The Option Investor Newsletter Thursday 08-10-2000 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/081000_1.html Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 08-10-2000 High Low Volume Advance/Decline DJIA 10908.80 + 3.00 10946.50 10886.80 944 mln 1350/1473 NASDAQ 3759.99 - 93.51 3847.29 3759.99 1.35 bln 1585/2377 S&P 100 799.04 - 8.02 807.48 798.82 totals 2935/3850 S&P 500 1460.25 - 12.62 1475.19 1459.85 43.3%/56.7% RUS 2000 501.65 - 5.85 507.73 501.61 DJ TRANS 2856.59 + 8.68 2864.97 2845.22 VIX 21.57 + 0.24 22.01 21.28 Put/Call Ratio .62 ****************************************************************** Be careful what you ask for, you might get it! Investors have been hoping for a soft landing from the interest rate attack. Now that it appears the landing may be in front of us, stocks are weak because earnings are now being called into question. At least that is the excuse of the day. Our view is slightly different. Still the Nasdaq has been in a nose dive for two days an the Dow has been unable to make any progress and is languishing just under the magic 11000 level. Just another fun day in the summer markets! The casualties are littering the roadside as we navigate toward Labor Day. To start the parade The Gap Stores (GPS) issued its second earnings warning in the last two weeks and said Q3 results would be below analysts estimates of $.41 to as low as $.35. Also Q4 results "might" be in danger of slippage as well. Investors began a giant clearance sale on GPS stock which dropped another -4.31 and is trading at only $27 instead of last weeks $38. Other retailers took a hit as well after Lands End missed the reduced estimates with a loss of -.06 instead of a +.07 gain. The stock price has been cut by more than -50% from $61 to $28 in the last several months. Walmart, who announced earnings inline with estimates on Wednesday lost another -2.19 on top of a big loss yesterday. WMT closed at $51.44 which is a three month low. WalMart also announced an accounting change which would impact profits. With Retail Sales due out on Friday it appears from the flood of bad news from the retail sector that the report may be favorable. Kmart also announced dismal earnings again today with only a +.05 gain compared to +.26 in the same quarter last year. The losses were not limited to the retail sector with Adaptive Broadband posting a larger than expected loss of -$.17 and dropped -$2.50 in after hours. ICGE also announced earnings after the close and posted a loss of -$.70 vs a -$.06 for the same quarter last year. Sales surges +600% to $453 million but the stock dropped in after hours after analysts expressed concern that ICGE only had about six months of cash left. The 800LB gorilla however was DELL which announced earnings of $.22 after the close and beating official estimates of $.21. DELL did not beat the whisper number of $.23 and revenue, although up from last year, came in on the low side of the high estimates. Dell said it was on track to post 30% growth for the remainder of the year. While 30% is good it is not stellar and far from the much higher numbers from quarters past. While analysts and investors know in their hearts that +50% growth cannot go on forever it is always painful to actually see the deterioration. Dell desktop sales declined to 51% from 60% in the same quarter last year but higher margin server sales increased. Dell said the results included income from investments but declined to say how much. Many analysts were worried that Dell's $8 billion in investments would provide income to offset falling sales and when the actual numbers are made available Dell stock could take another hit if the ratios show margin weakness. Dell dropped in after hours trading after the earnings announcement. Drug users cheered the court ruling on Wednesday that caused many investors to undergo withdrawal. The ruling caused many to grab for their Prozac while selling Lilly. The ripples may continue for some time until the real results of the ruling are known. Still the drop in drugs and biotechs across the board had real and immediate impact to the markets. Biotechs like PEB and DNA got hammered along with Forrest Labs and company. The rush is on to see who has patent problems and who might be the next loser in this space. Some of the bigger possibilities are: MRK - Vasotec, Pepcid, Prinivil, Mevacor GLX - Ceftin, Augmentin, Flovent PFE - Neurontin, Procardia AZN - Prilosec, Zestril BMY - Glucophage, Buspar LLY - Humunlin, Prozac SGP - Claritin, Intron The biggest drug above is Prilosec which has almost $6 billion in annual sales and accounts for one third of AstraZeneca sales of $15 billion per year. Mrs. Bezos, can Jeff come out and play? ToysRus scored a real win today when Jeff Bezos agreed to start selling their products. The second place toy website behind Etoys signed a ten year deal to allow Amazon.com to run their website in conjunction with the Amazon.com distribution centers. Amazon will market and ToysRus will ship the product to Amazon warehouses. ToysRus will continue to OWN the products and take the risks of inventory. Amazon will market and ship, something they are really good at doing. It looks like a win/win to me and Etoys worst nightmare just came to pass. With the tens of millions of Amazon customers being exposed to ToysRus products the odds are good Etoys sales will suffer. ETYS sank to a new 52 week low of $3.94 on the news. With a market cap of only $490 million maybe Amazon should have bought the industry leader, ETYS, instead? They have the cash as well as the stock. Oh well..surely they at least thought about it! Amazon has a market cap north of $11 billion. Friday is economic report rich with both Retail Sales and the PPI report. The Retail Sales estimate is for a gain of +0.4%. Are consumers curtailing their spending habits or are gasoline prices gouging a hole in their budgets? Tomorrow we will know for sure. Anything less than the 0.4% will be viewed as more confirmation that the economy is slowing. The PPI is expected to come in unchanged and short of a blowout it is not expected to be a market mover. Most analysts already have the Fed on hold and bond yields significantly under 6% across the yield curve show the next interest move may likely be a rate cut. Incredible isn't it. Two weeks ago it was rate hike worries and now the market is discounting a possible cut (not in August) as the next move in the future. The current challenge for Alan and company is oil prices again. With crude up over +$2 in the last two days to over $31 again, we are far from out of the oil price crunch. So when is the market going to get the picture? When is the fall rally going to explode on to the scene? Now that is a question for Regis on the Millionaire show. My answer, my final answer, ... any day now. As a news and event sentiment player I feel the Dow pull back from 11000 was just profit taking after seven days and +500 points of gains. The Nasdaq pull back from 3950 was also on profit taking AND fear of earnings. The CSCO earnings were not supposed to be a problem but cautious traders have learned to take profits ahead of unknowns. Same with today. DELL was scheduled to announce earnings that were not expected to ring any bells on the upside and had lots of possibilities to cause ripples on the downside. Add the Retail Sales and PPI before the open on Friday and you have the top three reasons to step to the sidelines over night. Now that all the high profile earnings are history and the PPI/RS on Friday will give us the last major economic news before the Fed meeting on the 22nd, then my final answer is "any day now." Friday could, reports permitting, be D-day. It is however a summer Friday which would put Monday high on the probability list. Did anybody notice that the Nasdaq came to rest exactly on previous support at 3750? The convergence of all the moving averages this week along with the strong earnings news was just too much for the Nasdaq. Once we do power over the 3950-4000 level this same convergence will provide a huge support level and platform for the Fall rally. The only seminar not sold out in August is the three day event in Detroit on August 28-30th. Check below for details. Good luck and sell too soon. Jim Brown Editor **************** SEMINAR SCHEDULE **************** Detroit is the the only three day Technical Analysis, Stock and Option Seminar left in the summer series. Three days of indepth education. Don't miss it! The only seminar not sold out in August is a three day event in Detroit on August 28-30th. We guarantee you will not be disappointed. The class size is small so you will get plenty of individual attention from Chris Verhaegh, Steve Rhoads and 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. Aug 17-19 Orlando 3 day ** SOLD OUT Aug 24-26 Dallas 3 day ** SOLD OUT Aug 28-29 Detroit 3 day *** changed to 3 day advanced *** 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************************* 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 **************** No Mention Of The "V" Word Tonight! By Austin Passamonte Just to prove we aren't a one-pony show, let's examine current market sentiment without this popular tool. It's apparent to all that bulls are sick & tired of sitting on piles of cash. The fervor to buy is truly palpable but propping prices up isn't easy for individual traders when fund managers all too eagerly sell into each fledgling rally. For candlestick pattern fans, take a look at daily charts for the OEX and NDX. Each are exhibiting pretty clear versions of "Evening Star" patterns that don't bode well for near-term rallies in these broad indexes. The Dow and Comp don't look much better. Hey, don't shoot the messenger here - we don't paint the candles, just read 'em & report. Media pundits are perplexed over big-cap issues selling off after stellar earnings are reported. Where've they been? I hope no one expected the rally to grow legs based solely on earnings alone. Rally we may if PPI results are favorably benign. There will come a point when the market truly believes rate hike fears have ended. Will we sail straight up the charts from there or is another wall of worry waiting beyond? Eventually this market will soar and the chance to buy calls and sleep at night shall return. Some believe that time has come and we may be near. Market Sentiment isn't convinced tomorrow is kickoff day. We wouldn't be surprised to see more volatility and further tests to recent support levels or beyond. In our opinion this is a time of extreme market turmoil akin to March & April. We feel months-long trading ranges will soon break in a big way and each passing day favors the upside, long-term. Meanwhile the chance to buy puts and profit greatly may very well revisit us before then. Isn't that why we trade options? The ability to play both directions and prosper is the tradeoff to time decay in my opinion. What we wouldn't pay to relive the wild days from March & April one more time. Certainly that's not out of the question in either direction. Go with the flow and profit wildly! 