company, MMC could be called the ultimate middleman. After purchasing UK broker Sedgwick Group, the firm formed Marsh, Inc. to hold its risk and insurance units including J & H Marsh & McLennan (risk and insurance brokering); Guy Carpenter & Co. (reinsurance); Seabury & Smith (insurance program management services); and Marsh & McLennan Risk Capital (insurance industry investment and advisory services). The company also owns Putnam Investments, which provides investment management services such as research and accounting for publicly held investment companies. So much for support! After moving up to challenge resistance at $111 on the back of the market recovery after the holiday weekend, MMC ran out of willing buyers and began falling back. Rather than finding support near $104 though, the stock continued its decline, falling through both the 30-dma ($103.75) and the 50-dma ($102.50). The volume has been falling over the past few days, managing only a paltry 416 K shares on Friday. This declining volume does cause us some concern, as it could be an indication of the stock finding support near $100, but it could just be an extension of the very weak market-wide volume on Friday. The benign PPI report on Friday did little to allay investor concerns, and MMC could be facing further declines as investors hold their breath ahead of the June FOMC meeting. Conservative entries can be had as MMC drops through the $100 level, and takes a run at the next level of support near $95. Bounces up to the $104 level can also be used for new entries as the stock fails to move through it and rolls over. Keep an eye on the volume; if it increases as the price rolls over, this will be a good indication of further weakness. BUY PUT JUL-105 MMC-SA OI= 4 at $8.13 SL=5.75 BUY PUT JUL-100 MMC-ST OI= 3 at $4.75 SL=3.00 BUY PUT JUL- 95*MMC-SS OI=56 at $3.13 SL=1.50 Average Daily Volume = 928 K /charts/charts.asp?symbol=MMC NXLK - Nextlink Communications $74.38 (-13.13) NEXTLINK is a provider of local and long distance voice, data and Internet services with the technology know-how, network assets, and management team needed to succeed in a competitive environment. They have a history of successfully creating shareholder value, NEXTLINK is committed to providing outstanding opportunities for individual and institutional investors who want to own the future of integrated communications. With all the good news surrounding this company you'd think it would be on our list new calls. So what's the problem with Nextlink? Some attribute the weakness this week as a nothing more than a technical pullback and a "gap filling" measure after its recent $44 gain. That may be true, but the volume has been average or better which suggests, it could be more than simple profit taking. Others point to the deal to buy Concentric Network which was announced in January. Concentric shareholders will vote on the merger June 15th. Its a $2.9 bln stock deal which will add Internet services for business customers. At this point, prices are well within the "collar", however, the results of the merger may be weighing on investors minds. The wild card in this play is the upcoming 2-for-1 split next Friday for NXLK. There still are a few days for a split run to kick in, yet, the action this past week doesn't appear to suggest that the company is setting up to move higher. Friday NXLK lost over 5%, while the Telecom sector managed to chalk up a gain of about 1%. Again, not what you'd expect to see on a stock that's preparing to take flight. Jim Friedland, an analyst at Robertson Stephens, had kind words for Nextlink on Thursday. He initiated coverage of the telecom company with a Buy rating, saying "they believe the company is well-positioned to emerge as one of the two or three consolidators of the CLEC market." How do we suggest traders approach our new play? The economic data due to come out next week could drive NXLK and the major indices lower or bring an abundance of new money back into the markets. Friday, Nextlink closed below its 200-dma at $77.76, which doesn't bode well for the new week. Other technical indicators are coming off the ceiling, pointing lower as well. Further weakness or bounces up to resistance at $77 or the $79 area followed by more selling could be viewed as an attractive entry point. For now, we would suggest keeping stops close or be prepared to take profits, in light of potential market moving data to be released. BUY PUT JUL-80 QNF-SP OI= 222 at $12.38 SL=9.25 BUY PUT JUL-75 QNF-SO OI= 129 at $10.63 SL=7.50 BUY PUT JUL-70*QNF-SN OI=2864 at $ 8.13 SL=5.75 BUY PUT OCT-65 QNF-VM OI= 385 at $10.88 SL=8.25 Average daily volume = 2.13 mln /charts/charts.asp?symbol=NXLK TGT - Target Corp $55.94 (-10.06) Target Corporation, formerly Dayton Hudson, is a general merchandise retailer with three main operating divisions consisting of Target, Mervyn's, and the Department Store Division (DSD). The company also operates Daytons, Hudsons, and Marshall Fields, three more upscale department stores mainly located in the Midwest. In all, there are approximately 1,200 stores in the US. Target Corporation also owns catalog retailer Rivertown Trading and department store apparel supplier Associated Merchandising. Retail stocks may not be the cream of the crop on the Street, but this week many were sent spiraling and TGT was no exception. After LJR Redbook Research's weekly sales report said that US retail same-store sales fell 0.3% from the same week a month ago many investors cut their holdings on Tuesday. Same-store sales are considered the best measure of a retailer's results because they exclude the effect of store openings and closing in the past year. Big-box retailer, TGT, retreated a significant $6.75, or 10.5% on that fateful day. Reports of flat May sales at Circuit City stores also brought the retail sector down to its knees. The S&P Retail Index slumped almost 3.5%. Many analysts speculated that investors were spooked by fears that a slower