The Option Investor Newsletter Sunday 08-13-2000 Copyright 2000, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/081300_1.html Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 8-11 WE 8-4 WE 7-28 WE 7-21 DOW 11027.80 +260.05 10767.75 +256.58 10511.17 -222.39 - 79.19 Nasdaq 3789.47 + 2.11 3787.36 +124.36 3663.00 -430.86 -152.32 S&P-100 804.75 + 8.90 795.85 + 19.67 776.18 - 28.37 - 10.97 S&P-500 1471.84 + 8.91 1462.93 + 43.04 1419.89 - 60.30 - 29.79 RUT 510.27 + 6.64 503.63 + 13.41 490.22 - 32.48 - 19.93 TRAN 2927.50 + 40.69 2886.81 +117.28 2769.53 - 38.89 -110.62 VIX 21.19 - .35 21.54 - 2.76 24.30 + 2.83 - 1.14 Put/Call .57 .41 .59 .38 ****************************************************************** August 22nd has been deleted due to lack of interest! Good news, bad news, great news! The good news was a PPI report which was unchanged from last month with a core rate increase of only +0.1% Bad news was a Retail Sales report that came in at +0.7% or 75% more than expected. Good news, the retail sector is not ready to roll over and die just yet. Great news was the unanimous agreement that the Fed is on hold for the August 22nd meeting. No rate changes of any type are expected. The Dow celebrated with the expectations that the soft landing would be less than damaging to the old economy stocks. Great news also came in the form of a drop in the Nasdaq at the open giving everybody a super entry point for a Labor day rally! The Dow shocked analysts again with another +119 point gain and the first close over 11,000 since April 25th. The old economy stocks rallied and even without help from the Dow tech contingent of HWP -2.25, HON -.38, MSFT -.19 and UTX -.38 it closed up to post gains for nine of the last ten days. The close took out three previous failed rally highs from May, June and July and set us up for an attack on the April 26th high of 11140 only 113 points away. Stumbling along behind the Dow like an unruly child with a temper tantrum, the Nasdaq struggled to break out of a morning, Dell inspired, dip but finally gain some momentum before the close. The dip was prompted by weakness in the Dell earnings and a -$4 drop in Dell stock. Dell's slower growth sent ripples into the PC sector as evidenced by the -2.25 drop in Hewlett-Packard. Gateway however, seen as stealing market share from Dell, actually gained almost $1. Contributing to the Nasdaq dip was ICGE after reporting earnings that were less than expected. Other culprits included merger partner PHCM at -12, ADAP -7.63 on bad earnings. With rates in the U.S. on hold, Japan took the spotlight and raised rates for the second time in ten years. Don't start crying for Japanese companies since the +.25% hike makes the current rate .25%. Yes, Japan had a zero interest rate policy for the last eighteen months and the quarter point rise today is not a cause for alarm. Alan, what would our growth rate be with a 25% interest rate? Who knows but you can guess the GDP would be double digits in a flash. Well, there you have it. Four whole paragraphs of the relevant market commentary for the week. August news equals no news and this week end is no different. The only factors that we should be concerned about now is getting out of August alive. The heat is horrible and traders who have not yet taken their vacation have only three weeks before Labor Day. Since temperatures in Vegas in August are well over 110 most are likely heading to the Beach instead. The only major events remaining are the CPI Report next Wednesday and options expiration next Friday. Did I forget the Democratic Convention? Yes, that too is available. Going into next week I am bullish. I expect a September rally and it looks like we have a really good base from which to start. I like the volume for an August Friday. 1.3 billion for the Nasdaq and 839 million for the NYSE. Even better was the ratio of up volume to down volume which was BETTER than 2:1 on the NYSE. New 52 week highs were 102 compared to only 30 new lows. Advancers beat decliners better than 2:1. On the Nasdaq they were 21:17, not exactly a stampede but I am not complaining. The market internals are pretty good. Sure I would like to see the Nasdaq joining the party but once it starts the Dow will play second fiddle so let it run while it can. Normally traders can always point to some economic event on the horizon that keeps the market in check. With the Fed on hold at least until October 3rd, they are not a problem. The bonds are pointing to a rate cut as the next move but just not soon. That is never bad news. And if you think about it do you really think the Fed will raise rates IN OCTOBER, in an ELECTION YEAR? There would really have to be a smoking economic gun to cause that. With only TWO rate hikes, of the recent six, fully factored into the system, we still don't know what the economy is going to do. It takes six full months for a rate hike to filter down through the entire system and only two occurred more than six months ago. With no more hikes tech stocks should be soaring but conventional wisdom (don't you just love that term?) is now worried that earnings may suffer from the economic slow down from rate hikes. Once traders decide that in the current environment this is as likely as the tooth fairy paying you a visit with SDLI stock instead of pocket change, then the stampede will begin. Talking heads on Friday were parroting the "no progress in two weeks" song on the Nasdaq but is that a bad thing? We are building a base and as long as we do not see a retest of the 3521 from last week I would not complain. I may be too optimistic but I would like to think the 3686 low from Friday could be the first of a string of higher lows between here and Labor Day. The Nasdaq did close back over support at 3750 again. Just to balance the scales between my bullish outlook and the bearish analysts I would also point out that we are still in a technical down trend since March. The failed rally on July 17th killed the recovery trend. The following lower high last week just under the four major moving averages also was bearish. In reality you could paint an equally convincing outlook for either direction. Obviously only one direction can be correct so why am I bullish? First I am not a technician, I am a news and event player. Remember in July when the term summer rally was used in almost every sentence? The technicals were all pointing up and I am still getting emails about being too bearish but the dip came just like we expected. My event was a historical pattern not a short term technical chart. My forecast going forward is based on multiple factors. Cash on the sidelines. Over $8 billion came into mutual funds in the week ended on Wednesday according to TrimTabs. The Fed is on hold with the next move expected to be a rate cut. (I don't believe it but that is another story. Let's go with the flow on this one.) Summer is almost over. Traders will come back with a vengeance in three weeks with no Fed cloud on the horizon. Election years are normally bullish. Politicians will be stroking investors with their version of a chicken in every pot. The current analogy of prosperity may be a BMW in every garage? If the Republicans are seen to be leading then drug stocks will see investors coming back and that will be good for the market. September is an earnings rally month. Not a big one but still an end of the quarter month. Volume is good for August which I believe is also a leading indicator for September. Productivity is still soaring with no inflation in sight. This is my forward looking OPINION. There are those that believe we will retest 3000 again. Others not so far out on the fringe gather at every century mark between here and there. My outlook does not mean we will not go down before we go up but almost every stock chart I looked at today had what looked like a decent short term bottom. Still low volume may allow market makers to try one more time to find a lower bottom from which to build on. I would view any future dip to be a buying opportunity. My only qualification would be to buy something with a heartbeat. I know you want to stock up on those sexy Internet stocks that did so well last year. Let me remind you that the market is a very fickle discounter of future events. With 12 more months of business history with which to value Internet business models there are many previous high flyers that may never recover. To prove this theory you only need to look at ETYS, ICGE, SFE, TSCM, VUSA, MSTR, HCDC. Investors have gone from B2C to B2B and back so many times we feel like a Duncan yo-yo. From bricks and mortar to clicks and mortar. Gone are the $1000 price targets for stocks like AMZN, EBAY, QCOM and dare we mention QXLC now trading at $4.50? The paradigm shift from "buy anything and it will go up" to "buy companies that might go up" has changed the investor psychology back to a value oriented perspective. So while I am bullish, I do not believe we are immune to future dips as the market finds its level. I feel we will have a fall rally but it probably will not be as exciting as last year. Because we did not have a market event that everybody can point to and say, "that was the bottom" we are doomed to the two steps forward, one step backward routine. Every time we get to a new high somebody is going to sell into the rally and take profits. This will keep us from setting any records any time soon. Still, if you buy stocks on any dip and set stop losses you can profit from these trends. It is going to be a stock pickers market and the days of buying anything with a four letter symbol and landing windfall profits are over. I have to give you my final dose of caution as well. It is kind of like MSFT or INTC warning in their conference calls that business was great but it cannot continue at the present rate forever. We know that but they have to keep saying it so the analysts won't be predicting 100% increases in earnings every quarter. My warning tonight, and I know you get tired of hearing it, is the VIX again at 21.24. The only way the VIX will go higher is a strong dose of volatility. Volatility is a polite word for "serious dip." This could be intraday or multi-day but it will happen. The market NEVER goes up for long when the VIX is this low. The Dow is not up 9 of the last 10 days and that is a trend that will eventually be capped by serious profit taking. Secondly, in the market sentiment report tonight Austin Passamonte said the institutions are still short the S&P at historical levels. I see it, but I don't understand it. What do they see that we don't? The bearish side of my brain is saying "they are smarter than I am and have a lot more money, they must know something I don't." The bullish side of my brain is saying "looks like a good chance for a serious short squeeze rally." Only time will tell who is right. Maybe both. If we did see another retest of 3521 and it held then you would see strong covering from all sides and we would be off to the races. For me, I went long QQQ calls at the close on Friday. I can be just as wrong as the next guy but I vote with real money. Which ever direction YOU think the market is headed just remember that picking the direction is far more dangerous than playing the direction. Use the market analysis above to plan your trades BUT DON'T EXECUTE THEM BLINDLY. Wait for the market to confirm the analysis then jump on for the ride. Would you rather buy those calls at 3750 or 3550? I know which one I will choose if I am given the choice again. Get out of the heat and into a seminar! Detroit Aug-28-30 is the last seminar in our summer series. The three day technical analysis, stock and option seminar will improve your investing profits. Be ready for the fall rally with more confidence and a better understanding of the markets. Why invest without all the knowledge available? http://www.OptionInvestor.com/seminar/seminar.asp Trade smart, sell too soon. Jim Brown Editor **************** SEMINAR SCHEDULE **************** Detroit is the only three day Technical Analysis, Stock and Option Seminar remaining for this summer. Three days of indepth education. Don't miss it! 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 28-30 Detroit 3 day Australia coming soon! Has the market been beating you up? Did you give back your gains from April? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp ************************Advertisement************************* 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 ************************************************************** ************** EDITOR'S PLAYS ************** The editors plays last week were met with mixed success. The Lilly/Prozac case killed a perfectly good play in DNA after a $13 gain. MERQ was met with sector weakness and rolled over after a $10 gain. The big loser was the dead cat bounce play on IVX but with the gap down on Monday it was ruled a no play. We were waiting for confirmation of a new uptrend which never happened. The new play for the week is COHR as a long call play. ************** DNA - Recap prior week This week DNA could still be a play. It has appeared to bottom at $164 and may be poised to move up again. Time will tell but our signal for entering this play again would be sustained movement over $167. Wait for it to confirm the recovery and then open a new position. **************** MERQ - recap previous week Last week MERQ gave us a $10 gain before rolling over and coming back to previous resistance. If it can trade above $105 again I would be a player. This could have been profit taking from the gains made from the $85 bounce ($25 gain) the prior week. Wait for confirmation above $105. Cautious traders would want to see it trade over $110 as the previous failed rally high before starting a new play. ***************** IVX - Recap Previous week This play never made the cut. The gap down on Monday took it out of contention and it never recovered. We were waiting for a positive move up on Monday to confirm the sell off to be over. This play is dead until a new trend is established. ********* NEW PLAY ********* Coherent - Call play This one looks really good as long as profit taking does not kill it soon. After a strong decline Coherent is showing a nice rebound. The MACD and the Stochastics are strongly positive and Friday ended with a spike on strong volume. No real resistance until $81-$82 and then $90 but there has got to be investors kicking themselves for not selling last time it was this high in July. Buyers will have to overcome these sellers as it continues to climb. The Nasdaq will also impact it and trigger profit taking if we get below 3750 support again. The plan here would be to go long above $70 with a positive Nasdaq and positive Dow. Wait until after amatuer hour before starting the play. Be ready to close the play if it drops below $67. ************ Try to maintain a market neutral outlook and react to what the market gives us instead of trying to force plays to fit your market view. Jim Brown **********************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 ***************************************************************** **************** MARKET SENTIMENT **************** It's Not An Easy Job By Austin Passamonte We eagerly accepted our role here in "Market Sentiment" understanding it wouldn't always be a pleasant task to remain objective. Today's report reminds me of this fact. Market bulls (over 90% of all investors & traders) would love to believe this week's action signals a beginning to the next great market rally. For their collective sake we surely hope so as well. That not withstanding, unbiased reporting of the facts within our technical sphere show mixed signals remain. We like recent strength in the Dow and especially GE, the biggest bell weather of all. Favorable reports show the series of rate hikes have almost certainly taken effect and traders are marking off their calendars to the first rate-cut ahead. That might be premature. As for recent market action, we've seen numerous rallies on light volume stall & retreat from resistance. Floor traders still report fund managers are dumping big blocks into the hands of small speculators, especially in the tech sector. A sustained rally will surely need help from the techs. We'll tread water and slip below surface without both the Dow and NASDAQ stepping lively, hand in hand. No two ways about that. Friday's COT update shows S&P 500 commercial traders continue to hold historical short positions. Commercials in the DJX market are adding to their shorts as well. Meanwhile, small speculators in both pits grow longer to broaden this month's- long divergence. Neither side has flinched. Someone has to break eventually. I wonder which camp is positioned with more staying power? On top of that, commercial traders in 30-year bond and 10-year note arenas are near five year net-shorts while (you guessed it) small traders grow net-longer. This means commercials are betting interest rates will rise while small specs believe rates will fall. Hmm. Institutions in the S&P 500, Dow Jones Industrial, 30-year bond and 10-year note markets are all extremely short. Who in the world are they selling to? Who's on the other side of this gargantuan bet? Why that's easy; small speculators continuing to build massive long positions themselves. How does that make us feel? Hopefully Maria's shrill excitement on "Squawk Box" can help offset this historical divergence. Bullish traders can use the help. We toss our money into the ring with colossal giants; professionals with more resources than ourselves by far. Seeing them continue to ante & raise on the short side has got to be cause for concern! On a side note, commercial traders in the live cattle market are at five year net-long positions for those bullish on cattle. Work with me here, I'm trying my best to lighten this thing up! I won't mention the "V" index word tonight. You can see for yourself where it's at. There's nothing we'd rather do than announce the fall rally has officially begun. Or play our first-ever round of par golf. Each could come early as this week, but sand traps remain sprinkled just off the fairways. Pray our shots fly straight & true and always be prepared to pull out those wedges if we land in the rough. 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. Thurs 8/10 close: 21.57 Sat 8/12 close: 21.19 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 .57 Equity P/C Ratio .42 .56 .49 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 1.58 OEX Put/Call Ratio 1.84 2.09 1.22 OEX Maximum Open Interest Strikes/Contracts: Puts 790/7,360 800/7,655 800/7,264 Calls 800/5,824 800/6,521 800/6,650 Put/Call Ratio 1.26 1.17 1.09 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 41.58 252.08 (820-805) (815/800)* 2.52 1.25 2.07 OEX close: 805 799 804 Underlying Support: (805-785) (800-785)* 1.66 2.09 1.67 (780-760) 5.32 7.63 7.73 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. We would consider a move testing the 820 range to be a good put entry and tests near the 780 range good call entry prior to Friday's option expiration. 