The Option Investor Newsletter Sunday 07-09-2000 Copyright 2000, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070900_1.html Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 7-7 WE 6-30 WE 6-23 WE 6-16 DOW 10635.98 +188.09 10447.89 + 43.14 10404.75 - 44.55 -164.76 Nasdaq 4023.20 + 57.09 3966.11 +120.77 3845.34 - 15.22 - 14.28 S&P-100 803.00 + 12.75 790.25 + 9.18 781.07 - 7.67 + 9.04 S&P-500 1478.90 + 24.30 1454.60 + 13.12 1441.48 - 22.98 + 7.51 RUT 528.22 + 10.99 517.23 + 6.82 510.41 - 3.33 - 9.32 TRAN 2784.64 +139.27 2645.37 + 14.66 2630.71 - 42.48 -116.98 VIX 21.82 - .44 22.26 - 3.63 25.89 + 2.34 - 1.64 Put/Call .48 .48 .61 .53 ****************************************************************** Summer rally, summer rally, summer rally! If you say it enough will it come true? And the answer is....you decide. The talking heads could not say it enough on Friday and for good reason. After a huge drop on Thursday both major indexes came roaring back after a tame? jobs report. The bullish sentiment may be so rampant that traders could not see the numbers behind the numbers due to the tint of their rose colored glasses. Ask anyone about market direction next week and the odds are they will say up, enthusiastically! It appears that almost all sectors took part in the rally and when you get banks and techs moving in the same direction it can't be all bad. Finally we are going to see some real earnings next week. The last major week of warning season was a killer. Every time traders thought they had digested the most recent confession another one self destructed in their path. The list was long and included companies like CPWR, CA, BMCS, HMN, LZB, DNEX, BRIO, MNTR, NESY, FD, HAUP and on and on. The warnings caused a real scare on Wed/Thr as both indexes appeared to be heading south at a high rate of speed. The warnings on Friday were ignored as market moving events in light of the tame? Non-farm Payroll report. What did move specific sectors on Friday were specific news events including a down grade of YHOO by DB Alex Brown to a "buy" from "strong buy." The analyst said valuations are more important now with advertising rates dropping fast. She said other companies like Lycos and AOL are also in danger of flat revenue growth. With dot.coms dropping like a rock, have you looked at SFE, CMGI or ICGE lately?, the Internet boom is rapidly turning into a bust. Internet stocks are facing a long hot summer that may end up being a dead end trip through death valley. Those that make it past October will be stronger and consolidations are going to be occurring at rapid rate. The analyst said in an interview that as the Internet model matures you would expect a return back to a more realistic PE of 30 instead of the astronomical triple digit numbers of today. Remember PE means price to earnings ratios. YHOO currently has a PE of 563. Using a PE of 30 and 12 month earnings of $.50 would give you a share price of $15.00, not the $116 close today. While I disagree strongly with her forecast of future dot.com values, (heck, I am one!), I do feel there is some irrational exuberance in numbers like the YHOO 563. Where the future values of stocks in a sector where there are 4000 new competitors every day, (really), will finally settle is anybody's guess but both extremes are definitely not on my horizon. I do look at the YHOO PE in amazement. I know profitable dot.coms are rare, heck, I am one of those also, but try offering me even a 100 PE and I will show you a prime example of "sell to soon." This "reality check" by investors is what I think will eventually "mature" the sector. Mature companies like IBM, GE, WMT, INTC, MSFT, in mature sectors have "quarterly profits", measured in billions of dollars each, which is more than the "yearly revenue" of the leading Internet companies. Eventually the Internet sector will conform to the norm but it will be a long and painful process. In the financial world today Merrill Lynch made the news with the possibility of a 2000 person layoff. Normally this is good for stocks since the $150 million savings would increase earnings but after the recent spike in MER there was a sell off at the open and a slight loss for the day. Other brokers fell in sympathy but quickly rallied as well. Actually financials mounted a rally for the week on the prospects that the Fed is finally done raising rates. I might as well quit beating around the bush and bring up the employment report on Friday. On the surface the drop in new jobs to only an increase of +11,000 was pure evidence of a slowing economy. Everybody loved it. The market soared. End of story. Sorry, wrong number. In reality the new jobs number was +206,000 for the private sector. Is it my imagination but isn't that the sector that we are concerned about? If you look behind the numbers you will see that the government laid off -197,000 census workers last month. That makes the net number only +11,000 but you can bet your bippy, (remember that term?) that they will not be laying off 197K more in July. The census has inflated or distorted the numbers for the last three months as they added and now subtracted large numbers of workers. So lets look at the real numbers. Net private sector jobs was +206,000. Average hourly wages increased +.4% in June compared to +.1% in May. The unemployment rate dropped to 4.0%, down from 4.1% in May and only .1% away from the 30 year low set in April. Looks pretty negative to me. Also there is a rumor going around that the jobs number would have been higher if there were trained employees to hire. The job market is very strong for qualified help but that is the catch. At 4% unemployment you are scraping the very bottom of the barrel. I know we have a terrible time getting qualified employees. We placed nine ads in both the local papers last week and we only hired one person this week out of the 20+ we are looking to hire. Several more are in the process but the majority of people applying for even the non-technical positions are not employable. At least not in our office. I am sure the rest of the country is having the same problem. The July employment report will be very interesting. Coming before the August Fed meeting a 3.9% unemployment again will start the entire Fed worry cycle anew. Enough gloom and doom. I like what I am seeing for next week. The Nasdaq sellers tried to take the market down on Thursday along with the Dow and buyers met them head on. We had what I would call an orchestrated market test. With the low volume it does not take many sellers to move the market. If fund managers wanted to test the bottom of the market it would not take much to push the prices around. If you were a fund manager, bullish but skeptical of a possible "summer rally", you could test the bottom, kind of like testing thin ice. Say you had a large position in a dozen tech stocks. To test the market you dump a quantity of sell orders in increasing quantity on the market. If the stocks don't firm at support or you scare other sellers off the fence then there is no bottom and you stay on the sidelines. If a bottom appears, as it did on Thursday, then you can buy back the shares you dumped earlier, possibly at a profit, and then feel more comfortable about adding to previous positions. If you know there is a bottom then wading into murky water is far less risky. This is of course a simplified example of how this happens but you get the point. Again, I like what I see with the exception of the VIX. The Nasdaq closed over 4000 and only -40 points off its recent high. The Dow closed right at the high of its recent down trend channel. Both indexes appear to be poised to breakout. Even the S&P-500 appears poised to breakout over resistance that has held since April at 1485. While I am not a cheerleader for summer rallies I would gladly accept one. Recent history has shown July to be bearish. However we all know that nothing always happens the same. Just because October is normally a bad month... well maybe that is not a good example. Let's try that differently. Just because the last two Julys have had an almost identical -15% drop after expiration Friday does not mean that it will happen this year, does it? In 1999 the Monday after expiration was the 19th. In 1998 it was the 20th. Is this just a coincidence? I think not. However trends change just as quickly as they form. This year we have several things working in our favor. First we have already suffered a severe sell off from the spring highs. After dropping into a bear market, excuse me I don't need any hate mail, a "correction" in March we have struggled with a two steps forward, one step back market to a position of being poised for a breakout. This is good! Two, we are now free of the Fed dread for at least the next several weeks. Well, at least four days, until the PPI next Friday. If the PPI comes in higher than expected the fear of an August rate hike will return immediately. Three, oil prices appear to have peaked after several months of steady increases. The falling oil prices will relieve pressure on many prices and soften the blow from higher interest rates. Four, Dow theory followers are bragging about the rebound in the transports as confirmation of the Dow rally this week. The rebound of course was due to falling oil prices but lets not let that fact get in the way of their bullish view. Five, the term soft landing was used almost as many times as summer rally in the major media. It is again not reality but perception of reality that will govern our markets going forward. If the perception exists that the Fed has engineered a soft landing for the economy and that they are done raising rates then why should we tell them any different? Friday was a good day. The Dow posted the biggest gain since May 30th. The gains were solidly on the back of IBM +3.44, HWP +6.38, INTC +2.69, MSFT +1.06, UTX +1.06 and a monster move by two non-techs, WMT +4.06 and HD +4.00. Financials helped some with C +1.31, JPM +.94, AXP +1.81. I would expect the financials to add more gains next week but there is no trend to confirm the moves on HD and WMT. Actually with the Retail Sales report next Friday we could see a pull back in the retail sector. The tech stalwarts put in a good performance and with earnings coming we could have a good week for them. On the Nasdaq side DELL actually broke out over $50 and almost made the play list this weekend. It did not because they announce in August and typically they lose ground in the prior month. Adding to the Nasdaq gains was CSCO which looks like it is mounting a rebound and ORCL recovered some of its recent loss. With the top five stocks MSFT, INTC, DELL, CSCO and ORCL all showing positive trends the Nasdaq should hold its own for at least a couple days. So here is the skinny. If the Nasdaq can breakout and hold over 4100 that would be a confirmation for many that the rally was real. Same with the Dow if it can hold over 10650 traders would nibble but if it closes over 10750 there could be a flood of money off the sidelines. Our challenge will be the PPI, Retail Sales and Industrial Production reports on Friday. Any big gains early in the week will probably see some profit taking in front of Friday's reports. The CPI follows on Tuesday but is not normally a big mover. The big movers next week will be the arrival of real earnings announcements. Dow component Alcoa (AA) starts the parade on Monday followed by International Paper and YHOO on Tuesday. Thursday Dow components GE and JPM announce. With the downgrade of YHOO on Friday any softness in the numbers after the close on Tuesday will likely be an Internet disaster of titanic proportions. If YHOO beats the street with higher revenue than expected then the Internet sector should breathe a sigh of relief and continue with earnings as usual. I would view any rally next week as a trading rally, not a buy and hold event. Even with the positive points I outlined above I would still be ready to move to the sidelines on or before expiration Friday. Since expiration this July occurs on the farthest possible date, 21st, any "sell the earnings news" event could start before that day. So, trade, profit, enjoy, but keep your eyes on the calendar just in case we get a three-peat of the previous July drops. In case you are wondering, the drop in 1997 started on Thursday, the day before expiration, but only lasted several days and was less than -100 points. (1600 Nasdaq) There was a summer rally in 1997 that added +350 points or +25% to the Nasdaq between June-15th and October-13th. (1400 to 1750) The following week took almost all of it back but that is another story. Summer rallies do occur, just rarely. Last week I mentioned that the VIX was at a three month low of 22.26 and was flashing extreme caution. The wed/thr market drop spiked it back up to almost 25 and neutral but the ensuing rally has pushed it to a new four month low of 21.92. Remember the VIX is seldom wrong and then only by a few days. Below 22 is a warning but under 20 is extreme danger. We have only been there twice in the last year. Nov 19th we hit 19.50 and the other day.....July 16th, 1999 at 17.70. Need I say more? That was a 52 week low. The previous 52 week low? July 20th 1998 at 16.73. We will see if lighting strikes the same place three times in a row. Don't forget the 3-day stock/option seminar in New York starts next Thursday and there are still a few seats available. Instructors include Chris Verhaegh, Steve Rohades and Scott Zimmerman. Traders Corner writer, Mary Redmond, will also be there. See the rest of the schedule below. Also, check out my Options 101 article this week called "Exit Stratagies, Escaping With Profits." Trade smart, sell too soon. Jim Brown Editor ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. 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Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp *************************** OptionInvestor/Optionetics Summer Seminar Series Back by popular demand! *************************** We are proud to announce the summer OptionInvestor & Optionetics seminar schedule featuring options guru, money manager and best selling author George Fontanills. The OptionInvestor/Optionetics Seminar was designed to help you gain the know-how necessary to compete in the marketplace. Over the course of the last 7 years George Fontanills has developed a series of high profit, low risk, low stress trading techniques that will empower you to systematically approach the markets. Learn how to intelligently combine options to maximize profits and minimize risk. Designed to fit the needs of novice and seasoned traders, this workshop and home study course will show you how to use managed risk options strategies in today's highly volatile markets. The seminar and home study course materials include: Delta neutral non directional trading 28 options strategies including Spread Trading, Straddles, Strangles, Condors (low risk trades), Butterflies George Fontanills' "5 Minutes a Day to find a trade" How trade volatile markets 911 Repair Strategies - what to do when a trade goes wrong trade action plan "How to get Started". 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You will receive a $5,000+ value package, but pay only the special price of $2,400 for your tuition. Please reserve your place now to not be disappointed when we sell out. Click here for more info: http://www.OptionInvestor.com/seminar **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** ************** EDITOR'S PLAYS ************** Last weeks plays failed to break the entry point critera due to the market sell off on wed/thr. Patient traders would have avoided any bad plays. By establishing your entry critera in advance you avoid expensive emotional trading. When you wait on the market/stock you will trade less but be more profitable when you do trade. MRVC - MRV Communications Prior week Last week We never got the breakout over $68 and you should not have entered this play. If you were bullish on MRVC there was an incredible entry point on Thursday when it bottomed on support at $55. I would wait on starting a new play on this stock now until we see a breakout over $68. The red candle at the close on Friday was probably only weekend profit taking but we only want to play on obvious strength. By waiting for the breakout we eliminate any more sellers who are now wishing they had sold at $68. JNPR - Juniper Networks Prior week Last week Last week I said we should wait for confirmation of the closing Friday spike and a breakout over $150 as an entry for conservative traders. Neither occured but we are right back at the $150 high and prepared to breakout again. JNPR also gave us a tremendous entry point at $128 when it bounced off support on the Thursday dip. Still, it did not cost us any money to wait. Trading profitable requires discipline. Wait for the breakout and close the position if it falls under $150 again. MSFT - Microsoft Prior week Last week MSFT did not break our $80 entry point until late Thursday. The aggressive traders should be long at this point. The conservative entry point of $82 was broken slightly but fell back. Technically these traders shold be long also. Sentiment however would have prevented me from going long on a summer Friday without a little more confirmation. I still like the play and with earnings over a week away I think we could see a decent move, possibly as high as $89 as long as the market cooperates. I would probably be a seller at $89. We do not want to hold over earnings and we do not want to be the last ones out. New Play ************* TIBX - Tibco Software My only worry about this play is the jinx I am liable to cause by writing about it. This is a killer chart. Nice steady solid move. No real problems. No dips on market weakness. Just a great chart. The problem is waiting to get in. Since the dips have been so small you never know when the next serious dip will occur. I would still take a chance whenever it hits the bottom of the channel. Just wait for it to start moving up again before opening the position. ********** My current positions are still VOD, NOK, MSFT leaps. Boring I know but I have been out of the office on business for most of the last three weeks. I think I have several weeks ahead where I can trade again and I am looking forward to some action. Since I personally am worried about a July repeat I want to be totally in cash by July 20th. I am even going to put stops on my leaps just in case. The plan for the week will be to wait until the east coast lunch lull on Monday and assess the market again. I am in no hurry to trade just to trade. As always, wait for positive stock, sector and market before opening new positions. Good Luck Jim **************** MARKET SENTIMENT **************** From Wall Street To Pamplona By Austin Passamonte The starting gun sounded at 8:30 am EST Friday when the employment report came in astonishingly light. Projected estimates of job growth by the "experts" spanned a gap wide enough to make Evil Knievel in his prime blanch with fear. Apparently the numbers digested well because the market built upward momentum that lasted the entire day. NASDAQ closed above the magical 4,000 mark much to the bulls delight. Speaking of the bulls, did you see them chasing all those short-sellers over there in Pamplona, Spain? Around two dozen were hospitalized (not the bulls), must have been using second-mortgages to short the NASDAQ & Dow at Wednesday's close. All appears well for the start of earnings season. Buyers feel good and money could begin to flow freely. Some technical signals are mixed, clouding the picture. CBOE index option put/call ratios soared even as the markets rallied and VIX dropped near dangerous levels. What gives? Looking into the day's volume we see gamblers eschewing Vegas to load up on deep OTM index puts, taking advantage of low pricing to wager a huge payoff if the markets slide and volatility increases. Math was never my favorite subject but let me see here; the government eliminated 195,000 temporary jobs while the private sector added 206,000 permanent ones. I wonder which included higher wages and greater skilled workers? What might next month's employment numbers resemble absent such an unusually large temp position? We have to ask ourselves this question. The VIX hovering near 20 keeps me leery of any sustained rally. A move above 24 would set the bulls at ease. The other major indicator of concern remains the COT report. As briefly outlined in articles last week, extreme positions held by commercial traders in one direction while opposed by speculators in the opposite cannot last forever. Someone must be right and that is usually the commercial giants. Commercial traders in the S&P 500 futures are usually long or flat. Currently, they hold their widest net-short position in ten years. Meanwhile, speculator positions have increased net-long for seven weeks and counting. The last two times these camps were net extreme was Oct 1999 and Oct 1998. Care to guess who was which? That's right, commercial interest was heavily long as the SPX traded near bottoms of 1250 in '99 and 950 in '98. Speculators were flat to short while media bulls wailed & gnashed their teeth. Would you have liked to buy stocks with both hands either of those two times given the chance again? The SPX rallied from 1250 to 1500 and from 950 to 1400 in short order respectively. Major capitulation occurred all around them as commercials quietly bought everything in sight. Today they hold greater net-short positions than either of those net-long zones percentage wise. Meanwhile, speculators are long and deep. I ask you, based on official stats from the CFTC, who is buying and who is selling to whom today? Long-term, which would you bet your retirement funds on to prevail? I consider it my obligation here in Market Sentiment to remain staunchly objective and present all indications that help you reach conclusions on future market direction. Plainly we have strong cases to build for both. I truly hope you're able to profit wildly as the markets move ahead in each direction over time. Remember, buying calls or puts at the right entries will swell your account in equal measures. MARKET SENTIMENT INDICATORS --------------------------- VIX The CBOE Market Volatility Index measures certain S&P 100 option pricing to determine investor sentiment. Historically, readings near 30 signal possible market bottoms while levels near 20 indicate possible market tops. Thur 7/06 close: 24.2 Fri 7/07 close: 21.82 CBOE Equity Put/Call Ratio The CBOE equity put/call ratio is a contrarian-sentiment indicator. Numbers above .75 are considered bullish, .75 to 40 neutral and bearish below .40 ************************************************************* Tues Thurs Fri Strike/Contracts (7/04) (7/06) ************************************************************* CBOE Total P/C Ratio .48 .56 .48 Equity P/C Ratio .47 .51 .37 Peak Open Interest (OEX) CBOE index put/call ratio is a contrarian-sentiment indicator. Numbers above 1.5 are considered bullish, 1.5 to .75 neutral and bearish if below .75 ************************************************************** Tues Thurs Fri Strike/Contracts (7/04) (7/06) (7/07 ************************************************************** All index options .97 .75 2.35* Bullish OEX Put/Call Ratio .61 .69 1.15*divergence OEX Maximum Open Interest Strikes/Contracts: Puts 770 / 5496 790 / 4989 790/5120 Calls 790 / 6370 790 / 6485 790/6453 Put/Call Ratio 1.37 .86 .79 OEX S/R (Support/Resistance) Ratio Index The OEX S/R ratio is a formula to gauge possible support or resistance based on open-interest disparity. Values above 5 considered excessive. Divergence of numbers may indicate future market direction. OEX Tues Thurs Sat Benchmark: (7/6) (7/8) Overhead Resistance: (830 - 815) 38.41 39.90 41.49 (810 - 790) 4.84 3.27 2.27 OEX Close: 789.92 803.00 Underlying Support: (790 - 770) 2.28 2.28 1.90 (765 - 750) 1.90 3.13 2.21 What the S/R measure indicates: Net open-interest ratios are very high above 810 OEX level while underlying support is comparatively light. The OEX has considerable downside pressure from 810 with little upward support in comparison. A large move in either direction seems favored to the downside. Sustained levels above 810 may be difficult before July option contract expiration 7/21 unless considerable overhead clears. 