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 8/8 close: 20.83 Thurs 8/10 close: 21.57 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 (8/08) (8/10) (8/12) ************************************************************* CBOE Total P/C Ratio .50 .62 Equity P/C Ratio .42 .56 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 (8/08) (8/10) (8/12) ************************************************************** All index options 1.69 1.73 OEX Put/Call Ratio 1.84 2.09 OEX Maximum Open Interest Strikes/Contracts: Puts 790/7,360 800/7,655 Calls 800/5,824 800/6,521 Put/Call Ratio 1.26 1.17 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. Numeral listed for resistance is the ratio of calls to puts. Support is ratio of puts to calls. Values above "10" considered firm. Divergence of numbers may indicate future market direction. OEX Tues Thurs Sat Benchmark: (8/08) (8/10) (8/12) Overhead Resistance: (850-825) (840-820)* 303.75 41.58 (820-805) (815/800)* 2.52 1.25 OEX close: 805 799 Underlying Support: (805-785) (800-785)* 1.66 2.09 (780-760) 5.32 7.63 What the S/R measure indicates: Net open-interest ratios are huge above 820. A large index move prior to expiration has clearance in either direction between 780 and 820. Market-makers would love to pin the OEX index near it's largest strike of 800 for maximum expiration of worthless contracts. Too soon to predict. 30-yr Bond: 5.73% 5.68% Light, Sweet Crude, Barrel: $29.15 $31.20 200 Day Moving Average (as of 8/08) The 200 DMA is widely considered the major benchmark for critical support in a market. DOW: 10,778 10,976 10,908 NASDAQ: 3,911 3,848 3,759 NDX: 3,648 3,686 3,595 SPX: 1430 1482 1460 OEX: 770 805 799 CBOT Commitment Of Traders Report: Friday 7/28 * Updated 8/12 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; +445 (long) - 345 (short) Total Open Interest % 6.2% net-long 2% net-short NASDAQ 100 Net contracts; - 16,052 (short) + 445 (long) Total Open Interest % 22% net-short 3.5% net-long S&P 500 Net contracts; + 40,665 (long) -53,521 (short) Total Open Interest % 24% net-long 9.5% net-short BULLISH SIGNALS Interest rates 5.68% on the 30-year Treasury Bond may be signaling rate fears are nil. Fed-Fund futures are pricing a slight chance of one or more rate hikes, .25 basis at this time. Benign Government Reports Latest statistics hint the economy is cooling and no further rate hikes may be needed. PPI is next OEX & Index Option Sentiment CBOE Put/Call ratios of index option volume is skewed heavily to the put side. This contrarian-indicator favors bullish sentiment. COT Report - NASDAQ 100 Sentiment reversal with small speculators growing net-short while commercials begin accumulation may suggest expected strength in the sector over the next weeks or months. ****** BEARISH SIGNALS VIX Thursday's close below 22 sees us in the danger zone. End Of Earnings Season Lack of positive news will direct market focus on August FOMC fears should future reports prove bearish. Third-Quarter Earnings Warnings A number of companies pre-warning slowed earnings later in the year are being met with extreme selling pressure. IPO Glut Record numbers of IPOs this week could greatly dilute market capital and pressure existing issues. Energy Prices Prices are still too high. Ultimately this affects profit margins and inflation. Light, Sweet Crude closed $31.20 today. Seasonal energy patterns typically bottom by late summer, but all petroleum expected to be very high this fall. Prices in low $20s would be welcome relief but may not arrive. Today's Big-Cap Tech Selloff Most NASDAQ tech leaders were sharply lower today. This leadership will be vital to a sustained or renewed rally. COT Report - S&P 500 Latest updated figures show small spec traders were heavily long S&P 500 contracts while commercial traders continued to build ten-year extreme short position. Widened divergence strongly implored market turn in favor of commercials. The bottom is likely still ahead. ************** MARKET POSTURE ************** As of Market Close - Thursday, 08/10/00 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,908 10,450 11,000 SPX S&P 500 1,460 1,425 1,505 ** COMPX NASD Composite 3,760 3,500 4,000 OEX S&P 100 799 770 812 RUT Russell 2000 501 485 540 NDX NASD 100 3,595 3,300 3,800 MSH High Tech 996 935 1,040 ** BTK Biotech 651 570 700 XCI Hardware 1,485 1,380 1,550 ** GSO.X Software 427 385 455 SOX Semiconductor 942 880 1,020 NWX Networking 1,245 1,150 1,325 ** INX Internet 491 460 530 BIX Banking 595 550 610 XBD Brokerage 604 570 655 IUX Insurance 702 680 725 RLX Retail 841 835 910 ** DRG Drug 387 365 415 ** HCX Healthcare 805 760 855 ** XAL Airline 167 160 178 OIX Oil & Gas 297 272 304 DRG and HCX barely broke our support levels yesterday, but managed to close back above those levels. We have moved support levels lower to help you assess potential downside. OEX, MSH, XCI and NWX hit resistance levels, then saw selling. RLX broke and closed below support levels. Lowering support (RLX,DRG,HCX) Lowering resistance (NDX, GSO.X, INX, RLX, DRG) Raising resistance (OEX,MSH,XCI,NWX). The bears are on their hind legs (see Tuesday) and they look hungry. ************** TRADERS CORNER ************** A Glimpse Into the World of Real Trading By Molly Evans If you're ever in Chicago, make it a point to visit the market exchanges. It was my pleasure to visit the Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT) and the Chicago Board of Options Exchange (CBOE) this morning. The CME is the home of S & P, Nasdaq, Russell 2000 and Nikkei futures, currencies, interest rates, and agricultural options trading. Floor traders in the pits are aggressive and act quickly as orders stream in from customers all over the world. Competition can be fierce as traders must vie for attention from others. The quickest response at the most competitive price can be the extra edge needed for a successful trade. Banks, corporations and individual traders constantly submit orders for hedge positions and speculative trades. It was so interesting to watch the very active pit of the S & P 100 futures. The visitors gallery puts you right above the pit while peripheral traders have their backs to us with their notebooks open showing tick charts of the index. As the decibel level increases, the chart tells the tale - breakout or breakdown of the trend. The traders' hand signals go up to buy or sell their contracts but it's impossible to tell whether they're buying to go long, covering shorts, selling into the rally, or shorting the rally. No one knows another's position. At the CBOT, futures on bonds and agricultural commodities are traded. The thirty-year and ten year bond pits were most active and populated this morning. The high populous of traders in these pits points to the liquidity of the vehicle. Where there is potential, there are traders. In contrast to this, the Dow futures pit seemed to be a bit quieter. The CBOE is a must see. Opened in April of 1973, the CBOE is where hundreds of equity, index and interest rate options are traded each day. On its first day, 911 options were traded. Now, 1.2 million contracts are turned over in a single day, accounting for over 47 percent of trading in equity options, over 95 percent of index options and over 65 percent of all options trading. The CBOE is a state of the art facility with over 50,000 miles of electrical wiring underneath the trading floor. It takes as much electrical power to run the CBOE as it does the nearby Sears Tower. There are hundreds of computers, boards, and yes, of course, televisions tuned in to none other than CNBC. In fact, there are more computer screens under one roof at the CBOE than any other building in the world. I got to spend some quality time with a market maker this morning. His market is one of the year's fallen stars but on Monday, he's very excited to begin the Mini Nasdaq option, the MNX, which is an option 1/10th the size of the NDX contract. He talked about how the American Exchange (AMEX) offers the only market for the QQQ stock and options. CBOE will be the only market maker for the mini. As a market maker and trader, he said he'd be sleeping out on the floor Sunday night to be able to secure a special position within the pit. New traders to the pits apparently are not welcomed in an established market but when an opportunity such as this comes along, it's fair game to enter the pit. He likened this to the early days when some market makers camped out on the Pacific Exchange in San Francisco to establish a position in the Dell trading pit. There is a big buzz on the floor to begin the market on Monday for the MNX. The S & P 100 index options used to be the busiest pit but a quick glance over there showed what we've been saying all along. Traders are thinned out for the summer and not only that, there is competition from electronic trading vehicles such as the E mini S & P futures contract. According to the gentleman I talked with, the ability for market makers to make money has become more difficult in the last several years. There is so much competition from the other exchanges resulting in tighter spreads between the bid and the ask on contracts. They do have an advantage over off-floor traders though, obviously. They see all the order flow and know the fair value at all times on contracts. Where we off-floor traders are in the hole immediately upon purchase of an option, the market maker is not. He's already up because of the spread but he also has to take the other side of our trade and manage his risk. One way he might manage that risk is to go either long or short the stock to hedge the position. Just as it is always about risk control in our own portfolios it is risk control for them. He spoke of how the floor is buying premium right now as the volatility is low on a number of options. For example, he indicated that he had been building a long position in premium because of the low volatility in his markets. It is costing him in excess of $6000 per day in option decay to hold these positions. He has to find a way to make at least $6000 each day to make up that loss and does so in part by trading the stock. It was an interesting day and worthy of the time as a trader to glimpse into the inside world of real trading. What I came away with today is that the way to play this market is stock and index specific. Because we are in an identifiable trading range, happiness is found in buying weakness and selling strength. Trade patterns until there is confirmation of a move to the up or downside. So many things determine that and no one really knows which trend is going to take hold. If you want to trade, many stocks and indices ARE moving and waiting for the sky to fall or a runaway breakout to develop may only serve to keep you on the sidelines. 