The Option Investor Newsletter Thursday 07-20-2000 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/072000_1.html Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 07-19-2000 High Low Volume Advance/Decline DJIA 10843.90 +147.80 10874.60 10700.70 1.06 bln 1698/1137 NASDAQ 4184.56 +128.93 4184.56 4106.63 1.70 bln 2214/1773 S&P 100 812.99 + 10.04 814.73 802.71 totals 3912/2910 S&P 500 1495.47 + 13.51 1501.92 1483.90 57.3%/42.7% RUS 2000 534.75 + 6.89 534.82 527.86 DJ TRANS 2794.06 - 11.67 2841.03 2789.27 VIX 22.06 - 0.46 22.80 21.41 Put/Call Ratio .46 ****************************************************************** Buyers Return! But Will It Last? The markets rallied today, but a fresh dose of earnings reports after the market today may bring post-earnings selling back on Friday. Check out some of the names that turned in their report card after the close...AOL, SUNW, BVSN, INKT, SCNT, TQNT and SDLI. And some of numbers were impressive to say the least, especially from the big boys like AOL and SUNW which we will cover in more depth below. Today typically puts us over the hump relative to the number of major companies left to report and brings about the mid-July slump. It's time to see if this trend will hold once again. So far we've had a sideways-to- up market for the past two months and have been able to avoid the major dips. The question on every traders mind...Can we avoid a major dip in the next couple weeks? Alan Greenspan spoke before Congress today and markets didn't seem to mind. His comments again suggested that inflationary expectations remain modest outside of energy prices and that demand is moving more into line with supply, suggesting that imbalances in the economy are being corrected. He said, "Aggregate demand may be moving closer into line with the rate of advance in the economy's potential." But we aren't out of the woods just yet because Alan loves to sit the fence as he does with this statement..."it is much too soon to conclude that these concerns are behind us." All in all, the comments were mild and the markets didn't use it as a reason to sell-off. In fact, investors decided to end the two-day slide on the Nasdaq and turn in a 3.17% rally. The Composite finished at 4184.56, up 128.93, on good volume of 1.70 billion shares. Most of the gains took place in the first hour, but it managed to hold those gains for the entire session, slowly moving higher, and end right at the day high. This puts the index back above the all major moving averages after a successful bounce off the 100-dma on Wednesday. It's nice to see those gains come on stronger volume as well. The challenge now will be to see if the techs can rally this index past resistance between 4215 and 4290. A move over 4300 would be shocking and would have to be considered bullish. Some analysts are sticking out their necks, saying the Nasdaq will rally to the April 10th high of 4475. A move over 4290 and that could easily be tested. Although, you are likely to find a barrage of sellers at that higher level. The Industrials also took to the skies today on the Greenspan comments, back over 10,800 again. This index has alligator's blood of late as it continues to rally. It has only had two down days in the past ten sessions. Today saw a gain of 147.79 to 10,843.87. Volume crept over 1 billion shares too. I am hesitant to scream bull market knowing where we are in mid-July, but you have to be impressed with the DJIA lately. The chart below shows today's close is actually above the closing highs of early June. This is a bullish sign for the big 30, which was helped to gains today by a positive move in IBM and the Financials. Another major story that helped to lift the markets today was JDS Uniphase, which was added to the S&P 500. This helped the stock surge by 20% during today's trade. They will be replacing Rite Aid after the market close on the 26th. This helped SDLI (who JDSU is acquiring) put on a cool $68.44 to end at $428.06. SDLI also reported earnings after the market close today and beat the street by reporting $0.33 cents a share. The stock was trading down slightly after-hours to $423. SUNW appears to be the big earnings winner. The estimate was for $0.33 and they turned in $0.39. That is a whopper of a number and SUNW is rallying sharply after the regular session close of $98.06. You know our rule of never holding over earnings because seven out of ten companies will drop. Well, this is going to be one of the three that likely go up tomorrow. SUNW is currently at $103.88. "In every important metric, including market share gains, we had in incredible quarter," said Scott McNealy, Sun's chairman and chief executive in a statement. "Sun's position as one of the Internet's leading innovators has never been stronger." America Online was a close second though as they reported numbers that pleased most analysts. AOL reported net income of $334 mln, or $0.13 cents a share, surpassing estimates of $0.11 cents. That's also up from 7 cents a year ago and 11 cents in the previous quarter. There were some cause for concern though as ad and commerce revenue came in below the highest expectations. But AOL did add 992K net new subscribers, slightly ahead of Henry Blodget's forecast of 987K. AOL was down from it's $61.56 close to about $59 in post-session trades. Unfortunately for Agilent Tech, there is always a daily loser. They get to wear the crown today with an earnings warning released after the close. According to a company statement, demand is extremely strong, but the company does not have the capacity and parts to fulfill the demand. The company also said demand in the healthcare-solutions business remains weak, particularly in the U.S. patient-monitoring market. "Results in our healthcare business are simply unacceptable," said Robert Walker, executive vice president and CFO. "Overall market demand continues weaker than we anticipated, and we're not expecting near-term improvement in market conditions. While we've taken some actions already, it's clear that additional actions are required, and we'll be making announcements in this area in the next few weeks." That is not the most inspiring comment to ever flow from a CFO's mouth and the stock will likely get whacked tomorrow. The current indication is for Agilent to open around $55, down from a close of $73. I could go on and on about the earnings reports tonight, but there are just too many. We will just have to see how all these numbers shake out in the morning. SUNW will have the greatest impact to the upside if it holds some of these after- hours gains, as much as $7 at one point. But AOL is dipping slightly after their good number. My feeling is we will get a mixed response amongst the individual stocks, but Nasdaq may come under selling pressure again. Remember, seven out of ten of these companies reporting will drop, if only for a couple of days. That gives us the downside bias. The Industrials are another story. This index doesn't seem to care about what it is "supposed" to do. Onward and upward is it's motto of late. Fair enough, we won't argue the trend. Besides it is only 30 stocks. Hopefully though, it's strong sentiment will bring investor attention back to the markets and carry the Nasdaq higher (the market we really care about). The VIX closed again near the low end at 22.06. It has been holding down near the sell signal for a couple weeks, which is interesting in that it did the same thing last year right before the market rolled over into a major decline. The VIX quickly spiked up to 30 by months end. We could have the same thing setting up again. Don't get too comfortable with it being able to sustain this level. Tomorrow should be a key day to see how stocks react on July expiration. I will be taking the market at face value. A sell-off being negative for next week and a rally being somewhat positive, with the former being more likely. Prepare a plan and trade accordingly. Ryan Nelson OI Editor ************************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 ************************************************************** **************** MARKET SENTIMENT **************** Fresh Hors d’oeuvres At The Party By Austin Passamonte Zzzzzzz... oh, good evening! I must have nodded off for a bit. Last thing I remember, Greenspan was answering questions about the economy. Did I miss him disclose August rate hike plans? Let me clear the dictionary & thesaurus off my lap and we’ll begin with fresh data. Nothing for bulls to complain about today. This was the kind of earnings-week performance they fantasize about. Pick the right stock yesterday, catch the rotation and it’s off to the races. Want to get in on tomorrow’s action? Better have placed your bets tonight prior to close, beating the gap-up on tomorrow’s open for the next hot plays of the day. Not much new in either direction to cover so we’ll be brief. Our summer rally remains alive & well. The party Jim spoke about in Saturday’s Market Wrap had the food trays looking kind of peaked and all the top-shelf drinks were drained the past two days. IBM, JDSU and others made a late-night supply run that kicked festivities back to high gear today. Still looks favorable from here. If only the VIX weren’t sagging this low. It’s been around 22 for so long, can’t we just ignore it? I wouldn’t do that Sparky! Interesting to see how it moves on Monday when OEX options contracts reshuffle. The blended-average used to gauge the VIX has a 30-day mean calculation as it’s base, but I’ve noticed slight fluctuations in value after each recent front-month rollover. Perhaps a reading then might waver a bit in either direction. Ride the rally while it lasts. Maybe this one truly has legs lasting deep into the summer. An August Fed meeting with no further increase might surely do the trick. Few traders would buy the "ever-vigilant" bluff no matter how strongly it was worded from there. That’s not to say it will be all up the charts between now and then. The next two session’s action will be critical. Further strength on strong volume will be needed to quash seasonal summer sell-off patterns after July expiration Friday. We’ll know more next Tuesday. Calls and puts, puts and calls. Regardless which direction, thank heavens the markets are moving once again! 