The Option Investor Newsletter Thursday 6-15-2000 Copyright 2000, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 6-15-2000 High Low Volume Advance Decline DOW 10714.80 + 26.90 10763.70 10669.20 993,636k 1,417 1,459 Nasdaq 3845.74 + 48.33 3849.94 3763.74 1,420,678k 1,817 2,151 S&P-100 798.88 + 8.53 801.55 790.56 Totals 3,234 3,610 S&P-500 1478.60 + 8.06 1482.04 1464.62 47.3% 52.7% $RUT 512.25 + 2.58 512.28 504.13 $TRAN 2704.53 - 43.76 2758.16 2704.53 VIX 23.18 - 1.33 24.94 22.94 Put/Call Ratio .51 ***************************************************************** To The Point That CNBC Is Turning Interesting You probably know what I am talking about, as it's the point where CNBC becomes more interesting than watching your trades. What is it going to take to kick the Nasdaq out of the current range? I guess I shouldn't be so picky as there are still plenty of stocks making big moves. This is an individual stock pickers market and it is hard to complain about that. But, if the Nasdaq could kick start itself over 3900, everything would be a potential call play. Or a breakdown under 3700 to bring the Bears to life. Until then, we are forced to wait for signs of direction. Today's market gave us little in the way of clues to figure out which way the tide will turn, but it did produce a decent rally. Let's start with the Nasdaq. A slump on the open down to 3763 turned into steady climb from 11am EST up until 2pm when the Nasdaq topped out once again at 3850. Back down into boredom we go, right? Fortunately no. A final 30 minute rally blossomed and took us back right near the day high, closing at 3845.74, up 48.33. This rally wasn't subtle either. Many stocks took off with a vengeance to close right at or near their highs. Volume wasn't too shabby either at 1.4 billion. A close like this one, as you know by now, typically spills over to the next morning. So once again, I have to point out what I mentioned on Tuesday. We are at a level where we could blow through 3900. It didn't pan out Tuesday, but we never really sold off either. Check out what the Nasdaq has done since Tuesday's close. Here is the longer term view of this range we have been caught in for over two weeks. Is this chart we are looking at one of a major market index or of an irregular heart beat? It makes it a little tougher to spot a trend. I won't even attempt to draw on this one. You get the picture...3900 top, 3700 bottom. And how about the DJIA? It rallied right out of the gates this morning and spent nearly the entire day over the unchanged line. Volume was solid at 1 billion shares. The Dow Industrials finished at 10714, up 26.87. This was despite a weak day for Bank stocks, thanks to a warning from Wachovia Corp. You can see that this index is also stuck in limbo waiting to make a move. The big drivers today were the tech stocks like MSFT, HWP, IBM, and INTC, which all posted gains. In fact, MSFT is showing nice strength now that they are entering the appeals stage of their case. The economic news of the morning didn't help the sentiment towards the Fed standing pat, but didn't hurt it much either. Industrial Production numbers rose by 0.4% instead of the 0.3% decline expected, but operating capacity remained unchanged. Also, the Labor Department reported that 296,000 Americans filed for unemployment benefits last week, signaling the tight labor market continues. And although these numbers weighed on the bond, it wasn't anything major. The 10-year Treasury note edged up to 6.07% from 6.03% on Wednesday. Bond traders also had to digest comments from Fed governor and voting member, Alfred Broaddus. He said that some of the cooling effects in the economy could just be temporary. He is a long time hawk though and could be just trying to talk down the markets. Remember, there are less than two weeks to the FOMC meeting on June 27th and 28th. QCOM took it on the chin again today. Nothing like a lowered price target and lowered earnings estimates to scare off the buyers. H&Q took the honors for kicking the stock while it is down. Chase H&Q analyst, Edward Snyder, put a $50 price target on shares of Qualcomm and lowered his fiscal 2000 and 2001 earnings estimates. This caused QCOM's stock to fall by nearly 13% today. This comes after Bear Sterns lowered its estimates on Wednesday, when QCOM shares dropped 13% yesterday as well. He said the slowdown in Korea could reduce CDMA handset sales by 10 to 15%. There was a major earnings report after the close today as well. Adobe beat the street by 0.03 cents in their second quarter and painted a bright picture for the future. They told investors to expect sales growth of at least 25% for the coming two quarters. ADBE had a record $300.1 million in revenue and a profit of $65.8 million, or $0.51 cents per share. This always active stock was bouncing after-hours too, trading as high as $126.50 and then back down near $121, after closing the regular session at $124.13. This is the second major company that reported solid earnings as CMGI did the same on Tuesday. Although, it hasn't done much for their stock price. In looking at the charts, you can see how tight the range has formed on both the DJIA and Nasdaq. This is interesting and not something we are used to seeing lately. As I said Tuesday, I side with the Bulls. The inability for the market to sell- off bodes well for an earnings run. With that said, you are more safe viewing this in a market neutral stance. Let the breakout happen in either direction and play it accordingly. Stocks don't have to have an earnings run as we viewed last quarter. Many sectors still look good to me. Drugs and Tech stocks, especially Fiberoptics, are strong. Can anything stop SDLI, up another $20 today? Or how about GLW tacking on another $12.75. The one thing that has gone somewhat unnoticed is the VIX. It is on the way down, currently at 23.18, closing right on the day low. This is the lowest level since mid-March. So maybe I'm not the only bull in town. But, it is getting down to the turning point, which we all know to watch out for, down near 20. In reviewing the calls and puts with Jim today, we didn't see many stocks that were rolling over. Some were going up, while some were staying range-bound. That leaves us in a stock pickers market, like I mentioned above. And hey, that is not a bad thing. It is a leveling of the playing field for stocks to move on their own news and momentum. I am hoping for a breakout to the upside, but will trade the individual movers based on the technicals until the indices make there move. If it is lower, that is fine. I don't buy many puts ahead of earnings season, but I am always in search of that perfect entry point! Once again, the battle lines are drawn for the markets so plan your trades accordingly. Ryan Nelson Asst. Editor P.S. Look for Jim's analysis in the weekend edition of the Market Wrap. **************** MARKET SENTIMENT **************** Where is the Easy Money? The broad market ended on a whimper, even though the major indexes closed in the green today. The volume did tick up slightly, which is positive, but could very easily be attributed to traders clearing positions ahead of option expiration. Regardless, this consolidation being witnessed the last 10 days is still positive, especially after the size of the run-up we had two weeks ago. Now after speaking to many professionals, it seems to be the consensus opinion that many investors/traders are waiting for the Fed meeting before making any significant investments. Now whether they are waiting for the Fed meeting or the July earnings run remains to be seen, but the broad market is acting very positive, even though many individual equities are not. Regardless, the sentiment that is being displayed in the current marketplace is not rewarding the general public, and is especially not rewarding the buy and hold investor. This has become a stock (or option) pickers market, long gone from the days of throwing a dart at the Wall Street Journal and hitting a home run. We are witnessing many stocks that are making mild moves to the upside, while many are getting destroyed to the downside. This risk to reward level that we spoke about Tuesday continues. As an example, Tuesday evening, CMG Information Systems pre-released earnings and revenues that were above expectations, however, the stock ended up selling off and closed down the next day. The risk is great, yet the reward was negative. Those are not the kind of statistics we like to see. Now what about the companies that are mentioning negative news, these stocks are getting destroyed! Qualcomm (QCOM) is the latest, as it has shed about $20 since we last wrote (48 hours ago) and even had an analyst slap a price target that is still $12 lower than where it closed today. Unless you are the perfect stock picker (i.e. Corning, SDLI etc.), the easier money to be made at the moment is currently on the put side, because the risk-to-reward level is significantly skewed to that side. However, things can change quickly, but until then, we know where we will be participating in the market. BULLISH Signs: Interest Rates (5.918): 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. Many individual equities will continue to show major (and quick) gains as stocks get squeezed. Mixed Signs: Volatility Index (23.18): 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. Based solely on the VIX, we are getting close to a selling opportunity. 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, Harmonic Lightwave, and NBC Internet, Wachovia Bank, Perot Systems, and Qualcomm 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 18.67 24.54 Overhead Resistance (775-800) 2.53 2.67 1.91 OEX Close 779.76 789.43 798.88 Underlying Support (745-770) 1.89 2.25 3.09 Underlying Support (715-740) 5.71 5.67 6.36 What the Pinnacle Index is telling us: With only a couple of days until June expiration, we would expect the OEX to stay trading range bound similar to the last couple of weeks. Put/Call Ratio ***************************************************************** Friday Tues Thurs Strike/Contracts (6/9) (6/13) (6/15) ***************************************************************** CBOE Total P/C Ratio .45 .48 .51 Equity P/C Ratio .42 .53 .43 OEX Put/Call Ratio .77 .64 1.06 Peak Open Interest (OEX) ***************************************************************** Friday Tues Thurs Strike/Contracts (6/9) (6/13) (6/15) ***************************************************************** Puts 740 / 8,917 740 / 9,124 740 / 10,033 Calls 795 / 9,394 785 / 8,364 795 / 7,758 Put/Call Ratio 0.95 1.09 1.29 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 15, 2000 23.18 ************** MARKET POSTURE ************** As of Market Close - Thursday, June 15, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,200 11,400 10,715 Neutral 5.05 SPX S&P 500 1,350 1,500 1,479 Neutral 5.30 OEX S&P 100 725 800 799 Neutral 5.30 RUT Russell 2000 450 550 512 Neutral 5.05 NDX NASD 100 3,000 4,000 3,752 Neutral 5.30 MSH High Tech 800 1,050 999 Neutral 6.06 XCI Hardware 1,250 1,600 1,514 Neutral 5.30 CWX Software 1,050 1,300 1,261 Neutral 6.06 SOX Semiconductor 850 1,200 1,132 Neutral 5.30 NWX Networking 900 1,100 1,175 BULLISH 6.02 INX Internet 500 800 588 Neutral 5.30 BIX Banking 530 640 559 Neutral 6.09 XBD Brokerage 400 500 501 BULLISH 6.15 ** IUX Insurance 540 620 649 BULLISH 5.16 RLX Retail 900 1,000 859 BEARISH 6.09 DRG Drug 355 400 398 Neutral 4.28 HCX Healthcare 710 800 819 BULLISH 6.15 ** XAL Airline 140 155 162 BULLISH 5.25 OIX Oil & Gas 265 300 309 BULLISH 5.11 Posture Alert The broad market ended Thursday on a positive note as volume ticked up both on the NYSE and the NASDAQ. The rally witnessed was quite mild, but many stocks did feel the pain on the downside. Today, Wachovia, the North Carolina bank, warned the Street that its earnings would be lower than expected. As such, the Banking Index led the loser list with a -5.33% loss. With this most recent action, we have upped Healthcare and Brokerage to Bullish from Neutral. ************** TRADERS CORNER ************** Buy Low...What a Crock! By