200 Day Moving Average The 200 DMA is widely considered the major benchmark for critical support in a market. DOW; 10,738 10,481* 10,635* NASDAQ; 3,777 3,960 4,023 NDX; 3,491 3,793 3,842 SPX 1409 1456 1478 OEX 756 789 803 CBOT Commitment Of Traders Report: Friday 6/30 Biweekly COT report discloses positions held by small specs, large specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general public, large specs primarily funds with commercials being financial institutions. Commercials are historically on the correct side of future trend while small specs are not. Extreme divergence between each signals a possible market turn in favor of commercial trader's direction. Large Specs Small Specs Commercials DOW futures Total O/I; 7,161 8,435 28,719 Net contracts; 2,219 short 1,281 short 3,501 long %long/short; 31% short 15% short 12% long NASDAQ 100 Total O/I; 10,771 17,334 89,812 Net contracts; 4,777 long 6,423 long 11,200 short Percent S/L 44% long 37% long 12% short S&P 500 Total O/I; 35,404 215,951 613,538 Net contracts; 840 long 36,659 long 37,498 short Percent S/L; 2% short 17% long 6% short BULLISH SIGNALS The end of earnings warnings The time has come for warnings to fade and profits to appear. Most of the pre-announcements should have trickled out by the end of last week. Interest rates 5.87% on the 30-year Treasury Bond may be signaling the rate fears are over. Fed-Fund futures are pricing a waning chance of one more hike, .25 basis at this time. Corporate Earnings Last quarter earnings expected to be very strong, especially for the tech sector. Major stalwarts in the Dow and NASDAQ begin the three-week session this week. IPO's Some recent IPO's have been met with positive enthusiasm. Index Option put/call ratio Friday's activity showed unusual OTM put volume, suggesting buyers hedging for a market slide. Contrarian nature considers this bullish development. Improving NASDAQ NASDAQ's close above 4,000 is a relief to bulls. Holding above this level will be important going forward from here. ****** BEARISH SIGNALS VIX Friday's close below 22 warns of impending market top danger. Struggling Dow The Dow remains below it's 200 DMA with several components near 52-week lows. Energy Prices Relief may be coming but are still high. It will be difficult to curb inflation with gas and oil prices remaining high. Ultimately, this affects profit margins. August Crude closed $30.28 Thursday amid recent reports of more production. Seasonal energy patterns typically bottom by late summer. COT Report Friday's updated figures show small spec traders heavily long S&P 500 contracts while commercial positions remain at several-year lows, net short. Divergence suggests possible market turn in favor of commercials. Equity Put/Call Ratio Thursday's equity put/call ratio remained below the .40 neutral zone at .37, considered bearish territory. ************** MARKET POSTURE ************** As of Market Close - Sunday, July 9, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,250 10,650 10,635 Neutral 7.09 ** SPX S&P 500 1,420 1,490 1,484 Neutral 7.09 ** OEX S&P 100 750 806 803 Neutral 7.09 ** RUT Russell 2000 455 535 528 Neutral 5.05 NDX NASD 100 3,300 4,000 3,841 Neutral 5.30 MSH High Tech 965 1,030 1,024 Neutral 6.06 XCI Hardware 1,440 1,550 1,529 Neutral 5.30 CWX Software 1,160 1,360 1,257 Neutral 6.06 SOX Semiconductor 1,060 1,300 1,160 Neutral 6.29 NWX Networking 1,095 1,270 1,262 BULLISH 6.02 INX Internet 525 605 525 BEARISH 5.30 BIX Banking 505 600 554 Neutral 7.09 ** XBD Brokerage 450 515 507 Neutral 6.22 IUX Insurance 575 660 644 Neutral 6.20 RLX Retail 810 955 929 Neutral 7.09 ** DRG Drug 345 430 417 Neutral 7.09 ** HCX Healthcare 755 870 854 Neutral 7.09 ** XAL Airline 140 172 167 BULLISH 5.25 OIX Oil & Gas 270 320 294 Neutral 6.30 Posture Alert Economic data was favorable and brought buyers to the table. Preliminary resistance levels were broken, but be careful not to chase overextended stocks. Drugs and Healthcare witnessed profit taking today and did not participate in the rally. Posture changes: Bearish to Neutral (DOW,SPX,OEX,BIX,RLX) Bullish to Neutral (DRG,HCX). Watch bullish levels for trend reversals. ************* SECTOR TRADER ************* Put This on Your Radar By Buzz Lynn Contact Support Internet HOLDRS (HHH, IIH, and IAH) could see some action Wednesday depending on Yahoo's earnings outcome after the bell on Tuesday. What's the ralationship? YHOO has typically had nice pre-earnings runs over the past eight quarters. However, that didn't happen last quarter and it hasn't happened this quarter either - not good news for those playing a past trend. Only this time the focus is on revenue going forward, and not so much on earnings. Part of YHOO's challenge Tuesday will be to overcome the notion that dot com's have exhausted their advertising budgets, a source of revenue that YHOO has come to depend on in order to consistently blow away analysts' estimates. Without significant advertising revenue and a good revenue outlook to match, YHOO could easily come up short of of their typical blowout. The implication would be that if YHOO isn't cutting it, then neither is anyone else, which could drive a few more nails into the general Internet coffin, especially the HHH. If YHOO's outcome is negative, we could then consider going short the HHH. If it's surprisingly positive on big revenue expectations for the next two quarters, the sector could rally and we could go long. Of course, if results are mixed and we see the prospect of continued sideways trading, simultaneously selling puts and calls on the HHH (OTM strangle for our purposes) could be just the ticket. Same with a covered call or calendar spread. All that said, this is NOT a recommendation to do it first thing Monday. Our job is to keep it on our radar for a potential new play in Tuesday's update. Until then, watch and observe along with your regular trades! Here's some other stuff to keep on your radar. IAH had a nice move Friday on high volume. We stopped short of picking it this weekend because no new trend has been established. But Thursday and Friday's gains sure look good. We would add this to our play list on a move over $94 as long as volume accompanied the move. In similar vein, we came close to adding BDH back as a long or straddle play since BDH components (SDLI, GLW, SCMR to name a few) had a nice Friday finish, and are the most likely to offer upside surprises this earnings season. Our entry would be potentially triggered by a strong move over $94. While neither of these are plays yet, they could be on Tuesday. We will watch for a new trend to emerge to confirm the validity of these radar screen bogies. Until we see if the recent market rally can hold its gain, this play list will be thin. The last thing we want to do is go long only to have the NASDAQ roll over at 4100. On a final note, how did you like the new strangles, covered calls, and calendar spreads intoduced last last week on the QQQ? Would you like to see more of those? Would you like those strategies applied to other HOLDRS? Do you want to see just plays? Just technical analysis? Or would you like more analysis on sentiment? We mentioned it last week, but we'll mention it again. Our aim at Sector Trader is to help you trade sectors more profitably without having to be right on just one stock pick. We want to know what you like so far about Sector Trader, or what you'd change. Have a favorite strategy you'd like to share or a question about this section that you'd like anwered? What would help you to trade sectors for better more consistent profits? Send us your comments and questions. We'll do our best Burger King imitation and serve this section up YOUR WAY! Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 96.13 1.81 0.00 -3.88 2.94 1.63 2.50 HHH Internet 105.25 2.00 0.00 -4.13 1.88 -2.75 -3.00 BBH Biotech 197.19 4.50 0.00 5.25 4.50 5.19 19.44 PPH Pharm. 103.50 -0.94 0.00 1.69 -1.88 -1.19 -2.31 TTH Telecom 76.88 1.75 0.00 0.50 -0.63 0.88 2.50 IAH I-net Arch. 92.63 0.94 0.00 -3.38 0.31 3.25 1.12 IIH I-net Infr. 59.31 0.81 0.00 -2.75 0.69 -1.88 -3.13 BHH B2B 39.25 -0.28 0.00 -1.19 -0.81 0.06 -2.22 BDH Broadband 91.38 2.69 0.00 -3.31 -0.06 2.25 1.56 SMH Semicon. 95.25 2.13 0.00 -7.50 3.63 3.00 1.25 RKH Reg. Banks 99.06 3.19 0.00 0.75 0.31 3.06 7.31 UTH Utilities 90.63 0.88 0.00 -0.75 1.31 0.88 2.31 ************** Updates ************** QQQ - NASDAQ 100 $96.13 (+2.50 last week) Ah, can you see the beauty of SELLING time vs. buying time? We had a big move over previous resistance at $95 on Friday, yet $0.25 of time value evaporated from the OTHER guy's acount right into our pocket. Recall that we sold the $90 put and the $95 call in a short strangle for a $5.75 credit. We can now buy the whole position back for $5.50 for a small profit (which could grow larger as the July expiration date approaches) even though we could be called out at our $95 short call position. The objective here is let time value erode and buy the position back cheaper prior to expiration. The risk is that QQQ continues to move up enough or down far enough to have the combined intinsic value of the options exceed our credit. We would then want to close the position or perhaps roll out of the ITM leg. Similar action is required by a calendar spread. But in that situation, you can sider buying back the short current month call instead for a small loss or perhaps a small gain if enough time value has evaporated since the time of sale. In the case of a covered call, you can even consider just letting yourself get called out. Of course that only works if you paid less than $95 for the QQQ shares, but you still got to keep the time premium you originally sold for a profit. OK, so what now? Consider covering your short call postion if QQQ breaks back over $97. That would be a clue that QQQ is on the mend. On the other hand, a dip under $94.50 ($95 if you can handle more risk) could be a signal to short calls again. Want to turbocharge that stangle strategy? Wait for further price drops to support ($92?) before shorting the put. For those just playing QQQ with long calls and puts, it started what looks like could be a rollover at $97. We would have to call it resistance for now, and also a good place to consider put buying. Look for a bounce south of $97 to enter, and watch $95 for possible support. That could be a place to buy calls if QQQ bounces north from there. If not, view any drop under $94.50 as an opportunity to buy puts again. The nearest support then would be around $92. Short Strangle: SELL CALL JUL-95 QVQ-GQ OI= 7424 at $3.63 SELL PUT JUL-90 QVQ-SL OI=39110 at $1.31 Net Credit = $4.94 or greater Stop Loss = $7.00 SELL CALL JUL-97 QVQ-GS OI= 1740 at $2.63 SELL PUT JUL-92 QVQ-SN OI= 8586 at $1.88 Net Credit = $4.51 or greater Stop Loss = $6.50 Covered Call: SELL CALL JUL-96 QVQ-GR OI= 5524 at $3.13 Net Debit = $92.81 or less Calendar Spread: BUY CALL DEC-90 QVQ-LL OI= 1457 at $16.63 SELL CALL JUL-96 QVQ-GR OI= 5524 at $ 3.13 Net Debit = $13.50 or less At Support: BUY CALL JUL-90 QVQ-GL OI= 7701 at $7.00 SL=5.00 BUY CALL JUL-95 QVQ-GQ OI= 7424 at $4.00 SL=2.50 BUY CALL AUG-95 QVQ-HQ OI= 620 at $6.88 SL=4.75 At Resistance: BUY PUT JUL-100 QVO-SV OI= 1621 at $6.13 SL=4.25 BUY PUT JUL- 95 QVQ-SP OI= 4847 at $2.81 SL=1.50 BUY PUT AUG-100 QVO-TV OI= 1438 at $8.50 SL=6.00 Average Daily Volume = 25.3 mln ----- PPH - Pharmaceuticals $103.50 (-2.31 last week) Hmmm. . .well, perhaps we shouldn't be surprised by the pullback in PPH given the strong tech sector recovery, especially in the semiconductor sector from the beating they took last Thursday. Nonetheless, the PPH is need of some medication if it's going to retain a strong heartbeat. We thought about dropping PPH, but decided against it since the NASDAQ (read that tech sector) breakout isn't quite yet confirmed for real. Not only that, but we couldn't boot a sector that had yet to violate its 10-dma, currently at $102.96. A close below that level though would be our cue to exit. As it is now, historical support is at $103.50, the same level as Friday's close. Don't send home the paramedics yet. Other than landing on support, Friday's candlestick is ugly. It's an upside down "T" or doji, which generally represents a weak push up, no support, and lack of buyers on the way back down. A bounce up from here would earn it "keep" status on the list. A descent from here under $102.75 would earn it a "drop". Again, support at $103, resistance at $105, then again at $106.50. A breakthrough at that level would make a great entry as PPH could then continue into blue sky. Watch carefully and execute accordingly. BUY CALL JUL-100 PPH-GT OI= 24 at $4.63 SL=2.75 BUY CALL JUL-105 PPH-GA OI=123 at $1.56 SL=0.75 BUY CALL AUG-105 PPH-HA OI= 28 at $3.50 SL=1.75 SELL PUT JUL-100 PPH-ST OI= 0 at $0.63 SL=1.00, no OI Average Daily Volume = 118 K ----- BBH - Biotech $197.19 (+19.44 last week) Gotta love that jobs report! BBH was the only HOLDR this week showing us a clear directional trend. The trend is up, but that doesn't mean it will last forever. Nothing goes up or down in a straight line, afterall. However Friday's move was significant for a couple of reasons. First, BBH closed fractionally over its then current level or resistance at $196.75. Second, while BBH did back off from its intraday high near $199, it still found intraday support at $196.25. That's darn good considering it started the day off around $192. Anyway, that makes four big up days in a row. Prudence tells us to protect those nice profits with a tightened up stop order (maybe just under support at $195.50 as not to get kicked out on an intraday gyration?). Gunslingers tolerant to bigger risk may want to target shoot at this level or even open a position at Friday's opening price of $192.50. For us who sometimes play it a bit greedy, just be aware that the 5-dma is way back at $187.34, and at some point BBH will have to fall to touch it. Conservative types can target shoot there, but you may not get filled anytime soon. Play it according to your risk profile. If BBH can clear $199, $200 may offer more resistance as a psychological barrier. However, $205 is the next technical and historical level of resistance that BBH will likely encounter. BUY CALL JUL-190 BBH-GR OI= 291 at $13.13 SL= 9.75 BUY CALL JUL-195 BBH-GS OI= 138 at $10.25 SL= 7.25 BUY CALL AUG-195 BBH-HS OI= 31 at $15.00 SL=11.00 BUY CALL AUG-200 BBH-HT OI= 36 at $18.38 SL=13.25 SELL PUT JUL-185 BBH-SQ OI= 37 at $ 3.38 SL=1.75 Average Daily Volume = 605 K ************** Drops ************** IIH - Internet Infrastructure $59.31 (-3.13 last week) we're giving IIH the boot print on the behind for failing to hold at $60 support, let alone move up through esistance at $63. We'll have to wait and see how it sets up following YHOO's earnings report to determine our next play. While IIH could find support at $58, the lower high at $61.50 is not encouraging going forward, and certainly makes for a lousy directional play at this point. We'll step aside with the idea of re-entering when there is a bit more visibility to the whole Internet sector. Average daily volume = 284 K ************** No Play ************** IAH IIH BHH SMH BDH HHH TTH RKH UTH ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ************* COMING EVENTS ************* For the week of July 10, 2000 Monday Consumer Credit May Forecast: $7.5B Previous: $9.3B Tuesday Wholesale Inventories May Forecast: 0.6% Previous: $0.8% Wednesday None Scheduled Thursday Initial Claims 07/08 Forecast: 302K Previous: 296K Export Prices ex-ag. Jun Forecast: N/A Previous: 0.1% Import Prices ex-oil Jun Forecast: N/A Previous: -0.2% Friday Retail Sales Jun Forecast: 0.3% Previous: -0.3% Retail Sales ex-auto Jun Forecast: 0.4% Previous: 0.0% PPI Jun Forecast: 0.6% Previous: 0.0% Core PPI Jun Forecast: 0.1% Previous: 0.1% Industrial Production Jun Forecast: 0.3% Previous: 0.4% Capacity Utilization Jun Forecast: 82.1% Previous: 82.1% Michigan Sentiment Jul Forecast: 106.8 Previous: 106.4 Week of July 17th 07/17 Business Inventories 07/18 CPI 07/18 Core CPI 07/19 Trade Balance 07/20 Housing Starts 07/20 Building Permits 07/20 Initial Claims 07/20 Philadelphia Fed 07/21 Treasury Budget ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter Sunday 07-09-2000 Sunday 2 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070900_2.html ************** TRADERS CORNER ************** How big can a company get? By Mary Redmond In recent years we have seen the growth of many companies' market capitalizations to numbers which were perhaps inconceivable a few years ago. Market capitalization is one of the key factors to consider when evaluating stocks and options. To determine a company's market cap you simply multiply the number of shares by the price of each share. Market cap is important for a number of reasons. It is one of the key criteria institutions and mutual funds use when evaluating a stock. Generally speaking, most large funds are prohibited from buying micro-cap stocks (under $500 million market cap) for a number of reasons. These stocks are not as liquid as larger ones, and a large buy or sell order can cause a huge impact on the share price. Once a company's market cap reaches about $10 billion or more the shares are generally easier to buy and sell. There are other factors to consider. One is the fact that the rate of growth in a stock price usually slows down at a certain point in the company's growth cycle. We have seen many great companies increase their stock price by several hundred percent a year, only to slow down this rate of growth when their market cap reaches a certain size. An example of this might be Dell. Dell was one of the wonder stocks of the 1990's. From 1995 to 1998 Dell's chart was almost vertical. At the end of the fiscal year 1997 the stock price had risen by nearly 140% annually for five years. For the last couple of years, however, the stock's velocity slowed. There are a number of reasons why this can happen. One is the fact that it takes a much larger amount of money flow to increase the price of a mega-market cap company than a small one. In addition, it is easier for a company's trading volume to increase if it only trades one or two million shares per day than if it normally trades twenty or thirty million shares per day. Take a look at some of the stocks which have doubled and tripled this year. Most of them have market caps of under $100 billion. Rambus is an example, as the stock moved from $14.62 in September to over $100, a price at which the market cap was approximately $9 billion. It would be much more difficult for a stock like Cisco, with a market cap of over $430 billion to double or triple in a year. This doesn't mean it can't happen. It just means it is less likely to happen as fast. This fact also applies to movement of the stock indexes. For example, at 10600 the Dow 30 average has a market capitalization of approximately $3.8 trillion. A dollar flowing into the Dow average today has less of an impact on the price of the index than it did when the Dow was 5000. Some market analysts have stated that the huge liquidity flows which have been helping to fuel the bull market may dry up when the baby boom generation retires and stops investing. However, they may be neglecting to consider that the money entering the US markets from foreign investors has been almost as robust as the money coming from the US alone. In the first quarter of this year foreign investors have poured $62,682 billion into the US stock market while redeeming US treasuries. The liquidity and trading opportunities in the US seem to attract investors from all over the world to our markets. Mutual fund inflows are usually slowest from June to October. However, the ipo schedule is usually lighter in the summer months, which can free up funds' cash to be invested in the market. Many market analysts state that one of the reasons the market is usually slower in the summer months is that many businesses have slower cash flow, pay less taxes, and have less money left over to invest in the market. According to AMG Data Services, the four day week ending July 5 showed robust cash flows to equity funds of over $4.9 billion. 