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. Tues 7/18 close: 22.55 Thur 7/20 close: 22.06 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 (7/18) (7/20) (7/22) ************************************************************* CBOE Total P/C Ratio .51 .46 Equity P/C Ratio .45 .40 Peak Volume (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 (7/18) (7/20) (7/22) ************************************************************** All index options 1.46 1.05 OEX Put/Call Ratio 1.39 .93 OEX Maximum Open Interest Strikes/Contracts: Puts 800/6,839 800/7,371 Calls 825/16,857 825/14,660 Put/Call Ratio .41 .50 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: (7/18) (7/20) (7/22) Overhead Resistance: (840 - 820) 25.27 168.76 (815 - 800) .93 .95 OEX Close: 807 813 Underlying Support: (800 - 785) 1.75 2.08 (780 - 760) 5.18 5.86 What the S/R measure indicates: Net open-interest ratios are astronomical above 820 OEX level while underlying support is light until 780. The OEX has downside pressure from 820 with growing upward support from 780. A large move in either direction seems unlikely until option expiration. The OEX appears to remain between 800 and 820 near-term for discretionary spread or directional play consideration if the index nears these benchmarks of support/resistance. 30-yr Bond: 5.91% 5.81% Light, Sweet Crude, Barrel: $30.64 $30.50 200 Day Moving Average (as of 7/17) The 200 DMA is widely considered the major benchmark for critical support in a market. DOW; 10,750 10,739* 10,843 NASDAQ; 3,831 4,177 4,184 NDX; 3,551 3,960 3,995 SPX 1417 1493 1495 OEX 762 807 813 CBOT Commitment Of Traders Report: Friday 7/14 Biweekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader’s direction. Small Specs Commercials DOW futures Net contracts; +326 long +59 long Total Open Interest % 2.3% net-short .4% net-long NASDAQ 100 Net contracts; +6,183 long -10,731 short Total Open Interest % 4.9% net-long 11.9% net-short S&P 500 Net contracts; +36,908 long -44,272 short Total Open Interest % 9.8% net-long 11.8% net-short BULLISH SIGNALS Broad Market Strength: Major indices showed strength today on rally with high volume. Interest rates 5.81% on the 30-year Treasury Bond may be signaling the rate fears are over. Fed-Fund futures are pricing a 50% chance of one or more rate hikes, .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 last week. Many issues beating the street with a majority still to report. IPO’s Recent IPO’s have been met with positive enthusiasm. ****** BEARISH SIGNALS VIX Today’s close near 22.06 still warns of impending market top danger. Energy Prices Prices are still too high. Ultimately this affects profit margins and inflation. August Crude closed $30.50 today. Seasonal energy patterns typically bottom by late summer, but heating & fuel oil expected to be very high this fall. COT Report Latest updated figures show small spec traders heavily long S&P 500 contracts while commercial traderss continue to build five-year extreme short position. Widening divergence in NASDAQ 100 futures market with commercials becoming heavily net-short. Divergence suggests possible market turn in favor of commercials soon. Seasonal Tendency The last two years have seen expiration Friday result in market decline through fall. Next few session’s strength will be vital to prevent this. ************** MARKET POSTURE ************** As of Market Close - Thursday, July 20, 2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,843 10,550 10,950 ** SPX S&P 500 1,495 1,435 1,520 OEX S&P 100 813 775 822 RUT Russell 2000 534 500 550 NDX NASD 100 3,995 3,580 4,100 MSH High Tech 1,056 965 1,100 XCI Hardware 1,574 1,440 1,600 CWX Software 1,263 1,160 1,360 SOX Semiconductor 1,146 1,060 1,281 NWX Networking 1,333 1,250 1,400 INX Internet 588 470 637 BIX Banking 566 540 580 ** XBD Brokerage 566 500 590 IUX Insurance 652 610 660 RLX Retail 919 860 960 DRG Drug 387 385 430 HCX Healthcare 802 800 880 XAL Airline 168 156 178 OIX Oil & Gas 286 285 315 Comments - DOW broke resistance of 10,850 BIX broke resistance of 565 Support Revisions (DOW, NDX, NWX, BIX, XBD, XAL) Resistance Revisions (DOW, BIX, XAL) ************** TRADERS CORNER ************** Someone Turned On The Furnace This Summer By Molly Evans Don’t even try to figure it out. The market just is. You can study it, have light bulbs turn on in your brain, feel like you know what you’re doing but then it’s still going to make a mockery of you. If all of those people who dumped shares yesterday believed prices would go up even further today, no, they wouldn’t have wouldn’t have done that. Don’t feel bad. (yeah, right!) Afterall, the sell signals had been generated and folks have been clobbered with warnings that the summer is typically less than a favorable time for the markets. It’s been a smart trader’s dream and an investor’s stomachache. The rally continues on with but a slight stumble the past couple of days. Let’s recount the numbers. After advancing nearly 7% the first two weeks of the month on the Nasdaq, the composite fell back from an escalated trend back to the one it's been on since it gapped up the second of June. With the retracements of the previous two days, the composite was up 2.3% and the Dow up 2.4% on the month (as of yesterday's close). The S&P 500 had been really cooking along well too, up 3.8% for the first half of the month but as of the close yesterday, it had a haircut to half of that. Now, today comes along and we’re back up 3.8% on the Dow, 5.5% on the Nasdaq and 2.9% on the S & P. And how about June huh? Huh, huh?? The Nasdaq climbed 16.6%. Wasn’t everyone asking when we would get on with a summer rally? In my book, that spells R-A-L-L-Y. Aargh! Sorry, I can’t help it. But, didn’t I just say, "The market just is"? So that’s it, the up to the date score. The last time we talked, this escalated rally was just getting started and I mentioned that I’d discuss the seasonal cycles of market movements. As promised, this passage will discuss the historical swings of the markets during the third quarter or more specifically, July, August and September. First, if, as an investor, this summer's gyrations in the indices and individual stocks has you reaching for the Mylanta bottle, here's a sound piece of advice but one I know you’ll never take. I’ll say it anyway for the effect though: just go to cash and come back in November. Some investors have a strict discipline to participate in the stock market at only certain times of the year. The best six months to be invested are November to April. This has been tested and postulated to be the best ever mechanical system to investing. The "2000 Stock Trader's Almanac" put out by The Hirsch Organization at www.stocktradersalmanac.com has a nice summary of what this would have returned on the S&P since 1950. If one had taken $10,000 and invested it for just those six months every year from 1950, by the end of the 1998 period studied it would have grown to $776,390. On the contrary to that, if the same $10,000 had been invested in like fashion for the months of May through October, 1950 - 1998, only $9808 would remain. Markets do rally in every season of the year. However, as our markets had taken such a beating and experienced wide swings in sentiment in the spring, this summer's rally was especially hoped to have broad shoulders to lift the outlook and portfolios of all its participants. Historically, however, the typical summer rise in U.S. indices is the weakest of all seasonal high tides. Election years do their part to cloud the picture a bit too so it would be remiss not to include those statistics where they are applicable. For example, that worst six-month period each year that I discussed previously is less bad in election years. Since 1950, the first month of each of the first three quarters has been the most bullish for the S & P composite. Hirsh reports that the average return for that first month of each of these quarters has been 1.47% on average. The average second month has been only 0.17% and the average third month has been 0.33%. For the Dow, and dating back to 1991 this time, the gains have been even better. The first month's average return was 2.46% while the second and third months managed only 0.57% and 0.97% respectively. This takes care of nine months but the fourth quarter behaves differently as it is affected by year-end portfolio adjusting and of course, the elections in even numbered years. When one starts delving into these numbers for return on any one month, it does get messy. Resources used to compile this report have a number of ways of looking at the data. The time frames are the most significant factor for discerning how a particular month has behaved. Since 1915, July has been the second strongest month after December for the Dow. But from the days of our bull run, 1982 until 1999, July is only the fourth best month, behind December, January, and April respectively. Then, to complicate the picture even further, July has been the worst month in election years. It's been a down month six of the last eight election years. It remains to be seen whether or not the topping of the three major indices was July 17, 2000 as it was in both 1998 and 1999. Last year at this time, the Nasdaq fell 13% until mid August but then reversed to tack on those stellar gains we all watched with wide-eyed wonderment. In 1998, the Nasdaq plummeted 30% until it caught an updraft in October and regained all of that and more too. Actually going back on the Nasdaq weekly charts to 1991, one finds that summer, on the average is more a time of consolidation and modest gains. Before we get ahead of ourselves, we must look at August. Back in 1900, Hirsch notes that 35% of the population was farming and the money flow from their harvests made August a terrific month for the markets. However, only 2% of our population is involved in farming now and August is the second worst month for the S & P and is the worst month of the year for the Dow. You can probably vividly recall that the shortest bear market in history ended in August of 1998 with the composite down 14.6%, the Dow down 15.1% and the Nasdaq strangled with a 19.9% decline. The bear markets of 1982 and 1984 likewise ended in August but consequently witnessed their best gains (11.5%) and (9.8%) in that month. Worthy of mention here is that there is a "Post-Convention-to- Election-Day Forecaster." Supposedly the direction of the Dow reflects voter sentiment from the close of the last convention and the Election Day. Hirsch reports that of the sixteen