Molly Evans Will I never learn? It's been said that money lost in the markets is tuition only if you learn from the mistakes and don't repeat them. If you repeat, well, they're just losses, plain and simple. I must be REALLY dense! How many times do I have to catch a falling knife to know, DON'T DO THAT! I'm mad at myself and mad at my school. The market is so news driven. One cannot be privy to all the news! I had a really nice entry in QCOM a couple of weeks ago. It had been consolidating and holding support right at $69 to $70. I entered. Good news starts to issue forth and we got a nice rally on volume. It runs $14 - $15 from my buy and my calls are looking great. I never buy front month options so I think to myself, "Be patient, let this guy run, they're just getting back on their feet and the market is firming up everyday. You've got time." Shoot! Not only am I dense, I'm greedy. As one of my friends told me last night, "MOLLY! That's all you get! You made the right call, get out." Duh! Can we turn back the hands of time? Here am I watching the market yesterday and I see this big sell program come in on QCOM. Hmmmph! Is there any news? Nope, no news. Well of course there's news! When a stock is tanking ten percent and the rest of the market is cooking along ok, somebody knows something and they don't like it. I've seen it time and time again and I still hadn't learned. Maybe because I'm putting it into black and white, I will finally have etched this bad boy scenario into my brain. Not only did I not dump those calls quickly, I bought a couple more AND I bought long shares just for the imminent bounce. No, I didn't pick the bottom as the news hadn't come out yet. I know I'm not alone. I know you too are out there. Who bought CTXS the other day before they prewarned? Someone knew something because it started plummeting before they ever released the news. I saw that one and thought better of it. I patted myself on the back when they did go ahead and put forth the warning. "Aha! I knew something was fishy there!" Another time I got caught holding ANCR calls. The market was humming along nicely yet that stock started to plummet. I didn't even bother to ask questions with this one, I sold immediately. So if I'm so smart, why did I do this with QCOM? GEEZ! Alright, alright, alright. I'll stop this ranting and talk about what I'm going to do about it. I watched QCOM in the premarket. My mouth was just hitting the floor. It's $64 now! "Oh come on! Stop that!" I made up my mind, "I will not overreact. I'm not going to do anything in the first hour - amateur hour. They're overreacting, they're irrational. I'll be rational." Well, it's now past the first hour. Mark one up for the amateur. He's out $3.50 higher than I am at this point. What to do, what to do? It's time to do some damage control here. As I see it, I've got three options. Actually I'm holding five but that's beside the point. I can 1) blow them out, take my lumps and get on with life; 2) hold them, pray that QCOM discovers the frigging fountain of youth over the weekend; or 3) roll down, putting on a bull spread. While I'm inclined to just take the loss and move on, I do need to critically analyze this. On the one hand, a very profitable position that quickly moves to a big loss is demoralizing and to have to look at it everyday only wears on me. I could take what's left and put it into something that's moving or should I say something that hasn't released their bad news YET? However, I started out being rational this morning, let's continue with that process. We know that the crowd always overdoes it both ways. They overbuy and they oversell. It's one thing to have your stock tank, it's another to find that you were the very last one to sell and have it rebound big on you. Let's not compound our mistakes. I know, I'm a fine one to talk about that! I could just buy more calls at the "discounted price" and greatly increase my chances for a recovery on a rebound in price. Luckily for me, my calls are still in the money and the delta is much better than if they had fallen out of that range. The calls will move much better when they're ITM. I could buy lower strike calls and do even better. Yet, unless QCOM rebounds big and quickly, the market maker is going to take me for what I have to pay for volatility. That's what stinks here. QCOM can get up and move, it's just the question of when it's going to do that. As soon as the volatility is priced out of the options probably. Wow, I'm dark this morning! That being said, any reputable investment advisory book or service generally frowns upon averaging down because many times beaten down stocks have received their beating for a reason. I'm not going to do this. Let me run through a bull spread. I'd have to sell two calls of my present strike for every one of another ITM call I'll buy. As McMillen's book says, "This is the key to implementing the roll-down strategy-that one be able to buy the lower strike call and sell two of the higher strike calls for nearly even money." Now I'd be short the calls I previously owned and would be long the ITM call. The position becomes long one 50 QCOM call and short one 60 QCOM call. In making this trade, I have lowered my break-even point significantly without increasing the risk. While the overhead profit potential is limited in this play, recovery of some or all of the original capital is my goal. The expectation of this spread is that if QCOM rises, the deeper ITM call appreciates the most. Let's do the math: I own 5 calls of QCOM Jul 60-cost basis of $15.25 = $7625 debit I sell 10 of those calls now bid at $8.50 = $8500 credit I buy 5 of the ITM Jul 50 calls asked at $15.50 = $7750 debit Total adjusted cost basis for ITM calls now = $14.00/sh $7000 Now, let's say that QCOM closes at $75 by July OE. The 50s are worth $25.00 = $12,500. Great. Not so fast there Judy, the dude who bought my 60s now wants to exercise his options. I have to go in and exercise my contracts too. I buy the shares at $50/share and sell them to him for $60/share. So, it costs me another $25,000 plus commissions to go in and get them for delivery. I get back $30,000 from him. Easy, that's $5,000 profit. Not. Remember, I paid $7000 for the right to buy those shares at the low, low price of $50/share. I need QCOM to run a lot more than that to break even. My loss at that point would be $2000 which is better than the $3375 + commissions that I'm out right now on those calls and don't even remind me about the longs that I'm holding. I don't know. For $1375 less of a loss, I'm thinking there are better plays to be made. There's no guarantee that QCOM will suddenly pull it out of the bag and rebound even to $75. It could certainly go lower. I told you about my MSFT woes in an earlier whine session, I did move out of those and into JDSU, making back those lost $$$ in about seven trading days. At this point, I'm probably going to dump these sorry things and get on with life. I hate looking at something, just wishing and hoping. That tactic never seems to work for me. My wise friend that told me I should have sold out when QCOM stalled also once told me that to learn from your own mistakes is smart, but to learn from someone else's is brilliant. I hope everyone else are geniuses. Until next time... Contact Support ****** Time To find out what's On The Poo Poo Platter By Lynda Schuepp A funny thing happened when I ordered a Poo Poo Platter while having lunch with a friend and her 3-year-old son. The three year old started laughing hysterically because he couldn't imagine eating "poo-poo". Since that time, I can't order that appetizer without a fit of laughter. If you've only been trading options for a year or two, you probably are a bit frustrated right now. I think it's time to order the Poo Poo platter. We have been trading in a screaming bull market. Some of us, thought we were brilliant, doubling our money every quarter, only to lose a major percentage by April 14th. Know that you are not alone. You are in good company. Even the big institutional investors are scratching their heads. Of course, their average age is 27, so they've never traded in anything other than a bull market. If you keep doing what you're doing, you'll keep getting what you're getting. So, if you don't like what you've been getting since April, now is the time to read and learn and research other option strategies. Learn about all the different things available on that Poo Poo platter. Option trading is very complex, that's what makes it really exciting. If it were easy, anybody could do it, and you are not just anybody. By subscribing to OIN, you realize that education is key to being successful over the long run. The typical investor starts out with an order of chicken chow calls and pork fried puts. I daresay you've probably bought more calls than puts and made more money on the calls than the puts, because of the bull market. Once the market turned, you probably kept ordering those chicken chow calls when you should have been selling them. The reason you should have sold the calls instead of buying the puts was because implied volatility is very high when the market turns. This is the second stage an option trader has to go through, learning how to play volatility. Expensive options should be sold and cheap options should be bought. If the market goes up and options are cheap, you buy calls. If the market goes up and the options are expensive you sell puts. Reverse these for a down trending market (buy puts or sell calls). That doesn't mean buy an option for $3 and sell an option if it's $20! The $20 option may be cheap and the $3 option may be expensive. Cheap options are those options whose implied volatility is less than their historical volatility. The $3 option maybe only worth $2.50 and the $20 option should be priced at $24! There are complicated formulas that do option pricing, but don't worry about trying to understand them because there are sites that publish the implied volatility relative to its historical volatility. That's really all you need to know. Don't make it more complicated that it has to be. If historical volatility is less than implied volatility then the option is expensive, vice versa for cheap options. Next appetizer on the platter--don't fight the trend. Think of those salmon swimming upstream. Most don't make it- they get eaten by the bears (sound familiar?) In other words, don't buy puts in a screaming bull market, because even the lousy stocks will rise and don't buy calls in a strong down trending market. Now that's the harder lesson to learn. When you get a big drop in the market, you think, what a bargain! But the bargain turns out to be expensive for two reasons. First, you bought when volatility was high and secondly, the drop probably wasn't over. Realize that it is impossible to consistently call the tops and bottoms. Be happy and trade the middle of the band, in the direction of the trend. For some this might mean staying out of the market. If you've never shorted and don't know your margin requirements then this is a great opportunity to read and paper-trade those strategies until you are really comfortable or until the bear market is over. Since bear markets don't last very long, it is likely that you might not get a chance to try these strategies out using anything other than monopoly money. That's Ok, you have permission to stay out of the market if you are not confident. This is the perfect time to read or re-read some of those archived articles on the OIN website. Appetizer #4-don't be pig-headed and hold your position if your option is below your stop. This is the lesson that is probably the hardest to learn. In fact, I'm not sure you can ever learn it 100%. The first time you use "mental" stops and your stock stocks gaps at the open and you get burned, it's hard to exit. God knows how many times that has happened to me. My advice is to make sure you use a broker that accepts stops on options and use them. Now you're ready for an entrée, try schezuan spread trading, it's hot and spicy. A lot of people