64% of the cash went into growth funds. Large cap index funds, treasury bond funds and corporate bond funds experienced a net outflow. The investment company institute reported that retail money market funds experienced a net outflow of $217.2 million last week, and institutional money market funds experienced a net inflow of $12.87 billion. The total amount of cash in money market funds as of June 5 totalled $1.677 trillion. According to Edgar online approximately $2.6 billion in new issues have been priced to hit the market from July 10 to 14. However, underwriters frequently cancel ipos at the last minute so it is not always possible to know how many ipos will start trading in a particular week. The pattern in ipo trading over the last few weeks seems to have been one of increased selectivity in the institutional and retail interest. Fewer ipos are being priced than during the peak periods of last year. However, there is a liquid market for certain new issues, as we saw an excellent gain in first day trading of certain ipos in the last few weeks. This pattern may be beneficial to the markets this year, as a very heavy ipo schedule can drain too much cash from the markets, and exert downward pressure when the lockup periods expire. Contact Support ****** Touché-Pronounced Two-Shay By Lynda Schuepp After spending the last week with my daughter at the Fencing Nationals held in Austin, I had a lot of time to "think" about trading and how similar it is to fencing. My days consisted of standing around the convention center waiting for long periods of time for events to begin, watching lessons that were squeezed in between bouts and then running back and forth between strips to watch two key events that were scheduled to run at the same time. It is uncanny how similar fencing is to trading. With trading, I usually wait and wait for the market to give me an entry/exit signal, spend my time reading to learn new twists on timing and then boom-everything you're watching pops at once and you're a trying to juggle multiple charts with various time frames to monitor your multiple positions. As I've written before, I am using summer vacation strategies. I trade intra-day on rainy days when I'm home; otherwise, I am using longer-term strategies. Most of my positions are in leap spreads that I can check once a week and about 10% of my positions are in some short-term (1-3 weeks) positions. The two short-term positions I had this past week were my OEX positions and my naked puts in Triquent Semiconductor (TQNT). I haven't been doing naked puts since the recent burning or should I say correction. Anyway, since the lows of March, April and May, I have been a little less eager to sell naked puts. After all, you shouldn't fight the trend. But I feel the market is turning back, ever so slowly. I like TQNT, because I feel it is a good strong stock with real earnings and very little debt and is splitting on July 12th. There was a lot of support at 100 so I sold the July 100 puts, anticipating the stock would close above 100 in a split run. See 60 minute Chart of TQNT below: As you can see from the chart, TQNT is a very volatile stock; hence the very hefty option premiums. TQNT had come down and hit the 100 again, so I sold the "at-the money" July 100 puts for 9 points with 3 weeks to expiration and a split coming up on July 12th. I'm a little more conservative than Jim, who probably would have sold the 120's. I went with the "at-the-money" options which have the highest time value, because there is no intrinsic value. Since 90 was a previous level of support/resistance, I decided that if TQNT dropped to 90, my plan was to short the stock. I could short the stock but I would have my short put to cover the stock. This concept is called a covered put and might be new to some of you, so let me explain. I received 9 points of premium for the July 100 put I sold. If the stock were "put" to me, I would have to buy the stock at 100. I could in turn, use that stock to cover my short position. Let me give you an example using some numbers. If TQNT dropped to 90, I would first short the stock and let's assume I could get filled at 89 3/4. Let's say the stock drops further to 80 at expiration and the stock is put to me (my naked 100 put). I would have to buy the stock at 100 but I could turn around and cover my short of 89-3/4. Instead of losing 11 points (100 strike less 80 current price of stock + 9 for put sold) I would only lose 1-3/4 points. Let's run the numbers and see where we'd be in this position that had gone sour. Short Stock @ 89-3/4 is a plus of 89-1/4 Short Put @ 9 is a plus of 9 Buy Stock that was put to you @ 100 (strike price) Maximum Net Loss is 1-3/4 Now that was the plan, but I got caught up in a fencing bout around the close of the market and didn't initiate my short on July 5th. I figured and prayed TQNT wouldn't tank so I could short it at the open but the next day, TQNT gapped open at 91, so I thought I was safe and didn't check it at all that day (dumb on a stock like this, but my priorities were for my daughter's competition. July 6th was the day my daughter was to compete in her first national competition, so needless to say, I was a little distracted. I got three lucky breaks--the first was that my short was not executed at the close on the 5th, the second was the gap up on the 6th and the third was that the stock continued to run up to close at 97-1/4. I was now back in the money, with the stock headed back up. I returned home Friday just before the close only to find it up over 100-phew! Sometimes it's better to be lucky than smart. My second short-term play was my options on the OEX-See 10 min Chart below: On June 28th the OEX had tanked but appeared to put in a bottom at 782. This is 2 points above a very key support level of 780. As I mentioned before, I am basically bullish about the near-term future, so this was my excuse to go long. I bought 10 contracts of the July 790 calls for 13-1/2. My plan was to exit if the OEX CLOSED below 778 (2 points below the 780 key level) or my option lost 50% of it's value. My upside exit was set tentatively at 20-1/4 or 50% profit, which I guestimated the OEX would have to go to 800, another very key level. My order was no sooner filled when the OEX dropped to 778. Good thing I wasn't watching minute by minute or I might have been tempted to do a disengage (fencing term, meaning retreat). The OEX traded within a narrow range for the rest of the day and closed above my exit point. The next day, the OEX gapped down and traded in a very narrow range forming a symmetrical triangle. Vix was low so options were pretty cheap. I decided to buy some puts at the top of the triangle late in the day for 12-3/4 (see chart). I bought the 780 puts but watched them closely and kept a tight stop (break-out of triangle) because I was more bullish than bearish. I was only planning to pick up some spare change intra-day (1-2 points to the downside). The OEX headed back down to 779 and I put in an order to sell at 14, but I was too greedy and didn't get filled. The OEX then turned back around and ran up and broke through the triangle so I got out at 12 for a loss of 3/4 of a point. My 790 calls were now back to being profitable. The OEX traded as high at 796 the next day and my call options got as high as 19-1/4 where they closed. The next day, July 4th, I was on a plane headed to Austin. The next day went back down to test the 780 level but held above my stop (778 close). I wasn't watching the market but gave my broker instructions since I was tied up all day at fencing matches. Thursday the OEX went down to touch the key level of 780 and turned around back up and never looked back. Friday, I boarded a plane at 6:30 AM to return home. I checked on the prices when I changed planes and everything was looking very good. I decided I would take my profits near the end of the day, when I got home even if my target wasn't reached because time erosion over the weekend could deteriorate my gain. When I got home, I checked the chart and watched the OEX continue to rise. It was now 3 o'clock so I decided to hold on until the first sign of weakness or near the close, which ever came first. At 3:10 a Doji candlestick pattern was formed at the top. Doji's at the top are much more reliable at tops than bottoms, but I waited for confirmation. The next candle was my bearish confirmation, so I sold my calls and got 22-1/2. So as they say in the fencing strips-TOUCHÉ! Contact Support ****** Come What May... By Molly Evans The last time you heard from me, I was talking bear. Sure enough and true to market form, the Nas bull bucked me right out of my seat. The composite advanced 115 points in the next two pre- holiday sessions. The sellers showed up Wednesday to take the Nasdaq down 97 points and then Thursday and Friday, the bulls battled back to allow the Nasdaq to finish up 57 points for the week. Even better than that was the Dow pushing over its 50 day ma and breaking its downward trendline. The Dow finished up 1.8% on the week but is still down 8.1% for the year while the Nasdaq was up 1.4% on the week and now is down just 1.1% on the year. Will it hold? This is the question I've been obsessed with. Like so many other small traders and investors, I don't want to be swept up in the tide of enthusiasm and miss the cracks in the underlying foundation. In all my research for clues and evidence I've come to at least one realism: market opinions are as plentiful as the granules of sand on a beach. I could show you "evidence" that would make you immediately go to 100% cash for the next two years. I read these opinions, turn a critical eye to look at their arguments and statistics and am inclined to agree. On to the next site, journal or book and I find the opposite stance. Maria Bartiromo was talking about cash flow coming into the mutual funds again yesterday on CNBC. I watched block trades go by all week, big ones, the big boys are playing and the breadth does seem to be improving. So, my conclusion? No conclusion. The markets seem to be at a critical juncture here. The chart patterns suggest that the markets want to breakout to higher ground but I then think about the VIX, the FED, earnings warnings, inflation, smart money index charts, and how the market just doesn't behave like we think it will. These are the days that I think a day trader has the best idea. Play what is handed to you for the day and take your money off the table before the closing bell. Yet, if that were easy . . . yes, everyone would do it. I've been looking at the TRIN lately. Also known as the ARMS Index, the TRIN, is a indicator for measuring overbought and oversold conditions secondary to emotional extremes. The TRIN is derived by taking advancing issues over declining issues and comparing it to the advancing volume over the declining volume. Advancing Issues Advancing Volume TRIN = Declining Issues X Declining Volume The TRIN value equals one (1) when the advancing issues move proportionately with the advancing volume and when the decliners move in proportion with the declining volume. A TRIN value below 1 is bullish and above 1 is considered bearish. As the TRIN deviates from 1 in either way, it shows which animal is in force, the bull or the bear. If the TRIN is dropping, the bulls are getting more optimistic as prices and volume are increasing. I've been looking at key market days, trying to correlate patterns within the TRIN to market movements. Sometimes there is a definite correlation and sometimes there isn't. I would surmise that this is related to news events that strike the market with surprise. I'll keep you abreast of any earth shattering findings. I have noticed that Thursday and Friday's "candles" of TRIN readings form a pattern that in the past has precluded nice gaps up. I have nothing scientific on it at this point and can't prove it but I'm still looking. Friday's TRIN value closed at .72. The VIX sitting on 21.82 reflects a bit of optimism. As you all know, the VIX is a contrarian indicator measuring the implied volatility of several strikes on OEX options. The common saying goes, "When the VIX is low it's time to go and when the VIX is high, it's time to buy." When the Nasdaq was busy making its parabolic move in the fall the VIX was pretty inverse with the flight of the composite. Now it's in the low 20s again, signaling over enthusiasm. The VIX can remain low like this but if you throw bollinger bands around the trend, you see that it perhaps wouldn't be a bad idea to take profits if they're there. Actually, taking the profits is never a bad idea. One can certainly get very bogged down trying to weed through all the market information and opinions. When you're following it each day and trying to guess which way it's going to go so you can best position yourself, you're going to get very frustrated. I'm the poster child for that. Should I buy calls? Should I buy puts? Should I just hold this stock and sell covered calls? When should I sell the calls? The market is falling down as I'm looking at it, should I hurry up and sell them before it really tanks or should I wait for the bounce and sell the volatility? The market is up now, should I position myself for a breakout or should I sell everything I have right now and sit and watch? My position is down now, but I still think it's the right position, I just didn't get in at the very best entry. How much further do I have to go in the hole before I see this trade has gone decisively against me? This position is a winner. Let my winners run. Oh, it's rolling over? Should I give it some room to let it do as it will or should I get the heck out because there is something going on that I'm not aware yet? Does everyone go through this everyday? Are we crazy? A friend wrote in a story of how he had defeated a chess wizard at his own game by simply allowing the pro to beat himself. His moral of the story was that he had reasoned that one who wraps himself all up in the cobweb of information and study just might be getting all tangled up in it and not seeing the task at hand. In our situation, that is to make money. We buy what is going up, sell what is going down, walk away from a trade that is not working to minimize the losses and let the market tell us what it is going to do. It sounds so simple. I was reminded of a friend who returned over 2000% last year. Yes, you read that right. He's our legend. He doesn't give two cents to what the broader market is doing usually, he doesn't worry about how the session after options expiry historically plays out or if the Fed will raise rates again. He simply plays the heck out of one or two stocks that have a history of earnings runs or some other driving force to propel it forward. He buys deep in the money calls, adds to it on pullbacks to a trend line and is long gone before the stock ever thinks about rolling over. The guy is a candlestick genius and has an uncanny sense for when to get in and when to get out. He sticks to his plan and he doesn't force a trade. He's the one who waits until there is money lying over there in the corner and he just goes and picks it up. My friend then had pointed out that anyone who didn't know a thing about options could have just bought OIN's recommendations on BRCD, BRCM, TIBX, RBAK, JNPR, SDLI and bought the calls OIN recommended at the highest price the day after the recommendation, and still be up very nicely on the year. He's right about that too. Maybe we should just get on to the recommendations from here. Good luck! Contact Support ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** ****** Exit Strategies, Escaping with Profits By Jim Brown No, this is not an article on Sell Too Soon. I just wanted to put all your minds at ease that I was not going to try to twist your arm to sell those winners, while they were still winners. I am going to try to broaden your horizons with some types of exits that will add to your profits and reduce your losses. With that aim, I have to build from a common base and move into the more exotic stuff. So bear with me. STOP LOSSES It would be really nice if we never needed to discuss this topic but we all know that Murphy's Law is alive and well. Before you enter a trade, you should always know how much you are willing to lose. I said LOSE. I know from experience that most will enter a $6 option with the idea that you will sell if it hits $10 or $4. Profit and loss. Now in reality the closer the price gets to either number human nature takes over and we start changing the plan. On the loss side, the closer it gets to $4 the more you will start rationalizing that the stock chart looks like a bottom is forming. I will sell it when it gets to $3.00. It had to be just a large block order. The drop is market related. I will sell it when it gets to $2.50. The earnings's warning was from another company. It will bounce soon. I will sell it when it gets to $2.00. It has to come back up. I will sell it when it gets to $1.00. Why did the jobs report impact my stock. I wish it would go back up so I could get $1.00 for it. Lose means sell for a loss. Not hold for a loss. Before a $6 option can sell for $2 it has to sell for $5, and $4 etc. The trend is going against you and yet for some reason we always convince ourselves that it is just temporary. Once you understand the following principle and act on it, selling for a loss will be a lot easier. Here is the principle: You can buy it back. When you are in the trade you cannot think clearly and objectively. Maybe you are that one individual that can always do this but I have never met anyone that does. We all know that when a trade is going against us, the minute we sell for a loss is the minute the stock will rebound like a rocket. This keeps us from exercising rational judgement and closing the trade. In reality this is always made worse by our procrastination to sell in the first place. If we had sold that option at $4.50, we would not have had the problem of rationalizing a sell for a bigger loss at $3. If we are in a trade and we researched every conceivable way before making the trade and the trade goes against us then the answer that should instantly pop into our minds is: OOPS! That was not the entry point! I will sell it and wait for a better entry point. If we had that attitude then everything else in trading would be easy. Instead, we all take the position that "It will come back" and our fate is sealed. We agonize over every .25 drop in the stock and corresponding drop in the option. We are totally focused on this position and are missing other winning plays because we are trying to "hope it back up." Think about it. If you liked the stock/option at $6.00 you should really like it at $2.00. If you had sold it at $4.00 and the stock was bouncing then you would love to be back in at $2.00. The essential point here is the decision you make to get back in. If you had not made the first trade, WOULD YOU BUY THIS OPTION ON THIS STOCK AT THIS TIME AT THIS PRICE? This should be an entirely different decision. Not one based on a previous play. Many times traders will jump right back into the fire they just escaped from simply because they felt the first loss was just a mistake. MAKE SURE THE SECOND BUY IS BASED ON SOUND REASONS. Types of stop losses: When you enter the first trade, you should know exactly where your loss exit will be. This number can either be based on the option price or the stock price. There are pros and cons to both. Basically, the option price is loosely tied to the stock price. Depending on the time remaining and the ITM/OTM depth of the strike price the option price can move more OR less than the stock price. Stops based on Option Price: By setting a stop loss based on the option price you are not filled until the option price actually hits that price. Sometimes the stock can be moving so fast that the option price lags the actual stock move. By the time the option prices hits your stop and then you get executed it could be much lower than you expected. When stocks are moving rapidly the spread between bid and ask on options widens. Stops based on the Stock Price: Recently another way of setting stop losses has been developed. That is setting the stop loss or sell order based on the stock price. I believe this way has merits for many situations. If you are setting stops that are very close to the current option price then you should use the option price method. Let's say you bought a $6 option that is trading for $10 and you want to set a profit stop loss at $9.50. When the bid hits $9.50 your order turns into a market order instantly and you execute at or close to $9.50. Stops based on the stock price are better utilized as catastrophe insurance. If your $6 option was trading at $10 and you wanted to protect yourself against intraday spikes in the option price due to order volume or small swings in the stock price then you could use a stock price stop. If the stock price was $150 you could enter the order to sell your option if the stock price touches $144.75. It would take a full $5.25 downward move in the stock price to execute your sell but you would be protected against a major disaster. The example is extreme but I think you get the idea. I like the stock price concept since the stock price is what drives the option price. If some event caused a quick drop in the stock price your order could be executed before the option price had a chance to fully equalize and possibly get you out quicker and for a higher sell. The only broker I know that offers this option is Preferred Capital. Trailing Stops: A wise way to use stop losses is to follow your option price upward with a trailing stop loss. This prevents you from losing all the profits you have gained to that point. If your $6 option is now trading for $10, and you would rather not take the 66% profit then set a stop loss for $7.75. I never use an even number. If you watch the bid and ask on active stocks like QCOM or JDSU then you will see the market maker adjust the bid from a 1/4 or 3/8 to 13/16 or 15/16. He will not go to the even number. Retail investors tend to set even numbers as limit sell stops and by stopping the bid on the even dollar number he will get a flood of sell orders. By setting the bid, just under the even dollar amounts he has time to survey the order flow and decide where to go next. Options market makers however seem to like even numbers. If the stock is falling they will tend to react to the next even number for the option price. Setting your trailing stop at the $x.75 level may keep you from being stopped out by an intraday spike. It has saved me on numerous occasions. Selling for a Profit: Now that we got the stop loss discussion out of the way, we can move into the more enjoyable side of selling. Selling for a profit. There are many ways to do this but first consider trailing stops as your first line of defense. The best offense is a limit sell for a predetermined amount. If you are happy with a 66% profit then place a $9.88 limit sell for your $6.00 option once your order is executed. You will have a much better chance of being filled if you use the same logic on profit sell orders as you do on stop losses. That is don't place even number orders. The best number is probably $x.75. It allows the market maker to set the ask for the even number and then creep the bid to take you out at the same time. Obviously you need to take into account the normal bid/ask spread on the option first. If you are playing QCOM options the bid/ask spread could be $2 but an AOL spread could be only 1/8. Once you set your limit sell you can become the market at any time. If the stock moves quickly and the order flow is thin then the market maker may not want to cover you and the next "market" buy order that comes in can take you out even when the posted prices are different. This should not happen in an electronic market but it does. Whenever humans are involved human nature plays a big part in execution. Set a sell immediately after you buy! What to sell for? I will not go into the different rationales for when to sell but you know my thoughts. I like to take a profit over and over instead of trying to make a homerun on every play. I feel like the longer you have an open position the more chances of a market event turning your profit into a loss. With a $10,000 account, if you took a 25% profit once every two weeks for a year you would have $62,500 profit without the benefits of compounding. Read that again. If you never invested more than $10,000 total at one time, and only closed the trade once every two weeks, you could make over $62,500 in one year. Granted, some positions will lose money but even if you are in the market you will also have many positions that will make more than 25% due to news events or gap opens. I estimate that a trader who will follow instructions EXACTLY can net $50,000 on a $10,000 account every year without fail. Notice I said follows instructions EXACTLY. Different personalities of course will want to risk larger losses for the possibilities of larger profits. That is your choice. Just don't bad mouth options trading if you get your account cleaned from time to time. Types of Closes: The simple way out is of course to sell your entire position at once when your profit target is reached. Too simple? Too limiting? Not enough upside? Not everyone likes coffee either. Optional exits include selling only a portion of your position at predetermined exits. This allows for greater profits on the remaining contracts while locking in a minimal return on the early contracts. Lets say you bought 20 contracts at $4.00 and sold 5 contracts at +50%, 5 contracts at +75%, 5 contracts at +100% and 5 contracts at +150%. Your total profit would be 7,500 and you would have only $1,500 at risk after the first ten contracts are sold. 20 x $4.00 = $8,000 5 x $6.00 = $3,000 50% 5 x $7.00 = $3,500 75% 5 x $8.00 = $4,000 100% 5 x $10.00= $5,000 150% You can adjust this scenario any way you want. Maybe 10 @ 50% and 10 @ 100%. The downside of course is the length of time in the trade. The first sell may be in only a day or two and the last sell could be two weeks later. My thoughts are always on limiting my time in a trade. The longer you are at risk the better chance of that risk biting you. Of course my trading goals and risk profile is much shorter than 90% of most option traders. If you are committed to holding options