presidential elections since 1900, where the incumbent parties were victorious, rising stock prices were observed in fourteen or 7/8 of those periods. Those two exceptions were minor down too - (-0.5%) in 1948 and (-2.3%) in 1956. When the incumbent party is on its way out, six out of nine times or 2/3 the markets declined. The Democratic National Convention will end on Thursday August 17th. Perhaps the markets like stability you think? One more point about August is this: after a series of interest rate raises by the Fed in 1994, the summer session rallied very nicely through out the whole summer, consolidated, corrected and then blasted into 1995. This year has often been compared to the climate of the markets as they were in 1994. What should we say about September? My little almanac says, "Last two days of August murderous three years in a row." But then says, "September opens strong four years in a row." What a welcome! Furthermore, "Day after Labor Day up five straight years, after five losses in a row." That will fit right in to this market. Play for the day and/or live and die by the particular day. Up, down, up, down. You know what I'm talking about. So what do we say about September as a whole then? It's the biggest loser for the S & P for 49 years but the last four have all been positive. Not stellar, just slightly positive. Since 1915, September has been a negative month on average for the Dow but has slightly improved that performance since 1982 to a barely positive number. It's all well and good to look at the market in terms of seasonal cycles but the story that remains is the Fed, the economy, and corporate earnings. The interpretation of those pillars is what ultimately and decisively determines the market direction. The particular days and the weeks that go by are but minor factors to the overall tenor of the market. It can fire up in August just as it can plummet in December. Afterall, the market just is. Contact Support ************* SECTOR TRADER ************* The More Things Change, the More They Remain the Same By Buzz Lynn sectortrader@OptionInvestor.com No changes tonight in our lineup, but we'd suggest caution going into Friday. ************* Results ************* Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 99.44 1.06 -2.69 -2.88 2.25 0.00 -2.25 HHH Internet 121.56 0.44 -1.88 -2.06 5.88 0.00 2.38 BBH Biotech. 183.25 4.06 1.13 -6.88 1.19 0.00 -0.50 PPH Pharm. 95.81 2.75 -1.25 -0.69 -2.19 0.00 -1.38 TTH Telecom. 73.69 -1.94 0.06 -0.63 -1.06 0.00 -3.56 IAH I-net Arch. 100.75 1.38 -2.38 -1.19 5.25 0.00 3.06 IIH I-net Infr. 66.00 0.06 -1.19 -3.38 4.75 0.00 0.25 BHH B2B 51.69 -0.19 1.00 -4.00 2.75 0.00 -0.44 BDH Broadband 97.63 3.06 -3.63 -2.25 0.31 0.00 -2.50 SMH Semicon. 93.44 1.63 -4.56 -3.50 -1.69 0.00 -8.13 RKH Reg. Banks 100.00 -1.69 -1.38 1.25 2.25 0.00 0.44 UTH Utilities 94.00 0.06 0.06 1.63 -0.75 0.00 1.00 ************** Updates ************** QQQ - NASDAQ 100 $99.44 +2.25 (-2.25 this week) Home, home on the range? QQQ remains in the $97 to $102 neighborhood, with a bullish twist following today's action. Along with earnings comes the "sell the news mentality". That's exactly what investors did yesterday on INTC's and MSFT's earnings news from Tuesday night, despite their moves up after hours on Tuesday. While we thought we might see a nice bounce from previous support at $99, it was not to be as QQQ groped for previous support at $97.50 before finally heading up again at $96 yesterday. That was about $1 higher than what we thought might be the next level of support at $95 - nicely bullish. So if you didn't buy the dip yesterday on the bounce up into the close, today's gap open in the $97.50 range looked pretty good by the end of amateur hour for an entry into a number of our listed positions. Greenspan's dove-ish testimony on Capitol Hill today also seemed to convince investors that inflation is under control and that future rate hikes are less probable (but not out of the question). That's a sentimental change to the bullish side, and can be readily seen in the VIX, which went as low as 21.41 today. We may be getting close to a market reversal given the overly bullish tone of the VIX, but until then, the market should try to hang on for at least another eight seconds. Then it will be time to send in the rodeo clowns to protect the cowboys. While it may sound like we're talking out of both sides of mouth, tomorrow is Friday and subject to some pullback as traders close positions in order go home flat for the weekend. Short Strangle: While Tuesday's close looked like a potential entry to us, little did we know that yesterday' move down on the NASDAQ would have made an even better entry. Thus you can see the risk of trying to leg out of positions if you are wrong on the expected market direction. Buying back a lower short put and reselling a higher short put would have been painful. Nonetheless, $97 to $102 seems to be holding as the current trading range making the short strangle still an attractive play. We still like the position as time value continues to decay. However, there appears to be a bit of a bullish tinge as noted above, which could keep QQQ moving up during this earnings season. So be prepared to roll up on your short calls if need be. That said, $101.66 (backed up by $102 resistance) is the top level of the Bollinger band and could have QQQ moving back down again. You could play the 97P/102C however, given the bullish investor bias, we're sticking with the 98P/103C for listing purposes. SELL CALL AUG-103 QVO-HY OI= 158 at $ 3.75 SELL PUT AUG- 98 QVQ-TT OI=3719 at $ 3.88 Net Credit = $ 7.63 or better Stop Loss = $10.25 Covered Call: QQQ dipped under the $97.50 support level yesterday, but regained support at $96 - better than the anticipated $95 level of the past support. So did you take advantage of the buying opportunity? Not to worry. QQQ appears rangebound between $98 and $103. Greenspan's comments today went a long way to adding back a bullish tilt. That said, $102 looks like the next level of resistance. If you have the stomach to leg in (first buy the stock low, then sell the call high), feel free. Otherwise, the trusty buy/write, where you simultaneously do both, should do the trick. Just remember to close your position if your position value falls below your personal threshold of pain. That should not be too far under your net debit cost. Support is still at $97.50 over the near term. QQQ = $99.44 SELL CALL AUG- 98 QVQ-HT OI= 1272 at $ 6.38, ND = 93.06 or less SELL CALL AUG-100 QVO-HV OI= 6250 at $ 5.25, ND = 94.19 or less SELL CALL AUG-103 QVO-HX OI= 158 at $ 3.75, ND = 95.69 or less Calendar Spread: Almost the same as a covered call, except that you DON'T want to get called out of your long underlying call. The objective here is to sell a new strike every month using the collected premium to reduce the net cost of the underlying position to zero. Ultimately, it's paid for and additional premiums are gravy. That can't happen if you get called out. So it's important to buy the front month short call back when the time premium gets really low. That's usually just before expiration or whenever the premium moves deep into the money. While you may be paying more to buy it back, remember your long position has been gaining an equal or greater value too as the stock has moved up. Support is $97-$98. Resistance is $102-$103. BUY CALL DEC- 94 QVQ-LP OI= 1597 at $16.50 SELL CALL AUG- 98 QVQ-HT OI= 1272 at $ 6.38, ND = 10.13 or less SELL CALL AUG-100 QVO-HV OI= 6250 at $ 5.25, ND = 11.75 or less SELL CALL AUG-103 QVO-HX OI= 158 at $ 3.75, ND = 12.75 or less Long Calls As we noted Tuesday, we considered the pullback to $99 to be a buying opportunity to go long on calls . . that is unless investors change their minds on the INTC and MSFT earnings announcement, which they did in fine fashion yesterday. $97.50 support we were looking for was violated to the downside, however was quickly found at $96 rather than the $95 we'd expected. Still we suggested walking away at $97.50. Any guess as to what happened after amateur hour today? Right! A recovery to $97.50 that held and moved up. There's a definite bullish bias now, which could make a good entry at even the current level. Intraday support is $99, but we might be inclined to wait for $97-$98 to show up again. At Support: BUY CALL AUG- 98 QVQ-HT OI= 1272 at $6.75 SL=4.75 BUY CALL AUG-100 QVO-HV OI= 6250 at $5.38 SL=3.25 Naked Puts Nothing's changed here since Tuesday. "We're thinking that while this is a buying opportunity for calls, it may also be a selling opportunity for puts. $95 is excellent support as is $97.50 during this earnings season rally. If you are patient and have to stomach to endure gyrations (a.k.a. risk tolerant) while you allow time value to shake out of AUG strikes, you might even consider selling AUG-100 strikes (ATM)". Except, now July is over. We need to move to August strikes. SELL PUT AUG- 95 QVQ-SQ OI= 2109 at $2.88 SL=4.50 SELL PUT AUG- 97 QVQ-SS OI= 874 at $3.50 SL=5.50 SELL PUT AUG-100 QVO-TV OI= 2768 at $4.75 SL=6.75 Average Daily Volume = 24.77 mln ----- BBH - Biotech $183.25 +1.19 (-0.50 this week) Ugly as this may initially look on the chart, we're going to let this one ride into the weekend for technical reasons. It's iffy, but potentially playable. Note the support in the $182 to $184 range. BBH is right in the middle of it. Second, note the quasi-doji (literary license) on today's candlestick indicating a possible reversal. That was coupled with almost twice the daily volume, which also usually means a reversal. It's an indicator that many investors rushed in to support the price as many others were exiting. This could in fact be an entry level. Watch $182-$184 carefully for a move over $184 to confirm the move. But before you put your market order in to buy first thing in the morning (just kidding, don't do that), realize there is a very real possibility of further decay. Note the descending wedge pattern over the last six trading days, which could portend a breakdown. It doesn't look good. At this point, if you haven't already been stopped out, consider moving up the price of your stop. A break under $182 would be our cue to walk away. BUY CALL AUG-180 BBH-HP OI= 34 at $14.50 SL=10.75 BUY CALL AUG-185 BBH-HQ OI= 62 at $11.88 SL= 9.00 BUY CALL AUG-190 BBH-HR OI= 95 at $ 9.50 SL= 6.50 Average Daily Volume = 605 K ----- HHH - Internet $121.56 +5.88 (+2.38 