economy would hurt sales overall. On Wednesday, TGT experienced a slight reprieve after Morgan Stanley repeated a Strong Buy recommendation, but worries about weakness in early June sales prevailed. And in contrast to the positive reiteration, analyst Dean Ramos at George K. Baum & Co cut TGT down to a Buy from a Strong Buy. The mold was cast. TGT couldn't rise above $60 to save itself. By Friday it was clear investors had turned their backs on the retail sector. Already under the 10-dma ($61.55) and 5-dma ($59.51), TGT slithered lower too. The increasing volume on Friday's descent is definitely a bearish indication. An additional sign of its ultimate demise would be a clean break through $53.75, the stock's all-time low. BUY PUT JUL-60 TGT-SL OI=315 at $6.00 SL=4.00 BUY PUT JUL-55*TGT-SK OI=437 at $3.13 SL=1.50 Average Daily Volume = 1.96 mln /charts/charts/asp?symbol=TGT ************************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 Sunday 6-11-2000 Sunday 5 of 5 ************* COVERED CALLS ************* Candlestick Basics: Reversal Patterns One of the most commonly used indicators in candlestick chart analysis is the "Star." The Star is a signal that a trend may be coming to an end. The pattern occurs when the current day's candlestick has a small body that gaps away from a large body in the prior session. Stars can occur near resistance or support and the color of the Star is generally not significant. If the Star has no body, it is called a "Doji Star." The significance of this pattern is a change in the market environment. The appearance of a Star during a substantial rally indicates that buying strength is dwindling and the stock is susceptible to a correction. In contrast, a Star that occurs in the middle of a major downtrend suggests that buyers may be gaining control of the issue. Overall, the emergence of a Star indicates that the previous bias in the market (buying or selling) is beginning to equalize and thus a change in character may soon occur. The Star is the primary indication in a number of basic reversal patterns; Shooting Star, Doji Star and the Morning/Evening Star. The Morning Star pattern occurs at the end of a downtrend. It consists of a lengthy black body followed by a small body which begins below the previous day's (closing) low. The final line is a white body that is enveloped by the black body of the first session. The appearance of the small body (the Star) after a major downtrend suggests that selling is at an end and when the following session produces an opening gap with a white body, the bullish pattern is confirmed. While the gap-up is not necessary to define the pattern, it does produce much better results. Of course there are many variations of the Morning Star, the most common of which includes more than one Star in the reversal pattern. In bullish markets, the Evening Star is often the kiss of death. It is also an important "exhaustion" signal when observed in an area of congestion and confirmed by other negative signals. The pattern is similar to an "Island Top" reversal used by bar chart technicians but the candlestick version reflects the potential reversal in a much better fashion. When the Evening Star occurs during a major up-trend, there is cause for concern. The first line is the last bullish indication; a long, white body. The next candlestick is the Star, the first signs of a top formation. The final candlestick is a black body that intrudes well into the body of the initial (white) candlestick. As with the previous reversal pattern (Morning Star), it is best when there is a gap between the body of the middle candlestick (Star) and the opening (or closing) prices of the surrounding sessions. In any case, the low point of the Star's body should be well above the closing high of the first candlestick. Volume is an important component of technical reversal patterns. When trading volume is light during the final phase of a trend (the first candlestick) and increases during the beginning stages of a reversal (the candlestick following the last Star), there is a higher probability of follow-through in the new character. The enthusiasm with which investors accept the new direction can be defined by the presence (or lack) of trading activity. In fact, when the overall trend is less defined, the change in volume can be almost as significant as the actual candlestick formation. Next week, will review another popular pattern, the "Magic Doji." Steve Nison's "Japanese Candlestick Charting Techniques" is an excellent resource, available in the OIN bookstore. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return ITXC 40.06 42.00 JUN 35.00 6.75 *$ 1.69 11.0% PSSI 9.50 8.97 JUN 7.50 2.63 *$ 0.63 10.0% FHS 11.38 11.56 JUN 10.00 2.13 *$ 0.75 8.8% NERX 14.75 16.81 JUN 12.50 2.69 *$ 0.44 7.9% HSIC 18.25 18.00 JUN 17.50 1.31 *$ 0.56 7.2% STAA 13.50 13.50 JUN 12.50 1.38 *$ 0.38 6.8% CYBS 14.94 18.75 JUN 12.50 3.00 *$ 0.56 6.8% EGOV 15.44 22.88 JUN 12.50 3.50 *$ 0.56 6.8% CENT 11.81 11.31 JUN 10.00 2.50 *$ 0.69 6.4% SMRT 8.53 9.13 JUN 7.50 1.50 *$ 0.47 5.8% WGR 22.50 21.31 JUN 20.00 3.25 *$ 0.75 5.6% MENT 18.31 18.06 JUN 17.50 1.25 *$ 0.44 5.6% CWST 12.63 12.38 JUN 10.00 3.00 *$ 0.37 5.6% CAIR 22.88 22.63 JUN 17.50 6.38 *$ 1.00 5.3% BEAM 12.44 18.59 JUN 10.00 3.00 *$ 0.56 5.2% ANET 12.94 14.75 JUN 12.50 1.13 *$ 0.69 5.1% AAS 22.00 25.75 JUN 20.00 2.88 *$ 0.88 5.0% CCCG 13.50 9.91 JUN 10.00 4.00 $ 0.41 4.7% WGR 21.00 21.31 JUN 17.50 4.13 *$ 0.63 4.1% LPNT 20.63 19.25 JUN 17.50 3.75 *$ 0.62 4.0% PXD 14.06 13.56 JUN 12.50 1.88 *$ 0.32 3.8% ADAC 17.38 20.00 JUN 15.00 2.75 *$ 0.37 3.7% MED 9.44 8.00 JUL 7.50 2.69 *$ 0.75 6.9% ALSC 26.88 29.38 JUL 22.50 5.88 *$ 1.50 4.4% *$ = Stock price is above the sold striking price. Comments: Ccc Information (CCCG) continues to hold steady though any move below the June - April low should be considered an exit signal. Keep an eye on Western Gas (WGR) and Pioneer Natural (PXD) as they consolidate towards their respective 30 