rather than trading them then this is a good strategy for reducing your risk. After the first half sell, the trade is almost risk free and you can ride it indefinitely. Now the exciting exits! Exiting on the upside Lets say you have been in a play for some time. Your $6 call option for the $75 strike is now worth $13 and the stock is at $86. You could just sell for the $13 and have a homerun but you feel that even though the stock is looking tired it may still have some room to move. How can you maximize this position? Consider this. Sell the $90 call option to close the play. If the stock is at $86 the $90 option is probably $5 or more depending on the time remaining on the option. By selling a higher priced strike you lower your cost on the play. If you sell the $90 for $5 your $6 option now has a cost basis of $1.00. If the stock finishes under $90 your higher strike expires worthless and you keep the $5.00. If the stock goes over $90 your upside on the $75 call is now limited to $15 (the difference between $75-$90) but you made $5 on the higher call. At expiration you exercise your $75 call to cover the $90 call you sold. The net to you is $20. This type of play should be used on tired stocks that may have peaked and you expect them to finish around the strike price you sold. The risk is having to hold the $75 call longer to remain covered on the $90 call. Of course, you could close both positions at any time the stock price started falling. You should still be profitable on both since the OTM $90 call will decay faster than the ITM call. Exiting on the downside Yes, it happens. You did not sell when it hit your stop loss. Now you are wishing you had sold but the stock just does not want to cooperate. Your $75 call for $6 is now only worth $.50 and the stock price is $72 and dropping. How can you salvage some capital? Consider this: Sell the $70 call for $3.00 using your worthless $75 call for collateral (margin). If the stock price is $72 but sliding then the ITM call for $3.00 is soon to be out of the money and worthless also. You recover $3 of your investment in the $75 call. If the stock continues to less than $70 then both options will expire worthless and you keep the $3 or half of your starting investment. Your risk is that the stock will have a miraculous recovery and bounce off $70 and move up again. This is good news! You should close the position on the call you sold when it passes what you received for it. The good news is that your previously worthless call is now appreciating in value and the play you started with is alive again. If you did not cover in time the most you could be out is $2.00 even if the stock went to $100. That is the difference between $70 and $75 ($5) minus the $3 you received as premium. The way to avoid this is to maintain a buy to close stop loss of say $4.00. Your total out of pocket would be $1.00 and you are still long an appreciating $75 option. Conclusion: It is always better to manage profitable positions than losing positions. Be proactive on the profit side and totally inflexible on the down side. Set your stops and take small losses. Jim Brown Editor ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* SEBL - Siebel Systems $170.94 (+7.38 last week) See details in sector list Put Play of the Day: ******************** LCOS - Lycos, Inc. $49.25 (-4.75 last week) See details in sector list **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** ************* DAILY RESULTS ************* Index Last Week Dow 10635.98 188.09 Nasdaq 4023.20 57.09 $OEX 803.00 12.75 $SPX 1478.90 24.30 $RUT 528.22 10.99 $TRAN 2784.64 139.27 $VIX 21.82 -0.44 Calls TIBX 115.25 8.03 Still running, institutions chasing SEBL 170.94 7.38 Signing one major contract after another CIEN 171.88 5.19 Potential for better-than-expected profits COHR 88.88 5.00 New, the beat goes on! MUSE 169.06 3.56 New, beautiful stairstep pattern ISSX 102.00 3.31 Earnings are expected on July 18th RSAS 72.50 3.25 Companies lining up for their security NT 71.63 3.03 Not quite a breakout but new highs AGIL 73.50 2.81 Technical breakout and positive sentiment BRCD 185.56 2.10 Another week & the story remains the same MSFT 82.00 2.00 Moving on up with increasing volume JNPR 147.31 1.75 Waiting for a breakout over $150 DNA 173.00 1.00 New, looks poised for earnings run KANA 60.94 -0.94 Steady-building momentum run GSPN 119.56 -2.50 It may have been sideways but not boring JPM 117.88 -3.50 Earnings Thursday BEFORE the bell PRSF 59.75 -4.13 Successful retest and looking up ARBA 93.38 -4.66 Dropped, relative weakness and concerns GLW 256.69 -8.69 In both long- and short-haul markets Puts LCOS 49.25 -4.75 Negative comments about internet portals CMGI 41.25 -4.56 New, cash-strapped Internets getting hit PHCM 62.38 -2.75 Drowning in the dark abyss ICIX 28.44 -1.31 Looks like lower margins going forward DD 43.94 0.19 Inflation-friendly news just not enough ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ARBA $93.38 (-4.67) Last week, ARBA ran up on strong volume, driven by a series of positive announcements from the company. The stock looked poised to break up and out; all was looking well. Since then, the news has stopped, and with it the upward momentum. Encountering strong resistance at $100 and failing to break through early in the week, the stock has since moved lower. On Friday, with news from analysts expecting widening losses for ARBA when it reports earnings this coming Wednesday, the stock drifted down in a strong market. In light of the relative weakness of the stock, combined with a violation of the 5 and 10-dma, we are closing this play before the profit-takers arrive in force. PUTS No dropped puts today. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** DNA - Genentech $173.00 (+1.00 last week) Using human genetic information to discover, develop, manufacture and market human pharmaceuticals for significant unmet medical needs is DNA's quest. Thirteen of the currently approved Biotechnology products came as a direct result of the company's science. DNA markets and manufactures 7 of these with the eighth just getting ready to go into production. The products include Rituxan, Activase, Nutropin, NutropinAQ, Nutropin Depot, Protropin, Pulmozyme, and Actimmune. The firm is developing other cancer drugs with ImmunoGen and earns royalties for hepatitis B vaccines, bovine growth hormones, and Humulin (human insulin). Take a strong sector, add in a company with strong revenue growth and actual earnings, and you get the ingredients for a great play. The Biotechs are alive and well, leading the NASDAQ to the top of its recent trading range, and companies like DNA are leading the charge. With earnings rapidly approaching (confirmed for July 17th), the stock looks poised to begin its earnings run. After striking a low near $92 in late May, DNA has been marching higher, giving us a nice pattern of higher lows and higher highs. The stock moves up sharply, consolidates for 4-5 days, and then repeats the process. The past 4 days have built a nice plateau of support near $169, with the 5-dma ($170.81) continuing to provide upward pressure. Look to initiate new positions as the stock bounces again from this level, but keep your eye on the volume. Friday's gain came on rather light volume (roughly two-thirds the ADV), and we will need to see it ramp up again to propel the stock higher. Any broad market weakness could cause an intraday pullback to the next level of support near $160, but we would be hesitant to pull the trigger if the price closes below the 10-dma (currently $162.63). The stock hasn't spent much time below this level since beginning its upward move in late May. If you are more comfortable entering on strength, wait for the buyers to push the price above $178 on strong volume. Announcing the availability of Nutropin Depot, the first long-acting dosage form of recombinant human growth hormone on June 28th was just the catalyst needed to break the stock out of its trading range. Then last Wednesday, DNA's CFO announced three core company growth goals for the next five years. While increasing sales by 20-30% per year, the company's profit margin is seen increasing from 18% to 25%, yielding an increase in earnings of 25% per year. ***July contracts expire in two weeks*** BUY CALL JUL-170 DNA-GZ OI= 40 at $10.25 SL=7.25 BUY CALL JUL-175*DWN-GO OI=505 at $ 8.38 SL=6.00 BUY CALL AUG-175 DWN-HO OI= 60 at $15.38 SL=11.25 BUY CALL AUG-180 DWN-HP OI=115 at $13.38 SL=10.00 BUY CALL SEP-180 DWN-IP OI=259 at $18.88 SL=13.75 SELL PUT JUL-165 DNA-SM OI= 0 at $ 5.25 SL= 7.50 (See risks of selling puts in play legend) Picked on July 9th at $173.00 P/E = N/A Change since picked +0.00 52-week high=$245.00 Analysts Ratings 5-8-4-0-0 52-week low =$ 58.25 Last earnings 04/00 est= 0.26 actual= 0.28 Next earnings 07-17 est= 0.29 versus= 0.28 Average Daily Volume = 1.33 mln COHR - Coherent, Inc. $88.88 (+5.00 last week) Coherent is a global leader in the design, manufacture, and sales of lasers, laser systems, precision optics and related accessories. Founded in 1966, Coherent sells products in over 80 countries and today has 23 production, research, and service facilities worldwide. Coherent is a world leader in the design and manufacture of lasers and systems for commercial, scientific, medical, and telecom markets. Coherent pioneered the development of lasers used in medical applications 30 years ago and remains a global leader and innovator in this market. The beat goes on. Throughout these past couple of weeks of volatile and sideways trading, Coherent has been marching to the beat of its own drummer, drumming up day after day of gains for its stockholders, regardless of the general market. After consolidating in a narrow trading range of about 9 points from $55 to $64 for the first two weeks of June, the stock broke up and out on strong volume. Since then, COHR has been moving upwards day after day with but a couple of down days. Since breaking out of $85, the stock has traded up a steeper upward channel. Currently, the bottom of the range is at $82.88, with the top at $90.88, which also happened to be the high of the day for Friday. Those looking for an entry point will find that for the past three weeks, bounces off the 5-dma, currently at $86, have been good buying opportunities. Short term intraday support is at $84. This would be an excellent entry. Below this, the $80 level is solid support. The next obstacle for COHR will be at $93. Breaking this level the stock will encounter its next level of resistance at the psychological $100 level and from there it is poised to challenge its all-time high. On Wednesday, Coherent entered into a refractive laser distribution agreement with WaveLight Laser Technologies, with the intent to aggressively market laser eye surgery equipment to surgeons. The company also filed with the SEC to sell 3 mln common shares which will add a little under 12% to the current outstanding float. ***July contracts expire in two weeks*** BUY CALL JUL-85 HRQ-GQ OI= 8 at $ 6.75 SL= 4.75 BUY CALL JUL-90 HRQ-GR OI= 51 at $ 3.38 SL= 2.50 BUY CALL JUL-95 HRQ-GS OI= 0 at $ 1.69 SL= 0.75 BUY CALL AUG-90*HRQ-HR OI= 90 at $ 6.88 SL= 5.00 BUY CALL AUG-95 HRQ-HS OI= 96 at $ 5.25 SL= 3.25 SELL PUT JUL-80 HRQ-SP OI= 0 at $ 0.88 SL= 1.50 (See risks of selling puts in play legend) Picked on July 9th at $88.88 P/E = 134 Change since picked +0.00 52-week high=$107.38 Analysts Ratings 1-0-0-0-0 52-week low =$ 14.75 Last earnings 03/00 est= 0.27 actual= 0.31 Next earnings 07-27 est= N/A versus= 0.22 Average Daily Volume = 240 K MUSE - Micromuse $169.06 (+3.59 last week) Making software that monitors and manages the elements of an information technology infrastructure, MUSE sells its products directly and through distribution partners such as Cisco Systems. Its Netcool suite collects and consolidates network data and events. Netcool includes a desktop tool that customizes network information and allows operators to automatically resolve service problems with reporting in multiple formats such as 3-D charts and spreadsheets. Major customers include AOL, Cellular One, and Charles Schwab. Even with the earnings warning from Entrust Technologies (ENTU), Internet software stocks like MUSE have continued to march higher. The intraday chart shows us a beautiful stairstep pattern of higher highs and higher lows over the past 3 weeks as the stock moves back towards its high near $200 from this past March. The 5-dma (currently $161.13) has been providing support throughout this most recent upward move, and it happens to coincide with intraday support between $161-162. Friday's volume topped the ADV by about 20%, and combined with the large gains in the past 3 days, it looks like this may be the beginning of an earnings run as the company's report date (July 19th) approaches. There has been a significant amount of profit built up in MUSE over the past few weeks, and a little profit taking would not be unexpected. If it does occur, look for a bounce at the intraday support levels of $155 or $150. The 10-dma is sitting at $151.50, and a violation of this level would be good cause to stand aside until the uptrend continues. After moving through near-term resistance at $166 on Friday, the next major resistance sits up at $180. Look for new entries as MUSE bounces from support, but confirm the all important volume and market direction before playing. There is little in the way of news on MUSE, which leaves us to focus on the rapidly approaching earnings, confirmed for July 19th after the close. The way volume ramped up over the past couple days leads us to think MUSE could have a nice earnings run over the next 7 days. ***July contracts expire in two weeks*** BUY CALL JUL-165*UZQ-GM OI=24 at $14.88 SL=11.75 BUY CALL JUL-170 UZQ-GP OI=42 at $12.25 SL= 9.25 BUY CALL JUL-175 UZQ-GQ OI=12 at $ 6.75 SL= 4.75 BUY CALL JUL-180 UZQ-GR OI=26 at $ 5.25 SL= 3.25 BUY CALL OCT-180 UZQ-JP OI=25 at $30.00 SL=22.50 SELL PUT JUL-155 UZQ-SK OI= 0 at $ 5.25 SL= 7.50 (See risks of selling puts in play legend) Picked on July 9th at $169.06 P/E = N/A Change since picked +0.00 52-week high=$206.00 Analysts Ratings 9-4-0-0-0 52-week low =$ 20.03 Last earnings 04/00 est= 0.07 actual= 0.08 Next earnings 07-19 est= 0.09 versus= 0.05 Average Daily Volume = 628 K ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 07-09-2000 Sunday 3 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070900_3.html ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** ****************** CURRENT CALL PLAYS ****************** SEBL - Siebel Systems $170.94 (+7.38 last week) Siebel is a leading provider of sales automation and customer service software. Its main product, Siebel Sales Enterprise, offers client information and decision support across a corporation's worldwide computer network. Field personnel can access Siebel applications through wireless devices as well. Glaxo Wellcome, Prudential Insurance, and Lucent are among Siebel's clientele. The Computer Software sector wasn't the best of places to be last week. With the likes of Computer Associates (CA) and BMC Software (BMCS) issuing profit warnings early last week, traders were a bit tepid heading into the weekend. Yet, despite the warnings of weak profits and investor nervousness ahead of a key economic report Friday, SEBL prevailed. Of course, a relative strength rating greater than 97% of its peers certainly helped SEBL triumph over the bears last week. Unlike CA and BMCS, SEBL recognized the coming change in the software business with the advent of the Internet. SEBL shifted its strategy over a year ago to focus on marketing and selling software and services to customers via the Internet. Tom Siebel, Chairman and CEO of SEBL, made the right bet last year, and has been rewarding shareholders ever since. Mr. Siebel's recognition of the shift in the Software sector allowed him to position SEBL as one of the premier Application Service Providers (ASP). The efficiency with which SEBL executes has lead to the company signing one major contract after another. And, it's been that winning of contracts, along with a tame jobs report, that propelled SEBL to an all-time high last Friday. The buyers that we saw late Thursday returned Friday morning to carry SEBL higher. SEBL blasted through resistance at $170, and trended higher near the close of trading. The stock did, however, sell-off in the last half hour of trading in what appeared to be a pre-weekend round of profit taking. SEBL did bounce off the $170 level, which warrants the consideration of an entry at current levels. For those of you looking for a more conservative entry point, wait for the bulls to carry SEBL past resistance at $175, which would position the stock to retest its new 52-week high. SEBL will hold one of its famous eBusiness World 2000 conventions in Boston early next week. The event gives SEBL the opportunity to present in-depth product demonstrations to prospective customers. Given that the conference is held in a financial hub, a few Bostonian financial analysts may show up to the gathering and make their voices heard on Wall Street. ***July contracts expire in two weeks*** BUY CALL JUL-165 SGW-GM OI= 757 at $12.50 SL= 9.25 BUY CALL JUL-170*EZG-GN OI=1119 at $ 9.63 SL= 6.50 BUY CALL JUL-175 EZG-GO OI=2177 at $ 7.25 SL= 5.00 BUY CALL AUG-170 EZG-HN OI= 776 at $19.00 SL=13.75 BUY CALL NOV-175 EZG-KO OI= 390 at $27.63 SL=22.00 SELL PUT JUL-160 SGW-SL OI= 741 at $ 4.25 SL= 6.25 (See risks of selling puts in play legend) Picked on July 6th at $164.38 P/E = 271 Change since picked +6.56 52-week high=$177.06 Analysts Ratings 15-3-0-0-0 52-week low =$ 24.19 Last earnings 03/00 est= 0.14 actual= 0.17 Next earnings 07-21 est= 0.18 versus= 0.12 Average Daily Volume = 4.51 mln GLW - Corning Inc. $256.69 (-8.69 last week) Corning provides communications technology at light speed. The materials pioneer is one of the world's top makers of fiber-optic cable, which it invented more than 20 years ago. Corning's Telecom unit (about 50% of sales) makes optical fiber and cable and photonic components. The company's Advanced Materials unit makes industrial and scientific products, including semiconductor materials. Its Information Display segment makes glass products for TVs, VCRs, and flat-panel displays. The company operates 40 plants in 10 countries. The flailing flame in the fiber optic stocks was re-ignited Friday after Sycamore Networks (SCMR) said it had captured a $430 mln contract to supply optical networking equipment. The announcement from SCMR was the news that the fiber optic stocks needed to revive the group's nearly forgotten momentum. The sign that business is still cooking in the group helped GLW to power higher Friday. And, the revelation that GLW is capturing market share in the local loop of the optical networking market may be the catalyst to carry our play higher in the near-term. It has long been known that GLW is the premier provider of optical cable in long-haul applications. But, GLW has recently received several large orders to provide cable for use in short-haul optical networks. The local loop market for optical cable is surprisingly much larger than the long-haul market. The consensus among analysts is that GLW is positioned to be the premier provider in both long and short-haul markets which could carry our play higher if the contracts continue coming in. While GLW did stage an impressive rally last Friday, the stock had trouble clearing resistance at its 10-dma, currently at $258.19. A move back above the 10-day might catapult GLW past resistance at the $260 level. Consider an entry if the fire in the fiber optic stocks burns brightly Monday morning and carries GLW past $260. If the bears extinguish the flame early next week look for GLW to find support at the $250 level, and consider entry if the stock bounces from that level. The brief bouts of profit taking have proved to be profitable entry points in GLW recently, but before buying on the dip consider your risk tolerance. GLW revised its second quarter earnings upward about a month ago. While investors quickly factored increased profits into the stock, the same investors will anxiously anticipate GLW's official Q2 report which is scheduled for release in two weeks. Building optimism may boost GLW into an earnings run in the coming week and add profits to our play. ***July contracts expire in two weeks*** BUY CALL JUL-250 GRJ-GJ OI=1435 at $15.13 SL=11.00 BUY CALL JUL-260*GRJ-GZ OI=1261 at $10.00 SL= 7.00 BUY CALL JUL-270 GWD-GN OI=2189 at $ 5.88 SL= 4.00 BUY CALL AUG-260 GRJ-HZ OI=2330 at $21.88 SL=15.75 BUY CALL NOV-270 GWD-KN OI= 130 at $36.50 SL=26.50 SELL PUT JUL-240 GRJ-SH OI= 576 at $ 3.75 SL= 5.75 (See risks of selling puts in play legend) Picked on June 6th at $217.25 P/E = 137 Change since picked +39.44 52-week high=$277.88 Analysts Ratings 6-5-0-0-0 52-week low =$ 60.31 Last earnings 04/00 est= 0.55 actual= 0.64 Next earnings 07-24 est= 0.80 versus= 0.49 Average Daily Volume = 2.72 mln CIEN - Ciena Corp $171.88 (+5.19 last week) Ciena makes multiplexing systems that increase the capacity of long-distance fiber-optic telecommunications networks. The company's systems transmit signals simultaneously over the same circuit. Customers such as Sprint, Bell Atlantic, and MCI Worldcom, use its lines for long-distance optical transport and for shorter distances. The company is expanding its product and geographic breadth as it transforms itself from niche market specialist to optical networking supplier. What a difference a weak jobs report makes! The possibility of the Fed engineering a soft landing of the economy spurred the Networking sector into rally mode early Friday morning, with our CIEN leading the charge. The prospects of stabilizing interest rates and a neutral Fed are welcome signs to the cash intensive Telecom sector. After Friday's tame employment report, the consensus on Wall Street expects the Fed to stand pat for the time being, which if it holds, could add a little momentum to our play. While CIEN's second quarter earnings report is more than a month away, many of the company's competitors will announce profits in the next two weeks. Telecom equipment giant LU will be the first company on the earnings dock a week from Monday, followed by networking brethren LVLT and NT shortly thereafter. The potential for better-than-expected profits in the Networking sector might be the ticket to take our play to the next level. After surviving two straight days of relentless profit taking, CIEN went another round with the bears Friday, ultimately winning the fight and bolting back into its month-long upward trend. The stock charged out of the gates Friday morning, and rose steadily throughout the day. The profit takers showed up late to rain on CIEN's parade. If the bears come out punching early Monday morning, look for CIEN to find support just below at $170, and consider entry if the stock reverses from that level. For a more conservative entry, wait for CIEN to clear resistance at $175, and confirm a breakout with healthy volume. Internet Asset Management announced Friday that it had added a new portfolio to its family of funds. The new mutual fund will be called the PEH Fiber Optics fund. The fund will attempt to capitalize on the current boom in the fiber optic business. Not by coincidence, we're trying to do the same thing. The larger positions in the fund include the usual suspects like GLW, JDSU, and SDLI. The fund's manager said that CIEN will be one of the fund's top three initial holdings which should add to CIEN's increasing institutional sponsorship. ***July contracts expire in two weeks*** BUY CALL JUL-165 UEE-GM OI=3862 at $14.75 