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=ARZ0JES ***************************************************************** ************* SECTOR TRADER ************* NASDAQ Hits Resistance By Buzz Lynn Contact Support You'd think that with great conference call outlooks from both CSCO and AMAT that the tech market would have led the NASDAQ through resistance at 3950 - nope! As we noted on Tuesday, CSCO might have given us a pop yesterday morning only to be followed by a decline in the afternoon as "sell the news" took effect. In fact, that's what happened and AMAT didn't have a prayer today. Post earnings selloff is alive and well even if the stock doesn't have a run before the announcement. The whole NASDAQ followed suit since it is made of a high percentage of tech stocks. With retail sales weak too (Wal-Mart met estimates but expressed caution going forward; GPS posted a 6% sales decline from last quarter; ditto for KM and LE), the Dow was also held back. Overall, it was not a good day in the markets. The only blessing is that volume was low on the 98 point NASDAQ decline, indicating probably just more of a breather than a new downward trend to Hades. The wildcard for the NASDAQ is the DELL earnings conference call. DELL beat estimates by a penny, maintained margins and defended 30% sales growth rate. If the outlook doesn't show any storm clouds on the horizon, DELL may survive a selloff tomorrow. As it stands now, DELL is treading water at $41, fractionally off today's lows. Any gotchas could keep pressure on the entire sector and thus the index. With NASDAQ support of 3850 unable to hold today, and closing at 3759 (its low of the day), the 3750 level again comes back into focus as a pivot point. Remember that old resistance usually becomes new support. If that doesn't work, it remains as resistance on any breakdown under that level. Let the on the NASDAQ be your guide tomorrow, influenced by DELL's behavior and the PPI reception. A break under 3750 sets up the test of 3650; a bounce sets us up for 3850, then 3950 again on the upside. As we've noted before, we don't see any reason to rally, but a friendly PPI could do wonders. On the other hand, friendly PPI numbers would convince many traders that rate hikes are over (heck, most are convinced of that already) and that earnings and growth can resume their old course until after the November election. Don't get caught flat-footed. Be prepared to move either way, and watch volume for a clue to underlying strength of any market move. In the meantime, without direction, we ride the range. Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 89.88 2.38 0.50 -2.50 -1.75 0.00 -1.38 HHH Internet 103.50 3.56 -0.94 -2.94 -1.88 0.00 -2.19 BBH Biotech 177.56 7.31 -3.88 -1.25 -9.44 0.00 -7.25 PPH Pharm. 95.56 -1.13 0.25 -6.00 0.81 0.00 -6.06 TTH Telecom. 65.31 0.69 -2.69 -1.31 0.25 0.00 -3.06 IAH I-net Arch. 95.31 2.44 0.69 0.44 -1.81 0.00 1.75 IIH I-net Infr. 52.19 2.31 -1.00 -0.63 -0.63 0.00 0.06 BHH B2B 46.81 2.00 1.00 -2.19 0.75 0.00 1.56 BDH Broadband 88.81 2.94 -1.06 -0.13 -1.75 0.00 0.00 SMH Semicon. 81.44 2.31 0.06 2.38 -2.00 0.00 2.75 RKH Reg. Bank 105.81 -0.38 0.75 -0.50 0.94 0.00 0.81 UTH Utilities 100.25 2.50 1.00 -1.13 -0.25 0.00 2.13 ************** Updates ************** QQQ - NASDAQ 100 $89.88 -1.75 (-1.38 this week) Much as we hate to see a market without volume (it indicates lack of conviction), it is telling us that we are likely to remain rangebound for the next two weeks at least until the FOMC meeting. Today's 98-point decline may not look good, but only 1.35 bln shares traded on the NASDAQ. It's not a "run for the hills" sign. The NASDAQ is capped above by the convergence of the 50 and 200-dma at roughly 3915, while support remains at 3750, roughly the current level, followed by the next level at 3650, then 3550. The QQQ is in a similar situation in that it too has fallen below its 50-dma of $93.90 yesterday and under its 200-dma of $91.34 today. As we noted Tuesday, $94 appears pretty solid at resistance given the convergence of all the averages, while $91 would be near-term support. While CSCO's earnings true to form gave the QQQ a spike in the morning, the afternoon provided our call selling opportunity and put entry, as the gains could not hold and QQQ began a breakdown that lasted through today's close. QQQ closed at its low, and under $90 support, which doesn't bode well for tomorrow unless sentiment is positively affected by tomorrow's PPI. Otherwise the next stop to the downside is $85-$86. With earnings largely out of the way though and the FOMC meeting coming, we think there is continued opportunity to the downside for now. The idea for the next two weeks is to trade the oscillating range. Our job as traders will be to buy calls at support and puts at resistance. Watch the candlesticks more and emphasize the moving averages less. Long Straddle: This is becoming a troublesome trade because waiting for a volatility spike is a slow process. It seems the VIX has remained forever hovering in the 22 range. Fortunately, we have until mid- October to be right about an anticipated spike. That's when time decay really begins to take its toll on our December premiums. Also, the longer we hold on, the closer we are to that eventual date when the VIX nears 30 again and thus inflates the time portion of our premiums. Patience will likely pay off here if you are already in the play, but we aren't recommending opening any new plays at this time. We think traders will likely be better served by playing long puts and calls at the extremes of the range. That means $85-$94 currently. No new plays are listed tonight. Still feel free to leg in to complete a position or leg out if you want to close it out. That's a timing skill that will ultimately improve your returns Calendar Spread: While we may be winding down our attachment to the long straddle/strangle position, we still favor this play as long as QQQ keeps riding the range. Our job is to sell time premium for a small monthly credit against our long underlying option position. Unlike a cover call, you don't want to get called out of this one. So it's important to buy back the short-term short call position at or very near expiration if the stock price exceeds the strike price or whenever the time value has evaporated from the sold premium. All that said, were you able to get a $94 call sold at yesterday's open. If so, congratulations on an excellent entry. Even better if you are legging in since now you can buy the underlying at a cheaper price and reduce your net debit. With near-term support at $90-$91 broken in today's decline, aggressive traders might even try to wait for a further decline under $86 before buying the long-term leg. ***August options expire next week*** BUY CALL DEC- 86 YQQ-LH OI= 1710 at $13.75 SELL CALL AUG- 90 QVQ-HL OI=13148 at $ 2.50, ND =11.25 or less SELL CALL AUG- 92 QVQ-HN OI=10012 at $ 1.56, ND =12.13 or less SELL CALL SEP- 90 QVQ-IL OI=15717 at $ 5.88, ND = 7.88 or less SELL CALL SEP- 92 QVQ-IN OI= 1427 at $ 4.88, ND = 8.88 or less Long Puts Wow! Congratulations if you got those puts at the projected rollover point at roughly $94 on Wednesday morning following the CSCO earnings release on Tuesday night. It's been downhill ever since, as the QQQ took out previous support at $90-$91 on the way down. It's looking good, as the next level of support comes in at $85 to $86. That would then be a good time to sell your profitable puts and buy calls for an assumed ride back up. The idea is to trade the ends of support and resistance and the mild levels in between. While we may see the QQQ fall back to $86, we also don't think it will remain there long as the market makes what has become a familiar move back up into the FOMC meeting. ***August options expire next week*** At Resistance: BUY PUT AUG-92 QVQ-TN OI= 7993 at $3.50 SL=2.00 BUY PUT AUG-90 QVQ-TL OI=21026 at $2.31 SL=1.00 BUY PUT SEP-92 QVQ-UN OI= 7320 at $6.25 SL=4.00 BUY PUT SEP-90 QVQ-UL OI=16137 at $5.38 SL=3.50 Average Daily Volume = 22.01 mln ----- IIH - Internet Infrastructure $52.19 -0.63 (+0.06 this week) Like everything else that gapped up yesterday on CSCO earnings news, IIH did too reaching up to $56 - substantially above our rollover entry point of $54. But after the euphoria, IIH fell with the rest of the market and couldn't get back over $54. When it rolled over again from there late yesterday, that would have made an excellent entry. While its 5-dma of $53 didn't hold either, IIH is still finding support at the 10-dma of $51.59. That's almost identical to historical support of $51.50. If the NASDAQ continues downhill tomorrow, we think IIH puts are buyable at this level or any rollover after the open. For the more conservative, wait for the fall under $51.50 to confirm the downward trend. Support comes up at $48 and $45. ***August options expire next week*** BUY PUT AUG-55 IIH-TK OI= 57 at $4.00 SL=2.25 BUY PUT AUG-50 IIH-TJ OI=121 at $1.25 SL=0.50 BUY PUT SEP-55 IIH-UK OI=122 at $5.88 SL=3.75 Average Daily Volume = 199 K ----- BDH - Broadband $88.81 -1.75 (+0.00 this week) Sure enough, yesterday's move up on CSCO's coattails proved to be a great put buying opportunity as BDH fell with the overall market. We think BDH still has more room to the downside so long as DELL or the PPI numbers don't inspire the market to new highs. Why? Today's candlestick chart is decidedly negative with BDH finishing the day back below its 50-dma and at its low of the day. That doesn't look good for tomorrow's opening. That said, it stopped dead at previous support too, from which it could easily bounce. Let the NASDAQ be your guide, but feel free to get into the put play on any further decline. ***August options expire next week*** BUY PUT AUG-90 BDH-TR OI=91 at $3.25 SL=1.75 BUY PUT AUG-85 BDH-TQ OI=73 at $1.19 SL=0.50 BUY PUT SEP-90 BDH-UR OI= 5 at $6.00 SL=4.00 Average Daily Volume = 126 K ----- SMH - Semiconductor $81.44 -2.00 (+2.75 this week) Wow! WE were not expecting such a huge gapping move up to $85 at the open yesterday in response to CSCO new. But it became apparent that the gain would not hold especially since the top was at heavy resistance at $85. It fell like a stone from there, which would have made a great entry for a put play. As it is now, SMH is back at support of $81. Great AMAT numbers unfortunately didn't help. Watch the overall market for guidance on an entry. A weak market tomorrow and a decline for SMH under $80.50 would constitute an entry by violating current support and further set up a test of support at $78, then $75. Otherwise, we'd stand aside and look to play puts again at $85. Once it hits $75 and takes a bounce, we'll have to rethink the position. Again, confirm market direction before entering. ***August options expire next week*** BUY PUT AUG-85 SMH-TQ OI= 94 at $5.00 SL=3.00 BUY PUT AUG-80 SMH-TP OI= 88 at $2.19 SL=1.00 BUY PUT AUG-75 SMH-TO OI= 44 at $0.75 SL=0.00 BUY PUT SEP-80 SMH-UP OI= 5 at $4.75 SL=3.00, Low OI BUY PUT SEP-75 SMH-UO OI= 17 at $2.81 SL=1.50, No OI Average Daily Volume = 326 K ************** No Play ************** BBH HHH PPH BHH IAH TTH RKH UTH ************* DAILY RESULTS ************* Index Last Mon Tue Wed Thu Week Dow 10908.76 99.26 109.88 -71.06 2.93 141.01 Nasdaq 3759.99 75.63 -14.44 4.95 -93.51 -27.37 $OEX 799.04 7.87 2.24 1.10 -8.02 3.19 $SPX 1460.25 16.39 3.49 -9.94 -12.62 -2.68 $RUT 501.65 6.24 -1.15 -1.22 -5.85 -1.98 $TRAN 2856.59 7.40 -2.02 -44.28 8.68 -30.22 $VIX 21.57 0.01 -0.72 0.50 0.24 0.03 Calls IDPH 140.38 5.75 -6.63 -1.13 5.38 3.38 Bucking TIBX 108.00 9.81 -1.00 2.88 -8.38 3.31 New MER 137.50 1.41 1.69 0.78 -0.88 3.00 A breather MVSN 87.00 4.78 -4.19 0.75 -0.56 0.78 Side-step HWP 112.25 3.56 0.50 -2.06 -1.50 0.50 Good entry MERQ 100.38 4.31 4.31 -2.19 -6.06 0.38 Wild ride DNA 164.44 1.63 6.50 4.63 -12.44 0.31 Booked AFL 54.44 0.94 -1.00 -0.44 -0.63 -1.13 Slight drop PVN 110.13 -0.09 1.63 -1.28 -2.84 -2.59 Assaulted COF 55.88 -0.50 -0.63 -1.31 -0.56 -3.00 Dropped PEB 91.97 6.81 -2.72 -5.50 -3.63 -5.03 Entry point HGSI 137.50 5.88 -5.94 5.63 -10.63 -5.06 Dropped ABSC 83.38 1.13 -0.75 -13.50 -3.13 -16.25 Dropped FRX 93.00 -2.19 -0.03 -24.47 3.50 -23.19 Dropped Puts VRSN 142.50 -7.75 -6.31 -2.25 -3.25 -19.56 Breakdown AETH 141.19 -2.50 -8.00 -10.00 5.19 -15.31 Bounced IMCL 66.19 -0.19 -6.00 3.50 -4.31 -7.00 Damaged LVLT 62.19 -1.88 -2.00 -0.25 -1.31 -5.44 New AMD 57.00 3.13 -3.50 -0.25 -4.75 -5.38 Collapsed SGP 39.50 -0.44 0.28 -1.53 -1.94 -3.63 New TERN 54.50 2.84 -1.50 -0.22 -1.75 -0.63 Rollover AAPL 47.56 0.56 -1.19 0.75 0.06 0.19 Narrowing MU 75.00 3.00 0.75 5.13 -6.75 2.13 Sliced 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: ***** FRX $93.13 +3.63 (-23.56) Ouch! Will someone pass me the bottle of Prozac? This call play turned unlucky on us. Pure and simple. With news that LLY's patent protection of its blockbuster anti- depressant Prozac would end in February, not 2003, generic drug manufacturers got a boost, but FRX lost out. On Wednesday, FRX dropped over $24 on concerns that generic versions of Prozac will increase competition with FRX's own antidepressant Celexa. Hopefully, positions were protected with stop loss orders prior to trading being halted on Wednesday at 2:10pm EDT. Today, the stock managed to tack on a small gain after the sellers over-did it yesterday. Analysts with Chase H&Q and Prudential came to FRX's defense today and upgraded the stock to a Strong Buy from a Buy and Accumulate, respectively. We are using today's bump to exit this play. ABSC $83.38 -3.13 (-16.25) ABSC slumped in sympathy with LLY yesterday, after the pharmaceutical giant suffered a legal setback. ABSC slipped below the critical $100 level early Wednesday morning, ultimately falling into the abyss after the LLY ruling was announced near the close of trading. The losses mounted Thursday after the bulls decided to step back from the Biotech sector, and hand over control to the bears. A quick bounce back for our play seems unlikely at this time given the mounting pessimism within the Biotech group. We'll step out of the Biotech bears' way for the time being, and conserve our capital for another play. HGSI $137.50 -10.63 (-5.06) HGSI held its own Wednesday in spite of the detrimental ruling against Pharmaceutical behemoth LLY. However, the Biotech bears caught up with the patent-dependent HGSI Thursday. Our play was cut short today after the LLY-related selling spilled over into the broader Biotech sector and a host of downgrades were spread across the group. HGSI fell well below its 50-dma early this morning on increased volume. The failure of several major support levels does not bode very well for our play and has prompted us to step aside. Although HGSI's ascending channel is still somewhat intact, the accelerating losses are more than enough reason to sell too soon. COF $55.88 -0.56 (-3.00) It's been a fun ride while it lasted, but COF is looking like it has run out of gas. Although tracing a new 52-week high 2 weeks in a row, it hasn't been able to build on its success and has once again pulled back to support near $55. There may still be more upside in the play, but it has used up the momentum that propelled it higher over recent weeks. The decline today came on anemic volume, leading us to believe a bounce could be in the cards, but it looks unlikely that COF will be able to break resistance at $59 in the near future. Rather than try to squeeze every last drop of profit from the play, we'll take our profits and move on. 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 ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Thursday 08-10-2000 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/081000_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 ******************** PVN $110.13 -2.84 (-2.59) PVN has come under some selling pressure during the last two days as profit takers have lead an assault on the broader markets. After bumping up into resistance at $115 on Tuesday, PVN has been very choppy, trading in a wider range. On Wednesday, the stock hit a low of $109 where a large volume spike lifted the price to $111. Today was a steady bleed as PVN just managed to keep its head above the $110 level. Technical support lies at the 10-dma at $107.88. If the stock drops below $110, look for a bounce from the 10-dma to enter the play. Only enter if PVN bounces with a volume surge. Overhead, $112 may provide minor resistance, with $115 being stronger. On Wednesday, the company declared a quarterly cash dividend for its common stock of 5 cent per share, to be payable September 15th. This was not a trade-related news event. AFL $54.44 -0.63 (-1.13) AFL has had two days of volatile trading, for a relatively steady stock. Right now, defensive plays like this insurance issue look to hold some hope as techs have been hammered the last two days. Today's slight decline reflects a broad market profit taking effort by the sellers. With no news out on AFL, this play is pure technical defensive play. We are looking for the stock to hold the $54 level. Bounces from there with renewed buying volume would be a good entry. However, we do caution entries if AFL trades through that support level, especially considering the today's close is just below its 10-dma at $54.70. Any strong move through $55 - $55.50 area on good volume could provide a more conservative entry on this relatively conservative play. MERQ $100.31 -6.13 (+0.31) The wild gyrations in the Tech sector have taken their toll on our play over the last two days. MERQ bumped against resistance at $110 early Wednesday, only to roll over and follow the broader Tech sector lower into Thursday's session. The stock had run nearly 20% from its lows last week, so a little profit taking is not out of the ordinary. We'll look for MERQ's impressive relative strength to lift our play higher once the selling in the broader Tech sector subsides. The stock briefly dipped below the century mark late Thursday as the NASDAQ fell to its lows of the day. However, MERQ bolted back above the $100 level in the final half hour of trading in conjunction with an explosion in volume. Watch closely Friday morning to see if the late-day buyers return to carry the stock higher. An aggressive trader might look for a quick entry into the play after a bounce off $100. For a more conservative entry, wait for MERQ to regain its footing and move back above $105. Confirm direction in the Tech sector before entering the play, and don't forget to set your stops. HWP $112.25 -1.50 (+0.50) The bad news is HWP fell for the second straight day Thursday. But, the good news is the stock's ascending channel is in good shape. HWP dipped below its 5-dma today, however, the selling was light, to say the least. Our play slid lower on volume that was less than half the ADV. Furthermore, HWP's intraday low Thursday was ever-so slightly higher than Wednesday's low. The brief pullbacks during the duration of our play have provided good entry points as HWP has gone on to trace higher highs, which might warrant consideration for entry at current levels. We are now less than a week away from HWP's profit report, which has been confirmed to be released next Wednesday. The last leg of an earnings run might begin Friday