30-yr Bond: 5.73% 5.68% 5.71% Light, Sweet Crude, Barrel: $29.15 $31.20 $31.00 200 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 11,027 NASDAQ: 3,911 3,848 3,759 3,789 NDX: 3,648 3,686 3,595 3,644 SPX: 1430 1482 1460 1471 OEX: 770 805 799 804 CBOT Commitment Of Traders Report: Friday 8/11 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; +116 (long) - 599 (short) Total Open Interest % 2% net-long 3% net-short NASDAQ 100 Net contracts; - 1,854 (short) + 1455 (long) Total Open Interest % 18% net-short 4% net-long S&P 500 Net contracts; + 44,924 (long) -51,720 (short) Total Open Interest % 24% net-long 9.5% net-short BULLISH SIGNALS Interest rates 5.71% 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. CPI is next Strength In GE, Dow Components GE has long been considered a market bell weather and recent all-time highs are encouraging signs. COT Report - NASDAQ 100 Sentiment reversal with small speculators growing net-short while commercials increase 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. Energy Prices Prices are still too high. Ultimately this affects profit margins and inflation. Light, Sweet Crude closed $31.00 today. Seasonal energy patterns typically bottom by late summer, but all petroleum expected to be very high this fall. Prices in low $20s would be welcome relief but may not arrive. COT Report - S&P 500 & DJX Latest updated figures show small spec traders remain heavily long S&P 500 contracts while commercial traders continue to hold ten-year extreme short position. DJX commercials added to net short while small specs added to net long holdings. Widened divergence strongly implores market turn in favor of commercials. The market's bottom may still lie ahead. ************** MARKET POSTURE ************** As of Market Close - Sunday, 08/13/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 11,027 10,550 11,550 ** SPX S&P 500 1,471 1,425 1,505 COMPX NASD Composite 3,789 3,500 4,000 OEX S&P 100 804 770 812 RUT Russell 2000 510 485 540 NDX NASD 100 3,644 3,300 3,800 MSH High Tech 998 935 1,040 BTK Biotech 672 570 700 XCI Hardware 1,491 1,380 1,550 GSO.X Software 429 385 455 SOX Semiconductor 953 880 1,020 NWX Networking 1,240 1,150 1,325 INX Internet 496 460 530 BIX Banking 598 550 610 XBD Brokerage 623 570 655 IUX Insurance 712 680 725 RLX Retail 853 835 910 DRG Drug 391 365 415 HCX Healthcare 812 760 855 XAL Airline 170 160 178 OIX Oil & Gas 296 272 304 The DOW broke our resistance at 11,000 on Friday and literally brought the COMPX out of an early morning slump. Hewlett Packard ($-2.25) was Friday's under-performer in the DOW and may give clue to the lack of excitement for technology. Raising support (DOW from 10,450). Raising resistance (DOW from 11,000). ***********************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 ************************************************************ ************* SECTOR TRADER ************* Promise of a Brand New Day By Buzz Lynn sectortrader@OptionInvestor.com Time to clean the bugs, tire rubber and road tar off the windshield. After last Thursday's 98-point decline on the NASDAQ, we really needed a good squeegee to clear up the messy field of vision. We got that on Friday. How so? First of all, Thursday's decline wasn't as bad as it seemed. The 3750 level on the NASDAQ provided support on that seemingly large decline and volume was low by historical standards. It was certainly not the stuff market reversals are made of. While it was touch-n-go in anticipation of Friday's open, the recovery back to 3783 by 1:30 p.m. from the initial amateur hour dip to 3686 was measured and steady - no whip saw here. Yes, volume was low again at roughly 1.33 bln shares, but as slight descent took shape into the late afternoon, NASDAQ again found strength at 3758 and moved up to close at its high of the day at 3786. Not only was that good for a Summer Friday, it would have been good any day of the week. Can you see our horns poking through yet? The steadiness of the rebound and the markets' ability to maintain support followed by a close at the daily high on a Friday is good sign in our book. Another headfake? We don't think so. On a micro scale, this is option expiration week, which typically supports stock prices. Not only that, but markets have rallied lately in front of the Fed meetings in anticipation that there would no further rate hikes coming. There were then brief selloffs as investors sold on the good news. But, on a macro scale, if the FOMC meeting does not produce another rate hike (that is the current consensus outcome) on August 22nd, that would most likely mean no more hikes until next year! It would also plant the seed that interest rates are due for a REDUCTION at that time! Couple that sentiment with traders, investors and fund managers alike returning from Labor Day vacation with plenty of cash to spend, and we could see a rally through the month of September. While there will be gyrations along the way, we think there are some bullish trades ahead of us starting now and lasting for the next few weeks. It won't necessarily be easy, so sharpen your horns, and get ready for the opportunities that come your way. As for the HOLDRS, news came out last week that Merrill Lynch would bring you the world! A sort of worldwide nifty fifty. That's right, a new super-HOLDR will soon be offered bringing you the ability to own the 50 largest stocks (a clear departure from the usual 20 sector related issues) in the world through one security called Market 2000+. We'll pass along the symbol as soon as we learn it's available. In addition to the biggies you might expect from the U.S. market (CSCO, MSFT, INTC, GE, HD, LU, WMT, C, KO, AOL and others), Deutsche Telekom (DT), AstraZeneca (AZN), British Telecom (BTY), Ericsson (ERICY), Nokia (NOK), Sony (SNE), Toyota Motors (TN), and Total Fina Elf (TOT) and others also make the cut. This could be a good one. In the meantime, we've pretty much wiped the slate clean for the coming week based on last Thursday and Friday's action. Of course QQQ is there and always will be, but check out the new biotech and Internet Architecture plays, which are new to the lineup. Trade smart with eye toward post FOMC meeting profits. Good luck! Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 91.06 2.38 0.50 -2.50 -1.75 1.25 -0.13 HHH Internet 104.06 3.56 -0.94 -2.94 -1.88 0.56 -1.63 BBH Biotech. 182.75 7.31 -3.88 -1.25 -9.44 5.19 -2.06 PPH Pharm. 96.88 -1.13 0.25 -6.00 0.81 1.31 -4.75 TTH Telecom. 65.00 0.69 -2.69 -1.31 0.25 -0.31 -3.38 IAH I-net Arch. 95.56 2.44 0.69 0.44 -1.81 0.25 2.00 IIH I-net Infr. 51.50 2.31 -1.00 -0.63 -0.63 -0.69 -0.63 BHH B2B 45.56 2.00 1.00 -2.19 0.75 -1.25 0.31 BDH Broadband 88.50 2.94 -1.06 -0.13 -1.75 -0.31 -0.31 SMH Semicon. 82.69 2.31 0.06 2.38 -2.00 1.25 4.00 RKH Reg. Banks 106.00 -0.38 0.75 -0.50 0.94 0.19 1.00 UTH Utilities 101.00 2.50 1.00 -1.13 -0.25 0.75 2.88 ************** Updates ************** QQQ - NASDAQ 100 $91.06 (-0.13 last week) Friday changed our whole opinion. While you can read the story above, the steadiness of the rebound and the markets' ability to maintain support followed by a close at the high of the day on a Friday is good sign in our book. Technically, though QQQ closed under its 50-dma of 93.98, the dma's haven't been giving us the best signals lately, but the candlesticks have. Thursday's close on support at $90 followed by a sharp selloff to $88, then a rebound to close at the daily of high of $91.06 shows that daily support at $90 is alive and well. We think that's a bottom since it's been holding fairly well as of early June. Not only that, but connecting the lows from mid-May, early August, and Friday creates a trend line of higher lows from which $9 moves have followed. Friday's bullish reversal indicates that the sentiment may continue. The next level of resistance is at $95. However the trend suggests we may get as high as $99. CSCO, JDSU, ORCL and INTC had nice reversals from their lows if that's any clue. Use dips as a buying opportunity and enjoy what should be a good ride. Calendar Spread: Sure we have upward bias for the coming week, but that doesn't mean we have to drop this play. If you are already in the long leg of the play, then great! Look for an opportunity to sell the short leg at resistance of $95 if QQQ rolls over there or at its potential high up to $99. The point is you want to see a rollover to capture the greatest amount of premium. You'll worry less until the time you need to buy it back, which is when the time value has mostly disappeared or just before expiration, whichever occurs first. The point is you don't want to have to exercise your long position and give up all that time value you purchased if you get called out. Getting called out is OK for covered calls but not for calendar spreads. If you are already in the play and you have already satisfied one of the above conditions for buying back, by all means, repurchasing the short position might be prudent, especially if it's an AUG strike (it expires this week). Otherwise look to cover on a penetration above $94. BUY CALL DEC- 90 YQQ-LL OI= 2047 at $11.50 SELL CALL SEP- 90 QVQ-IL OI=15936 at $ 5.88, ND = 5.63 or less SELL CALL SEP- 94 QVQ-IP OI= 1620 at $ 3.88, ND = 7.63 or less SELL CALL SEP- 99 QVQ-IU OI= 2281 at $ 2 13, ND = 9.38 or less Long Puts "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." Remember that from Thursday night? QQQ only managed to retrace a double bottom at $88 in the morning session. A double bottom (or top) is usually a good sign that the level will hold and signals a possible reversal. We hope you got out there. While you can still play puts on any downward retracements from resistance, we are looking for more upside this week and aren't suggesting any new put plays be opened. Long Calls It's option expiration week and one week before an FOMC meeting. That can only mean one thing. Right! Upside bias. To that end with premiums still relatively cheap from shrinking volatility, we could have a good call buying opportunity this week. Support is at $90 - $88 on the extreme side. Target shoot to your level of comfort. If QQQ moves more than a few cents under $88, reconsider the market tone before making an entry on a call, as it (market tone) will not likely be good. A down day with volume over 1.6 bln shares on the NASDAQ or 1.1 bln shares on the NYSE is a big clue to stick with put buying. But in our opinion, that's unlikely. The first level of resistance is at $95, then $99. BUY CALL SEP-85 YQQ-IG OI= 1551 at $9.25 SL=6.50 BUY CALL SEP-90 QVQ-IL OI=15936 at $6.13 SL=4.00 BUY CALL SEP-95 QVQ-IQ OI=11945 at $3.63 SL=2.00 Average Daily Volume = 21.75 mln ----- SMH - Semiconductor $82.69 (+4.00 last week) SWITCH! If the market is going to rally this week into the FOMC meeting, there is no reason to keep playing SMH to the downside as a put. Unlike the other sectors we dropped this weekend, SMH has a real strong chance of running even harder than the market in general. The SOX.X has refused to stay under its 200-dma for very long while SMH components, INTC and NSM, put in nice bottoms. Friday, SMH took off like a shot to engulf the previous day's red candlestick. That's generally bullish. The stochastic and RSI have turned upward. Even MACD, a lagging indicator, has finally started to point north again. We may be a bit early to the party yet, so conservative types might want to wait for a move over resistance at $84. For the more aggressive types, wait for a bounce off $81, which has provided some historical support. BUY CALL SEP-80 SMH-IP OI=13 at $7.13 SL=5.00 BUY CALL SEP-85 SMH-IQ OI=20 at $4.63 SL=3.00 BUY CALL NOV-85 SMH-KQ OI= 3 at $8.75 SL=6.25 Average Daily Volume = 333K K ************** New Plays ************** BBH - Biotech $182.75 (-2.06 last week) Welcome back to the list. It's been a while since we've played this sector and things have heated up since Friday. Unlike drug companies that cool off when technology turns up, biotech is at the center of the flame. While there were some fractional losses on Friday in two of the components, the rest posted mostly high $1+ gains. AMGN, BGEN, MEDI, IMNX, PEB, CHIR, and GENZ led the charge. But what a beautiful story the technicals tell. Friday showed us a strong reversal in another higher low. What makes this one so good is that BBH bounced hard off its Friday morning low of $174, tad shy of its 50-dma of 176.43. The rebound was tremendous. While BBH couldn't break its intraday resistance at $184 and fell back slightly by mid-day, it finished $1.38 above its mid-day support level of $181.38. Historical support is rock bottom at $175 and could be considered a buying opportunity, while even the current level looks attractive based on what we expect to be a bullish NASDAQ. For those more conservative, wait until BBH exceeds $184 before making an entry. BUY CALL SEP-175 BBH-IO OI= 12 at $17.25 SL=12.25 BUY CALL SEP-180 BBH-IP OI=566 at $14.63 SL=10.75 BUY CALL SEP-180 BBH-IQ OI= 81 at $12.25 SL= 9.00 BUY CALL OCT-185 BBH-JQ OI= 47 at $18.25 SL=13.00 Average Daily Volume = 638 K ----- IAH Internet Architecture $95.56 (+2.00 last week) As a whole, this group did not change much on Friday. HWP and DELL kept a lid on the action and actually dragged IAH down in early trading. However, CSCO, SUNW, IBM, and EMC kept it afloat. But the technicals are the real story here. IAH slammed hard into its 50- dma of $92.90 following an ugly gap down from an already ugly chart pattern Wednesday and Thursday. What happened next was a thing of beauty. It came back from the depths past its open at $94, past Thursday's close at $$95.25, and finished the day on a strong ascent at its high of the day. It regained excesses over its 30 and 10-dma in the process. The next level of resistance is $97, then $99. If the tech issues take off in front of the FOMC meeting, IAH could deliver us nice profits this week. Target shoot to $93.50 for the best entry. Or if there is no decline during amateur hour on Monday, feel free to buy minor intraday dips, or even at the current level. Watch out for low OI though. BUY CALL SEP- 90 IAZ-IR OI= 5 at $9.63 SL=6.75 BUY CALL SEP- 95 IAZ-IS OI=15 at $6.38 SL=4.25 BUY CALL SEP-100 IAZ-IZ OI= 0 at $4.00 SL=2.50 Average Daily Volume = 54 K ************** Dropped Plays ************** IIH - Internet Infrastructure $51.50 (-0.63 last this week) With the exception of EXDS, this sector has some notable losers on Friday including AKAM, VRSN, BVSN, and BEAS. While we had this listed as a put play, IIH nonetheless found support and formed a doji on the candlestick chart, indicating investor indecision. While we favor the downside on a sentimental basis, a rising tide (NASDAQ) will likely float all boats, or at least keep them from sinking in the coming week before the FOMC meeting. Thus we drop IIH as a play for now until we can see a clear direction for the sector. BDH - Broadband $88.50 (-0.31 last week) We saw BDH lose ground as anticipated in Thursday's write-up. The chart proved accurate and the trend appears to be down. However, since we've sharpened our bullish horns a bit this weekend, and despite weakness in a key component like LU (new 93-wk low - UGGHHH!), many of the other underlying issues could rally if the NASDAQ perks up. It's tough on a HOLDR when its largest component is its worst performer. Given the doji star on the candlestick chart though, investors are showing lack of conviction. Thus we can't turn this into a call play just yet, nor can we keep it as a put play any longer. ************** No Play ************** HHH PPH BHH IIH BDH TTH RKH UTH ************* COMING EVENTS ************* For the week of August 14, 2000 Monday Business Inventories Jun Forecast: 0.5% Previous: 0.8% Tuesday Industrial Production Jul Forecast: 0.3% Previous: 0.2% Capacity Utilization Jul Forecast: 82.1% Previous: 82.1% Wednesday CPI Jul Forecast: 0.1% Previous: 0.6% Core CPI Jul Forecast: 0.2% Previous: 0.2% Housing Starts Jul Forecast: 1.55M Previous: 1.554M Building Permits Jul Forecast: ---- Previous: 1.511M Thursday Initial Claims 8/12 Forecast: 288K Previous: 293K Philadelphia Fed Aug Forecast: 5.0% Previous: 0.7% Friday Trade Balance Jun Forecast: -$31.5B Previous: -$31.0B Michigan Sentiment Aug Forecast: 108.9 Previous: 108.3 Treasury Budget Jul Forecast: -$1.0B Previous: -%.2B Week of August 21st 08/22 FOMC Meeting 08/24 Durable Orders 08/24 Initial Claims 08/24 FOMC Minutes 08/25 GDP - Revised 08/25 GDP Chain Deflator 08/25 Existing Home Sales ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Sunday 08-13-2000 Sunday 2 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/081300_2.html ************** TRADERS CORNER ************** Jumping the Gun on Cup and Handles By Lynda Schuepp I received a few emails this week on my article last Sunday asking me if a stock they were looking at was a cup and handle. These emails provide me a great way to follow-thru on my article with real live current stocks. First, it is very important not to try to make a pattern fit a stock you are following or you’ll get burnt. These patterns are very powerful, but very infrequent. Using the criteria from my previous article we will review two stocks and determine if they qualify and why or why not. One reader wrote the following: Hi Lynda, I've been studying your article "How to handle the cup and handle". When DNA came up I began following it. Yesterday I entered after the short pullback at 174 11/16. I thought that was the handle. Obviously, I didn't recognize the correct handle. Today, of course, I got stopped out when it went way down. Is it still forming a handle? I sure would appreciate it if you would analyze DNA the way you did APOL. I've been trying to learn how to recognize and understand the cup and handle for some time now, and yours was the best explanation yet. I enjoy your articles. Thanks so much. Frances (feminine) Lets look at the daily chart of DNA: You might want to review the specific criteria laid out in my previous article because I’m not going to go over all the criteria here, I will simply show where the pattern fits or fails. There are many criteria that are met that make DNA look like it is a potential cup and handle pattern. Visually, DNA has formed a cup and a partial handle. However, the volume on DNA is quite sporadic so it is difficult to interpret the volume indicators with any certainty. The volume ranges from 400,000 one day to 1.8 million the next and back down again the following day. For that reason, I am using the 4-day average volume to let