SL=10.75 BUY CALL JUL-170*UEE-GN OI=3016 at $11.63 SL= 8.50 BUY CALL JUL-175 UEE-GO OI=1232 at $ 8.50 SL= 6.00 BUY CALL AUG-170 UEE-HN OI= 200 at $22.00 SL=16.00 BUY CALL OCT-175 UEE-JO OI=5512 at $30.50 SL=22.00 SELL PUT JUL-160 UEE-SL OI= 378 at $ 4.38 SL= 6.25 (See risks of selling puts in play legend) Picked on July 2nd at $166.69 P/E = 1005 Change since picked +5.19 52-week high=$189.00 Analysts Ratings 12-9-2-0-0 52-week low =$ 29.06 Last earnings 04/00 est= 0.10 actual= 0.12 Next earnings 08-17 est= 0.17 versus= 0.01 Average Daily Volume = 6.03 mln TIBX - TIBCO Software $115.25 (+8.00 last 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%. TIBX is still running. While many B-2-B and Internet stocks alike fell apart Friday after the detrimental downgrade of Yahoo, our TIBX play was unfazed as the stock remained on its track of higher highs. The difference between TIBX and many of its fallen peers is of fundamental concerns. TIBX, unlike many B-2-Bs, is consistently growing its top and bottom-line numbers. The company has charged into the realm of profitability debt free, and has built a handsome cash position along the way. TIBX's CEO, Vivek Ranadive, is considered a genius among analysts and has won the approval of Wall Street. A quick glance over TIBX's chart reveals just how much the professionals approve of TIBX. The stock has more than doubled after rebounding from its lows in late May and has shown few signs of slowing. Like clockwork, TIBX has edged higher in the past month using its 5-dma as support. In fact, the stock has yet to close below its 5-day in the past three weeks which explains TIBX's relative strength rating of 99. We'll look for that impressive strength combined with the company's superior fundamentals to continue to carry our play higher. We've seen few signs of profit taking thus far in our play. If the sellers come out of hiding early next week, use a pullback to the 5-dma, currently at $111.19, for a possible entry. Make sure to wait for the stock to rebound off support before pulling the trigger. A rally above $118 might provide a more conservative entry point for the judicious trader. Monitor TIBX's volume levels closely, confirm rallies with healthy trade to decipher if institutions are still accumulating the stock. According to the most recent numbers, insiders own well over 80% of TIBX's stock, while institutions control around 14%. Early last week, a TIBX director filed to sell nearly $10 mln worth of stock. Investors hardly flinched at the announcement since professionals have been accumulating TIBX recently. Insiders filing to sell sometimes scares traders, especially after a stock has made a prolonged run. That didn't happen with TIBX which bodes well for our play. ***July contracts expire in two weeks*** BUY CALL JUL-110*PIW-GB OI= 26 at $10.75 SL= 8.00 BUY CALL JUL-115 PIW-GC OI= 0 at $ 8.00 SL= 5.75 BUY CALL JUL-120 PIW-GD OI= 17 at $ 5.63 SL= 3.50 BUY CALL AUG-115 PIW-HC OI=135 at $15.63 SL=11.25 BUY CALL NOV-120 PIW-KD OI=168 at $25.00 SL=18.00 SELL PUT JUL-105 PIW-SA OI= 32 at $ 3.00 SL= 5.00 (See risks of selling puts in play legend) Picked on June 27th at $98.94 P/E = 2875 Change since picked +16.31 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= 0.05 versus= -0.01 Average Daily Volume = 1.60 mln PRSF - Portal Software, Inc. $59.75 (-4.13 last week) Portal is building the business infrastructure for the Internet. As the leading provider of customer management and billing software for Internet and emerging, next-generation communications services, their real-time solutions enable service providers to manage customers, support services and collect money. Portal has an unsurpassed track record of helping Internet and next-generation communications service providers around the world to generate more revenue and be more competitive by enabling them to bring new services to market quicker than ever before and by establishing innovative ways of supporting customers' needs. Last week when we handed out report cards for the month of June, PRSF passed with flying colors. And although PRSF is down for the past four trading sessions, the theme this week for the stock can be summed up in one word: retest, a successful one at that. Continuing its pattern of consolidation and breakout, the stock spent the week digesting its breakout above the strong resistance level of $57. The stock found itself revisiting that level when it sold off on Thursday on low volume, in sympathy with the general market. PRSF bounced from $58.13, just above its 10-dma. Closing on Thursday above the 10-dma was a good sign of a recovery and continued consolidation. Looking at the chart, we see the trend continuing where volume is strong on the up moves and light on the down moves. As long as the down moves are accompanied by low volume and the $57 level holds, entry points abound. Bounces above the 10-dma, currently at $58.44 is also another target to shoot for. Overhead, there is now resistance at the 5-dma, currently at $61.50. This is now an important area to break through as Thursday's drop moved the stock below the up-trend line it has been maintaining for the last two weeks of its rally. This level now becomes resistance and was confirmed on Friday when it failed to close above this. Conservative traders will want to wait for the stock to break through before entering. Once through, the stock will be poised to once again challenge resistance at $63. There has been no news this past week and as such, this giant remains sleeping, consolidating before its next move. ***July contracts expire in two weeks*** BUY CALL JUL-55*PUS-GK OI= 240 at $ 6.88 SL= 5.00 BUY CALL JUL-60 PUS-GL OI=1343 at $ 5.00 SL= 3.00 BUY CALL JUL-65 PUS-GM OI=1050 at $ 1.81 SL= 0.75 BUY CALL AUG-65 PUS-HM OI= 56 at $ 5.25 SL= 3.25 SELL PUT JUL-55 PUS-SK OI= 94 at $ 1.63 SL= 3.25 (See risks of selling puts in play legend) Picked on June 29th at $61.00 P/E = 5894 Change since picked -1.25 52-week high= $86.00 Analysts Ratings 7-5-0-0-0 52-week low = $17.13 Last earnings 05/00 est=-0.01 actual= 0.02 Next earnings 08-17 est= 0.01 versus= 0.00 Average Daily Volume = 1.77 mln GSPN - GlobeSpan, Inc. $119.56 (-2.50 last week) GlobeSpan, Inc. is a leading provider of integrated circuit, software, and system designs for digital subscriber line (DSL) applications which enable high-speed data transmission over existing copper wire telephone lines at rates over 100 times faster than today's 56 Kilobit modems. Globespan's business is accelerating communications through high-speed solutions based on DSL technologies. The company's innovations make possible real-time video conferencing, telecommuting, high-speed Internet surfing, and video-on-demand. This may have been a week of sideways movement for GSPN, but it was far from boring. After encountering strong resistance at $128 on a quiet and shortened Monday, the stock set off a fireworks display of its own on Wednesday. GSPN sold off $15.38, or 12.56%, on news of the company detailing plans for a secondary stock offering. GlobeSpan registered with the SEC to sell 8 mln shares, 1.5 mln from the company and 6.5 mln from shareholders, which set of a wave of selling due to worries of dilution. On Thursday, GSPN tested the psychological support level of $100 early in the day, bouncing strongly to close above its 10-dma. Friday was a continuation of that recovery finding a temporary base in the $116-117 area and closing above its 5-dma and 10-dma, currently at $116.87 and $110.69. So after a week of action with GSPN swinging up to $128, then down to $100 and back up again, we find ourselves about where we were last week when we started this play. To be fair to GSPN, the Wednesday sell-off occurred on a strong market downdraft so a portion of it can be attributed to general market weakness. It is encouraging though to see the stock recover strongly when the general market moved up. Looking ahead, the $113 level is an important barometer to GSPN's health. Closes below that level will find support for the stock at the 10-dma, currently $110.69, but those looking for confirmation will want to wait until the stock moves above $113 before entering. Intraday, GSPN has a range of 13-14 points so aggressive traders can profit from the bounces off support and resistance levels. There is overhead resistance at $122.50. Breaking through this level on strong volume will find the stock challenging the resistance at $128. A break through $128 can find the stock moving up quickly to the $135 level with ease. Along with the news of the secondary offering on Wednesday was the completion of GSPN's acquisition of iCompression, Inc. Failure to hold key support levels may mean the end of the earnings run. ***July contracts expire in two weeks*** BUY CALL JUL-115*GHY-GC OI= 696 at $12.25 SL= 9.25 BUY CALL JUL-120 GHY-GD OI= 35 at $ 9.88 SL= 7.50 BUY CALL JUL-125 GHY-GE OI= 15 at $ 7.75 SL= 6.00 BUY CALL AUG-120 GHY-HD OI= 121 at $17.75 SL=13.50 BUY CALL AUG-125 GHY-HE OI= 47 at $15.63 SL=11.25 SELL PUT JUL-110 GHY-SB OI= 41 at $ 4.63 SL= 6.50 (See risks of selling puts in play legend) Picked on July 2nd at $122.06 P/E = N/A Change since picked -2.50 52-week high=$167.00 Analysts Ratings 2-4-0-0-0 52-week low =$ 11.25 Last earnings 03/00 est= 0.01 actual= 0.03 surprise=200% Next earnings 07-31 est= 0.04 versus=-0.14 Average Daily Volume = 1.14 mln BRCD - Brocade Communications $185.56 (+2.09 last 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. Another week and the story remains the same. BRCD continues to march higher with the 10-dma (now at $172.75) providing support. The market weakness on Thursday provided the entry point we were looking for as the stock bounced right at the $170 support level, reversing and heading higher into the close. The strength continued on Friday, with the $180 level providing another entry before investors bid the price as high as $192 before some profit taking at the close. There was nothing significant in the news department last week, but the stock still appears to be benefiting from the positive news of the week before (see below). Networking stocks were strong this week, helping to propel BRCD higher, and Friday's high marked a new all-time high for the stock. The drop at the close looked like simple profit taking, as the stock ended the day at a new closing high, keeping the pattern of higher lows and higher highs intact. A bounce from the $185 level is buyable, but any market weakness could produce a drop to the $180 support level, providing an even better entry. Continuing to be a leader in the industry, BRCD is still riding the wave of enthusiasm created by its Fabric Aware interoperability program for Storage Area Networks (SANs). After virtually all of the major players in this space endorsed this initiative in late June, Chase H&Q added a little extra push by initiating coverage of the stock with a Buy rating. ***July contracts expire in two weeks*** BUY CALL JUL-185 GUF-GQ OI= 659 at $ 8.75 SL=6.00 BUY CALL JUL-190*GUF-GR OI=1961 at $ 6.13 SL=4.00 BUY CALL JUL-195 GUF-GS OI= 641 at $ 4.25 SL=2.50 BUY CALL AUG-190 GUF-HR OI= 482 at $15.00 SL=11.00 BUY CALL AUG-195 GUF-HS OI= 107 at $12.38 SL= 9.25 SELL PUT JUL-175 GUF-SO OI=1052 at $ 2.69 SL= 4.25 (See risks of selling puts in play legend) Picked on June 6th at $138.88 P/E = 804 Change since picked +46.69 52-week high=$192.00 Analysts Ratings 9-5-2-0-0 52-week low =$ 21.75 Last earnings 05/00 est= 0.08 actual= 0.11 Next earnings 08-14 est= 0.13 versus= 0.01 Average Daily Volume = 3.06 mln ISSX - Internet Security Systems $102 (+3.28 last week) Internet Security Systems is a global provider of security management solutions for protecting e-business. The company's Adaptive Security Management approach to information security protects distributed computing environments from attacks, misuse and security policy violations, while ensuring the confidentiality, privacy, integrity and availability of proprietary information. ISSX delivers an end-to-end security management solution through its SAFEsuite security management platform coupled with around-the-clock remote security monitoring through the company's managed security services offerings. Although volume was robust, ISSX had a pretty boring day on Friday. After an opening spike to $104, the stock traded in a very narrow range and ended the session unchanged. Intraday support built all day at $102, and as long as the markets cooperate next week, this level looks like a good point to initiate new positions. With the NASDAQ approaching the top of its recent range, there could be some weakness ahead, and we would look for a pullback to the 10-dma (currently at $94.38) as a good level to target shoot new entries. Just make sure that there is good buying volume supporting the bounce - you don't want to try catching a falling knife. Although it is in a different area, YHOO reports earnings on Tuesday after the close, and this could have a significant impact on technology shares as the July earnings cycle kicks into high gear over the next couple weeks. Speaking of earnings, ISSX is rapidly approaching its own release date, confirmed for July 18th before the opening bell. The earnings warning from Entrust Technologies (ENTU) had a fairly minor impact on the share price of ISSX, which is encouraging. This would seem to indicate that investors are focusing on individual stocks with strong revenue growth rather than throwing the baby out with the bathwater whenever one company in a sector warns of a profit shortfall. Conservative investors will want to let ISSX prove itself before pulling the trigger; a strong move through $105 is what to watch for here. After receiving the Frost & Sullivan Award last week, ISSX got more good news on Monday. Microsoft has licensed key components of ISSX's RealSecure intrusion detection technology for inclusion in its new Internet Security and Acceleration (ISA) Server 2000. This move makes the RealSecure product the leading commercial intrusion detection component embedded within a multi-purpose security server. ***July contracts expire in two weeks*** BUY CALL JUL-100*ISU-GT OI=127 at $ 8.75 SL= 6.25 BUY CALL JUL-105 ISU-GA OI=240 at $ 6.13 SL= 4.00 BUY CALL JUL-110 ISU-GB OI= 65 at $ 4.38 SL= 2.50 BUY CALL AUG-100 ISU-HT OI= 51 at $14.13 SL=10.50 BUY CALL AUG-105 ISU-HA OI= 13 at $11.50 SL= 8.50 SELL PUT JUL- 95 ISU-SS OI= 11 at $ 4.00 SL= 6.00 (See risks of selling puts in play legend) Picked on July 6th at $102.00 P/E = 481 Change since picked +0.00 52-week high=$141.00 Analysts Ratings 7-2-0-0-0 52-week low =$ 20.00 Last earnings 05/00 est= 0.06 actual= 0.07 Next earnings 07-18 est= 0.08 versus= 0.05 Average Daily Volume = 495 K NT - Nortel Networks $71.63 (+2.75 last week) Nortel Networks is a leading global supplier of data and telephony network solutions and services. Covering all the bases, its business consists of the design, development, manufacture, marketing, sale, financing, installation, servicing and support of networks for both carrier and enterprise customers. With a presence in over 150 countries, NT serves local, long-distance, personal communications services and cellular mobile communications companies as well as cable television companies, Internet service providers and utilities. Not quite a breakout, but we did see new highs last week. Recall from last weekend that it looked like NT was poised for a breakout to new highs. Monday's positive market lifted shares of the Canadian networking company above $72, but the ensuing market weakness was too much for the bulls to overcome. NT gradually pulled back before bouncing at the $68 support level early Thursday afternoon. Then it was off to the races as NT ran as high as $72.50 Friday morning, before consolidating its gains ahead of the weekend. Average volume is backing the gradual move higher as the stock uses the 10-dma (currently $69.13) for support. This lines up nicely with support on the chart near $69.50, and we would look for a bounce in this area (market permitting) as a trigger for new entries. We still have a little time to get positioned in the play before earnings, which are confirmed for July 25th after the close. This play doesn't move fast, but it is a steady mover, meaning good entries on pullbacks to support. Wait for the bounce at support before entering the play and don't forget to confirm both strong volume and a positive market Posting another busy week despite the holiday, NT completed its acquisition of Architel Systems on Monday, creating the industry's most comprehensive solutions for enabling service commerce. Then on Wednesday, H&R Block chose NT's eBusiness applications to help with its evolution into a diversified financial services company. Thursday saw Joe Davis join the company as VP and general manager of the Clarify eBusiness Applications division. And finally on Friday, NT signed a contract with Sonera that will bring the first Optical Internet solution based on DWDM (dense wavelength-division multiplexing) technology for long haul networks to Finland and Russia. ***July contracts expire in two weeks*** BUY CALL JUL-65 NTV-GM OI=10075 at $7.50 SL=5.25 BUY CALL JUL-70*NTV-GN OI=10571 at $3.75 SL=2.25 BUY CALL JUL-75 NTV-GO OI= 6894 at $1.38 SL=0.75 BUY CALL AUG-70 NTV-HN OI= 1541 at $6.38 SL=4.25 BUY CALL AUG-75 NTV-HO OI= 2672 at $4.00 SL=2.50 BUY CALL SEP-75 NTV-IO OI= 3599 at $5.25 SL=3.25 Picked on June 15th at $67.00 P/E = N/A Change since picked +4.63 52-week high=$72.50 Analysts Ratings 19-11-3-1-0 52-week low =$19.91 Last earnings 04/00 est= 0.19 actual= 0.23 Next earnings 07-25 est= 0.14 versus= 0.14 Average Daily Volume = 9.87 mln RSAS - RSA Security $72.50 (+3.25 last 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. Prompted by the long list of companies lining up to use RSAS' security solutions, investors seem to be waking up to the value of the stock. Operating in the hot Internet security field, the stock sports an almost laughably low PE of 18, and revenue growth north of 30%. After the abuse meted out to the technology sector this past spring, RSAS found solid ground near $40 in mid-April and has been moving up nicely ever since. The lethargic overall market held the stock below the $65 level until the last week of June. Then, with the rash of positive news announcements over the past 2 weeks, the buyers started to appear, pushing right through and establishing a higher support level at $68. After moving over $74 on Monday, the stock suffered a minor setback with the Entrust Technologies (ENTU) earnings warning on Wednesday. It quickly found its feet again, bouncing right on $68 for a beautiful entry point. The stock then steadily marched up to the $74 level on Friday before giving back a little ahead of the weekend. Intraday support is building at $72, followed by $70. Look for any market weakness to provide a pullback to support and then jump in for a quick run into earnings on Thursday, after the close. This week, RSAS added to the list of companies that have embraced its security software. On Wednesday, Sentillion selected RSAS' products to enable authentication among healthcare applications. Thursday saw Telenisus and CoStar Group come into the RSAS fold, with NetScreen joining in on Friday. With the rate at which the company is adding customers, the future looks bright. ***July contracts expire in two weeks*** BUY CALL JUL-70*QSD-GN OI=519 at $ 6.00 SL=4.00 BUY CALL JUL-75 QSD-GO OI=250 at $ 3.25 SL=1.50 BUY CALL AUG-70 QSD-HN OI= 6 at $ 8.88 SL=6.25 BUY CALL AUG-75 QSD-HO OI= 10 at $ 6.50 SL=4.50 BUY CALL OCT-75 QSD-JO OI=153 at $10.50 SL=7.75 SELL PUT JUL-65 QSD-SM OI=283 at $1.69 SL=3.50 (See risks of selling puts in play legend) Picked on June 27th at $68.38 P/E = 18 Change since picked +4.13 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 = 476 K JPM - JP Morgan & Co $117.88 (+7.75 last week) JPM is a premier international banking firm headquartered in the U.S. It is a holding company for subsidiaries engaged in global banking and investment. They offer services to corporations, institutions, and the very wealthy. The stock's technical bounce off its lows at $110 coupled with the overall strengthening of the financial sector this week prompted us to add JPM as a call on Thursday evening. But, make no mistake here. JPM is a quick get in, grab a profit, and exit before the company reports its earnings play. JP Morgan is announcing its numbers this Thursday, July 13th, BEFORE the market opens. In which case, it leaves a maximum of three more sessions to make our trades. On Thursday, JPM closed above both the 5 & 10-dmas, which provided some confirmation that JPM was technically poised to move higher. However, the Friday's weaker-than-expected employment report was a key variable as it provided an overall lift for the financial sector. Unfortunately, we were correct in our earlier write-up and JPM struggled in the vicinity of $119. The stock hit the ceiling at $119.38, yet persisted and traded at that higher level for much of the day. This in itself is a positive sign. Yet, if you're reserved about playing this financial, especially considering the short-time frame, you may want to wait on the sidelines. Otherwise, look for the volume to remain robust and only jump in after there's a conclusive break on the upside of $119. Other than that, there's some room for JPM to climb before it would face opposition at June 26th's intraday high at $126.69. Wasserstein Perella initiated coverage on JPM with a Buy recommendation on Thursday. No other comments were available. ***July contracts expire in two weeks*** BUY CALL JUL-110 JPM-GB OI= 178 at $9.38 SL=6.25 BUY CALL JUL-115*JPM-GC OI= 523 at $5.75 SL=3.75 BUY CALL JUL-120 JPM-GD OI=1294 at $3.00 SL=1.50 BUY CALL AUG-115 JPM-HC OI= 138 at $8.00 SL=5.75 BUY CALL AUG-120 JPM-HD OI= 215 at $6.13 SL=4.00 Picked on July 6th at $116.94 P/E = 11 Change since picked +0.94 52-week high=$145.38 Analysts Ratings 2-3-7-0-1 52-week low =$104.69 Last earnings 03/00 est= 2.68 actual= 3.37 Next earnings 07-13 est= 2.45 versus= 2.52 Average Daily Volume = 1.37 mln AGIL - Agile Software Co $73.50 (+2.81 last week) Agile develops and markets product content management software, which is software that enables companies to collaborate over the Internet by interactively exchanging information about the manufacture and supply of products and components. Agile's collaborative suite of software products is designed to improve the ability of all members of the manufacturing supply chain. Since their start in 1996, they have licensed their products to approximately 300 customers including Gateway, Texas Instruments, Philips Mobile Computing, Lucent Technologies, Solectron, GE Marquette Medical Systems and FSI International. About 40% of sales come from additional material procurement applications, consulting, implementation, support, and training services. A technical breakout and positive sentiment gave a breath of life to AGIL in late June. From that point on, AGIL's been driven by market conditions and pure trading momentum. After some struggle in the $60 to $64 range the previous week, AGIL once again broke the shackles and resumed its uptrend. In Monday's pre-holiday session, AGIL easily shattered the opposition at the $70 mark, but in hindsight set the stage for tough overhead resistance at $75. Since short-term support also established itself higher at $72 and $73, we now have a tight channel to wrangle. If AGIL moves to the negative in a correction, look to the 10-dma, currently at $68.33, as a warning devise. Examine a daily chart to confirm how this level acted as a safety net in Thursday's early morning sell-off. If you don't want to