dma's. Lifepoint Hospitals (LPNT) is nearing its 50 dma; the next support area is near $17. Positions Closed: Boise Cascade (BCC) - A small loss can be a good thing! Digital River (DRIV) - No strength in the recent rally. NEW PICKS ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return ARTT 18.38 JUN 15.00 AOQ FC 3.75 227 14.63 7 11.0% CYTO 7.97 JUL 5.00 UOR GA 3.38 190 4.59 42 6.5% GENE 27.75 JUL 20.00 GUG GD 9.25 231 18.50 42 5.9% IBC 14.94 JUL 12.50 IBC GV 3.25 149 11.69 42 5.0% LYNX 32.63 JUL 25.00 ULX GE 9.75 14 22.88 42 6.7% TGEN 12.25 JUL 7.50 GNU GU 5.25 4 7.00 42 5.2% ZD 11.38 JUL 10.00 ZD GB 2.25 203 9.13 42 6.9% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return ARTT 18.38 JUN 15.00 AOQ FC 3.75 227 14.63 7 11.0% ZD 11.38 JUL 10.00 ZD GB 2.25 203 9.13 42 6.9% LYNX 32.63 JUL 25.00 ULX GE 9.75 14 22.88 42 6.7% CYTO 7.97 JUL 5.00 UOR GA 3.38 190 4.59 42 6.5% GENE 27.75 JUL 20.00 GUG GD 9.25 231 18.50 42 5.9% TGEN 12.25 JUL 7.50 GNU GU 5.25 4 7.00 42 5.2% IBC 14.94 JUL 12.50 IBC GV 3.25 149 11.69 42 5.0% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** ARTT - Advanced Radio Telecom $18.38 *** One-Week Play! *** Advanced Radio Telecom is a provider of broadband wireless Internet Protocol (IP) access services at speeds up to 155 Mbps. ARTT currently owns and operates broadband wireless metropolitan area networks in San Jose, Seattle, Portland, Ore., and Phoenix, and plans to expand to 40 markets over the next three years. Though Advance Radio announced on Thursday that its subsidiary, ART Nordic A.B and Norway's BaneTele, plan on building a next generation end- to-end IP network within Norway, it really doesn't explain the jump in price on Friday. The short-term technicals have been increasingly bullish and the heavy volume on Friday bodes well for future upside potential. Reasonable short-term speculation for those with a bullish outlook on ARTT. JUN 15.00 AOQ FC LB=3.75 OI=227 CB=14.63 DE=7 MR=11.0% Chart = /charts/charts.asp?symbol=ARTT ***** - July Plays - ***** CYTO - Cytogen $7.97 *** Biotech's are Hot! *** Cytogen is a biopharmaceutical company engaged in the development and marketing of products to improve diagnosis and treatment of cancer and other diseases. Their diagnostic imaging agents, used in cancer detection, include ProstaScint and OncoScint CR/OV. They also market Quadramet, a proprietary cancer therapeutic agent for pain relief in patients with metastatic bone lesions. The Biotech sector is hot and appears to be the "current" growth sector of choice for many investors and institutions. We favor the technical breakout in Cytogen on heavy volume, as the stock has now taken out the May high. The 13 dma has just crossed above the 30 dma (both exp.) and the May high is now a support level. JUL 5.00 UOR GA LB=3.38 OI=190 CB=4.59 DE=42 MR=6.5% Chart = /charts/charts.asp?symbol=CYTO ***** GENE - Genome Therapeutics $27.75 *** Biotech - Part II *** Genome Therapeutics identifies and validates novel drug targets by applying its integrated platform technologies of high throughput sequencing, disease gene identification, and functional genomics. They possesses genomics and related proprietary technologies, which they intend to use to identify and validate gene targets. Together with their partners (Schering-Plough, bioMérieux, Inc. and others) , they plan to develop novel therapeutic, vaccine and diagnostic products. They focus on the discovery and characterization of novel targets in pathogens that are responsible for many serious diseases. The drug stocks are climbing faster than a Cessna off the coast of Florida! Again, a technical breakout from a stage I base, supported by heavy volume in a hot, hot sector. Genome has now closed above both the May and April highs and is displaying several buy signals. Of course, we prefer to speculate near technical support and don't forget your due diligence. JUL 20.00 GUG GD LB=9.25 OI=231 CB=18.50 DE=42 MR=5.9% Chart = /charts/charts.asp?symbol=GENE ***** IBC - Interstate Bakeries $14.94 *** Buyout Speculation! *** Interstate Bakeries Corporation is one of the largest bakers and distributors of fresh bakery products in the United States. The company produces, markets, distributes and sells a wide range of breads, rolls, snack cakes, donuts, sweet goods and related products. These products are sold under national brand names such as Wonder, Hostess and Home Pride, as well as regional brand names, including Butternut, Dolly Madison, Drake's and Merita. Speculators are moving into Interstate Bakeries as rumors of a buyout or merger. The food sector is also considered a safety sector ("people still have to eat") during times of uncertainty ("interest rates?"), and the volatility of Interstate's options offer a conservative entry point. Though the stock is still in a downtrend, a stage I base appears to be forming on increasingly bullish technicals. JUL 12.50 IBC GV LB=3.25 OI=149 CB=11.69 DE=42 MR=5.0% Chart = /charts/charts.asp?symbol=IBC ***** LYNX - Lynx Therapeutics $32.63 *** Return of the Biotech's *** Lynx Therapeutics is engaged in the development and application of novel technologies for the discovery of gene expression patterns and genomic variations important to the pharmaceutical, biotech., and agricultural industries. These technologies are based on Megaclone, its unique and proprietary cloning procedure. Megaclone is the foundation for its analytical applications, including MPSS, which provides gene sequence information, and Megatype, which is expected to provide disease or trait association information. Yes, it is getting redundant - a technical breakout in a Biotech stock. We favor the bullish move on heavy volume, that took out both the April and May highs, which now offer support. Money is being moved into the Biotech sector as investors, leery of the recent Tech landmines, still desire strong growth potential. Cautious speculation with a reasonable risk/reward outlook. JUL 25.00 ULX GE LB=9.75 OI=14 CB=22.88 DE=42 MR=6.7% Chart = /charts/charts.asp?symbol=LYNX ***** TGEN - Targeted Genetics $12.25 *** Biotech's et al! *** Targeted Genetics develops gene therapy products and technologies for the treatment of acquired and inherited diseases. The company now has two lead products in clinical trials for treating cystic fibrosis and treating cancer. They are engaged in preclinical product development activities in the areas of hemophilia, rheumatoid arthritis, cardiovascular disease and HIV vaccines. Not only is Targeted Genetics in a burning hot sector, they also had some favorable news this week on their Phase I clinical trial of tgAAV-CF, the Company's gene therapy product for the treatment of cystic fibrosis. As for the technicals, it's de`ja-vu all over again - a breakout from a stage I base on heavy volume. Targeted Genetics offers another Biotech to choose from with a conservative entry point. JUL 7.50 GNU GU LB=5.25 OI=4 CB=7.00 DE=42 MR=5.2% Chart = /charts/charts.asp?symbol=TGEN ***** ZD - Ziff Davis $11.38 *** IPO speculation! *** Ziff Davis is the leading information authority for buying, using and experiencing technology and the Internet. The company is the largest technology and Internet magazine publisher and the sixth largest magazine publisher in the United States. Ziff-Davis, 69 percent owned by Softbank, plans to spin off its ZD Events trade- show business and also plans to merge with its Internet unit, ZDNet. There is lots of merger/buyout speculation in the media sector which is an added benefit for Ziff Davis. We favor the heavy volume on the current rally that has helped push the stock price above the May high. The technicals are increasingly bullish and Ziff Davis has now moved above its 50 dma. JUL 10.00 ZD GB LB=2.25 OI=203 CB=9.13 DE=42 MR=6.9% Chart = /charts/charts.asp?symbol=ZD ************************* NAKED PUT PERCENTAGE LIST ************************* By Ryan Nelson Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level AMD 88.75 90 AMD-RR 3.75 2219 17% 86 AETH 187.47 180 HEX-RP 9.88 4687 21% 180 BRCD 147.00 140 UBZ-RH 3.00 3675 8% 140 CHKP 224.63 220 YKE-RU 7.13 5616 13% 218 CIEN 139.69 135 UEE-RG 3.75 3492 11% 130 CMTN 95.63 95 KUA-RS 3.88 2391 16% 95 DNA 133.81 130 DNA-RF 9.00 3345 27% 123 ETEK 231.19 230 FNY-RF 7.88 5780 14% 230 EXDS 92.75 90 DUB-RR 2.75 2319 12% 89 EXTR 82.00 80 EUT-RP 3.00 2050 15% 80 GLW 212.00 210 GRJ-RB 5.00 5300 9% 208 INCY 85.69 80 IPQ-RP 2.38 2142 11% 82 ITWO 133.44 130 QYJ-RF 4.50 3336 13% 130 JNPR 226.63 220 JUY-RD 9.13 5666 16% 220 MLNM 121.56 115 QMR-RC 2.63 3039 9% 114 PDLI 165.00 145 RPV-RI 3.13 4125 8% 150 PEB 71.06 70 PEB-RN 4.25 1777 24% 69 PHCM 91.50 90 UMN-RR 2.19 2288 10% 87 PMCS 187.00 180 SZI-RP 4.38 4675 9% 180 RBAK 115.88 110 BUK-RB 3.63 2897 13% 115 RMBS 233.06 230 BYQ-RF 11.63 5827 20% 225 SDLI 250.00 240 QJV-RH 8.00 6250 13% 245 SEBL 143.50 140 SGW-RH 3.13 3588 9% 140 SNDK 73.25 70 SWQ-RN 2.00 1831 11% 70 SSTI 98.56 100 SSU-RT 7.13 2464 29% 95 TQNT 113.75 110 TNN-RB 3.50 2844 12% 110 VRSN 198.00 190 QVZ-RR 6.25 4950 13% 185 VRTS 135.63 135 VUQ-RG 4.38 3391 13% 132 YHOO 143.19 140 YMM-RH 3.00 3580 8% 140 YHOO AGGRESSIVE SELL PUT JUN-150 YMM-RJ at $8.63 = 24% MODERATE SELL PUT JUN-145 YMM-RI at $5.25 = 15% CONSERVATIVE SELL PUT JUN-140 YMM-RH at $3.00 = 8% SEBL AGGRESSIVE SELL PUT JUN-145 SGW-RI at $5.38 = 15% CONSERVATIVE SELL PUT JUN-140 SGW-RH at $3.13 = 9% JNPR AGGRESSIVE SELL PUT JUN-230 JUY-RF at $13.88 = 25% MODERATE SELL PUT JUN-220 JUY-RD at $ 9.13 = 16% CONSERVATIVE SELL PUT JUN-210 JUY-RB at $ 5.63 = 10% *********************** CONSERVATIVE NAKED PUTS *********************** "Idleness and pride tax with a heavier hand than kings and parliaments." That famous quote from Ben Franklin was never more appropriate than it is in today's difficult and demanding financial markets. The majority of traders have an opinion about the condition of the stock market and the manner in which they can profit from its future movement. When asked about recent positions, most will reply with confidence that the strategies they use will result in a successful outcome. Unfortunately, a high degree of conviction can frequently lead to failure. The trouble begins soon after the initial trading decision has been made. As the new position matures, the reasons for the trade, whether accurate or timely, are often adjusted to support the original outlook. The facts just seem to fall into place. The market character; the earnings outlook; the potential for bullish announcements. All of the available supporting evidence is included in the rationalization, whether relevant or not and a plethora of reasons to remain in the position are marshaled in defense of this decision. Its no different with analysts and financial gurus; those that attempt to forecast the market's future on a regular basis. Each and every one has a long list of justifications for the current trends or "why the market has declined" and "when the market will recover." Inflationary issues, economic conditions, developments in technology, and changes in the political arena are all given as common explanations for situations that have yet to be proven "predictable." The problems with attempting to explain the events of the past, or forecast the outcome of the future are numerous but the primary reason to avoid this trait is simple. Once we have entered a position with this attitude, we will continue to assemble and connect information in a manner which will support our original conclusion, rather than reflect the actual conditions of the market. The fact is, the majority of investors have trouble recognizing that all situations change and there is no perfect and complete method of knowing when, where, and how these developments will occur. In early stages of learning and throughout most of our adult lives, we are trained to make decisions in a positive and absolute manner. We are taught to endorse and defend our ideas with resolve. We strive to be correct! It is a conditioned response, and simply a matter