you SEE how the moving volume average line reflects the general direction of the volume in relation to the direction of the prices. The left side of the cup, stage 1, should be forming with volume dropping. However, in this case, the volume is increasing as the prices are decreasing. The right side of the cup or stage 3 is being formed with decreasing volume. One should be suspect of this pattern. The handle or stage 4, is just beginning to be formed with only 2 days to form the pattern. A handle must have minimally 3 days to qualify. The reader jumped the gun and bought before a signal was given. Although you can take some liberties with the other stages of the cup, handles need to be treated very strictly. Volume MUST decrease on the handle or it is simply a failed rally. On the first day of the handle, the volume increased substantially. Because this stock’s volume varies so much daily, we will have to wait and let the moving average show us the true volume pattern. If DNA drops below 160, 10% from the high, it would violate our "handle" criteria. Time will tell on this stock. It is too soon to tell because we have only had 2 days to form the handle. Remember, the entry trigger is formed when the stock breaks above the high of the last two days and the price is 1/8 above the top of the right side of the cup. In this case it would be about 177-1/4 with volume at least 30% greater than the previous day. Because the volume is so sporadic in this stock, I probably wouldn’t act unless the volume was 30% greater the 4 day average volume. Remember, Patience rewards, don’t jump the gun on this one. When you see a pattern like this it is a good idea to set an alarm for the trigger entry point. That way you won’t be tempted to enter early. This chart could still complete a Cup and Handle pattern. WAIT! Our next reader writes: Would this pattern qualify for the handle of the cup? MAIL has consolidated for 4 months, formed a nice base and looks like it could breakout any time now. If it can bust 10 it should make a nice move. We can buy today at 7.88 with the 1/4 pt below low of handle at approximately 7-3/8. Please take a look and advise. If it doesn't breakout at 10 then at 9.85 would equal a 25% return. Thanks, Bill. See Daily Chart of MAIL: Visually, MAIL has formed a cup and handle pattern. Volume fits the criteria for a cup and handle pattern. However, there are problems with the handle. Although the volume pattern is correct and has decreased to almost nothing, the price range of the handle has dropped more than 10% from the top. This violates our strict criteria for the handle. As stated in my previous article, a drop in price greater than 10% from the high probably indicates a reversal. A big increase in volume would verify this. Although the chart doesn’t represent a valid cup and handle pattern, it does show us what I would consider as a flag pattern. See Chart below for Flag pattern: Flags are typically formed after a sharp vertical move in the stocks prices. MAIL almost doubled in price between July 7th and July 17th as the volume quadrupled. After such a dramatic increase, stocks typically consolidate. A Flag is formed by two parallel lines running in the opposite direction of the previous sharp move. In this case, mail shot UP the flagpole so the flag would hang downward, as depicted in the chart above. Volume should shrink to almost nothing as the flag forms. A breakout usually occurs in the same direction as the flagpole on VERY heavy volume. To project the potential upside, you measure from the bottom of the flagpole to the lowest low of the flag and add that distance to the breakout point. No such breakout has occurred yet and it is probably too late for this pattern to be valid. Generally, flags do not take longer than 4 weeks to form and usually fly at half- mast. We are at a critical point in the chart pattern for this stock. Not only has the stock reached the 4-week mark, but also the price has dropped below the 50% point. Coincidentally the current price is at the lower end of a fibonacci retracement (66.6%), but that is a subject for another article. The flag represents consolidation and as such, heavy volume or a long duration is not representative of that. A signal either way is imminent and will be given on strong volume. A further drop from this point would violate the trading channel. Conversely, a true breakout must clear the TOP band of the flag on big volume. Don’t jump the signal early or you could get whipsawed out rather quickly. My advice to you is to learn various chart patterns but don’t try to force fit them into the stocks you are following and especially don’t try to anticipate the signals before they actually happen. The reader in the previous example wanted to buy MAIL this week at 1/4 of a point below the low of the handle. This is clearly jumping the gun. The entry signal is to WAIT until the price cleared the HIGH of the right side of the cup on big volume. Had you entered on Wednesday at 7-3/8, you would have seen your stock drop to 6-3/4 or 8% by Friday. Where would you have set your stops? There is no support until you get down to the base of the cup, surely not a fun ride. Remember, the handle represents the few remaining buyers that bought at the top of the left side of the cup and who held on all the way down to the bottom of the cup and back up again. At this point they are looking to sell to break even. Once they are out of the way, the previous strong up-trend (right side of the cup) should continue for a large move. If the criterion for the handle is not met, then it is more likely to be a failed rally. So, remember, don’t jump the gun. Have I said that enough to convince you yet? Instead of jumping the gun, pick up a good book on technical analysis and read it during the slow times of the market, like lunchtime, and be ready to pull the trigger when you do get your signal. You will be a better trader and richer for the effort. Lynda@OptionInvestor.com ****** Is This The Fall Rally? By Mary Redmond It is possible to make money in a choppy, trending market by following the trading pattern of a few stocks very carefully. It is not as easy as it is to make money in a market which is trending strongly upward, but sometimes by practising in a slower market you can fine tune your skills for the time when you might want to use them more aggressively. We all want a real fall rally to start, the one the bullish analysts are talking about when the Dow will hit 12,500, and the Nasdaq will hit 5000, and traders will make back any money lost this spring and more on top of it. Historically August has been a slow month, however if many traders and retail investors start becoming impatient a rally could start sooner than expected. A good way to begin a trading day or week is to write down a list of the stocks you are trading regularly. Most of us have several stocks we understand fully and feel comfortable trading. It is important to keep track of the 200, 50, 10 and 5 day moving averages of each of the stocks, earnings dates of the stock and other stocks in the sector, and key economic reports coming up. One of the best ways to identify strong support and resistance levels is to find a stock's call and put options which have the highest amount of open interest. These are important, as a high number of unexercised calls at a strike price higher than the stock price can provide resistance, and a high number of put options at a strike price under the stock price can provide strong support. Then, if you combine the primary support and resistance levels with the technical indicators on the live charts like the MACD, stochastic and Bollinger band lines you can make some low risk trades with high probability of profit. For example, JDSU has a ratio of 11,291 puts to 6757 calls at the Aug 115 strike price, which gives it a 1.67 to 1 put/call ratio. This provides some support, although it is not as strong as the resistance at 125 and 130. For example, the call/put ratio at 125 is 8934 to 2449 , nearly 4 to 1. At 130 the call/ put ratio is even stronger, at 10887 to 2443, a 4.5 to 1 ratio. You can see from the chart how it tried to penetrate this level and fell back. Similarly, Sycamore has a put to call ratio of 972 to 110 using the August 110 strike price. This is a ratio of 8.8 to 1 which gives the stock strong support at 110. It also has an Aug 140 call to put ratio of 1455 to 93, a ratio of 15.6 to 1. You can see from the chart how it tried to penetrate 140 and fell back. Both of these attempted breakouts could have presented profitable trading opportunities. In a highly volatile market, stocks sometimes break support and resistance levels. However, unless there is an extreme market situation stocks usually revert back to these levels. AMG Data reported that equity funds took in $5.6 billion in cash last week. Over 60% of the money went into growth funds. It is interesting to note that cash flows increased to the banking and financial sector, which probably helped this sector to rally. The four week moving average of cash to equity funds is in the range of $3.5 billion. It is important to note that the level of cash reserves in US money market funds is higher than it ever has been. The amount of cash in money market funds rose by $250 billion last year, from $1.4 trillion last summer to the current level of over $1.729 trillion. The investment company institute reported that retail money market funds increased by $2 billion last week to $984.14 billion, and institutional money market funds increased by $9.95 billion to $744 billion. Money market funds have taken in over $60 billion in the last few weeks. The institutional and retail investors have powerful levels of cash at their disposal, and it is likely that this cash will start going into the market if the sentiment becomes more bullish. The ipo schedule was robust again this week , as 27 new issues traded raising approximately $2 billion. This is less than the amount raised last week of over $6 billion in new issues, although last week included a large secondary issue of over $4 billion. The average first day ipo performance this week was significantly lower than it was last week, which may delay further issues. It is important to note that this is the first week in a few weeks when the cash flows to equity funds were higher than the cash flows out of the market through new issues. 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 ***************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* TIBX - TIBCO Software, Inc. $102.94 (-1.75 last week) See details in sector list Chart = Put Play of the Day: ******************** LVLT - Level 3 Communications $59.75 (-7.88 last week) See details in sector list Chart = ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ************* DAILY RESULTS ************* Index Last Week Dow 11027.80 141.01 Nasdaq 3789.47 2.11 $OEX 804.75 8.90 $SPX 1471.84 8.91 $RUT 510.27 6.64 $TRAN 2927.50 -30.22 $VIX 21.19 -0.35 Calls ITWO 146.94 20.88 New, picking it up where we last left it EXTR 159.75 17.94 New, rallied an impressive $285 since May COHR 68.94 8.81 New, the right businesses at the right time SUNW 112.19 5.56 New, network behemoth shines again CCU 83.06 4.97 New, sure looking like a breakout EMC 89.56 4.06 New, a clear winner in the tech area MER 139.31 3.56 This bull is leading the charge on Wall St AFL 56.31 0.75 The crazy quacking duck is still in favor JPM 143.88 0.63 New, breaking to new 52-week highs PVN 113.19 0.47 Buyers have been flocking to this Financial DNA 164.00 -0.13 Looking for the Holy Grail of entry points MERQ 99.75 -0.25 One that has avoided the Dot Com bust IDPH 136.00 -1.00 Held up relatively well in biotech sector MVSN 84.75 -1.47 Dropped, key support at $85 broken HWP 110.00 -1.75 Dropped, had the blues as INDU soared TIBX 102.94 -1.75 Caught in the NASDAQ downdraft last week PEB 94.00 -3.00 LLY's "slamming hammer" came down on Wed. Puts VRSN 140.31 -21.75 Negative momentum is nothing but amazing CRA 85.00 -10.50 New, tumbling below short-term support LVLT 59.75 -7.88 Telecom sector has been vacated by bulls AETH 149.44 -7.06 Dropped, one day play that bounced back INCY 74.81 -5.19 New, need an umbrella? Stuck in a downpour AMD 57.75 -4.63 Care for a little dip with your Chips? IMCL 70.50 -2.69 Dropped, downward slide may have ceased SGP 41.00 -2.13 Anybody for a "dead cat" bounce? TERN 54.00 -1.13 Dropped, not a bad way to go out of a play AAPL 47.69 0.31 Summer doldrums supplied slothful scenario MU 75.63 2.75 Rangebound trading giving great entries ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS MVSN $84.75 (-1.48) What looked like a promising run towards a new all-time high has now fizzled into a slow bleeding on low volume. On Friday morning, the key support level of $85 was broken and although it was on low volume, it was apparent that it became a resistance level as MVSN failed to rally above that point later in the day. Looking at MVSN's chart in the past three months, the stock has tended to trade in a wide range, rallying on high volume for a couple of weeks before drifting lower towards its 50- or 100-dma (now $74 and $67) on low volume. With what appears to be a continuation of this trend, MVSN could see more downside and with that we leave this play for more promising opportunities. HWP $110.00 (-1.75) Unfortunately, HWP was one of the half dozen stocks to record a loss in the INDU Friday. Even worse, HWP was the biggest percentage loser in the blue chip index. HWP's poor performance can be directly linked to the less-than bullish report issued by DELL last Thursday night, which we had warned of. DELL reported sales figures that fell just shy of what some analysts had forecasted. The slight shortfall of DELL's top-line growth sent a ripple throughout the PC sector Friday, which caused the Goldman Sachs Hardware Index ($GHA) to fall despite the rally in the broader markets, thus prematurely ending our earnings play on HWP. PUTS TERN $54.00 (-1.13) After a fantastic entry point on Wednesday at $60, TERN bled straight down to support to $54. Not a bad way to go out of a play. We are dropping TERN from the put list since it found what appears to be solid support at $54. On a 30-min chart, you can see the buying spurts every time it touched that level. What also added to our decision to close this play was the 47K shares in the final ten minutes that popped the stock up a dollar. Even though TERN is still in a downtrend and traded as low as $48.50 during the play, it might be putting in a bottom with the NASDAQ looking positive for now. It's good bye for now, TERN. IMCL $70.50 (-2.69) Meandering lower for much of the past 2 weeks, IMCL made for a quick and profitable play over the past 2 days. After struggling up to the $72 resistance level (just below the 10-dma), the stock rolled over near the close on Wednesday. IMCL headed lower from there on Thursday, weighed down by the negative effect of the LLY verdict on the entire sector. Market jitters on Friday morning pulled the stock down a few more points before the buyers came in to support the stock. Falling from nearly $72 to below $62 in less than 2 days made this a great short-term trade, but given the strength of the recovery (coming on volume 50% over the ADV) on Friday, it looks like the downward slide may have come to an end. Besides that, IMCL moved up its earnings release date and will now announce their results on Monday before the open. It’s time to move on. AETH $149.44 (-7.06) It was a short, but sweet play. We're hoping you were able to hop aboard this play early Wednesday on the bounce back from resistance and enjoy some gains. Unfortunately, the downward trendline didn't resume after that nice slide. Instead, AETH rallied throughout Friday's session and finished with an $8.25 point gain. The momentum has obviously changed course. The strong reversal leaves us with no choice but to exit this weekend. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** JPM - J.P. Morgan $143.88 (+0.63 last week) J.P. Morgan is a leading global financial firm that serves business, government, and individual clients through a range of sophisticated advisory, financing, trading, and investment capabilities. Morgan also commits its own capital and resources to promising enterprises. Peaks and valleys. JPM has been on the rise all summer, responding favorably to news that the economy may actually be slowing in accordance with Mr. Greenspan's wishes. Shares of the firm surged to a 52-week high on Friday. This followed an $8 jump on the 4th, spurred by the latest unemployment report, revealing that the U.S. economy lost jobs in July, which was the first time it has done so in 4.5 years. Brokerage and financial service stocks are also benefiting from the "New Economy" by acting as underwriters of the stock offerings for emerging high-tech firms. These factors, in addition to an above-estimate earnings report on July 13th, have contributed to a rise from the valley of $110, where the stock sat in early July. Since that time, JPM has been on the rise, climbing to new territory. Trading within a $6.50 range this week, the stock finished the week in strong fashion, just off its 52-week high. Closing at $143.88, overhead resistance is only $1.06 away, and could easily be overcome, based on the past month's performance. If profit takers emerge, look for entry points to the play on dips towards intraday support at $142 and $140. Below that, the 10-dma at $138.93 would offer a great entry with a bounce. However, if buyers continue to favor the stock, wait for a surge through resistance of Friday's high for a clear indication of a continuing uptrend. On Friday, JPM announced its commencement of a sponsored American Depository Receipt(ADR) program on NASDAQ for LION Bioscience, A.G.