this week) Tough to tell if that was an entry yesterday. But it probably was given the selloff in the rest of the market while HHH maintained itself at support. Recall we were looking for the 30 and 50-dma to act as support. It happened yesterday on a doji candlestick formation, indicating a bottom may have been formed. From there, it has risen into resistance territory at $122 largely on the strength of YHOO, EBAY, INKT, and EXDS. While the sentiment looks positive going forward from here, exercise some caution since the candlestick pattern is mashed at the high side of the Bollinger band indicating a possible reversal. Volume was low today too. It may make some sense to tighten up your stop. On the other hand, if HHH can hold this level and move over say $123 with increased volume, the next likely level of resistance would be $128. BUY CALL AUG-115 HHH-HC OI= 41 at $11.88 SL=8.75 BUY CALL AUG-120 HHH-HD OI=212 at $ 9.00 SL=6.25 BUY CALL AUG-125 HHH-HE OI=119 at $ 6.75 SL=4.75 Average Daily Volume = 928 K ----- BDH - Broadband $97.63 +0.31 (-2.50 this week) We noted Tuesday's ugliness and suggested that LU could make this sector look really ugly. Bingo! LU, which makes up around 25% of BDH dropped $10 today on an earnings warning, yet BHD gained. JDSU and thus SDLI saw spectacular gains on news that JDSU would be added to the S&P 500. LU problems are strictly Lucent's and we think the worst may be over for them. That would leave the sector free to move up on strength in the optical end - something we expect since JDSU has pre-announced that they will beat the street's loftiest estimates. With LU perhaps bottomed, and BDH at support at its 10-dma of $75.80, look at dips to $96, or any move over $98 (a former level of resistance) as a potential entry. BUY CALL AUG- 95 BDH-HS OI= 41 at $ 7.88 SL=5.75 BUY CALL AUG-100 BDH-HT OI= 39 at $ 5.25 SL=3.25 BUY CALL AUG-105 BDH-HA OI= 35 at $ 3.50 SL=1.75 SELL PUT AUG- 95 BDH-TS OI= 30 at $ 4.25 SL=6.25 Average Daily Volume = 153 K ----- IAH - Internet Architecture $100.75 +5.25 (+3.06 this week) Absent Lucent in this sector of bandwidth development, IAH faltered with the rest of the NASDAQ yesterday, but boomed ahead today finding support at $97 and breaking out to a recent new high. While that looks great, this level is also a former level of resistance that could push IAH back down to $97 support again. Again, we'd consider that a target shooting opportunity. A clean break over $101 would also give us the entry sign and set IAH up to test the next level of resistance at $105. It's blue sky breakout from there. Still it pays to be somewhat cautious - SUNW reports earnings tomorrow after the bell. It could put a drag on the whole sector though we think that's unlikely to happen since even IBM, who has struggled lately, also beat estimate. BUY CALL AUG- 95 IAH-HS OI=54 at $7.63 SL=5.50 BUY CALL AUG-100 IAH-HT OI=21 at $4.63 SL=3.00 BUY CALL AUG-105 IAH-HA OI=42 at $2.50 SL=1.25 Average Daily Volume = 153 K ************** No Play ************** PPH IIH BHH SMH TTH RKH UTH **********************ADVERTISEMENT************************** Free voicemail, email, fax, and paging - all in one place! Accessible over the phone & Internet. Free Local & 800 Phone Number for Life! Send & receive faxes & email via the web or phone. ThinkLink charges no monthly fees. Plus, for a limited time, sign up now and receive an airline voucher worth up to $100 dollars off any major airline. FREE NOW! FREE FOREVER! http://www.OptionInvestor.com/tracking.asp?co=STThinkLink7172000 ************************************************************* ************* DAILY RESULTS ************* Index Last Mon Tue Wed Thu Week Dow 10843.87 -8.48 -64.35 -43.84 147.79 31.12 Nasdaq 4184.56 28.49 -97.50 -121.54 128.93 -61.62 $OEX 812.99 2.23 -10.56 -4.24 10.04 -2.53 $SPX 1495.47 0.52 -16.75 -11.78 13.51 -14.50 $RUT 534.75 2.55 -8.90 -8.42 6.89 -7.88 $TRAN 2794.06 -18.77 -0.90 -93.64 -11.67 -124.98 $VIX 22.06 -0.55 0.49 -0.03 -0.46 -0.55 Calls ARBA 133.88 -1.21 3.75 -0.94 8.31 9.91 New MRVC 78.56 2.19 -4.81 7.81 0.75 5.94 Lovely HGSI 159.00 6.13 2.44 -11.06 8.25 5.75 Intact VRTX 118.50 5.31 2.31 -6.81 2.69 3.50 7/25 earn. SCMR 140.00 11.88 -7.94 -7.06 4.94 1.81 Popped DISH 44.63 -0.69 -1.88 -0.13 3.13 0.44 New NT 78.75 0.75 -2.13 -1.31 2.25 -0.44 Steady CREE 148.00 1.66 -3.72 -2.50 3.38 -1.19 Light volume PRSF 67.81 1.13 -0.69 -9.13 6.13 -2.56 Dropped BRCD 201.81 3.75 -6.81 -10.38 9.31 -4.13 Recovered AMSC 52.25 1.44 -5.22 -0.72 -1.50 -6.00 Dropped CFLO 76.63 1.00 -4.81 3.81 -6.38 -6.38 Profit take GSPN 138.03 -0.25 -6.63 -9.81 8.72 -7.97 Entry point KANA 60.00 -2.25 -5.38 -6.19 3.38 -10.44 Reports 7/27 TIBX 116.44 -2.00 -8.44 -3.13 3.00 -10.56 Coming back CMTN 89.63 8.44 -29.50 1.13 -5.69 -25.63 New Puts CMOS 46.00 2.56 -2.88 -6.31 -3.69 -10.31 New AETH 176.50 -2.94 -13.38 1.94 9.50 -4.88 Drifting CHV 80.00 -1.06 -1.22 0.50 -1.94 -3.72 Looks good GTW 63.13 -1.31 -1.56 0.25 -0.63 -3.25 Rolled over IP 34.06 0.44 -0.72 -0.69 -0.56 -1.53 Declining 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: ***** PRSF $67.81 +6.13 (-2.57) Dead cat bounce? Yesterday, PRSF followed the NASDAQ down, selling off $9.13, or almost 13%. It came on strong volume and sliced through the 5-dma and 10-dma support like a hot knife through butter. In doing so, PRSF also made a clean break from its uptrend channel. PRSF also broke through support at $67.50 on Wednesday, which we mentioned as a key level in Tuesday's update. Today, the stock bounced but on lower than average daily volume, finding resistance at the 5-dma, currently at $68.50. Considering Wednesday's expansive breakdown on stronger volume, we will exit this play on the bounce today. AMSC $52.25 -1.50 (-6.00) After declining for most of the week on NASDAQ weakness, AMSC finally popped up this morning on solid volume. If you jumped in yesterday when the stock was bouncing on the $54 support level, today’s early move gave a nice, albeit small profit. Unfortunately, there was an oversupply of sellers and AMSC gave back all its gains, and then some, by the close. In light of the strength on the NASDAQ today, it was rather disheartening to see our play unable to hang on to its gains. Earnings are confirmed for next Thursday, but the stock’s lack of staying power forces us to drop AMSC tonight. PUTS: ***** No dropped puts today. ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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 Thursday 07-20-2000 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/072000_2.html ************************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 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** GSPN $138.03 +8.72 (-7.97) Thanks for the entry point! On Tuesday, we mentioned $127.50 as a strong line of support for the stock and a bounce off that level would be an excellent entry point. The very next day the stock moved down in sympathy with the broader market on light volume. Finding a bottom at exactly $127.50, the stock bounced closing slightly higher at $129.31. Today, the stock gained back almost all of yesterday's losses. GSPN may be volatile, but it is behaving as expected, finding support at anticipated areas and any moves down are on light volume. This test of its breakout support level was not only healthy, but provided aggressive traders with a great trade. Look for $140 to be a strong level of resistance, which is also near where the 5-dma currently resides. A breakout over $140 with conviction is the target for the conservative with the next resistance level at $150. CFLO $76.63 -6.38 (-6.38) Despite the sweeping rally in the Tech sector Thursday, CFLO slid lower. The positive profit report we were looking for was delivered by CFLO's peer, FDRY, late Wednesday evening. The fellow cache-making company blew past estimates which resulted in a harsh round of profit taking. Unfortunately, the heavy selling in FDRY spilled over into our play Thursday. The good news is that CFLO's major support level at $75 held strong. The stock dipped below that level late in the day only to rally back above $75 to recover lost ground. The strong showing near the close of trading Thursday might be an indication of a quick rebound heading into the weekend. After enduring a week of heavy profit taking thus far, traders might be ready to bull CFLO going into the weekend. The volume was particularly heavy Thursday, so we'll want to watch for the late day buyers to return early Friday. Confirm direction in the morning, and if the bulls show up consider entry. For a more conservative entry point wait for CFLO to clear resistance at $80 before entering the play. SCMR $140.00 +4.94 (+1.81) For the second consecutive day, the bears had their way with the Fiber Optic sector Wednesday. The renewed Greenspan fears coupled with harsh profit taking took their toll on our play. However, the 10-dma came to the rescue yet again early Wednesday morning by providing support near the $132 level. The bounce off the 10-day proved to be the entry point we have been looking for. The stock plowed higher into Thursday's session and moved back to support at the $140 level. If the optimistic bulls show up early Friday morning to carry the market higher into the weekend, you might consider an entry into our SCMR play at its current levels. Make sure to confirm direction in the Fiber Optic sector before doing so, using the likes of CIEN and JDSU as reference. A more conservative entry might be provided if SCMR rallies above resistance at $144. If the profit takers return, consider an entry if SCMR bounces off its sturdy support at its 10-dma, which is now near $134.68. HGSI $159.00 +8.25 (+6.38) The leaders in the Biotech sector returned Thursday to aid the Tech bulls' cause. After suffering from the profit taking blues Wednesday, HGSI reasserted itself Thursday with a strong showing early on. Despite the sell-off Wednesday, HGSI's ascending channel remained intact. The series of higher lows bodes well for our play. However, in the latter part of this week, HGSI has settled into a trading range between the $150 and $160 levels. With Thursday's advance, HGSI moved back into positive territory for the week. HGSI has added to its handsome gains from last two weeks, but for the most part, the stock has been consolidating this week. A few days of consolidation may be just what the market ordered for HGSI's next leg up. A quick rally above $160 Friday morning might provide an entry if the stock breaks from its two-day range. HGSI has congestion around the $165 level. A return of momentum might push HGSI past $165 and provide a more conservative entry. A bounce off support at $150 is also worth considering if the selling pressure returns. CREE $148.00 +3.38 (+1.19) The Philadelphia Semi Index ($SOX) slid into negative territory Thursday, dragged down by the likes of MU and AMAT. Yet, despite the weak performance of the overall Chip sector our CREE play managed to hold onto its modest gains. Although CREE edged higher Thursday, the buying came with little conviction. A mere 319K shares traded hands, versus an ADV around 750K. Nevertheless, we'll take the gain. CREE's relative strength Thursday might be an indication of investors' anticipation ahead of the company's earnings report next week. CREE is schedule to report next Thursday, which has been confirmed. The stock has churned between the $145 - 150 range this week. The expectations of a positive profit report might be the catalyst to break the stock out of its range. A breakout above $150 might provide an entry into the play. CREE will again face light congestion around $152.50 and resistance at $155. Consider your risk levels and target shoot for entry as CREE clears its various resistance levels. Make sure to confirm any breakout with heavy trade! TIBX $116.44 +3.00 (+10.31) The B-2-B bears wreaked havoc on TIBX Wednesday for the third consecutive day. The stock continued its early-week slide on relatively light volume. The positive profit report from CMRC provided little in the way of support Wednesday. But, the B-2-B sector came charging back Thursday with solid gains across the group. Our friends on Wall Street came to the rescue of our play Thursday morning. Wasserstein Perella initiated coverage on TIBX with a Buy rating and set a $150 price target. The stock gapped over $3 higher on the heels of the positive analyst comments, but gave back much of its gains near the close of trading. Thursday marks the third straight day that we have seen a big seller in TIBX near the close of trading. With that said, approach the play with caution. An aggressive trader might consider entry if TIBX bounces higher from its current levels, or if the stock moves back above its 10-dma at $118.38. A more conservative trader might wait for TIBX to regain its footing and move back above the $120 level. Make sure to set your stops accordingly, we don't want to give back our healthy gains since initiating the play! BRCD $201.81 +9.31 (-4.13) BRCD keeps throwing entry points our way. The latest came as the stock dropped late yesterday to bounce at $192, as investor nervousness increased ahead of Alan Greenspan’s testimony this morning. As it turned out, it was largely a non-event and with the strong earnings report from storage giant EMC yesterday morning, BRCD took off mid-way through amateur hour. Quickly tacking on $8, the stock then continued to rise throughout the day, finally pausing to rest as it once again reached resistance near $205-206. The pullback at the close brought our play within striking distance of another entry point, and it was encouraging that it managed to get back above the 10-dma at $198.75. Consider new positions on renewed bounces near the $199-200 support level, but confirm the bounce with volume. As we saw earlier in the week, the low $190’s is the next level of support and a market downdraft could have us there in two shakes. Earnings will be announced on August 16th, so there is still time to get positioned for the much-hoped-for earnings run. MRVC $78.56 +0.75 (+5.94) Throwing a lovely entry point at us during amateur hour yesterday, MRVC bounced at the $68 support level and quickly moved up to consolidate at $70. Then the buyers came back after lunch in a much better mood, quickly running the price as high as $82, before the pre-Greenspan nervousness emerged, and MRVC settled down to close above the $76 support level. Largely rangebound today, the stock gave us little to work with until the final half-hour. On a surge of buying volume, the buyers pushed MRVC up to close just below the high of the day at $78.56. The chart is still showing a pattern of higher lows and higher highs, but we still haven’t seen the strong move that we expect to presage the beginning of an earnings run. With earnings confirmed for next Thursday after the close, this could be the beginning of our long-awaited earnings run. The $76 level still looks good for new entries, although more conservative traders may want to wait for a volume-backed move above $80 before jumping aboard. NT $78.75 +2.25 (+1.00) Slow and steady wins the race, and NT is proving that point. It doesn’t move fast, but it is consistent. Hopefully you didn’t wait too long with the entry point that NT gave us yesterday. Investors took some profits off the table ahead of Greenspan’s testimony this morning, and NT fell back to support just above $76. As the volume picked up towards the close, it became clear that this was as good an entry point as we were going to get. With the strength in the Networking sector that emerged this morning, NT really got moving and almost made it to the $80 resistance level before giving some of it back towards the close. Volume was just below the ADV, and it was encouraging to see the stock close back above the supportive 5-dma (currently at $78.50). Even the bad news on fellow networker Lucent (LU) couldn’t dampen buyers enthusiasm for NT. Earnings are set to be announced next Tuesday after the close, so we are running out of time on our play. Look for a bounce from support to initiate new positions, but make sure that volume is confirming the move. KANA $60.00 +3.38 (-10.44) KANA responded nicely today along with the rest in the B2B sector. And yesterday the stock received a Buy reiteration from analyst Brent Thill at CSFB. Currently though, KANA is at a base support and is hovering just below the intersecting 5-dma ($63.61) and 10-dma ($63.73). However, if you're one of the more aggressive option traders, then you could consider using this base level as an entry (as risky as it may be) and try to catch a ride upward over the next couple trading sessions. The play is to profit on the earnings run next week. KANA reports Wednesday, July 26th, after the bell. Remember the limited time frame and keep stops in place for protection. VRTX $118.50 +2.69 (+3.50) Keep it short and sweet! There's only three trading sessions to get a solid entry and to exit with a profit. Our immediate play on VRTX is to enter on upward bounces off the current level and ride a wave of excitement into the earnings' announcement. VRTX is scheduled to announce this Tuesday, after the market close. Keep in mind, this is a very RISKY play as the open interest is rather low and the time frame is tight. Despite what may happen over the next few days, there's still a bit of sunshine peaking over the horizon. Last Thursday, the BoD announced a 2:1 stock split payable for August 23rd. The icing on the cake would be to see a powerful momentum surge take the share price into the clouds. But no matter, don't take unnecessary chances and hold over the earnings' release. You can always jump back in later. **********************ADVERTISEMENT************************* Free voicemail, email, fax, and paging - all in one place! Accessible over the phone & Internet. Free Local & 800 Phone Number for Life! Send & receive faxes & email via the web or phone. ThinkLink charges no monthly fees. Plus, for a limited time, sign up now and receive an airline voucher worth up to $100 dollars off any major airline. FREE NOW! FREE FOREVER! http://www.OptionInvestor.com/tracking.asp?co=STThinkLink7172000 ************************************************************ ******************* PLAY UPDATES - PUTS ******************* AETH $176.50 +9.50 (-4.88) Since we began this play on Tuesday when the stock sold down, the stock has been drifting though in a range of about 10 points intraday, bouncing up off the $158 and $165 support levels we mentioned. So far, all the action has been on low volume, but it is heartening to see resistance at $180 holding up strongly and providing an entry point. The stock closed just above the $175 level today where it will likely attempt at breaking $180. Note that AETH closed above its 5- and 10-dma today and even though it is on low volume, make sure that the resistance at $180 holds before entering. A break below $175 with a negative sentiment would be a good entry on the way to retesting support at $170. Earnings watchers will note that next week AETH will announce its earnings on July 25th before the market opens. GTW $63.13 -0.63 (-3.25) GTW announced Wednesday that it had expanded its eServices for small businesses with the addition of high-speed Internet access service plans. That news, coupled with the anticipation of IBM's profits helped to stabilize GTW. The upbeat profit report from IBM caused GTW to gap modestly higher at the opening of trading Thursday. However, as expected, IBM reported revenues that were lower than expected, due to disappointing sales of PCs. While Big Blue didn't suffer from the revenue shortfall, the more PC-dependent GTW paid the price. Upon further examination of IBM's PC sales numbers, traders sold GTW lower. The stock rolled-over at the half-way point of trading and subsequently plunged below support at $64. GTW bounced along the $63 level into the close of trading. Given GTW's weak showing in a strong Tech sector Thursday, an aggressive trader might look for entry if the stock slips past support at $63 Friday morning. For a more conservative entry, point wait for GTW to fall below $62. IP $34.06 -0.56 (-1.75) There’s nothing like a predictable play to make you happy. It isn’t moving fast, but after rolling over at the 100-dma a week ago, IP is continuing to decline. After posting solid earnings last week, there has been nothing to support the stock and it has resumed its long-term downtrend. Today’s decline dropped the paper company through the 50-dma (currently at $34.13), and it is now sitting just above support at $33. As earnings season has progressed, enthusiasm seems to be returning to the technology sector and old-line cyclical stocks are being left behind. The decline seemed to lose momentum over the last half of the day today and intraday support seems to be