don't like to do spreads, because they don't understand all the complexities. They think you have to hold for long periods of time and the rewards are small. Nothing could be further from the truth. There are spreads that have limited downside and unlimited upside. There are spreads designed for a short-term 1-2 day volatility crush. There are spreads designed to protect your long-term portfolio. There are spreads designed for your IRA account. The issue is this, spread trading is far more complex than it looks on the surface and that's the reason most traders never really learn. It requires tons of reading, listening, going to seminars, but the rewards are worth it. Spreads are not a strategy you use exclusively or all the time, it is merely one more selection on that Chinese menu. The trick is to know which strategy is best for the current market condition. In summary, I will tell you which strategies work best for the different type of markets. In a screaming bull market the strategies that work best are to buy OTM calls or sell naked "in the money" puts, depending on volatility. In a side ways market, you can put on bull put spreads, bull call spreads, and covered calls. These are also effective in a moderate bull market. Because you have a short leg and a long leg, volatility is not a real issue here. In a strong down trending market, you can sell naked calls, or buy puts, depending on volatility. Remember, down trending markets are quite short lived relative to an up-trending market, so be careful here. Always buy as much time as your can afford but sell options with very little time to take advantage of time decay. Time decay is not linear. If you think you can't afford time, either buy fewer contracts or don't buy at all. This lesson usually has to be learned and relearned over many years. And now the message in the fortune cookie: A couple of bear markets will convince you to find out what else is on that Poo Poo platter. ************* SECTOR TRADER ************* I Think I can. I Think I can. OK, Maybe Not. By Buzz Lynn With the NASDAQ nearing 3900, the DOW bouncing south of its 200- dma, and the OEX near 800, history suggests a rollover. ----- Before we get started on the plays, I want to thanks those who wrote in with their comments and suggestions. We appreciate it and want to continue developing this section to help you, the sector trader. So keep those cards and letters (OK, e-mails) coming to sectortrader@OptionInvestor.com! On a housekeeping note, thanks to an astute reader pointing out their availability, we now bring you options on the biotech HOLDRS. Happy trading! Index Last Mon Tue Wed Thu Week QQQ nasdaq-100 93.78 -2.69 3.13 -1.75 1.63 0.31 HHH Internet 118.50 -7.06 1.19 -1.19 1.00 -6.06 BBH Biotech 158.00 -7.75 5.75 -2.06 2.06 -2.00 PPH Pharm 98.81 -0.69 3.44 1.69 0.13 4.56 TTH Telecom 77.25 -0.94 1.81 -0.13 -0.19 0.56 IAH I-net Arch 91.00 -1.06 0.94 0.06 2.06 2.00 IIH I-net Infr 55.75 -4.06 1.19 -0.13 0.38 -2.63 BHH B2B 38.44 -2.44 0.81 -1.38 -0.31 -3.31 BDH Broadband 88.25 0.88 2.13 -2.44 2.13 2.69 SMH Semicon 95.38 -3.81 4.00 -4.25 -0.81 -4.88 ************** Updates ************** QQQ - NASDAQ 100 $93.63 +1.50 (+0.06) Optionable. Sometimes even a blind squirrel gets an acorn. As though we planned it, the QQQ spiked up Wednesday to $94.88, then rolled over to tag $91 on a few occasions this morning before finding its legs and moving back up to $94. Those of you new to trading are now making the discovery of why it is hard to make money in a range-bound market. As long as investors can't decide what the future holds, this tug of war is likely to continue. The big events that could help establish a new trend are the OPEC meeting on June 21st to decide on production increases, followed by the FOMC meeting on June 28th to decide the fate of interest rates. Until investors get the conviction to establish a new trend, look for this sideways action to continue. It is tradable, but requires discipline and strict adherence to trading at points of support and resistance. Resistance is pretty firm at $95, while support rests mildly at $91 with $90 providing a solid floor. The only hiccup would be in the market realizing the probable decrease in the growth rate of corporate profits. If that sentiment sets in, it would be quite possible to drop under support of $90 to fill the gap from $88 two weeks ago. If you play calls, keep your stops set to avoid having the rug pulled out from under you. At Support: BUY CALL JUL-86 YQQ-GH OI= 555 at $11.38 SL=8.50 BUY CALL JUL-88 QVQ-GJ OI= 767 at $10.00 SL=7.00 BUY CALL JUL-91 QVQ-GM OI= 1044 at $ 8.00 SL=5.75 SELL PUT JUL-86 YQQ-SH OI=20920 at $ 2.75 SL=4.50, Huge OI At Resistance: BUY PUT JUL-98 QVQ-ST OI= 453 at $ 8.25 SL=5.75 BUY PUT JUL-95 QVQ-SQ OI= 657 at $ 6.63 SL=4.75 BUY PUT JUL-94 QVQ-SP OI= 996 at $ 6.13 SL=4.25 Average Daily Volume = 27.4 mln /charts/charts.asp?symbol=QQQ ------ BBH - Biotech $158.00 +2.06 (-2.00) Optionable. Hmmm. . .right where we left off on Tuesday, which means yesterday wasn't so great considering today's mostly higher move by a majority of components. The mutant issues today were DNA (-3.88) and AFFX (- 10.38). The rest were largely positive, excepting factional losses in a few of the smaller components. Can you say range- bound? Sure, we knew you could. $150 continues to offer good support with $153 to $154 providing nice intraday support on most occasions. Likewise, $160 continues to provide resistance, but that resistance level has been moving down since hitting $164 nearly two weeks ago to $161.50 last Friday to $160 yesterday. Trading in a narrow and tightening range is really tough to do unless, like in the QQQ, you pay strict attention and trade on support and resistance levels for small profits. This sector is still well loved but investors nonetheless are having a hard time finding reasons to send BBH higher. Currently, we look for range-bound trading to continue until some news breaks to establish a reason for a new trend. Watch $160 for a breakout, and $150 for a breakdown if that happens. In the meantime trade what you know to be the range, or sit out. This isn't a good place to cut your trading teeth. At support: BUY CALL JUL-150 BBH-GU OI= 142 at $17.63 SL=12.75 BUY CALL JUL-155 BBH-GK OI= 82 at $15.00 SL=11.00 At resistance: BUY PUT JUL-160 BBH-SL OI=1257 at $13.63 SL=10.25 BUY PUT JUL-155 BBH-SK OI= 52 at $11.00 SL= 8.25 Average Daily Volume = 658 K /charts/charts.asp?symbol=BBH ------ IAH - Internet Architecture $91.00 +2.06 (+0.88) Not optionable. We noted Tuesday, that the case was getting stronger for a breakout at the $90 level. Unfortunately, without investor conviction (noted by increased volume over the ADV), the $91 level we see today cannot be considered a breakout since volume was only one third the ADV of 73 K shares. While the highs get higher and the lows get higher too, BBH appears to have reached the top of its trading range again. The stochastic lends credibility to that theory based on its overbought reading of 96 on a daily chart. Even so, it's nice to see only one notable loser, FDRY, down $6.56 on slight higher than average volume, and three other fractional losers out of 20 issues. However, the condition of the rest of the market doesn't lend any strength to the idea that we'll get that breakout here either. Watch $87.50 for support and perhaps a good entry point to go long (that is unless the market is moving down), then again at $85. In either case, wait for the bounce. Conversely a break under $85 would spell bad news as it would set up IAH to fill the gap down to $83 (though technically, a substantial move to the downside is becoming less likely on a pure chart formation basis). On the positive side, if this issue can muster more volume and continue to move up establishing higher lows, consider a long position on any move over $91.50. Average Daily Volume = 73 K /charts/charts.asp?symbol=IAH ------ IIH - Internet Infrastructure $55.75 +0.38 (-2.88) Not optionable. Ever see a rat in cage moving quickly right to left and back again only eventually to give up in frustration hours later and then stand there? IIH is becoming a rat. Much as we expected $57.50 support from last Friday to hold, it became resistance this week while (surprisingly) $53.50 became support again. The range is narrowing making this an extremely difficult play to enter on the short and the long end right now. This flattening out of the range naturally makes for a weak play (but not weak enough to drop) until a new direction is established.. A positive market and a move over $60 would be our clue to consider a long position; a bounce down from there would be our clue to consider a short position, as would a move under $51.50. Conversely, if it moves down to $53.50 or $51.50, then bounces up, that would be another invitation to go long. The point is we don't know the ultimate direction that will allow us to launch a trade, so wait for a clear signal. If you want our best educated guess (not our endorsement), the lower highs over the week, resistance at the 5-dma of $55.86 and oversold stochastic have us leaning toward the downside on a technical basis. Average Daily Volume = 304 K /charts/charts.asp?symbol=IIH ------ BDH - Broadband $88.25 +2.13 (+2.69) Not optionable. Still flirting with $88.50 resistance, BDH's lows are moving up ever so slowly at $0.50 per day on average. While that's a bullish sign telling us the ascending wedge is still under formation, it isn't dependable or confirmed yet. So what about that move yesterday morning over $89.50, wasn't that an entry? In short, no. Here's a trader trick to help you tell. Following a spike up through resistance during amateur hour, then a pullback where a stock again finds support at its former resistance, look for it move above its amateur hour high by $0.25 to $0.75. If it does and you see a flood of buyers rushing in at that level to take it cleanly over the earlier morning high, it's more than likely a real breakout. If on the other hand, you see it roll over. it probably isn't for real. One of the simplest ways to enter this kind of trade is to enter a buy/stop order so that your entry is triggered only when the issue trades substantially through that earlier amateur hour high. It doesn't always work, but the odds are better than guessing. Back to the index - LU, NT, and MOT were the biggies that joined in GLW, SDLI, and JDSU's party that they started earlier this week. The perception is that economic slowdown or not, optics will remain in high demand and will do well in any circumstance. Support remains at $85; resistance now at $89.50. While this sector promises to shine, it can only outperform on a relative basis. That means that if the market tanks, BDH will only tank less than the rest, but it will still tank. You still need to keep a stop set to get you out if the trade moves against you. Upside is favored here, but wait for the breakout or the bounce from resistance. Average Daily Volume = 200 K /charts/charts.asp?symbol=BDH ------ SMH - Semiconductor $95.38 +0.81 (+0.19) Not optionable. Here's another case of support holding, but highs falling - a descending wedge, which doesn't normally look good for the technical future. However, this one is so short term, we're hesitant to even call it a trend. The fact is, that like other sectors in the overall market, SMH too has shown sideways movement over the last two days. $100 resistance two weeks ago has shrunk to $99, which shrunk to $97 today. Nonetheless, support is holding firm at $93.50. Winners and losers were split about 50/50. INTC and AMT up; TXN and BRCM down. Within the smaller components, the up half gained an average of $2-3, while the down half lost only about $1 on average. We look at today's bounce from $93.25 as a buying opportunity and hope you were able to snag a position. While today's close wasn't particularly strong, the world still needs semiconductors and prices were on the rise earlier this week. Play the support and resistance for small daily profits. But be careful of tomorrow as it is a triple witching