of existence in today's society. Based on the customs of our culture, changes in opinion are often seen as a failure to arrive at the proper solution during the initial assessment. That is why it is so difficult to admit when we are wrong, to take the loss (even when it is small), and to reassess the position and correct our original observations. Human nature is the culprit here and until one can overcome the debilitating effects of pride and presumption, there is little hope for prosperity in the stock market. For most traders, profit comes from the successful participation in specific positions. As with any investment or speculative venture, the key is to remain alert for signs of changing trends in character or direction, and respond promptly and decisively when and if such events occur. One manner in which that can be accomplished is through the use of trading systems. Next week, we will review one of the most common (and successful) methods of money management; "Trading Stops." Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return MED 9.44 8.00 JUN 7.50 0.38 *$ 0.38 36.4% BBSW 28.63 27.81 JUN 22.50 0.63 *$ 0.63 21.5% ITXC 40.06 42.00 JUN 30.00 0.69 *$ 0.69 17.2% ADAC 20.31 20.00 JUN 17.50 0.44 *$ 0.44 16.6% ADAC 17.38 20.00 JUN 15.00 0.56 *$ 0.56 15.8% ADVP 16.75 19.13 JUN 12.50 0.38 *$ 0.38 14.8% MSM 22.06 21.38 JUN 17.50 0.50 *$ 0.50 14.7% BBSW 17.00 27.81 JUN 12.50 0.38 *$ 0.38 14.6% MRVC 35.56 46.00 JUN 25.00 0.50 *$ 0.50 14.3% ADEX 19.56 18.00 JUN 15.00 0.69 *$ 0.69 13.0% BFO 65.13 68.88 JUN 55.00 1.00 *$ 1.00 12.8% TMAR 9.25 10.50 JUN 7.50 0.25 *$ 0.25 12.3% MATK 18.88 18.38 JUN 15.00 0.31 *$ 0.31 11.0% YRK 25.94 26.06 JUN 22.50 0.56 *$ 0.56 10.8% UNM 20.19 22.44 JUN 17.50 0.56 *$ 0.56 10.2% ADVP 17.13 19.13 JUN 12.50 0.31 *$ 0.31 9.0% GZMO 17.19 14.38 JUN 10.00 0.31 *$ 0.31 9.0% CLPA 29.38 24.81 JUN 15.00 0.63 *$ 0.63 8.4% WLV 16.94 16.94 JUN 15.00 0.50 *$ 0.50 8.1% CLPA 27.19 24.81 JUN 15.00 0.44 *$ 0.44 8.1% NGH 20.88 25.50 JUN 17.50 0.38 *$ 0.38 7.7% VRTL 17.00 17.38 JUN 10.00 0.31 *$ 0.31 7.3% NGH 21.19 25.50 JUN 17.50 0.25 *$ 0.25 7.2% ALL 26.75 26.69 JUN 22.50 0.44 *$ 0.44 6.9% XTO 17.69 20.50 JUN 15.00 0.38 *$ 0.38 6.9% VRC 20.81 21.50 JUN 17.50 0.38 *$ 0.38 6.1% New ticker TRMB 36.00 49.81 JUN 25.00 0.44 *$ 0.44 5.0% FSII 16.00 15.94 JUL 12.50 0.50 *$ 0.50 8.4% *$ = Stock price is above the sold striking price. Comments: Cell Pathway (CLPA) manufactured some follow-through to last Friday's rally and appears to be out of danger. Doesn't Trimble (TRMB) make you wish you had just bought a few calls? Wolverine Tube (WLV) appears to be failing to take out the May high, not a good sign. Watch York International (YRK) closely as it is on the verge of violating a 3 month trendline. A follow through of Friday's rally should keep the stock safely above our sold strike. E-MedSoft.com's (MED) decline on Friday is very worrisome - mind your stop loss exit. Remember, a break-even exit is a good thing, and yes, I sometimes have to relearn that too. NEW PICKS ********* Sequenced by Company ***** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CEGE 27.25 JUL 17.50 UCG SW 0.44 170 17.06 42 5.4% CREAF 28.00 JUL 22.50 RFQ SX 0.69 114 21.81 42 7.8% EFCX 10.56 JUL 7.50 FUS SU 0.44 0 7.06 42 12.5% MPPP 19.19 JUL 10.00 PUM SB 0.38 71 9.62 42 6.5% OMKT 19.00 JUL 12.50 OQM SV 0.38 50 12.12 42 6.6% PILT 15.31 JUL 10.00 PTU SB 0.38 173 9.62 42 8.0% SYMM 20.00 JUL 15.00 SQG SC 0.38 0 14.62 42 6.3% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return EFCX 10.56 JUL 7.50 FUS SU 0.44 0 7.06 42 12.5% PILT 15.31 JUL 10.00 PTU SB 0.38 173 9.62 42 8.0% CREAF 28.00 JUL 22.50 RFQ SX 0.69 114 21.81 42 7.8% OMKT 19.00 JUL 12.50 OQM SV 0.38 50 12.12 42 6.6% MPPP 19.19 JUL 10.00 PUM SB 0.38 71 9.62 42 6.5% SYMM 20.00 JUL 15.00 SQG SC 0.38 0 14.62 42 6.3% CEGE 27.25 JUL 17.50 UCG SW 0.44 170 17.06 42 5.4% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** CEGE - Cell Genesys $27.25 *** Biotech Sector *** Cell Genesys is engaged in the development and commercialization of gene therapies to treat major, life-threatening diseases, including cancer and AIDS. Cell Genesys currently has two gene therapy programs, the clinical programs and the pre-clinical programs. The clinical programs include GVAX(TM) cancer vaccines in Phase I/II studies to treat specific types of cancer, such as lung and prostate cancers, and T cell gene therapy for AIDS, which is undergoing Phase II testing. Cell Genesys also develops and commercializes human monoclonal antibodies for pharmaceutical applications, including inflammation, auto-immune disorders and cancer. The biotechnology group is on the move and traders have become interested in the issue amid reports the company's factor IX blood-clotting protein performed well in recent tests, with no discernible ill effects. The bullish pattern suggests a recovery from the recent sell-off is underway and in this case we simply favor a conservative entry into a momentum-based position. JUL 17.50 UCG SW LB=0.44 OI=170 CB=17.06 DE=42 MR=5.4% Chart = /charts/charts.asp?symbol=CEGE ***** CREAF - Creative Technology $28.00 *** The New CMGI? *** Creative Technology develops, manufactures, and markets a wide array of advanced multimedia solutions for PC entertainment, education, music and productivity tools marketed under the "Blaster" family name. They market a wide variety of products, including game system and PC-DVD speakers, MP3 players, sound cards, and other electronic offerings. Creative Technology's third-quarter profit surged almost fivefold, thanks to success in recent Internet investments. With big competition in sound card manufacturing, CREAF has become a buyer of technology startups. Last year, CREAF established a $100 million fund for investments in new companies from MediaRing.com, which develops software enabling phone calls, to Lafe Technologies, a maker of unique electronics products. The question now is whether these investments will be successful in the current market