The Option Investor Newsletter Tuesday 07-11-2000 Copyright 2000, All rights reserved. 1 of 2 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/071100_1.html Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 07-11-2000 High Low Volume Advance/Decline DJIA 10727.20 + 80.60 10807.40 10626.80 980 mln 1613/1294 NASDAQ 3956.42 - 23.87 4029.30 3936.75 1.71 bln 1849/2166 S&P 100 801.05 + 1.46 807.05 794.96 totals 3462/3460 S&P 500 1480.88 + 5.26 1488.77 1470.48 50.0%/50.0% RUS 2000 529.74 - 1.09 533.26 529.04 DJ TRANS 2817.10 + 8.08 2821.59 2796.60 VIX 22.39 - 0.49 22.89 21.62 Put/Call Ratio .53 ****************************************************************** Welcome to summer earnings! Are we having fun yet? The Dow soared to 10807 intraday, a number not seen since June 8th, but then dropped -150 points to 10657 as the earnings euphoria wore off. Dow components Alcoa and International Paper both beat the street and even Greenspan got into the act to provide the intraday move. Alan Greenspan, complete with poker face, spoke at the National Governors Conference and touched on many topics but did not speak about limits on the economy. Applauding productivity and the new economy our economic cheerleader generated significant positive sentiment and about +100 Dow points. The sentiment quickly cooled with a continuing flood of earnings warnings. The Nasdaq rallied back from a negative open on the Greenspan speech but quickly rolled over again to close down for the second consecutive day. The earnings warnings just keep coming with Pinnacle Systems (PCLE) leading the parade and followed by Intermedia (ICIX) Silicon Graphics (SGI), RPM Inc (RPM), Viatel Inc (VYTL), Landmark Systems (LDMK) and on and on. While earnings warnings are still flowing the real fear of investors is the missed earnings event with no warning. Scientific Learning (SCIL) shares lost -36% after reporting a loss of -$.56 compared to estimates of -$.46. Companies warning were hit with heavy losses but those who fail to warn will be punished severely. Take the pre-earnings flight from YHOO this week. After a June 20th high of $150 YHOO had traded in a range between $120 and $130 until Monday of last week. The drop from $130 to a low today of $99.88 was swift. It was aided by a downgrade last week but the main culprit was simply fear of a missed number. The actual announcement today sparked a wild ride in after hours trading. The +$15 spike on heavy volume came from decreased expectations and then relief that they beat the street. The joy may be short lived however since there was some trouble spots. The slowing growth in page views was glossed over by the press but with views growing only +9% from 620 mil in March to 680 mil in June there could be some repercussions. Some analysts were still expecting the +30% growth required to support their sky high PE ratios. The more main line analysts were hoping for +15% to +20% growth and the actual number of +9% will cause some to rethink their positions. Slowing Internet growth? Don't even think about the long term impact of that concept. The Nasdaq was unable to hold over 4000 again on strong volume and with the leaders like MSFT, CSCO, ORCL, WCOM, losing ground before earnings there appears to be some leaks in the rally ship. Dell gained today on the news that the cheap Internet PC was dead. Buyers are opting for higher priced computers with more expensive, high profit features. Intel struggled to hold on to its recent gains after losing almost -$4 from its intraday high but finished positive for the day. Considering that tests announced today showed that similar Intel 933-mhz computers equipped with standard PC-133 high speed memory ran faster in 11 of 14 benchmark tests than the same computers equipped with Rambus memory, the Intel juggernaut may be about to roar again. Even if all the tests were just close Rambus would lose in a tie since the Rambus memory costs as much as double to include in new computers. Before you rush out to sell your RMBS stock analysts point out that the Pentium 4 will run at speeds that will be more able to take advantages of the Rambus features. Here is a link for the whole story: http://dailynews.yahoo.com/h/cn/20000711/tc/ intel_benchmarks_show_little_advantage_to_rambus_1.html When everyone starts saying rally it may be time to head for the lifeboats. I don't think I have heard a bear in a week. Everyone is pegging their hopes on the "no more hike" scenario but contrary to popular belief not everyone believes the hikes are over. Sure Greenspan did not mention anything today but did you expect him to? Of course not! Mr. poker face has much to gain by keeping analysts guessing and not revealing his hole cards. Remember PPI is due out Friday with Retail Sales as well. We will get another look at the rate picture as the focus on our crystal ball improves with real data. As traders we should be concerned that we now have a lower high trend in place for the Nasdaq. On June-22nd we hit 4073 and on July 7th we only managed 4054. Still the difference is not enough to run for the hills just yet. We also have a higher set of baseline lows as well. The weakness this week could be entirely related to the concern over YHOO earnings and with those earnings now quantified the remainder of the Internet sector will be forced to trade on its own merit. The lower trend line on the Nasdaq is dead on 3900 and any fall below that would signify a serious change in market sentiment. The last cycle low was 3820 on July-6th and matched the 3818 from June-19th. A break below 3820 would be lights out in my opinion. If the YHOO earnings were the culprit then we should see a rebound across the entire spectrum tomorrow. We will be faced with another sector challenge on Wednesday with earnings from Ariba. If investors are disappointed there then yet another sector sell off could begin. Earnings, as you can see, are not the be all, end all, that solves all the market problems. Even great earnings can bring with them problems of a new sort with warnings of future quarters not able to measure up to current outstanding results. Investors are fickle. Beat the street by +25% this time and you are expected to do it next quarter as well. What? Only +10% over estimates, you are out of here! Keep your fingers crossed and those stop losses in place if you decide to tempt fate and hold over earnings on your favorite stock this season. There are conflicting internals at work in the market. We continue to have advances beating declines and new highs are finally out weighing new lows. This slow but steady under current to the market is encouraging. What is not encouraging is the strong volume on the Nasdaq on a down day. If we just had no buyers and were drifting down in advance of the earnings I could understand but 1.7 billion shares is fairly heavy summer volume and after looking at a bunch of charts I saw very few moving up at the end of the day. The VIX is still hovering around the 22.42 level and indicates a level of bullishness that normally occurs just before some market instability. Chose your plays carefully and be ready to exit quickly. Don't you just love summer trading? Trade smart, sell too soon. Jim Brown Editor Don't buy too soon! Current long positions include: None - all cash **************** SEMINAR SCHEDULE **************** Technical Analysis, Stock and Option Seminar Three days of indepth education. The next seminar is a three day event in New York on July 13-15th. We guarantee you will not be disappointed. The class size is small so you will get plenty of individual attention from Chris Verhaegh and the staff. At less than the cost of a bad trade you can learn how to analyze stocks and trade options like the pros. Don't wait, do it now. July 13-15 New York 3 day July 21-23 Seattle 3 day July 27-29 Atlanta 3 day Aug 10-12 Orange County 3 day NEW !!!!!!!!!!!!!! Aug 17-19 Orlando 3 day Aug 28-29 Detroit 2 day Australia coming soon! Has the market been beating you up? Did you give back your gains from April? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** **************** MARKET SENTIMENT **************** The World Of Bizzaro By Austin Passamonte Just like the anti-Superman, today’s market action resembled Bizzaro’s backward world. Was that the cyclical stocks catching fire as NASDAQ leaders sold off on stiff volume? During the start of earnings week? Remember when we could buy Yahoo calls a few weeks from announcement day and sell them for tidy profits? My favorite one-day play had been buying YHOO puts on earnings day close in order to sell the next session for certain gain. From the looks of today’s drop and post-market pricing, the opposite approach would be in order. Just when we have it all figured out... Big surprise here, but half the analysts think we’ll rally while the other half run for cover. Should we flip a coin? On Wednesday ABT, COF and TWX report before the open while AMCC, ARBA and MOT enlighten us after the close. Thursday has JPM and TXI disclose before the open with ALTR, DS, GTW, JNPR, MERQ, MCHP, PMCS, PWAV, RBAK, VNWK and VTSS coming clean after the bell. If you see any of your open positions above, take profits or pray they please the street. We’ve witnessed what happens to those who miss these days and it’s not a pretty sight. Common theme is the markets will wait for Friday’s PPI, Retail Sales and IP reports to dictate future direction. And what else is new? Haven’t we lived from one report to the next for what seems like forever? Lately we’ve witnesses market corrections weeks before the next FOMC meeting only to rally mere days ahead of the actual event. Can we at least count on one pattern to hold around here? Indicators will tell the tale. I see a market that seems closer to it’s short-term high than low but anything may happen over the next two weeks. We can expect companies reporting favorable news might get rewarded while those who fall short... well, just make sure none of them are yours! 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. Fri 7/07 close: 21.82 Tues 7/11 close: 22.39 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 Sat Strike/Contracts (7/11) (7/13) (7/15) ************************************************************* CBOE Total P/C Ratio .53 Equity P/C Ratio .47 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 Sat Strike/Contracts (7/11) (7/13) (7/15) ************************************************************** All index options 1.16 OEX Put/Call Ratio 1.27 OEX Maximum Open Interest Strikes/Contracts: Puts 790/6,095 Calls 800/5,632 Put/Call Ratio 1.08 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: (7/11) (7/13) (7/15) Overhead Resistance: (840 - 820) 58.88 (815 - 800) 2.8 OEX Close: 801 Underlying Support: (800 - 785) .86 (780 - 760) 2.59 What the S/R measure indicates: Net open-interest ratios are very high above 815 OEX level while underlying support is very light. The OEX has mounting downside pressure from 815 with little upward support in comparison. A large move in either direction seems favored to the downside. Sustained levels above 815 may prove difficult before July contract expiration 7/21 unless growing overhead O/I clears. 