The Option Investor Newsletter Tuesday 6-27-2000 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) ****************************************************************** 6-27-2000 High Low Volume Advance Decline DOW 10504.50 - 38.50 10615.80 10504.50 1,026,470k 1,642 1,278 Nasdaq 3858.96 - 53.16 3945.75 3858.95 1,474,978k 1,683 2,344 S&P-100 784.94 - 4.27 792.67 784.94 Totals 3,325 3,622 S&P-500 1450.55 - 4.70 1463.44 1450.55 47.9% 52.1% $RUT 508.08 - 8.28 518.57 507.88 $TRAN 2680.97 + 66.42 2689.05 2608.27 VIX 24.88 + 0.16 25.02 23.95 Put/Call Ratio .57 ****************************************************************** Will they or won't they? The Fed bears test the porridge. Too hot, too cold or just right? Is the economy still too hot or has the economy cooled off enough to allow the Fed to go back to business as usual. The official consensus is the Fed will pass on raising rates tomorrow but may move back into rate hike mode at the next meeting in August. Inflation news today came in the form of the Consumer Confidence Index which dropped from 144.7 in May to 138.8 in June. The weakening in the consumer confidence is usually felt with a corresponding drop in retail sales and a backup in product inventory. The Consumer Confidence today is just one more sign that the economy is slowing but many Fed watchers feel the Fed will still apply one more tap on the brakes in August. While the decision this week is a yawner with everyone expecting no hike, the indecision for August will provide more market instability the closer we get. The decision this week is a non-event since the Fed always telegraphs their direction in advance and they have been very quiet this cycle. A hike on Wednesday would be very bad since traders had no warning. The recent trend of a rally the two days before the Fed announcement fell short with both major indexes rolling over in the late afternoon. The Nasdaq closed at the low of the day and the Dow was very close. The down markets the day before a possible change in rate policy by the Fed is troubling. Several recent meetings with almost 100% chance of a rate hike were met with rallies into the announcement. What held the market back? Could it be the changing of focus from the Fed to earnings? Other factors, which have been impacting the market, include the July 1st reshuffling of the Russell indexes as well as window dressing by portfolio managers for the end of the second quarter. Normally these are bullish events but the markets have not been following the script. The Russell adjusts the top three indexes on July 1st and the shakeup causes many index funds to buy and sell stocks to adjust their fund ratios. The Russell-1000 is the top 1000 stocks by capitalization, the Russell-2000 the next 2000 stocks and the Russell-3000 is the combination of both. Funds following these indexes amount to about $200 billion. Not all of this money changes hands by far but there is quite a bit of shuffling. If a company moves into the Russell-1000 from the Russell-2000 the funds must buy to fill any R1000 requirement and sell to close any R2000 requirements. These movements across the different indexes then impact the weightings of stocks that did not move causing minor buying and selling. If you are an index fund you could literally be forced to trade hundreds of stocks in various amounts. Still this volume is not showing up in the market or regular trading has been so minor as to hide it. The end of quarter window dressing has also been nominal. Fund managers like to show leaders in their portfolio at the end of the quarter instead of cash. By buying leading large caps they can remain liquid and move out of them just as quick after the quarter end passes. One of the biggest tech leaders is IBM and they sold off over -$4 today on earnings and currency worries. Intel also lost almost -$3 and CSCO -$.50. One of the few sectors to show strength was the retail sector, go figure? With retail sales down for two months in a row the retail sector had been devastated. It appears the big money is looking for a sector with a bottom and retail was nominated. Sounds defensive to me! GPS +2.13, WMT +3.06, TIF +3.81, Sears even added to a three day streak with a +.81. (nice 60 min chart on S, could be a bottom) Oil is still a problem with August crude moving over $32 a bbl today. Analysts are expecting the continued high prices to start pressuring the inflation numbers with a critical number being $34, the same high we hit last March. The big news today was the WCOM/Sprint merger wreck. The Justice dept filed suit to block the merger on the grounds that it would be anti-competitive for the consumer. Lets see, if one company controlled 80% of the long distance traffic, could that impact prices in the Internet economy? While many analysts thought it would not matter, the Justice dept took exception. The merger is all but dead but many other smaller companies just became targets. VoiceStream VSTR, Nextel NXTL, Alamosa PCS APCS to name several. There is still a rumor that DT is looking for an American outlet as well. After the bell today Phelps Dodge (PD) and Tenneco (TEN) both warned that they would miss estimates for the quarter. Yawn! COMS did announce and beat estimates, we think, by a couple cents. There was some discussion after the announcement by First Call on some one-time charges and did they apply to the estimate but the final decision was a better than expected number for COMS. They were up slightly in after hours trading. The Fed announces their interest rate decision at 2:15 ET tomorrow and will have to compete with president Clinton for airtime. The president announced today he would hold a full scale news conference at 1:30 tomorrow. Since they usually start with a speech and then open the floor to questions it is entirely possible he will still be speaking when the Fed makes their announcement. Once the Fed is done the focus will immediately move to earnings which start in force the second week in July. Even though we have had some high profile earnings warnings the number is still less than normal. This should either lift expectations that we are going to have a good crop of earnings OR more companies than usual will miss earnings after expected last minute orders never materialized. Regardless of the expectation there are only seven days left for an earnings run to occur. I got a lot of hate mail from people objecting to my bearishness last Sunday. Good! If that many people had to take a minute to actually decide if I was off base and then write me then it shows you are not just blindly buying calls just because they are in the newsletter. I got several emails saying "why do you have calls in the newsletter if summer trading is so tough?" 1. Because most of our readers don't care what the market is going to do, they just want to buy something. Believe it! 2. Just because prior summers have been tough to trade does not mean this summer can't be different. We could start a rally tomorrow that could run till October. Elvis could also come back to life too. 3. Yes, you can make money trading in the summer even if the market is choppy. Nothing goes up or down OR SIDEWAYS in a straight line. Look at the Dow chart or the Nasdaq chart above. Both have several trading rallies in the last several weeks even though they are both moving sideways. You can still make money, it is just much harder. It is ENTIRELY up to you to decide what to buy and when to buy it. The newsletter gives you 20-30 prescreened plays as a starting point to do your own research. You decide when and if you bet (not invest) your money and how much you are willing to lose. Sometimes I spend hours researching plays the night before and when the market opens it goes against me. I must decide if I want to try and force a play or wait for the next day. You have heard me say many times that the entry point is the key. In tough times it is even more critical. I certainly do not expect everyone to stop trading for the summer. I simply advise more caution than normal. For a new trader it is difficult not to confuse a bull market with genius. Last fall anyone with a blindfold and darts could have made money in options. Choppy sideways markets like we are seeing right now is what builds experience and character. Remember the old saying, "Good judgement comes from experience and experience comes from bad judgement." Your results in this market will be 100% related to how you approach it. Good luck and sell too soon. Jim Brown Editor Current long positions include: NOK, VOD, MSFT *********************** Regional Seminar Series *********************** Technical Analysis, Stock and Option Seminar Three days of indepth education. The next seminar is a three day event in New York on July 13-15th. We guarantee you will not be disappointed. The class size is only 20 so you will get plenty of individual attention from Chris Verhaegh and the staff. At less than the cost of a bad trade you can learn how to analyze stocks and trade options like the pros. Don't wait, do it now. Future Seminars July 13-15 New York 3 day July 21-23 Seattle 3 day July 27-29 Atlanta 3 Day Aug 10-12 Orange Cty 3 day New !!!!!!!! Aug 17-19 Orlando 3 day Aug 24-26 Dallas 3 day Aug 28-29 Detroit 2 day http://www.OptionInvestor.com/seminar/seminar.asp **************** MARKET SENTIMENT **************** The Market Lost, But IPOs Gained By Ryan Nelson The Industrials and Composite both gave up ground, accelerating into the close, but the initial public offering market mirrored strength seen in days gone by. There were five deals today and most were received very well. The biggest came from Marvell Technology (MRVL) which gained more than 260% above its offering price. It priced at $15, traded as high as $63.31, before settling out at $56.63. This chipmaker for the communications sector wasn't alone either. Here is the list of the five IPOs today and where they priced. Company Symbol IPO Price Close Return Marvell MRVL $15 $56.63 277.53% Stratos Lightwave STLW $21 $33.63 60.14% Click Commerce CKCM $10 $17.63 76.30% EFunds EFDS $13 $13.06 0.05% Busybox.com BUSY $5 $ 5.75 15.00% IPO followers have pointed out that only strong deals are left after the multiple cancellations of April and May. Speaking of strong deals, another is set to debut tomorrow. All eyes will be on GTE Unit, Genuity, which is scheduled for a $2.3 billion dollar issuance. This is perceived to be a high quality deal and should again garner investor interest as sentiment in this area begins to pick up. In fact, there will be up to 15 offerings this week vying for investor dollars. Some of the bigger names include Exfo (EXFO), Accord Networks (ACCD), and Virage (VRGE). Remember, the IPO market is key in gauging investor interest in the markets and is known for being a leading indicator to market sentiment. Thus, this kind of interest is a positive development for the markets. The other key factor to focus on this week is how end of the quarter portfolio rebalancing will affect trading. More commonly known as "window dressing", this reshuffling is to due to fund managers clearing out their portfolio of the losers and filling it with winners for the upcoming prospectus. This activity will result in above average volume in the broad markets this week, as well as in the blue chip stocks in each sector. Throw in the Fed decision tomorrow and volatility should be expected. The Nasdaq still doesn't look good as it screams failed rally. Without a strong post-Fed rally, we may have to continue to fight the range-bound conditions. Play it safe until further conviction arrives. BULLISH SIGNALS The end of earnings warnings The time has come for