building near $34. With the light volume (about two-thirds of the ADV) lately, consider tightening up your stops on open positions. If you are looking for new entries, wait for the stock to drop through support before jumping into the play. CHV $80.00 -1.94 (-3.75) Today, we got an entry on downward moves off $82 and are now situated smack on $80. So far so good. And of course, you've set stops for protection and have an exit point in mind. The current price level, as many of you know, serves as light support. It's imperative that CHV slide under this mark and make a move for $70, pronto. It's now confirmed that Chevron will report earnings BEFORE the market, on Tuesday. Therefore, tomorrow is a crucial trading session for this put play. It'd be taboo to have any positions remain open during/after the announcement - you just don't want to take the chance that this event could trigger a reversal despite the lowering oil prices. In the news, Chevron announced some management changes. Corporate VP and Treasurer George K. Carter decided to retire after a nearly 40 years in financial management. He will be succeeded by David M. Krattebol, a 30- year veteran of Chevron currently serving as president of Chevron San Jorge in Buenos Aires, Argentina. In a separate action, Corporate Comptroller Stephen J. Crowe was named a corporate VP. ************** NEW CALL PLAYS ************** CMTN - Copper Mountain Networks $89.63 -5.63 (-25.63 this week) Copper Mountain Networks, develops and markets a comprehensive family of DSL solutions that enable high-speed internetworking over existing copper facilities. The company's mission is to enable carriers and other service providers to offer a full range of high-performance, cost-effective data and voice services over DSL that are easy to deploy, use, and manage. Copper Mountain's CopperRocket CPE family addresses the bandwidth, reliability, ease-of-use, and cost concerns of remote offices and users. While relatively new to the market, Copper Mountain has proven to be a leader in the DSL industry, giving competitors like Cisco, Lucent, and Nokia a run for their money. The stock rose to a 52-week high on July 17th of $125.72, but quickly made an about face, going a rapid tailspin on Tuesday after the company reported second quarter earnings on Monday, July 17th after the close. Despite reporting earnings of $0.24 per share and posting a four-fold increase in sales, not to mention beating First Call's estimate of $0.22 by $0.02, fears arose that the stock may be overpriced. This caused the stock to fall $29.50 on Tuesday, closing at $94.19. Overall, the stock finished with a 24% drop. Bearing all this in mind, however, the stock appears to be oversold after reporting what should have been interpreted as good earnings. Today, the stock traded at to eight session low, bouncing from the area where the 50-dma and the 100-dma lie, $87.25 and $86.66 respectively. Typical of CMTN after prior earnings, the stock will most likely trade within a $10 to $15 range, making it a good short term play. We are anticipating CMTN finding a bottom after being oversold. Overhead, resistance is thin until the 10-dma at $98.06. A strong volume move above that technical would be a renewed uptrend. Look for an entry on bounces from the $87 level near the 50- and 100-dma. This is a more aggressive play by nature, so conservative traders may want to wait for that move through $98. The latest plug for the company has been the announcement that Copper Mountain will supply DSL concentrators to NewPath Communications, a newly-formed Data Local Exchange Carrier (DLEC) based in Chicago, Ill. NewPath will use Copper Mountain's CopperEdge (R) 200 DSL concentrators throughout its network across 14 states in selected markets in the Midwest. NewPath will then offer both retail and wholesale DSL services to small and medium sized businesses as well as to telecommuters and home office workers. BUY CALL AUG- 85 KUA-HQ OI= 149 at $12.38 SL=9.50 BUY CALL AUG- 90*KUA-HR OI= 652 at $ 9.63 SL=7.50 BUY CALL AUG- 95 KUA-HS OI= 318 at $ 7.63 SL=5.75 BUY CALL AUG-100 KUA-HT OI= 446 at $ 6.00 SL=4.50 BUY CALL SEP-100 KUA-IT OI=1510 at $ 9.13 SL=7.00 SELL PUT AUG- 80 KUA-TP OI= 246 at $ 4.63 SL=6.00 (See risks of selling puts in play legend) Picked on July 20th at $89.63 P/E = 151.29 Change since picked +0.00 52-week high= $125.72 Analysts Ratings 3-6-1-0-0 52-week low = $ 35.15 Last earnings 07/17 est= 0.22 actual= 0.24 Next earnings 10-19 est= 0.24 versus= 0.09 Average Daily Volume = 1.57 mln ARBA - Ariba Inc. $133.88 +8.31 (+9.31 this week) As a leading provider of B2B solutions and services to leading companies around the world, including more than 20 of the FORTUNE 100, Ariba helps companies cut through the complexity of opportunities presented by the new economy. Ariba provides the most comprehensive and open commerce platform to build B2B marketplaces, manage corporate purchasing, and electronically enable suppliers and commerce service providers on the Internet. Made up of a complete set of integrated commerce solutions and open network-based commerce services, the Ariba B2B Commerce Platform™ offers a single system for managing buying, selling, and marketplace eCommerce processes. The B2B boys are back in town! B2B stocks have been rocking so far in the summer and those long dark days of spring are quickly being forgotten. With Ariba posting a stellar earnings report last Wednesday, ringing up revenue growth up over six times that of last year, it has re-validated the potential of the B2B business model. The on-again, off-again love affair with the beloved B2B's is back on. Stock prices of most B2B stocks have responded, with Ariba touted as the leader of marketplace creation through its software and expertise. But it's not just ARBA. Other companies in the B2B sector such as ITWO and PPRO are also posting blowout earnings and being rewarded handsomely with higher valuations, much to the delight of traders. In fact, PPRO was described to have "pulled an Ariba" in reference to their beating the Street. While the comment was meant to be a compliment to PPRO, one can not help but think that Ariba has become to the B2B sector what Yahoo is to the more old-school Internets. After trying a number of times these past five trading sessions to break through resistance at $130, the stock finally made it over the hump on about 150% of average daily volume. After some tentative early morning jiggling on low volume, the stock spent the rest of the day moving steadily up on increasing volume. Support, of course, can now be found at the former resistance level of $130. Below that is the 5-dma at $126.50 and 10-dma at $115. With $130 now broken, the next test for ARBA will be at $140. Even for those who are aggressive, be sure to wait for the bounce before entering, especially since Friday is expiration of July options. Not to rest on its laurels, Ariba has been proclaiming good news this week. On Tuesday, there was news of a partnership with Fleet Global Services which will use the Ariba system to manage its procurement operations on the Internet with its suppliers. Wednesday was another alliance, this time with Epylon Corporation, a leading provider of hosted eBusiness solutions, to develop an integrated platform specifically designed for public sector procurement. The current rally in Ariba is not just a one-stock phenomenon but rather, sector-wide so traders will want to keep an eye on other B2B issues for cues. BUY CALL AUG-125 RBU-HE OI= 788 at $17.50 SL=12.00 BUY CALL AUG-130*RBU-HF OI= 962 at $14.88 SL=11.00 BUY CALL AUG-135 RBU-HG OI= 849 at $12.50 SL= 9.50 BUY CALL NOV-135 RBU-KG OI=1324 at $27.00 SL=22.25 BUY CALL NOV-140 RBU-KH OI= 283 at $25.00 SL=20.25 SELL PUT AUG-125 RBU-TE OI= 307 at $ 7.50 SL=10.50 (See risks of selling puts in play legend) Picked on July 20th at $133.88 PE = N/A Change since picked +0.00 52-week high=$183.31 Analysts Rating 15-11-1-0-0 52-week low =$ 16.56 Last earnings 07/12 est=-0.09 actual=-0.05 Next earnings 10-19 est=-0.06 versus=-0.03 Average Daily Volume = 6.22 mln DISH - Echostar Communications $44.63 +3.13 (+0.44 this week) Dishing up to 500 channels of satellite TV heaven on the DISH Network is what EchoStar is all about. EchoStar is the #2 satellite broadcast provider in the US - DIRECTV hold the #1 ranking. They provide direct broadcast satellite (DBS) access to about 10 mln subscribers. In addition, their partnership with Microsoft allows customers to surf the Internet from the couch potato position through WebTV. CEO Charles Ergen owns 51% of the company and retains over 85% of the voting power. Ready, Set, Go! DISH is on the mark for a run into its earnings. After a pre-holiday lull, the share price began a steady progression and has advanced nearly 30%. The July chart clearly demonstrates that momentum is intact, but there's one technical obstacle in our path: the 200-dma. While this potential hazard at $45.29 is merely a fraction away, it cannot be discounted. Since last Friday's challenge, this technical line proved to be a formidable opponent and has kept DISH range bound. Therefore, it's essential to wait for the breakout on high volume moves - currently trading activity is only moderate. The company's earnings are confirmed for August 1st, before the bell, so we're adding DISH now to give readers plenty of time to prepare for a strategic entry. Besides the advances on the NASDAQ, DISH's upsurge last Friday was likely in response to its successful satellite launch. The EchoStar VI, the most powerful direct broadcast satellite ever manufactured, was put into orbit early that morning. Charlie Ergen, CEO and chairman of EchoStar, reported the success, commenting that "our sixth satellite will serve our fast-growing number of DISH Network satellite television customers" and "will increase our broadcast signal power and backup capacity as well as allow for expanded coverage to Alaska and Hawaii." More news like this would certainly be welcome, especially ahead of the earnings report! BUY CALL AUG-40*UAB-HH OI=1469 at $7.13 SL=5.00 BUY CALL AUG-45 UAB-HI OI=1006 at $4.63 SL=2.75 BUY CALL AUG-50 UAB-HJ OI= 604 at $2.50 SL=1.25 BUY CALL SEP-45 UAB-II OI=1501 at $6.75 SL=4.75 BUY CALL SEP-50 UAB-IJ OI= 605 at $4.75 SL=2.75 Picked on July 20th at $44.63 P/E = N/A Change since picked +0.00 52-week high=$81.25 Analysts Ratings 9-5-0-0-0 52-week low =$14.00 Last earnings 