day and could produce a higher level of volatility. Target shooting will most likely yield the best entry unless SMH gives us a volume breakout over $100 (Don't count on it.). Average Daily Volume = 195 K /charts/charts.asp?symbol=SMH ************** No Play ************** BHH HHH PPH TTH ************* DAILY RESULTS ************* Index Last Mon Tue Wed Thur Week Dow 10714.82 -49.85 57.63 66.11 26.87 100.76 Nasdaq 3845.74 -106.93 83.16 -53.65 48.33 -29.09 $OEX 798.88 -5.45 15.18 0.92 8.53 19.18 $SPX 1478.60 -10.95 23.44 1.10 8.06 21.65 $RUT 512.25 -14.55 5.24 -4.08 2.58 -10.81 $TRAN 2704.53 -8.67 -26.63 -6.58 -43.76 -85.64 $VIX 23.18 0.18 -1.00 0.14 -1.33 -2.01 Calls Mon Tue Wed Thur Week SDLI 291.06 11.97 21.22 -11.88 19.75 41.06 Relentless GLW 249.75 17.75 9.00 -12.00 12.00 26.75 Momentum JDSU 120.69 5.00 5.81 -4.38 3.69 10.13 Good news SEBL 153.75 -4.94 10.88 -3.56 7.06 9.44 Climbing NT 67.00 0.87 3.00 1.25 2.63 7.75 New MRVC 53.00 -2.56 4.94 5.50 -0.88 7.00 Nice week CIEN 145.50 -0.50 5.56 -0.50 1.06 5.63 Solid PLXS 104.06 0.25 5.00 -2.44 2.06 4.88 Growing PWR 61.50 0.37 -0.06 0.87 2.94 4.13 New MSFT 72.38 -1.93 1.00 2.62 1.88 3.56 New RBAK 118.13 -7.38 15.28 -10.28 4.63 2.25 Amazing LLTC 68.69 -3.00 5.44 -4.56 3.69 1.56 Recovered EXDS 93.13 -3.63 0.44 -1.19 4.75 0.38 Split 6/22 MU 78.00 -0.81 3.50 -2.38 -2.38 -2.06 Dropped CMTN 93.00 -1.81 -0.25 1.13 -1.63 -2.56 No cigar YHOO 139.69 -5.75 2.06 0.00 0.19 -3.50 Tight range BRCD 143.00 -12.69 11.44 -7.63 4.88 -4.00 Breakout? ADI 87.50 -2.22 2.00 -5.25 -1.25 -6.72 Dropped MUSE 136.13 -1.75 -0.38 0.25 -6.38 -8.25 Entry point PDLI 155.50 -14.56 4.13 3.00 -2.63 -10.06 Patience HGSI 127.63 -12.69 1.63 1.25 -2.13 -11.94 Late buying CHKP 211.00 -15.31 18.41 -11.22 -6.38 -14.50 No buyers ABGX 105.50 -12.88 2.88 -4.94 -1.06 -16.00 Consolidate VRSN 172.44 -23.06 -5.88 -0.94 6.31 -23.56 Which half? Puts FON 58.56 -2.13 -0.12 -1.94 -3.13 -7.32 New UTX 59.63 0.38 -1.06 2.56 -0.13 1.75 Not yet TGT 60.06 -1.75 2.13 1.38 2.06 3.81 Dropped NXLK 78.38 -5.38 4.13 3.69 1.56 4.00 Dropped MMM 86.44 0.31 -0.37 2.31 2.25 4.50 Dropped PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** MU $77.88 -2.50 (-2.13) A quick turn of sentiment and it's off to the glue factory. The semiconductors could begin to weaken amid renewed concerns of the economy's outlook. Greenspan may not have mentioned or even whispered "rate hike", but investors are now in a huff about future corporate earnings after the CPI report signaled that inflation may be in check. MU looks to be getting a little weak and started to roll over. It's possible MU could get fired up ahead of its earnings' release on June 22nd (after the bell). However, to be on the safer side of the trade, we're exiting tonight. ADI $87.50 -1.25 (-7.22) A mixed technology market and in particular, a couple of weak sessions for the semiconductors equals a cooling effect for ADI's momentum. As investors ponder whether or not to cheer the slowing economy or worry about future earnings, many stocks are pushed to the sidelines. ADI suffered a strong downdraft in yesterday's session that extended into this morning. The unquestionable violation of the 5 and 10-dmas, currently at $91.59 and $90.24 respectively, has cast quite a foreboding cloud over this play. We're not going to ignore the possibility of a tight trading range in the short-term or worse, a further pullback. ADI is officially a drop this evening. PUTS: ***** TGT $59.81 +1.81 (+3.88) Just when it looks like you may have it "made in the shade", something gets in the way to hinder the progress. In this case, it's a stock split. Today, Target Corp's BoD approved a 2:1 stock dividend payable on July 19th. They also raised the cash dividend to 5.5 cents p/s on a post- split basis, which will pay out on September 10th. Chairman and CEO, Bob Ulrich, further commented that Target's "consistent implementation of our core strategies" is continuing "to generate superior value for our shareholders over the long term". Couple these events with the retails' slight rebound in yesterday's market and it equals a drop for this put play. MMM $86.44 +2.25 (+4.50) What we've got here is a simple rotation story. The lack of clear-cut direction on the economic front prompted some investors to take some cash back out of the techs. Consequently, this defensive stock became a reasonable choice. The big push came today as MMM jumped through the 30-dma ($85.02), which is definitely a bullish indication. Take a look at a daily chart for visual confirmation. The upsurge is just too powerful to keep MMM on our put list. We've no choice but to drop it tonight. NXLK $78.38 +1.56 (+4.00) Well, NXLK finally managed to put together a split run, if you can call it that. The company begins to trade tomorrow morning at split adjusted levels. This was a short-term play and did provide a decent day trade earlier this week, but not exactly what we were looking for. We are dropping NXLK tonight due to the split. The telecom company did find a few buyers late in the session, which could indicate the trend is changing as well. NXLK tried hard to stick its head above its 200-dma at $78.25, but couldn't quite find enough buyers to do it convincingly. Split or no split the trend is still down, however for now we will close up shop and look for other opportunities. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter Thursday 6-15-2000 Copyright 2000, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. ******************** PLAY UPDATES - CALLS ******************** RBAK $118.13 +4.63 (+2.25) This stock continues to amaze us. Right when we think it might be a drop, this mysterious volume comes in and shoots the stock higher. It happened today just like on Tuesday at almost the exact same time of the day, about 1pm EDT. Tuesday's pop occurred at the $107 level and today's was at $112. There are some big buyers out there and they like RBAK. This stock's trading pattern has been a day trader's dream. Before the buying surge, RBAK traded for most of the morning around $110. There appears to be good support there. In the final hour, RBAK found some buyers at the $113 level. Keep these levels in mind when looking for entry. Overhead resistance is $120. Great place exit if the stock fails to go through. A convincing move above that level with volume and a positive NASDAQ could take RBAK to $130. The way this stock has been moving, you could get off multiple trades during the day. YHOO $139.69 +0.19 (-3.50) Are we bored yet? Unless you were particularly adept at trading the $5-$6 range seen the past two days, you had little reason to pay much attention to this play. If there is a plus, at this point it would have to be the bounce off $135 early this morning. The move back up to $141.75 did provide traders with a reasonable day trade. Unfortunately, we just didn't see any follow through buying today. That doesn't mean it won't come tomorrow, but volume just hasn't come back to the market in full force yet. Henry Blodget of Merrill Lynch commented on B2B Internet issues again, citing that of the approximately 300 companies only five are profitable at this time. He suggested once again sticking with the big boys like YHOO, but that did little to stir up participation in our favorite. Technically, YHOO continues to distance itself from its 200-dma at $137.60. Support still comes into play at $135 and $130. Until the volume comes back, we are very likely to see more of the same range trading. SDLI $291.06 +19.75 (+41.75) Looking for a stock that's on the move? Well, look no further. In the last 14 sessions, this one has gained about 74%. It just goes to show, you can't keep a good stock down. SDLI benefited from the solid buying based on upgrades earlier this week. Today's 7.3% move set another new high at $293 and it came on better than average volume of 6.89 mln shares. Again, the buying seen late in the session would suggest the momentum should continue. With the better than $123 move in the last two weeks, we would assume greed would set in at some point and SDLI would have a bit of a pullback. However, the current mentality suggests traders just can't seem to get enough of this good thing. Until true profit taking sets in, traders may look at bounces off intraday support at $285, $280 or $275 as a chance to join in on one of our better plays. SDLI and Siemens announced the completion of an agreement today for SDLI to supply high speed optical modulators to Siemens through 2001. CHKP $211.00 -6.38 (-14.50) The question that comes to mind for this play is, are investors really wanting to sell shares of the company's stock or are they doing so out of shear boredom? There has been little reason to buy shares of CHKP this week, considering the current broad market sentiment. Yes, the long term folks that check the stock pages once a week are probably still hanging onto shares of CHKP. However, for those of us that have seen good economic data hit the Street this week with no major reaction, it's been a challenge to hang in there. As one trader mentioned earlier today, "if it isn't going up, we will get out until we have a reason to get back in." With that in mind, take your option profits and trade the intraday moves. No specific company news or analysts comments the past two days, just a lack of buyers. CHKP did bounce off of $205 late today and new plays may be considered on further moves higher. However, until we see buyers return in numbers be prepared to take profits on any new plays. HGSI $127.63 -2.13 (-11.94) Sometimes we have to look hard to find something positive on weeks like this. Don't misunderstand our place is not to "sugar-coat" any play in our publication. The 8.5% pullback this week is not necessarily bad for HGSI. HGSI is experiencing the same thing seen in the broad market, a lack of conviction and an unwillingness to lay money on the table. We actually saw some nice buying interest in the biotechs during the final moments of today's trading. With the amount of money that's piling up on the sidelines, we will take the eternal optimists point of view. When that money hits the trading floors, we expect some of that to go towards HGSI and others in the genomics industry. There has been no negative news or earnings warnings from the company or those in the industry which is a bit of a plus. Basically, what we are saying is if you have current positions, keep you stops in place. HGSI penetrated its 10-dma today at 122.74, but did find buyers to bid the price higher late in the day. For now, look for bounces off $120 or $115, or a breakout over $130 on solid volume as potential entries for new positions. MRVC $53.00 -0.88 (+6.00) Remember the old saying "you are judged by the company you keep?" Traders with money burning a hole in their pockets have bought shares of MRVC, bidding the price about 13% higher this week. Most of the strength continues to come from the strength seen in the heavy hitters like GLW and JDSU. MRVC jumped $5.50 on Wednesday on strong volume of 4.6 mln shares, and the $0.88 pullback suggests traders weren't willing to cash in just yet. We do believe the momentum should continue. At this point, there is a "gap" in the charts between $48.50 and $50. If the buying continues, that won't be an issue for now. If we do see profit taking, we would look for the gap to be filled. The 5-dma is now placed at $48.98 and could provide support and a good entry for new plays,should we have a retracement. JDSU $120.69 +3.69 (+10.13) JDSU is waiting for government approval for its acquisition of ETEK. The merger is expected to go through, and once it does, analysts expect JDSU to have a good summer. In anticipation of the merger, several analysts made their voices heard Thursday. CS First Boston reiterated its Buy rating and Wit Soundview made several positive comments. In the news Wednesday, JDSU said it had purchased a manufacturing facility owned by Motorola. The new facility will increase JDSU's capacity to manufacture micro-systems. Also, a report issued late Wednesday said Lucent may be spinning out their microelectronics division, which