warnings to end and profits to appear. Most of the pre-announcements should have trickled out by the end of the week. Interest rates 5.94% on the 30-year treasury may be signaling the rate fears are over. IPO sentiment As mentioned above, a possible precursor to the market rallies. MIXED SIGNALS Volatility Index (24.82) Right smack in the middle...no over enthusiasm, no panic. This creates a relative level playing field for individual stock picking. BEARISH SIGNALS Failing Nasdaq Although it hasn't broken major support levels, it hasn't shown any life for the past four sessions. We will likely need a move back over 4,000 on strong volume to convince traders to return. Energy Prices Still no major relief. It will be difficult to curb inflation with gas and oil prices remaining high. Ultimately, this will affect profit margins. August Crude climbed 43 cents to $32.06 on Tuesday. Put/Call Ratio ***************************************************************** Friday Tues Thurs Strike/Contracts (6/23) (6/27) (6/29) ***************************************************************** CBOE Total P/C Ratio .61 .57 Equity P/C Ratio .53 .47 OEX Put/Call Ratio 3.04 .91 Peak Open Interest (OEX) ***************************************************************** Friday Tues Thurs Strike/Contracts (6/23) (6/27) (6/29) ***************************************************************** Puts 790 / 5,449 700 / 6426 Calls 880 / 6,293 880 / 6308 Put/Call Ratio 0.87 1.02 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 27, 2000 24.82 ************** MARKET POSTURE ************** As of Market Close - Thursday, June 22, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,200 11,400 10,504 Neutral 5.05 SPX S&P 500 1,350 1,500 1,450 Neutral 5.30 OEX S&P 100 725 800 785 Neutral 5.30 RUT Russell 2000 450 550 508 Neutral 5.05 NDX NASD 100 3,000 4,000 3,699 Neutral 5.30 MSH High Tech 800 1,050 995 Neutral 6.06 XCI Hardware 1,250 1,600 1,500 Neutral 5.30 CWX Software 1,050 1,300 1,238 Neutral 6.06 SOX Semiconductor 850 1,200 1,173 BULLISH 6.20 NWX Networking 900 1,100 1,190 BULLISH 6.02 INX Internet 500 800 546 Neutral 5.30 BIX Banking 520 640 546 Neutral 6.09 XBD Brokerage 450 515 497 Neutral 6.22 IUX Insurance 600 650 628 Neutral 6.20 RLX Retail 900 1,000 855 BEARISH 6.09 DRG Drug 355 400 407 Neutral 4.28 HCX Healthcare 710 800 828 BULLISH 6.15 XAL Airline 140 155 163 BULLISH 5.25 OIX Oil & Gas 265 300 305 BULLISH 5.11 Posture Alert Not much has changed since Sunday as most of the indices remain at almost identical levels. This is standard pre-Fed jitters as investors take a wait-see-attitude. Biotechs lost 3.77%, Semiconductors dropped 3.58% and the NDX lost 1.92%. This was off set by gains in Retail, Airlines and Banks. ************** TRADERS CORNER ************** Using Options To Hedge Long-Term Stock Investing By Mary Redmond One of the most frequently asked questions in this investing period is "Should I hold long term or sell and take a profit when I have one?" There are advantages to each of these strategies. Studies of the trading volume on the exchanges have shown that the turnover rate of shares on the NYSE is higher than it ever has been. This seems to indicate that increasingly fewer people are true long term investors. Many of the very wealthy people today are long term investors. For example, Bill Gates did not become a multi billionaire by using Microsoft as a day trading stock. He held the shares from the company's ipo until it was worth at its peak over $500 billion in market capitalization. A company's market value does not usually grow from $10 or $20 million to $100 or $200 billion in a few months. It takes a certain amount of patience to hold a stock until this type of growth is acheived. However, there are other considerations. The volatility in today's stock market is unprecedented. Companies are growing their revenues and market value at a pace which would have seemed unbelievable even a few years ago. For example, Cisco achieved a market value at its peak of over $500 billion in approximately 10 years, less than half of the time it took Microsoft to acheive this value. Stock prices move up and down over 50% in a few days or weeks. In previous decades this was almost unheard of, unless there was a takeover. In addition, the downside to this volatility can be severe, as we recently witnessed in the market downturn this year. Many people lost over 50% of the value in their retirement accounts. It is difficult to experience this type of loss without being concerned. Another consideration is the fact that technological advances occur so rapidly nowadays that it is difficult to know which technologies will become obsolete in the future. In certain cases, you may be able to structure your portfolio using option strategies so that you can profit from the upside potential of a stock while protecting yourself on the downside. The simplest way of doing this has been to buy a stock and a put option at the same time. However, in today's volatile market many put options are too expensive to make this feasible. One strategy to consider is the use of convertible preferred stock and convertible bonds. In certain cases, convertible debt instruments may pay enough of a dividend or interest to cover the cost of a put. Many high tech companies have issued convertible bonds, including AOL, Amazon, Double Click, Cypress Semiconductor, Human Genome Sciences, Safeguard Scientifics, Level 3 Communications and Veritas Software. There are also many convertible preferred stocks, and they are usually listed in the newspapers or companys' annual reports. Convertible securities can be complex. You need to consider the debt rating, the interest or dividend paid, whether or not the security is callable, the conversion parity, and the current price. For example, some analysts expressed concern this week that Amazon's convertible bonds may be at risk of default. In this case, the bond holders would not receive the dividend. It is usually best to stick with bonds which have a B rating or higher. At issuance, a conversion price is established. The price determines the number of shares of stock the bondholder can receive upon converting the bond. The number of shares which will be received is the conversion ratio. The conversion ratio always equals the par value of the bond (1000) divided by the conversion price. As a simple example, Cypress Semiconductor has a B rated convertible maturing in 2005 paying 4% interest. The bond is convertible into 21.62 shares of common stock. When the stock was $42, the bond was trading at 125 and yielding 3.20.% If you receive 4% interest per bond, this would be $40.00 per year. If you bought 5 bonds you would receive $40 X 5 or $200.00 per year, assuming the company did not default. You could use the interest to partly cover the cost of a put. This would not provide a perfect hedge, however it might provide some protection against severe losses in a market downturn. A couple of years ago I bought AES 4.5% convertible bonds maturing in 2005 in my retirement account when the stock was around 45. The stock has since doubled and split, and the bonds are trading at 160, or $1600 per bond. The interest is $45.00 per bond. Suppose you purchased five bonds, you would receive $225.00 per year, which would cover the cost of a Nov AES 40 put, or part of the cost of a Feb 40 put. Or suppose you were interested in Phillip Morris, and thought that the Nabisco takeover would add value to the stock. Phillip Morris pays a hefty dividend of $1.92 per share, or $192.00 for 100 shares. This would almost cover the price of a Jan 01 25 MO put, or a Jan 02 20 MO put. You could use the dividend to help cover the cost of a put, which could give you downside protection, assuming the company did not have to cut the dividend. Another example might be Citigroup. If you look in the paper you will see many different series of preferred stocks, some yielding as much as 8%. Options have many uses. They can be used by speculators, professional traders and retail investors for many purposes. In this volatile market environment, the use of put options can sometimes substantially decrease the risks of stock market investing. Contact Support ***** Entering & Exiting Trades By Austin Passamonte It appears yesterday's discussion raised more questions than it answered. Better shelve the topic I had in mind for tonight (it can wait) and finish up some loose ends left dangling. First let me say that brokers offer a wide range of stop usage for stocks and options. I cannot recommend specific ones but will go one step better. George Fontanills book, "Trade Options Online" available from OIN's bookstore in the "Resources" section is the best $20 you'll ever invest for choosing a broker. This book interviews and outlines a large number of brokerages giving a complete breakdown on features, prices and overall ratings. A must-have for every trader. Getting stopped out is a fact of life for equities trading. Learn to like small losses and you'll never suffer from large ones again. The way to like small losses usually comes from suffering enough large ones to sear the pain in your heart. I'm sorry to say it took several brandings in my trading career before I caught on. Whether we like to hear it or not, entry points are the biggest key to proper stop usage. I know, I know, wouldn't it be nice if we could just buy wherever we feel like and set stops that limit adverse moves to small losses from there? The good news is you can. The bad news is you'll endure far too many small losses to ever catch enough big gains that compensate. I would refer you to the excellent piece Jim Brown recently blew the dust off titled, "Entry point, entry point, entry point" located in the Options 101 link under "Education" section dated June 11th. That pretty much sums up the topic of buying right. Remember the adage, "Anything bought right is already half sold"! The proper way to decide on stop settings is to start from the top down. Before choosing any particular play we must assess our financial plan. The plan is to buy low and sell high - yes I know that, thanks for telling me. We better make arrangements just in case this doesn't happen, though. Take a hypothetical account balance of $20,000. Feel free to add or subtract zeros as you see fit. Personally I'm willing to risk 5% or $1,000 in total loss per trade on that balance. The criteria are the trade MUST have a good chance for some amount of profit and reasonable odds of a 2/1 or better return. In other words I'm willing to risk $1,000 if I can make $2,000 or more with better than even odds (in my opinion) of closing out flat or with small gains to the downside. Adjust your level of risk to suit yourself. When sensible (relatively speaking for option traders) the play is chosen once the maximum risk is settled upon. It makes no sense to buy ten $1,000 contracts with a daily range of 3 point swings. Protecting this position with $100 per contract stop is not going to win over the long run. Sadly, this type of transaction is what I attempted last week on the OEX. The numbers were different but the ideas similar. Too many contracts for the level of loss I was willing to incur. My stop was hit and the trade went profitable by $700 per option the next two days. Instead of risking 2.5 stop loss on too many contracts I should have risked 5 on half as many. The profit target was 12 points best-case scenario and 7 points were reached. That would merit risking 5 points on a stop-out if it fit within my percent of drawdown via account balance. Once we decide on our risk/reward parameters it's time to narrow down the trade. Hey, plays are dime a