200 Day Moving Average The 200 DMA is widely considered the major benchmark for critical support in a market. DOW; 10,740 10,727 NASDAQ; 3,789 3,956 NDX; 3,505 3,744 SPX 1412 1480 OEX 758 801 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. *Will be updated this Friday* 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 Interest rates 5.88% on the 30-year Treasury Bond may be signaling the rate fears are over. Fed-Fund futures are pricing a lessening 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 began the three-week session this week. IPO’s Recent IPO’s have been met with positive enthusiasm. Improving Dow The Dow remains barely below it’s 200 DMA but shows signs of life after breaking 10,800 intraday and closing above 10,700. Index Option put/call ratio Recent activity showed unusual OTM put volume especially On the DJX, NDX and SPX, suggesting buyers hedging for a market slide. Contrarian nature considers this a bullish development. ****** BEARISH SIGNALS VIX Today’s close near 22 warns of impending market top danger. Faltering NASDAQ NASDAQ’s close below 4,000 again is a warning to bulls. Reaching and maintaining above this key level will be critical going forward from here. 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 $29.05 today amid recent reports of more production. Seasonal energy patterns typically bottom by late summer. COT Report Latest 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. Update coming Friday Weakness in Big-Cap Issues Dow and NASDAQ need strong leadership to break resistance and sustain any rally. Near-term strength in large caps currently suffering is vital. ************** MARKET POSTURE ************** As of Market Close - Tuesday, July 11, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,450 10,850 10,727 Neutral 7.09 SPX S&P 500 1,435 1,490 1,480 Neutral 7.09 OEX S&P 100 772 806 801 Neutral 7.09 RUT Russell 2000 470 535 529 Neutral 5.05 NDX NASD 100 3,450 4,000 3,744 Neutral 5.30 MSH High Tech 965 1,035 1,003 Neutral 6.06 XCI Hardware 1,440 1,550 1,496 Neutral 5.30 CWX Software 1,160 1,300 1,234 Neutral 6.06 SOX Semiconductor 1,060 1,200 1,122 Neutral 6.29 NWX Networking 1,100 1,285 1,256 BULLISH 6.02 INX Internet 470 545 474 BEARISH 5.30 BIX Banking 520 600 553 Neutral 7.09 XBD Brokerage 470 535 534 BULLISH 7.11 ** IUX Insurance 595 660 645 Neutral 6.20 RLX Retail 860 960 951 Neutral 7.09 DRG Drug 350 430 427 BULLISH 7.11 ** HCX Healthcare 755 880 874 BULLISH 7.11 ** XAL Airline 136 172 166 BULLISH 5.25 OIX Oil & Gas 270 320 304 BULLISH 7.11 ** Posture Alert The major indices remain mixed, but with a positive bias. Many indexes are near the tops of trading ranges. Look for pullbacks and breakouts as entry points. Posture Changes: Neutral to Bullish - (XBD,DRG,HCX,OIX). ************** TRADERS CORNER ************** What is volatility? By Mary Redmond What does volatility mean? The dictionary definition of volatile is "capable of being vaporized readily; changeable; fickle or inconstant; given to violence, explosive. Changeable, fickle, and inconstant sound like perfect characteristics of today's stock market and investors. The market temperament can change dramatically in only a few weeks, and the investing public's interest in a stock can be as fickle as a fashion trend. We can see that all the time as some of last year's superstar stocks are being dumped like yesterday's hottest fashion item to be thrown in the back of the closet and never worn again. As far as option trading is concerned, volatility can help to measure whether options are overpriced or underpriced. The historical volatility of a stock generally refers to the trading range over a specified period of time, which could be a month, six months, a year or longer. If a stock has been relatively flat for a period of time the volatility will usually be low. If the stock makes a dramatic move up or down the volatility tends to rise. The implied volatility of an option measures the market's perception of what the stock will do during the life of the option. Implied volatility can increase if a specific event is coming up, like a company's earnings or a major economic report. It is usually best to look for options which have low implied volatility as compared to previous periods and as compared to the historical volatility. There are many other factors to consider. If you were to simply pick options which have low implied volatility you might be successful some of the time. However, an option's implied volatility might be low because there is something fundamentally wrong with the company. For example, AT & T's implied volatility is currently 42.2. This is historically very low, as the IV had been as high as 275. This does not necessarily mean that this is a good time to buy AT & T options. In fact, in last Sunday's New York Times there was an article about the financial community's dissappointment with T's last earning's report and progress in the broadband area. It might be a long time before the stock recovers, if it ever does. In addition, a stock's historical volatility may move to a higher number if there is a fundamental change in the company. For example, if a company is added to the S & P 500 or a major index this could mean that the volume should increase during the time the stock is included in the index. This could push up the volatility numbers, but it doesn't necessarily mean it is time to sell. In order to trade options or stocks successfully you need to study the fundamentals of the company, it's technical pattern and the overall trend of the market. An ideal time to buy an option can be when the stock has been flat for a period of time, the option's implied volatility is low, and you have a reason to believe the stock will make an explosive move during the life of the option. No one has been able to successfully trade using only pre- programmed computer models. Some people have tried this, and some have been successful for short periods, but there is always a "what if" factor. What if the CEO of a company you are trading dies? What if there is another earthquake in Taiwan which could disrupt chip component production? Computer programs and options caculators are valuable tools to be used in conjunction with your own judgement of a situation. Ultimately, the volatility is a tool to use in pitting your own judgement against the general perception of the stock's future in the market. Do you know something that everyone else doesn't know in terms of developments in the industry or capability of the management team? Do you think there is a general misperception or misunderstanding of the company's future prospects which has pushed the option prices down to a point at which they are highly undervalued? I currently own NT Jan 02 80 leaps. The implied volatility of 50.4 is low compared to the stock's historical iv chart which reached a high of over 100 earlier in the year. I think the stock is in a strong technical uptrend. One of the reasons I feel comfortable trading this stock is the fact that it usually moves in a steady gradual predictable rate without wild swings of 10 or 20 points in a day. But if the market makes a severe downturn, stocks and options with low implied volatility numbers are not immune to losses. Sometimes you need to use common sense rules in trading. For example, the Nasdaq just rose 1000 points during the month of June. It seems likely that it would be due for a period of consolidation. An options trader is like a cheetah. A cheetah waits for sometimes hours at a time for its prey to be in a vulnerable position. When it makes its move the cheetah is one of the fastest animals on earth, often jumping on its prey at speeds of over 100 mph at a time. Cheetahs are swift, precise and strike only when the timing is perfect. They don't run after everything which crosses their path. They understand patience. They rarely miss their target. Contact Support **********************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 ***************************************************************** ************* SECTOR TRADER ************* Yahoo! May Give Us the Mother of All HHH Entries By Buzz Lynn Contact Support Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 95.00 -1.56 0.53 0.00 0.00 0.00 -1.03 HHH Internet 99.88 -4.25 -1.13 0.00 0.00 0.00 -5.38 BBH Biotech. 196.63 -0.88 0.31 0.00 0.00 0.00 -0.56 PPH Pharm. 107.00 2.50 1.00 0.00 0.00 0.00 3.50 TTH Telecom. 74.63 -0.94 -1.25 0.00 0.00 0.00 -2.19 IAH I-net Arch. 91.56 -0.38 -0.69 0.00 0.00 0.00 -1.06 IIH I-net Infr. 57.00 0.06 -2.38 0.00 0.00 0.00 -2.31 BHH B2B 38.75 0.38 -0.88 0.00 0.00 0.00 -0.50 BDH Broadband 89.31 -1.75 -0.31 0.00 0.00 0.00 -2.06 SMH Semicon. 