(LEON). It is an information technology solutions provider for the life sciences industry. This is in conjunction with the company's $182 mln global IPO. BUY CALL SEP-140 JPM-IH OI=1094 at $ 9.75 SL= 7.00 BUY CALL SEP-145*JPM-II OI=2222 at $ 7.13 SL= 5.25 BUY CALL SEP-150 JPM-IJ OI=1918 at $ 4.88 SL= 2.25 BUY CALL DEC-145 JPM-LI OI= 47 at $13.88 SL=11.00 BUY CALL DEC-150 JPM-LJ OI= 185 at $11.63 SL= 9.50 Picked on August 13th at $143.88 P/E = 13 Change since picked +0.00 52-week high=$144.81 Analysts Ratings 3-3-6-0-1 52-week low =$104.69 Last earnings 07/13 est= 2.45 actual= 2.90 Next earnings 10-19 est= 2.56 versus= 2.22 Average Daily Volume = 1.36 mln EXTR - Extreme Networks Inc. $159.75 (+17.94 last week) Extreme Networks provides broadband switching solutions for the Internet economy, focusing on high-performance multilayer capabilities that scale to meet the demands of networks based on Ethernet and IP technologies. Currently, the markets for these solutions include: metropolitan area networks, service providers, web content providers, e-commerce businesses and large enterprises. As the Internet continues to evolve, more new types of networks may emerge and other existing legacy networks may continue to converge to Ethernet and IP technologies. All of these markets represent opportunities for Extreme to continue to expand its addressable market. Shareholders of Extreme Networks in the past 10 weeks have found the venture to be extremely profitable. Since making a 52-week low of $42.38 in late May, the stock has rallied an impressive 285% to a new all-time high of $163.00. EXTR shareholders are easily identified as they can usually be found scratching their heads wondering what other investors mean by a sideways to down summer market. Reporting earnings on July 19th, net income for the period ending June 30 fell to $600,000, or a penny a share from $2.89 million, or 5 cents a year ago. Revenues, however, more than doubled from $38.1 million to $92.4 million. Despite the strong revenue growth, the company reported an 80% drop in net income. Considering the report, a steep sell-off would have been expected for the stock. Instead, investors chose to ignore the earnings and focus on the 2-for-1 stock split set for August 24th. EXTR has seen its stock move higher, helped by a slew of upgrades from the likes of PMG, Thomas Weisel, and Morgan Stanley Dean Witter. After breaking through resistance at $150 on Monday, the rest of the week saw EXTR successfully testing its new support level. A bounce off that area may serve as an entry point for aggressive traders, as well as a bounce off the 5-dma at $156. More conservatively, wait to see if EXTR can clear $160 with conviction before entering. A break through $160 will likely see EXTR make a new all-time high and blue skies into a split run. Below $150, there is support at the 10-dma at $145.85 and then at $142. Volume this past week has been light indicating that a large move may be ahead. Make sure volume confirms direction before entering. There was much positive news for EXTR this week. A Strong Buy rating from Morgan Stanley Dean Witter early in the week certainly helped the stock along with comments that EXTR may be stealing market share from rival FDRY. The announcement of a strong earnings report from Cisco Systems also helped. Continued good news could be the catalyst needed next week to drive EXTR to a new all-time high, as could anticipation of the upcoming split. ***August contracts expire this week*** BUY CALL SEP-155 EXR-IK OI= 72 at $21.50 SL=15.50 BUY CALL SEP-160*EXR-IL OI= 650 at $18.63 SL=13.50 BUY CALL SEP-165 EXR-IM OI= 25 at $16.50 SL=11.25 BUY CALL DEC-165 EXR-LM OI= 210 at $34.25 SL=29.75 BUY CALL DEC-170 EXR-LN OI=1199 at $32.25 SL=27.50 SELL PUT AUG-150 EXR-TJ OI= 173 at $ 2.88 SL= 4.50 SELL PUT SEP-150 EXR-UJ OI= 131 at $12.50 SL=17.00 (See risks of selling puts in play legend) Picked on August 13th at $159.75 P/E = N/A Change since picked +0.00 52-week high=$163.00 Analysts Ratings 8-2-1-0-0 52-week low =$ 42.38 Last earnings 07/19 est=-0.04 actual= 0.09 Next earnings N/A est= 0.10 versus= 0.08 Average Daily Volume = 1.83 mln EMC - EMC Corporation $89.56 (+4.06 last week) EMC wants to be your storage solution. The company designs, manufactures and markets a wide range of enterprise storage systems, software, networks, and services. The company’s products store, retrieve, manage, protect and share information from all major computing environments including mainframe, UNIX, and Windows NT. EMC is continuing to boost its presence in software and related services, with an emphasis on overseeing corporations’ Internet data. With offices around the world and a record of growing earnings by 25% every year for the past 5 years, EMC is effectively filling its role as the worldwide storage leader. If there is one thing that the recent market conditions have communicated loud and clear, it is that you shouldn’t argue with success. EMC is a clear winner in this area, as they reported stellar earnings in mid-July and have been charging higher ever since. Even more important than the earnings number, was the 30% revenue growth. This is amazing for a company with a market capitalization approaching $200 bln! Given EMC’s dominance of the storage market, which is continuing to expand, it is no surprise that SUNW and IBM have announced initiatives to challenge the company’s 800-lb gorilla status. For now though, EMC is secure in its dominant position and this is reflected by investors' appetite for the stock and analysts’ positive comments. Of 27 analysts that follow the stock, 26 rate it either a Buy or a Strong Buy. To see the strength of the stock, all you have to do is look at a daily chart. Even while the NASDAQ was headed for the basement in May, EMC was one of a handful of stocks that refused to touch its 200-dma, and once the market headed higher, this storage company was leading the charge. Since then, the stock has traced a series of higher highs and higher lows, using the 30-dma ($82.63) for support on major pullbacks and the 10-dma ($86.94) for minor corrections. After tracing a new all-time high in the middle of last week, EMC pulled back until the bulls re-emerged Friday morning with freshly sharpened horns. Charging onto the scene as EMC kissed the 10-dma, they pushed the price up from a low of $86.50 to close more than $3 higher. There is chart support near $88 and then $86.50, and this is backed up by the 10-dma. Consider a bounce at either of these levels to be an attractive entry point for buying calls. If EMC comes charging out of the gates on Monday, use a move above $92 (after amateur hour) as a trigger for entering on strength. In a crowded IPO market, EMC had a strong day on Wednesday as its storage area network (SAN) subsidiary, McData (MCDT) had a stellar launch, shooting up from an initial price of $28 to close above $85. Only 10% of the shares of MCDT were released in this week’s IPO - the remaining shares will be distributed to shareholders over the next 6-12 months. BUY CALL SEP-85*EMC-IQ OI=1423 at $ 8.63 SL=6.00 BUY CALL SEP-90 EMC-IR OI=1864 at $ 5.63 SL=3.50 BUY CALL SEP-95 EMC-IS OI=4060 at $ 3.13 SL=1.50 BUY CALL OCT-90 EMC-JR OI=5415 at $ 8.25 SL=6.00 BUY CALL OCT-95 EMC-JS OI=3882 at $ 6.13 SL=4.00 SELL PUT SEP-85 EMC-UQ OI=3747 at $ 3.00 SL=5.00 (See risks of selling puts in play legend) Picked on August 13th at $89.56 P/E = 158 Change since picked +0.00 52-week high=$94.00 Analysts Ratings 16-10-1-0-0 52-week low =$28.16 Last earnings 07/00 est= 0.17 actual= 0.19 Next earnings 10-18 est= 0.19 versus= 0.14 Average Daily Volume = 7.17 mln COHR - Coherent $68.94 (+8.81 last week) COHR makes lasers for medical, scientific, and industrial uses. The company produces more than 150 kinds of lasers, laser systems, precision optics, and components. These products are used in scientific research, medical, and manufacturing markets for such applications as spectroscopy and non-destructive testing, delicate surgical procedures, and the manufacture of semiconductors and compact discs. Although it's not a household name yet, COHR has garnered the attention of Wall Street. The company's recent report of a 75% increase in earnings combined with its relatively low valuation has sent institutions into accumulation mode. The recent analyst actions helped to prompt the spree of professional buying. COHR has benefited from no less than six upgrades in less than two weeks. Among the most notable actions were Warburg Dillion Reed initiating a Buy rating and a price target of $80, CIBC starting COHR with a Strong Buy rating and setting a $100 target, and most recently, USB Piper Jaffray initiating coverage with a Buy rating and a price target of $83. The surge in institutional interest has come on the heels of COHR's 700% increase in orders for its Telecom products, which are used in the manufacturing semiconductors and high-speed optical networking equipment. Along with its booming business in fiber optic related products, COHR is benefiting from a surge in demand for its lasers used in medical applications, such as hair removal and plastic surgery. The propensity for people to want to look better has made COHR an attractive stock on Wall Street, which we'll try to capitalize upon to make our profits even prettier. The stock bounced off support at $60 early last week and has been plowing higher ever since. COHR finished Friday right at its day high, which positions the stock for a breakout above $70. Above that level, resistance is evenly spread on the chart near round levels at $75 and again at $80. Watch for the institutional buying to return early next week, and look for an entry if COHR charges above $70. COHR has rallied for five consecutive days without a hint of reaction. If the profit takers return from hiding next week, look for a bounce off support at $68, or lower at the 5-dma at $65.25 for a possible entry. COHR is in all the right businesses at the right time. The red hot fiber optic market combined with plastic surgery products makes for a potent combination. Of course, a P/E hovering around 50 with earnings growth north of 35% doesn't hurt. BUY CALL SEP-65 HRQ-IM OI= 5 at $ 9.25 SL=6.50 BUY CALL SEP-70*HRQ-IN OI= 7 at $ 6.50 SL=4.50 BUY CALL SEP-75 HRQ-IO OI=44 at $ 4.38 SL=2.75 BUY CALL NOV-70 HRQ-KN OI=14 at $11.63 SL=9.00 BUY CALL NOV-75 HRQ-KO OI=27 at $ 9.50 SL=6.50 Picked on August 13th $68.94 P/E = 57 Change since picked 0.00 52-week high=$107.38 Analysts Ratings 2-5-0-0-0 52-week low =$ 16.63 Last earnings 07/00 est= 0.27 actual= 0.31 Next earnings 11-02 est= 0.30 versus= 0.24 Average Daily Volume = 294 K ITWO - I2 Technologies $146.94 (+20.88 last week) I2's RHYTHM supply chain management software helps manufacturers plan and schedule production and related operations such as raw materials procurement and product delivery. Companies that use RHYTHM include: 3M, Dell, Ford, and Motorola. Maintenance, training, and other services account for more than a third of sales. I2 is using acquisitions of complementary technologies and companies to position itself as a leader in the market for Internet-based production process applications. We're picking up ITWO where we last left it. Only this time, the company has the wind of earnings blowing in its sails. ITWO sailed past consensus estimates by 25% when it reported its second quarter results a little more than two weeks ago. The strong EPS report kept ITWO's string of highly profitable quarters rolling, along with its stock for that matter. While Wall Street sorts through the rubble known as the B-2-B sector, ITWO is emerging as a clear winner. And, although the B-2-B marketplace is flooded with competing companies and technologies, few can match the products and services that ITWO provides. Also, ITWO just completed its merger with Aspect Development (ASDV), which will only add to its stronghold of software offerings. The company captured Wall Street's attention with its blowout quarter as a string of positive analyst comments have hit the wires recently. Just last week, Goldman Sachs reiterated ITWO to its Recommended List, based on the closing of the ASDV acquisition. Jeffries & Co. initiated coverage with a $163 price target, citing the company's rapid growth prospects and strong partnerships with ARBA and IBM. And finally, DLJ reiterated its Buy rating after the company's bullish presentation at the E-day 2000 conference last week. The love from Wall Street last week vaulted ITWO to the top of its ascending channel to position the stock on the brink of a breakout. Watch closely Monday morning for a rally with healthy volume above resistance at $148.50, which would mark a near-term high in ITWO's channel. A more conservative trader might wait for momentum to build and look for an entry if ITWO moves above $150. A bounce off the 5-dma, currently at $143, might provide a solid entry after any profit taking, but make sure to wait for an ensuing rally. ITWO revealed its strategic direction and announced the availability of its new TradeMatrix Network last week at its E-day 2000 conference. The company said it plans to offer marketplaces, which provide one-stop-shopping for e-business services. ITWO's presentation was well received by analysts as we noted above. ***August contracts expire this week*** BUY CALL SEP-140 QYI-IH OI= 98 at $18.88 SL=13.75 BUY CALL SEP-145 QYI-II OI= 17 at $16.50 SL=12.00 BUY CALL SEP-150*QYI-IJ OI=639 at $13.88 SL=10.50 BUY CALL OCT-145 QYI-KI OI= 76 at $28.75 SL=21.00 BUY CALL OCT-150 QYI-KJ OI=231 at $25.50 SL=18.50 SELL PUT AUG-140 QYI-TH OI=139 at $ 2.38 SL= 4.00 (See risks of selling puts in play legend) Picked on August 13th $146.94 P/E = 459 Change since picked +0.00 52-week high=$223.50 Analysts Ratings 8-19-3-0-0 52-week low =$ 14.06 Last earnings 06/00 est= 0.08 actual= 0.10 Next earnings 10-20 est= 0.10 versus= 0.06 Average Daily Volume = 3.59 mln SUNW - Sun Microsystems $112.19 (+5.56 last week) SUNW is a leading maker of UNIX-based, number crunching computers, storage devices, and servers for powering corporate computer networks and Web sites. The company is the largest to make computers that use its own chips and operating systems. SUNW's most talked about product is Java, a programming language intended to create software that can run unchanged on any kind of computer. SUNW shines again. The networking behemoth blew past analyst estimates when it reported its fiscal fourth-quarter results a little over two weeks ago. SUNW benefited from a broad boom across all of its business segments, which resulted in a 63% year over year increase in earnings. More importantly, during the conference call, SUNW guided Wall Street to higher-than-expected revenue growth for its next fiscal year. Analysts had expected SUNW to grow sales around 25% next year, but, the company gleefully raised the bar upwards to 30%. The beauty of SUNW's fourth-quarter report was that it lacked the pessimism which is so prevalent among tech heavyweights in the current market. The combination of strong historical earnings combined with a rosier outlook helped SUNW buck the usual post-earnings sell-off. While the other four horseman of the NASDAQ (CSCO, MSFT, DELL) battle with the Tech bears and the prospects of slowing growth, SUNW is shining brighter than ever. Several analysts jumped on the SUNW bandwagon of growth, with none other than the influential Kurt King of Banc of America Securities, who reiterated his Strong Buy rating and raised his target price on the stock. SUNW's earnings momentum has fueled the stock's momentum over the past two weeks, which has resulted in a string of all-time highs. The stock bounced off its 10-dma at $107.31 last Friday to climb past resistance at $112. An aggressive trader might look for a quick entry at current levels given SUNW's strong showing late last week, despite the wavering in the NASDAQ. A more conservative entry might be found if SUNW bolts above resistance at $113.50, which might set the stock to test its 52-week high at $115. An intraday pullback to support at $110 might provide an additional entry into the play. SUNW added to its momentum late last week when the company said it had partnered with Vignette (VIGN) to offer e-commerce products and services for businesses going online. SUNW and VIGN plan to target the new e-business products at new media and telecom companies, including wireless applications. BUY CALL SEP-110*SUX-IB OI=1726 at $8.13 SL=5.75 BUY CALL SEP-115 SUX-IC OI=1631 at $5.75 SL=3.75 BUY CALL SEP-120 SUX-ID OI=4502 at $3.75 SL=2.25 BUY CALL OCT-115 SUX-JC OI=3868 at $9.50 SL=6.50 BUY CALL OCT-120 SUX-JD OI=5049 at $7.75 SL=5.50 Picked on August 13th $112.19 P/E = 101 Change since picked +0.00 52-week high=$115.19 Analysts Ratings 11-9-2-0-0 52-week low =$ 32.94 Last earnings 06/00 est= 0.33 actual= 0.39 Next earnings 10-16 est= 0.25 versus= 0.17 Average Daily Volume = 15 mln CCU - Clear Channel Communications $83.06 (+4.97 last week) Clear Channel Communications is a diversified media company with extensive holdings in over 510 radio stations, 22 television stations, and more than 550,000 outdoor billboards. After the acquisition of the #1 radio station owner, AMFM, is completed this year, CCU will have a presence in 47 of the top 50 radio markets in the US. Additionally they are the largest Spanish language broadcaster in the US. The company is also a leader in the live entertainment industry through its subsidiary SFX Entertainment. It sure does look like a breakout! CCU demonstrated a classic vertical climb straight up from the open on respectable volume. The converged 5- and 10-dmas at $80.86 and $79.23, respectively, provided the solid floor from which CCU could launch itself. Reference this level for entries into this potential momentum run. Shorter-term support is at $81 and $82. Take a look at a daily chart and see how CCU mimics the INDU's movements. If Monday marks D-day for a Fall rally, then hang on for a wild ride. CCU and other momentum runners will certainly benefit. There is some historical resistance at $88 and $90, but it shouldn't pose too much of an obstacle. The real challenge will be at $95.50, the 52-week high. On August 1st, CCU completed its previously announced merger with SFX Entertainment. This event provided the catalyst to initially propel the stock through its stubborn resistance at $78 and $78. According to Lowry Mays, Chairman and CEO of Clear Channel Communication, "This merger allows Clear Channel, through SFX, to gain immediate leadership in the highly attractive live entertainment segment, while taking advantage of the natural synergy between radio and live music events." Pursuant to the terms, a SFX class A shareholder will receive 0.6 shares of Clear Channel common stock for each SFX share and SFX Class B shareholders will receive one whole share per SFX share. BUY CALL SEP-80 CCU-IP OI=3832 at $7.13 SL=5.00 BUY CALL SEP-85*CCU-IQ OI= 349 at $4.50 SL=2.75 BUY CALL SEP-90 CCU-IR OI= 21 at $2.81 SL=1.50 BUY CALL OCT-85 CCU-JQ OI= 436 at $6.63 SL=4.75 BUY CALL OCT-90 CCU-JR OI=3735 at $4.63 SL=2.75 Picked on August 13th at $83.06 P/E = N/A Change since picked +0.00 52-week high=$95.50 Analysts Ratings 12-3-1-0-0 52-week low =$57.88 Last earnings 06/00 est= 0.06 actual= 0.09 Next earnings 10-25 est= 0.05 versus= 0.00 Average Daily Volume = 2.28 mln /charts/charts.asp?symbol=CCU ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter Sunday 08-13-2000 Sunday 3 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/081300_3.html **********************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 ***************************************************************** ****************** CURRENT CALL PLAYS ****************** PVN - Providian Financial Bancorp $113.13 (+0.47 last week) Providian Financial