dozen; pick one that suits you instead of trying to fit yourself into one that doesn't meld. High-priced volatile options are great for short-term action but proper entry is paramount. If that's your game, here are the rules. Know the underlying behavior of the market. Pro option traders usually follow a small stable of equities but understand them implicitly. Not that I'm part of their league, but my big stakes all get placed on markets I know well. Don't get me wrong, I'm willing to trade anything optionable but when it's time to bet heavy I lean towards what I know best. After watching the OEX heartbeat so long I can pretty much draw bar charts from memory. Give me current levels for the DOW & COMP and I'll guess the OEX market within one point. I'll bet Wendy's jewelry collection (easy for me to say) a number of readers here can do even better on stocks they follow. This comes from watching the action over a period of time and learning intricacies. Once a feel has developed we can identify average trading ranges and points of recent support and resistance. Buying calls or puts near these extremes give the best chance of catching reversals without much slippage against us. You can opt to buy near-the-money options that fit your criteria. A $100 call option on XYZZ stock may have range of $8 - $12 as the stock bobs from 80 to 90 over the past week. You think it's ready for breakout and wait until a pullback near 80 again. Sure enough, the stock returns to 83 and rests on support as the underlying sector shows strength. What do we buy? Recent price range has shown a 4-point daily spread. If we're sure the market should rally and can buy near the bottom of this zone a 3-point stop should keep us in the action until profits grow or complete reversal pops us out. 100 call prices are 9 - 10 and you enter a limit order at 9.5 for three contracts and fill. A protective stop is placed at 6.5 for each option. That's a risk of $900 with the other $100 in place for slippage. The stock falls to 80 and 79 as your option price shrinks to 7.5 bid. I'd say it's time to walk away from the screen, remove temptation to cancel the stop. That's a NO NO! Sure enough you're analysis was right. Analysts rate your stock a hot buy and the market takes off. Stock prices hit the next point of resistance near 110 and your calls now price at 15 bid. You have choices and I like them both. Move the stop up to 13 or so and let greed keep you in the market. That's a good move for issues like RMBS or GLW lately. Or sell the calls near 15 and pocket a nice $1500+ return for your $1,000 risked. By the same token, what if you didn't wait for a pullback and bought the same option at 11 when the stock still traded near 90? Where's a good place for your stop? Beats me, you either risk too much or endure an early exit as the price hits a low of 7.5 bid before rallying. With that in mind, how can we ever justify buying options away from support or entries given by technical signals? Not sure about you but I'll figure out some excuse next time I fall prey to such weakness! I don't believe a trader can select a play and then pick an arbitrary figure of risk on a stop to enjoy long-term success. Buying the wrong part of a move will lose no matter what stop percentage you use. Consistent small losses with no solid winners is still unprofitable trading. Hence the importance of proper entries BEFORE setting stops. Forcing trades and protecting them with stop losses is a slow, steady path to broke. Choose your entry with care and protecting the downside becomes easy! ACTION ALERT: I'll cover this subject in detail next Monday for sure but want to point out the fact tonight. Commercial traders of S&P 500 futures contracts are near a ten-year level of net short positions. This is an early indication of how the Funds and Institutions are playing the next several weeks market action. Commercial players in the SPOOS historically win and are betting the downside in a major way! The summer rally may be alive & well and could last awhile. However, if the broad markets begin selling off you might think twice trying to buy any dips. The big boys in this game are betting the farm that bottom might be near some figures we haven't seen in awhile. Just one factor to be aware of. See you Monday! Contact Support ************* SECTOR TRADER ************* Oxygen Starved Investors Need Fresh Air By Buzz Lynn Sectortrader@OptionInvestor.com A breath of air is on the agenda tomorrow courtesy of Alan Greenspan. Just make sure it's fresh before you suck it in. Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 92.72 2.50 -1.28 0.00 0.00 0.00 1.22 HHH Internet 109.25 -3.18 2.63 0.00 0.00 0.00 -0.56 BBH Biotech 172.25 5.75 -5.00 0.00 0.00 0.00 0.75 PPH Pharm. 101.06 2.19 0.81 0.00 0.00 0.00 3.00 TTH Telecom 75.50 -0.25 -0.50 0.00 0.00 0.00 -0.75 IAH I-net Arch. 89.88 1.94 -1.69 0.00 0.00 0.00 0.25 IIH I-net Infr. 58.25 2.385 -0.63 0.00 0.00 0.00 1.75 BHH B2B 38.00 -0.81 -0.63 0.00 0.00 0.00 -1.44 BDH Broadband 88.31 2.06 -1.81 0.00 0.00 0.00 0.25 SMH Semicon. 94.38 0.00 -3.13 0.00 0.00 0.00 -3.13 RKH Reg. Bank 96.69 0.75 0.81 0.00 0.00 0.00 1.56 UTH Utilities 89.13 -0.25 -2.88 0.00 0.00 0.00 -3.13 ------ ************** Updates ************** QQQ - NASDAQ 100 $92.72 -1.28 (-1.22 this week) Anybody turning blue from holding their breath so long? We are. Much as we suspected, QQQ has remained rangebound between $92 and $94 for the last two days in front of the FOMC meeting, the only exception being a brief pop to $95 this morning during amateur hour. We don't advocate trading during this period since one will often pay the high of the day. Wait, isn't that a good time to sell? Yes! As a seller, you will often get the best price too. Anyway, to make any money here, we really need to see a breakout and we won't know the direction until tomorrow's interest rate announcement. At that time, you may want to wait 30 minutes for the dust to settle and then pick the correct direction. Our inclination is to wait for a breakout over $95 to go long, or for a drop back under $90 to go short. Watch MSFT, CSCO, INTL, QCOM, ORCL and JDSU for direction. They account for 35% of the index. At Support: BUY CALL JUL-90 QVQ-GL OI= 2778 at $6.63 SL=4.75 BUY CALL JUL-95 QVQ-GQ OI= 7212 at $3.88 SL=2.25 BUY CALL AUG-95 QVQ-HQ OI= 267 at $6.38 SL=4.25 SELL PUT JUL-90 QVQ-SL OI=18181 at $3.13 SL=5.00, Huge OI At Resistance: BUY PUT JUL-95 QVO-SV OI= 4817 at $5.75 SL=3.75 BUY PUT JUL-90 QVQ-SL OI=18181 at $3.38 SL=1.75 BUY PUT AUG-90 QVQ-TL OI= 768 at $5.63 SL=3.75 Average Daily Volume = 27.68 mln /charts/charts.asp?symbol=QQQ ----- HHH - Internet $109.25 +2.63 (-0.56 this week) While we haven't seen it in the calm seas of the pre-FOMC meeting, HHH's test of $105.50 gave us a nice little profit for the day. Unfortunately, today it returned to its comfort zone around $109. Like most other traders, we're waiting for the FOMC meeting to give a tradable direction before initiating any play. We tend to favor the downside here since dot coms, starting with AMZN and finishing with YHOO, have been weak. They stand to get weaker thanks to investors recent discovery that most of their business plans are not scalable - meaning every additional dollar of revenue is not creating a higher marginal return. That is proving to be the case with many of these companies, especially AMZN and many other e- tailers. While there is mild support at $105.50, today's assault back over previous support at $110 to $111 was a failure in our opinion. It soon turned to resistance and fell back to $109.25 during the last hour of trade, thus setting HHH to fallback to $105 and ultimately to retest $100. Watch for the break under $108 or a bounce south of $110 - preferably after the FOMC's announcement. Otherwise, you can consider getting long or buying calls on a move back over $112, but it may encounter some congestion in the $113-$115 range. At Support: BUY CALL JUL-105 HHH-GA OI= 21 at $ 9.38 SL=6.50 BUY CALL JUL-110 HHH-GB OI= 61 at $ 6.75 SL=4.75 BUY CALL AUG-110 HHH-HB OI= 36 at $ 9.88 SL=6.75 At Resistance: BUY PUT JUL-110 HHH-SB OI=434 at $ 7.13 SL=5.00 BUY PUT JUL-105 HHH-SA OI=240 at $ 4.63 SL=2.75 BUY PUT AUG-105 HHH-TA OI=282 at $ 7.88 SL=5.75 Average Daily Volume = 1.19 mln /charts/charts.asp?symbol=HHH ----- TTH - Telecom $75.50 -0.50 (-0.75 this week) A teaspoon of wine in a barrel of sewage is called sewage. A teaspoon of sewage in a barrel of wine is still sewage. Such is the case with TTH thanks to the stink at AT&T from raising its consumer long distance rates. Unfortunately for the put side of this play, WCOM and FON's announcement that they would no longer seek a merger coincided with the Janet Reno Joel Klein's announcement (Department of Justice fame) that they would seek to block it anyway. Hmmm. . .the horse is out of the barn, so let's close the door? Anyway, the announcement sparked a $2.19 gain in WCOM, while even T eked out a fractional gain. All that said, the 10- dma and the 50-dma continue to act as resistance and force the price down. However, $75 offered a bit of support today. What to do? Our thinking is that today's bounce south of $77 would have made a good entry and that there is perhaps room to fall to $74, the next historical level of support. After that, $72 then $68. We want to caution you though that a favorable FOMC outcome might send this index back up. So you may want to wait until a rate announcement to take a position. While we think the telecom sector in general still has a bright future, beware the copper dinosaurs that still weight this index. At Support: BUY CALL JUL-75 TTH-GO OI= 0 at $3.00 SL=1.50, no OI BUY CALL JUL-80 TTH-GP OI=24 at $0.81 SL=0.00 At Resistance: BUY PUT JUL-80 TTH SP OI= 0 at $5.63 SL=3.75, no OI BUY PUT JUL-75 TTH SO OI= 0 at $2.50 SL=1.25, no OI Average Daily Volume = 79 K /charts/charts.asp?symbol=TTH ------ BBH - Biotech $172.25 -5.00 (+0.75 this week) Hmmm. . .right back where we started yesterday. The big sector news is that Celera (CRA) yesterday announced the completion of sequencing of the human gene. This has been equated to the milestone of landing people on the Moon. It's a big deal. Most biotech stocks were up yesterday (except CRA). Nonetheless, "sell the news" set into the sector today with CRA again turning up as the big loser. We still think that given the sentimental favoritism this sector enjoys that it will be back at the first signs of life in the market (presumably following the FOMC announcement). Technically, a beautiful entry presented itself yesterday exactly at the 10-dma (then $166.96) where we thought it might. There is also new ntraday support developing at $172, which is where it stands today. Meanwhile, the highs get lower, a situation we've come to expect when the market gets on pins and needles in front of an FOMC meeting. Don't read too much into it right now. Our thinking is that you may want to consider buying a bounce from $171 (the new 10-dma) as we think that can continue to hold. If not then $165 followed by $160 are the next levels down. Target shoot there if you like or you can play BBH as a quick short on the way down too. The latter carries more risk though. At support: BUY CALL JUL-165 BBH-GM OI= 109 at $15.38 SL=11.25 BUY CALL JUL-170 BBH-GN OI=1264 at $12.75 SL= 9.50 BUY CALL AUG-170 BBH-HN OI= 5 at $18.38 SL=13.25, low OI At resistance: BUY PUT JUL-175 BBH-SO OI= 86 at $13.50 SL=10.25 BUY PUT JUL-170 BBH-SN OI= 116 at $10.88 SL= 8.00 BUY PUT AUG-170 BBH-TN OI= 7 at $18.25 SL=13.25, low OI Average Daily Volume = 637 K /charts/charts.asp?symbol=BBH ------ IIH - Internet Infrastructure $58.25 +2.38 (+1.75 this week) Miracles do