93.63 -0.13 -1.50 0.00 0.00 0.00 -1.63 RKH Reg. banks 98.25 -0.56 -0.25 0.00 0.00 0.00 -0.81 UTH Utilities 93.63 1.81 1.19 0.00 0.00 0.00 3.00 ************** Updates ************** QQQ - NASDAQ 100 $93.25 -1.22 (-2.47 this week) Are you beginning to discover the value of selling time vs. buying time in option premiums? While QQQ continues to move rangebound between $92 and $97 in the short term and between $90 and $95 in the slightly longer term, the premiums we sold have been evaporating on the other guy and putting more money in our pockets with the passage of time. Let's look at each strategy so far this week. Short Strangle: $96 provided resistance yesterday while $93.50 provided intraday support today. Yep, the QQQ's are stuck in a range with our sold positions declining nicely as expiration date looms on July 21st. The best case scenario is that these positions expire worthless and we get to keep the premiums without being put or called out of the QQQ's. YHOO numbers were released tonight and could add downward pressure to the NASDAQ tomorrow after amateur hour euphoria. Fear of coming overcapacity in the once hot semiconductor sector is helping to keep the NASDAQ rangebound too. Our JUL-90P/95C position has already earned us $1 since Sunday if we were to close it. If you still want to play the rangebound sentiment, which could exist all the way through the FOMC meeting in August, consider opening an August position to capture more time value. The downside is that you have wait longer for the profit. In the meantime, more can go wrong so keep your stops set in case a major breakout happens. SELL CALL JUL-95 QVQ-GQ OI= 7682 at $ 2.06 SELL PUT JUL-90 QVQ-SL OI=27774 at $ 1.56 Net Credit = $ 3.63 or greater Stop Loss = $ 5.50 SELL CALL JUL-97 QVQ-GS OI= 3990 at $ 1.31 SELL PUT JUL-92 QVQ-SN OI= 8243 at $ 2.19 Net Credit = $ 3.50 or greater Stop Loss = $ 5.50 SELL CALL AUG-98 QVQ-HT OI= 657 at $ 3.88 SELL PUT AUG-90 QVQ-TL OI= 1581 at $ 4.00 Net Credit = $ 7.88 or better Stop Loss = $10.50 Covered Call: Same thing applies here. $96 provided resistance yesterday while $93.50 provided intraday support today. We're still rangebound after all these weeks. If you already own QQQ, consider selling your favorite strike price on continued weakness or a bounce down from resistance. If you don't already own QQQ, a "buy/write" order, where you simultaneously buy the stock and write the call will likely give you the best entry. If you like to play with fire, you can try getting in one leg at a time, or "legging in". But you're safer not trying that if you're trying to play it conservatively. QQQ = $93.25 SELL CALL JUL-93 QVQ-GO OI= 7796 at $ 3.00 SELL CALL JUL-94 QVQ-GP OI= 7860 at $ 2.56 SELL CALL JUL-95 QVQ-GQ OI= 7682 at $ 2.06 SELL CALL JUL-96 QVQ-GR OI= 4592 at $ 1.75 SELL CALL AUG-95 QVQ-HQ OI= 760 at $ 5.00 SELL CALL AUG-96 QVQ-HR OI= 1672 at $ 4.50 Calendar Spread: This play is almost identical to the covered call play except that we substitute a long-term call (or LEAPS if they are offered) for the underlying stock position. The difference in strategy here is that you DON'T want to get called out and have to prematurely give up all the time value you purchased. So if the price moves up on the stock and you face getting called out, you can cover by buying back the sold strike, and/or reselling a higher one if it suits your style. Resistance is $96 with support at $93.50 so far this week. BUY CALL DEC-90 QVQ-LL OI= 1489 at $14.75 SELL CALL JUL-93 QVQ-GO OI= 7796 at $ 3.00 SELL CALL JUL-94 QVQ-GP OI= 7860 at $ 2.56 SELL CALL JUL-95 QVQ-GQ OI= 7682 at $ 2.06 SELL CALL JUL-96 QVQ-GR OI= 4592 at $ 1.75 SELL CALL AUG-95 QVQ-HQ OI= 760 at $ 5.00 SELL CALL AUG-96 QVQ-HR OI= 1672 at $ 4.50 Long Calls and Puts It's not as easy to profit when buying time in a rangebound market, but it's still possible to make small daily profits that way. Watch support and resistance and consider an entry on calls from bounces off levels of support at $90, $91, $92.50, and $94. Or you can buy puts at resistance currently at $97.50, $96, and $95. At Support: BUY CALL JUL-90 QVQ-GL OI= 7688 at $5.25 SL=3.25 BUY CALL JUL-95 QVQ-GQ OI= 7682 at $2.25 SL=1.00 BUY CALL AUG-95 QVQ-HQ OI= 760 at $5.25 SL=3.25 At Resistance: BUY PUT JUL-100 QVO-SV OI= 1767 at $7.50 SL=5.25 BUY PUT JUL- 95 QVQ-SP OI= 7359 at $3.63 SL=2.00 BUY PUT AUG-100 QVO-TV OI= 1529 at $9.63 SL=6.25 Average Daily Volume = 25.3 mln ----- PPH - Pharmaceuticals $107.00 +1.00 (+3.50 this week) There's nothing like a new all time high to make a stock look good. That's just what we got with PPH today as it built on yesterday's advance. In short, we got the bounce over $103.50 (then its 10- dma), which keeps it on the list. Pharmaceuticals typically do well and are perceived as a safe haven when technology gets rough. Turbulent semiconductors and Internets are seeing to that. Technically, you probably won't see a prettier two days on the chart beginning with that bounce at support (actually $103.94) on Monday's open. From there, PPH took out resistance at $105, $106, and $106.50, with a final breakthrough to $107 in the final 20 minutes prior to today's close. That level is now nicely above its 5-dma of 105.50 and 10-dma of $104.43. Either of those could act as support during any profit taking. However, we'd expect the bigger trend to remain intact as long as technology issues continue stubbing their collective toes. Wait for a dip to your comfort level (we think the dma's noted above could work well) and hop in the water. BUY CALL JUL-100 PPH-GT OI= 24 at $7.50 SL=5.25 BUY CALL JUL-105 PPH-GA OI=118 at $3.25 SL=1.75 BUY CALL AUG-105 PPH-HA OI= 62 at $5.13 SL=3.25 BUY CALL AUG-110 PPH-HB OI= 1 at $2.31 SL=1.25 Average Daily Volume = 118 K ----- BBH - Biotech $196.63 +0.31 (-0.56 this week) As we noted Sunday, nothing goes up in a straight line, and BBH was due for a break. While we haven't seen any major bouts of profit taking, BBH has traded flat over the last two days. Nonetheless, after gapping down and finding support just under $194 yesterday and another move up to test $200, intraday support could be found at $195.38. If everything remains the same, it might hold at this level. However, even the 5-dma is way back at $193.93 with the 10-dma trailing further back at $185.89. That leaves plenty of room to fall if things get ugly. For that reason, as with Sunday, we suggest you tighten up the stops from here so you don't have to give up your profits. If you are looking for an entry, target your favorite level of support, but be sure you see a bounce and avoid the temptation to catch the falling knife. BGEN is currently the component to watch as they narrowly dodged a bullet today in reporting earnings one penny above estimate. Their revenues were OK, which could provide a small relief rally tomorrow morning. Though the nail biting may be over for now, squeaking by expectations probably won't provide lasting relief. This could have an effect on the entire sector. Remember, protect profits. Genetic treatment can't help your trading account. BUY CALL JUL-190 BBH-GR OI= 198 at $12.25 SL= 9.25 BUY CALL JUL-195 BBH-GS OI= 139 at $ 9.25 SL= 6.50 BUY CALL AUG-195 BBH-HS OI= 36 at $17.63 SL=13.00 BUY CALL AUG-200 BBH-HT OI= 112 at $15.38 SL=11.25 SELL PUT JUL-185 BBH-SQ OI= 37 at $ 2.25 SL=4.00 Average Daily Volume = 605 K ----- ************** New Plays ************** HHH - Internet $97.06 -3.94 (-8.19 this week) We have radar lock on HHH. . .clear to fire! Thanks to investors' fear that YHOO may not report good revenues, or worse, have a bad outlook for the future, this HOLDR should have been on your radar screen for a potential play as noted in Sunday's newsletter. We bring you this play tonight on the short or put side. While YHOO may have investors breathing a sigh of relief after tonight passable earnings report (YHOO was up to $121 after hours), we expect the sector to remain weak as YHOO did little to assuage fears that the sector wasn't still in deep trouble. That said, look for a relief rally tomorrow morning followed by another selloff, which might make an excellent entry for a short or a put position. Consider the opening pop on HHH a gift, but wait for HHH to roll over before initiating a position. How can we think that if YHOO is up huge right now? Simple. HHH set a new low today on heavy volume and failed to close above its old low of $101, even in the latter day rebound of the sector. Additionally, even with a strong close, HHH is way under every dma known to man and womankind. The 5-dma is still up at $105. Look at a rollover from $101 as an opportunity to enter as we expect the recovery to be short-lived. BUY PUT JUL-105 HHH-SA OI=259 at $10.00 SL=7.00 BUY PUT JUL-100 HHH-ST OI=155 at $ 6.50 SL=4.50 BUY PUT AUG-100 HHH-TT OI=285 at $ 9.63 SL=6.75 BUY PUT AUG- 95 HHH-TU OI= 17 at $ 7.00 SL=5.00 Average Daily Volume = 951 K ************** No Play ************** IAH IIH BHH SMH BDH TTH RKH UTH ************* DAILY RESULTS ************* Index Last Mon Tue Week Dow 10727.19 10.60 80.61 91.21 Nasdaq 3956.42 -42.91 -23.87 -66.78 $OEX 801.05 -3.41 1.46 -1.95 $SPX 1480.88 -3.28 5.26 1.98 $RUT 529.74 2.61 -1.09 1.52 $TRAN 2817.10 24.38 8.08 32.46 $VIX 22.39 1.06 -0.49 0.57 Calls SDLI 318.00 25.38 -2.69 22.69 New, our favorite's back CREE 140.75 7.25 3.75 11.00 New, upsides surprises? INCY 106.00 5.06 5.06 10.13 New, earnings time! BRCD 195.56 7.56 2.44 10.00 Breath of fresh air PRSF 63.56 2.50 1.31 3.81 Managed to hold on JNPR 148.75 0.25 1.19 1.44 Dropped, earnings Thurs. RSAS 73.13 1.38 -0.75 0.63 Dropped, earnings Thurs. NT 71.75 -0.25 0.75 0.50 Waiting for the breakout JPM 117.94 -0.88 0.94 0.06 Dropped, earnings Thurs. DNA 172.88 1.44 -1.56 -0.13 Looking for an entry GSPN 119.38 -4.31 4.13 -0.19 Forget Monday KANA 60.63 -0.81 0.50 -0.31 Practice patience MUSE 168.50 -4.06 3.50 -0.56 Lack of conviction AGIL 72.25 -0.63 -0.63 -1.25 Pattern hasn't changed TIBX 112.50 -1.19 -1.56 -2.75 It finally happened MSFT 79.13 -2.56 -0.31 -2.88 Dropped, sub-$80s CIEN 167.38 1.88 -6.38 -4.50 Still ascending SEBL 165.50 -1.81 -3.63 -5.44 Entry at support COHR 79.56 -5.13 -4.19 -9.31 Dropped, broke down GLW 250.50 -11.69 2.25 -9.44 Dropped, did well for us ISSX 91.50 -2.63 -7.88 -10.50 Got caught in selloff Puts RMBS 87.25 -3.75 -10.00 -13.75 New, bad news coming YHOO 105.50 -6.50 -4.50 -11.00 New, you know the drill LCOS 41.63 -2.75 -4.88 -7.63 Bleeding continues ICIX 23.38 -1.88 -3.19 -5.06 Investors not buying it CMGI 36.50 -2.25 -2.50 -4.75 Woeful ways continue DD 47.25 1.00 2.31 3.31 Dropped, cyclicals PHCM 66.13 5.75 -2.00 3.75 A resurrection? PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** RSAS $73.13 -0.75 (+0.63) Our good news play on RSAS has come to an end. The good news hasn’t ended, but as you will recall, the company will announce earnings on Thursday after the close, and we want to be out of the play by then to avoid the usual post-earnings depression. The stock held up fairly well today, but didn’t have enough momentum to stay above the $74 level. There may still be some upside left in this play, but at this point we are content to take our profits and move on to the next play. GLW $250.50 (-6.19) The announcement that JDSU would acquire SDLI for $41 bln sent a tremor through the fiber optic group early this week. After the announcement Monday morning, it was reported that GLW was also bidding for SDLI. As the news of consolidation spread, speculation mounted that GLW would be the next acquirer in the fiber optic arena. And speculation was all the arbitrageurs needed to step in and take GLW lower Monday. The stock plunged in the first hour of trading, and showed little signs of recovery. While GLW did recover some lost ground Tuesday, the speculation of continued consolidation presents risk. GLW has treated us well for the duration of our play and now is a good time to step aside and take the profits you might have earned. COHR $79.56 -4.19 (-9.31) It's been a tough two days for COHR. Things really started to get ugly late Monday afternoon with about an hour to go in the session when the stock slipped