wait for AGIL to move above $75 before you take an entry, then target shoot the dips near the 5-dma ($72.41) if the bounce is coupled with robust volume - it's been slightly below par this week. New readers, please keep in mind this is a simple momentum play and considered rather HIGH-RISK as it's also connected to the Internet group. In the news this week, Agile announced it will sponsor its first annual Agility in Collaborative Manufacturing Awards ceremony. The event will recognize the best practices in collaborative manufacturing commerce by Agile customers ***July contracts expire in two weeks*** BUY CALL JUL-70*AUG-GN OI=96 at $ 6.75 SL=4.75 BUY CALL JUL-75 AUG-GO OI=83 at $ 3.50 SL=1.75 BUY CALL JUL-80 AUG-GP OI=77 at $ 2.13 SL=1.00 BUY CALL AUG-70 AUG-HN OI= 3 at $10.88 SL=8.25 BUY CALL AUG-75 AUG-HM OI=16 at $ 8.38 SL=5.75 Picked on June 22nd at $63.63 P/E = N/A Change since picked +9.88 52-week high=$112.50 Analysts Ratings 2-7-0-0-0 52-week low =$ 17.13 Last earnings 03/00 est=-0.06 actual=-0.02 Next earnings 08-26 est=-0.04 versus=-0.09 Average Daily Volume = 711 K MSFT - Microsoft Corp $82.00 (+2.00 last week) Microsoft is the #1 software company in the world. They develop, manufacture, license, and support a broad range of software products including Windows operating systems, server applications, the popular MS Office suite, and a Web Browser. As most of you know, the company is presently involved in anti- trust issues with the government. CEO and co-founder, Bill Gates still owns 15% of Microsoft. The recovering share price laid trapped under the $80 mark for what seemed like an eternity! Then, Mr. Softee exhibited some upside action after the holiday break and held the gains. The positive closes above $80 on both Thursday and Friday were paramount. MSFT's leash had been very short. The stock's bullish move in response the tame Jobs Report gives us hint that MSFT will make a charge for the elusive 200-dma technical line. We're anticipating the positive market conditions and also the company's upcoming earnings' release will continue to pump adrenaline into MSFT. On the bright side too is the returning volume levels. All week they've been increasing, which further demonstrates the momentum is building up once again. As we move into next week, $80 should hold as short-term support and also serve as a launching point for entries. Are you still apprehensive? Then wait for MSFT to not only squeak by the new proximate resistance at $82.88, but instead to make conclusive moves through this obstacle. Don't fret, there's time to make an entry. Microsoft isn't reporting until the following week on July 18th, after the bell. Microsoft scaled back its investment stake in Telewest Communications, the UK's #2 cable company, to clear the way for its purchase of 23.7% of the company. The deal came down to Microsoft agreeing to abstain from any management control. In monetary terms, this deal is worth approximately $2.4 bln at Friday's prices. Let's keep a watch on some news that came out on Saturday. The Chinese government announced it's backed the use of Linux computer operating systems over MSFT's Windows in fear of security threats during a time of war. Of course, MSFT discredited the concerns and reiterated its software sales in China surged 80% in 1999 and continues to expand. ***July contracts expire in two weeks*** BUY CALL JUL-75 MSQ-GO OI=31481 at $ 7.75 SL=5.50 BUY CALL JUL-80*MSQ-GP OI=61005 at $ 3.88 SL=2.50 BUY CALL JUL-85 MSQ-GQ OI=57274 at $ 1.38 SL=0.50 BUY CALL AUG-80 MSQ-HP OI= 6064 at $ 5.75 SL=3.75 BUY CALL AUG-85 MSQ-HQ OI=10100 at $ 3.88 SL=2.25 Picked on June 15th at $72.38 P/E = 49 Change since picked +9.62 52-week high=$119.94 Analysts Ratings 10-16-2-0-0 52-week low =$ 60.38 Last earnings 03/00 est= 0.41 actual= 0.43 Next earnings 07-18 est= 0.42 versus= 0.40 Average Daily Volume = 36.7 mln KANA - Kana Communications $60.94 (-0.94 last week) Kana Communications is a leading provider of comprehensive online customer communications solutions for marketing, sales and service. These mission critical applications support multiple channels of online contact including inbound and outbound e-mail, web based customer self-service, web forms, real-time messaging and voice over the Internet. The company offers a comprehensive suite of online customer communication products for managing the entire customer lifecycle. KANA has experienced a solid 21% advance since the latter part of June. Admirable remarks from a band of analysts first instigated the slow, but steady-building momentum run. Currently, KANA is consolidating at short-term support of $61 and $62 amid moderate volume levels. On Wednesday, the share price peaked intraday, just a fraction under the $70 target area, before succumbing to the profit takers. So this pullback in itself isn't too harmful. What is of concern is the $70 ceiling. Expect some resistance here. At least by knowing the possible limitations at hand, profitable plays can be planned. Entries into this momentum play can be made off the current level if you're a bit more aggressive or better yet, wait for a move through the 5-dma near the $63 level. The momentum could get a boost too with the company's earnings approaching this month. At this time, however, Kana Communications has not nailed down a report date. Speculation is for sometime between July 19th & 26th. We'll keep you posted. The date is important because you'll certainly want to exit any open positions prior to the announcement. No company news to report this week. ***July contracts expire in two weeks*** BUY CALL JUL-55*URW-GK OI= 173 at $8.50 SL=6.00 BUY CALL JUL-60 URW-GL OI= 527 at $5.38 SL=3.25 BUY CALL JUL-65 URW-GM OI= 272 at $3.13 SL=1.50 BUY CALL AUG-60 URW-HL OI= 71 at $9.13 SL=6.25 BUY CALL AUG-65 URW-HM OI=1068 at $7.00 SL=5.00 Picked on July 2nd at $61.88 P/E = N/A Change since picked -1.25 52-week high=$175.50 Analysts Ratings 4-3-0-0-0 52-week low =$ 22.78 Last earnings 03/00 est=-0.23 actual=-0.19 Next earnings 07-19 est=-0.27 versus=-0.18 Average Daily Volume = 1.76 mln JNPR - Juniper Networks Inc $147.31 (+1.75 last week) Juniper Networks develops and provides next-generation Internet infrastructure systems that are designed to meet the scalability, performance, density, and compatibility requirements of IP networking systems. The company's M40 and M20 Internet backbone router use JUNOS network traffic management software, ASICs. Its clients include some of the world's leading service providers such as Ericsson and MCIWorldCom. The momentum powering JNPR the week prior to the holiday was dynamic to say the least. JNPR's share price surged 18.5%, or $22.75 after it hit the press that the stock was included on the Lehman Brother's list of "10 Uncommon Values". Juniper's deal with Nortel Networks, who agreed to market and sell its Internet backbone routers, further pumped up the momentum. Last week, we saw some fluctuations amid respectable volume. Please take a look at a daily chart and you can visually confirm why JNPR is deemed RISKY. The sharp and swift movements were not for the faint of heart. Overall $140 managed well as a decent short- term support - with the exception of Thursday's fiendish slide to 127.75 during amateur hour. And above, we now have a force field at the $151 mark, which lies just below the 200-dma ($155.85). But, there is a rainbow. Friday's solid trading performance in the $148 and $149 range demonstrated JNPR is poised for another run. So at this point in the momentum play, we're looking for the company's earnings' release and rallying markets to generate some more excitement and propel JNPR through the clouds. Your strategy should be short and sweet. Juniper is set to report earnings this Thursday, July 13th, after the market closes. Be prepared to close any positions before the announcement. You don't want to get caught in a post-earnings sell-off. In the news this week, Juniper announced that Sonera, a company committed to advancing data security and manageability of the next generation Internet, has selected its M-series IP backbone routers to increase the speed of its Internet backbone. ***July contracts expire in two weeks*** BUY CALL JUL-140 JUY-GH OI=1101 at $13.63 SL=10.25 BUY CALL JUL-145*JUY-GI OI=1082 at $10.50 SL= 7.50 BUY CALL JUL-150 JUY-GJ OI=2797 at $ 8.25 SL= 5.75 BUY CALL JUL-155 JUY-GK OI=1341 at $ 6.50 SL= 4.50 BUY CALL AUG-150 JUY-HJ OI= 506 at $15.75 SL=11.50 BUY CALL AUG-155 JUY-HK OI= 324 at $12.88 SL= 9.75 Picked on July 2nd at $145.56 P/E = N/A Change since picked +1.75 52-week high=$156.47 Analysts Ratings 11-3-1-0-0 52-week low =$ 20.33 Last earnings 03/00 est= 0.03 actual= 0.06 Next earnings 07-13 est= 0.04 versus=-0.02 Average Daily Volume = 4.70 mln **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 07-09-2000 Sunday 4 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070900_4.html ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** ************* NEW PUT PLAYS ************* CMGI - CMG Information Services $41.25 (-4.56 last week) What began as a direct marketing firm has become a prolific investor in the future of the Internet. Concentrating on marketing and advertising, content and community, e-commerce, and technology companies, CMGI has packed its portfolio with stakes in more than 70 Internet companies including Furniture.com, Engage, Lycos, and Vicinity. The firm nurtures new companies in house and invests in others through its @Ventures funds. CMGI has seen better days. The bellwether of the Internet sector has taken a beating recently. Investors have turned bearish on CMGI and other Internet incubators after the IPO market virtually disappeared about three months ago. While the demand for new issues has been on the rise recently, traders have been very selective in their buying of IPOs. The money-losing Internet companies that made CMGI a darling of Wall Street are now avoided by IPO investors like they carried the plague. Without access to the capital markets, CMGI is left holding dozens of private Internet companies that burn through cash as if it grew on trees. Barron's magnified the cash burn rate of several high-profile Net concerns about a month ago, which only added to CMGI's recent demise. The revelation of Web companies spending money with gusto coupled with little access to new capital from investors combined to reveal yet another problem for CMGI. The company relies heavily upon advertising and marketing revenues. If Net companies can't raise additional funds in the capital markets, they will be forced to cut costs. And you guessed it, marketing and advertising budgets are the first to be cut. The slowing of online advertising was punctuated by DB Alex Brown analyst Andrea Rice on Friday when she downgraded Web portal Yahoo. Rice pointed to weakening advertising demand for cash-strapped Web companies. The downgrade of YHOO sent a cataclysm through the Internet sector Friday which dragged CMGI below a key support level at $43. CMGI looks weak at current levels where an aggressive trader might look for entry. Otherwise, wait for CMGI to fall below major support at $40 before entering the play. On a relief rally, target shoot for entry if CMGI bumps against resistance at $43. ***July contracts expire in two weeks*** BUY PUT JUL-45*QGW-SI OI=1654 at $5.00 SL=3.00 BUY PUT JUL-40 QGW-SH OI= 858 at $2.00 SL=1.00 Average Daily Volume = 6.25 mln ***************** CURRENT PUT PLAYS ***************** DD - DuPont E.I. De Nemours & Co. $43.94 (+0.19 last week) DuPont is the largest chemical company in the US. Developer of Lycra, Dacron, and Teflon. DuPont has operations in about 65 countries. Its eight business units make products including coatings, nylon, specialty polymers, and pigments and chemicals. Other units produce specialty fibers, herbicides, pesticides, and biotechnology products such as food ingredients and seeds. If it weren't for Intel and its other tech components the DJIA might be a lot lower this year. The old-line names such as CAT, HON, and our DD play have weighed heavily on the Dow's performance in 2000. Several of the "old economy" companies that epitomize the Dow are trading near three-year lows, including DD. Rising interest rates and a slowing economy generally go hand in hand. The combination has proved detrimental to DD's business. DD has attempted to diversify its operations by expanding into the realm of biotechnology. But, investors have been less than impressed with DD's attempt to win back their capital. The company has announced several partnerships to further expand its biotechnology presence, most recently with Emisphere (EMIS). The reception with which DD was greeted with after announcing the alliance with EMIS stunk of bearish sentiment. DD has been on an accelerating downward slide since peaking in early April after investors briefly ran from the Tech sector in search of safety. The return of the dichotomy between old and new was validated last Friday after an inflation-friendly economic report was released. Nearly every sector enjoyed a healthy rally. One of the few groups to fall Friday was the Diversified Chemicals sector. Union Carbide (UK), Dow Chemical (DOW), and DD all suffered disappointing losses Friday. DD sank further into the mire by sipping past support at $44. DD continues to look weak, feel free to enter the play at current levels if the stock continues sliding early next week. For a more conservative entry, wait for DD to fall beneath its last support level at its 52-week low of $43.13. ***July contracts expire in two weeks*** BUY PUT JUL-50*DD-SJ OI=3056 at $6.25 SL=4.00 BUY PUT JUL-45 DD-SI OI=4993 at $2.00 SL=1.00 Average Daily Volume = 2.93 mln ICIX - Intermedia Communications $28.44 (-1.31 last week) Intermedia is an integrated communications provider to high volume business and government customers. It offers local access and private line phones, high-speed data transmission, Internet access, and Web hosting. The company is developing an Internet protocol based backbone to allow data and voice applications to be carried over a single network. It has fiber optic networks in 14 southeastern U.S. cities. It was full speed ahead for the Telecom sector Friday. As you well know, nearly every sector advanced into the weekend on the heels of a tame jobs report. Major CLECs such as SBC and VZ achieved substantial gains Friday. However, one CLEC that did not advance was ICIX. Investors dumped ICIX in part because SBC will start offering Texas residents telephone services beginning Monday. Texas is one of ICIX's key markets in which it has nearly 1 mln customers. That number might shrink with the entrance of SBC into the Texas market. SBC's main goal is to offer competitive long-distance services. But, the company will also offer wireless, high-speed Internet, and extra calling features. All of which are services that ICIX currently provides consumers. An executive from SBC succinctly said, "Finally, Texas consumers are going to see what real competition means." More competition for ICIX translates into even lower margins which means deeper losses. Already mired in losses, more competition is that last thing ICIX needs. The entrance of SBC into the Texas market might continue to pressure ICIX early next week. Watch Monday to see if investors' nervousness continues to drive ICIX down. Entry at current levels can be considered if ICIX looks weak early Monday. A more conservative entry point might be found just below support at $27. An aggressive trader might look for an entry on an intra-day rally if ICIX bumps into its 5-dma, currently at $29.25, which has been formidable resistance for the past two weeks. Institutions have been unloading ICIX recently, noting the surge in volume while the stock falls lower. Confirm lower lows with heavy trade as a sign the professionals are still selling. ***July contracts expire in two weeks*** BUY PUT JUL-35 QIX-SG OI= 170 at $7.13 SL=5.00 BUY PUT JUL-30*QIX-SF OI=1293 at $3.13 SL=1.50 Average Daily Volume = 1.56 mln LCOS - Lycos, Inc. $49.25 +0.00 (-4.75 last week) Founded in June 1995, Lycos was one of the earliest search and navigation sites designed to help people find information more easily and quickly on the World Wide Web. The core Lycos technology, which identifies and categorizes online information, was developed at Carnegie Mellon University. Through its acquisitions of Tripod, Inc., and WhoWhere, Inc., in 1998, the Lycos Network has become the largest and fastest growing online community with more than 5 million registered Tripod and Angelfire members. Since starting this play on Thursday, we've been rewarded with an entry point as well as news in our favor. Using the middle of June as a local top, the past three weeks have seen LCOS move lower through a downtrend channel spanning 12 points from top to bottom. We mentioned on Thursday that a bounce off the 5-dma could provide for an entry point and on Friday, we got it. Bumping its head near its 5-dma and against the top of its downtrend channel at $51.38 in the early going, the stock drifted down for the rest of the day. Our put play also got help on Friday when Deutsche Banc Alex Brown analyst Andrea Williams Rice downgraded YHOO, along with the Internet portal sector, citing concerns over slower-than-expected revenue growth and valuation considerations. With earnings season fast approaching, one would expect the possibility of news and positive results driving stock prices. However, Rice is not as optimistic and feels that earnings could bring bad news for Internet portals, like Lycos, which rely heavily on banner-based advertising. With banners as a key revenue source for Internet portals, any slowdowns in advertising spending could result in lower revenue over the next several quarters. For those looking for an entry point, bounces off the 5-dma, currently at $51.02 continues to be an ideal target. The stock has also failed to break the 10-dma, currently at $53.33. Those keeping an eye on that downtrend channel will find the top of the channel currently at $51.38, though by Monday it will have moved below the psychological $50 level. As mentioned on Thursday, there is support for the stock at $45. Breaking through that level could bring the stock at the $40 level in short order. ***July contracts expire in two weeks*** BUY PUT JUL-55*QWL-SK OI=2516 at $6.50 SL=4.50 BUY PUT JUL-50 QWL-SJ OI=1388 at $3.13 SL=1.75 BUY PUT JUL-45 QWL-SI OI= 523 at $1.25 SL=0.75 Average Daily Volume = 4.00 mln PHCM - Phone.com $62.38 (-2.75 last 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. When will PHCM take hold of a lifeline and start swimming toward the light? As it is right now, PHCM is drowning in a dark abyss. For weeks now, the share price has been wallowing in the muck despite a host of positive coverage from the analysts and an attractive share price. Not that we're complaining. The stock is moving in the right direction for our purposes and we've hit our target area of $60! The increasing volume levels on the decline this week are also promising. However, we've got to be prepared for a rebound in the short- term. The question is of course when and at what price level. Let's take a step back in time. In May, PHCM rebounded off $60, but in April there wasn't a reversal until it hit $50. So let's err on the side of caution, and at least keep the stops tight if you have open positions or plan on opening new ones. Nonetheless, be aware of the exposure and risk. This week PHCM received another new Strong Buy recommendation. In addition, SG Cowen analyst John Graves issued a $100 price target. If you're fingers are still itching for more of PHCM, then watch the 5-dma technical. On Friday, it served as a nice point of entry before the share price bobbled in the vicinity of the new intraday low at $60.50. ***July contracts expire in two weeks*** BUY PUT JUL-65*UGE-SM OI=462 at $7.25 SL=5.00 BUY PUT JUL-60 UGE-SL OI=522 at $4.25 SL=2.50 BUY PUT JUL-55 UGE-SK OI=182 at $2.25 SL=1.00 Average Daily Volume = 2.65 mln **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** ***** LEAPS ***** Earnings Warnings and a Slowing Economy = Rangebound Trading By Mark Phillips Contact Support Are you still looking for proof that the markets have changed? Look no further than our old standby, YHOO. It has failed to deliver on its usual earnings run (now only 2 days away) and has headed the other way on mounting concerns about its revenue growth and lofty valuation. Accordingly, it has made it onto the Drop list this weekend, and you can read the details below. This is just another example that proves the importance of good money management. No matter how good your picks and entry points, inevitably a play will go against you and in order to remain profitable in this market, you must cut those losers off quickly. As you have read many times in recent weeks, the market remains rangebound and to make money, you have to pick the right plays. Both the DJIA and the NASDAQ have reached the top of their recent range, and unless we start seeing some stellar earnings in the next 2 weeks, it will be difficult for the markets to break out to the upside. Adding still more weight on our struggling camel's back is the VIX, which moved down on Friday to close out the week at 21.92. This is its lowest closing level since March 3rd, the day before the NASDAQ selloff began. Recall that the VIX is a very reliable indicator of market tops (when it reaches 18-21) and bottoms (when it reaches the low 30's). Don't look now, but we are very close to the danger zone, and I would urge caution in opening any new positions at this juncture. Does that mean, don't trade this week? No, of course not. But it does mean that you need to pay particular attention to what the broader markets are doing. Afterall, even a helium balloon will go down if it is in a descending elevator. There are plenty of great plays in the LEAPS portfolio. We have done the job of culling these from the hundreds of stocks with LEAPS available. We have also described the entry strategy for each of these plays. The price may have moved since the play was initiated, but the basic strategy remains intact; pick a good support level where you would like to enter the play and wait for it. That is the hard part - waiting for your pre-determined entry conditions to be met, and then having the discipline to pull the trigger when they are met, without jumping the gun if there are not. Patience is a virtue, and it will be justly rewarded, especially in the stock market. Until I see how the market reacts to the first batch of earnings, I am still in the "Don't Buy Too Soon" camp. Have a profitable week. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 40 EMB-AH $ 7.69 $40.25 423.41% JAN-2002 $ 45 WUE-AI $ 9.50 $41.88 340.84% CSCO 11/14/99 JAN-2001 $ 40 CYQ-AH $ 9.56 $28.50 198.12% JAN-2002 $ 45 WIV-AI $11.00 $30.50 177.27% NT 11/28/99 JAN-2001 $37.5 ZOO-AU $11.13 $35.25 216.71% JAN-2002 $37.5 WNT-AU $15.13 $41.50 174.29% TXN 12/12/99 JAN-2001 $ 55 TNZ-AK $11.13 $20.00 79.69% JAN-2002 $ 60 WGZ-AL $14.25 $23.75 66.67% SUNW 12/19/99 JAN-2001 $ 80 SUX-AP $17.63 $22.13 25.52% JAN-2002 $ 90 WJX-AR $22.00 $28.38 29.00% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $11.75 28.70% JAN-2002 $ 40 WSY-AH $12.63 $16.38 29.69% ERICY 01/30/00 JAN-2001 $16.3 RQC-AO $ 4.94 $ 7.25 46.76% JAN-2002 $16.3 WRY-AO $ 6.75 $ 9.00 33.33% NSM 02/27/00 JAN-2001 $ 70 NSM-AN $18.50 $ 6.88 -62.81% JAN-2002 $ 70 WUN-AN $24.25 $14.75 -39.18% AOL 03/12/00 JAN-2001 $ 60 AOO-AL $14.00 $ 7.75 -44.64% JAN-2002 $ 65 WAN-AM $18.63 $13.50 -27.54% AXP 03/12/00 JAN-2001 $43.3 AXP-AP $ 7.25 $12.50 72.41% JAN-2002 $46.6 WXP-AQ $ 9.33 $15.63 67.52% WM 03/19/00 JAN-2001 $ 25 WM -AE $ 5.00 $ 8.00 60.00% JAN-2002 $ 30 WWI-AF $ 5.38 $ 7.50 39.41% AMD 04/16/00 JAN-2001 $ 70 AMD-AN $17.50 $26.25 50.06% JAN-2002 $ 70 WVV-AN $26.00 $37.13 42.81% JDSU 04/16/00 JAN-2001 $ 80 XJU-AP $27.50 $47.50 72.73% JAN-2002 $ 80 YJU-AP $39.63 $63.00 58.97% VSTR 04/16/00 JAN-2001 $ 90 UVT-AR $23.88 $49.88 108.88% JAN-2002 $ 90 WWP-AR $35.00 $66.25 89.29% YHOO 04/30/00 JAN-2001 $140 YMM-AH $32.13 $17.75 -44.76% JAN-2002 $140 WYZ-AH $46.38 $34.88 -24.80% MOT 05/14/00 JAN-2001 $33.3 MOT-AY $ 6.58 $ 6.13 - 6.84% JAN-2002 $36.6 WMA-AZ $ 9.54 $ 9.50 - 0.42% NOK 05/21/00 JAN-2001 $ 50 NZY-AJ $10.25 $12.00 17.07% JAN-2002 $ 50 IWX-AJ $17.25 $18.88 9.45% HD 05/28/00 JAN-2001 $ 50 HD -AJ $ 6.25 $11.00 76.00% JAN-2002 $ 50 WHD-AJ $11.38 $16.25 42.79% XLNX 05/28/00 JAN-2001 $ 70 ZIZ-AN $14.63 $26.75 82.84% JAN-2002 $ 70 WXJ-AN $23.38 $36.63 56.67% NXTL 06/11/00 JAN-2001 $ 60 FZC-AL $12.25 $14.38 17.39% JAN-2002 $ 60 YFG-AL $19.25 $22.38 16.26% C 06/18/00 JAN-2001 $ 65 ZRV-AM $ 7.63 $ 8.38 9.83% JAN-2002 $ 65 WRV-AM $13.75 $15.38 11.85% AMGN 07/02/00 JAN-2001 $ 75 YAA-AO $10.75 $12.63 17.49% JAN-2002 $ 75 WQY-AO $20.75 $22.75 9.64% JAN-2003 $ 70 VAM-AN $28.75 $32.00 11.30% VRSN 07/02/00 JAN-2001 $180 JSV-AP $56.88 $55.25 - 2.87% JAN-2002 $190 YVS-AR $66.25 $66.00 - 0.38% Spotlight Play NSM - National Semiconductor $53.00 If you like great entry points, then you owe a word of thanks to Salomon Smith Barney analyst Jonathan Joseph. Downgrading the entire Semiconductor sector and NSM from Buy to Outperform, he sees the current shortage of chips going away and an actual price war on the horizon. This tanked the entire sector and by the end of the day NSM had dropped below its 200-dma (then $51.50) for the first time in over a year. So what makes us select NSM as our spotlight play, you ask? After the dark days of 1997 and most of 1998, where NSM watched its revenues and profits decline, NSM has seen increasing profits and accelerating revenues for the past 6 quarters. That, coupled with the strong bounce at the $48 support level, gets our attention and we think 'ol NSM still has a couple good moves up its sleeve before Mr. Joseph's prognostication comes to pass. Friday's strong move took NSM back above the 200-dma, and we would look for a bounce at support between $48-50 to trigger new entries. As always, watch for increased buying volume and sector strength before jumping in. BUY LEAP JAN-2002 $55.00 WUN-AK at $22.13 BUY LEAP JAN-2003 $60.00 VSN-AL at $25.88 New Plays DELL - Dell Computer $50.69 Like the rest of the technology sector, DELL began a long slide in early March, finally reaching a bottom in late May. The broad market recovery lent support to the computer company, just grazing the $50 level several times last month. After spending much of the past 3 weeks consolidating between $47-50, DELL jumped nearly $3 on Friday to close above the $50 mark, making it the stocks highest close since May 1st. Solid volume accompanied the move, and similar gains were seen in stocks of other box-makers such as Gateway, Compaq, and Hewlett-Packard. With the benign Employment Report on Friday, evidence of a slowing economy is mounting, indicating that the recent series of interest rate hikes may be nearing its conclusion. The market recovery is still shy of breaking out of its recent range, so look for any market weakness to cause a pullback in DELL as well. A bounce from the $49-50 level looks like a good entry, and in this market environment, the patient investor will likely be rewarded. BUY LEAP JAN-2002 $55.00 WDQ-AK at $12.63 BUY LEAP JAN-2003 $60.00 VDL-AL at $15.38 Drops YHOO $116.50 From Yahoo! to BooHoo, this Internet bellwether has finally fallen victim to the impact of revenue concerns that has been infecting the Internet sector. With the drubbing many of the stocks in this sector have taken, speculation is mounting that YHOO will have a hard time continuing to post strong revenue and earnings growth, without which it is difficult to justify the stock's lofty valuation. The deteriorating sentiment has not only kept the stock from having its usual earnings run, it has dropped the price very close to major support at $110. With earnings only 2 trading days away, this is particularly discouraging for our play. While it has given us a couple nice opportunities to profit since we picked it at the end of April, it is looking like the near future will be flat to down. Rather than wait (and hope) for the recovery, we'll let YHOO go until sentiment in the sector improves. *********** SPLIT PLAYS *********** Traders Do Some Stock Splitting Of Their Own By Ryan Nelson Who said you need the company's permission to cut a stock in half? A rash of earnings warnings early this week forced many stocks to 50% losses. Unfortunately, you don't get twice as many shares with this trading action. We saw just how brutal summer trading can be as companies announced shortfalls in earnings that crippled their stocks. But, by most analysts admission, warnings season has ended and the good news should begin. As you know from last week, I am looking for about 30 split announcements this month as many stocks are positioned for such a dividend, likely to be announced with earnings. We won't count those self-imposed splits like ENTU, FWIS, CA, etc, either. We did see our first major company to split with BMET announcing on Thursday, but the good stuff is still to come! Current Split Run Plays None Current Split Candidate Plays COHR CIEN GLW BRCD GSPN TIBX RSAS DNA MUSE SEBL ISSX Candidates That Are Not Current Plays SDLI VRSN PDLI BRCM RBAK HGSI Recent Announcements We Predicted TXN (most recent announcement) CHINA CMVT NT VRTS SEPR YHOO TMPW HGSI SNE NSOL DCLK For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 07-09-2000 Sunday 5 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070900_5.html ************* COVERED CALLS ************* Option Trading Basics: Rules for survival... By Mark Wnetrzak To be a profitable option trader, it is important to review the most successful strategies on a regular basis. There are always new interpretations or methods to be integrated into your current system but maintaining a structured trading approach is the best way to achieve consistent returns. It is also paramount to have a precise set of rules to govern your actions when positions don't react as expected. These guidelines must be simple enough to recall and implement while monitoring a complex portfolio of plays in a volatile market. In addition, the rules should apply across a wide range of situations and be designed to compensate for one's weaknesses and inadequacies. To be effective in the long term, they must be formulated to help maintain discipline on a general basis and at the same time, offer a timely memory aid for difficult situations. Before you make the next trade, consider these tried and tested maxims: 1. Learn to limit losses and your profits will grow. The science of successful trading is less dependent on making profits, but rather on avoiding losses. The need to restrict draw-downs and prevent losing plays from significantly eroding capital should be a dominant theme in any type of trading. To reduce losses, most traders prefer to use a specific plan with pre-determined exits. Stop-loss orders can be used to remove urgent decision-making from the equation and trailing stops can be utilized to follow a position into greater profits while protecting for unexpected reversals. In addition, not only must losses be limited, but all positions must be reviewed regularly to ensure that the total portfolio risk is kept to a practical minimum. 2. Establish trading account limits before you open any position! Just as setting stops on each individual position is an absolute must, a "maximum allowable loss" must be considered when managing portfolio positions. The rule is simple, never trade with more money than you can reasonably afford to lose and always maintain a reasonable cash reserve. When assessing position size and collateral requirements, ensure that funds for active trades are not co-mingled with capital for other functions. It is also very important to set a "loss limit" at the beginning of each month or option expiration period. When this level is breached, trading should be halted for the duration of that period. Of course if your losses are consistently more than your gains, stop trading! Step back and take some time off. When you are ready to try again, evaluate your current trading strategies and review the losses (to learn from previous mistakes), then move on. When you begin to make money, put some of the profits in a reserve account, just in case there are any unexpected developments in the future. 3. Know your strategy, its advantages and weaknesses, and only use techniques that fit your trading style and portfolio outlook. You can't make good decisions without knowing the mechanics of a specific technique and the best traders are those who are acutely aware of the shortcomings of their particular approach. Focus on positions whose trading characteristics match your ability and risk/reward attitude. Don't use complex or advanced methods simply because they are intriguing. In addition, if the strategy is not appropriate for your financial condition, then it should be avoided, regardless of how attractive it appears. Obviously every strategy has risk. The key is to develop an arsenal of profitable techniques; use only those that fit the market outlook; and manage each individual play for maximum potential. 4. Learn the art of patience; entry timing is the key to success! The entry position is of particular importance. It deserves your best analysis and judgment and it is vital to assess all potential trades well in advance. In the case of stocks, the issue should be one you want to own and the price must be technically favorable with minimal downside risk. Correctly timing the initial purchase requires a thorough knowledge of charting techniques and market trends. The entire process is something a trader must completely understand because a successful exit is by and large the product of a proper entry. Those who are guilty of "over-trading" should assess their past results in this careless practice whenever they are tempted to participate in such activities. 5. Be diligent and after you develop a plan, stick with it! Success will come when you create a favorable balance between hard work, sound judgment and patience. Too many traders give up after a few losing plays, long before they have time to learn and absorb the various methods required for profitable trading. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return CYTO 9.69 11.19 JUL 7.50 2.94 *$ 0.75 12.1% FSII 18.25 21.19 JUL 17.50 2.63 *$ 1.88 10.5% ARQL 13.88 23.56 JUL 12.50 2.44 *$ 1.06 10.1% TGEN 12.25 14.50 JUL 10.00 3.00 *$ 0.75 8.8% LYNX 47.56 47.38 JUL 40.00 9.63 *$ 2.07 7.9% CCUR 13.13 12.38 JUL 12.50 1.38 $ 0.63 7.8% FHS 13.13 14.88 JUL 12.50 1.63 *$ 1.00 7.6% ZD 11.38 10.13 JUL 10.00 2.25 *$ 0.87 6.9% MED 9.44 8.50 JUL 7.50 2.69 *$ 0.75 6.9% LYNX 32.63 47.38 JUL 25.00 9.75 *$ 2.12 6.7% CYTO 7.97 11.19 JUL 5.00 3.38 *$ 0.41 6.5% RHAT 25.00 24.63 JUL 20.00 6.38 *$ 1.38 6.4% CEGE 25.56 31.50 JUL 20.00 6.88 *$ 1.32 6.1% BCGI 14.56 13.25 JUL 12.50 2.88 *$ 0.82 6.1% GENE 27.75 26.25 JUL 20.00 9.25 *$ 1.50 5.9% BCRX 27.00 29.00 JUL 22.50 5.63 *$ 1.13 5.7% CLTR 20.50 21.06 JUL 17.50 3.63 *$ 0.63 5.4% CAIR 25.50 24.69 JUL 20.00 6.63 *$ 1.13 5.2% TGEN 12.25 14.50 JUL 7.50 5.25 *$ 0.50 5.2% IBC 14.94 14.06 JUL 12.50 3.25 *$ 0.81 5.0% NERX 18.88 21.88 JUL 15.00 4.38 *$ 0.50 5.0% IFCI 23.13 24.06 JUL 20.00 4.00 *$ 0.87 4.9% GLGC 38.75 35.50 JUL 30.00 10.00 *$ 1.25 4.7% LCCI 27.31 25.94 JUL 22.50 5.50 *$ 0.69 4.6% ALSC 26.88 25.56 JUL 22.50 5.88 *$ 1.50 4.4% BWEB 22.88 22.69 JUL 17.50 5.88 *$ 0.50 4.3% TSEM 30.69 29.81 JUL 25.00 6.50 *$ 0.81 3.6% PGO 19.00 16.75 JUL 17.50 2.25 $ 0.00 0.0% SCUR 18.81 16.56 JUL 17.50 2.19 $ -0.06 0.0% *$ = Stock price is above the sold striking price. Comments: Concurrent Computer's (CCUR) technical outlook remains bullish as the issue consolidates on low volume. Ziff-Davis (ZD) appears to have made a successful test of the May low, but will it take out the June high? E-Med Soft.Com (MED) didn't move to a new low but the position requires close monitoring. Red Hat (RHAT) went up strong and came down hard, but remains above our sold strike. Boston Communications (BCGI) bounced off of support on low volume and may move lower - evaluate your long term outlook. Monitor Corsair (CAIR) closely as it is at the bottom of a price channel. Interstate Bakeries (IBC) remained above last Friday's low but it may test the April low near our sold position. International Fibercom (IFCI) is likely to endure some profit-taking. Alliance Semiconductor (ALSC) is under selling pressure and may decline to its 150 dma (near our cost-basis). Tower Semiconductor (TSEM) is also under selling pressure. Evaluate whether you want to own Petroleum Geo (PGO) or exit the position. Earnings report fears may explain Secure Computing's (SCUR) slump from the June high this week. NEW PICKS ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return EGAN 13.94 JUL 12.50 EQZ GV 2.19 428 11.75 14 13.8% TKTX 39.00 JUL 30.00 UFT GF 9.88 4 29.13 14 6.5% DLK 16.75 AUG 12.50 DLK HV 5.25 50 11.50 42 6.3% EPTO 15.13 AUG 12.50 QTP HV 3.38 0 11.76 42 4.6% IVIL 8.94 AUG 7.50 IIU HU 2.13 112 6.82 42 7.3% PSFT 18.38 AUG 15.00 PQO HC 4.38 8602 14.00 42 5.2% WFR 18.38 AUG 15.00 WFR HC 4.38 0 14.00 42 5.2% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return EGAN 13.94 JUL 12.50 EQZ GV 2.19 428 11.75 14 13.8% TKTX 39.00 JUL 30.00 UFT GF 9.88 4 29.13 14 6.5% IVIL 8.94 AUG 7.50 IIU HU 2.13 112 6.82 42 7.3% DLK 16.75 AUG 12.50 DLK HV 5.25 50 11.50 42 6.3% PSFT 18.38 AUG 15.00 PQO HC 4.38 8602 14.00 42 5.2% WFR 18.38 AUG 15.00 WFR HC 4.38 0 14.00 42 5.2% EPTO 15.13 AUG 12.50 QTP HV 3.38 0 11.76 42 4.6% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** EGAN - eGain Communications $13.94 *** Ready to Move? *** eGain Communications is a leading provider of integrated e-customer communications solutions. To help businesses deliver a superior customer experience, eGain offers licensed and hosted applications for email management, interactive Web and voice collaboration, intelligent self-help agents, and proactive online marketing. Among their clients are AOL, CNBC, and Home Depot. eGain's downtrend ended with last quarter's earnings report showing a strong increase in revenues. The stock has been gaining the attention of analysts and investors alike and appears to be under heavy accumulation. The acquisition of Inference Corp. and several new products should help eGain continue to deliver solutions that are increasingly in demand. The chart continues to improve and eGain appears ready to exit its stage I base - after a successful test of the May low - as investors anticipate the next earnings report (July 24?). JUL 12.50 EQZ GV LB=2.19 OI=428 CB=11.75 DE=14 MR=13.8% Chart = ***** TKTX - Transkaryotic Therapies $39.00 *** Speculation Only! *** Transkaryotic Therapies is a biopharmaceutical company that is developing a broad and renewable product pipeline based on several proprietary platforms. Transkaryotic currently has four products in clinical development, for conditions such as anemia and hemophilia. Transkaryotic is currently defending itself against rival Amgen's accusations of patent infringement but recently submitted a Biologics License Application to the FDA seeking marketing approval of Replagal(TM), its enzyme replacement therapy for the treatment of Fabry disease. This will be the first and only treatment available for patients who suffer from Fabry disease. Yet, with the future undecided, a short-term position (two weeks) seems appropriate, based on the increasingly bullish chart. JUL 30.00 UFT GF LB=9.88 OI=4 CB=29.13 DE=14 MR=6.5% Chart = ***** August Plays ***** DLK - Datalink.net $16.75 *** Solid Earnings! *** Datalink.net is in the business of developing and marketing "Web to Wireless" information products for consumers and business-level services utilizing the company's wireless information technology. Their products and services extend the World Wide Web and non-Web based customized information to individuals using wireless devices such as pagers, cellular phones, and personal digital assistant devices. They allow users to access and search databases, receive and send messages and other information, and to receive data in real-time. Datalink reported favorable earnings for the quarter and investors took notice. In the coming year, DLK is dedicating its resources to building a strong infrastructure for the Internet enterprise market. With $17 million in additional cash and three new top executives, Datalink.net is moving aggressively to market its wireless enterprise solutions. AUG 12.50 DLK HV LB=5.25 OI=50 CB=11.50 DE=42 MR=6.3% Chart = ***** EPTO - Epitope $15.13 *** Own this One! *** Epitope develops, manufactures and markets oral specimen collection devices and diagnostic products using its proprietary oral fluid technologies. Their primary focus is on the detection of antibodies to the Human Immunodeficiency Virus (HIV), the cause of Acquired Immune Deficiency Syndrome (AIDS). Epitope's lead product, the patented OraSure collection device, is used in conjunction with screening and confirmatory tests approved by the FDA. The growing acceptance of Epitope's oral fluid testing for HIV was reflected in last quarter's earnings and showed a strong increase across existing markets. Epitope plans to merge with STC Tech which should leverage their expertise in oral fluid technology. The agreement with LabOne to jointly develop and commercialize a laboratory-based oral fluid screening test for Hepatitis C antibodies should further enhance Epitope's future. The stock has resumed its stage II climb on heavy volume and appears ready to challenge the March high. AUG 12.50 QTP HV LB=3.38 OI=0 CB=11.76 DE=42 MR=4.6% Chart = ***** IVIL - iVillage $8.94 *** Internet Bottom-Fishing! *** iVillage is an online destination targeted at women and one of the most demographically focused communities on the Internet. iVillage.com is an easy-to-use, comprehensive network of Web sites tailored to the interests and needs of women aged 25 through 54. iVillage provides advertisers and merchants with targeted access to women using the Internet, and also generates revenue by selling products or services that have a high degree of relevance to its audience. iVillage started its uptrend after Goldman Sachs analyst Tonia Pankopf specifically disputed the "Barron's article" regarding iVillage's cash burn rate. She believes that by the third quarter of 2000, iVillage should turn a profit, stating that Barron's analysis was "inaccurate" and failed to "reflect diminishing net income losses." On Thursday, iVillage announced several agreements that mark a change in strategy for iVillage, to a core media business focus from e-commerce retailing. Investors are apparently pleased as they pushed the stock up over a dollar on Friday. Earnings are due in about two weeks. AUG 7.50 IIU HU LB=2.13 OI=112 CB=6.82 DE=42 MR=7.3% Chart = ***** PSFT - PeopleSoft $18.38 *** A Breakout, But Why? *** PeopleSoft designs, develops, markets and supports a family of enterprise client/server and Internet based application software. Their market includes large and medium sized clients, including corporations worldwide, higher education institutions, and federal, state, and local government agencies primarily in North America. Yes the sector is taking a beating and yes PeopleSoft dropped on Thursday shortly before a lawsuit was filed accusing their executives of insider trading. But wait, on Friday Lehman Bros raised its rating on PeopleSoft to "outperform" from "neutral"! What to make of it all? Well, investors voted on Friday (heavy volume) and the stock gapped above its recent stage I base. The "tape" usually reveals a stock's character and we favor the long term support near the sold strike. Speculative yes, but reasonable risk/reward! Earnings are due near July 20. AUG 15.00 PQO HC LB=4.38 OI=8602 CB=14.00 DE=42 MR=5.2% Chart = ***** WFR - MEMC Electronic $18.38 *** Another Breakout! *** MEMC Electronic Materials is a worldwide producer of silicon wafers, operating manufacturing facilities in Europe, Asia and the United States. MEMC sells silicon wafers to most of the world's largest manufacturers of semiconductors. Back near the end of June, John Roque of Arnhold & S. Bleichroeder listed a bushel of semiconductor stocks he thinks will weaken, including MEMC Electronic. Looks like it just provided an opportunity for investors to get some stock near support. Now WFR has taken out the June and May highs on heavy volume. We call that move a breakout of a stage I base - not weakness! With the recent volatility and failure of the market(s) to follow through to the upside, we will remain cautious, favoring a conservative entry point with a cost basis at support. Quarterly earnings are due near July 24. AUG 15.00 WFR HC LB=4.38 OI=0 CB=14.00 DE=42 MR=5.2% Chart = ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** ************************* NAKED PUT PERCENTAGE LIST ************************* Naked Put Percentage List By Ryan Nelson Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level ADBE 137.38 130 AXX-SF 3.25 3435 9% 130 AKAM 114.00 110 RWU-SB 5.38 2850 19% 110 BRCD 185.56 180 GUF-SP 4.38 4639 9% 180 BRCM 235.13 230 RDU-SF 10.00 5878 17% 220 CDWC 69.31 65 DWQ-SM 2.44 1733 14% 64 CHKP 225.06 220 YKE-SD 11.63 5627 21% 210 CIEN 171.88 165 UEE-SM 5.75 4297 13% 162 DNA 173.00 165 DNA-SM 6.75 4325 16% 165 EXTR 101.25 100 EUT-ST 5.88 2531 23% 100 GLW 256.69 250 GRJ-SJ 7.13 6417 11% 240 GSPN 119.13 115 GHY-SC 6.50 2978 22% 110 IDPH 130.13 120 IDK-SD 3.25 3253 10% 125 ISSX 102.00 100 ISU-ST 6.00 2550 24% 95 ITWO 116.81 115 QYJ-SC 7.50 2920 26% 110 JNPR 147.31 150 JUY-SJ 10.25 3683 28% 140 MERQ 103.75 95 RQB-SS 2.50 2594 10% 96 MLNM 130.50 120 QMR-SD 6.63 3263 20% 120 MUSE 169.50 160 UZQ-SL 10.50 4238 25% 160 PWER 115.88 105 OGU-SA 3.25 2897 11% 100 RBAK 165.44 150 BKK-SJ 5.75 4136 14% 150 RMBS 101.00 100 BWR-ST 6.75 2525 27% 100 SDLI 295.31 280 QJV-SP 11.75 7383 16% 260 SEBL 170.94 165 SGW-SM 5.38 4274 13% 165 SEPR 135.50 130 ERU-SF 4.50 3388 13% 120 TIBX 115.25 110 PIW-SB 4.50 2881 16% 105 TLGD 129.44 130 TQK-SF 8.75 3236 27% 114 TQNT 102.31 95 TNN-SS 5.25 2558 21% 92 VRSN 172.88 170 QVZ-SN 8.25 4322 19% 165 VRTS 117.00 110 VUQ-SB 3.50 2925 12% 105 VRTX 123.44 110 VQR-SB 2.63 3086 9% 110 *********************** CONSERVATIVE NAKED PUTS *********************** Bond Basics - Part II: Fixed income with growth potential... By Ray Cummins This week we continue our discussion of conservative investing strategies with a review of convertible securities. These unique financial vehicles offer worthwhile opportunities for investors who need current income, yet want to invest in companies that will benefit from the bullish market trends. Although this category of investing is not well known, it can offer favorable annual returns along with potentially high rewards for those that choose to learn the fundamentals of the strategy. Bonds and preferred stock that can be exchanged for common stock are the most conventional types of convertible securities. These instruments provide the necessary means for companies to raise capital for growth and ongoing operations. Most corporations fund their future activities through bank loans or the sale of bonds or common stock. Bondholders are reimbursed for their investment with interest added but inflation will often erode their profits. Shareholders