happen. Accordingly, here's an Internet-related basket of goods that has done well this week. While IIH violated its 10-dma on Friday, it made some effort at recovery yesterday and today in a series of higher lows. Can you say relative strength compared to NADSAQ? This is a fair example. In the process of its recovery, it now rests just below its new 10-dma of $58.35 and moved nicely back over historical support at $57.50. The bad news is that after moving up to $59 during amateur hour, IIH fell throughout most of the day. OK, so go short or go long? We wish we had the answer. Given the market's refusal to budge from the current range in front of the FOMC meeting, we didn't think it would be fair to yank IIH from the play list until we see the direction it could take following the Fed's pronouncement on interest rates. Stay tuned and watch for volume. A move over $59.50 might be the key to going long while a move under $57 would set the stage to test mild support at $55 then $53.50 to the down side. At Support: BUY CALL JUL-55 IIH-GK OI= 1 at $5.88 SL=3.75, rock bottom OI BUY CALL JUL-60 IIH-GL OI= 1 at $3.13 SL=1.50, rock bottom OI BUY CALL AUG-60 IIH-HL OI= 0 at $5.00 SL=3.00, no OI At Resistance: BUY PUT JUL-60 IIH-SL OI= 0 at $4.88 SL=2.75, no OI BUY PUT JUL-55 IIH-SK OI= 1 at $2.38 SL=1.75, rock bottom OI BUY PUT AUG-55 IIH-TK OI= 0 at $3.88 SL=2.25, no OI Average Daily Volume = 301 K /charts/charts.asp?symbol=IIH ------ BDH - Broadband $88.31 -1.81 (+0.25 this week) Not much improvement here though we did see a brief move up to $90 yesterday. Unfortunately, today it gave it all back. We still can't bring ourselves to go short this issue given its strength,. Yet we noted we'd give it the boot on Tuesday if it didn't start to perform with a move over $88.50. In the end, and by executive decision, we're keeping it until after the FOMC interest rate announcement when we'll make a determination for Thursday. That said, continue to look for support at $88.50. A move from here over $90 would suggest we go long until BDH finds resistance again at $92. A move down under $87 would suggest we go short to retest $85. It's still on double secret probation. At Support: BUY CALL JUL-85 BDH-GQ OI= 0 at $7.13 SL=5.25, no OI BUY CALL JUL-90 BDH-GR OI=29 at $3.63 SL=2.25, BUY CALL AUG-90 BDH-HR OI= 0 at $6.88 SL=4.75, no OI At Resistance: BUY PUT JUL-90 BDH-SR OI= 3 at $5.88 SL=3.75 BUY PUT JUL-85 BDH-SQ OI= 1 at $3.38 SL=1.75, rock bottom OI BUY PUT AUG-85 BDH-TQ OI= 0 at $5.88 SL=3.75, no OI Average Daily Volume = 189 K /charts/charts.asp?symbol=BDH ************** No Play ************** IAH BHH PPH SMH RKH UTH ************* DAILY RESULTS ************* Index Last Mon Tue Week Dow 10504.46 138.24 -38.53 99.71 Nasdaq 3858.96 66.78 -53.16 13.62 $OEX 784.94 8.14 -4.27 3.87 $SPX 1450.55 13.77 -4.70 9.07 $RUT 508.08 5.95 -8.28 -2.33 $TRAN 2680.97 -16.16 66.42 50.26 $VIX 24.88 -1.17 0.16 -1.01 Calls BRCM 183.31 13.75 4.50 18.25 New, Bluetooth future GLW 253.25 20.19 -6.94 13.25 Massive Monday rally RBAK 147.25 19.06 -7.31 11.75 Launching higher TIBX 98.94 3.90 5.53 9.44 New, stellar earnings MRVC 62.06 11.00 -3.94 7.06 "Baby JDSU" BRCD 161.88 3.50 2.38 5.88 Continues to impress RSAS 68.38 4.00 1.88 5.88 New, earnings coming up AETH 196.00 -0.06 5.38 5.31 Good news bucks trend NT 67.63 2.25 -0.63 1.63 Achieved wireless first ARBA 90.06 3.63 -2.13 1.50 Wheelin' and dealin' QLGC 69.00 7.56 -6.13 1.44 "Feel-good" buying MSFT 78.81 1.81 -0.69 1.13 Teaming up YHOO 125.94 -6.00 6.63 0.63 Healthy bounce back AGIL 61.38 1.19 -1.50 -0.31 Resistance turns support JDSU 119.00 2.19 -6.63 -4.44 Dropped, broke down LNUX 41.75 -4.69 -0.69 -5.38 Support at $40 MERQ 89.00 -2.88 -2.69 -5.56 Dropped, time to bolt HGSI 134.03 -2.00 -9.34 -11.34 Watching for a bounce PDLI 161.00 -8.69 -2.94 -11.63 Giving it a few more ABGX 122.19 -5.47 -10.38 -15.84 Patents and splits INKT 120.69 -25.31 5.63 -19.69 New, right at support Puts PHCM 68.00 -0.63 -6.00 -6.63 New, lost its footing WY 45.63 -0.31 2.44 2.13 Dropped, bottom search DCLK 39.94 -0.38 2.69 2.31 Valiant attempt failed AMZN 36.50 0.06 2.56 2.63 Dropped, found support NKE 39.94 1.94 0.94 2.88 Dropped, spoiled PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** MERQ $89.00 -2.69 (-5.56) MERQ bolted out of the gates Tuesday morning with a surge of early buying. However, MERQ's morning rally lasted for only the first half hour of trading, as the stock weakened through the day, culminating with a rollover in afternoon trading. The late day selling was spurred by the usual culprits, namely profit taking and Fed fears. There was no detrimental news out Tuesday afternoon to prompt the selling, in fact, Wit Soundview reiterated its Buy rating on MERQ and set a $110 price target. But, the analyst praise was to no avail as MERQ fell along with the Tech sector. We too must bolt, before MERQ falls any lower. JDSU $119.00 -6.63 (-4.44) JDSU received a host of positive analyst comments early this week. Robertson Stephens and DLJ both reiterated their Buy ratings ahead of the company's completion of its merger with ETEK. The stock staged a modest rally Monday with help from a relatively stable Tech sector. Despite the upbeat comments from Wall Street Tuesday, JDSU rolled over in mid-day trading, and subsequently fell below support at $120. Volume surged in the final hour of trading as traders locked in their profits in JDSU ahead of the FOMC meeting. Tuesday's decline marked a lower low in JDSU's ascending channel. Given JDSU's relative weakness Tuesday and its technical breakdown, it's time to sell too soon. PUTS: ***** AMZN $36.56 +2.63 (+2.69) Wet and wild. Since picking AMZN for the ride down last Thursday, it has quickly fallen over 13% on heavy volume. On Monday, after some early morning volatility for the first half-hour, the stock settled down to trade in a narrow range on about three times the average daily volume. Like the volatility, most of the volume came early in the day. Today, saw AMZN rallying in sympathy with a strong move up in the retail sector on over twice the average daily volume. With the selling pressure drying up in a retail sector that is firming, the worst may be over as AMZN has found support at $32.50. With some nice gains in our play already, we say goodbye to this prescient play in search of greener pastures. NKE $39.94 (+2.88) Our put play was spoiled by boisterous analysts Monday morning. Ahead of NKE's earnings report this Thursday, Bank of America analyst Susan Silverstein made several positive comments concerning the beleaguered shoe giant. After reiterating her Strong Buy rating, Silverstein set a $51 price target and called the recent weakness an "excellent buying opportunity." Additionally, Dain Rauscher jumped in to reiterate its Strong Buy rating on NKE. Needless to say, all the bullish noise from the analysts Monday boosted NKE. The stock extended its new-found rally Tuesday, which gave further reason to bow out ahead of NKE's earnings Thursday. WY $45.63 +2.44 (+2.13) Our new play began the week with a small drop on Monday, but not the kind of decline we would like to have seen. Today, WY did bounce up to the $46 area, but the anticipated return of weakness did not appear. In fact, WY closed in the upper end of its range, suggesting there could be more follow-through from the bulls. Does this mean WY has finally put in a bottom? It's a little early to tell for sure, but if the buyers continue to come to the aid of WY, a move up to the $52 to $55 would not be out of line. The volume today wasn't particularly strong with slightly over 1.0 mln shares changing hands. The move up does suggest that for now, WY may be attempting to find a bottom and the risk versus the reward simply is now longer on our side. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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The Option Investor Newsletter Tuesday 6-27-2000 Copyright 2000, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. ******************** PLAY UPDATES - CALLS ******************** AETH $196.31 +5.38 (+5.31) A gap up in the morning and AETH managed to post a gain as the NASDAQ sold off on Fed fears. Helping AETH buck the trend today was W.R. Hambrecht, which initiated coverage with a Buy rating and a 12-month price target of $275. Separately, AETH and MSFT jointly unveiled a new wireless service for Window-powered pocket PCs. The announcement was made at the PC Expo in New York this morning. This service would deliver unlimited Internet access to business users for a monthly fee of $39.99. While we would have liked to have seen AETH hold the $200 level, we'll take the positive news. Technically, if AETH falls prior to the Fed announcement, look to support at $190. Bounces from this point would be sound entries. Below that, look to $185. On the upside, cracking $200 shouldn't be too hard, but watch to see if it can hold. If AETH rallies, overhead resistance is very thin to $215, and if we cross our fingers, $230 could be next. Yet, be aware of the Fed's looming presence in the market. This is the type of market in which you must take your profits when you have them. GLW $253.25 -6.94 (+13.55) GLW plowed to a new all-time high Monday after announcing the company had won a four year deal worth over $1 bln. GLW said it had signed a deal with the Denver based networking company, Aerie Networks. Aerie is forming a nation wide high-speed fiber optic system and the company said it will use GLW's optical cable in doing so. The announcement sent traders scrambling to accumulate the stock, sending GLW past several key resistance levels. The stock did consolidate its gains Tuesday, but that was expected considering Monday's massive rally. In the coming days, there are two possible ways to gain entry into the play. First, if the Tech sector weakness drags GLW down Wednesday morning, look for the stock to find support at $250, and consider entry if the stock bounces. Or, if GLW goes into rally mode, look for an entry if the stock clears resistance at $255, or at $257.50 for more conservative traders. With a little cooperation from the Fed, and the freshly signed $1 bln contract as the fuel, we might see GLW continue its climb into new high territory. ABGX $122.19 -10.38 (-15.88) The Biotech sector fell victim to the cliche of buy on the rumor sell on the news Monday. After the rough draft of the Human Genome was announced, traders decided to lock in profits within the group. ABGX managed to rally after briefly dipping past support at $120 Monday, but continued to slide Tuesday. Despite the recent sell-off there are several issues that could prove beneficial to our play. First, ABGX announced Tuesday that the company has received its second patent on its core technology for producing human antibodies. Second, the 2-for-1 split is less than two weeks away. And finally, the $120 support level has proved to be a good entry point over the last week. ABGX has touched $120 twice in the last week, subsequently rallying to $140 thereafter. A word of caution though, the Biotech sector has suffered two straight days of losses. Make sure that ABGX bounces off the $120 level before entering the play. Conservative traders might wait for ABGX to clear congestion at $125 before entering the play. Don't forget to protect your profits. QLGC $69.00 -6.13 (+1.44) What some are calling the "feel-good" buying, following last week's early termination grant of its waiting period to acquire Ancor Communications (ANCR) from the FTC and Justice Department, has evidently spilled over into late afternoon trading on Monday. QLGC rose $7.56, or 11.2% before profit taking set in this morning. The flat trading that preceded