could raise $50 bln, and better position them to compete with JDSU. The rumors of the LU spinoff had little effect on shares of JDSU as the stock gained momentum in Thursday's trading. After pausing Wednesday, JDSU found support at $116 Thursday morning and bounced higher. From here, you might use the intra-day volatility to target shoot for entry points at current levels, while a conservative trader might wait for JDSU to clear resistance at $125. SEBL $153.75 +7.06 (+9.44) SEBL churned in Wednesday's trading, after traders digested the CPI report. But, after bouncing off support at $145 Thursday morning, the stock resumed its climb higher. The rally Thursday came after USB Piper Jaffray initiated coverage on SEBL with a Strong Buy rating and set a 12-month price target of $190. As SEBL has charged higher, the stock is trading well into historical split territory. SEBL last split its stock back in November when it was hovering around $125. With more than enough shares authorized, we'll monitor the wires closely for a possible split announcement. We did see some interesting intra-day action in SEBL Thursday. The stock steadily climbed higher throughout the day, but, in the final hour of trading, SEBL plunged nearly $8. It appeared an institution unloaded stock. However, once the selling subsided, SEBL bounced back like a rubber ball to close the day near its high, indicating there is plenty of buying interest in the stock. Watch closely Friday morning to see if the buying continues, look for entry if SEBL crosses $155. If the stock retreats, watch for a bounce off support at $150. PLXS $104.06 +2.06 (+4.88) The need for contract manufacturers is growing. High tech companies turn to outsourcing for product development and commercialization. PLXS plays an integral role in turning ideas into marketable products. The company helps the biggest names in the Tech sector turn visions into profits and recently told analysts that they are working with 10 clients on new and exciting products. Its growing business is pushing the stock into uncharted territory. PLXS edged past resistance at $105 to set a new high of $106.25 Wednesday, then drifted lower into the close as the buyers disappeared. The stock rotated around $102 for much of Thursday's trading. Then, in the final fifteen minutes of trading, the stock took off. It appeared a larger buyer stepped in as PLXS surged over $2 higher with a spike in volume. Watch Friday morning to see if the buying continues, look for an entry point if PLXS clears $105. Consider a bounce off support at $102 for an additional entry. CIEN $145.50 +1.06 (+5.63) Investors left the Telecom sector Wednesday after an early morning rally. CIEN climbed past resistance at $145, only to face congestion at $148. The stock found solid support at $140 Thursday, which provided a base for an afternoon rally. In the news Thursday, it appears the class action lawsuit CIEN has been battling for over two years has come to an end. A U.S. District Court dismissed a plaintiff's request to appeal an earlier ruling in CIEN's favor. The plaintiffs alleged that CIEN made false comments in 1998. However, the judge ruled for CIEN, finally putting the case to rest. CIEN jumped over $2 after the announcement late Thursday. The stock managed to edge above resistance at $145 near the close of trading Thursday. Look for an entry point if CIEN continues to climb from its current levels. A more conservative entry point may be found if CIEN clears resistance at $150. The stock continues to find support at $140 during pullbacks, watch for a bounce from that level if the stock retreats. GLW $249.00 +12.00 (+34.00) GLW took a breather Wednesday after its stunning performance earlier in the week. But, the momentum returned Thursday after GLW bounced from support at $235. Wall Street continues to show its love affair for the fiber optic area, specifically GLW. Warburg Dillon Read reiterated its Buy rating on GLW, set a price target of $290, and made favorable comments about the rumors surrounding the merger talks with SDLI. DLJ came out Thursday morning with a research note on GLW. The brokerage house reiterated its Buy rating, and raised 2000 and 2001 earnings estimates for the company. They also said any dip in the stock was seen as a buying opportunity. GLW edged to a new 52-week high Thursday of $249.94, which proved to be resistance for the remainder of the day. Watch the trading closely Friday morning to see if GLW clears resistance at $250. If the stock does stumble, look for the bulls to step in and buy the dip around support at $245 or below at $240. ABGX $105.50 -1.06 (-16.00) It has been a week of consolidation for shares of ABGX. For that matter, the entire Biotech sector has taken a rest this week after its incredible rally earlier in the month. While ABGX hasn't performed as well as we would like, the stock hasn't suffered any technical damage, and investor sentiment remains bullish for the Biotech sector. ABGX has managed to stay within its wide trading range between $100 - 120 without tracing new lows. What's more, the recent consolidation has come on decreasing volume, indicative of basing price action. Additionally, we saw over 100K shares cross the tape in the last half hour of trading Thursday as the stock climbed nearly $3 to move back above support at $105. An aggressive trader might look for an entry at current levels considering the late day rally Thursday. On the other hand, a conservative trader might wait for momentum to return to the Biotech sector, and look for entry points as ABGX clears congestion at $110 or above at $115. EXDS $93.13 +4.75 (+0.38) The intraday volatility provides great target shooting opportunities. We've seen entries below the $85 mark (for the extremely risk-oriented) to solid bounces off support levels at $88 and $90. Resistance is still evident near $95, but the continuous flow of positive analyst comments should help fight this hindrance. EXDS was back on the move today despite the uncertainty in the tech sector. Michael Turits at Prudential Securities influenced the share price with his new Strong Buy coverage and 12-month price target of $149. CIBC World Markets also reiterated a Buy recommendation and a hefty $175 target price. The definitive moves through the converged 5-dma ($90.59) and 10-dma ($89.33) also provide promise that EXDS can stretch to new heights ahead of the upcoming 2:1 split date. Be prepared however to close your positions before or no later than June 22nd. PDLI $155.50 -2.63 (-10.06) If your new to the game, then take a look at this week's chart for PDLI and it spells out CONSOLIDATION. Actually for such a high-flyer, the pullback's been rather tame and PDLI is holding the elevated levels quite well. The $150 mark, just above the 10-dma ($147.08), is currently establishing itself as near-term support. Recall this is the star performer that amazingly added over $70 to its share price in a matter of weeks! If PDLI is going to make another run then we should see conclusive moves first through the 5-dma ($157.06), then $164 with a show of volume. Today the company held its Annual Meeting and shareholders voted on a proposal to increase the number of authorized shares. So far there's no word on the outcome, but we've got our fingers crossed for a possible split announcement. At $150, PDLI is a certain split candidate. This kind of news would no doubt wake up the investors' enthusiasm. For now though, it's best to be patient. MUSE $136.13 -6.38 (-8.25) MUSE lagged behind today and honestly, seemed to get lost in the Internet shuffle. Although, there was good news about the company. MUSE made Business Week's annual Information Technology 100 Index of the best performers for the second time. It ranked 18th in terms of total return to shareholders and 95th overall. And analyst Paul Rodriguez at CE Unterberg Towbin reiterated a Strong Buy rating and issued a $175 price target. So there's no doubt why the share price is maintaining itself as some investors shift their other holdings around. Firm support at $130 proved a strong bottom today, but wait for better entry on bounces off the $135 level near the 10-dma ($136.73). This is certainly more conservative, but perhaps wise at this point in the momentum play. Remember look for the NASDAQ to provide the ultimate direction. BRCD $143.00 +4.88 (-4.00) Getting ready to breakout? Caught in the wave of indecision that has enveloped the markets this week, BRCD is trading in a narrowing envelope, consisting of higher lows and lower highs. Although these wedge patterns are more meaningful over a longer timeframe, this tightening pattern looks like a precursor of a break one way or the other in the next couple days. Volume has been on the weak side over the past 2 days, underscoring the lack of direction created by the conflict between positive economic reports and continued hawkish comments from the Fed. It was encouraging to see buyers step in after the morning selloff to push the price back above the $140 level, which has alternated between support and resistance over the past week. BRCD is building intraday support near $136, and repeated bounces at this level look good for new entries, especially if volume ramps up to confirm the move. CMTN $93.00 -1.63 (-2.56) Almost, but no cigar. After the late-day recovery on Tuesday, CMTN managed to break through the $96 resistance level yesterday, tagging $99 before dropping again at the close. Ending the day just below $96 left the resistance level intact, and continuing weakness this morning dropped the stock below $91 before the buyers stepped back in. The lows are gradually getting higher and the $90-91 support level is looking stronger by the day. Investors are caught in a web of indecision, which is being created by the opposing forces of hawkish Fed governor comments and positive economic reports. If they can shake it off, CMTN could be ready for a nice run as we approach the July earnings season. Volume was weak again today, hitting only 60% of the ADV; we will need to see strong volume accompany any sustained move higher. Aggressive traders can consider repeated bounces at the $90-91 support level for new entries, while more conservative players will want to wait for CMTN to close above resistance before jumping into the play. LLTC $68.69 +3.69 (+1.56) Getting close to a breakout, LLTC continues to post higher lows as it once again approaches resistance at $70. Declining throughout yesterday's session, the stock found support at $64 this morning and managed a decent recovery that lasted right up to the close. Even though volume was below the ADV, increasing volume accompanied the move higher, and the stock managed a close just below Tuesday's high of $69.75. Caught between fear of a slowing economy and hope for an end to the string of interest rate hikes, investors are having a hard time making up their mind about the future direction of the financial markets. In light of this indecision, LLTC's performance is encouraging, and the stock looks like it may be nearing a breakout. The 10-dma ($65.06) continues to support the move higher, and this looks like a good level for initiating new positions. If you would rather wait for confirmation that LLTC is ready to run, look for a breakout over $70 that is accompanied by strong volume. VRSN $172.44 +6.31 (-23.56) Is the glass half empty or half full? Investors are expecting that the recent string of interest rate hikes is coming to an end, and this has helped VRSN to hold support at $160. Fear of a slowing economy, which would mean declining profits, is keeping the buyers in check, and resistance at $180 in place. Although not providing large daily moves, this is still a very tradable range until investors get some conviction. This conviction may not come until after the Fed announces its next interest rate decision on June 27th. In the meantime, we have to trade the market we are given, and that means entries at support and taking profits when the stock fails to break through resistance. Volume on VRSN has been strong this week, bolstering confidence