environment. JUL 22.50 RFQ SX LB=0.69 OI=114 CB=21.81 DE=42 MR=7.8% Chart = /charts/charts.asp?symbol=CREAF ***** EFCX - Electric Fuel $10.56 *** On The Move! *** EFCX is engaged in the design, development and commercialization of its proprietary zinc-air battery technology for portable consumer electronic devices such as cellular telephones, laptop computers, personal digital assistants and camcorders, as well as for electric vehicles and defense applications. They offer their products through several marketing partners as well as through direct online sales. Electric Fuel recently opened a UK Sales and Marketing office in London, from which the company will focus its sales of the unique ZincAir batteries for cellular telephones in the United Kingdom. EFCX is in the process of establishing a London-based operating subsidiary, which will serve as the base of its marketing. The company also announced that the leading UK and European cellular retailer will begin selling their batteries through its network of retail stores. That's probably not the cause of the current rally but it's enough to provide some optimism for future revenues. JUL 7.50 FUS SU LB=0.44 OI=0 CB=7.06 DE=42 MR=12.5% Chart = /charts/charts.asp?symbol=EFCX ***** MPPP - MP3.com $19.19 *** Music To My Ears! *** MP3.com is developing an innovative approach to the promotion and distribution of music. The MP3.com Web site offers a variety of attractive benefits to artists and consumers. MP3 utilizes the Internet and file formats that make music files smaller to enable artists to distribute and promote their music and to enable consumers to conveniently access this music. Time Warner's Music Group and BMG Entertainment recently became the first of the big five record labels to settle copyright infringement lawsuits with MP3.com. MP3 has agreed to pay up to $20 million in exchange for licensing agreements to offer users the record companies' music. The settlement was hailed by analysts as historic and three other record companies, Sony Music, Universal, and EMI are expected to settle similar claims against MP3.com in the next few weeks. JUL 10.00 PUM SB LB=0.38 OI=71 CB=9.62 DE=42 MR=6.5% Chart = /charts/charts.asp?symbol=MPPP ***** OMKT - Open Market $19.00 *** Own This One! *** Open Market develops, markets, licenses and supports a family of application software products that allow its customers to engage in business-to-business Internet commerce, information commerce and commercial publishing. Their software includes a wide range of functionality required to effectively conduct business on the Internet, allowing companies to attract customers to their sites, interest them in acting upon an offer, complete a transaction and service them once a transaction has been completed. Open Market's solution is comprised of application software products along with maintenance, support, professional services and training. OMKT was recently listed as a "new buy" at Paine Webber with a price target of $30 to $35. Based on the bullish chart pattern, most investors agree with the outlook. JUL 12.50 OQM SV LB=0.38 OI=50 CB=12.12 DE=42 MR=6.6% Chart = /charts/charts.asp?symbol=OMKT ***** PILT - Pilot Network Services $15.31 *** On The Rebound? *** Pilot Network Services provides a wide range of secure Internet services that incorporate high-bandwidth connectivity and enable secure electronic business over the Internet. Pilot's services include secure access and gateway services, secure hosting and electronic commerce services, and secure extranet and virtual private networking services. This bottom-fishing position is based on the recent technical recovery and the bullish outlook for the industry group. Our cost basis is near the 52-week low for the issue and in the event of a future consolidation, the support should begin near that price range. JUL 10.00 PTU SB LB=0.38 OI=173 CB=9.62 DE=42 MR=8.0% Chart = /charts/charts.asp?symbol=PILT ***** SYMM - Symmetricom $20.00 *** DSL Technology Leader *** Symmetricom designs, manufactures and markets advanced network synchronization and timing products and intelligent access systems. Their solutions play a critical role in the operation and quality of service of both traditional narrowband voice and data networks and emerging broadband communications networks, enabling their customers to maximize network efficiency. SYMM recently unveiled a new technology that is designed to allow ADSL providers to augment their customer base and allow hundreds of thousands of additional businesses and consumers to experience the benefits of ADSL-enabled high-speed Internet access. SYMM's new GoLong extender is targeted to solve the performance issues when transmission distances increase beyond 3 miles from the central office. Using Symmetricom's proprietary ADSL network extension technology, providers can now double the distance to which they can offer ADSL service. That's impressive technology in today's Internet-driven society. JUL 15.00 SQG SC LB=0.38 OI=0 CB=14.62 DE=42 MR=6.3% Chart = /charts/charts.asp?symbol=SYMM ************************ SPREADS/STRADDLES/COMBOS ************************ Inflation Fears Plague The Market... Friday, June 9 The market ended mixed today after a report on wholesale prices left investors uncertain about the direction of the economy. The Dow ended down 54 points at 10,614 while the Nasdaq Composite rose 49 points to 3874. The S&P 500 Index fell 4 points to 1456. Trading volume on the NYSE was a light 791 million shares, with advances beating declines 1,672 to 1,189. Activity on the Nasdaq was subdued at 1.26 billion shares. Technology advances beat declines 2,414 to 1,575. In the bond market, the U.S. 30-year Treasury fell 3/32, pushing its yield up to 5.89%. Thursday's new plays (positions/opening prices/strategy): Active Soft. ASWX JUL45P/JUL55P $0.75 credit bull-put Network App. NTAP JUL60P/JUL65P $0.62 credit bull-put Juniper Net. JNPR JUL350C/J165P $9.00 credit strangle Our new combination plays