the surge offered a nice entry off the 5- and 50-dma lines. The pullback in today's session not only offered new entry opportunities, but it also demonstrated the stock can hold a higher intraday support level of $69-$70. And now that the first line of resistance at $72.25 is cracked and QLGC flirted with the 200-dma line in today's action, we want to see a bullish close through this opposing technical. There's no doubt it would provide further confirmation that QLGC's momentum can indeed move mountains. The company is expected to report earnings next month around July 17th, after the bell, which could also generate some excitement. In other news, QLGC announced it's supplying the Fibre Channel connectivity solutions for the Intel Server Applications Enabling Program. Together the companies have worked with other industry leaders to develop "recipes" to improve OEM customers' confidence. PDLI $161.00 -2.94 (-11.63) The long-anticipated biotech breakthrough finally came to center stage on Monday. PE Corp's Celera Genomics (CRA) and President Bill Clinton jointly announced that U.S. and European researchers had completed a blueprint of the human genetic code mapping out 3 bln different sequences. This map offers developmental insight into treatment for cancer and other dilapidating diseases, which will ultimately help all of the biotechnology community. However, at the moment, some of the biotechs took a one-two punch from investors. PDLI led the slumping AMEX Biotechnology Index($BTK) lower. The stock itself dipped to intraday lows of $149.75 and overall finished down 5%, or $8.69. Except for a brief spike to $168.38 today, PDLI mostly traded in a narrow range between $160 and $162. Considering how fast and furious PDLI can move, keep your reins in check. If all goes well with the FOMC meeting and PDLI resumes an uptrend, it should easily move back through $173 and $175. Wait for confirmation and keep tight stops to protect your profits. AGIL $61.38 -1.50 (-0.31) Range bound pretty much sums up AGIL's trading behavior of the last two sessions. On the bright side, the 200-dma, which just recently acted as impregnable resistance, is now a rather stable support level. Additional support is lower at $57 and $58. The lackluster volume at less than 50% of the norm is however a bit of concern. Before starting new positions, err on the side of caution and wait for increasing volume to drive the share price higher. Expect some resistance at $66.19, Thursday's intraday high. We entered this play based on its recent recovery and the positive sentiment surrounding the company. Its technical breakout also added to the excitement, but now we need to see some more action on the upside. Keep in mind too that Greenspan speaks tomorrow and this always adds a twist to the market sentiment. MSFT $78.81 -0.69 (+1.13) We've got to ask ourselves a key question. Is MSFT's "range boundness" of the past three sessions a temporary condition - simply the result of the upcoming Greenspan prattle? Or is this a new comfy zone where MSFT will linger while the Supreme Court contemplates the software giant's anti-trust case? The answer to our question should come within the next few days. From a technical standpoint, MSFT's share price is managing well above the 10-dma ($76.07), but is having difficulty taking a permanent position above the 5-dma ($79.33) this week. If you play more conservatively, please wait for definitive moves through the $80 mark and also a break above $82.19, the resistance set last Wednesday. Pay attention to volume levels as well. Since the company unveiled its blueprint for the future last Thursday, trading activity has noticeably waned. Today there was more good news however. AT&T's Liberty Media Group and Microsoft announced they would merge their respective Japanese cable interests, Tokyo-based Jupiter Telecommunications and Titus Communications to provide broadband services throughout the country. The stock-for-stock deal is expected to be completed by September 1st. Under the terms, Titus (60% owned by MSFT) would become a wholly owned subsidiary of Jupiter and retain a 24% stake. Liberty's John Malone and Jupiter's Sumitomo would each own 35% of the new company. The combined company, with an estimated worth of about $5 bln, would likely initiate an IPO in the near future. On the domestic front, MSFT's MSN Internet network entered an alliance with DELL to co-brand an Internet service called Dellnet by MSN. RBAK $147.25 -7.31 (+11.75) Like last Monday, RBAK blasted through what seemed like formidable overhead resistance. Last week the hurdle was $120. This week it was $145. Both of them were easily overcome thanks to strong buying volume. Most of RBAK's rally on Monday came at the close, ending the day up over 14% or $19.06. The next hurdle is now set at $155. After hitting this level twice in the last two days, the stock saw profit taking on slightly lower than average volume and moved down in sympathy with the Nasdaq. Despite the profit taking today, RBAK found support right at its former resistance level of $145, bouncing at $145.50. Look for this area to continue to be a level of support. Other support levels below this can be found at the 5-dma, currently at $141, and the 10-dma at $133 which has been the launching pad of any breakouts in RBAK's continuing pattern of breakout and consolidation. If RBAK successfully breaks through 155 resistance on strong volume, it will encounter its next obstacle at 160 and then 170. BRCD $161.88 +2.38 (+5.88) As the broader markets continue to meander in advance of the FOMC meeting which began today, BRCD continues to impress. Friday's drop gave us several entry opportunities near $152 as the stock bounced right on the 10-dma. A gradual recovery yesterday, still supported by the 10-dma, got an additional boost from news that the company enhanced its industry-leading Fabric operating system for Storage Area Networks (SANs). The new features include Fabric Watch, which provides a robust platform to simplify SAN management through intelligent monitoring of SAN resources. Another enhancement is Extended Fabrics, which extends SAN to SAN native fibre connectivity from 10 to 100 Kilometers. Today the company followed up with an end-to-end interoperability program for SANS, called Fabric Aware, which was immediately endorsed by 25 industry partners including EMC, Hewlett-Packard, Sun Microsystems, and VERITAS Software. As if that wasn't enough to get the share price moving, Chase H&Q initiated coverage of the stock with a Buy rating today. Investors took notice, bidding shares higher right from the open, driving the price as high as $165.50 before Fed dread took over and shaved some of the gains from BRCD's share price. Volume was light again today, but it was encouraging to see the stock bounce higher from the $160 level, very close to yesterday's high. Weakness ahead of the Fed's decision on interest rates could provide another entry as the stock bounces at support, first at $160, then at $155. Watch the intraday volume as its trend will likely telegraph the strength of any move, whether up or down. NT $67.63 -0.63 (+2.44) After a nice double bounce at the $64 support level on Friday, NT got moving again early this week. The second bounce at the end of trading on Friday turned out to be an excellent entry point as the stock traded sharply higher at the open yesterday. The strength continued right up to the close, allowing the company to tack nearly $3 onto its share price. Part of the move may have been due to good news on the wireless front. NT and Australia's Telstra achieved a world first, demonstrating live Wireless Internet applications at speeds in excess of 50 kilobits/second on a GPRS (General Packet Radio Service) system, over 5 times faster than is currently available over GSM wireless networks. GPRS is a packet-based, next generation communications platform which overlays a GSM network to provide high-speed wireless data access. General market weakness today dragged the share price down for another entry point as the stock bounced at $66.25 before heading higher for the rest of the afternoon. The rebound came on strong and increasing volume and looks like the beginning of a strong move. Consider new entries on additional bounces from support near $67 and then $66. More conservatively, wait for strong buying volume to lift the share price through the $69 resistance level before playing. ARBA $90.06 -2.13 (+1.50) Monday began with a bang for Ariba when it announced that it was going to buy privately held SupplierMarket.com for $581 mln in stock. While the newly issued shares to pay for this transaction may seem like a large amount, it is actually less than three percent of its currently fully diluted shares outstanding. The companies expect the deal to be completed by the third quarter. For this, the stock was rewarded with a 4.09% or $3.63 gain, closing right above its 5-dma. Today, the stock saw some slight weakness on about half of average daily volume as nervous investors hold their breath on the heels of the Fed tomorrow. This is despite the news that ARBA announced a partnership with B2B infrastructure startup EC Company to connect small and mid-sized suppliers to its online trading networks, allowing them to electronically transact with their large buying customers. There is overhead resistance currently at the $95 level and after that, the magic number is the psychological $100. Look for support at $87.50 which has held up over the past week and the 10-dma line just above $85. YHOO $125.94 +6.63 (+0.63) YHOO's decline on Monday was ushered in with 11.7 mln shares traded. The bounce off the $117 area late in the day and this morning provided traders with that opportunity we mentioned last weekend. We realize it can be tough to trust a bounce off a decline of more than $8, but those that participated were rewarded quite nicely by the close of business today. As expected, YHOO launched its corporate portal services. It unveiled the new enterprise package with some heavy hitters as partners. Inktomi, Critical Path, Tibco Software, and Citrix Systems are all contributing to the overall package development. During the session, YHOO stuck its nose back over its 50-dma at $128.10 before finishing with a 5% gain. Is the bounce for real, or will it prove to be another head-fake? Once the FOMC meeting is out of the way, traders MAY be able to focus on earnings. With the recent news and earnings for the Internet company less than 2 weeks away, YHOO could tag along with the broad markets, if a rally begins. For traders that initiated new positions, keep your stops in place. Conservative traders may prefer to wait until YHOO crosses its 10-dma near $135.41, as long as strong volume is present prior to entering new plays. MRVC $62.06 -3.94 (+7.06) This one just gets more interesting by the day. On Monday, traders ran shares of MRVC 20% higher as the communications company soared $11. When stocks surge 20%, there is usually some kind of news or report behind the move. Not this one. Well, actually there was an article floating around a few Web sites with positive comments about the company. The article called MRVC a "baby JDSU", and an "optical CMGI." The article was posted on several message boards. As we said, by the end of the day our play had picked up $11 after running into resistance near its most recent high of $67. Today, traders took some money off the table, but traded in a narrow range between $62 and $64 for most of the session, finally giving back just $3.75 of Monday's gain. The lack of any follow-through is somewhat troubling, however, the profit taking certainly could