Corporation provides consumer-lending products such as home loans, credit cards, and other fee-based products. The Company mainly issues secured credit cards to customers with not-so-perfect credit histories and charges a high fee and high interest rates. With the use of direct mail, phone solicitations and online advertising, Providian has been able to attract more than 12 mln customers. The company has operations in the US and the UK. After basing the past three days in the $109-$110 area, PVN broke out again late in Friday's trading session. On stronger volume, the stock surged from $111 to $114 in the final hour of trading. Investors and traders have been flocking in droves to the Financial stocks as interest rate worries dissipate. They just brushed off the higher-than-expected Retail Sales number on Friday and rallied the broader market. This play has had a great trading pattern over the past month. It appears that PVN consolidates at a certain level for 4 to 5 days, and then spikes up to the next with a $5 or $6 move. The last spike up was on August 4th when it opened at $107.50 and closed at $112.75. Since then, we have seen a five day basing period, mentioned above. Take a look at a daily chart to see for yourself. So with this in mind, and Financials being the hot issues, watch for PVN to make its next move in the next day or two. Resistance will be at $114 and $114.88, its most recent intraday high from Tuesday. Any pullbacks to the $112 area, or the base at $110, followed by a bounce would provide nice entry points. If profit takers step into the Financials next week, watch the 10-dma at $108.83 as another support level. If PVN decides to make that spike to the next level, jump on board with a convincing move through $114.88-$115. A close above this level will indicate that the stock has its sights set on $120 for the next basing period. If this is the case, look for $114 to hold as the next support level. There has been nothing exciting in the news lately. On Wednesday, the company did, however, declare a quarterly cash dividend for its common stock of 5 cent per share, to be payable September 15th. This did not really affect trade in PVN. Here's something worth noting though: PVN last announced a split in September 1998 when the stock was trading $63. It split that December at $93. So at $113, PVN just might being nearing that time again. BUY CALL SEP-110 PVN-IB OI=360 at $ 8.75 SL=6.50 BUY CALL SEP-115 PVN-IC OI= 96 at $ 6.00 SL=4.25 BUY CALL SEP-120*PVN-ID OI=296 at $ 4.00 SL=2.50 BUY CALL DEC-120 PVN-LD OI= 31 at $10.88 SL=8.75 SELL PUT SEP-105 PVN-UA OI= 40 at $ 2.88 SL=4.00 (See risks of selling puts in play legend) Picked on July 23rd at 102.38 P/E = 28 Change since picked +10.75 52-week high=$118.50 Analysts Ratings 16-6-2-0-0 52-week low =$ 58.13 Last earnings 06/00 est= 1.25 actual= 1.29 Next earnings 10-19 est= 1.34 versus= 1.04 Average Daily Volume = 1.02 mln AFL - AFLAC, Inc. $56.31 (+0.75 last week) AFLAC, Inc. provides supplemental insurance to individuals in the United States and Japan. The Company's products help fill gaps in consumers' primary insurance coverage. AFLAC's products include cancer expense insurance, care plans, supplemental general medical expense plans, and living benefit plans. The crazy quacking duck is still in favor. After closing just below the 10-dma on Thursday, we were a bit concerned that profit takers would ravage this uptrending insurance issue. Oh contraire! AFL opened on Friday $0.19 higher than its Thursday close and never looked back. Investors jumped at the chance to get into this stock, reaffirming support in the $54 area. Within the first two hours of trading, AFL popped to the heights of $57 where it encountered resistance. After that, the stock comfortably settled into its new surroundings, holding $56 solidly. Interestingly, with ten minutes left in the session, a large order of 230K shares appeared to trade at $56.25, so an dealer may have been positioning for next week. The Time & Sales was inconclusive as to whether it was buy or a sell. Just keep you eyes peeled for heightened activity like this. If investors are bullish on the insurance issues next week, look for AFL to continue off of its intraday support at $56. A bounce from there would be a good entry. A dip back to $55 would also be a nice entry, currently the site of the 10-dma at $54.99. The challenge most certainly will be resistance at $57. The intraday high on Friday of $56.94 actually is an all-time high for AFL. If AFL breaks above $57 on strong volume, jump on board as the stock soars to new heights. Not much in the way of news for AFL. It seems that investors are liking the stock very much as the companies ad campaign is becoming extremely recognized by consumers. CNBC has hammed it up quite a bit since the CEO of AFL was on the show a few weeks ago. BUY CALL SEP-50*AFL-IJ OI=90 at $7.18 SL=5.25 BUY CALL SEP-55 AFL-IK OI=55 at $3.38 SL=1.75 BUY CALL SEP-60 AFL-IL OI=53 at $1.38 SL=0.75 BUY CALL NOV-60 AFL-KJ OI=97 at $3.00 SL=1.50 Picked on August 3rd at $55.31 P/E = 25 Changed since picked +1.00 52-week high=$56.94 Analyst Ratings 7-3-5-0-0 52-week low =$33.56 Last Earnings 07/25 est= 0.58 actual= 0.59 Next Earnings 10-24 est= 0.61 versus= 0.52 Average Daily Volume = 667K DNA - Genentech, Inc. $164.00 (-0.13 last week) Using human genetic information to discover, develop, manufacture and market human pharmaceuticals for significant unmet medical needs is DNAs quest. Thirteen of the currently approved Biotechnology products came as a direct result of the company's science. DNA markets and manufactures seven of these with the eighth just getting ready to go into production. The products include Rituxan, Activase, Nutropin, NutropinAQ, Nutropin Depot, Protropin, Pulmozyme, and Actimmune. The firm is developing other cancer drugs with ImmunoGen and earns royalties for hepatitis B vaccines, bovine growth hormones, and Humulin (human insulin). Although the stock price has only changed 13 cents for the week, traders who have been playing this one know better. Those who read Jim Brown's column last Sunday when he suggested taking some profit as DNA got close to the $177 area did well. Selling at the recent top on Wednesday after three consecutive days of rallying proved to be the right thing to do. Those who were late to take some money off the table had to do so at lower prices on Thursday, courtesy of Eli Lilly's patent news which appears to have resulted in strong selling volume in the Biotechs. Since then, the stock appears to have found a bottom at $160 on Friday. Selling down to that level in early morning trading, DNA bounced quickly spending the rest of the day moving higher. But, end of day profit-taking brought the stock to close fractionally lower. Traders looking for the Holy Grail of entry points for this play would be hoping for another successful test of the $160 level. A more attainable entry point could be found at the 10-dma at $162.88. Conservative traders may want to wait for DNA to move above its 5-dma at $168.75 to confirm upward momentum before entering. A breach of the key $160 support level could find the next level of support at $156.50 and from there, the 50-dma at $152. Overhead, the stock could find resistance at $165, $167 and $170. Clearing $170 would likely bring DNA back to the key level of $177. Jim's advice of taking some profit and moving back in only if DNA clears this level with conviction may once again be a good idea. Aside from the appointment of a Vice President on Tuesday, there has been little material news for DNA. Sector sympathy and a strong knowledge of DNA's support and resistance levels will be the name of the game in trading this stock. BUY CALL SEP-160 DNA-IL OI= 396 at $15.00 SL=11.00 BUY CALL SEP-165*DNA-IM OI= 202 at $12.50 SL= 9.25 BUY CALL SEP-170 DNA-IZ OI= 360 at $ 9.75 SL= 6.75 BUY CALL DEC-170 DNA-LZ OI= 128 at $23.75 SL=19.50 BUY CALL DEC-175 DWN-LO OI= 516 at $21.50 SL=18.50 SELL PUT SEP-155 DNA-UK OI= 866 at $ 6.88 SL=10.00 (See risks of selling puts in play legend) Picked on August 5th at $164.13 P/E = N/A Change since picked -0.13 52-week high=$245.00 Analysts Ratings 6-8-3-0-0 52-week low =$ 66.88 Last earnings 07/17 est= 0.29 actual= 0.29 Next earnings N/A est= 0.31 versus= 0.25 Average Daily Volume = 1.10 mln IDPH - IDEC Pharmaceuticals Corp $136.00 (-1.00 last week) Based in San Diego, IDEC Pharmaceuticals Corporation is a biopharmaceutical company engaged primarily in the research, development and commercialization of targeted therapies for the treatment of cancer and autoimmune and inflammatory diseases. The Company's first commercial product, Rituxan, and its most advanced product candidate, Zevalin are for use in the treatment of certain B-cell non-Hodgkin's lymphomas (NHL). The Company is also developing products for the treatment of various autoimmune diseases (such as psoriasis, rheumatoid arthritis and lupus). Considering the heavy damage inflicted on a number on biotechs and pharmaceutical stocks this past week, IDPH has held up well. Bad news from Eli Lilly rocked both the biotechs and the pharmaceuticals last week when an unfavorable court ruling invalidating one of LLY's patents for Prozac sent Wall Street into a panic. Re-assessing the strength and value of patents throughout the industry, the Street decided to re-value stocks from the two drug-related sectors and for the most part, they depreciated. When Thursday's LLY news hit the wires, IDPH fell and found that the key support level of $130 held up strong. From there, the buyers rushed in to close the stock higher for the day, bucking the sector trend. It is interesting to note that volume on the buy side has been stronger than volume on the sell side, which is a good sign for our play. For those looking for an entry point, a bounce above $130 would be an ideal target to shoot for - just make sure it bounces before entering. Along with that, a bounce off its 10-dma at $134.60 could also serve as an entry point for the more aggressive. Looking overhead, the next resistance level for IDPH appears to be at $138, and from there $140 and $143. Conservative traders may want to see the stock move past $140 before entering. For the most part, IDPH has traded in a range between $130 and $143 this past week. A continuation of this sideways action could be possible so keep those two support and resistance levels in mind before entering and exiting. The only news item for IDPH came this Monday when the company announced that it had began Phase 2 trials in the development of a treatment for rheumatoid arthritis. Investors bought on the news Monday, but the next day sold it back. While IDPH has held up in the face of sector weakness this week, any lack of news could find the stock once again moving in sympathy with sector. ***August contracts expire this week*** BUY CALL SEP-130 IDK-IF OI=29 at $17.75 SL=13.00 BUY CALL SEP-135 IDK-IG OI= 4 at $15.25 SL=11.00 BUY CALL SEP-140*IDK-IH OI=76 at $13.13 SL= 9.75 BUY CALL OCT-140 IDK-JH OI=33 at $20.13 SL=14.50 BUY CALL OCT-145 IDK-JI OI=21 at $18.25 SL=13.50 SELL PUT AUG-130 IDK-TF OI= 3 at $ 2.88 SL= 4.00 SELL PUT SEP-125 IDK-UE OI= 5 at $ 8.88 SL=11.50 (See risks of selling puts in play legend) Picked on August 3rd at $138.88 P/E = 209.51 Change since picked +0.13 52-week high=$173.00 Analysts Ratings 6-5-0-0-0 52-week low =$ 42.75 Last earnings 07/17 est= 0.18 actual= 0.26 Next earnings N/A est= 0.25 versus= 0.21 Average Daily Volume = 1.10 mln MER - Merrill Lynch & Co. $139.31 (+3.56 last week) With its bull icon prominently displayed, many investors view Merrill Lynch as the leader of herd. The diversified Financial powerhouse provides investment, financing, advisory, insurance and related products and services on a global basis to both individuals and institutions. Its Corporate and Institutional Client Group offers investment banking, brokerage and clearing services to corporate and government clients. MER has been slow to move into the online world, entering the online trading ring in 1999. The bull is still charging ahead. After tracing a new all-time high Thursday morning, MER succumbed to profit taking ahead of Friday’s PPI and Retail Sales reports. After investors absorbed the impact of these reports, they jumped right back into buy mode, pushing the stock back up to the $140-141 resistance level by late afternoon. Although the stock gave back some of its gains at the close, there are several levels of nearby support to help push MER even higher. Intraday support is seen at $139, $137.50, and then $136. Stronger support exists between $133-135, and is confirmed by the 10-dma (currently $133.94). As you have heard repeatedly, the Financial stocks will have to join in the party if we are going to have a significant and sustained rally. The DJIA continued to move higher on Friday, topping 11000 for the first time since late April. As interest rate hike fears continue to dissipate, financial powerhouses like MER should be leading the charge as the markets put on their rally caps. Conservative investors may want to wait for strong volume to return and push MER to new highs (above $141) before initiating new positions. If you are a little more patient though, look for a pullback to support to provide a more attractive entry point. As always, follow the money flow; in order to move higher, MER will need the support of strong buying and this will be seen in the pattern of increasing volume. On Friday, MER was announced as one of the winners in the race to lead-manage a lucrative sale of shares in Japanese telecom giant Nippon Telegraph and Telephone (NTT). Along with Goldman Sachs, Nikko, Salomon Smith Barney, and Nomura Securities, MER will manage the sale of up to one million shares in the former state monopoly. At current market prices, this amounts to more than $11 billion, and the banks handling the sale will earn tens of millions of dollars in fees. The market sentiment seems to be indicating that the Fed will have a hard time raising interest rates at its August 22nd FOMC meeting, and the Financials and Brokerages will be a natural beneficiary of such a move. BUY CALL SEP-135*MER-IZ OI= 985 at $10.38 SL= 7.25 BUY CALL SEP-140 MER-IH OI= 837 at $ 7.50 SL= 5.25 BUY CALL SEP-145 JMR-II OI= 749 at $ 5.38 SL= 3.25 BUY CALL OCT-140 MER-JH OI=1544 at $11.50 SL= 8.50 BUY CALL OCT-145 JMR-JI OI= 356 at $ 9.13 SL= 6.25 SELL PUT SEP-130 MER-UF OI= 254 at $ 3.38 SL= 5.25 (See risks of selling puts in play legend) Picked on August 3rd at $130.81 P/E = 18 Change since picked +8.50 52-week high=$140.94 Analysts Ratings 3-4-3-0-0 52-week low =$ 62.38 Last earnings 07/00 est= 1.71 actual= 2.01 Next earnings 10-17 est= 1.65 versus= 1.34 Average Daily Volume = 2.81 mln MERQ - Mercury Interactive $99.75 (-0.25 last 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. The dot com bust has taken its toll on many Web stocks. But, the right Net companies continue to bring in the cash. MERQ happens to be one of those right stocks. The company operates in the still-red-hot sector of Internet infrastructure. Without MERQ's products, the Web might be an even scarier place. Along with its core business of improving Web site performance, MERQ added to its boutique of offerings with the introduction of a wireless platform recently. In essence, MERQ is applying its proven technologies to such wireless hand-held devices as cell phones and electronic organizers. MERQ's quantum leap into wireless applications induced a strong rally early last week, which tapered off into the weekend as the broader Tech sector was inflicted with pain from the bears. But, MERQ had come a long ways recently, so a little profit taking last week might have been in order. The stock didn't suffer any major technical damage in the wake of the weak Tech sector last week, which bodes well for the health our play. Given MERQ's impressive relative strength, we'll look for a quick bounce off the technically and psychologically significant $100 level early next week. If the Tech sector reasserts its leadership role, MERQ is sure to lead the way. A quick bounce off $100, which is coincidentally the current site of the 10-dma, might provide an entry point for the more aggressive traders. MERQ has slight congestion above its current levels, with $105 marking the next hurdle. A more conservative trader might wait for MERQ to regain its footing, and look for an entry if the stock charges above $105. Make sure to confirm any rally above resistance with healthy volume as a sign the bulls have regained the upper-hand. A bounce off support at $95 might provide another aggressive entry into the play upon further profit taking. Friday morning gave a nice entry at that $95 area. The news wires were fairly mute last week for MERQ. Although, the company announced several new initiatives the week prior with the likes of ORCL. Another catalyst to watch for in the coming weeks is a possible split announcement. MERQ is trading well into historical split territory with plenty of shares to authorize a 2-for-1. BUY CALL SEP- 95 RBF-IS OI= 42 at $13.38 SL=10.00 BUY CALL SEP-100*RBF-IT OI=305 at $10.63 SL= 7.50 BUY CALL SEP-105 RBF-IA OI= 69 at $ 8.75 SL= 6.25 BUY CALL OCT-100 RBF-JT OI=382 at $16.00 SL=11.50 BUY CALL OCT-105 RBF-JA OI=364 at $13.75 SL=10.25 Picked on August 6th at $100.00 P/E = 204 Change since picked -0.25 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 = 1.80 mln PEB - PE Biosystems $94.00 (-3.00 last week) PE Biosystems develops, markets and maintains systems that are used in basic life science research, pharmaceutical research and development, diagnostics, forensics, and food testing. PEB and the Celera Genomics Group are parented by the PE Corporation. One of PEB's largest customers is sister company, Celera Genomics, which used the company's technology in its effort to map the human genome. The separately traded stocks were launched in 1999. PEB's momentum was snowballing earlier in the week. The share price made the technical break through the psychological hurdle at the century mark. PEB was poised to move higher off its new near-term support of $100. Then came the "slamming hammer" on Wednesday! The press released the negative findings of a patent ruling effecting Eli Lilly's (LLY) Prozac. The judgement ultimately dragged down the whole drug and biotech sector. Despite the strong negative pressure following the announcement, $90 proved to be a firm intraday bottom. Very aggressive traders may enter on bounces off these lows, however, it would be safer to wait for more upward confirmation. PEB should begin to move through the 10- and 5-dmas, at $95.23 and $97.29, respectively, in the next couple of days. If not, be patient and conservatively stay on the sidelines. Remember, this play is purely a stock-specific