by $4. Today's choppy trading was no better, as the weakening NASDAQ brought down tech stocks. There was no news today for COHR and these recent declines appear to be sheer profit-taking. Technically, our biggest concern was that COHR could not hold support at its 10-dma, currently $82.77. After managing a bounce from that technical on Monday, sellers came out strong and sent the stock just south of $80. As a result, we will be exiting this call play tonight. JNPR $148.75 +1.19 (+1.44) The good, the bad, and the ugly. JNPR rose to the occasion in early trading yesterday and today. The share price cracked the resistance at $151 and broke into the $154 and $155 range. This is good news for those that jumped into positions early on and we're able to rake in some immediate profits. Even entries off the 5-dma at near-term support of $144 and $145 yesterday proved lucrative if you got out in this morning's upswing. Another piece of good news was the new Buy coverage and $200 price target from analyst B. Alex Henderson at SSB on Monday. The bad news is that the play on JNPR is coming to a quick close. The company is reporting earnings this Thursday, July 13th, after the market. Have all positions closed out before that announcement. If you choose to hold over the announcement, which OIN never recommends, then you're at risk for some really ugly consequences. The odds are typically stacked in favor of a post-earnings sell-off. We're dropping JNPR tonight to provide ample time for successful exits. And here's a tidbit from the rumor mill for those that like to keep up-to-date on the company news. Whispers are that Juniper Networks may purchase Extreme Networks, a maker of data- traffic switches for computer networks, for approximately $10 bln. Many analysts have mixed opinions on the prospect. JPM $117.94 +0.94 (+0.06) JPM did a fine job leading the financial sector upwards in recent sessions, but now's the time to exit on strength. The topsy-turvy waves in trading are certainly a contention, but specifically it's JPM's earnings' report on Thursday that is of the most significance. JPM is announcing its 2Q numbers BEFORE the opening bell. Therefore, please close out any open positions prior to Wednesday's close. You don't want to be the victim in a post-earnings decline whether caused by poor earnings, a negative market sentiment or simple profit taking. MSFT $79.13 -0.31 (-2.88) We're letting go of our play on MSFT tonight for the following reasons: First there's the prejudice of earnings' woes surrounding the techs, which doesn't appear will evaporate before the end of the week. Then there's this week's annual Microsoft Professional Developers Conference (PDC). The outcome of this event will be crucial to the company's overall future (and share price!). Microsoft's goal is to impress the financial analysts and convince the developers that their recently outlined .Net platform is the wave of the next-generation. If it fails to do so, MSFT could fall flat on its face - and whether this would ever be a reality is irrelevant since trades are generally made on perception. All and all, this recovery play offered us a multitude of profitable trading opportunities since mid-June and may indeed provide more in the short-term. However, we don't want to risk the progress we've made with MSFT. This reasoning and the company's own earnings' release slated for next Tuesday, July 18th, after the close prompts us to exit tonight. PUTS: ***** DD $47.31 (+3.38) The down-and-out cyclicals enjoyed their second consecutive day of higher prices Tuesday. Paper giant IP added momentum to the group after issuing a better-than-expected profit report earlier in the morning. DD was carried higher by the broad rally across the Chemicals sector as UK and Dow also posted respectable gains on healthy volume. The strong rally in DD Thursday boosted the stock well above its 10-dma which had been formidable resistance for the past month. In light of the reversal of momentum early this week in the cyclicals, its time to sell too soon, and put our capital to work elsewhere. ********************************Advertisement******************* Looking to buy or sell a new or used vehicle? Autobytel.com has been ranked #1 in J.D. Power and Associates Dealer Satisfaction with Online Buying Services study three years in a row. 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You may also fax the information to: 303-797-1333 DISCLAIMER ********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. 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The Option Investor Newsletter Tuesday 07-11-2000 Copyright 2000, All rights reserved. 2 of 2 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/071100_2.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 ****************************************************************** ******************** PLAY UPDATES - CALLS ******************** BRCD $195.56 +2.44 (+10.00) With the NASDAQ unable to break out of its trading range, BRCD is like a breath of fresh air. After posting new highs for the past 3 days, the stock was due for a little weakness. After briefly moving above $200 this morning, the broad market weakness dragged it down to bounce at $192. Networking stocks are continuing to shine and with all the positive press BRCD has seen lately, our play is still looking great as we launch into the July earnings season. BRCD doesn't report until mid-August, but here's a little nugget to chew on. BRCD becomes a split candidate over $200, and if the current move continues, the stock could be well above that prior to the company's earnings announcement. That would seem like a logical time to make the announcement. Intraday support is building at $192 with stronger support at $185 and then $180. After the tremendous gains seen on our play since initiating coverage below $140, tightening up those stops would be a good idea. DNA $172.88 -1.56 (-0.13) We're getting a little concerned about DNA as its earnings date approaches. The company is set to report earnings on July 17th, and it is somewhat disconcerting to see the stocks inability to move upwards with the rest of the Biotech sector. Biogen reported earnings a penny over the consensus estimates today after the close and was trading slightly higher in after-hours. Hopefully, this is a sign of what we can expect to see in the Biotech sector as earnings continue to roll in. Volume has been falling off steadily for the past few days, with less than half the ADV trading hands today. Support at $169 is still holding up and bounces from this level can be considered for new entry points as long as it comes on increasing volume. With the strong Biotech gains recently, a pullback in the sector would not be out of the question and could cause DNA to drop to the next level of support at $162 before heading higher. Another point to keep in mind is that DNA historically is a split candidate above $150. With the stock trading north of $170, and plenty of shares authorized, we could be rewarded with a split announcement along with earnings next week. ISSX $91.50 -7.88 (-10.50) A mixed day in the markets made it rough on Internet stocks ahead of YHOO's earnings, which fortunately came in better-than-expected. ISSX traded lower yesterday and continued its decline for much of the day today. Volume picked up into the close and the last 5 minutes saw a sharp selloff as the stock traded as low as $89 before bouncing a bit and closing at $91.50. Support at $95 failed to hold today, and with the strong selling that took place all day, we would be hesitant to open new positions until ISSX can show us some strength by moving back above this level. Earnings for the Internet security firm are just around the corner on July 18th before the markets open. Although the late-day drop to the $89 support level could be providing us with a great entry point, we want to make sure the bounce is confirmed tomorrow by strong buying volume before opening new positions. If this support level fails to hold, stand aside and wait for the dust to settle. MUSE $168.50 +3.50 (-0.56) Virtually unchanged for the week, MUSE is reflecting the lack of conviction that is so prevalent in the broader markets. After running as high as $175 yesterday, shares of MUSE gave back some ground into the close. The stock opened stronger this morning, with buyers pushing the price back to $170, but the bears weren't done yet. The sellers took over as the noon hour arrived and pushed the price down for another test of support at $165. Triumphant again, the buyers stepped in and helped lift the price as the closing bell approached. The 5-dma (now at $164) is continuing to be supportive, but we are concerned with the fact that volume has been rather weak this week. Stronger support is seen between $158-$160, supported by the 10-dma at $157. Earnings are set for July 19th, so time is running out for an earnings run. Consider new entries as the price bounces at support but keep a watchful eye on the volume. NT $71.25 +0.25 (-0.38) Still waiting for the breakout. A quick look at an intraday chart of NT shows the indecision that is pervading the broader markets. The last 2 days, the stock has run up to test Friday's high of $72.50 before running out of steam and falling back. The lows this week have gotten progressively lower, and we would like to see NT start posting higher highs and lows again. After moving as low as the $69 support level this afternoon, NT was rescued by the bulls as they re-emerged and helped to push the price sharply higher on increasing volume prior to the end of the session. Consider new entries on a renewed bounce from support, but don't try to catch a falling knife. Earnings are two weeks away on July 25th, so there is still time to get positioned for an earnings run. More conservative traders may want to wait for NT to make a show of strength by trading through resistance at $72.50 before opening new positions. SEBL $165.50 -3.63 (-5.44) SEBL was busy Monday lining up more strategic alliances and more partnerships. SEBL said it had teamed with Quest Software (QSFT) to provide performance solutions. The company also signed an agreement with Grand Adventures Tour & Traveling (GATT) to provide CRM software, and finally, Meriwest Credit Union said it had selected SEBL's software to personalize its financial offerings. The host of announcements enabled SEBL to edge higher Monday, despite the weakness in the overall Tech sector. The selling in the sector caught up with SEBL Tuesday when the stock bumped into resistance at $175 and followed the NASDAQ lower. Despite the sell-off, the stock stopped at its major support