if the Tech sector cooperates. Watch to see how traders react to DELL's earnings report, and consider entering our HWP play if the stock bounces from its current levels. A more conservative entry point might be found if HWP rallies back above its 5-dma, which is currently at $113.75. A rally with good volume above resistance at $114 might also provide an additional entry point. DNA $164.44 -12.44 (+0.31) Traders who followed Jim Brown's suggestion on Sunday to take some profit at $177 managed to book a nice profit and sell at a local top yesterday. DNA rallied just above the $177 resistance point to an intra-day high of $177.44. This proved to be a great opportunity to take some money off the table with the stock closing $176.88. Today, DNA succumbed to weakness in the biotech sector and sold off, losing 7% on above average volume. Today's close brought DNA below its 5-dma at $168.60, but support at the 10-dma (now at $161.50) is still holding. Volume has been light over the past couple of weeks so today's move is actually stronger than the advances last week. Those looking for an entry point into this play may targetshoot on a bounce from $160, but make sure volume is confirming the strength. A conservative trader may want to wait for DNA to move through its 5-dma with good volume before entering. Overhead, there is resistance at the $167-168 area, $170 and of course, $177. MVSN $87.00 -0.56 (+0.77) The past couple of trading sessions have seen more "one step forward, one step back" movement from Macrovision. Whereas the sideways movement earlier in the week was on high volume, we now find the trading range tighter and the volume substantially lower. After a run like last week's on strong volume, we'll take a little consolidation. On Wednesday, the stock gained $0.75 on about 77% of ADV, trading in a narrow range of less than 4 points. Today was more of the same with MVSN giving back about $0.56 on only 51% of ADV. One item of concern, however, is that today's close puts MVSN's price just below its 5-dma at $87.65. Conservative traders looking to enter this play will want to make sure MVSN clears this moving average before entering. Support can be found at $85, $82.50, and $81.25 with resistance at $90. A break through $90 would likely drive the stock to a new all-time high. In the news today, MVSN announced that its SafeDisc PC CD-ROM copy protection solution has been licensed to over 100 mastering and replication facilities. This makes it the most widely supported technology and the standard for CD-ROM copy protection for consumer software and information publishers worldwide. IDPH $140.38 +5.38 (+3.38) Those who watched IDPH yesterday were treated to a low volume trading day as the stock inched down $1.13, or 0.83%, on less than 30% of ADV. Today provided for a little more excitement, but only a little more. Starting the morning weak during amateur hour, IDPH found a bottom at $129. From there, the stock spent the rest of the day moving higher on increasing volume to close up 3.98%. Today's rally was on about 56% of ADV to close right above resistance at $140. Considering the weakness of the drug sector yesterday thanks to LLY's bombshell, and today's sell-off in many biotechnology issues, we'll take the last two days of IDPH's action as a positive sign, despite the low volume. Tuesday and Wednesday's action did cause us some concern as IDPH finished below its 5-dma at $138.15, but today's move puts IDPH back above that level. Support for the stock can be found at $140, its 5-dma, and $135. Looking ahead the next resistance levels are at $143, and then $148. PEB $92.00 -3.59 (-5.00) Investors took a slice out of PEB's recent gains and brought the share price down into a better entry range. At first it appeared $95 was going to hold up as light support, but $90 turned out to be the true safety net. The strong rebound off this level in the last hour of trading today hints that PEB will resume its uptrend in a cooperating market. The next few days may be tough if the DOW remains range bound, but that doesn't mean it's not tradable. Watch for bullish moves and enter on intraday dips at the 10-dma ($94.77), an aggressive entry before there's another break through the 5-dma ($97.90). If you play more cautious, then wait for more conclusive evidence that PEB's momentum is intact. Earnings for this genomic issue aren't until early November so don't look for an upcoming release to generate excitement. This is purely a stock-specific run. The added plus is that PEB is considered a split-candidate above $110 and does have plenty of authorized shares to render a stock dividend. In the news yesterday, the company announced that Gene Tec Corp. granted them a non- exclusive license to its patented method of amplifying nucleic acid targets directly in cells and viruses. This method of direct amplification immobilizes biological specimens by drying them onto solid or porous supports, such as microscope slides or membranes. MER $137.50 -0.88 (+1.75) The law of gravity is alive and well. Although it looked like the Financials might have another stellar day today, they ran out of buyers right at the highs from yesterday and declined for the remainder of the day. Overdue for some profit taking after 5 straight days of gains, MER followed the lead of the broader sector and rolled over at $141 yesterday and $140 today. After declining for the remainder of the day, MER closed right at the low of the day today. Keep an eye on the market reaction to the PPI report due out tomorrow morning. This will be one of the last pieces of economic information before the FOMC meeting on August 22nd. A negative number could re-ignite fears about rising interest rates. Wait for the market reaction, and investor attitude towards the Financial sector before initiating new positions. The stock is continuing to find support at the 5-dma ($137.50), which happens to be the closing price today. Below this level, MER has chart support at $135, so more downside is possible before heading higher again. Look for a bounce from support to trigger new entries, but make sure that increasing volume is accompanying the move. ******************* PLAY UPDATES - PUTS ******************* TERN $54.50 -1.75 (-0.63) Looking at an intraday chart for the last three days, you can see that TERN gaps up from the previous day's close, and then bleeds throughout the day. There is no buying conviction as bears take control of the stock as the day trades on. These morning spikes have been providing nice entry points. On Wednesday morning, TERN spiked up to the 200-dma at $60.84 and almost immediately rolled over, losing $4 from there. The stock is coming under increased selling pressure as the NASDAQ continues to wane. Today, the trading pattern was the same, except that TERN spent most of the day wavering around $54.50, its closing price. A continued slide through $54 with strong volume would represent a conservative opportunity to gain entry into this put. If the trading pattern mentioned above continues, early morning entries with a weakening NASDAQ could be lucrative. Below, look to $50 for support and exits. If that doesn't hold, last Wednesday's low of $48.50 had buyers showing up. AMD $56.75 -5.00 (-5.75) The Chip debate intensified yet again Wednesday after Josephthal reiterated its Buy rating on AMD based upon the positive remarks from CSCO about the flash memory market. Despite the encouraging words, AMD's range bound trading abruptly ended Thursday after the stock collapsed below its critical support level at $60 on heavy volume, providing the entry point we had been looking for. Ashok Kumar of Piper Jaffray, who downgraded AMD earlier in the week, disputed the positive outlook for the flash memory market Thursday, which added to AMD's demise. Given the fact that AMD plummeted below its critical support Thursday, an aggressive trader might consider entering the play at current levels. AMD does not have much in the way of support until the $50 level. Before entering the play, make sure to confirm weakness in the Semi sector by monitoring the SOX.X, and watch for heavy volume to return. A conservative trader might wait for AMD to fall below $56 before entering the play. VRSN $142.50 +3.25 (-19.56) Wednesday saw the stock move lower, losing $2.25 or 1.52% on above average volume. Today, VRSN slipped even lower, shedding 2.23%, though this time only on 64% of ADV, as the technical picture for VRSN continues to fade. A cursory glance at the chart reveals that VRSN is having trouble with a number of moving averages. For the past couple of weeks VRSN has been moving down with the 10-dma (now at $152.87) acting as formidable resistance. Tuesday saw the stock close below it's 100-dma (at $153) and its 200-dma (at $156.40). Now the stock is closing below its 5-dma as well. With so many moving averages lurking overhead as resistance and good news failing to shake the stock out of its downward spiral, what's a trader to do? One answer is to go with the trend. This trend appears likely to continue as long as VRSN fails to rally above its 10-dma, serving as an ideal entry target. There is some support at $140, but breaking through that level will see the next levels of support at $135 and $130. Conservative traders may want to see the stock break through $140 before entering. AETH $141.19 +5.19 (-15.31) Yesterday we couldn't have asked for a better session to trade AETH puts! The share price gapped up to $151.84 at the open and then settled in around $145-$147. As the day proceeded, intraday support at $140 started to break down. Ultimately, AETH fell apart and hit a bottom at $135. Today, AETH did slide farther to $130, but quickly rose after amateur hour slamming into upper resistance at $141. A last minute surge on volume brought the share price up to $145.50, but it couldn't hold. With just two days into the play, AETH achieved two important objectives. For one, it has sunk below the 200-dma (now at $145.71) and second, the share price cracked an earlier support level at the $140 mark. With those technical hurdles surpassed, AETH is now without restrictions. However, don't throw caution to the wind. Look for the downward momentum to resume before you add new positions. And as always, it's good practice to