offered very few opportunities for favorable position entries. Network Appliances was the only spread that traded at our suggested credit (on a simultaneous order basis). Portfolio plays: Industrial stocks moved lower in today's session despite the tame figures from the Producer Price Index. After a brief rally attempt during the morning, blue-chip stocks began to slide on concerns over the Fed's next move with interest rates. Although analysts said Friday's data showed no signs of mounting inflationary pressures, investors remained cautious ahead of the upcoming retail sales report and statistics from the Consumer Price Index. On the Nasdaq, biotech stocks posted impressive gains while the chip sector remained the best-performing area of the market, keeping the composite index positive throughout the day. On the Dow, financial and retail issues guided the average lower as profit warnings dampened investor enthusiasm. News of discouraging results from McDonald's (MCD) ended any hope for a bullish session. Sales at the Golden Arches have been miserable and Merrill Lynch analysts said it was the worst month for the company in two years. In the broad market, defense, gaming and telecom stocks advanced while consumer products, restaurants and agricultural issues slumped. Our portfolio had little activity of interest. Ciena (CIEN) led the technology section with a $4 gain and Sepracor (SEPR) topped the Major Drug group, up almost $5 to $116. Our Covered-Calls with LEAPS position is at maximum profit above $100. Johnson & Johnson (JNJ) managed a small recovery today, and Celgene (CEGE) led the biotech group with a $2.68 rally to $27. Our new bullish position is profitable with a break-even basis at $22. Ashland Oil (ASH) rebounded from a recent slump and the debit spread is now offering a favorable early-exit profit. Pep Boys (PBY) also made a small upside move and the timing is excellent, providing a great opportunity to roll into the July options. The surprise of the day was once again Novoste (NOVT), which rallied back to $45 on increasing volume with no news. The current speculation is that the company will be bought by Johnson & Johnson (JNJ) or Medtronics (MDT). Of course there is no easy way to confirm or deny the rumors so we will just have to rely on the technicals. A move through $47 on increasing volume would signal a potential change in character and that's the indication we will use to determine our next action. Those of you who wish to avoid the excitement might try to close the position during any pullback in Monday's trading. Regardless of the outcome, the learning experience will be well worth the time involved in monitoring the issue. Good Luck! Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** CVG - Convergys $48.75 *** Reader's Request! *** Convergys Corporation is a provider of outsourced information and customer management products and services. The company focuses on developing long-term strategic relationships with clients in customer-intensive industries; telecommunications, Internet services, cable, broadband, satellite broadcasting, utilities, technology, financial services, consumer products, healthcare and pharmaceuticals. Convergys serves its clients through two operating subsidiaries; the Information Management Group, which develops complex software to provide outsourced billing and information services, and the Customer Management Group, which provides outsourced customer, employee and other marketing support services. One of our subscribers was kind enough to point out the bullish trend in this stock and he also requested that we identify a favorable spread position in the issue. Based on the positive technical outlook and a small premium disparity, the best way to profit from any future upside movement may involve the simplest of techniques; a debit spread. PLAY (conservative - bullish/debit spread): BUY CALL JUL-35 CVG-GG OI=152 A=$14.25 SELL CALL JUL-45 CVG-GI OI=434 B=$5.75 INITIAL NET DEBIT TARGET=$8.25 ROI(max)=20% B/E=$43.25 This play is based on the current price or trading range of the underlying issue and the recent technical history or trend. Current news and market sentiment will have an effect on this issue. Please review the play thoroughly and make your own decision about the future outcome of the position. Chart = /charts/charts.asp?symbol=CVG ****************************************************************** ISSI - Integrated Silicon Solutions $35.31 Integrated Silicon Solution designs, develops and markets high performance memory devices including static random access memory (SRAM), low and medium density dynamic random access memory, and nonvolatile memory (NVM), as well as voice recording devices and certain microcontrollers and embedded memories. The company's memory devices are used in popular networking applications, telecommunications, data communications, disk drives and other peripherals, personal computers, instrumentation and automation, and other consumer products. The majority of semiconductor issues have performed well in the past year but many of the smaller-cap issues are just beginning to achieve institutional attention. Integrated Silicon Solutions is one of the companies that is now gaining favor among mutual fund managers and based on their bullish opinion, the future is bright for this unique chip-making business. Several funds have turned in stellar performances this year but the leader through May was the Schroder Micro Cap Fund (SMCFX), up a whopping 56% during the first three months of the year. This fund attempts to provide long-term capital appreciation and one their primary holdings is Integrated Silicon Solutions. That says something about the potential of this issue and with help from favorable option premiums, we are going to speculate on the future performance of the company's share value. PLAY (conservative - bullish/diagonal spread): BUY CALL OCT-25 XUS-JE OI=99 A=$13.00 SELL CALL JUL-35 XUS-GG OI=432 B=$4.00 INITIAL NET DEBIT