level at $165 late Tuesday, which might warrant consideration for an entry if SEBL bounces from that level early Wednesday morning. Also, consider waiting for momentum to build and look for entry if SEBL moves back above its old support level at $170. A more conservative entry point might be found if SEBL charges above $175 with healthy volume. CIEN $167.31 -6.44 (-4.56) The news that JDSU would acquire SDLI for a hefty premium Monday left investors asking, who's next? The speculation of further consolidation helped CIEN to buck the overall weak market Monday, and edge higher. Despite a favorable mention in Investor's Business Daily Tuesday morning, CIEN fell along with the Tech sector as a round of profit taking and nervousness ahead of earnings hit the street. However, despite the late day selling, CIEN's ascending channel held strong Tuesday, with the stock tracing a higher low. An aggressive trader might look for a quick entry Wednesday if CIEN bounces from its current levels, and resumes it climb. Given that the stock fell below support at $170 Tuesday afternoon you might look for entry if CIEN moves back above that level. With second-quarter earnings season moving into full-swing, and telecom equipment competitors such as LU scheduled to report profits in less than a week, you might wait for the momentum to return to CIEN, and look for a more conservative entry if the stock rallies above $175. TIBX $112.50 -1.56 (-2.75) Well, it finally happened. The profit takers we love to hate finally showed up this week and sold TIBX lower. The company said Monday that Novopoint, a food industry B-2-B marketplace, had selected TIBX's software to launch its Web site this summer. Despite the new contract, TIBX fell along with the Tech sector, and continued to slide into Tuesday's trading. However, there is a silver lining to this cloud. The volume early this week has been indicative of profit taking. Furthermore, TIBX found support at its 10-dma, currently at $108.63, and actually rallied into the close Tuesday. Also worth noting, TIBX was added to the prestigious USA Today e-Business 50 Tuesday, due to its impressive stock performance and the increase in demand for its products. And finally, the positive report from Yahoo after the close could set the tone for leading Net stocks Wednesday morning. With that said, look for an entry if TIBX clears resistance at $115 and make sure to check the volume to confirm the buyers have returned. A more conservative entry might be found if TIBX moves above its near-term high at $118. GSPN $119.38 +4.13 (-0.19) Well, we'll just forget that yesterday ever happened. If you look at an intraday chart, you can see that Monday's trading session doesn't seem to fit in with the rest of the trend. At any rate, GSPN put in a very nice performance today as the NASDAQ gave up midday. GSPN just about made up for yesterday's losses. After today's early spike above the $120 level, the stock settled into a narrow range around $119. While GSPN is still maintaining its uptrend, $120 continues to be a point of resistance. If you are looking to initiate a position, any pullbacks to the $115 area would look good. The 10-dma lies at $114.73. More aggressively, entries may be obtained on any intraday pullbacks. A sustained move through $120 is what we're looking for. If this move occurs, the next level of resistance is $125, near its most recent highs posted at the end of June. PRSF $63.56 +1.31 (+3.81) Even with an unconvincing NASDAQ, PRSF managed to hang on to its gains. Besides, its uptrend is fully intact. Early in today's session, PRSF spiked up to the $63 level and then traded in a $1 range. It is clear that $64 is the resistance level with which we will have to battle. Keep this level in mind. There is solid support near the $60 level, also where the 10-dma lies at $60.72. This technical has provided reliable support and entry during this current uptrend. A more aggressive entry could be obtained by targetshooting at $62 on intraday pullbacks. Confirm that it is holding that support, otherwise the next stop could be $60. Helping the stock break away from $60 yesterday was the announcement by PRSF and HWP that Portal's leading real-time customer management and billing solution, Infranet, is now certified with HP MC/ServiceGuard. This reinforces Portal's failsafe capabilities in the Internet systems arena. KANA $60.63 +0.50 (+0.31) At the moment, we simply must practice patience. KANA is towing the line near its support at $61 and $62 despite the market fluctuations, which is, of course, a positive aspect. However, while KANA is managing well during this consolidation period, it wouldn't be judicious to open new momentum plays until an uptrend resumes. KANA finished today's session just a fraction from the 10-dma ($60.86) - anything lower should send us into warning mode. Volume's been lagging a bit too, so look for renewed interest in the stock to spark a breakout. The share price needs to at least move through the 5- dma ($62.23) in the near-term. If the general market doesn't give KANA a boost, then perhaps the company's upcoming earnings can ignite another run. Kana Communications is expected to report sometime between July 19th and July 26th. We'll provide a confirmed date ASAP. AGIL $72.25 -0.63 (-1.25) The dissenting sentiment of the Internets is of course weighing heavy on AGIL, but honestly there really hasn't been of a change in AGIL's recent trading pattern. The share price is channeling between $72 and $74 with overhead resistance firmly situated at the $75 mark. Confirmation would be for moves through resistance on better volume. Since this is a pure momentum play, we really need to see some upside action soon. Otherwise we'll have no choice but to kick it to the curb. So you're aggressive and willing to take the risk on future potential? Then target shoot at the low end of the range near the 5-dma ($72.48), but be careful and keep stops tight. In the news on Monday, Compaq Computers (CPQ) announced it entered into a multi-year, multi-million dollar contract with Agile Software for subscriptions to its Agile Anywhere and Agile Buyer, both Web-based manufacturing commerce solutions. ******************* PLAY UPDATES - PUTS ******************* CMGI $36.50 -2.50 (-4.75) CMGI's woeful ways continued early this week when Prudential Securities lowered its optimistic price target to $155 from $216 Tuesday afternoon. That was following the bearish news Monday that Divine InterVentures, an Internet holding company, said it was delaying its initial public offering for the third time, citing weak demand in the capital markets. The continued expectation of slowing revenue growth from online advertising and a weak IPO market are weighing heavily on CMGI. Money managers are beginning to question CMGI's ability to deliver consistent revenues and ultimately earnings. The surge in volume over the past week might suggest the professionals are leaving the stock. A word of caution though, the positive news from Yahoo Tuesday evening will most likely spread optimism through the Internet sector. If CMGI rallies, the stock will face congestion around $38 and resistance at $40. Wait for the sellers to return before entering the play if CMGI advances. If the downward momentum returns, look for an entry if CMGI falls below $36. ICIX $23.38 -3.19 (-5.06) PaineWebber reiterated its Attractive rating on shares of ICIX Tuesday morning. But, investor's weren't buying it, literally. For the second consecutive day, ICIX fell sharply on increasingly heavier volume. Investor's concerns over slowing revenue growth have plagued ICIX for the past month, and that pessimism seems to be building. It appears institutions are still selling their positions in ICIX, noting the huge surge in volume in the past two days. ICIX has fallen well past its near-term support levels so far this week, and won't find any major help until the $20 level. The stock has fallen fairly swiftly so far this week, and may be due for a relief rally. Although noting the heavy selling Tuesday, ICIX may be headed lower from here. If ICIX does bounce, it will face resistance at $24 which may provide a good entry if the selling resumes. Otherwise, if ICIX continues falling, look for entry if the stock slips below its intra-day low Tuesday of $22.75. LCOS $41.63 -4.88 (-7.63) The bleeding continues. Internets have been extremely weak lately. Even YHOO couldn't manage a earnings rally. And although many of the Internet issues are trading up after hours on the YHOO earning, we are skeptical about the lasting power of this news. LCOS has continued to slide and is rapidly approaching the $40 level. Given that many of these internet issues will see an early morning pop tomorrow, an attractive entry point may be obtained after the market settles in. Watch for LCOS to roll over after the euphoria wanes. Remember, YHOO didn't blow away earnings. There are still margin concerns. Technically, LCOS did have stronger volume today, which may indicate that we may be finding a bottom near $40. We will be watching this development very closely. Look to $40 for support, and possible exits. On the upside, LCOS could recover to $44-$45 level before encountering resistance. This would be a nice entry point, given that the Internets rollover after a morning spike. PHCM $66.13 -2.00 (+3.75) Could a resurrection be in our midst? Yesterday PHCM bobbed primarily between $66 and $67 before successfully treading above the water line ($68) during the late-day market surge. While today the share price saw a spike to $70.38 and solid trading in at the $68 mark, it couldn't hold the gains and is now perched just above the 5-dma (65.55). The Internets as a whole are poised to lose more ground and our play on PHCM would certainly benefit from such an event. But recall, PHCM hit our target area of $60 on Friday. Any moves below this bottom mark would be a gift. Therefore you can understand that without the potential of more Internet weakness coupled with YHOO's current post-earnings' decline in our midst, we'd have likely exited this lucrative play. Consider the following aspect as well. Volume was about 50% above the norm on the ascending and descending fluctuations, which indicates a buyer- seller battle is transpiring. Therefore it can't be ignored that there's definite interest for PHCM at this price level. You see the company is either going to make it to the big-time (another QCOM perhaps) or get ousted by the likes of Nokia (NOK). And we've got to watch out for the ever-increasing band of analysts who keep tacking on the positive recommendations. Today USB Piper Jaffrey started PHCM