have been worse. So how do we proceed? Much of that depends on the Fed. On further strength through the $64 or $66 area, we would consider entering or adding to existing positions. If profit taking drops our play back through the 10-dma at $59.06, it may be time to stand back and wait for new opportunities. HGSI $132.03 -9.34 (-11.34) How many times have we heard the term "buy the rumor, sell the news"? While Friday's 9% surge was not based on rumor, the move did come on anticipation of good things to come, as the genomics company will begin testing patients with immune systems disorders. Traders began the week taking profits, dropping the price of HGSI all the way back to a low of $126 on Monday. After recovering to $143, the bears that didn't participate on Monday had their way with HGSI today. So where does that leave our play? We're encouraged that the previous support area between $130 and $132 brought a few buyers back to the table. As we said this weekend, our play isn't out of the woods just yet. Investors realize that although the recent announcements from HGSI and the genomics companies are very positive, there is still a long way to go before there is any commercial value for the HGSI and others. Technically, a look at intraday charts shows our play coming to oversold territory. We would consider scaling into new plays on bounces off support or continued moves higher. A trip south through $130 with momentum and it may be time to move to the sidelines and wait for our play to stabilize. LNUX $41.75 -0.69 (-5.38) Investors found out so far this week, what goes up, also can come down. At this point, however, we aren't viewing the 11.5% decline as a negative. To the contrary, LNUX could be setting up to provide a very good entry for new plays. The plus so far is that the $40 level of support held quite nicely early this morning. For the balance of the session Linux moved slowly higher. Another positive can be seen in the light volume as the profit taking set in, compared to what was seen during last weeks 44% increase. We believe the potential for this play is still excellent, but there still is the little gap between $38 and $40 that could get filled should investors decide to unload a few more shares of LNUX. A report today from International Data Corp, did little to bring buyers back. The report suggested the breakup of Microsoft could actually hurt Linux. IDC noted PC makers would no longer fear a Microsoft backlash from increasing their Linux sales, which would in effect increase competition for LNUX. As for new plays, we would consider entering on bounce from current levels with solid volume. If profit taking continues, let the area between $37 and $38 prove itself as support prior to entering a new play. ******************* PLAY UPDATES - PUTS ******************* DCLK $39.94 +2.69 (+2.31) Investors made a valiant attempt to push shares of DCLK higher today, but resistance was just too strong. After moving as low as $35.50 yesterday, buyers re-emerged and gradually pushed shares off the low of the day. Then, with a surge of buying this morning, buyers took a run at the $40 resistance level. There just wasn't enough momentum to carry the move though, as it ran out of steam at $41 and fell back at the close, ending the session barely above the converged 5-dma ($39.88) and 10-dma ($39.81). These averages have been pressuring DCLK to the downside lately, so if the trend is to remain intact, look for the price to fall through this level tomorrow. Support is building at the $35 level, while today's action confirmed that the $40 resistance level is still intact, but being challenged. Today's trading came on strong volume, above the ADV and heavier than it has been since the stock last had an up day (last Wednesday). Consider new entries if the price heads down from current levels, but make sure the move is confirmed by strong selling volume. If the Fed announcement is well received tomorrow, DCLK could make a run up to the $45 resistance level before rolling over again. ************** NEW CALL PLAYS ************** RSAS - RSA Security $68.38 +1.88 (+5.88 this week) RSA Security Inc. is a trusted name in e-security, helping organizations build secure, trusted foundations for e-business through its two-factor authentication, encryption and public key management systems. As the global integration of Security Dynamics and RSA Data Security, RSA Security has the market reach, proven leadership and unrivaled technical and systems experience to address the changing security needs of e-business and bring trust to the new, online economy. A global company with more than 5,000 customers, RSA Security is renowned for providing technologies that help organizations conduct e-business with confidence. With no recent Internet virus in the news, what made investors find RSAS so appealing? Many times when a new virus hits the Internet we see shares of RSAS and the like spike for a day or two. So why are investors jumping back into RSAS? It could be earnings or several other variables that has placed our new play on many radar screens. First, RSAS is scheduled to report earnings in about two weeks. Notice we said they are going to report earnings. Yes, they have real earnings, unlike several others in the industry. Some suggest that RSAS is simply a very good buy at current valuations and believe long-term investors are recognizing the company as a truly exceptional value. It very well could be a great buy for the long-term investor at current levels. For our purposes, we believe the buyers have returned for several other reasons as well. So far this month the company has announced strategic relationships with many new companies. Several of the names that come to mind are i2 Technologies, BroadJump and Alcatel. The latest came on Monday as the company announced E.piphany(EPNY) had licensed RSAS software. The agreement was met with buyers knocking at the door to get into shares of RSAS. On the news, RSAS gained $4, and added another $1.88 today. The volume today was heavier with 933K shares changing hands. Recently, RSAS has signed an abundance of new agreements, and contracts. Quite frankly, investors seemed to be setting up and taking notice. Technically, our new play broke through resistance at the $70 level before falling back to close just over $68. If we see consolidation, support is found at $68 and again at $64. If the bulls remain friendly, we would consider initiating new plays. If profit taking enters the picture, we wouldn't expect it to last long. While only four analysts have RSAS rated a Strong Buy, the latest comments came from Prudential Securities. Paul Merenbloom reiterated his rating from early March as a Strong Buy with a 12-month price target of $89.00 on June 14th. BUY CALL JUL-60 QSD-GL OI=455 at $10.38 SL=7.25 BUY CALL JUL-65*QSD-GM OI=517 at $ 7.13 SL=5.00 BUY CALL JUL-70 QSD-GN OI=480 at $ 4.50 SL=2.75 BUY CALL AUG-65 QSD-HM OI=160 at $ 8.13 SL=5.75 BUY CALL OCT-70 QSD-JN OI=563 at $11.13 SL=8.25 SELL PUT JUL-65 QSD-SM OI=283 at $ 4.13 SL=6.25 (See risks of selling puts in play legend) Picked on June 27th at $68.38 P/E = 17 Change since picked +0.00 52-week high=$93.06 Analysts Ratings 4-6-3-0-0 52-week low =$15.88 Last earnings 04/00 est=0.19 actual=0.20 Next earnings 07-13 est=0.21 versus=0.15 Average Daily Volume = 529 K /charts/charts.asp?symbol=RSAS TIBX - TIBCO Software $98.94 +5.50 (+9.88 this week) TIBCO's ActiveEnterprise enables businesses to connect resources with customers and automatically deliver event-driven information across networks and the Web in real-time. The company also offers e-commerce, consulting, and support services. Customers license the software to integrate, personalize, and distribute content. TIBCO is enhancing its business-to-business trading capabilities. Reuters owns more than 60% of the company, and Cisco holds a minority stake of 7%. Some analysts argue that the B-2-B sector is fading. TIBX likes to think otherwise. TIBX has been on rally since bottoming in early May, and is showing few signs of letting up. Of course, surpassing earnings estimates by 300% helps the cause for a company's stock price. And that's exactly what TIBX did last Wednesday when the company reported its second quarter results. TIBX reported 30% sequential revenue growth, and told analysts to raise their estimates for this year and the next. Wall Street took the cue from TIBX as a slew of analyst upgrades and upward earnings revisions hit the wires the next day. It's is no small feat for a business services company to surpass estimates by such a wide margin, especially while many of its B-2-B brethren languish in losses. The current market is saying, "Show me the money". And for the companies that deliver, Wall Street rewards accordingly. On top of TIBX's earnings momentum, the stock received further fuel Monday when Yahoo unveiled its new corporate information portal. The new venture will enable corporate users to integrate content from their intranets with news and information from Yahoo. TIBX said it had deepened its standing agreement with Yahoo, and will provide services and software to create the new portal. The announcement caused TIBX to gap higher Monday morning, and to continue to rally into Tuesday. Despite the overwhelming weakness in the broad Net sector, TIBX marches higher. Look for an entry point if TIBX clears the ever-important $100 level Wednesday morning. If the profit takers return from hibernation,look for TIBX to find support first at $95, and lower at $90. Consider a bounce off support for a possible entry. With its impressive rally over the past week, TIBX charged right into split territory. The company has more than enough shares to announce a split. If the stock continues on its ascending path, we may be hearing from the Board of Directors in the coming weeks. With a stellar earnings report, and a new contract with Yahoo, a split could be the catalyst to take our play to the next level. BUY CALL JUL- 90 PIW-GR OI=262 at $15.38 SL=11.25 BUY CALL JUL- 95*PIW-GS OI=163 at $12.25 SL= 9.00 BUY CALL JUL-100 PIW-GT OI=388 at $ 8.88 SL= 6.25 BUY CALL AUG-100 PIW-HT OI=376 at $15.00 SL=11.00 BUY CALL NOV-105 PIW-KA OI= 14 at $23.75 SL=17.25 SELL PUT JUL- 85 PIW-SQ OI=104 at $ 4.00 SL= 6.00 (See risks of selling puts in play legend) Picked on June 27th at $98.94 P/E = N/A Change since picked 0.00 52-week high=$147.00 Analysts Ratings 4-0-1-0-0 52-week low =$ 6.56 Last earnings 05/00 est= 0.01 actual= 0.04 Next earnings 09-21 est= 0.12 versus= -0.01 Average Daily Volume = 1.74 mln /charts/charts.asp?symbol=TIBX BRCM - Broadcom $182.94 +4.13 (+17.88 this week) Broadcom's integrated circuits are used in over 90% of cable modems and digital set-top boxes. They are also used in digital subscriber lines, satellite broadcasting, home networking, and wireless devices. Motorola and 3Com account for 28% and 18% of sales, respectively. Other customers include Cisco, Samsung, and Scientific Atlanta. Broadcom continues to use acquisitions to beef up its offerings. Who said all Net related issues were dead money? If you've seen the action in BRCM lately, you'd know otherwise. It just happens that BRCM manufactures networking chips, an area that Wall Street has turned bullish upon. In fact, every analyst covering BRCM rates the stock either a Strong Buy or Buy. Aside from the growing demand for its broadband chips, BRCM has a new product offering in the works. With its acquisition of Pivotal Technologies earlier this year, BRCM took a giant leap into the Bluetooth arena. Bluetooth is a short-range wireless technology used to connect electronic devices. Essentially, Bluetooth will allow