keep stops tight for protection. AAPL $47.75 +0.25 (+0.38) An upgrade from PaineWebber on Wednesday may have influenced AAPL's trading. The firm raised Apple Computer to an Attractive rating. Yet, despite the positive recommendation, AAPL hit a ceiling at $48.50, which is lower than the $50 resistance experienced earlier in the week. The range, however, is becoming very narrow. AAPL's been consistently bouncing off intraday lows in the vicinity of $47.25 in the past two sessions. This particular aspect isn't encouraging, but we can still keep a watch on AAPL. If the NASDAQ continues to rollover and the PPI numbers shake up the broad markets tomorrow, then we may still have an opportunity to make gains. Wait until after amateur hour and enter only if it's profitable to do so. Keep in mind that this play is risky and is best considered as a quick in-and-out. Keep stops tight. IMCL $66.19 -4.31 (-7.00) There was lots of collateral damage from the news on LLY yesterday, and although it does not have drug patents in danger of expiration, IMCL couldn't buck the negative sentiment today. After a head fake back above the 200-dma (currently $71.06) yesterday, IMCL resumed its downward move today and spent the entire day below this important level. The 10-dma (currently $71.38) continues to pressure the stock to the downside, and this moving average is about to cross below the 200-dma. This is typically a bearish occurrence, making it more difficult for the stock to reverse and head higher. Add in the fact that historical support at $69-70 failed to hold, and our put play is looking like it is cleared to dive even further. Look for this prior support level to transform itself into resistance as IMCL continues to decline. One wrinkle to watch out for is volume. Although the decline today came on nearly double the ADV, volume picked up sharply at the close as the stock bounced to recover over $1 of the days losses. Consider a recovery and subsequent rollover at resistance as a good opportunity to initiate new positions. More conservative players will want to wait for the stock to fall through today's low near $64 on increasing volume before jumping into the play. MU $75.00 -6.75 (+1.56) Bearish sentiment in the Semiconductor sector couldn't be overcome by the strong earnings report from AMAT yesterday. After a timid move above its 200-dma, the SOX.X index fell back through this level and the weakness carried over into many of the chip stocks today. MU investors joined in the selling, slicing nearly $7 from the share price on strong volume (30% above the ADV). There is very little left to propel these stocks upwards in the near future (earnings are over), and investors are likely to start focusing on economic reports as the FOMC meeting approaches on August 22nd. Any negative news from tomorrow's PPI report could be the catalyst for further losses. Although the stock is sitting right above the 100-dma ($73.25), the next level of discernable support looks to be near $70. Above current levels, $81-82 should continue to create resistance. Consider new entries as the stock rolls over near resistance and then tighten up your stops as it approaches support. As always, pay attention to the sentiment of both the sector and the overall market, and trade with the trend. **********************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=ARZ0JES ***************************************************************** ************** NEW CALL PLAYS ************** TIBX - TIBCO Software Inc $108.00 -8.38 (+3.31 this week) TIBCO Software is a leading provider of real-time infrastructure software for the Internet and enterprise that enables business to dynamically link internal operations, business partners and customer channels. The company's flagship solution, ActiveEnterprise, facilitates this business process integration by connecting applications, web sites, databases and other content sources using patented technology called The Information Bus (TIB). This technology revolutionized trading on Wall Street in the mid 1980's and has since been adopted in a wide range of industries from high-technology manufacturing and telecommunications to retail and e-business. TIBCO's global client base includes 3Com, Netscape, NEC Electronics, Yahoo!, Bechtel, PageNet and Glaxo Wellcome. Trading in TIBX was very active last Thursday and Friday in light of two meaningful announcements. Of course, there was the market rally on Thursday, but much of the volume was due to the company's $100 mln stock acquisition of XML software maker, Extensibility. The merger will give TIBX an excellent resource to the computer languages used in developing their real-time software. It's nice to bring a supplier into your fold. The liveliness extended into Friday morning's session with volume once again above the average. TIBX exploded to a daily high of 107.88, which brought last week's total gains to $10, or 10.6%. Friday's action was fueled by the announcement that TIBCO and Meractor Software entered a marketing alliance. Basically, the two companies will benefit from selling the others products through a larger customer base. While all this is fine and dandy, TIBX didn't make our cut until it successfully traded above strong resistance at $110. Monday was the first real proof that momentum could power the stock higher. TIBX closed almost on the high of the day and proceeded to test the next level of opposition near $120 on Wednesday. The downdraft that followed is clearly related to the stock's market sensitivity, and of course, some typical profit taking that was in the works. What we now have, however, is a stock holding ground at a higher price level. The positive bounces off the intraday low of $105.50 and the 10-dma ($105.67) are bullish signs. Positions can be taken on advancements off those short-term support levels. More conservatively, a high volume move through $110 could provide an entry point. There's not been any hot news coming off the press this week, so traders should expect TIBX to be influenced by the general market direction. Watch the NASDAQ and other software stocks for sentiment. ***August contracts expire next week*** BUY CALL AUG-105 PIW-HA OI=218 at $ 8.25 SL= 5.75 BUY CALL AUG-110 PIW-HB OI=547 at $ 5.50 SL= 3.50 BUY CALL AUG-115 PIW-HC OI=178 at $ 3.63 SL= 2.00 BUY CALL SEP-110*PIW-IB OI=121 at $11.63 SL= 8.75 BUY CALL SEP-115 PIW-IC OI= 8 at $10.00 SL= 7.00 BUY CALL SEP-120 PIW-ID OI=177 at $ 8.38 SL= 6.00 Picked on August 10th at $108.00 P/E = N/A Change since picked +0.00 52-week high=$147.00 Analysts Ratings 5-2-1-0-0 52-week low =$ 6.58 Last earnings 06/00 est= 0.01 actual= 0.04 Next earnings 09-21 est= 0.05 versus=-0.01 Average Daily Volume = 1.55 mln ************* NEW PUT PLAYS ************* LVLT - Level 3 Communications $62.25 -1.25 (-5.38 this week) LVLT is building more than 20,000 miles of fiber-optic networks in the U.S. and Europe in an attempt to become a leading bandwidth provider. The company's networks also include undersea capacity across the Atlantic and Pacific. LVLT serves such data-intensive customers as Internet service providers (ISPs) and telecom carriers. Services include Internet access, network equipment, and fiber optic leasing. Not too long ago LVLT was for the bulls. But, recently, the service provider has fallen out of favor on the heels of a myriad of high-profile warnings within its peer group. Trouble began brewing when equipment giant LU warned of slower growth in the second-half of the year. At the time, many dismissed the warning from LU, calling it a company specific problem. However, earlier this week, the local telecom service giant Verizon (VZ) reported disappointing profits and warned Wall Street of lower growth going into the end of the year. What's more, the recent merger announcement by PHCM and SWCM is expected to create a formidable next generation telecom provider, which some analysts suggest might encroach upon LVLT's market share. The increasingly bearish outlook for the Telecom sector has put many leading stocks at or near 52-week lows, including none other than T and WCOM. In the wake of the fallen leaders, LVLT has slid lower over the past month on increasingly heavier volume. Many analysts have attempted to halt LVLT's sell-off, which was evident in JP Morgan's plea to the bears yesterday with the reiteration of their Buy rating. It was apparent today that the words of encouragement fell upon deaf ears as LVLT fell below a critical support level on convincing volume. LVLT's close below $63 might warrant entry at current levels. But, before doing so, confirm direction in the sector using the above mentioned stocks as reference. A more conservative entry might be found if LVLT drops below $60. The 5-dma, currently at $64.50, has been staunch resistance for the past month. A bump against the 5-day followed by a rollover might provide a solid intraday entry. ***August contracts expire next week*** BUY PUT AUG-65*QHN-TM OI=715 at $4.50 SL=2.75 BUY PUT AUG-60 QHN-TL OI=522 at $1.94 SL=1.00 BUY PUT SEP-65 QHN-UM OI=346 at $7.38 SL=5.75 Average Daily Volume = 2.04 mln SGP - Schering-Plough Corp. $39.50 -1.94 (-3.63 this week) Schering-Plough is a holding company that, through its subsidiaries, is engaged in the discovery, development, manufacturing and marketing of pharmaceutical products worldwide. The company has three principal product lines; prescription products, animal health products, and over the counter (OTC) health care products. At the head of SGP's prescription drug roster is Claritin, the world's top antihistamine. The company's OTC brand names include Afrin (nasal sprays), Dr. Scholl's (foot care), and Coppertone and Bain de Soleil (sun care). In the wake of yesterday's court decision relating to Eli Lilly's (LLY) patent protection for its flagship drug Prozac, Pharmaceutical companies have come under renewed scrutiny. If a large portion of a company's revenue comes from patented drug sales, it is now clear that the expiration of this patent protection can severely impact the company's share price. Unless the company can find a way to extend its patent protection (either by modifying the drug or creating a new blockbuster drug to replace its revenue), generic drug-makers will swoop in with cheaper versions