that the $160 level will hold as support. If the stock bounces near this level, consider jumping on board, but only if accompanied by strong buying volume. A failure to break through resistance at $179-180 will be your cue to lock in profits and wait for the next entry when VRSN once again bounces from support. ******************* PLAY UPDATES - PUTS ******************* UTX $59.63 -0.13 (+0.94) For a stock that's taken it on the chin as much as UTX, we aren't calling the buying seen the past two days a reversal just yet. Today, traders bid the price right up just past the 50-dma at $61.52 when the bears took over to spoil the party. Part of the strength the past two days came from a bill yesterday approved in the Senate. It was a defense spending bill for 2001, and was called a victory for several of the largest defense contractors. The weakness seen after the initial pop up this morning would suggest there is now more downside available. The overall investor sentiment could also keep this play headed in our favor. UTX did close just above intraday support at $59, however, there is a gap back near $57 that could be filled at any time. If UTX can scrape up a few more buyers, then we would be somewhat cautious of any rallies back over the 50-dma. Yet, the current trend is still intact, and we would look for further opportunities to buy puts. ************** NEW CALL PLAYS ************** NT - Nortel Networks $67.00 +2.63 (+7.63 this week) Nortel Networks is a leading global supplier of data and telephony network solutions and services. Covering all the bases, its business consists of the design, development, manufacture, marketing, sale, financing, installation, servicing and support of networks for both carrier and enterprise customers. With a presence in over 150 countries, NT serves local, long-distance, personal communications services and cellular mobile communications companies as well as cable television companies, Internet service providers and utilities. Ignoring the market-wide indecision that is keeping many technology stocks rangebound, NT is launching higher on the back of very strong volume. The past 3 days have seen strong gains on more than double the average daily volume. Stubbornly refusing to follow the gyrations of the broad market, NT keeps marching higher and has a beautiful intraday chart. Volume ramped up strongly towards the end of trading today, allowing this Networking leader to close just fractionally below its high of the day. The recent gains are being fueled by the company's ability to execute its business plan and continuing to close those important deals with leaders in the industry such as Global Crossing and BellSouth (see news below). After one final test of support near $48 in late May, NT has been moving sharply higher, and is now firmly above all of its moving averages. Over the past week, the 5-dma (currently $63.06) has been providing support, and the past 2 days have shown support building near $65. Use any profit taking as an opportunity to enter this Networking play. Look for a bounce from support, confirmed by strong volume to trigger your entry. Alternatively, consider opening new positions if NT continues up from current levels; just keep an eye on resistance, which is looming near $72. In the absence of a strong market-wide move, it is unlikely that NT will be able to crack this level on the first try. NT is moving higher the old fashioned way: by continuing to move its product to market. Today, BellSouth Mobility DCS announced that it has chosen NT to expand its GSM network in the southeastern United States under a three-year equipment and services agreement valued at an estimated $200 mln. As if that wasn't enough, NT also penned an agreement with Global Crossing for Europe's first ring-based Pan European dense wave division multiplexing (DWDM) optical fiber solution for metropolitan networks. The contract extends NT's leadership position in providing the Optical Internet with speed, scalability and reliability. BUY CALL JUL-65*NTV-GM OI=5395 at $5.88 SL=4.00 BUY CALL JUL-70 NTV-GN OI=1435 at $3.25 SL=1.50 BUY CALL SEP-70 NTV-IN OI=3415 at $6.25 SL=4.25 BUY CALL SEP-75 NTV-IO OI=1892 at $4.25 SL=2.75 SELL PUT JUL-65 NTV-SM OI= 411 at $2.63 SL=4.00 (See risks of selling puts in play legend) Picked on June 15th at $67.00 P/E = N/A Change since picked +0.00 52-week high=$72.09 Analysts Ratings 19-11-3-1-0 52-week low =$19.91 Last earnings 04/00 est= 0.19 actual= 0.23 Next earnings 07-25 est= 0.15 versus= 0.14 Average Daily Volume = 9.66 mln /charts/charts.asp?symbol=NT PWR - Quanta Services $61.50 +2.94 (+2.63 this week) Quanta installs, repairs, and maintains electric transmission lines, cable TV, and telephone and data lines in North America. Quanta also works on traffic control systems and designs and installs communication towers. Major customers include PG&E, Enron, and Western Resources. Other clients include contractors, commercial establishments, and government entities. PWR is in the business of digging ditches. While not as glamorous as say semiconductors or biotechnology, it turns out ditch digging is a lucrative operation. PWR's earnings have skyrocketed with the intense build-out of telecommunications networks in North America. PWR is a leading contractor for installing fiber optic cable, building DSL networks, and erecting cellular telecommunications towers. The company also serves utility concerns by installing cable TV lines, electric power lines, and natural gas distribution systems. But, its from the former area of operations that PWR is deriving increasing amounts of revenues. With the growth of the Internet and the demand increasing for high-speed transmission of data, PWR is in the field, laying the lines. It's a dirty job, but PWR doesn't mind doing it. In fact, they love it! The company is expected to grow earnings by an astonishing 45% this year, and 25% annually over the next five years. PWR has beat Wall Street's estimates by an average of 25% over the last five quarters, and with earnings less than a month away, we could see a run develop. The stock is in a strong technical position for an earnings run. PWR emerged from a six week consolidation Thursday by tracing a new all-time high on 1.5 times its ADV. Given the breakout in Thursday's trading, you might consider an entry at current levels. Support is located first at $60 and again near the $58 level. A bounce from either may provide an additional entry point. With the bold move above $60 Thursday, PWR cleared its highest series in July contracts. Watch for new out-of-the-money options to be issued in the coming days and wait for open interest to build before entering the contracts. With its impeccable earnings track record, PWR has garnered the attention of Wall Street. The stock has enjoyed recent upgrades and coverage initiations by the likes of DB Alex Brown and First Union. And Thursday, Eugene Peroni, Director of Research at Nuveen Investments, published his popular summer portfolio of 20 growth stocks to hold for one full year which included PWR. BUY CALL JUL-50 PWR-GJ OI=145 at $13.38 SL=10.00 BUY CALL JUL-55*PWR-GK OI=131 at $ 9.75 SL= 6.75 BUY CALL JUL-60 PWR-GL OI=101 at $ 7.00 SL= 5.00 BUY CALL AUG-60 PWR-HL OI= 21 at $ 8.38 SL= 6.00 BUY CALL NOV-60 PWR-KL OI= 24 at $12.50 SL= 9.50 SELL PUT JUL-55 PWR-SK OI= 7 at $ 2.56 SL= 4.00 (See risks of selling puts in play legend) Picked on June 15th at $61.50 P/E = 49 Change since picked 0.00 52-week high=$61.88 Analysts Ratings 8-1-1-0-0 52-week low =$13.38 Last earnings 03/00 est= 0.21 actual= 0.28 Next earnings 07-10 est= 0.37 versus= 0.06 Average Daily Volume = 507 K /charts/charts.asp?symbol=PWR MSFT - Microsoft Corp $72.38 +1.88 (+3.56 this week) Microsoft is the #1 software company in the world. They develop, manufacture, license, and support a broad range of software products including Windows operating systems, server applications, the popular MS Office suite, and a Web Browser. As most of you know, the company is presently involved in anti- trust issues with the government. CEO and co-founder, Bill Gates still owns 15% of Microsoft. After such treachery and verbal assaults, we can now safely assume all the cards are on the table. About as much bad news has hit the press in recent, and not so recent times, concerning the anti-trust issues of the Microsoft Corporation. Additionally, the District of Columbia Appeals Court is willing to accept the landmark case for review. This would stall Judge Thomas Penfield Jackson's ruling that the company must be broken up into two separate entities. The only move the government has left is try and implement a rarely-used 1974 law called the Expediting Act, which allows federal antitrust cases to skip the lower appeals court process and head straight to the Supreme Court. With all that said and done, we believe nonetheless that the stock price has found a bottom at $65 and is poised to recover. The positive move through $72 today and the past three consecutive closes near the daily highs is definitely bullish. The technical break above the 50-dma ($70.94) and robust volume also adds credence that the momentum is building. Conservatively, look for MSFT to clear $74-$75, then the ever-illusive $80 mark. But after that, the runway should be cleared for takeoff. In the industry, Red Hat, a developer of the free Linux computer operating system that competes with Microsoft's Windows, reported a lower-than-expected loss. The loss was largely due to soaring expenses in its effort to take the market share from Microsoft, which it's far from doing in the near-term. The software giant's product menu continues to roll-out advances in the midst of its fight with the Justice Department. On Thursday, Microsoft rolled out a new version of Windows CE 3.0, its operating system for handheld devices, which offers more features and lower prices. This advanced platform demonstrates it's not taking the competition from rival Palm Corporation lightly. Globally, Microsoft and Japan's largest electronics maker, Hitachi Ltd, unveiled plans to enter into a joint venture in the system solutions business. This partnership unites two of the biggest companies in the world's IT market and targets annual sales exceeding $190 mln by 2003. BUY CALL JUL-65 MSQ-GM OI=11290 at $8.75 SL=6.00 BUY CALL JUL-70*MSQ-GN OI=36047 at $5.25 SL=3.25 BUY CALL JUL-75 MSQ-GO OI=29120 at $2.75 SL=1.25 BUY CALL JUL-80 MSQ-GP OI=31745 at $1.38 SL=0.75 Picked on June 15th at $72.38 P/E = 44 Change since picked +0.00 52-week high=$119.94 Analysts Ratings 11-16-3-0-0 52-week low =$ 60.38 Last earnings 03/00 est= 0.41 actual= 0.43 Next earnings 07-19 est= 0.42 versus= 0.40 Average Daily Volume = 38.8 mln /charts/charts.asp?symbol=MSFT ************* NEW PUT PLAYS ************* FON - Sprint Corp $58.56 -3.13 (-7.31 this week) Sprint Corporation is involved in worldwide communications integrating long distance, local service, and wireless services. Other activities include telecom equipment distribution, directory publishing, and Internet access. Sprint is based in Westwood, Kansas and has roughly 65,000 employees nationwide. The possibility of merger between GTE Corp (GTE) and Bell Atlantic Corp (BEL) is becoming closer to a reality. FCC approval of the $67 bln merger is expected in the next few days. The implications of such a deal are enormous. If approved, the new company, to be called Verizon Communications, will control 63 mln phone lines across 31 states and the District of Columbia. Their communications offerings will include the full gamut of local, long-distance, wireless, and high-speed Internet access. The scuttlebutt alone is putting serious pressure on the other telecom companies. FON's share price, in particular, is already showing signs of devastation from the impending "deal of the century". As FON loses more ground, trading volume has increased to nearly double the ADV in recent sessions. FON is now perched under all the technical DMA lines. The 50-dma at $60.09 is its nearest crony, which also acted as upper resistance in today's trading. Confirm sentiment