greater access to the Internet through wireless devices, such as cell phones, laptops, and pagers. Analysts expect manufacturers such as Motorola, Ericsson, and 3Com to introduce a flood of new Bluetooth related products towards the end of this year. The aforementioned manufacturers will need the necessary chips to complete their offerings. That's where BRCM fits in. As we mentioned above, BRCM bought Pivotal Technologies earlier this year, a company that specializes in Bluethooth technologies. Analysts predict millions of devices could come to the market in the coming years, all requiring Bluetooth enabled chips. The numbers alone are staggering, and could provide further momentum for BRCM in the near-term. BRCM rallied sharply last week after being added to the S&P 500. The stock extended its rally so far this week using its enviable relative strength. BRCM's next level of resistance is just above at $187. Look for an entry point if BRCM clears that level in the coming days. If the stock succumbs to profit taking, look for a bounce off support at $180 or lower at $175. BRCM is quickly approaching split territory yet again. The last time the company split its shares was in January of this year. Given the stock's recent run-up, and the fact that the company received approval from shareholders to double its number of authorized shares at its last meeting, we could get a split announcement in the coming weeks. A stabilized market could increase the probability for a split, we'll monitor the wires closely for a possible announcement. BUY CALL JUL-180*RDU-GP OI=1867 at $18.25 SL=13.00 BUY CALL JUL-185 RDU-GQ OI= 393 at $15.88 SL=11.50 BUY CALL JUL-190 RDU-GR OI=1215 at $13.75 SL=10.00 BUY CALL AUG-185 RDU-HQ OI= 486 at $24.13 SL=17.50 BUY CALL NOV-190 RDU-KR OI= 45 at $38.25 SL=27.75 Picked on June 27th at $182.94 P/E = 388 Change since picked 0.00 52-week high=$253.00 Analysts Ratings 10-11-0-0-0 52-week low =$ 50.75 Last earnings 03/00 est= 0.16 actual= 0.18 Next earnings 07-18 est= 0.17 versus= 0.07 Average Daily Volume = 5.32 mln /charts/charts.asp?symbol=BRCM INKT - Inktomi Corporation $120.69 +5.63 (-19.69 this week) Inktomi develops and markets scalable applications that are core to the Internet infrastructure, enabling end users to easily find information and access it more quickly. Inktomi's software is designed for use by global enterprises, media companies and service providers in the Internet access, backbone, broadband, hosting and content markets. The Inktomi mission is to build scalable software applications that are core to the Internet infrastructure. Its applications fall into two broad categories, network products and portal services. Network products applications consist of the Traffic Server network cache platform, Content Delivery Suite and associated Traffic Server extensions. These products are intended to provide a complete infrastructure solution for the distribution, delivery and management of content and applications. Investors in Inktomi were served a rude awakening on Monday morning when shares of the Internet blue chip gapped open down over 12% or $17.62 and ending the day down over 18% or $25.31 on about four times the average daily volume. This came on the news that Internet leader Yahoo switched from Inktomi for its web searching functions for its Yahoo portal to privately held Google Inc. Yahoo also said it would continue to use Inktomi's search services on corporate systems that use Yahoo as a home page, as well as on Yahoo's own corporate system. And while Yahoo is not Inktomi's largest customer, traders did not care as a rush of selling panic drove the stock down with relentless selling, finding a bottom just above $112. Historically, INKT has found strong support at its 200-dma which currently rests at $108.75. Bounces off and above that level will provide for a good entry point. We believe that Monday's selling was overdone for a number of reasons. First of all, history. Last year, INKT lost Microsoft as a customer and during that time, there was not the same effect to this stock. The company eventually regained Microsoft's business. Even without Yahoo's business Inktomi has over 50% of the search engine market and while losing Yahoo's business will not impact earnings over the next two quarters after which it will lead to a 2-3% decline in earnings. As mentioned, the stock has temporarily found a bottom just above $112 and 200-dma is at $108.75. Today found INKT bouncing up on almost twice the average daily volume confirming our suspicions that this sell-off has been overdone. Overhead there is resistance at $125 and then $130. BUY CALL JUL-115 KYQ-GC OI= 898 at $14.88 SL=11.00 BUY CALL JUL-120*KYQ-GD OI=1566 at $12.50 SL= 9.50 BUY CALL JUL-125 KYQ-GE OI= 571 at $10.13 SL= 8.00 BUY CALL AUG-120 KYQ-HD OI= 103 at $17.38 SL=12.50 SELL PUT JUL-110 KYQ-SB OI=1483 at $6.00 SL= 8.50 (See risks of selling puts in play legend) Picked on June 27th at $120.69 P/E = N/A Change since picked +0.00 52-week high=$241.50 Analysts Ratings 10-6-1-0-0 52-week low =$ 43.69 Last earnings 03/00 est=-0.02 actual= 0.01 Next earnings 07-18 est= 0.02 versus=-0.05 Average Daily Volume = 3.80M /charts/charts.asp?symbol=INKT ************* NEW PUT PLAYS ************* PHCM - Phone.com $68.00 -6.00 (-6.63 this week) Phone.com develops and markets software that enables wireless operators to access the Internet and corporate Intranets. In other words, no matter where you are, Phone.com can help you access the Internet and obtain information on everything from the weather to your favorite sports team via your mobile phone. The company developed much of the technology behind the wireless application protocol (WAP) standard and has quite an impressive list of blue-chip clients. The vast majority PHCM's sales (about 60%) come from maintenance and support. Customers that are licensing its technology include Matsushita, Ericsson, Alcatel, Motorola, Samsung and Siemans. Many stocks in the wireless sector are known for their seesawing behavior with the broader markets. Take for instance PHCM. The share price is having obvious difficulty holding above the pestilent resistance levels. Ever since the devastating March/April correction, it's primarily channeled between $75 and $85. And when it did break through the $85 mark, it couldn't hold the higher share price. That brings us forward to the present. On Friday, PHCM lost its footing even more and fractionally edged under the firm support of $75. This technical snafu caught our attention, but it wasn't enough to persuade OIN to add PHCM to the put list. This week, however, PHCM developed a distinct downtrend. The share price deteriorated further and slid under the $70 mark today on nearly double the normal volume. What's more interesting is that PHCM has received Buy or Strong Buy ratings in recent days and is not responding to the coverage. First on June 22nd, CSFB reiterated a Strong Buy and then the next day Frost Securities came out with a new Buy rating and a $117 price target. The positive recommendations didn't have much of an impact and PHCM continued to be range bound. Today, another Strong Buy rating was tacked onto PHCM. Analyst Peter Friedland at WR Hambrecht initiated the coverage with a $125 price target and positive comments about the company's dominant position licensing QAP gateways to wireless carriers. Nonetheless, PHCM lost $6.00, or 8.1% in active trading today. There is a strong bottom at $60 so even if the heavy sell-off continues in the next few days watch this level carefully. On a successful slide through this barrier, PHCM would likely bounce up from April's bottom of $50. Look for entries on downward moves off $71 and $70, but keep stops in place for protection. A dissenting market resulting from FOMC worries and concerns would of course play into our hands. Nevertheless, expect this to be quick in-and-out action. BUY PUT JUL-75 UGE-SO OI=150 at $11.25 SL=8.25 BUY PUT JUL-70*UGE-SN OI=206 at $ 8.13 SL=5.75 BUY PUT JUL-65 UGE-SM OI= 75 at $ 5.63 SL=3.50 BUY PUT JUL-60 UGE-SL OI=233 at $ 3.75 SL=2.00 Average Daily Volume = 2.57 mln /charts/charts.asp?symbol=PHCM ********************** PLAY OF THE DAY - CALL ********************** BRCD - Brocade Communications $161.88 +2.38 (+5.88 this week) Brocade Communications is a provider of Fibre Channel switching solutions for Storage Area Networks (SANs), which apply the benefits of a networked approach to the connection of computer storage systems and servers. The company's family of SilkWorm switches enables companies to cost-effectively manage growth in their storage capacity requirements and improve the performance between their servers and storage systems. This provides the ability of increasing the size and scope of a company's SAN, while allowing them to operate data-intensive applications, such as data backup and restore, and disaster recovery on the SAN. Most Recent Write-Up As the broader markets continue to meander in advance of the FOMC meeting which began today, BRCD continues to impress. Friday's drop gave us several entry opportunities near $152 as the stock bounced right on the 10-dma. A gradual recovery yesterday, still supported by the 10-dma, got an additional boost from news that the company enhanced its industry-leading Fabric operating system for Storage Area Networks (SANs). The new features include Fabric Watch, which provides a robust platform to simplify SAN management through intelligent monitoring of SAN resources. Another enhancement is Extended Fabrics, which extends SAN to SAN native fibre connectivity from 10 to 100 Kilometers. Today, the company followed up with an end-to-end interoperability program for SANS, called Fabric Aware, which was immediately endorsed by 25 industry partners including EMC, Hewlett-Packard, Sun Microsystems, and VERITAS Software. As if that wasn't enough to get the share price moving, Chase H&Q initiated coverage of the stock with a Buy rating today. Investors took notice, bidding shares higher right from the open, driving the price as high as $165.50 before Fed dread took over and shaved some of the gains from BRCD's share price. Volume was light again today, but it was encouraging to see the stock bounce higher from the $160 level, very close to yesterday's high. Weakness ahead of the Fed's decision on interest rates could provide another entry as the stock bounces at support, first at $160, then at $155. Watch the intraday volume as its trend will likely telegraph the strength of any move, whether up or down. Comments BRCD managed a bounce near the $160 level in midday trading and actually traded up into the close as the broader markets sold off. The stock has remained strong even as some of the blue-chip techs have come under pressure. Tomorrow's Fed decision will be looming over the market so watch how the broader markets trade prior to the 2:15pm EDT announcement. Spreads are wide on these options, so try splitting them and take profits as this market can turn on a dime. BUY CALL JUL-155 UBZ-GK OI=1347 at $15.25 SL=11.75 BUY CALL JUL-160*GUF-GL OI=1575 at $12.00 SL= 9.50 BUY CALL JUL-165 GUF-GM OI= 611 at $ 9.50 SL= 7.00 BUY CALL AUG-165 GUF-HM OI= 182 at $17.88 SL=14.00 SELL PUT JUL-150 UBZ-SJ OI= 208 at $ 5.13 SL= 7.00 (See risks of selling puts in play legend) Picked on June 6th at $138.88 P/E = 726 Change since picked +23.00 52-week high=$185.00 Analysts Ratings 8-4-2-0-0 52-week low =$ 18.75 Last earnings 05/00 est= 0.08 actual= 0.11 Next earnings 08-14 est= 0.13 versus= 0.01 Average Daily Volume = 3.24 mln /charts/charts.asp?symbol=BRCD ************************ COMBOS/SPREADS/STRADDLES ************************ Wall Street Awaits The Big