03/00 est=-0.36 actual=-0.40 Next earnings 08-01 est=-0.34 versus=-0.20 Average Daily Volume = 4.17 mln ************* NEW PUT PLAYS ************* CMOS - Credence Systems $46.00 -3.69 (-10.31 this week) Credence makes test equipment and testing software that is used in the high-volume production of semiconductors. The company's products test digital logic, mixed-signal, and nonvolatile memory circuits used in such products as televisions, PCs, cameras, and telephones. CMOS sells its products primarily to chip manufacturers, assembly houses, and test services companies. Have the semis peaked? Judging by the recent performance of the chip equipment makers, some investors might answer yes to that question. In a paradoxical fashion, fate would have it that business is a little too good in the Chip sector right now. The problem that companies like CMOS are facing is that demand is outstripping supply. CMOS is having problems keeping up with its customers' orders which may cause a revenue shortfall when the company reports its quarterly results on August 10th, which has been confirmed. The warning of a peak in the Semi sector came to light two weeks ago when Salomon Smith Barney analyst Jonathan Joseph downgraded the entire sector. Of course, several other brokerage houses came to the defense of the semis in the following days, which helped CMOS to regain some of its lost ground. It would appear the group's relief rally has run its course, noting the red in the SOX Index Thursday in what was a tremendous day for techs. CMOS suffered its second consecutive day of painful loss Thursday, en route to violating several key support levels. Interestingly, SG Cowen came to the defense of CMOS Thursday by reiterating its Strong Buy rating on the stock and establishing a $56 price target. Despite the attempt from Cowen, CMOS shed over 7% on more than double its average trade. The heavy selling pushed CMOS below key support at $50. The stock finished Thursday right near its day low, which warrants consideration for entry at current levels if the bears return Friday morning to cause more damage. CMOS has near-term support around $45; thereafter is no help on the chart until the $40 level. A more conservative entry might be found if CMOS falls below $45. Confirm a continued slide with heavy volume! BUY PUT AUG-50*CQS-TJ OI= 30 at $5.88 SL=4.00 BUY PUT AUG-45 CQS-TI OI=247 at $3.63 SL=2.00 BUY PUT AUG-40 CQS-TH OI= 27 at $2.69 SL=1.25 Average Daily Volume = 1.06 mln ********************** PLAY OF THE DAY - CALL ********************** MRVC - MRV Communications $78.56 +0.75 (+5.94 this week) MRV Communications is in the business of creating and managing growth companies in optical technology and Internet infrastructure. The company has created several start-up companies and independent business units in these areas. MRVC’s core operations include the design, manufacture, and sale of products in these areas, primarily Network Element Management, and physical layer, switching and routing management systems in fiber optic metropolitan networks. The company also produces fiber optic components for the transmission of voice, video and data across enterprise, telecommunications and cable TV networks. Most Recent Write-Up Throwing a lovely entry point at us during amateur hour yesterday, MRVC bounced at the $68 support level and quickly moved up to consolidate at $70. Then, the buyers came back after lunch in a much better mood, quickly running the price as high as $82, before the pre-Greenspan nervousness emerged, and MRVC settled down to close above the $76 support level. Largely rangebound today, the stock gave us little to work with until the final half-hour. On a surge of buying volume, the buyers pushed MRVC up to close just below the high of the day at $78.56. The chart is still showing a pattern of higher lows and higher highs, but we still haven’t seen the strong move that we expect to presage the beginning of an earnings run. With earnings confirmed for next Thursday after the close, this could be the beginning of our long-awaited earnings run. The $76 level still looks good for new entries, although more conservative traders may want to wait for a volume-backed move above $80 before jumping aboard. Comments After yesterday's expansion breakout, MRVC managed to add on another $0.75. Not bad considering the 12% move on Wednesday. We are looking for MRVC to carry on its momentum into earnings next Thursday. The next resistance that the stock is eyeing is at $80. Today, $75 provided intraday support and any bounces from that level would be nice entries. Target shoot on intraday dips and watch $80. A strong volume move through $80 would be very bullish confirmation. BUY CALL AUG-70 RVY-HN OI=3430 at $15.75 SL=12.25 BUY CALL AUG-75*RVY-HO OI= 478 at $13.00 SL=10.00 BUY CALL AUG-80 RVY-HP OI= 998 at $10.50 SL= 8.25 BUY CALL OCT-80 RVY-JP OI= 358 at $16.75 SL=13.00 BUY CALL OCT-85 RVY-JQ OI= 107 at $15.63 SL=12.00 SELL PUT AUG-65 RVY-TM OI= 232 at $ 4.25 SL= 5.50 (See risks of selling puts in play legend) Picked on July 13th at $74.88 P/E = N/A Change since picked +3.69 52-week high=$97.44 Analysts Ratings 1-1-0-0-0 52-week low =$ 6.50 Last earnings 04/00 est=-0.01 actual= 0.03 Next earnings 07-27 est= 0.03 versus= 0.01 Average Daily Volume = 2.14 mln ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ************************ COMBOS/SPREADS/STRADDLES ************************ Market Soars on Bullish Outlook! U.S. equities rallied today amid optimism over Fed Chief Alan Greenspan's positive remarks. ****************************************************************** - MARKET RECAP - ****************************************************************** Wednesday, July 18 The stock market ended lower today as investors sold for profits following a slew of mediocre earnings reports. Technology stocks endured the heaviest selling pressure, with the Nasdaq Composite falling 121 points to 4,055 amid weakness in a number of leading companies. The Dow slumped 43 points to 10,696 as blue-chip stocks were swept into the broader sell-off. The S&P 500 Index finished down 11 points at 1481. Trading volume on the NYSE hit 905 million shares with declines beating advances 1,682 to 1,121. Activity on the Nasdaq was average at 1.43 billion shares traded, with declines beating advances 2,557 to 1,430. In the U.S. bond market, the 30-year Treasury fell 4/32, pushing its yield up to 5.91%. Tuesday’s new plays (positions/opening prices/strategy): Flowers Ind. FLO OCT16C/AUG20C $0.00 debit diagonal AG Edwards AGE NOV45C/NOV45P $7.12 debit straddle Caremark RX CMX DEC10C/AUG10C $0.75 debit calendar AG Edwards and Caremark both offered favorable entry points in today's session but our bullish position in Flowers was one day too late. Shares of both Keebler Foods and Flowers Industries rallied sharply on expectations the #2 U.S. cookie and cracker maker will be a hot property for potential buyers. On Tuesday, Flowers Industries, which owns 55% of Keebler, effectively put Keebler up for sale. The plan calls for a takeover of Flowers Industries, which would spin-off its Mrs. Smith's Bakeries and Flowers Bakeries businesses, leaving Keebler as its remaining operation. FLO finished up $3.12 at $22.50. Portfolio Plays: Stocks slumped again today as investors moved to lock-in profits before the Summer doldrums begin in earnest. Mediocre revenue forecasts plagued the market and analysts continued to question the quality of the earnings for a number of companies, many of which have included large investment gains. Four Dow companies had posted better-than-expected results before the market open but the news failed to prevent industrial stocks from the being swept into the downward momentum. Investors also began bracing for Thursday's key speech on monetary policy and the economy by Federal Reserve Chairman Alan Greenspan. Traders said concerns the FOMC may increase interest rates again in August provoked additional selling. Blue-chip stocks struggled in the broad market slide and the Nasdaq was hampered by losses in bellwether technology issues. Tobacco, computer peripheral and personal care issues were the strongest groups on S&P 500 Index while healthcare, software and airline stocks generally moved lower. Our portfolio saw declines across the board but the majority of positions were well above a break-even cost basis and there was little chance of loss on the downside. Plantronics (PLT) was the standout issue, up $14 to $141 after the company announced record earnings for the first quarter of 2001. First quarter revenues totaled $100 million, up 34% over the $74 million in revenues in the first quarter last year. Net income was $20.1 million and Plantronics' earnings per share were $1.15 for the first quarter in comparison to $0.85 in the year ago quarter, a 35% increase. Our bullish position at $95 is relatively safe for now. Bank One (ONE) was another big winner on the earnings front even though the company reported it lost $1.27 billion, or $1.11 a share, in the second quarter. In conjunction with the report, Bank One moved decisively to halt a year of profit declines by halving its dividend and taking a $2 billion charge. The charge encompasses write-offs in its credit card and corporate banking divisions. These areas have pulled down its profits in recent quarters and the intent of the move is to reduce costs by some $500 million. Investors applauded the change, pushing the issue up $2.50 to $32.50 and our long-term, bullish diagonal spread is at maximum profit above $25. Vodaphone (VOD) was another issue worth mentioning and today the stock edged back above our sold strike (at $45) in the Covered-calls with LEAPS position. The current value of the spread is $6.00, and with the cost basis at $2.00, the current return for the position is 300%. Thursday, July 20 U.S. Equities rallied today amid optimism over Fed Chief Alan Greenspan's positive remarks. Strong earnings from IBM gave the Dow a boost and the industrial average closed up 147 points at 10,843. The Nasdaq also recorded a healthy gain, up 128 points to 4184. The S&P 500 Index added 13 points to close at 1495. Trading volume on the NYSE reached 1.06 billion shares, with advances beating declines 1,699 to 1,139. Activity on the Nasdaq was heavy at 1.71 billion shares exchanged. Technology advances beat declines 2,220 to 1,774. In the bond market, the 30-year Treasury surged 1 