with downward bounces off this indicator and pay attention to the newswire in regard to the above-mentioned merger. As a side-note, be aware WorldCom is awaiting approval to acquire Sprint for $148 bln but this event is not likely to effect FON's trading in the short-term. BUY PUT JUL-65 FON-SM OI=118 at $7.63 SL=5.25 BUY PUT JUL-60*FON-SL OI=236 at $4.00 SL=4.00 BUY PUT JUL-55 FON-SK OI= 60 at $1.69 SL=0.75 Average Daily Volume = 2.63 mln /charts/charts.asp?symbol=FON ********************** PLAY OF THE DAY - CALL ********************** SEBL - Siebel Systems $153.75 7.06 (+9.44 this week) 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. Most Recent Write-Up SEBL churned in Wednesday's trading, after traders digested the CPI report. But, after bouncing off support at $145 Thursday morning, the stock resumed its climb higher. The rally Thursday came after USB Piper Jaffray initiated coverage on SEBL with a Strong Buy rating and set a 12-month price target of $190. As SEBL has charged higher, the stock is trading well into historical split territory. SEBL last split its stock back in November when it was hovering around $125. With more than enough shares authorized, we'll monitor the wires closely for a possible split announcement. We did see some interesting intraday action in SEBL Thursday. The stock steadily climbed higher throughout the day, but, in the final hour of trading, SEBL plunged nearly $8. It appeared an institution unloaded stock. However, once the selling subsided, SEBL bounced back like a rubber ball to close the day near its high, indicating there is plenty of buying interest in the stock. Watch closely Friday morning to see if the buying continues, look for entry if SEBL crosses $155. If the stock retreats, watch for a bounce off support at $150. Comments If the move over $150 for SEBL was good, then the retest of $150 on the afternoon dip was perfect. Not only did it bounce, but it bounced with a vengeance. This breakout deserves a look for an entry point. Granted, the overall market outlook is the ultimate variable right now, but SEBL looks strong. If the Nasdaq breaks out over 3900, this one should lead the charge. BUY CALL JUL-145 SGW-GI OI=1791 at $19.75 SL=14.75 BUY CALL JUL-150*SGW-GJ OI= 274 at $16.88 SL=12.50 BUY CALL JUL-155 SGW-GK OI= 236 at $14.50 SL=10.75 BUY CALL AUG-155 SGW-HK OI= 580 at $19.50 SL=14.50 BUY CALL NOV-165 SGW-KM OI= 434 at $23.00 SL=17.00 Picked on June 11th at $144.31 P/E = 222 Change since picked +9.44 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 ************************ COMBOS/SPREADS/STRADDLES ************************ A Market Without Conviction... Wednesday, June 14 Industrial stocks closed higher today as investors rotated into blue-chip issues after benign data in the consumer price index. The Dow closed up 66 points at 10,687 and the Nasdaq ended down 53 points at 3797. The S&P 500 Index closed almost unchanged at 1470. Trading activity on the NYSE reached 943 million shares with advances beating declines 1,684 to 1,258. Nasdaq volume hit 1.4 billion shares with declines beating advances 2,245 to 1,791. In the bond market, the 30-year Treasury rose 17/32, pushing its yield down to 5.90%. Tuesday's new plays (positions/opening prices/strategy): Pss World PSSI NOV12C/JUL12C $0.88 debit calendar Conseco CNC AUG5C/JUL7C $1.62 debit diagonal FVC.com FVCX JUL5C/JUL7C $2.12 debit bull-call All of our new positions offered favorable entry opportunities. Conseco and FVC.com were opened in the morning session and the Pss World Medical spread was available near the target late in the afternoon. Portfolio Plays: Blue chips rallied today following the release of favorable economic data and optimism that interest rates will remain unchanged when the FOMC meets later this month. News of a slowing economy spurred investor enthusiasm and strength in cyclical and financial stocks boosted the Dow. Trading was light amid continued profit warnings and investors remained skeptical ahead of upcoming quarterly earnings reports. The majority of technology stocks pulled back as traders rotated cash between sectors. On the Nasdaq, biotech and chip issues consolidated after a recent strong performance while select telecom stocks moved higher. In the broad market, aluminum, investment banking and metals issues advanced but industrial power and office equipment stocks slumped. Oil issues ended mostly higher as crude prices rose to $32.85 per barrel. Our portfolio leaders were mostly industrial companies and the Media Group produced a number of winners. Amfm Inc. (AFM) and Clear Channel (CCU) rallied in tandem to recent highs and it appears both of these positions will finish at maximum profit. Our selection of oil stocks continued higher with the price of crude and the leader in that category was Apache (APA) with a $2.12 rebound to $59. Our bullish, credit-spread position is at maximum profit above $50. Ashland Oil (ASH) and Texaco (TX) also participated in the upside activity. Johnson & Johnson (JNJ) again led the Major Drugs sector with a $2 move to close near a recent high at $90. Our long-term calendar spread is at maximum profit near the current price. Aetna (AET) rose $0.88 to close near $72 amid speculation they will split-up and sell part of their insurance business. Our short option at $70 is "in-the-money" and the JAN65C/JUL70C diagonal spread should be monitored for further upside adjustment. Paine Webber (PWJ) topped the Major Brokerages group with a $2.18 rally to a new 52-week high and our recent bull-call spread is now profitable. Strangely enough, the small-cap financials have not performed well in recent sessions and stocks such as Allstate (ALL) and Keycorp (KEY) are turning bearish. The Allstate position is profitable above $22.12 but you may want to take the positive return while it is available. Our Keycorp diagonal spread; SEP20C/JUL22C has plenty of time for recovery but you should not hold the position if the technicals become bearish. The issue is at a "key" moment (couldn't resist that one!) and a move below the 30 DMA (near $20) would suggest a failed rally. Unfortunately, one of our recently slumping issues, Ditech (DITC) continued lower during the session and we decided to pull the plug on the costly position. There was a potential "roll-out" play for those who believe a recovery will occur, but the current technicals suggest further downside movement is forthcoming. Our losing exit debit for the JUN-$75 PUT was $2.81 and although the long position is almost worthless, we will try to sell it during any further dips before Friday's expiration. Another position that remains "on the bubble" is Novoste (NOVT). The stock has hovered for days near our sold strike at $45 and with the cost basis at $45.50, we are simply waiting for the issue to demonstrate a new character; bullish or bearish. The lack of volume on the recent rally suggests the move is being driven by public interest and with any luck, the speculation of an upcoming buyout will soon fade. Thursday, June 15 The market posted favorable gains today even as concerns of declining corporate earnings weighed heavily on investors. The Dow closed up 26 points at 10,714 and the Nasdaq Composite ended 48 points higher at 3845. The S&P 500 Index was up 8 points at 1478. Trading volume on the NYSE reached 1 billion shares with declines beating advances 1,464 to 1,421. Nasdaq trading activity was subdued at 1.41 billion shares exchanged. Technology declines beat advances 2,158 to 1,821. The 30-year Treasury .. Portfolio Plays: Industrial stocks moved higher for a second consecutive day amid strength in cyclical and computer-related issues. The broader market edged upward as investors rotated money into safe-haven sectors and interest in defensive industries spurred rallies in Major Drugs and Utilities. Retail issues recovered from a slump earlier in the week but oil companies consolidated after a strong performance in the past few sessions. A drop in bank stocks led the market lower during morning trading and traders were cautious after a number of earnings warnings circulated in media reports. By afternoon, the pessimism had faded and the buying spree began. In the technology group, semiconductor and computer issues topped the leader-board and a small group of well-known issues led the Nasdaq to a positive close. The composite index has remained in a bullish trend, consolidating after the rally early in the month and now it appears that investors are ready to drive it higher. With just one day to go in the expiration period, our portfolio offered relatively little excitement. The majority of issues in the Spreads Section moved higher during the bullish session and fortunately, almost all of the June plays are profitable. Some of the long-term spreads will need adjustments (into July) but most of the profitable portfolio positions have previously been closed to protect gains and limit losses. The leaders were in Major Drugs and Technology Stocks. Sepracor (SEPR) rallied $5 to a recent high near $105 on strength in the defensive sectors and Network Appliances (NTAP) recovered $4 to close near $80 after a number of brokerages came out in support of the stock. Yesterday the stock sank $10 after CEO Dan Warmenhoven said the company's second-quarter book-to-bill ratio could be below 1, indicating that orders are softening. Analysts suggested the market's harsh reaction failed to recognize that the decline in bookings is due to normal seasonal factors and investors quickly moved back into the issue. Our bullish position in Hyperion Solutions (HYSL) is back on track. Today the stock rallied $3.68 to end at $32 after the company announced a new alliance with Interwoven (IWOV). The pact with IWOV, a leading provider of content management software and services for the enterprise Web, allows Hyperion to provide Internet-based organizations with deeper insights into customer behavior and preferences and help them turn those insights into more profitable relationships. Tomorrow's activity in the final day of June's option expiration period is expected to be volatile and there is a potential for substantial movement in both directions. The recent gains in blue-chip issues will likely be consolidated and the leading technology stocks are expected to move higher on recent momentum. Our portfolio should experience little excitement as the majority of positions are "in-the-money" or have been closed for favorable profits. With any luck, the session will end on a bullish note and we can record another profitable month of conservative, spread trading. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** RHAT - Red Hat $23.38 *** They Beat The Street! *** Red Hat is a developer and worldwide provider of open source software products and services. The company's product offerings include Red Hat Linux and related tools, open source software applications, documentation, manuals and general merchandise. Professional services offerings include technical support and maintenance, custom development, consulting, training along with education, developer support and hardware certification. Red Hat has also built a comprehensive Internet site dedicated to the open source software community. Today the leading Linux software operating system distributor reported better-than-expected earnings, suggesting the company was on track to meet its goal of profitability by next year. Red Hat nearly doubled its quarterly sales from twelve months ago, posting a first quarter operating loss of $2.5 million, or $0.02 per share. Wall Street analysts had expected Red Hat to report an operating loss of $0.04 cents per share and based on the announcement, the stock is trading up in after-hours activity. The CEO commented that RHAT's quarterly performance represents continued execution in a plan to leverage acquisitions to enter new markets and develop additional revenue sources. The overall goal is to double revenues and become profitable by the end of calendar 2001. RHAT's target is ambitious but based on the recent technical outlook for the issue, investors believe that a recovery is underway. Our position is aggressive with a bullish outlook and based on inflated front-month option premiums, we may be able to open a new calendar spread with a favorable time-value disparity. The option prices will likely be different in the morning, so use good judgment and participate in the position only if it meets your criteria for portfolio suitability. PLAY (conservative - bullish/calendar spread): BUY CALL SEP-30 RCV-IF OI=564 A=$3.75 SELL CALL JUL-30 RCV-GF OI=747 B=$1.56 INITIAL NET DEBIT TARGET=$1.88-$2.00 TARGET ROI=25% Chart = /charts/charts.asp?symbol=RHAT ****************************************************************** CVTX - CV Therapeutics $55.62 *** Reader's Request *** CV Therapeutics is a biopharmaceutical company engaged in the discovery and development of new small molecule drugs for the treatment of cardiovascular diseases. The company currently is conducting clinical trials for two of its drug candidates, including ranolazine, which is in its second Phase III trial. In addition, CV Therapeutics has several other research and pre-clinical development programs designed to bring new drug candidates into human clinical testing. Consistent with its business strategy, the company currently retains United States marketing rights to its two lead candidates, ranolazine and CVT-510. Since inception, substantially all of its resources have been dedicated to research and development. The company expects its future sources of revenue to consist of payments under corporate partnerships and interest income. The rally in CV Therapeutics began late in May after the company reported it successfully completed the first segment of Phase II clinical trials of CVT-510, a product used to treat irregular heart activity. Irregular heart beats, or atrial arrhythmias account for millions of hospitalizations every year and can be potentially life threatening situations resulting in stroke or heart-attack. The new drug will become their second compound in Phase III clinical trials, joining their lead product ranolazine. Researchers say the compound shows little or no effect on blood pressure, giving it potential to treat atrial arrhythmias by slowing electrical impulses to the heart. Analysts believe this product could be a major discovery in the field of heart-attack treatments and investors appears to agree with the outlook. Our position allows for some consolidation from the recent rally and provides a conservative entry into this momentum-based speculative position. PLAY (conservative - bullish/credit spread): BUY PUT JUL-35 UXC-SG OI=56 A=$0.75 SELL PUT JUL-40 UXC-SH OI=12 B=$1.38 INITIAL NET CREDIT TARGET=$0.75 ROI(max)=17% B/E=$39.25 Chart = /charts/charts.asp?symbol=CVTX ****************************************************************** - STRADDLES - ****************************************************************** These positions meet our criteria for favorable straddles; cheap option premiums, a history of adequate price movement and future events or activities that may generate volatility in the issue or its industry. This selection process provides the foremost combination of low risk and potentially high reward. As with any strategy, it should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** LII - Lennox $11.75 *** A Second Try! *** Lennox International is a global designer, manufacturer, and marketer of a range of products for the heating, ventilation, air conditioning, and refrigeration (HVACR) markets. Lennox participates in four business segments of the HVACR industry. The first is North American residential heating, conditioning and hearth products, in which the company manufactures and markets a full line of products for the residential replacement and new construction markets in North America. The second is the global commercial air conditioning market, in which the company manufactures and sells rooftop products and applied systems for commercial applications. The third is the global commercial refrigeration market, which consists of unit coolers, condensing units and other commercial refrigeration products. The fourth is heat transfer products, in which the company designs, manufactures and sells evaporator and condenser coils, copper tubing, and related equipment. We recently offered this position based on the theoretical discount in option premiums and the play earned a 40% profit in just three weeks. Now the stock has broken down after a recent rally and the prices are once again favorable. In this neutral position we are using two out-of-the money options; a "strangle," to open the position with a delta-neutral outlook. PLAY (conservative - neutral/debit strangle): BUY CALL SEP-12.50 LII-IV OI=171 A=$0.38 BUY PUT SEP-10.00 LII-UB OI=20 A=$0.31 INITIAL NET DEBIT TARGET=$0.62-$0.68 TARGET ROI=50% Chart = /charts/charts.asp?symbol=LII *********** IN THE NEWS *********** The Sopranos Take On Wall Street By S.P. Brown When most folks hear the term "extortion and solicitation of murder," they instinctively think of organized crime, and with good reason. These organizations are most likely to employ such disagreeable tactics to secure payment from recalcitrant debtors. After all, it's highly unlikely a collection agency would accept a receivable for gambling or prostitution services. On the other hand, the term "extortion and solicitation of murder" usually isn't associated with the securities industry, that is, until yesterday. In the largest one-day securities-fraud indictment ever, the Justice Department charged members of the country's five largest organized-crime families with brokers and investors out of $50 million over five years. The resourceful mobsters' digressions include controlling and infiltrating broker-dealers, conspiring with issuers of securities and individual stock brokers, scheming to defraud union pension plans, manipulating stock prices and using violence and intimidation - definitely not Emily Post-approved behavior. Among the many issues manipulated, two bulletin board stocks, Wamex Holdings (WAMX.OB) and E-Pawn.com (EPWN.OB), are particularly noteworthy. Both issues came to market in March near the apex of Internet mania. Wamex hit the street at $20 a share. Soon after, the company split four-for-one in early April. Since then, Wamex has seen its shares slump to $1.63. As for E-Pawn.com, it came public at $2 a share only to be quickly chatted up to $10 before the mobsters closed their positions. The stock is now trading at $1.31 (I use the word "trading" loosely, since the SEC has suspended trading in both issues). Both companies appeared to have the right business model (at least for selling stock). Wamex claimed it was about to begin operating an alternative trading system so customers could trade directly with one another, while E-Pawn.com claimed to be a Web site designer and e-commerce software developer. So, while getting caught perpetrating its latest scam might prove embarrassing for the mob (mobsters generally dislike publicity), it should also prove embarrassing for the Nasdaq, which still appears to be overly cavalier in who it allows to make markets in OTC stock, particularly in small-cap stocks where there is often only one market maker. In contrast, the NYSE's auction system makes it much more difficult to manipulate price, regardless of size, because of the close scrutiny the exchange applies to each specialist. In fact, the specialist is mandated by the exchange to maintain a fair and orderly market. In other words, he's mandated to bridge liquidity by entering alternative bids and/or asks to narrow spreads and improve a stock's price continuity. No such mandate exists for OTC market makers. I know the Nasdaq likes to portray itself as the market for the next 100 years, but it could take a few pointers from the stock market of the last 100 years by policing market making activities more thoroughly. Having mobsters making markets in some of your securities can't be the greatest PR. ************** BROKERS CORNER ************** Strangle The Market, Not Yourself With the market in such a tight trading range, more and more people have been asking us, where is the market going now and how do we make money while we are range bound? To answer the first question you to take a look at the technicals of the NASDAQ and the DOW. We have had quite a bit of market positive economic data in the past two weeks. All signs point to a slowing economy and hopes are now that Uncle Al and Co. won't feel the need to kill the markets any more than they already have. The NASDAQ: It appears that we have set a bottom in place at the May 24th low of 3042. Additionally, We had a nice gap up on the 2nd of June. The most significant technical aspect of this gap up is that we didn't continue to soar up in a straight line after the gap as we did on the 14th of January and the 25th of April. When we did that, the rally eventually failed. Instead, on this gap up we have remained range bound for the past 9 or 10 days. This could be the beginning of a very important base from which we might move higher. A cup and handle pattern could be forming. Holding this new support level is very important. Volume continues to be a bit concerning, but with many companies beginning to break out of established bases, things are looking better. The Dow: Actually, the DOW has held up nicely during these past 3 months. It has held support around the 10,200 level. That is important should the index start to head down to hold this level. If not, we could move back to the 9700 level. Overhead supply is going to prove to be tough resistance around the 11,200 level. So how do we make money in this market? Using stop losses is going to be key in any strategy but even more so when the market is slow and range bound. Eventually, the markets are going to move and you don't want to have calls or puts hanging out there with no safety net in place. Probably one of the best strategies in this market right now is a covered strangle. It has been mentioned in previous issues of the newsletter. This is high return strategy and can really pay off in a slow market. Let's look at a real life example. Now, keep in mind, my partner and I tend to use this strategy more conservatively that other people might. I'm going to show you what we are doing for our clients right now. Let's take a look at YHOO. A daily chart on YHOO shows a current price of 135.13 (6-15-00 9:45 CDT) YHOO has resistance at about 154-155 per share. It appears to have support around 110-112 per share. What we are looking at doing is selling the July 155 calls for 6 5/8 (CBOE) and sell the July 110 put for 3 1/2 (AMEX). Assuming you sell 10 contracts on each side of the Strangle, you'd bring in 10 1/8, or $10,125 (before fees). Now, this strategy does require some monitoring. If the stock really starts to move one way or the other, you have two choices to help curtail losses. The easiest is stop losses. You could do simple things like placing a 25% buy stop loss on both options. Or, you could watch them more closely and cover the stock as it moves beyond your strike price. For example, if the stock starts to make a pre-earnings run (July 11th after the close) and it nears and crosses over 155 per share simply buy 1000 shares of YHOO at 155 and now your naked call is covered and your Put will likely expire. On the other hand, if YHOO falls and goes to 110 per share, sell short 1000 shares of YHOO at 110. Now, your naked put is covered and the Call will likely expire. As I said earlier, this is a conservative way to play this strategy. You can certainly bring in more premium by lowering your strike on the Call and raising your strike on the Put. Obviously the risk increases with doing this, but that is something each person has to decide for themselves or with the help of a trained professional who is seasoned in trading aggressive strategies. Robert L. Norman Vice President-Investments J. Michael-Patrick L.L.C. Contact Support ************************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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