Decision.. Tuesday, June 27 The market ended lower today as investor enthusiasm waned in a late session sell-off. The upcoming decision on interest rates worried blue-chip buyers dropping the Dow 38 points to 10,504. Weakness in semiconductor and biotech stocks pressured the index of technology stocks with the Nasdaq closing down 53 points at 3858. The S&P 500 ended 4 points lower at 1450. Volume on the NYSE reached 1.04 billion shares with advances beating declines 1,664 to 1,269. Trading activity on the Nasdaq hit 1.47 billion shares and declines led advances 2,341 to 1,687. In the bond market, the 30-year Treasury rose 18/32 pushing its yield down to 5.94%. Portfolio plays: Industrial stocks enjoyed a brief morning rally while technology issues consolidated as investors searched for direction ahead of the upcoming interest-rate decision. The FOMC meeting began this morning and with the announcement on rates set for tomorrow, there was little commitment in any of the trading activity. The overnight lending rate is at its highest level in nine years and most analysts believe the Fed will leave the target unchanged at 6.5%. Experts are suggesting the market will focus more on the economic outlook or policy statement rather than the outcome of the federal funds rate. The balance of indicators remain skewed toward increasing inflation and in anticipation of the bearish forecast, traders unloaded all but the most promising positions. Blue-chip cyclical issues helped lead the Dow higher in early trading but biotech, semiconductor, and computer software stocks quickly pulled the Nasdaq into negative territory. In the broad market, chemical, retail, airline, financial and paper companies climbed while utility and oil service issues slumped. Our portfolio has enjoyed a number of positive events in the few days of my absence. The most significant announcements include: Philip Morris (MO), Nabisco Group (NGH), Nabisco Holdings (NA) and RJ Reynolds (RJR) reported Sunday that Philip Morris will acquire Nabisco Holdings for $55 a share, plus the assumption of about $4 billion in debt. Philip Morris plans to combine Nabisco with its Kraft Foods operation, and then seek an initial public offering of nearly 20% of Kraft. After Philip Morris acquires Nabisco Holdings, RJ Reynolds will purchase the remainder of Nabisco Group Holdings for $9.8 billion, or $30 per share. RJ Reynolds will receive about $11.7 billion generated from the sale of Nabisco Group Holding's 80% stake in Nabisco Holdings, but will also assume any liability for tobacco lawsuits aimed at Nabisco. It's a complicated transaction but the end result is that our bullish diagonal spread can now be closed near maximum profit. Johnson & Johnson (JNJ) rallied almost $6 on Monday after Analyst Dave Lothson at PaineWebber upgraded the stock to a "buy" rating. Lothson said the company's opportunity in heart failure therapy beginning in 2002 is a principle reason to own the stock. He also believes the company's earnings growth will outpace the market's, beginning in the third quarter. The move provided an opportunity to roll up and forward to August options in our bullish, diagonal spread. The new position is JAN85C/JUL95C at a cost basis of $8.00, and there is no upside risk in the play. Obviously there have been a number of early-exit and adjustment opportunities for issues that have been active in the last few sessions. While I can not possibly hope to account for all of the portfolio moves, I will list those positions that have made favorable gains or significant losses. Plays that have traded at (or near) our initial profit targets include: Adac Labs (ADAC) AUG17C/JUL20C $2.12 credit Exodus (EXDS) JUL30P/JUL32P $0.12 debit Immunex (IMNX) SEP35C/JUL45C $9.62 credit Int. Silicon (ISSI) OCT25C/JUL35C $9.50 credit Int Bakeries (IBC) OCT12C/JUL15C $3.12 credit Lennox Intl. (LII) SEP12C/SEP10C $2.12 credit Nabisco (NGH) SEP15C/JUN22C $7.25 credit Red Hat (RHAT) SEP30C/JUL30C $2.50 credit The only issue currently on our watch-list is AM/FM (AFM). The stock began to fall last Wednesday and is now trading near our sold strike in the bullish, put-credit spread; JUL60P/JUL65P. Traders who track the issue technically might have exited the long option when the stock broke below the declining 30 dma on increasing volume. A break-even exit would have been easily achieved but we did not have the opportunity to observe the actual prices. The cost to close the spread during today's session fell as low as $1.38 but we are hopeful the underlying stock, and its soon-to-be parent company Clear Channel (CCU), will eventually recover from the recent sell-off. The most interesting activity in the portfolio came from our new calendar spread on General Magic (GMGC). On Friday, the issue gave back a substantial portion of its recent gains to profit-taking and today the stock dropped another $1.06 amid a lack of public news. From a technical viewpoint, the new consolidation should end near $5.50 (18 dma) and that may offer another opportunity to enter the bullish, long-term calendar spread. For the current position adjustments, we will monitor the issue's ability to rebound and move through the most recent resistance level near $8.50-$9.00. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** TMO - Thermo Electron $21.56 *** Corporate Reconstruction! *** Thermo Electron Corporation is a leading provider of analytical and monitoring instruments used in a broad range of applications, from life sciences research to telecommunications to food and beverage production. Thermo Electron reports its business in four segments: Life Sciences, Optical Technologies, Measurement and Control, and Power Generation. The company addresses the biotechnology and pharmaceutical markets, as well as the clinical laboratory and healthcare industries, through its Life Sciences segment. Products within the Optical Technologies segment are used in the scientific instrument, semiconductor, and telecom industries to fabricate, analyze, and implement new materials. The company also provides a range of real-time, on-line sensors, monitors, and control systems in its Measurement and Control segment. The Power Generation segment owns and operates a number of independent electric power-generation facilities, as well as a natural gas gathering, storage, and marketing business. In addition, Thermo Electron serves the healthcare market through a family of medical products, and is a major producer of paper recycling systems and provides fiber-recovery products. Thermo Electron is undergoing a major reorganization that will transform it into one company focused on its core measurement and detection instruments business. The transition involves a number of subsidiary purchases and stock transactions including the acquisition of Thermedics (TMD), which provides numerous unique products such as biomedical devices, security instruments, and equipment that assures the quality of a variety of consumer materials; and Thermo Instrument Systems (TMI), which develops, manufactures, and sells measurement and detection instruments used in virtually every industry to collect and analyze data that provides knowledge for the user. Investors appear to favor the reorganization and this week the stock has rallied above a recent resistance level on increasing volume. Technically the issue has excellent upside potential and based on the small disparity in front-month options, we can participate in the future movement in a relatively conservative manner. PLAY (conservative - bullish/diagonal spread): BUY CALL SEP-20.00 TMO-ID OI=361 A=$2.93 SELL CALL JUL-22.50 TMO-GX OI=25 B=$0.75 INITIAL NET DEBIT TARGET=$2.00 INITIAL TARGET ROI(max)=25% Chart = /charts/charts.asp?symbol=TMO ****************************************************************** NUHC - Nu Horizons Electronics $26.31 *** Big Earnings! *** Nu Horizons Electronics is engaged in the distribution of high technology electronic components. The company is also an export distributor of electronics and a contract assembler of circuit boards and related electromechanical devices for various OEM's. Active and passive components distributed by Nu Horizons include memory chips, microprocessors, digital and linear circuits, microwave, RF and fiber optic components, transistors and diodes, capacitors, resistors and related networks. These products are utilized by the electronics manufacturers including industrial instrumentation, computers and peripheral equipment, consumer electronics, telephone and telecom equipment, satellite, cellular equipment, medical equipment, automotive electronics, and audio and video electronic equipment manufacturers. Nu Horizons Electronics just reported blowout earnings for the quarter with net sales increasing 100% and net income up almost 400%. First quarter revenue was primarily driven by demand in the electronics sectors of their customer base including telecom, datacom, internet accessing equipment, PC's and peripherals and consumer products. Their sales of semiconductors benefited from the combination of a robust chip industry and the execution of a strategy to expand markets through a focus on niche technology products. The Components subsidiary increased sales of passive electronics, such as capacitors, resistors and magnetics, to an expanding base of high profile customers. Based on their record bookings and industry forecasts for sustained growth, Nu Horizons is well positioned to capture additional market share for active and passive electronic components and the CEO is optimistic that their current strategies will allow the company to post excellent sales and earnings growth for the balance of this fiscal year. We simply favor the recent bullish trend and the disparity in option premiums will allow us to speculate on the future of the issue with a low cost position. PLAY (conservative - bullish/calendar spread): BUY CALL OCT-30 NTQ-JF OI=165 A=$2.75 SELL CALL JUL-30 NTQ-GF OI=1331 B=$0.93 INITIAL NET DEBIT TARGET=$1.68-$1.75 TARGET ROI=25% Chart = /charts/charts.asp?symbol=NUHC ****************************************************************** EMLX - Emulex $69.50 *** Reader's Request! *** Emulex Corporation is a designer, developer, and supplier of a broad line of fibre channel host adapters, hubs, ASICs and other software products that enhance access and storage of electronic data and applications. The company's products, which are based on internally developed ASIC technology and are deployable across a variety of heterogeneous network configurations and operating systems, support increasing volumes of stored data. Emulex is also a supplier of some traditional networking products that include printer servers and network access products. Emulex sells its products worldwide to OEMs and end users, as well as through other distribution channels including value-added resellers, systems integrators, and industrial distributors. Emulex appears to be in the early stages of a recovery rally and one of our subscribers was kind enough to point out the bullish activity in the issue. He also requested that we identify some favorable spreads in short-term options and based on the current technical outlook and increased option interest, the easiest way to profit from any future upside movement may involve one of the most common forms of position trading. PLAY (conservative - bullish/diagonal spread): BUY CALL AUG-50 UML-HJ OI=43 A=$22.25 SELL CALL JUL-65 UMQ-GM OI=1025 B=$8.50 INITIAL NET DEBIT TARGET=$13.50 INITIAL TARGET ROI(max)=11% Chart = /charts/charts.asp?symbol=EMLX ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? 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