with a Strong Buy and a $120 price target. So here's the plan. For the next day or two we're keeping PHCM, but it's red-flagged - the share price must resume a conclusive downtrend or it'll be a drop on Thursday evening. **********************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 ***************************************************************** ************** NEW CALL PLAYS ************** CREE - Cree Research $140.75 +3.75 (+11.00 this week) Cree makes silicon carbide (SiC) diodes and wafers. Its blue and green light-emitting diodes (LEDs), which account for about half of sales, are used by companies such as Siemens to make dashboard lights, market tickers, and other products. Cree also provides SiC wafers, which work at higher temperatures and voltages than standard silicon wafers, primarily to research labs. U.S. government research contracts account for 10% of Cree's sales. CREE's second-quarter earnings announcement is just around the corner. Noting the company's propensity to beat estimates, investors will be expecting a surprise. The anticipation of better-than-expected profits may already be building, noting CREE's impressive relative strength Tuesday in light of an overall weak Semiconductor sector. The semis have come under pressure recently after the downgrade of the entire sector from the now-famous Jonathan Joseph of Salomon Smith Barney. CREE has smartly rebounded in the past four trading days, returning to its levels prior to the group downgrade a week ago. While several semis are still languishing in the wake of the Salomon call, CREE has positioned itself for an earnings run. And it's no wonder, CREE has carved out a lucrative niche in the Semi sector with its proprietary SiC technology. The company has a stronghold of the market for blue and green LEDs and is expected to increase its earnings by nearly 100% this year in part from selling those little light emitting chips. CREE has surpassed analysts' profit predictions by an average of about 11% in its last four quarters and could eclipse estimates again noting the surge in demand for its products this year. CREE's technical picture is shaping up nicely for an earnings run. A glance over CREE's daily chart reveals a loosely-formed inverse head-and-shoulders which might provide the base to propel our play higher. The stock has been on a steady uptrend since last week and will need to clear resistance at $145 before moving higher. CREE moved back above its 10-dma Tuesday, located at $136.31, which may provide support during an intra-day pullback going forward. Look for an entry Wednesday morning if CREE can breakout above $145 and confirm a rally with volume. To add a little spice to our play, CREE is trading well into split territory. The company hasn't split its shares since July of 1999, when the stock was trading around $78. CREE has enough shares to authorize a 2-for-1 and may do so given the improving market conditions and warm reception by investors for companies announcing splits. ***July contracts expire next week*** BUY CALL JUL-135*RNC-GG OI= 38 at $12.88 SL= 9.75 BUY CALL JUL-140 RNC-GH OI=259 at $ 9.88 SL= 7.00 BUY CALL JUL-145 RNC-GI OI= 73 at $ 7.75 SL= 5.75 BUY CALL AUG-140 RNC-HH OI= 87 at $19.13 SL=13.75 BUY CALL SEP-145 RNC-II OI= 58 at $22.13 SL=16.00 SELL PUT JUL-130 RNC-SF OI=207 at $ 3.63 SL= 5.50 (See risks of selling puts in play legend) Picked on July 11th at $140.75 P/E = 185 Change since picked 0.00 52-week high=$202.00 Analysts Ratings 6-2-0-0-0 52-week low =$ 23.50 Last earnings 03/00 est= 0.21 actual= 0.26 Next earnings 07-27 est= 0.27 versus= 0.26 Average Daily Volume = 832 K INCY - Incyte Genomics $106.00 +5.06 (+9.09 this week) Formerly known as Incyte Pharmaceuticals, INCY is a provider of that hot commodity known as genomic information-based products and services. The company focuses on providing an integrated platform of information technologies designed to assist pharmaceutical and biotechnology companies in the understanding of disease and the discovery and development of new drugs. The company's products include database products, genomic data management software tools, microarray-based gene expression services, and genomic reagents. It's hard to go wrong with a Biotech company involved in genomics research these days. The broad-based Biotech recovery, triggered last month by the announcement of the completion of the human genome mapping is finally starting to breathe signs of life into shares of INCY. After building support near the $85 level, shares of the recently renamed firm began moving higher last week. Volume picked up today, topping the ADV by 50% as the stock tacked on more than $5. This was in the midst of another mixed day in the broader markets as well as the Biotech sector. So aside from a strong day, what gets our attention about INCY? It's earnings time again! The company reports next Tuesday after the close, giving us just one short week for our play. With the positive earnings reports from BGEN and YHOO today after the close, things are looking positive as we head into the heart of the earnings season. As mentioned above, INCY has good support at $85, with near-term support found at $102 and then $96. As long as the sector can stay healthy, INCY looks like it may be poised for a nice quick run. Consider new entries on a bounce from support, confirmed by strong volume. The only concern we have is today's pullback from resistance near $110. Above this level there is more resistance at $120, and the stock will likely need the support of the Biotech sector to push through these levels. A more conservative strategy would be to wait for buying volume to push the share price through the $110 resistance level before playing. After the stunning announcement that the human genome had been fully mapped, the entire Biotech sector began moving higher, taking INCY along for the ride. Since then, there has been little in the way of news on the company. The most recent news on INCY is from late June when the company expanded their agreement with Eli Lilly in which the two companies will collaborate on accelerating the development of therapeutic proteins. ***July contracts expire next week*** BUY CALL JUL-105 IPQ-GA OI=156 at $ 9.25 SL= 6.25 BUY CALL JUL-110*IPQ-GB OI=132 at $ 7.25 SL= 5.00 BUY CALL AUG-105 IPQ-HA OI= 3 at $17.13 SL=12.25 BUY CALL AUG-115 NGQ-HC OI=245 at $13.00 SL= 9.75 BUY CALL SEP-115 NGQ-IC OI= 51 at $18.13 SL=13.00 SELL PUT JUL- 95 IPQ-SS OI= 41 at $ 3.38 SL= 5.50 (See risks of selling puts in play legend) Picked on July 11th at $102.00 P/E = N/A Change since picked +0.00 52-week high=$289.06 Analysts Ratings 1-2-4-0-1 52-week low =$ 16.44 Last earnings 04/00 est=-0.59 actual=-0.27 Next earnings 07-18 est=-0.40 versus=-0.26 Average Daily Volume = 1.02 mln SDLI - SDL Inc. $318.00 -2.69 (+22.69 this week) SDL's products power the transmission of data, voice, video and Internet information over fiber optic networks to meet the needs of telecommunications, dense wavelength division multiplexing, cable television and satellite communications applications. They enable customers to meet the bandwidth needs of increasing Internet, data, video and voice traffic by expanding their fiber optic communications networks much more quickly and efficiently than would be possible using conventional electronic and optical technologies. SDL's optical products also serve a variety of non-communications applications, including materials processing and printing. We don't have much time left to play SDLI, but fortunately JDSU's recent five day, 30-point dip allows for an entry point on SDLI. After all, SDLI is an OI favorite and we will look for any chance to play it one more time before the pending merger with JDSU. Yep, you heard correctly. JDSU is buying SDLI in what is a $41 bln dollar deal based on Friday's close. That would price value SDLI at $440 per share. Now, since it is an all stock deal, SDLI is subject to fluctuate with JDSU shares. That is why SDLI is trading at only $318 as JDSU has been sinking on the news. Some analysts and investors feel the purchase price was a little steep. Nevertheless, the sentiment on the Street is mixed as some look for a rebound in JDSU in the near future once the news is fully digested. We have to side with this opinion and expect JDSU to bounce back. It is hard to keep this stock down for long, historically speaking. JDSU spent Tuesday trying to put in a bottom at $95. If this doesn't hold, we would expect the decline to continue to $88, where it has solid support at the 200-dma. In either case, wait for a bounce first. Resistance on the journey back up is tougher to call. We will let the bounce occur and watch for signs of resistance to report in the next update. Remember, this is a fast mover and not for everyone. Take the necessary safety precautions in the form of stop loss orders. Paine Webber didn't seem to have a problem with the proposed merger and set a $220 price target for JDSU. That would value SDLI at nearly $750. Although such numbers are nice to hear, it may not be realistic. But, here are some comments straight from JDSU CFO, Tony Muller, during the conference call Monday, "The pro forma consensus estimates for the recently completed June quarter for JDSU, E-TEK and SDL add up to sales at a $2.7 billion annual run rate. Further, the preliminary results for the quarter for each of these three companies is for sales and income to be higher than investment community estimates, and you will learn of these results later in the month when we announce results." Higher than analysts expectations, huh? This may help translate into an earnings run for JDSU. SDLI will report on July 20th and JDSU on the 26th of July (both dates confirmed). ***July contracts expire next week*** BUY CALL JUL-310*QJV-GB OI= 397 at $18.50 SL=13.75 BUY CALL JUL-320 QJV-GD OI= 620 at $13.25 SL=10.00 BUY CALL JUL-330 QJV-GA OI=1604 at $ 9.13 SL= 6.75 High Risk! BUY CALL AUG-320 QJV-HD OI= 186 at $29.38 SL=22.00 BUY CALL AUG-330 QJV-HA OI= 211 at $24.63 SL=18.50 SELL PUT JUL-310 QJV-SB OI= 453 at $ 7.63 SL=10.00 (See risks of selling puts in play legend) Picked on Jul 11th at $318.00 PE = 611 Change since picked +0.00 52-week high=$330.50 Analysts Ratings 12-7-0-0-0 52-week low =$ 26.19 Last earnings 04/00 est= N/A actual= 0.22 Next earnings 07-20 est= 0.30 versus= 0.08 Average daily volume = 5.70 mln ************* NEW PUT PLAYS ************* YHOO - Yahoo! Inc 105.50 -4.50 (-5.50 this week) Yahoo! Inc is a global Internet media company that offers an online guide to web navigation, a branded network of comprehensive information, communication services, and shopping