of the drug, taking a big bite of the revenue stream. SGP has its own patent expiration issue to deal with, as its patent on Claritin will expire later this year. The company is currently awaiting FDA approval on a replacement for its flagship product, and in light of what happened to LLY yesterday, investors have become more nervous of companies whose revenue stream is too closely tied to just one or two patented drugs. Although SGP initially got a boost on the LLY news yesterday, the stock very quickly gave up all those gains, falling to close the day with a gain of less than $1. The decline picked up steam again this morning and the stock fell deeper into the support zone between $39-42 on volume nearly twice the ADV. There is a bit more support near $38, and then $35. If these levels are insufficient to stem the selling, SGP could be headed for a retest of its 52-week low at $30.50. The stock is now below all its moving averages, and will likely run into resistance near the 5-dma (currently at $41.94), which is right in the middle of the support/resistance zone mentioned above. Consider new entries on a rollover from resistance or if continued selling pressure can push the price below the $38 support level. ***August contracts expire next week*** BUY PUT AUG-45 SGP-TI OI=1619 at $5.63 SL=3.50 BUY PUT AUG-40 SGP-TH OI=2383 at $1.63 SL=0.75 BUY PUT SEP-45 SGP-UI OI= 80 at $6.13 SL=4.00 BUY PUT SEP-40*SGP-UH OI= 455 at $2.63 SL=1.25 Average Daily Volume = 4.36 mln ********************** PLAY OF THE DAY - CALL ********************** MERQ - Mercury Interactive $100.31 -6.13 (+0.31 this week) Mercury makes testing software for enterprise resource planning applications, client/server software, and e-business applications. The company's products perform such tasks as analyzing and eliminating Web site performance bottlenecks, and automating quality assurance testing. Customers include AOL, American Airlines, Citigroup, and ETrade. Mercury is looking for the growing demand for e-commerce to fuel its business. Most Recent Write-Up The wild gyrations in the Tech sector have taken their toll on our play over the last two days. MERQ bumped against resistance at $110 early Wednesday, only to roll over and follow the broader Tech sector lower into Thursday's session. The stock had run nearly 20% from its lows last week, so a little profit taking is not out of the ordinary. We'll look for MERQ's impressive relative strength to lift our play higher once the selling in the broader Tech sector subsides. The stock briefly dipped below the century mark late Thursday as the NASDAQ fell to its lows of the day. However, MERQ bolted back above the $100 level in the final half hour of trading in conjunction with an explosion in volume. Watch closely Friday morning to see if the late-day buyers return to carry the stock higher. An aggressive trader might look for a quick entry into the play after a bounce off $100. For a more conservative entry, wait for MERQ to regain its footing and move back above $105. Confirm direction in the Tech sector before entering the play, and don't forget to set your stops. Comments MERQ was all over the map today. Yet, as the NASDAQ closed on the lows of the day, MERQ attracted some huge buying volume in the final 20 minutes of the session. That buying burst sent the stock to close over the key $100 level. In today's trading, MERQ traded down to its 10-dma at 98.50 and managed a nice bounce. Look for entry into this call play on any strong volume bounces from either $100 or the 10-dma. There may be some mild resistance at $102.50 so watch that level for either exits, or a conservative entry if strong buying volume pushes through. Remember, August time premium is decaying fast with one week until expiration. ***August contracts expire next week*** BUY CALL AUG- 95 RBF-HS OI=344 at $ 8.50 SL=6.50 BUY CALL AUG-100*RBF-HT OI=400 at $ 5.63 SL=3.75 BUY CALL AUG-105 RBF-HA OI=301 at $ 3.38 SL=1.75 BUY CALL SEP-100 RBF-IT OI=244 at $11.13 SL=8.75 BUY CALL SEP-105 RBF-IA OI= 64 at $ 8.75 SL=6.50 Picked on August 6th $100.00 P/E = 204 Change since picked +0.31 52-week high=$134.50 Analysts Ratings 9-3-1-0-0 52-week low =$ 19.88 Last earnings 06/00 est= 0.12 actual= 0.14 Next earnings 10-16 est= 0.16 versus= 0.11 Average Daily Volume = 1.79 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 ************************ The Endless Rotation Continues... Technology stocks slumped today amid concerns over revenues but cyclical issues edged higher as investors flocked to safety. Sunday's new plays (positions/opening prices/strategy): American Home AHP AUG50P/AUG55P $1.00 credit bull-put Millipore MIL AUG75C/AUG70C $0.50 credit bear-call Countrywide CCR OCT30C/AUG40C $8.00 debit diagonal Southdown SDW AUG65C/AUG60P $2.50 credit strangle Schwab SCH SEP42C/SEP35P $0.00 debit synthetic Finance issues opened lower on Monday, allowing favorable entries in the Countrywide and Schwab positions. American Home Products also slumped during the session, providing the target credit for our bullish spread. Millipore and Southdown both traded in small ranges, offering lower than suggested entry credits in each play. Portfolio Plays (Through Wednesday): It seems that every time we take a (much needed) break from the market, something good happens. That was certainly the case this week as our brief hiatus saw a number of favorable events in the Spreads/Combos portfolio. On Monday, the broad market rallied amid optimism the Federal Reserve would not boost interest rates at its meeting later this month. The Nasdaq closed up 75 points at 3,862 and the Dow Jones industrial average was up 99 points to 10,867.01. The S&P 500 index was up 16 points to 1,479. Our portfolio was led by gains in the technology group. i2 Technologies (ITWO) was our big winner, up $17 after the company announced that they were a major part of a new venture, FinancialSettlementMatrix.com. The company will connect buyers and sellers in e-marketplaces with payment processing, credit and other services through multiple participating banks and financial services companies. Our new synthetic position returned a $5.50 profit in just under one week. Juniper Networks (JNPR), Network Appliances (NTAP), Sun Microsystems (SUNW) and Qlogic (QLGC) also enjoyed substantial gains. In the small-cap group, Bed, Bath and Beyond led the way, closing up $2 near a recent high at $38.68. Our bullish credit spread is at maximum return above $35. American Eagle Outfitters (AEOS) and Secure Computing (SCUR) also participated in the optimistic activity and both positions have achieved favorable returns. One of the biggest surprises was Philip Morris (MO) which moved up $1.38 rally to close at $28. Our bearish credit spread is short at $27.50 and the position is now in danger of a loss. Those of you who trade conservatively should have covered the sold option as the stock began to rally (from $27-$28) early in the session. We noticed a 30 contract spread-closing trade near 10:30 A.M. at $0.43, thus a break-even exit (on a simultaneous order basis) was certainly available. Traders who favor an aggressive style could hold the original position and plan to roll out to the long ($30) option if the issue breaches the May high on heavy volume. Tuesday was a banner day as the Dow recorded a triple-digit gain amid optimism over the interest rate outlook. The blue-chip average was up 109 points at 10,976. Meanwhile, the Nasdaq slid 14 points as investors awaited earnings from Cisco Systems (CSCO). The S&P 500 ended relatively unchanged at 1,482. Our portfolio experienced very little excitement during the rally in "classic" issues but a number of small cap stocks enjoyed favorable moves. Northpoint (NPNT) climbed to a midday high $16, providing a great exit opportunity in our new calendar spread. The spread credit traded as high as $1.38 and those of you that managed to open the position last Friday were happily rewarded with a 50% return after just three sessions. Another issue that made an unexpected move was Ryder Systems (R). The stock jumped to a high of $23 during the session, providing an excellent opportunity to roll to the September options in the bullish position. A cost basis of $1.12 was available on the transition to a NOV-$20C/SEP-$22C diagonal spread. As we said last week, one of the major disappointments in our portfolio is the "bull-call" position in American Online (AOL). Fortunately, the issue rebounded off technical support at $52 and closed at a recent high near $54. Those of you with a conservative outlook should plan to close the position when and if it becomes profitable as the original bullish optimism has temporarily departed. Obviously, you should also protect the current recovery with Stop-loss limits in the event of another slump. On Wednesday, the stock market ended mixed with technology issues edging higher following strong earnings from Cisco Systems (CSCO). The broader market declined, however, with drug stocks taking a beating after a negative court ruling for one of Eli Lilly's (LLY) major products. The Nasdaq closed up 4 points at 3,853 while the Dow finished down 71 points at 10,905. The S&P 500 index slipped 9 points to end at 1,472. Cisco's earnings news gave our section a boost, not only in that position but in other technology stocks as well. The top performer was Juniper Networks (JNPR) with a $7 rally to end near $165. Our bullish, covered-call at $132.50 is over $30 "in-the-money" and it can be closed for a small profit. In the small-cap group, Polaroid (PRD) made a nice move, up $0.50 to a recent high near $18.38. Our bullish calendar spread will need to be adjusted prior to next week's expiration and we will watch for a spike in PRD's daily movement to make the transition. On the downside, American Home Products (AHP) fell $2 in sympathy with the precipitous drop in Eli Lilly (LLY). Our credit spread at $55 remains intact but the underlying issue should be monitored for further downside movement. Pall Corporation (PLL) is moving ever closer to our sold position at $22.50 and if you have any concerns about a loss in the (neutral) credit strangle, close the play now and take the current profit. Thursday, August 10 Technology stocks slumped today amid concerns over revenues but cyclical