16/32, pushing its yield down to 5.80%. Portfolio Plays: The market rallied today as concerns over interest rates faded amid bullish comments from Fed chair Alan Greenspan. Speaking before the Senate Banking Committee on monetary policy, Greenspan said inflationary expectations remain modest outside of energy prices and that demand is moving more into line with supply, suggesting that imbalances in the economy are being corrected. He also anticipates the U.S. economy will grow for at least 18 more months and suggested the slowdown that has emerged from recent economic data is real. Tech issues led the advance with impressive gains in a number of Internet and computer hardware stocks. Biotechnology stocks also rallied and the financial components on the Dow, American Express, Citigroup and J.P. Morgan boosted the blue-chip group. On the downside, the major drug sector retreated, unable to respond positively to a batch of positive earnings. A rally in shares of International Business Machines (IBM) led the market from the start of trading and that issue was one of our few remaining concerns for the month of July. IBM reported a second-quarter profit of $1.06 per share, which beat the First Call estimate of $1.00 per share. Big Blue made $0.91 in the year-ago period. As expected, revenue was slightly lower and overall sales growth was essentially flat. Fortunately, the issue rallied $8 to $117 and our credit-spread strangle is now expected to finish at maximum profit. Another big surprise was AM/FM (AFM). The stock jumped $5.31 to $71 on strength in the media group and Clear Channel (CCU), its merger partner. Radio companies are expected to report extremely strong second-quarter results and vigorous advertising sales along with new prospects for the current period. Regardless of the reason for the move, we were very happy to see the issue move well clear of our sold position in the bullish credit spread. Juniper Networks (JNPR) and Network Appliances (NTAP) led our technology group, both up over $12 during the bullish session. In the case of Juniper, we will need a finish above $171.50 to close the play profitably. If the issue begins to sell-off early in tomorrow’s session, we will simply sell the AUG-$150 calls (currently bid at $25) to reduce our cost basis in the stock position. Allstate (ALL) made a nice move today, up $1.50 to $25 after the company reported improvements in the outlook for future revenues. Allstate's revenue for the second quarter increased 9% to $7.18 billion, up from $6.59 billion in the year-earlier period. ALL’s operating earnings were $0.58 per share compared with $0.75 from the previous year. The results showed favorable premium growth and slightly outpaced the consensus estimates. Another company that rallied in anticipation of an earnings report was American Online (AOL). After the close, America Online reported record results for its fiscal fourth quarter as revenue climbed 39% to $1.9 billion. Profit more than doubled to $334 million, $0.13 a share, up from $155 million in the year-ago quarter. Operating income for the quarter climbed 108% to $466 million and income from advertising, commerce and other revenues improved 95% to $609 million. In addition, AOL’s advertising backlog, made up of revenues to be recognized at scheduled future dates, doubled over the year to $3 billion, with growth of $300 million in the last three months alone. That report should boost the outlook in the Internet sector substantially. Secure Computing (SCUR) deserves mention. The company rallied $2.38 to $18.43 on speculation of the earnings report after the bell. As expected, the results were favorable. Secure Computing announced second quarter revenues of $8.8 million, a 60% increase over last year, and a 17% increase over the prior quarter. The company’s products and services revenue, a primary emphasis, was $7.6 million, a 59% increase when compared to last year. SCUR’s net loss for the second quarter was or $0.23 per share, compared to a loss of $0.45 per share in the year ago quarter, and well below analyst’s estimates of a $0.28 loss. Of course the effect of today’s news will not be seen until tomorrow and we noticed a few spread positions being closed in anticipation of a sell-off. It will be interesting to see where the issue finishes at August expiration. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** IRF - International Rectifier $63.06 *** Big Earnings! *** International Rectifier designs, manufactures and markets power semiconductors which switch or condition electricity at high voltage and current levels. The company's HEXFET power Metal Oxide Semiconductor Field Effect Transistors and insulated gate bipolar transistors products comprised approximately two-thirds of current sales. The company also supplies high-voltage ICs, high-performance diodes, high-power rectifiers and thyristors. Its products are used in numerous major market sectors including industrial, automotive, computer/peripherals, office equipment, consumer electronics, lighting and communications. Today International Rectifier reported an outstanding increase in fourth-quarter profits from a year ago, easily beating Wall Street's estimates. The power management devices and systems company recorded net income of $33.9 million, or $0.52 a share, for the quarter. The consensus expectation was $0.48. Sales were $232 million, up 57% from $147.5 million in 1999 and for fiscal 2001, the company targets a sales increase of 40%. The company also said orders in the quarter increased 76% overall, demonstrating the incredible demand for the company’s products. Our outlook for the issue is bullish but after any earnings rally, a consolidation is expected. We hope to increase the credit for the spread to a favorable amount and our initial target will be $1.25. Of course, adjustments may need to be made, based on Friday’s opening prices. PLAY (aggressive - bullish/credit spread): BUY PUT AUG-45 IRF-TI OI=60 A=$0.93 SELL PUT AUG-50 IRF-TJ OI=195 B=$1.81 INITIAL NET CREDIT TARGET=$1.12-$1.25 ROI(max)=28% B/E=$48.88 Chart = ****************************************************************** CSCO - Cisco Systems $69.50 *** Own This One! *** Cisco Systems and its subsidiaries are engaged in networking for the Internet. Cisco creates hardware and software solutions that link computer networks so that people have easy access to basic information without regard to differences in time, place or type of computer system. The company's product portfolio offers end-to-end networking products and services. Cisco’s breadth of product offerings enables it to configure hardware and software features to meet customer requirements. The company is now also delivering video and voice capabilities in its products, allowing customers to transition their data networks to a other single multi-service data, voice and video network. Cisco is a giant in the networking and communications industry. They have a market value that's much bigger than all of their customers and they are going to be a dominant player in a number of sectors, either through their own innovation or acquisition. The company’s recent moves in the cable market; their investment in Liberate (LBRT) and the Comcast equipment contract, suggest that it intends to have an all-encompassing role in the future construction of networks for the Internet. Cisco is also adding capability in the digital subscriber line (DSL) market, and the company’s high-speed networking technology will soon be a part of every major communications systems in the world. Based on the recent technical trend, our outlook for the issue is bullish and the current upward momentum should propel the share value well clear of our target cost basis. In the event of further consolidation, this company would certainly be a candidate for any long-term portfolio. PLAY (conservative - bullish/credit spread): BUY PUT AUG-55 CWY-TK OI=6487 A=$0.50 SELL PUT AUG-60 CWY-TL OI=8900 B=$1.00 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% B/E=$59.38 Chart = ****************************************************************** MO - Phillip Morris $25.50 *** Trading Range? *** Philip Morris is a holding company whose principal wholly owned subsidiaries, Philip Morris Inc., Philip Morris International, Kraft Foods, and Miller Brewing Company, are engaged in the manufacture and sale of various consumer products. The company's products include cigarettes, tobacco, a broad range of packaged food products, and beer. Another wholly owned subsidiary, Philip Morris Capital Corporation, engages in various financing and investment activities. The company's industry segments include domestic tobacco, international tobacco, North American food, international food, beer and financial services. Earlier this week, tobacco and food giant Philip Morris reported a 5.5% rise in underlying quarterly earnings, meeting analysts' expectations, on strong performance across all of its units. The New York-based company, the world's largest cigarette maker with the top-selling Marlboro brand, said profits rose to $0.95 per share, up from $0.85 per share a year ago. The company also said they are in an excellent position to meet the growth targets for the year. From an "earnings outlook" standpoint, that appears to favorable for the issue in the short-term. However, last Friday a Miami jury said Philip Morris must pay smoking victims $73.96 billion in damages, the largest such award in history. Of course, lengthy appeals are likely to reduce and delay the pay-outs but the cost to defend and settle the case will be exorbitant in the end. In addition, Philip Morris recently agreed to buy Nabisco Holdings in another complicated and potentially expensive deal. This position was discovered with one of our primary scan/sort techniques; identifying potentially failed rallies on issues with bullish options activity. In this case, the premiums for the (OTM) call options are slightly inflated and the potential for a successful (technical) recovery is significantly affected by the resistance at the sold strike price; a perfect condition for a bearish credit spread. PLAY (conservative - bearish/credit spread): BUY CALL AUG-30.00 MO-HF OI=3793 A=$0.31 SELL CALL AUG-27.50 MO-HY OI=4780 B=$0.62 INITIAL NET CREDIT TARGET=$0.43 ROI(max)=20% B/E=$27.93 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. 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