access to millions of users daily. Yahoo! can lay claim to the top spot among Internet portals. The Web site gets nearly 31 million hits each month. It's also one of the few Internet players operating in the black. The bulk of Yahoo!'s revenue comes from its 3800 advertisers and their banners. The more experienced know the drill - YHOO historically experiences some degree of a post-earnings' decline no matter what the numbers reveal. The pattern is tried and true. This time around the downdraft started a bit early after a handful of Wall Street analysts questioned growth potential. The company's financials have received considerable attention because of the tightening advertising budgets of the cash-strapped dot-coms. YHOO dove under the $120 support level on Friday and has proceeded to step down in $5 increments since. So you may be thinking easy money here, but there's no such thing (not without peril anyway). Today Yahoo! surprised the Street and posted a profit of $73.9 mln, or $0.12 p/s. The numbers surpassed the posted estimates by $0.02 and met the so-called whisper number. In a comparison to the year-ago period, the revenues were up 175%! The immediate result was for shares of YHOO to surge upwards of $120 in after-hours trading on Instinet. Our play is for YHOO to resume its downtrend pattern during regular trading hours tomorrow. Many analysts agree that the sour market and the ultimate loss of venture capital will have a negative impact on the share price overall. Plus, this Friday we have some important economic data coming out, which may produce a profit taking party in and of itself. We want to stress the following: we only recommend entering this YHOO put play on any weakness over $120(rollover), or a failure to hit $120 on Wednesday. ***July contracts expire next week*** NOTE: Prices will vary greatly due to after hours trading. BUY PUT JUL-120*YMM-SD OI=10003 at $17.50 SL=13.50 BUY PUT JUL-115 YMM-SC OI= 3573 at $13.88 SL=10.75 BUY PUT JUL-110 YMM-SB OI= 4760 at $10.38 SL= 7.25 BUY PUT JUL-105 YMM-SA OI= 5730 at $ 7.75 SL= 5.50 Average Daily Volume = 8.86 mln RMBS - Rambus Inc $87.25 -10.00 (-13.75 this week) Rambus, Inc. develops high-performance, chip-to-chip interface technology which in turn enables semiconductor memory devices to keep pace with todays faster generation of processors and controllers. The company's technology is incorporated onto dynamic-random-access-memory (DRAM) chips to deliver faster and more efficient performance than conventional DRAM's. Rambus technology is licensed to over 30 semiconductor companies including 8 of the top ten semiconductor companies. Knock-knock who's there? If your holding RMBS, you may not want to answer. It's the "dag nabbit" anti-trust guys preparing for a rumble. The news that computer memory chipmakers are planning to file an anti-trust complaint against the company gripped RMBS by the throat today. Yes! This is the same company that saw an astonishing 511% improvement of its share price during the first half of this year. No matter, legal action may be sought to prevent RMBS from enforcing patents it holds on some chip technology. The aggressive move would not only thwart Rambus from bringing suits against these companies, but also prevent "forced" royalty payment pacts like it has with Toshiba and Hitachi. The memory chipmakers will decide over the next two weeks whether or not to take their complaint to the FTC. As a result of the impending legal action, RMBS promptly shed $10.00, or 10.3% in today's session. Volume was exceptionally strong at 10.8 mln shares changing hands. Technically, the closest DMA is at the 5-day line, which is high above at $97.43 and parallels yesterday's closing price. Before taking a position in this potentially powerful momentum play, look some additional confirmation. For instance, downward moves off the current level and through today's intraday low ($86.50) would provide reasonable collaboration. Enter only when it appears to be profitable and make sure the market sentiment is in your favor. ***July contracts expire next week*** BUY PUT JUL-95 BWR-SS OI=1803 at $12.00 SL=9.00 BUY PUT JUL-90*BWR-SR OI=2656 at $ 9.00 SL=6.25 BUY PUT JUL-85 BWR-SQ OI= 926 at $ 6.00 SL=4.00 BUY PUT-JUL-80 BWR-SP OI=1511 at $ 4.13 SL=2.50 Average Daily Volume = 7.53 mln ********************** PLAY OF THE DAY - CALL ********************** PRSF - Portal Software, Inc. $63.56 (+3.81 this 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. Most Recent Write-Up Even with an unconvincing NASDAQ, PRSF managed to hang on to its gains. Besides, its uptrend is fully intact. Early in today's session, PRSF spiked up to the $63 level and then traded in a $1 range. It is clear that $64 is the resistance level with which we will have to battle. Keep this level in mind. There is solid support near the $60 level, also where the 10-dma lies at $60.72. This technical has provided reliable support and entry during this current uptrend. A more aggressive entry could be obtained by targetshooting at $62 on intraday pullbacks. Confirm that it is holding that support, otherwise the next stop could be $60. Helping the stock break away from $60 yesterday was the announcement by PRSF and HWP that Portal's leading real-time customer management and billing solution, Infranet, is now certified with HP MC/ServiceGuard. This reinforces Portal's failsafe capabilities in the Internet systems arena. Comments Just like our Play of the Day from yesterday, PRSF is also in the pattern of building an ascending bullish wedge and is nearing a breakout. $64 is the resistance level and one good day on the Nasdaq should do the trick. Remember, in a tight pattern, a breakout is likely, but not always in the right direction. Therefore, confirm the move is up first. (Editor's note: Tuesday's Play of the Day, GSPN, is another stock right at a breakout point. Keep your eye on this one as well.) ***July contracts expire next week*** BUY CALL JUL-55 PUS-GK OI= 234 at $9.50 SL=7.00 BUY CALL JUL-60*PUS-GL OI=1349 at $5.63 SL=3.25 BUY CALL JUL-65 PUS-GM OI=1105 at $2.88 SL=1.25 BUY CALL AUG-65 PUS-HM OI= 114 at $6.88 SL=3.50 SELL PUT JUL-60 PUS-SL OI= 102 at $1.94 SL=3.75 (See risks of selling puts in play legend) Picked on June 29th at $61.00 P/E = 5894 Change since picked +2.56 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 ********************************Advertisement******************* Looking to buy or sell a new or used vehicle? Autobytel.com has been ranked #1 in J.D. Power and Associates Dealer Satisfaction with Online Buying Services study three years in a row. Autobytel.com has revolutionized the way vehicles are bought and sold, with a no-haggle, no-hassle buying experience. http://www.OptionInvestor.com/tracking.asp?co=OIAutobytel7102000 ***************************************************************** ************************ COMBOS/SPREADS/STRADDLES ************************ Greenspan's Comments Boost Old Economy Issues... Industrial stocks continued to rally today amid strength in cyclical issues. ****************************************************************** - MARKET RECAP - ****************************************************************** Monday, July 10 Technology stocks declined today amid concerns about quarterly earnings shortfalls. The Nasdaq slid 42 points to 3980 while the Dow managed a small rally, ending 10 points higher at 10,646. The S&P 500 Index finished relatively unchanged at 1475. Trading volume on the Nasdaq hit 1.39 billion shares with losers beating winners 2,111 to 1,949. Activity on the NYSE was mediocre at 819 million shares with advances beating declines 1,605 to 1,247. In the bond market, the 30-year Treasury fell 6/32, pushing its yield up to 5.87%. Sunday's new plays (positions/opening prices/strategy): SPX Corp. SPW JUL110P/JUL115P $0.25 credit bull-put Yahoo! YHOO JUL145C/JUL140C $0.25 credit bull-call Sangstat SANG JUL35C/JUL30C $0.62 credit bear-call TV Guide TVGIA JUL45C/JUL25P $0.75 credit strangle Peoplesoft PSFT SEP20C/JUL20C $2.38 debit calendar SPX gapped up $4 at the open, preventing any entry in the bullish credit spread. Yahoo! was also uncooperative, falling $5 ahead of its earnings Tuesday. Merrill Lynch's Henry Blodget said he expects a strong but slightly less robust second quarter for the company. Sangstat also dropped at the open, reducing the credit substantially. However, based on the bearish move, the smaller credit offered a reasonably favorable risk/reward. TV Guide did not provide the target entry but the issue's movement offered a favorable premium in both positions. Peoplesoft was our best play of the session, slumping in early trading before rallying $1.12 at the close of trading. Portfolio plays: Industrial stocks closed higher amid a rotation to defensive and interest-rate-sensitive companies on renewed hopes the Fed will not raise rates again this year. Blue-chip stocks moved up on momentum from last Friday's benign employment report and investors continued to adjust to the impact of the slowing economy, transitioning to stocks which will benefit from the changing trends in business. On the Dow, shares of Alcoa (AA), Honeywell International (HON,) and International Paper (IP) all rallied and cyclicals were among the best performers of the session. Some experts suggest the stabilization in the euro has helped many of these companies post favorable profits. At the same time, the Nasdaq slumped as technology companies fell victim to profit-taking after the recent rally. Traders were nervous ahead of second-quarter earnings as several bellwether issues are expected to report quarterly results this week. A mega-merger announcement from JDS Uniphase also weighed on the sector. The company said it would acquire its rival SDLI in a deal that would create one of the world's most dominant forces in the fiber-optics sector. In the broader market, the retail sector advanced after Prudential Securities upgraded a number of stocks in the group. Aluminum and electronics stocks were also strong, while broadcast media, advertising and computer networking issues consolidated. There were a number of bullish moves in our Spreads portfolio. The most notable position was Paine Webber (PWJ) which rallied $1.25 amid strength in financial services issues. Our debit spread at $45 is approaching a break-even cost basis and with today's positive movement, we have renewed hope the position will yield a positive outcome. Another recently struggling issue, Emulex (EMLX) also continued to recover, climbing back above $60 after last week's unexpected downgrade. Our bullish diagonal spread remains slightly negative but we have