issues edged higher as investors flocked to safety. The Nasdaq slid 93 points to 3,759 while the Dow industrial average climbed 4 points to 10,908. The S&P 500 index ended 12 points lower at 1,460. Activity on the Nasdaq was light at 1.34 billion shares traded, with declines outpacing advances 2,381 to 1,592. Trading volume on the NYSE hit 941 million shares with declines beating advances 1,477 to 1,355. In the bond market, the 30-year Treasury rose 22/32, pushing its yield down to 5.68%. Portfolio Plays: The stock market ended mixed again today as concerns over revenue growth continued to plague technology issues while the industrial group rebounded from a recent sell-off. Favorable earnings from both Cisco and Applied Materials failed to energize technology investors and weakness in chip and networking shares pulled the Nasdaq lower. A slump in retail issues limited the Dow's gains with Home Depot and Walmart leading the sell-off. In the broader market, drug stocks recovered following Wednesday's pummeling but biotechnology stocks continued to suffer from profit-taking. Our portfolio benefited from the recovery in major pharmaceutical issues with American Home Products (AHP) closing over $3 higher after the company said it plans to reduce its stake in Immunex (IMNX) to lock-in capital gains. American Home said it plans to sell up to 50 million Immunex shares in a secondary offering that could raise up to $2.7 billion. The unexpected announcement was greeted with enthusiasm and the stock rallied to a recent high near $59. Surprisingly, a technology issue, Voicestream (VSTR) was the top performer in today's session, up over $6 to $130 after Deutsche Telekom (DT) announced its near $50 billion bid for the compamny was prompting them to delay the offering of its wireless unit; T-Mobile. Investors saw the move as a new commitment to complete the Voicestream merger and bought up additional shares of the personal communications services provider. Our (short) Naked Put position at $120 is expected to expire profitably but there is little chance we will achieve any gains from the bullish debit spread at $165. In the small-cap category, Kellogg Company (K) rebounded to a midday high above $27 amid renewed strength in the food group. On Tuesday, private label cookie and cereal maker Ralcorp (RAH) agreed to merge with feed company Agribrands (AGX), reuniting former pieces of Ralston Purina (RAL) in a deal aimed at giving Ralcorp funding to make additional acquisition. The announcement sparked investor enthusiasm for mergers in the sector and boosted shares in a number of issues in the group. Our long position in Kellogs (SEP-$30C) traded higher during the session and we hope the underlying issue continues to recover from the recent slump. Mail.com (MAIL) has edged lower in the past few weeks and with the stock price falling below the 30 DMA, we decided to move to September options in the bullish diagonal spread. The current position is NOV5C/SEP7C at a cost basis of $1.56 and our margin for downside movement is much improved. Philip Morris (MO) was back in the news after rallying to a new high for the year near $29. The stock has risen over $3 since the end of July, helped by an announcement that it is raising the price it charges its resellers and by speculation that a Republican government will be more lenient on big tobacco. Our short position is over $1 in the money and those of you still in the bearish spread should be planning your exit strategy. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** HWP - Hewlett Packard $112.25 *** Bearish Technicals! *** Hewlett-Packard Company is a global provider of computing and imaging solutions and services for business and the home. HWP's major businesses include Imaging and Printing Systems, Computing Systems and Information Technology Services. Their Imaging and Printing Systems provides laser and inkjet printers, copiers, scanners, all-in-one devices, personal color copiers and faxes, digital senders, wide- and large-format printers, print servers, network-management software, networking solutions, digital photography products, imaging and printing supplies, imaging and software solutions, and related professional and other consulting services. Computing Systems provides computing systems for the enterprise, commercial and consumer markets. HWP's IT Services provides consulting, education, design and installation services, ongoing support and maintenance, proactive services like mission critical support, outsourcing and utility computing capabilities. The recent slump in retail personal computer sales has hurt a number of the industry's top companies including Hewlett Packard. Growth in shipments of personal computers in the second quarter has slowed to half what it was in the same period a year ago, which could signal a cooling off of sales growth in both U.S. and European markets. In addition, the U.S. market growth was well below the worldwide rate, with unit shipments expanding only 7.2% over the year-ago quarter. Hewlett-Packard has generally enjoyed strong sales of retail desktops in the United States and posted a 34% growth rate over the last year. However, one analyst noted that sales will decline unless the company offers consumers and businesses next-generation computers that are even more powerful and stylish than the systems that are currently on the market. Dell Computer's earnings may give the sector a short-term boost but there is no reason to believe the outlook for the industry will change substantially. Today Dell Computer topped analysts' estimates by a penny a share in its second quarter, earning $603 million, or $0.22 a share, on sales of $7.7 billion. Although the results were favorable, they failed to offset concerns that weakness in consumer and commercial desktops will affect the group in the coming quarters. Since the news of slowing demand became public, Hewlett Packard's stock has fallen substantially and based on the negative short-term outlook, we will continue to pursue conservative positions with a bearish perspective. PLAY (conservative - bearish/synthetic position): BUY PUT SEP-95 HWP-US OI=278 A=$1.68 SELL CALL SEP-135 HWP-IG OI=431 B=$1.31 INITIAL NET DEBIT TARGET=$0.00 PROFIT TARGET=25% Note: Using options, the position is equivalent to being short on the stock. The collateral requirement for the naked call is approximately $2,375 per contract. Chart = ****************************************************************** CIEN - Ciena $150.31 ** Post-Earnings Slump? *** Ciena is engaged in the optical networking equipment market. The company offers products for telecommunications and data service providers worldwide. Their customers include major long-distance carriers, competitive local exchange carriers, Internet service providers and wholesale carriers. The company offers optical transport, intelligent switching and multi-service delivery systems that enable service providers to provision, manage and deliver high-bandwidth services to their customers. They have pursued a strategy to develop and leverage the power of unique, disruptive technologies to change the fundamental economics of building carrier-class communications networks, thereby providing its customers with a competitive advantage. We discovered this position using one of our primary scan/sort techniques; identifying potentially failed rallies on issues with bullish options activity. In this case, speculation over Ciena's upcoming earnings report has inflated the premiums for the (OTM) call options. As we near the reporting date, there will certainly be optimism for a bullish announcement however, we feel that technically, the outcome has already been decided. In addition, the potential for a renewed rally is significantly affected by the resistance near $175, well below the sold strike price. The report is due on August 17 and if the share value experiences a near-term rally on rumors of an upside surprise, consider using the activity to increase the premium (and the ROI) in the position. PLAY (conservative - bearish/credit spread): BUY CALL SEP-195 UEE-IS OI=226 A=$3.88 SELL CALL SEP-190 UEE-IR OI=314 B=$4.38 INITIAL NET CREDIT TARGET=$0.62-$0.75 ROI(max)=14% Chart = ****************************************************************** XLNX - Xilinx $76.75 *** Sector Slump! *** Xilinx designs, develops and markets complete programmable logic solutions, including advanced integrated circuits, software design tools, predefined system functions delivered as cores of logic and field engineering support. The company's programmable logic devices (PLDs) include field programmable gate arrays and complex programmable logic devices. These devices are standard products that customers program to perform logic functions. The company's products are designed to provide high integration and quick time-to-market for electronic equipment manufacturers, primarily in the telecommunications, networking, computing, industrial and consumer markets. Xilinx also offers complete software design tool solutions, which enable their customers to implement specific design specifications into its PLDs. The semiconductor industry has been in a slump recently and regardless of how many positive forecasts analysts offer, the group just can't seem to recover from the bearish sentiment. A number of brokerages have said that semiconductor production is still growing and Lehman Brothers recited a list of 10 reasons why the chip equipment cycle is in good shape, including the existence of huge demand for electronics products and continuing capacity shortages in the industry. Lehman believes the chip sector is fundamentally healthy and they continue to suggest the slump is a buying opportunity. While the future may indeed be potentially bullish, the current technical picture is less than outstanding and we believe this position offers a favorable risk/reward ratio for those who are bearish on the underlying issue. PLAY (conservative - bearish/credit spread): BUY CALL SEP-100 XLW-IT OI=1797 A=$2.06 SELL CALL SEP-95 XLW-IS OI=786 B=$2.62 INITIAL NET CREDIT TARGET=$0.68-$0.75 ROI(max)=15% 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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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