TARGET=$8.75 INITIAL TARGET ROI(max)=14% Chart = /charts/charts.asp?symbol=ISSI ****************************************************************** MACR - Macromedia $101.00 ** New Trading Range? *** Macromedia develops and distributes original technologies and innovative software tools, servers and services to a range of customers including developers, consumers and large corporate accounts. Macromedia's software products and technologies are focused on maximizing opportunities in three key areas: Web Publishing, Web Learning, and Shockwave.com. Macromedia's family of Web Publishing products works together as a complete solution to streamline Web workflow from concept to design, development to production. Their Attain Enterprise Learning System is an integrated enterprise-wide solution for managing the online learning process from planning, administering, and delivering curricula, to tracking, storing, and reporting learner progress from any browser, anywhere in the world. The company's new consumer business, shockwave.com, intends to release various products and services that form the basis of this business over the coming months. There are a number of articles concerning MACR's new products and developments in the multimedia and graphics software industry but our position is based simply on a the bullish technical outlook. The stock has recently graduated to a new trading range and investors appear to support the move as the current rally has exhibited excellent retail buying interest. We favor a cost basis near the recent technical bottom in this low risk, credit-spread position. PLAY (conservative - bullish/credit spread): BUY PUT JUL-65 MRQ-SM OI=7 A=$1.06 SELL PUT JUL-70 MRQ-SN OI=100 B=$1.50 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% B/E=$69.38 Chart = /charts/charts.asp?symbol=MACR ****************************************************************** EXDS - Exodus $92.75 *** Split Rally? *** Exodus Communications is a provider of complex Internet hosting for enterprises with mission-critical Internet operations. The company offers sophisticated system and other network management solutions along with technology professional services to provide optimal performance for customers' Web sites. Exodus delivers its services from geographically distributed, state-of-the-art Internet Data Centers connected through a dedicated and redundant backbone network. The company's tailored solutions are designed to integrate with existing enterprise systems architectures and to enable customers to outsource the monitoring, administration and optimization of their equipment, applications and overall Internet operations. Exodus offers an integrated portfolio of solutions that provide customers with a scalable, secure and high-performance platform for the development, deployment and proactive management of mission-critical Internet operations. Companies in the Internet hosting sector have made a noticeable recovery in the past few sessions and with many of them still trading at greatly reduced prices, this group is certain to remain in the spotlight. Exodus is one of the top companies in the industry and analysts believe the issue is poised for future gains. The stock is currently rated a "strong buy" at Banc Of America and Deutsche Banc AB. Analysts at Dresdner Kleinwort Benson Securities also recently began coverage of the company with a "buy" rating and a 12-month target of $120 per share. In addition, Exodus is planning an increase in the company's authorized common stock to 1.5 billion shares. The upcoming two-for-one split, to be effected in the form of a dividend, will be issued on or about June 20 to owners of record on June 7, 2000. Our outlook for the company is bullish and with any rally in the issue, our position will have little chance of a negative outcome. PLAY (conservative - bullish/credit spread): BUY PUT JUL-60 DUB-SL OI=109 A=$1.25 SELL PUT JUL-65 DUB-SM OI=335 B=$1.88 INITIAL NET CREDIT TARGET=$0.75 ROI(max)=17% B/E=$64.25 Chart = /charts/charts.asp?symbol=EXDS ****************************************************************** - INDEX OPTION SPREADS - ****************************************************************** As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within some predetermined time. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific market industry or on the market as a whole. Spread strategies can be made with index options similar to those made with individual stock options. Many professional traders employ index spreads as a hedge strategy. We favor debit positions on the SPX for momentum and hedge or longer-term plays and OTM credit spreads on the OEX when the risk/reward is favorable. Low ROI disparity spreads will be listed (when available) for the conservative index trader. ******************************************************************* OEX - S&P 100 Index $779.70 OTM Credit-Spreads The Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. OBSERVATIONS: For OTM credit spread trades, we like to use the actively-traded S&P 100 Index options because they contain much more premium than options on individual stocks and provide an underlying instrument less prone to huge, gapping moves. Review the 'Market Sentiment' section for specific technical information on the S&P 100 Index. Aggressive... PLAY (Bearish): BUY CALL JUL-850 OEX-GJ OI=411 A=$3.00 SELL CALL JUL-840 OEX-GH OI=606 B=$4.12 NET CREDIT TARGET=$1.12 ROI=12% PLAY (Bullish): BUY PUT JUL-730 OEZ-SF OI=225 A=$6.88 SELL PUT JUL-735 OEZ-SG OI=195 B=$7.38 NET CREDIT TARGET=$0.50 ROI=11% By combining two credit spread positions, you can participate in a popular neutral strategy known as the Long Iron Condor. It is often used with range-bound positions and is a limited risk, limited profit strategy that gives you a wide range for success. Chart = /charts/charts.asp?symbol=OEX ************************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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