another six weeks for the issue to achieve profit (above $63). Thermo Electron TMO) moved up to a recent high near $24, providing a favorable, early-exit opportunity in our new calendar spread. The overall credit for the position is $2.62. On the downside, Cytogen slid almost $2 after the company said it will acquire Advanced Magnetics (AVM) in an all-stock transaction valued at $60 million. The position had previously achieved our target profit but those of you that remained in the long-term options may want to consider locking-in the current gains. The other issue of concern is AM/FM (AFM). The trend turned downward again today and the bullish position will close with a loss if the stock is below $64.50 at option expiration. A favorable early-exit opportunity was available ($1.00 debit) during the session. Tuesday, July 12 Industrial stocks continued to rally today amid strength in cyclical issues. The Dow closed up 80 points at 10,727. The Nasdaq posted a loss of 23 points as Internet stocks weakened ahead of Yahoo!'s earnings. The S&P 500 Index finished up 5 points at 1480. Trading volume on the NYSE was 981 million shares with advances beating declines 1,619 to 1,297. Trading on the Nasdaq Composite Index was heavy at 1.7 billion shares exchanged. Technology losers beat winners 2,170 to 1,854. In the bond market, the 30-year Treasury rose 1/32, pushing its yield down to 5.88%. Portfolio positions: Industrial stocks continued to rally today amid buying interest in cyclical and financial issues. Investors remained optimistic after recent economic data suggested a soft landing is in store for the U.S. economy and corporate profits should remain on an upward course for the next 12 to 18 months. New comments from Federal Reserve Chair Alan Greenspan that productivity growth is keeping inflation at bay, boosted traditional manufacturing and retail stocks. The Fed Chief spoke this morning on the economy before the National Governors Association and his comments were interpreted by some experts as indicating the Fed is against raising rates again in August. The FOMC Chairman was upbeat on developments in the technology industry, its impact on future productivity and the benefits it has for the American economy. Regrettably, the morning rally in hi-tech issues was short-lived. The Nasdaq slid lower on analyst's concerns about valuations in the Internet sector. That group drove the composite index down amid heavy losses in bellwether companies Yahoo, Amazon and EBay. Semiconductor stocks also moved lower ahead of earnings releases this week from Motorola and a number of other industry leaders. The broader market enjoyed advances in the paper sector after Morgan Stanley Dean Witter said that the sector, after sliding in May and June, appears poised for a rally. Morgan Stanley also had positive remarks on metals. The brokerage said investors are bullish on the group, which hit a five-year low last week. Oil service stocks also moved higher while transportation and utility issues slumped. Our portfolio experienced a number of positive moves but we were most impressed with the recently slumping issues; Aetna (AET), Nucor Electronics (NUHC), Paine Webber (PWJ) and Texaco (TX). Aetna moved $2 higher after Monday's news that Health insurance companies are expected to report strong earnings gains in the second quarter, that will be mostly in line with estimates, as the industry continues to benefit from recent price increases. Our bullish, long-term position (JAN-$65C/JUL-$70C) offered a $2 credit for the transition to August options. The diagonal spread is now profitable and we expect further upside activity in the next few months. Nucor rallied $4 amid speculation of upcoming earnings results and although we did not officially have a position in the issue, we agreed to track it for those of you that played the calendar spread at a higher cost basis. The bullish spread is now profitable and traders should remain alert for early-exit opportunities. Paine Webber continued its recent recovery, adding almost $4 to close at $50. Our July bull-call spread is expected to close at maximum profit. Texaco and the oil service sector gained on expectations that results in second-quarter earnings will be about 50% above those posted just three months ago. Both of our bullish plays have provided favorable returns and we will use the current rally to roll out to August options. Peoplesoft (PSFT) deserves mention, up over $3 since we picked the position this past weekend. Today the stock rallied through our sold strike at $20 and the key to our next move will be how well the issue performs at the current resistance level (near $22-$23). Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - These positions are based on recent increased activity in the stock and underlying options. Although these spread plays offer favorable risk/reward potential, they must also be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** MAIL - Mail.com $7.06 *** On The Rebound! *** Mail.com is a global provider of e-mail and advanced Internet messaging services to the business and consumer markets. The company generates revenue through business outsourcing fees, advertising, e-commerce and subscription services. Mail.com provides the business market with outsourced mailbox hosting and gateway services and has a corporate customer base with over 8,500 corporations in all. Their corporate accounts include ADP, Continental Airlines, Mercedes Benz and Yahoo!. In the consumer market, Mail.com has forged alliances with premier Web sites and ISPs such as NBC, iWon.com, Snap, CBS SportsLine, Prodigy, EarthLink and Juno, enabling members to access their e-mail from any location with a web connection. The company also serves the consumer market through its flagship site at www.mail.com. Mail.com is on the move and this week's brisk call trading kept implied volatility in the company's options at a recent high. Options volume, which rose on Monday to about 4,200 contracts, increased further today. Some traders speculated the movement is based on the upcoming earnings announcement. The company is expected to report second quarter earnings during the week of July 26. The First Call/Thomson Financial consensus estimate is a loss of $0.51 a share. Other buyers suggested there is impending coverage by a major brokerage and short-covering is likely the cause of the run-up. In any case, our conservative position allows plenty of time to profit from future upside activity. PLAY (conservative - bullish/diagonal spread): BUY CALL NOV-5.00 UMA-KA OI=483 A=$3.38 SELL CALL AUG-7.50 UMA-HU OI=487 B=$1.06 INITIAL NET DEBIT TARGET=$2.12 INITIAL TARGET ROI(max)=17% Chart = ****************************************************************** CIT - The CIT Group $20.00 *** Cheap Speculation! *** The CIT Group is a diversified commercial finance company with over $50 billion of managed assets and another $5 billion of stockholder's equity. Its subsidiary, Newcourt Credit Group, is a non-bank financial services enterprise, which originates, invests in and sells asset-based financing. Their origination activities focus on the commercial and corporate finance segments of the asset-based financing market through a global network of offices in 26 countries. Trading activity and implied volatility remained strong this week in options on CIT as the share value of the financing company gained ground before its addition to Standard & Poor's 500 Index. Standard & Poor's has added CIT Group to the widely followed index and the company will replace Union Pacific Resources (UPR) after the close of trading this Friday, July 14. Lehman Brothers said it expects CIT Group to rise toward its $24 price target before this week's end. Analysts said they expected portfolio managers to buy about 21 million shares of the stock as a result of the S&P 500 change. We are going to speculate on the final outcome of this week's institutional buying with a short-term disparity play. The low cost entry price makes this a favorable position for those who are bullish on the outlook for the issue. PLAY (aggressive - bullish/calendar spread): BUY CALL AUG-22.50 CIT-HX OI=20 A=$1.12 SELL CALL JUL-22.50 CIT-GX OI=454 B=$0.50 INITIAL NET DEBIT TARGET=$0.50-$0.56 TARGET ROI=15% Chart = ****************************************************************** - READER'S REQUEST - ****************************************************************** AEOS - American Eagle Outfitters $16.12 *** On The Rebound? *** American Eagle Outfitters is a specialty retailer of all-American casual apparel, accessories and footwear for young adults between the ages of 16 and 34. The company sources, designs and markets a versatile line of timeless and relaxed clothing classics like jeans, khakis and T-shirts under the American Eagle Outfitters and AE brand names for sale in the company's stores. American Eagle Outfitters operates almost 500 stores in 45 states and the District of Columbia. The company also operates an Internet site from which it sells its clothing, ae.com, and offers a catalog, AE Magazine. Retail stocks have slumped in recent months thanks to slowing sales and fears that the trend will continue. Share values have fallen amid concerns from investors who believe that the Federal Reserve will be successful in slowing down the excellent growth experienced over the past few years. The slide in valuations has been broad-based, hitting well-known department stores and discount chains in virtually all segments of the industry. The drop in AEOS shares has been precipitous, with the company losing over 50% of its value in the last six months. Now it appears the stock may be rebounding and with the recent recovery in other industry leaders, the rally should continue well into the Summer. One of our subscribers noticed the bullish reversal pattern in this stock and the Retail Apparel group. He also requested that we identify a favorable spread position in the underlying options. Based on the new technical outlook and increased option interest, the easiest way to profit from future upside movement may involve one of the most common forms of debit spreads. With a favorable premium disparity in the (ITM) August options, this play offers a low risk speculation play for those who are bullish on the issue. PLAY (conservative - bullish/debit spread): BUY CALL AUG-12.50 AQU-HV OI=120 A=$4.25 SELL CALL AUG-15.00 AQU-HC OI=475 B=$2.25 INITIAL NET DEBIT TARGET=$1.88 ROI(max)=32% B/E=$14.38 Chart = ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************ See Disclaimer in section one ************
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