can benefit from appreciation of a company's share value but they have no guaranteed income from the investment. Convertible bondholders enjoy the best of both worlds as they receive a fixed rate of interest, are virtually assured a return of their principal, and also have the right to exchange or convert the bond into a fixed number of shares of common stock. Convertible preferred stock is a similar financial instrument. In this case however, the investor receives a regular distribution or dividend premium rather than a periodic interest payment. Unlike convertible bonds, the distribution is usually not guaranteed. This type of issue can be exchanged or converted into a fixed number of shares of common stock but it will not be redeemed at the end of a specific term; it simply exists as preferred stock until physically converted. When a company's stock grows in value, the convertible bondholder can exchange his holdings and participate in the appreciation of the issue. It the company fails to perform in the short-term, at least the investor gets paid a good rate of interest for waiting. It's a well-known fact that most of the technology companies pay little or no dividend however, convertible instruments on the same issues generally offer attractive yields, plus the opportunity for future profit at a substantially lower risk. Convertible instruments are ideal investments for IRA's and other qualified plans. The distribution income can often be deferred or sheltered and the growth of the common stock will protect against losses from inflation and higher interest rates in other vehicles. Regular premium bonds have only a small yield advantage over most convertibles and the risk/reward ratio favors the profit potential inherent in the future growth of the underlying equity. In most cases, convertible instruments will provide a conservative and yet competitive method to participate in the growth of the current bull market Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return SIRI 44.31 47.38 JUL 35.00 1.88 *$ 1.88 25.4% TGEN 14.88 14.50 JUL 12.50 0.38 *$ 0.38 13.9% FSII 18.25 21.19 JUL 15.00 0.75 *$ 0.75 13.6% IMG 18.31 18.94 JUL 15.00 0.56 *$ 0.56 13.3% EFCX 10.56 13.00 JUL 7.50 0.44 *$ 0.44 12.5% SCUR 15.88 16.56 JUL 12.50 0.38 *$ 0.38 11.6% MRVT 19.50 22.63 JUL 15.00 0.44 *$ 0.44 11.0% GENE 30.44 26.25 JUL 22.50 0.50 *$ 0.50 11.0% CAMP 29.00 48.81 JUL 22.50 0.81 *$ 0.81 10.6% TSEM 30.69 29.81 JUL 25.00 0.69 *$ 0.69 10.3% TLCM 40.06 31.38 JUL 30.00 0.56 *$ 0.56 9.5% GENE 26.13 26.25 JUL 17.50 0.63 *$ 0.63 9.3% OAKT 20.94 22.88 JUL 17.50 0.44 *$ 0.44 8.9% LBRT 29.31 28.38 JUL 20.00 0.38 *$ 0.38 8.8% NSS 20.13 20.31 JUL 15.00 0.44 *$ 0.44 8.6% FSII 16.00 21.19 JUL 12.50 0.50 *$ 0.50 8.4% PILT 15.31 14.56 JUL 10.00 0.38 *$ 0.38 8.0% CREAF 28.00 23.50 JUL 22.50 0.69 *$ 0.69 7.8% CBST 49.25 53.13 JUL 35.00 0.50 *$ 0.50 7.0% CAIR 25.50 24.69 JUL 17.50 0.44 *$ 0.44 6.9% OMKT 19.00 13.94 JUL 12.50 0.38 *$ 0.38 6.6% MPPP 19.19 12.63 JUL 10.00 0.38 *$ 0.38 6.5% SYMM 20.00 22.13 JUL 15.00 0.38 *$ 0.38 6.3% VITR 48.13 65.25 JUL 30.00 0.56 *$ 0.56 6.0% SIPX 27.25 23.88 JUL 20.00 0.31 *$ 0.31 5.8% CLRS 38.88 37.13 JUL 30.00 0.69 *$ 0.69 5.8% CEGE 27.25 31.50 JUL 17.50 0.44 *$ 0.44 5.4% IMNX 44.69 65.38 JUL 30.00 0.56 *$ 0.56 5.1% *$ = Stock price is above the sold striking price. Comments: Why didn't we just buy some California Amplifier (CAMP) calls? Tower Semiconductor (TSEM) is under selling pressure and sector uncertainty. Telcom Semiconductor (TLCM) has also slumped but it appears to be holding at support. Creative Technology (CREAF) had a nice bounce on Friday on heavy volume after flirting with its 150 dma - some follow through next week should help. Keep an eye on Corsair (CAIR) as it is at the bottom of its price channel. Mp3.Com continues to weaken but appears to be holding at support. Sipex (SIPX) has moved back down to its 150 dma amid a sector-wide pummeling. Positions Closed: Us Lec Corp. (CLEC) NEW PICKS ********* Sequenced by Company ***** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return ANCC 30.22 JUL 22.50 UZE SX 0.44 30 22.06 14 14.7% CEGE 31.50 JUL 25.00 UCG SE 0.38 388 24.62 14 12.4% DLK 16.75 JUL 12.50 DLK SV 0.38 105 12.13 14 21.9% YRK 28.94 JUL 25.00 YRK SE 0.38 187 24.62 14 10.3% MRVT 22.63 AUG 17.50 SQD TW 0.50 50 17.00 42 7.2% NFLD 17.50 AUG 15.00 DHQ TC 1.00 88 14.00 42 13.2% NXLK 39.69 AUG 30.00 QNF TF 0.75 20 29.25 42 6.3% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return DLK 16.75 JUL 12.50 DLK SV 0.38 105 12.13 14 21.9% ANCC 30.22 JUL 22.50 UZE SX 0.44 30 22.06 14 14.7% CEGE 31.50 JUL 25.00 UCG SE 0.38 388 24.62 14 12.4% YRK 28.94 JUL 25.00 YRK SE 0.38 187 24.62 14 10.3% NFLD 17.50 AUG 15.00 DHQ TC 1.00 88 14.00 42 13.2% MRVT 22.63 AUG 17.50 SQD TW 0.50 50 17.00 42 7.2% NXLK 39.69 AUG 30.00 QNF TF 0.75 20 29.25 42 6.3% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** ANCC - Airnet Communications $30.22 *** On The Move! *** AirNet Communications provides base stations and other wireless infrastructure products designed to support the Global Standard for Mobile Communications system of mobile voice and data transmission. AirNet designed its base stations to be easier to deploy and upgrade and to have lower capital and operating costs than other existing base stations. AirNet's leading product provides an unparalleled advantage. The broadband, software- defined AdaptaCell base station provides a high capacity base station with a software upgrade path to the wireless Internet and the AirSite base station eliminates the need for a physical backhaul link, thus dramatically reducing operating costs. Based on the recent bullish movement, traders favor the outlook for the company and its unique services. The quarterly earnings are due in late July. JUL 22.50 UZE SX LB=0.44 OI=30 CB=22.06 DE=14 MR=14.7% Chart = ***** CEGE - Cell Genesys $31.50 *** A New Range! *** Cell Genesys is engaged in the development and commercialization of gene therapies to treat major, life-threatening diseases, including cancer and AIDS. Cell Genesys currently has two gene therapy programs, the clinical programs and the pre-clinical programs. The clinical programs include GVAX(TM) cancer vaccines in Phase I/II studies to treat specific types of cancer, such as lung and prostate cancers, and T cell gene therapy for AIDS, which is undergoing Phase II testing. Cell Genesys also develops and commercializes human monoclonal antibodies for pharmaceutical applications, including inflammation, auto-immune disorders and cancer. The biotechnology group is on the move and traders have become interested in the issue amid reports the company's factor IX blood-clotting protein performed well in recent tests, with no discernible ill effects. Friday's move above a recent trading range suggests the technical outlook is still bullish. CEGE is expected to report earnings during the last week in July. JUL 25.00 UCG SE LB=0.38 OI=388 CB=24.62 DE=14 MR=12.4% Chart = ***** DLK - Datalink.net $16.75 *** Solid Earnings! *** Datalink.net is in the business of developing and marketing "Web to Wireless" information products for consumers and business-level services utilizing the company's wireless information technology. Their products and services extend the World Wide Web and non-Web based customized information to individuals using wireless devices such as pagers, cellular phones, and personal digital assistant devices. They allow users to access and search databases, receive and send messages and other information, and to receive data in real-time. Datalink reported favorable earnings for the quarter and investors took notice. In the coming year, DLK is dedicating its resources to building a strong infrastructure for the Internet enterprise market. With $17 million in additional cash and three new top executives, Datalink.net is moving aggressively to market its wireless enterprise solutions. JUL 12.50 DLK SV LB=0.38 OI=105 CB=12.13 DE=14 MR=21.9% Chart = ***** YRK - York International $28.94 *** Strong Sector! *** York International is the largest independent supplier of air conditioning, heating, ventilating, and refrigeration equipment in the USA and a leading competitor in the industry worldwide. They offer standardized systems for private homes, apartments, and small commercial facilities. They provide customized heating and refrigeration solutions for airports, hospitals, manufacturing facilities, and other large sites. York has been in a stage I base since last October and the current trend is gaining momentum as the issue re-tests the June high. Friday's move suggests the attempt will be successful but we favor a conservative cost basis below the near-term technical support. JUL 25.00 YRK SE LB=0.38 OI=187 CB=24.62 DE=14 MR=10.3% Chart = ***** August Plays ***** MRVT - Miravant Medical $22.63 *** New Developments! *** Miravant Medical Technologies specializes in both pharmaceuticals and devices for photoselective medicine. Miravant Medical is developing its proprietary PhotoPoint procedure for serious eye and skin conditions, cancer and cardiovascular disease. Miravant is looking forward to follow-up data on their macular degeneration clinical trials and as of early May, a data safety-monitoring board (they review the data every 3 months) had not identified any significant safety issues. Miravant also reported positive results with its PhotoPoint treatment, a photodynamic therapy that uses light-activated drugs to target and destroy diseased cells and blood vessels. In June, McDonald Investors initiated coverage with a "buy" rating. Miravant has completed a "double-bottom" formation (which tested a long-term trendline) and the June high should now provide support for any future consolidation. AUG 17.50 SQD TW LB=0.50 OI=50 CB=17.00 DE=42 MR=7.2% Chart = ***** NFLD - Northfield Labs $17.50 *** Undervalued? *** Northfield Laboratories is developing a safe, effective alternative to transfused blood for use in treating acute blood loss. Their PolyHeme blood substitute is a solution of chemically modified hemoglobin derived from human blood. Clinical studies have shown PolyHeme carries as much oxygen as transfused blood, and that it is universally compatible. Blood typing prior to infusion would be unnecessary, so PolyHeme could be used immediately in emergency situations. To make it an even more desirable product, PolyHeme has an extended shelf life compared to blood. Northfield's largest shareholder recently sent a letter to other stock owners asking that NFLD management begin to maximize value for its investors. The shareholder, a CEO of an investment firm, said he has retained Beacon Hill Partners as a strategic advisor regarding opportunities to improve shareholder value. He says the shares are very undervalued because the company has continually refused to communicate details of its successes and status to the public. Based on the bullish activity, someone must believe him! AUG 15.00 DHQ TC LB=1.00 OI=88 CB=14.00 DE=42 MR=13.2% Chart = ***** NXLK - Nextlink Communications $39.69 *** Own This One! *** Nextlink Communications is a provider of telecommunications services. To serve its customers' telecommunications needs, Nextlink has assembled a unique collection of high-bandwidth, local and national network assets. They intend to integrate these assets with advanced communications technologies and services in order to become one of the nation's leading providers of a comprehensive array of communications services. With its recent acquisition of Concentric Network, Nextlink is poised to become a dominant player in the electronic information industry. Concentric offers local and long-distance services, DSL access, Web hosting, Virtual Private Networks, dedicated access, and global application infrastructure services for delivering data over the Internet. In late June, NXLK was upgraded by First Union Securities to reflect the benefits of the Concentric acquisition. Analysts believe the synergy with Concentric and opportunities from its recent European expansion represent substantial revenue potential. AUG 30.00 QNF TF LB=0.75 OI=20 CB=29.25 DE=42 MR=6.3% Chart = **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ What a difference a day makes... By Ray Cummins Friday, July 7 The Dow enjoyed triple-digit gains and the Nasdaq rallied to a recent high after a favorable employment report. The industrial average closed up 154 points at 10,635 and the technology index ended 62 points highre at 4023. The S&P 500 rose 22 points to 1478. Trading volume on the NYSE reached 933 million shares, with advances beating declines 1,814 to 1,087. Activity on the Nasdaq was moderate at 1.47 billion shares traded, with winners beating losers 2,092 to 1,837. In the bond market, the 30-year Treasury rose 20/32, pushing its yield down to 5.86%. Thursday's new plays (positions/opening prices/strategy): Vitria VITR JUL45P/JUL50P $0.50 credit bull-put 3com Corp. COMS AUG60C/JUL60C $2.31 debit calendar Kellogg K SEP30C/JUL30C $1.38 debit calendar All of our new positions offered favorable entry points during the session and each entry price was based on observed trades. Portfolio plays: The market rallied Friday after positive economic news spurred hopes that the Federal Reserve might be done raising rates in the near-term. A sharp drop in census jobs offset a large jump in private hiring to leave U.S. non-farm payrolls up just 11,000 in June, the weakest growth since January 1996 and well below expectations. Although analysts were encouraged by the report, some suggested that corporate earnings concerns will continue to underscore the financial markets. Several major companies are expected to report earnings next week and most experts believe investors will be extremely cautious in the coming sessions. In Friday's trading, semiconductor, biotech and hardware stocks led the Nasdaq with the majority of bellwether issues rebounding from downgrades earlier in the week. Internet stocks also rallied despite a number of downgrades from Deutsche Banc Alex. Brown. On the Dow, Hewlett-Packard (HWP), Home Depot (HD) and Wal-Mart (WMT) topped the gainers with the bullish activity in retail issues coming amid the favorable interest rate outlook. In the broader market, textile and agricultural products stocks were strong, while aluminum, advertising and tobacco issues generally consolidated. Our Spreads portfolio enjoyed a number of positive moves and the percentage leader was Plantronics (PLT) with a $10 rally to $124. Technology issues were higher across the board and shares in the Major Drug group also performed well. With two weeks until options expiration, the primary positions on our watch-list are Emulex (EMLX), International Business Machines (IBM), Payne Webber (PWJ), and Secure Computing (SCUR). Each of these issues has endured recent slumps and are testing key areas in their respective technical trends. We will monitor each stock closely and look for signs of further downside momentum in order to limit potential losses in the underlying positions. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** SPW - SPX Corporation $125.88 *** Technical Breakout! *** SPX Corporation is a global provider of technical products and systems, industrial products and services, service solutions and vehicle components. SPX designs, manufactures and markets fire detection systems, data networking equipment, broadcast antennas and automated fare collection systems. The company also designs, manufactures and markets power transformers, industrial valves, mixers, electric motors, laboratory freezers, high-pressure hydraulics, industrial furnaces and coal feeders, as well as specialty service tools, equipment and services primarily to the motor vehicle industry in North America and Europe. In addition, the company is also engaged in the design and manufacture of transmission and steering components for light and heavy-duty vehicle markets, principally in North America and Europe. SPX operates in 19 countries around the world. SPW shares jumped to $125 Friday as industrial issues returned to favor amid the positive economic outlook. Now the stock is well above technical support and clearly in a new trading range. With momentum from institutional-sized volume and the recent bullish trend, the issue should easily finish the expiration period above our cost basis. PLAY (conservative - bullish/credit spread): BUY PUT JUL-110 SPW-SB OI=0 A=$0.56 SELL PUT JUL-115 SPW-SC OI=10 B=$1.12 INITIAL NET CREDIT TARGET=$$0.62-$0.68 ROI(max)=14% B/E=$114.38 Chart = ****************************************************************** YHOO - Yahoo $116.50 *** Upcoming Earnings! *** Yahoo! is a global Internet communications, commerce and media company that offers a comprehensive branded network of services to more than 120 million users worldwide. As the first online navigational guide to the World Wide Web, www.yahoo.com is a major guide in terms of traffic, advertising, household and business user reach, and is one of the most recognized brands associated with the Internet. The company also provides online business services designed to enhance its clients' Web services, including audio and video streaming, store hosting and management, and Web site tools and services. Under the Yahoo! brand, the company provides broadcast media, communications, and commerce services. Yahoo shares tumbled $5 Friday after Andrea Williams Rice, an analyst with Deutsche Banc Alex Brown, downgraded Yahoo to a "buy" rating, saying that not even this popular Internet site was immune to the decline in advertising revenue. Her concerns were echoed all over Wall Street, where analysts who have grown accustomed to seeing the company surpass the rosiest forecasts, said the upcoming quarters would be more challenging for Yahoo. The concerns are not so much on Yahoo's earnings, which are expected to meet estimates, but on whether their growth warrants the valuation that investors have given the company. The majority of analysts believe the stock is still at levels that may be too high, given the inevitable slowdown in YHOO's rate of growth and the pullback in ad spending by other dot-coms. This bearish position offers a favorable reward with an excellent expectation of profit. After Friday's big drop, a brief technical rally may occur and with any luck we can increase the overall credit for the spread. Our initial target will be $0.43 and we will make an adjustment based on tomorrow's opening prices. PLAY (very conservative - bearish/credit spread): BUY CALL JUL-145 YMM-GI OI=3689 A=$0.75 SELL CALL JUL-140 YMM-GH OI=5594 B=$1.06 INITIAL NET CREDIT TARGET=$0.38-$0.43 ROI(max)=8% Chart = ****************************************************************** - TECHNICALS ONLY - These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. ****************************************************************** SANG - SangStat Medical $27.81 *** Consolidating! *** SangStat Medical Corporation is a global bio-pharmaceutical company applying a disease management approach to improving the outcome of organ, bone marrow, and stem cell transplantation. The company's business currently is organized into two segments: Transplantation Products and Transplantation Services. The Transplantation Products segment consists of six marketed products, two principal product candidates and additional product candidates in various stages of research and development. The Transplantation Services Segment consists of The Transplant Pharmacy, which provides mail order distribution of drugs and transplant patient management services, and TransplantRx.com, the first online pharmacy dedicated to organ transplantation. Technically, SANG continues to fail at resistance with the last rally ending in a "hanging man" candlestick - a rather bearish signal. Thursday and Friday produced a pair of "shooting stars" which suggest the bulls are unable to push the stock any higher. As it appears SANG is unable to penetrate its upside resistance, a move to test the June low seems likely. However we will profit if the recent sideways pattern simply continues for another two weeks. PLAY (aggressive - bearish/credit spread): BUY CALL JUL-35 QDY-GG OI=154 A=$0.56 SELL CALL JUL-30 QDY-GF OI=257 B=$1.56 INITIAL NET CREDIT TARGET=$1.12 ROI(max)=28% B/E=$31.12 Chart = ****************************************************************** PSFT - PeopleSoft $18.38 *** Technical Breakout! *** PeopleSoft designs, develops, markets and supports a family of enterprise client/server and Internet based application software. Their market includes large and medium sized clients, including corporations worldwide, higher education institutions, and federal, state, and local government agencies primarily in North America. We found this calendar-spread candidate while researching plays for the Covered-calls section. With favorable disparities in the front-month premiums, this position offers a very favorable speculation play for those who are bullish on the issue. As with any play, it should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (conservative - bullish/calendar spread): BUY CALL OCT-20 PQO-JD OI=2599 A=$3.00 SELL CALL JUL-20 PQO-GD OI=2838 B=$0.50 INITIAL NET DEBIT TARGET=$2.38 TARGET ROI=50% Chart = ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** TVGIA - T.V Guide $34.94 *** Merger In Doubt? *** TV Guide is a media and communications company that provides print, passive and interactive program listing guides to households; distributes programming to cable television systems and direct-to-home satellite providers; and markets satellite delivered programming to C-band satellite dish owners. The company is divided up into three operating groups. The TV Guide Magazine Group provides TV Guide Magazine, the most widely circulated paid weekly magazine in the U.S., to households and newsstands. The TV Guide Entertainment Group supplies cable television systems and other multi-channel video programming distributors satellite-delivered on-screen program promotion and guide services, including TV Guide Channel and Sneak Prevue. The United Video Group provides direct-to-home satellite services, satellite distribution of video entertainment services, software development and systems integration and satellite transmission services for private networks. The acquisition of TV Guide by Gemstar International (GMST) may not be going as well as planned and some investors are predicting the deal will not be consummated. Under terms of the proposed buyout, Gemstar agreed to swap 0.6573 share for each TV Guide share. Shares of TV Guide are trading much lower than one might expect, based on the exchange ratio, indicating that the public believes there is significant risk the acquisition will not be completed. The companies had expected to complete the sale last month, but the Justice Department is still reviewing whether the purchase, which will combine the two largest distributors of electronic program guides for cable television, would hurt competition. Regardless of the outcome, we favor the underlying issue for a bullish position (in the short-term) and have decided to sell premium for credit and use the earned income to offset any losses on the downside, in the event we are required to accept assignment of the stock. If the price of the issue moves above the (short) call at $45, we will buy the stock to cover our sold options. PLAY (aggressive - neutral/credit strangle): SELL CALL JUL-45 UQK-GI OI=0 B=$0.43 SELL PUT JUL-25 UQK-SE OI=71 B=$0.43 INITIAL NET CREDIT TARGET=$0.93-$1.00 ROI(max)=11% UPSIDE B/E=$46.00 DOWNSIDE B/E=$24.00 Chart = ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
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