run. Be watchful of the INDU's direction. At $110, PEB is considered a split-candidate. This can sometimes generate its own excitement and entice more momentum traders to start nibbling. The company has plenty of shares to initiate a stock dividend with 500 mln authorized and approximately 208 mln issued. In the news this week, PEB 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. ***November options just created, no markets available yet*** BUY CALL SEP- 90 BVE-IR OI=302 at $11.00 SL=8.25 BUY CALL SEP- 95*BVE-IS OI=549 at $ 8.50 SL=6.00 BUY CALL SEP-100 BVE-IT OI=595 at $ 6.38 SL=4.50 BUY CALL SEP-105 BVE-IA OI=562 at $ 4.75 SL=2.75 BUY CALL SEP-110 BVE-IB OI=220 at $ 3.50 SL=1.75 SELL PUT SEP- 85 PEB-UQ OI=226 at $ 4.63 SL=6.00 (See risks of selling puts in play legend) Picked on August 8th at $100.69 P/E = 113 Change since picked -6.69 52-week high=$160.00 Analysts Ratings 6-4-1-0-0 52-week low =$ 28.63 Last earnings 06/00 est= 0.26 actual= 0.26 Next earnings 11-02 est= 0.18 versus= 0.14 Average Daily Volume = 1.78 mln TIBX - TIBCO Software, Inc. $102.94 (-1.75 last 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. This company went center-stage with investors after it made two consecutive announcements on August 3rd and 4th. First, TIBX saw an increase in volume due to its $100 mln stock acquisition of XML software maker, Extensibility. This merger will give TIBX an excellent resource to the computer languages used in developing their real-time software. The action extended into Friday morning's session with volume once again above average as TIBX exploded upward. The jump was fueled TIBCO and Meractor Software's marketing alliance. The two companies will now benefit from selling each other's products to a larger customer base and thus, increase their respective bottomlines. On Monday of this week, the momentum went into full throttle. TIBX continued to propel upwards. By Wednesday, the stock met the next level of opposition near $120. The downdraft that followed was clearly related to the stock's market sensitivity and typical profit taking. What it did leave us with are entry opportunities. The current price level does mark firm support, but before testing the waters, wait for positive bounces through the 10-dma at $106.48 before entering. Even more conservatively, high volume moves through $110 may be a better fit with your risk portfolio. TIBX will be reporting earnings around September 21st with the expectation to earn $0.05 p/s. This profitable forecast is somewhat in the distance, but it's still a good indication that TIBX could make a run into earnings. No company news this week to effect trading. BUY CALL SEP-100 PIW-IT OI= 51 at $13.75 SL=10.25 BUY CALL SEP-105 PIW-IA OI= 9 at $11.25 SL= 8.25 BUY CALL SEP-110*PIW-IB OI=121 at $ 9.38 SL= 6.50 BUY CALL SEP-115 PIW-IC OI= 10 at $ 7.38 SL= 5.25 BUY CALL NOV-120 PIW-KD OI=248 at $13.63 SL=10.25 Picked on August 10th at $108.00 P/E = N/A Change since picked -5.06 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 ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. 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The Option Investor Newsletter Sunday 08-13-2000 Sunday 4 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/081300_4.html **********************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 PUT PLAYS ************* INCY - Incyte Genomics, Inc. $74.81 (-5.19 last week) Incyte Genomics, Inc. designs, develops and markets genomic information-based products and services. These products and services include database products, genomic data management software tools, microarray-based gene expression services, genomic reagents, and related services. The Company's genomic databases integrate bio-informatics software with proprietary and, when appropriate, publicly available genetic information to create information-based products and services used by pharmaceutical and biotechnology companies and academic researchers to understand disease and to discover and develop drugs. Need an umbrella? Trading down over $200 from its 52-week high of $289.06, INCY is in the midst of a downpour. Despite overall sector popularity, and a run up to $106 on July 11th in the pre-earnings period, an announcement of negative earnings on July 18th only proved to accelerate the company's downward spiral. Only managing to climb to a day high of $77.44 on Friday, the stock ran right into resistance at the 5-dma and rolled over. Reporting their 2nd Quarter SEC report last week, things do not appear to be any more rosy for the upcoming quarters. Although the company is expanding like wildfire, making great products, and increasing customer base, they are spending a huge sum of money to spur their development. The Company is investing in its sequencing, bio-informatics, expression database development, and e-commerce programs in 2000, and as a result expects to report a net loss at least through 2000. If the costs of these programs are greater than anticipated, or if these programs take longer to complete, profitability may be further off than thought. Down 24% in the past 4 weeks, it appears INCY could be heading lower before seeing sunnier skies. Since August 1st, the INCY has managed nothing more than a few bounces, unable to break resistance of the downtrending 10- and 100-dmas, $79.46 and $83.13, respectively. With these bounces, the stock offers a great entry point on spikes up to the 10-dma. If it fails to reach that level, however, look for a convincing drive below support of $71, which held well on Thursday. Although INCY announced a 2-for-1 stock split, payable August 31st, we do not anticipate this to be a major driver for the stock, considering its prevailing downtrend. Stop losses may prove to serve well in any case. BUY PUT SEP-75 IPQ-UO OI=155 at $12.63 SL=10.00 BUY PUT SEP-70*IPQ-UN OI=134 at $ 8.00 SL= 6.25 Average Daily Volume = 985K CRA - Celera Genomics $85.00 (-10.50 last week) Celera Genomics Group is a unit of the PE Corporation. They generate and commercialize genomic information to promote the understanding of biological processes and to assist pharmaceutical, biotechnology, and life science research entities in various areas of research. The company recently announced it completed the mapping of the human genome ahead of the international consortium, Human Genome Project. It will provide access to its extensive database to the other related firms and organizations, but at a hefty price of $5 mln to $15 mln per year. The drop in drugs and biotechs across the board on Wednesday provided the perfect catalyst for CRA to tumble below its shorter-term bottom support at $90. Sister company, PE Biosystems (PEB), even took a lickin' when the negative news hit the wire that Eli Lilly was losing its patent rights for Prozac sooner than anticipated. There'll likely be an underlying disposition among investors as to who's next to the patent chopping block. So here's our play on CRA. We've got a technical breakdown in the share price coupled with a dissenting sentiment in the sector to stack in our corner. Here we have another bearish piece of evidence. Downside volume, which has actually been in motion since Tuesday, has been robust. In the past two sessions, CRA couldn't penetrate $87 on a rebound so look to this level for potential entries on a downward bounce. Going back to May, there is some support at $80 so be aware. If it breaks this historical barrier, then the support levels step down in increment of $10 until it dwindles around $50. All these factors cannot guarantee further devastation of the share price, but they certainly do increase the odds of profiting from a good play on CRA. And of course, remember to set stops for protection, despite this rosy outlook. BUY PUT SEP-90 CZA-UR OI=178 at $14.00 SL=10.50 BUY PUT SEP-85*CZA-UQ OI=189 at $11.38 SL= 8.50 BUY PUT SEP-80 CZA-UP OI=313 at $ 8.63 SL= 6.00 Average Daily Volume = 1.97 mln ***************** CURRENT PUT PLAYS ***************** VRSN - VeriSign, Inc. $140.31 (-21.75 last week) VeriSign is the leading provider of Internet trust services and digital certificate solutions needed by Web sites, enterprises and individuals in order to conduct secure electronic commerce and communications over IP networks. VRSN has used its secure online infrastructure to issue over 100,000 of its Website digital certificates and over 3.5 million of its digital certificates for individuals. To date, over 300 enterprises have subscribed to the OnSite service and VRSN has strategic relationships with industry leaders including Cisco, Microsoft ,RSA, Security Dynamics, and VISA. The negative momentum for VeriSign has been nothing short of amazing. The law of gravity does indeed exist and it appears as if VRSN has been pulled into a black hole. Even stocks in a downtrend get temporary relief from positive news items or technical bounces, but not for VRSN. This past week could be summed up in one sentence: one consecutive down day after another. When it rains, it pours and without even a dead-cat bounce to sell into, investors of VRSN have been just plain selling. Even news on Tuesday of an alliance with Chinese Domain Name Corporation failed to bring in the buyers. The 10-dma (now at $151) has been formidable resistance for the stock for over the past two weeks. On Monday, VRSN moved below not only its 100-dma (now at $152), but its 200-dma (at $158) as well. From there, VRSN attempted to move above those two technicals with no avail, as the stock broke key support of $150 on Tuesday. Since then the stock has continued lower ending the week just above another key support level at $140. Traders looking for an ideal entry point would want to see a failed rally above its 10-dma in the $150 area. The past couple of days has seen the move down accelerate with VRSN now finding resistance at the 5-dma at $146 as well. Conservative traders will want to see VRSN break $140 to the downside with conviction before entering. From there, support levels can be found in increments of $5, at $135 and $130. With numerous overhead resistance points, a resurrection for VRSN will be difficult. It appears now that VRSN is moving in sympathy with Internet plays which seasonally have a difficult time in the summer. With positive news not helping the stock and negative momentum accelerating, it is not unreasonable to see the selling continue if support at $140 fails to hold. BUY PUT SEP-145*XVR-UI OI=740 at $19.00 SL=13.75 BUY PUT SEP-140 XVR-UH OI=459 at $15.25 SL=11.00 BUY PUT SEP-135 XVR-UG OI=179 at $13.50 SL=10.00 Average Daily Volume = 4.05 mln MU - Micron Technology $75.63 (+2.19 last week) Micron is one of the world’s leading makers of semiconductor memory components. Two-thirds of the companies revenues come from dynamic random-access memory (DRAM), flash memory, and other chips. MU has added the newer Rambus DRAM and Synchronous DRAM products to its line, and it is developing embedded memory for the digital video and other markets. The other third of the company’s sales come from Micron Electronics (61% owned by MU), which makes PCs and laptop computers and offers Internet related business services. The meltdown in the Semiconductor stocks set the stage for our play on MU last weekend. After Jonathan Joseph at Salomon Smith Barney yanked the rug out from under the sector with cautionary comments about slowing demand, the SOX index dropped 25% in less than 2 weeks and MU went along for the ride. When we added it as a play last weekend, the stock had dropped over $6 the prior day, closing at the low of the day, just fractionally above the 100-dma (then at $72.56). Looking for confirmation that the trend would continue, we had to wait until Thursday morning for our signal. Although MU showed signs of weakening near the close on Wednesday, the real deal came midday on Thursday, as the stock rolled over from the $80 level on increasing volume. For those that slept through that entry point, they were provided one more chance late in the day as MU bounced near $75 and then rolled over again at the $78 resistance level, right at the 10-dma. Friday’s action was mixed as the stock bounced again at the 100-dma (now at $73.19), but couldn’t even penetrate the declining 5-dma (now at $77.06) before rolling over again. In short, the downtrend is still intact, but we need to see a penetration of the 100-dma to the downside. Consider new positions as the stock rolls over from either the 5-dma or 10-dma on increasing volume. If MU heads lower from current levels, wait for a penetration of the 100-dma before jumping on the bandwagon. If the 100-dma continues to hold, we may be looking at a bottom. BUY PUT SEP-80*MUY-UP OI=17134 at $9.88 SL=7.00 BUY PUT SEP-75 MUY-UO OI= 5842 at $7.13 SL=5.00 BUY PUT SEP-70 MU -UN OI= 2699 at $5.00 SL=3.00 Average Daily Volume = 6.44 mln SGP - Schering-Plough Corp. $41.00 (-2.13 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). Anybody for a "dead cat" bounce? After the selloff that ensued in the wake of the announcement of Eli Lilly’s failure to extend its patent protection for Prozac, certain Pharmaceutical companies recovered on Friday. Companies at risk of similar drops in their stock prices are those that derive a large portion of their revenue stream from sales of patent-protected drugs. SGP has its own patent expiration problem to deal with, as its patent on Claritin will expire later this year. Although the company already has a replacement in the pipeline awaiting FDA approval, the negative sentiment created by the LLY judgment is likely to weigh heavily on the share price of the larger Pharmaceutical companies in the near future. SGP bounced with its peers, but it was clearly a half-hearted attempt. After the bulls had their say during amateur hour, it was clear from the declining volume that the stock would have a hard time holding its gains. The price gradually drifted lower for the balance of the day on light volume. Although the daily volume came in above the ADV, the bulk of that volume came early in the morning with muted interest for the rest of the session. So where do we go from here? Mild resistance at $42 is backed up by the 10-dma at $42.69 and much stronger resistance at $43. Consider new entries on a volume-backed rollover at resistance or wait for selling to push the price through support between $39-40. Below that, support is found at $35 and $30, and as the price approaches these levels, prudent investors will lock in profits by tightening up their stops. BUY PUT SEP-45 SGP-UI OI= 242 at $4.88 SL=3.00 BUY PUT SEP-40*SGP-UH OI= 470 at $1.88 SL=1.00 Average Daily Volume = 4.41 mln LVLT - Level 3 Communications $59.75 (-7.88 last 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. The Telecom Services sector has been vacated by the bulls recently. And it's no wonder, the slew of warnings from a diverse number of Telecom-related companies has prompted the bears to take charge. Earnings warnings from the likes of AT&T, Verizon, and Lucent have spread harm throughout the sector like the wild fires burning out of control in the west. For its part, LVLT has been scorched by the high-profile missteps by its Telecom brethren. Although LVLT operates in the bullish Fiber Optic sector, the threats of slowing growth in its other business segments have overshadowed its future prospects. The biggest challenge that LVLT currently faces is trying to prove to Wall Street that it can deliver the profits it has promised. The increasingly stiff competition within the sector lends itself to scrutiny from profit hungry investors. That scrutiny is evident in LVLT's recent fall from grace near the $80 level. The stock has been punished by institutions over the last month, noting the unusually heavy volume on the downside. The massive liquidation in LVLT has carried the stock below one support level after another, with few signs of the selling slowing. While the broader Telecom sector somewhat stabilized last Friday, LVLT plunged lower on more than twice its ADV. LVLT's poor showing Friday might warrant consideration for entering the play at its current levels. If the stock bounces higher, look for a bump against resistance at $60 for a possible aggressive entry point. A more conservative trader might target shoot for entry if LVLT falls below $58. Confirm any downside move with volume as a sign the institutions are still selling. Look for new OTM contracts to be issued next week as LVLT fell below its lowest option series Friday, and remember to wait for OI to build. BUY PUT SEP-70 QHN-UN OI=547 at $12.75 SL=9.50 BUY PUT SEP-65*QHN-UM OI=349 at $ 8.88 SL=6.25 BUY PUT SEP-60 QHN-UL OI=557 at $ 6.00 SL=4.00 Average Daily Volume = 2.05 mln AMD - Advanced Micro Devices $57.00 (-5.75 last week) AMD ranks #2 in the microprocessor market, after Intel. The company has grabbed a substantial share of the sub-$1000 PC market. AMD's microprocessors include the K6 and the super-fast Athlon (K7). The company also makes embedded chips and nonvolatile memories. AMD's major markets are computers, networking, and communications. About 60% of sales are outside the United States. Care for a little dip with your Chips? A few brave souls on Wall Street have recently muttered "correction" regarding the recent action in leading Semi stocks. Judging by the action in AMD over the past two weeks, the term "correction" might very well apply. It's evident that the Chip bears have taken the control of the group away from the bulls recently. Although demand for flash memory and the broader Chip business appears healthy on the surface, the fear of a slowdown remains at the forefront of investors' concerns. The slowdown in PC sales, which was exacerbated by DELL late last week, has added to the bearish outlook for AMD. In conjunction with the recent sell-off in the stock, AMD has announced several key developments in its product offering. The company said last week that it had developed a chip to compete with Intel's 1.13 ghz powerhouse. On top of that, AMD announced last Thursday it is currently developing a 64-bit processor, which will make its debut in high-end servers and desktop PCs early next year. Despite the promising developments within the company, its stock continues to languish in the wake of the weakness in the broader Semi sector. The overpowering bearish sentiment in the Chip sector pushed AMD below several key support levels last week. The stock fell as low as $54 last Friday, before an intraday reversal in the Chip sector carried AMD out of the mire. The late-day buying last Friday might have been the early signs of a split run; AMD is set to split 2-for-1 on August 21st. With that said, wait for the bears to return to the sector before initiating new positions. An aggressive trader might target shoot for entry if the Chip sector shows weakness early Monday morning. A more conservative trader might look for an entry if AMD falls back below $56, or plunges below its intraday low at $54. BUY PUT SEP-60*AMD-UL OI=690 at $7.75 SL=5.50 BUY PUT SEP-55 AMD-UK OI=379 at $5.00 SL=3.00 BUY PUT SEP-50 AMD-UJ OI=702 at $3.13 SL=1.50 Average Daily Volume = 4.89 mln AAPL - Apple Computer Systems $47.69 (+0.31 last week) Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the colorful Macintosh. Other products include the Mac OS operating system, the portable iBook, and a variety of multimedia tools. Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings. The company is still run by the original founder, Steve Jobs. The big picture is the story of slowing PC sales and a poor outlook for the 3Q. The summer doldrums supplied the slothful environment that perpetuated AAPL's recent slippage. But, DELL's sharp dive following its earnings release on Thursday was a direct bonus! Currently the 5-dma ($47.51) and 10-dma ($48.03) are serving as impenetrable shields against upward advancements, which provides us with a good entry/exit gauge. Technically, there's light support first at $45, then lower at $40, so watch for opposition at these levels. For visual confirmation, take a look at Friday's chart and note how AAPL found a near-term bottom at $45.56 during amateur hour. The stock-specific intraday gyrations should provide enough volatility to make a quick in-and-out play profitable. However, there's no question AAPL is risky. Keep stops tight. BUY PUT SEP-50*AAQ-UJ OI=408 at $5.38 SL=3.25 BUY PUT SEP-45 AAQ-UI OI=783 at $2.63 SL=1.25 BUY PUT SEP-40 AAQ-UH OI=751 at $1.19 SL=0.00 Average Daily Volume = 4.62 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 ************************************************************ ***** LEAPS ***** Shhhh! I Think I Hear A Bull Charging Up Wall Street By Mark Phillips Contact Support After enduring a weak market like we have seen since early spring, many investors (myself included) have started seeing marauding bears around every corner. Of course it doesn’t help that many of our favorite companies have failed to rally into earnings for the last two quarters, causing many to question if and when we will return to the "good old days". It doesn’t help having every bearish pundit and analyst that wants their 15 minutes of fame being paraded on CNBC, where they proceed to tell us that the good old days are over and we should just get used to it. But it isn’t my job to rehash the old news. I want to help you grab the opportunities that do present themselves so that we are all sitting on much fatter trading accounts this time next year. So let’s take a fresh look at what has happened in recent months. The DJIA have been effectively rangebound (although it is really quite a large range) for well over a year. The NASDAQ endured a painful 40% decline this spring and has been struggling to stay on the road to recovery ever since the lows in late May. But if you look under the surface, many of the strong "new economy" companies are trading at or near their highs for the year. Many of these companies (such as EMC, NT, SUNW) are on the LEAPS playlist. What about those Financial stocks? Look at our plays in this sector, as WM, AXP, and C are continuing to move higher. Even select Biotechs (GENZ, and our new play FRX) have had stellar performances recently. So why is the NASDAQ still trading over 1300 points off its March highs? The much anticipated dot.com shakeout was the major casualty of the spring decline, and it is clear that many of the once-hot e-commerce stocks will likely never regain their past glories. Weakness on the NYSE has largely come from cyclicals like IP, AA, DD, GM, and the like. But look at charts and you can see classic bottoming patterns on many of these. Their weakness is no surprise, as they typically bottom every year about this time (late July - early October) before running up into the fall and early spring. I guess that is why they are called "cyclical stocks". Granted, these stocks are not as exciting as JDSU, AMCC, and a couple hundred other rocket stocks, but they are predictable. I don’t know about you, but I don’t care what I invest in, just so long as I make money - the more, the better! The economy still looks strong, unemployment is low, and it looks like there are enough signs of slowing to keep the Fed on the sidelines for the rest of the year. Except for those companies that didn’t execute on their business plan, earnings came in very strong and many of our favorite companies guided the analysts to revise their future growth estimates upwards. This is just about my favorite time of the year as a LEAPS investor. While other investors are on vacation or wondering whether the market is ever going to relive the glory days from so long ago (you know, 5 months ago?), I am thanking my lucky stars that I was smart enough to listen to Jim and rest of the OIN staff this spring and preserve my capital. Now before you think I have become a stampeding bull and run out to buy everything on the playlist, make sure you heed the warning signs as well. The VIX is continuing to meander south of 22, closing out the week at 21.24. The market is usually weak this time of year, and another retest of recent support levels is entirely possible before we head to new highs. If we do get a rally in the weeks ahead, it could be just a pre-game warmup for the main event which (if history repeats itself) should start by late October. I hope you took my advice and used the past couple months as an opportunity to close out any remaining 2001 LEAPS positions. We are already starting to see the effect of time decay on these front-year options. This effect is most pronounced on those positions that are currently OTM. Any option that is out of the money is, by definition, all time value. Look at the disparity in Return (or Loss) on some of our beaten down positions like NSM, AOL, and NOK. When these positions were profitable, the 2001 would show a better percentage return than the back year strikes due to the lower cost basis, but that effect is reversed in a down market. We have entered the portion of the time decay curve where the slope continues to steepen as we get closer to expiration. If you locked in your profits, you will be in great shape as you go hunting for new entry points over the coming weeks and months. The key to successful LEAPS investing is finding strong companies that continue to show impressive revenue growth. Once you find those companies (and if you’ll pardon a little immodesty, I think the LEAPS playlist is a great place to start), the real trick is to exercise an inordinate amount of discipline. The truly large gains will come from waiting, and waiting, and waiting some more for that market event that provides the truly attractive entry point. If you have cash in hand when it comes, you’ll be really happy. But if you are still nursing losing positions because you "know" they will come back, it is hard to focus on new opportunities, and many times they will pass you by. There are many of our current plays that are trading very close to major support (VRSN, DELL, NSM, AOL, to name a few), and the coming weeks could provide the entry points we all want for the rally later this year. Decide where you want to put that cash to work and then define your entry strategy. And actually write it down. Then you have it recorded, so when you go to place that trade, you know that you have thought the trade through and are happy with it. The best decisions are made while the market is closed, so that they can be acted on in a sure and confident manner when the market is open. Plan your trade and then stick to the plan. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 40 EMB-AH $ 7.69 $50.88 561.64% JAN-2002 $ 45 WUE-AI $ 9.50 $52.00 447.37% JAN-2003 $ 90 VUE-AR $35.50 $35.00 ------ CSCO 11/14/99 JAN-2001 $ 40 CYQ-AH $ 9.56 $27.13 183.79% JAN-2002 $ 45 WIV-AI $11.00 $27.88 153.45% JAN-2003 $ 70 VYC-AN $25.13 $22.00 ------ NT 11/28/99 JAN-2001 $37.5 NT -AU $11.13 $42.88 285.27% JAN-2002 $37.5 WNT-AU $15.13 $46.88 209.85% JAN-2003 $ 80 ODT-AP $28.63 $29.88 ------ SUNW 12/19/99 JAN-2001 $ 80 SUX-AP $17.63 $38.00 115.54% JAN-2002 $ 90 WJX-AR $22.00 $43.00 95.45% JAN-2003 $105 VSU-AA $40.63 $45.00 ------ ERICY 01/30/00 JAN-2001 $16.3 RQC-AO $ 4.94 $ 4.50 - 8.90% JAN-2002 $16.3 WRY-AO $ 6.75 $ 6.75 0.00% 07/23/00 JAN-2003 $ 25 VYD-AE $ 6.88 $ 6.00 -12.79% NSM 02/27/00 JAN-2001 $ 70 NSM-AN $18.50 $ 1.75 -90.54% JAN-2002 $ 70 WUN-AN $24.25 $ 7.50 -69.07% JAN-2003 $ 40 VSN-AH $16.50 $16.88 ------ AOL 03/12/00 JAN-2001 $ 60 AOO-AL $14.00 $ 4.13 -70.50% JAN-2002 $ 65 WAN-AM $18.63 $ 9.25 -50.35% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $17.50 0.00% AXP 03/12/00 JAN-2001 $43.3 AXP-AP $ 7.25 $17.63 143.17% JAN-2002 $46.6 WXP-AQ $ 9.33 $20.38 118.44% JAN-2003 $ 60 VAX-AL $18.38 $17.50 ------ WM 03/19/00 JAN-2001 $ 25 WM -AE $ 5.00 $10.50 110.00% JAN-2002 $ 30 WWI-AF $ 5.38 $ 9.25 71.93% JAN-2003 $ 35 VWI-AG $ 7.63 $ 9.25 ------ AMD 04/16/00 JAN-2001 $ 70 AMD-AN $17.50 $ 8.63 -50.69% JAN-2002 $ 70 WVV-AN $26.00 $18.50 -28.85% JAN-2003 $ 90 VVV-AR $36.75 $20.38 ------ JDSU 04/16/00 JAN-2001 $ 80 XXZ-AP $27.50 $45.75 66.36% JAN-2002 $ 80 YJU-AP $39.63 $59.50 50.14% JAN-2003 $120 VEQ-AD $52.38 $55.38 ------ MOT 05/14/00 JAN-2001 $33.3 MOT-AY $ 6.58 $ 5.75 -12.61% JAN-2002 $36.6 WMA-AZ $ 9.54 $ 9.13 - 4.30% JAN-2003 $ 40 VMA-AH $13.38 $11.25 ------ NOK 05/21/00 JAN-2001 $ 50 NZY-AJ $10.25 $ 3.75 -63.41% JAN-2002 $ 50 IWX-AJ $17.25 $10.00 -42.03% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $14.00 -21.13% HD 05/28/00 JAN-2001 $ 50 HD -AJ $ 6.25 $10.63 70.10% JAN-2002 $ 50 WHD-AJ $11.38 $16.63 46.13% 08/06/00 JAN-2003 $ 60 VHD-AL $15.25 $16.50 8.20% NXTL 06/11/00 JAN-2001 $ 60 FZC-AL $12.25 $ 8.63 -29.55% JAN-2002 $ 60 YFG-AL $19.25 $15.50 -19.48% JAN-2003 $ 60 VFU-AL $21.88 $20.38 ------ C 06/18/00 JAN-2001 $ 65 C -AM $ 7.63 $12.38 62.25% JAN-2002 $ 65 WRV-AM $13.75 $19.50 41.82% JAN-2003 $ 75 VRN-AO $20.50 $19.75 ------ AMGN 07/02/00 JAN-2001 $ 75 YAA-AO $10.75 $ 8.88 -17.40% JAN-2002 $ 75 WQY-AO $20.75 $19.13 - 7.81% JAN-2003 $ 70 VAM-AN $28.75 $27.63 - 3.90% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $41.63 -37.16% JAN-2003 $180 OVS-AP $88.00 $57.63 ------ DELL 07/09/00 JAN-2002 $ 55 WDQ-AK $12.63 $ 4.88 -61.36% JAN-2003 $ 60 VDL-AL $15.38 $ 6.88 -55.27% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $24.13 40.86% JAN-2003 $ 70 OZG-AN $23.13 $30.63 32.43% HWP 07/30/00 JAN-2002 $110 WPW-AB $28.25 $29.63 4.88% JAN-2003 $120 VHP-AD $32.63 $34.75 6.50% PCS 07/30/00 JAN-2002 $ 60 WVH-AL $11.88 $11.38 - 4.21% JAN-2003 $ 65 VVH-AM $14.38 $13.63 - 5.22% EXDS 08/03/00 JAN-2002 $ 55 WZZ-AK $20.75 $24.13 16.29% JAN-2003 $ 60 VTQ-AL $25.38 $29.00 14.26% MFNX 08/03/00 JAN-2002 $ 40 WOF-AH $13.75 $13.00 - 5.45% JAN-2003 $ 45 VKW-AI $15.63 $15.38 - 1.60% GM 08/03/00 JAN-2002 $ 65 WGM-AM $ 9.88 $12.38 25.30% JAN-2003 $ 65 VGN-AM $13.25 $16.00 20.75% Spotlight Play AOL - America Online $51.75 It’s been awhile since we looked at our play on AOL. When was the last time you saw this number 1 ISP move up 8-10 points in a single day? It’s hard to do in this market environment, and investors are still unsure what to make of the pending merger with Time Warner (TWX). As long as there are no regulatory snags, look for the deal to be finalized later this year. This merger is expected by many analysts to create a tremendously powerful media and Internet conglomerate, and the decline in price and volatility is serving to make the play look attractive again. As the NASDAQ has continued to consolidate, AOL has been drifting lower, but on continually declining volume. Every so often, there is a higher volume day, and it is interesting to note that these are normally days when the stock goes up in price. Major support sits between $48-50, and a dip to this level looks like the best entry we will see this year. Don’t try to catch a falling knife though. If the stock drops through this support level, stand aside and look for another play. Wait for the bounce at support and then grab your share of the pie as the buying volume grows. BUY LEAP JAN-2002 $55.00 WAN-AK at $12.75 BUY LEAP JAN-2003 $55.00 VAN-AK at $17.50 New Plays FRX - Forest Laboratories $100.63 If you like excitement, the Pharmaceutical stocks were the place to be last week. After Eli Lily (LLY) failed to convince the courts to extend the company’s patent protection for their flagship drug, Prozac, investors were feeling the need for this wonder drug. This raised concerns throughout the sector about any drug company with a large portion of their revenue stream coming from drugs approaching the end of their patent cycle. It is expected that drug companies that produce generic forms of these patented drugs will undercut the large Pharmaceutical companies, and eat into their profit margins. Investors really couldn’t make up their mind what they wanted to do with shares of FRX. The company develops, manufactures and sells both branded and generic forms of prescription drug products as well as many over the counter (OTC) products. Some of the company’s more notable products are Celexa (for depression), Tiazac (for hypertension and angina), and respiratory products Aerobid, Aerochanber and Tessalon. Initially lumped in with LLY, FRX saw its share price cut from nearly $120 to $80 on Wednesday afternoon. Quickly coming to their senses though, investors realized that FRX was positioned to profit from the generic side of the drug business and the stock marched higher for the remainder of the week, closing back above the magical $100 level. On Wednesday afternoon, the stock gapped down from $102 to $92, and the recovery late in the week has almost filled the gap. Resistance could materialize at this $102 level, but if the stock continues to recover, look to initiate new positions as the price moves above $102. Although it is a less likely scenario at this point, a pullback is also possible. If it occurs, look for a bounce between $93-95, where the price consolidated for much of Thursday afternoon. BUY LEAP JAN-2002 $ 95.00 WRT-AS at $31.38 BUY LEAP JAN-2003 $100.00 VFB-AT at $37.38 Drops None *********** SPLIT PLAYS *********** From Splits to Split Runs By Ryan Nelson If July was plentiful for splits, then August should produce plenty of split runs. We are starting to see this come to fruition too as our split run list begins to grow. You can see from the splits calendar listed below that many ex-dates are coming up in the next two to four weeks. The market is looking stronger now with the DJIA above 11,000. All we need now is relief from a Fed tightening at the next FOMC to help momentum players return to market. Current Split Run Plays MER - 09/01 ex-date EXTR - 08/25 ex-date Current Split Candidate Plays PVN LEH DNA IDPH MERQ TIBX ITWO SUNW JPM Candidates That Are Not Current Plays BRCM GLW HWP GMST PWER HWP TECH BRCD 10 Most Recent Announcements We Predicted SEBL - 08/08 (most recent announcement) SAPE - 08/01 AMD - 07/19 PDLI - 07/11 TXN - 04/20 CMVT - 03/07 CHINA - 03/06 VRTS - 01/27 NT - 01/25 SEPR - 01/20 Major Announcements So Far This Month = 8 PLCM PLXS SNWL ORBK SAPE NETE SEBL EXBD For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp Symbol Company Name Splits Payable Executable ACTU - Actuate Corporation 2:1 08-14-2000 08-15-2000 DFXI - Direct Focus, Inc 3:2 08-14-2000 08-15-2000 CORR - COR Therapeutics, Inc 2:1 08-15-2000 08-16-2000 POS - Catalina Marketing Corp. 3:1 08-17-2000 08-18-2000 MNMD - MiniMed Inc. 2:1 08-18-2000 08-21-2000 PROX - Proxim, Inc 2:1 08-18-2000 08-21-2000 SIMG - Silicon Image, Inc. 2:1 08-18-2000 08-21-2000 SYMM - Symmetricom, Inc 3:2 08-18-2000 08-21-2000 AFFX - Affymetrix, Inc 2:1 08-21-2000 08-22-2000 AMD - Advanced Micro Devices 2:1 08-21-2000 08-22-2000 CDT - Cable Design Technologies 3:2 08-21-2000 08-22-2000 DYN - Dynegy Inc. 2:1 08-21-2000 08-22-2000 NSIT - Insight Enterprises Inc. 3:2 08-21-2000 08-22-2000 INHL - Inhale Therapeutic Systems 2:1 08-22-2000 08-23-2000 PDLI - Protein Design Labs 2:1 08-22-2000 08-23-2000 BRO - Brown & Brown Inc. 2:1 08-23-2000 08-24-2000 TSTN - Turnstone Systems, Inc. 2:1 08-23-2000 08-24-2000 VRTX - Vertex Pharmaceuticals Inc .2:1 08-23-2000 08-24-2000 AMRI - Albany Molecular Research 2:1 08-24-2000 08-25-2000 EXTR - Extreme Networks 2:1 08-24-2000 08-25-2000 ATML - Atmel Corporation 2:1 08-25-2000 08-28-2000 C - Citigroup Inc. 4:3 08-25-2000 08-28-2000 CECO - Career Education Corp. 2:1 08-25-2000 08-28-2000 MERX - MERIX CORP. 3:2 08-25-2000 08-28-2000 RFMD - RF Micro Devices, Inc. 2:1 08-25-2000 08-28-2000 WAT - Waters Corporation 2:1 08-25-2000 08-28-2000 IMPH - Impath Inc. 2:1 08-28-2000 08-29-2000 MPWR - Mpower Communications 3:2 08-28-2000 08-29-2000 SAPE - Sapient Corporation 2:1 08-28-2000 08-29-2000 BELM - Bell Microproducts Inc. 3:2 08-31-2000 09-01-2000 INCY - Incyte Genomics, Inc 2:1 08-31-2000 09-01-2000 MER - Merrill Lynch & Co., Inc. 2:1 08-31-2000 09-01-2000 PLCM - Polycom, Inc. 2:1 08-31-2000 09-01-2000 PLXS - Plexus Corp. 2:1 08-31-2000 09-01-2000 VSAT - ViaSat, Inc. 2:1 08-31-2000 09-01-2000 NETE - Netegrity, Inc. 3:2 09-01-2000 09-04-2000 MARY - St Mary Land & Exploration Co 2:1 09-05-2000 09-06-2000 RARE - Rare Hospitality INC. 3:2 09-05-2000 09-06-2000 SEBL - Siebel Systems, Inc. 2:1 09-08-2000 09-11-2000 BUD - Anheuser-Busch Companies Inc 2:1 09-11-2000 09-12-2000 PWER - Power-One, Inc. 2:1 09-11-2000 09-12-2000 NDSN - Nordson Corp 2:1 09-12-2000 09-13-2000 EXBD - Corporate Executive Board Co 2:1 09-15-2000 09-18-2000 ORBK - Orbotech Ltd 3:2 09-15-2000 09-18-2000 SNWL - SonicWALL Inc 2:1 09-15-2000 09-18-2000 FLEX - Flextronics International Ltd.2:1 10-16-2000 10-17-2000 PSC - Philadelphia Suburban 5:4 12-01-2000 12-04-2000 ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Sunday 08-13-2000 Sunday 5 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/081300_5.html ************* COVERED CALLS ************* Trading Basics: Rules for success... By Mark Wnetrzak There are a number of fundamental guidelines that can help a new trader profit in the market. These rules, along with a system for money management and a proven trading strategy will provide any investor with the basis for consistent profits. The first rule is: Know the market, its condition and the future economic outlook. Use that knowledge to place trades that conform with the direction given by the fundamentals. The equity market anticipates the movement of the economy and shows us in advance what we can expect with regard to corporate health, unemployment, interest rates and other financial trends. Understand there is an economic reality to which the market will inevitably converge and it is far easier to profit from positions that are in harmony with that trend. Stay in touch with the "tone" of the public and learn to anticipate swings in investor sentiment. News and major events should evoke the proper response. For example, a strong market will shrug off bearish developments and respond vigorously to favorable conditions. When a specific sector or industry group encounters adverse circumstances, but does not decline in reaction to the occurrence, then it should certainly outperform the majority of issues in that segment of the market. In addition, when reviewing specific issues, remember that fundamental analysis is the principle activity of brokerages and public investors and that is the most common manner in which the outlook for equities is reflected in the current prices. The second important axiom is: Trade the primary trend and focus on issues or groups that are performing the best in the current environment. There are many ways of expressing this idea but the simplest approach is "buy rising markets and sell falling markets." This theory seems paradoxical, because common sense would suggest that the best way to make money is to buy low and sell at higher prices. Of course, this is true from an abstract point of view but it has nothing to do with "trend" or "momentum" trading. In fact, buying a market that is in a downtrend is often the quickest way to lose money. While the issue may appear to be a bargain at the reduced levels, chances are it will likely become even cheaper. A well known trading adage suggests, "The best time to pick up a falling knife is after it has hit the floor, and finished its bounce." One way to determine the primary trend is to use a moving average. Obviously, there are many types of moving-average analyses, all of which are basically equivalent. Some traders monitor crossovers while others concentrate on the direction of the moving average, or the slope of its ascent or descent. After the major bias is established, use relative-strength analysis to identify the groups or sectors that are leading the movement. The relative-strength comparison helps determine which individual issues or industries are outperforming the broader market. The basic premise of this type of approach that you should buy only the strongest stocks in the top performing sectors and liberate your portfolio of the laggards. The most important guidance that new traders should adhere to is the need to outline an entry/exit strategy, before you initiate a position, to eliminate emotional decisions. Using predetermined targets for profit and loss addresses a number of points. First, it eliminates the need for judgment under fire. Second, it keeps you from selling too soon, depriving yourself of potential upside profits. Finally, an exit strategy will help you retain previous gains rather than exposing the position to a possible loss. Most techniques for limiting losses (and taking profits) are based on a prearranged goal, or a trailing stop, which is moved up as the issue advances. For example, traders commonly use a percentage trailing stop, such as 5% or 10%. In simple terms, the trailing stop is placed a fixed distance below the highest price attained by the issue since the position was initiated. As the instrument moves higher, the stop is adjusted upwards, in essence "locking in profits." Wise traders know it is prudent to initiate a stop-loss system (mental or mechanical) with any new position and those who comply with this principle are certain to improve their success in this vicious game that is the Stock Market. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return TMWD 59.50 51.19 AUG 45.00 18.63 *$ 4.13 11.0% HLYW 8.94 8.06 AUG 7.50 2.06 *$ 0.62 9.8% ASKJ 17.44 18.50 AUG 15.00 3.25 *$ 0.81 8.3% ACOM 21.75 23.94 AUG 15.00 7.50 *$ 0.75 7.6% ANTC 45.50 43.06 AUG 40.00 6.63 *$ 1.13 6.3% DLK 16.75 18.00 AUG 12.50 5.25 *$ 1.00 6.3% NPNT 14.63 12.19 AUG 12.50 2.75 $ 0.31 5.7% CGO 42.13 45.31 AUG 35.00 8.38 *$ 1.25 5.4% PSFT 18.38 24.81 AUG 15.00 4.38 *$ 1.00 5.2% WFR 18.38 15.50 AUG 15.00 4.38 *$ 1.00 5.2% PMTC 12.69 11.25 AUG 10.00 3.25 *$ 0.56 5.2% FRNT 18.44 17.56 AUG 17.50 1.50 *$ 0.56 4.8% MCOM 33.00 33.50 AUG 25.00 9.25 *$ 1.25 4.6% OO 13.94 16.13 AUG 12.50 1.94 *$ 0.50 4.5% IGEN 20.69 18.50 AUG 17.50 3.88 *$ 0.69 4.5% REGN 29.38 29.44 AUG 25.00 4.88 *$ 0.50 4.4% CLTR 22.00 25.50 AUG 17.50 5.00 *$ 0.50 4.3% EPTO 15.13 12.25 AUG 12.50 3.38 $ 0.50 3.1% MCRE 13.06 9.75 AUG 10.00 3.50 $ 0.19 2.2% IMNR 11.00 7.28 AUG 7.50 3.88 $ 0.16 2.0% GPX 5.81 4.56 AUG 5.00 1.25 $ 0.00 0.0% MAIL 9.44 6.78 AUG 7.50 2.50 $ -0.16 0.0% LOOK 23.00 16.38 AUG 17.50 6.25 $ -0.37 0.0% NOVN 35.00 34.94 SEP 35.00 2.88 $ 2.82 6.4% ROS 15.75 15.31 SEP 15.00 1.88 *$ 1.13 5.9% ECLP 12.00 13.38 SEP 10.00 2.75 *$ 0.75 5.9% ORG 14.38 14.50 SEP 12.50 2.75 *$ 0.87 5.4% *$ = Stock price is above the sold striking price. Comments: Exiting Tumbleweed (TMWD) early appears to be a prudent move given the continued technical deterioration. A profitable exit ($2.25-$2.31 credit) was available near the close on Friday and we will record that result in the final tally next week. Antec (ANTC) should be watched closely as it is under some selling pressure. Northpoint (NPNT) appears to be suffering collateral damage from the strike at Verizon (VZ). Verizon plans to merge its high-speed Internet access business with Northpoint. Memc Electronic (WFR) is threatening to move below the June low but a break-even exit was available on Friday. Frontier Airlines (FRNT) continues to consolidate, evaluate your long-term outlook. Epitope (EPTO) has moved below its 50 dma and is at a key moment. Metacreations (MCRE) is undergoing post-earnings selling and has moved below its 150 dma. Immune Response (IMNR) appears to be holding steady near the June low, consider exiting with further weakness. GP Strategies (GPX) is reacting to the Millennium Cell (MCEL) IPO, which has moved lower after it opened on Thursday. Once again, evaluate your long-term outlook. Mail.Com continues to correct on declining volume (optimistic?) but moving through the June high is bearish. Looksmart (LOOK) is again re-testing the June Low - consider an early exit if the attempt fails. Positions Closed: Ivillage.com (IVIL), Electric Fuel (EFCX), Bluestone Software (BLSW), and Itxc Corp. (ITXC). NEW PICKS ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CLTR 25.50 AUG 22.50 QCE HX 3.38 182 22.12 7 7.5% PX 43.00 AUG 40.00 PX HH 3.63 287 39.37 7 7.0% DLK 18.00 SEP 12.50 DLK IV 6.25 21 11.75 35 5.5% DRMD 5.72 SEP 5.00 DUQ IA 1.13 179 4.59 35 7.8% FHS 16.06 SEP 15.00 FHS IC 1.94 84 14.12 35 5.4% PCTL 6.03 SEP 5.00 PTQ IA 1.38 790 4.65 35 6.5% XICO 7.81 SEP 7.50 CIU IU 1.56 164 6.25 35 17.4% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CLTR 25.50 AUG 22.50 QCE HX 3.38 182 22.12 7 7.5% PX 43.00 AUG 40.00 PX HH 3.63 287 39.37 7 7.0% XICO 7.81 SEP 7.50 CIU IU 1.56 164 6.25 35 17.4% DRMD 5.72 SEP 5.00 DUQ IA 1.13 179 4.59 35 7.8% PCTL 6.03 SEP 5.00 PTQ IA 1.38 790 4.65 35 6.5% DLK 18.00 SEP 12.50 DLK IV 6.25 21 11.75 35 5.5% FHS 16.06 SEP 15.00 FHS IC 1.94 84 14.12 35 5.4% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** CLTR - Coulter Pharmaceutical $25.50 *** 1-week Speculation *** Coulter Pharmaceutical is engaged in the development of novel drugs and therapies for the treatment of cancer and autoimmune diseases. The company currently is developing a family of therapeutics based upon two drug development programs: therapeutic antibodies and targeted oncologics. The company's most advanced product candidate is Bexxar(TM), a monoclonal antibody conjugated to a radioisotope. The company's therapeutic antibodies program also includes an interferon receptor antagonist. Initial efforts in the targeted oncologics program are based on tumor activated prodrug and tumor- specific targeting technologies. Coulter intends to seek expedited Biologics License Application ("BLA") review and marketing approval for Bexxar while simultaneously pursuing clinical trials to expand the potential use of Bexxar to other indications. CLTR and SmithKline Beecham announced recently the start of Phase II multicenter investigational trial of Bexxar in combination with CHOP chemotherapy as a first-line treatment of patients with intermediate-grade non-Hodgkin's lymphoma. The U.S. Patent office also issued another patent relating to CD20 antibody therapy for the treatment of lymphoma. Technically the issue is attempting to move out of a stage I base and with the recent bullish activity, this position offers a relatively conservative speculation play. AUG 22.50 QCE HX LB=3.38 OI=182 CB=22.12 DE=7 MR=7.5% Chart = ***** PX - Praxair $43.00 *** 1-week Speculation *** Praxair is the largest industrial gas company in North and South America and the third largest worldwide. In addition to gas production, Praxair also supplies wear-resistant and high temperature corrosion-resistant metallic and ceramic coatings and powders. They also design, engineer and build equipment that produces industrial gases (for internal use and external sale). At the end of July, Praxair reported the highest quarterly earnings in the company's history, with second-quarter net income of $122 million, compared to $107 million last year. Sales grew 10 percent to $1,265 million (also a quarterly record) compared to $1,149 million last year. The company continues to have a favorable outlook for demand in the second half of the year, even in a slower U.S. economic growth environment. The bullish technicals suggest further upside potential and we favor the support at our cost basis. AUG 40.00 PX HH LB=3.63 OI=287 CB=39.37 DE=7 MR=7.0% Chart = ***** DLK - Datalink.net $18.00 *** Soon to be XLNK! *** Datalink.net is a leading wireless-application service provider that delivers end-to-end wireless data solutions to enterprises and custom data applications to consumers. As today's premier provider of consumer wireless data, and the first to deliver real-time wireless financial information, Datalink.net pioneered the development of wireless information technology. Datalink.net enables a new generation of wireless devices that allow enterprises and consumers to customize, respond, and interact with critical data. Its XpressLink technology processes high-speed data content feeds or corporate databases for wireless applications that are compatible with the entire range of wireless devices, networks and protocols. Datalink reported earnings Friday after the close, showing an expected weakness in the B2C (business to customer) revenues but a positive outlook for its new B2B focus. Datalink is dedicating its resources to building a strong infrastructure for the Internet enterprise market and starting Monday, it will trade its common stock on the Nasdaq under the symbol XLNK. With several new executives, new contracts, and acquisitions, Datalink is moving aggressively to market its wireless enterprise solutions. SEP 12.50 DLK IV LB=6.25 OI=21 CB=11.75 DE=35 MR=5.5% Chart = ***** DRMD - Duramed $5.72 *** Cheap Stage I Speculation! *** Duramed Pharmaceuticals develops, manufactures, and markets a line of prescription drug products in tablet, capsule and liquid forms throughout the United States. Their products are sold to a wide variety of organizations, including drug store chains, hospitals, nursing homes, and governmental agencies. In July, Duramed reported favorable results for the past quarter with record sales, up 25% from the first quarter of 2000, and gross profits that increased 63% from the previous quarter. The company cited a strong, balanced performance with contributions from the family of Cenestin (R) products, the flagship drug of Duramed's long-term commitment to hormone problems. The company is also continuing to monitor a number of business activities that may improve its working capital position and expects to place heavy emphasis on partnering high-profile projects. The issue continues to form a stage I base, with support near $5, which makes this a reasonable speculation position. SEP 5.00 DUQ IA LB=1.13 OI=179 CB=4.59 DE=35 MR=7.8% Chart = ***** FHS - Foundation Health $16.06 *** A Healthy Rally! *** Foundation Health Systems is a managed health care company. FHS offers a wide range of healthcare services. They also own six health and life insurance companies, and provide health benefits to over 5.8 million individuals through group, individual, Medicare risk, Medicaid and CHAMPUS programs. Foundation Health has been in a stage II climb for the last several months and is showing no sign of slowing. On Tuesday, the company reported a 23% increase in second-quarter earnings per share with revenues up 5%. Foundation appears to have finished their turnaround and is showing signs of renewed enrollment growth in key markets. During the last few months, Goldman Sachs and Chase H & Q have initiated coverage on Foundation, and Wednesday, Salomon S & B upgraded their rating to a "buy." We favor a conservative entry point with a cost basis near technical support. SEP 15.00 FHS IC LB=1.94 OI=84 CB=14.12 DE=35 MR=5.4% Chart = ***** PCTL - PictureTel $6.03 *** New Videoconferencing System *** PictureTel is the world leader in developing, manufacturing and marketing a full line-up of visual and audio collaboration solutions. Their products and services allow businesses, schools, medical facilities, government and other organizations to work together more effectively. PictureTel markets a complete line of videoconferencing systems, multi-location servers, peripheral equipment and a broad spectrum of enterprise-wide services. After disappointing results the last several years, PictureTel is hoping an improved videoconferencing system will lead the company to profitability. Intel collaborated on the development of the new system, the PictureTel 900 Series, launched July 31, which solves the traditional videoconferencing problems and delivers a host of new functionality. With its financing secured (the future sale of the company's Starlight division), PictureTel expects to be profitable by the first quarter 2001. We like the technical breakout and the move above the 150 dma on strong volume. SEP 5.00 PTQ IA LB=1.38 OI=790 CB=4.65 DE=35 MR=6.5% Chart = ***** XICO - Xicor $7.81 *** Bottom Fishing! *** Xicor designs, develops, manufactures, and markets reprogrammable nonvolatile semiconductor integrated circuits containing digital, analog and reprogrammable nonvolatile elements. Xicor's devices retain their information content when power is lost or turned off. Xicor products are sold in a variety of packages, including plastic, ceramic and chip scale packages for small footprint and height. Xicor was trashed in May after it issued an earnings warning amid concerns about the cellular-phone supply market and was promptly downgraded to a "Hold" by CIBC. After the initial shock, Xicor has formed a stage I base with support around $6.50. Earnings in July depicted a 5% increase in sales and net income of $2.4 million, which was in line with revised estimates. With several new products recently released, investors appear to be convinced that Xicor has left the bad times behind. A reasonable speculation play for traders with a neutral-to-bullish outlook on the issue. SEP 7.50 CIU IU LB=1.56 OI=164 CB=6.25 DE=35 MR=17.4% Chart = **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZ0JES ***************************************************************** *********************** CONSERVATIVE NAKED PUTS *********************** Trading Basics: Stock Selection Techniques... By Ray Cummins This week, one of our readers asked why we focus primarily on technical analysis, as opposed to a fundamental evaluation of the candidates in our Covered-Call and Naked-Put portfolios. There are three primary types of information that investors use to determine a bias or opinion on a specific stock. The first is "fundamental" analysis; income statements, balance sheets, and the future projections for revenues and earnings. The second is "sentiment" analysis; investor expectations of the market and of individual stock performance, news or upcoming events, and other potential activities such as mergers and stock splits. The final category is charting or "technical" analysis. This method relies on the actual history of trading and price in a specific stock, commodity, or index. Most analysts believe that charts can reflect all of the known information and public opinion surrounding a particular stock or security. As market opinions change, so do the prices of the underlying instruments. When the prices are plotted, historical patterns and formations evolve. This concept allows a technician to forecast how the current market will perform, based on how it reacted to similar conditions in the past. There are also methods that attempt to identify price formations within seemingly random movements. Some technical studies, such as seasonal or cyclical analysis, believe prices tend to follow a predetermined pattern. Technicians that subscribe to the Elliott Wave Theory believe that collective trading behavior is predictable enough to project waves of price movement. Proponents of cyclical analysis suggest there is a regularity in the way specific instruments perform at certain times in the year. Charts are constructed in various time frames and different types of indicators are displayed on price histories. Moving averages, support/resistance lines, envelopes, Bollinger bands, and momentum curves are all common indicators. Price, time and volume are all inputs into these indicators. Price reflects the level of change in the attitude of investors. Time measures the cycle or period of change and volume (relative to its past history) measures the intensity of that change. Various systems have been developed to help investors form an opinion based on the chart patterns and predict future turning points and direction in the underlying issue. Analysts begin by determining the strength and direction of a trend. The basis for future predictions is supported by the fact that once a trend is in motion, it will continue in that direction until a change in character occurs. Successful traders will study many different indicators from contrasting perspectives to help identify signals that forecast upcoming changes or trend reversals. In short-term option trading strategies, the most important factor in selecting profitable positions is the technical health of the underlying issue. To determine the future trend or character for any financial instrument, you must be able to identify the most common historical patterns and understand the implications of basic technical indicators. When you can do this accurately on a regular basis, the quality of your stock selections will improve substantially and that's the key to consistent profits for traders who sell Covered-Calls and Naked-Puts. Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return DRMD 5.75 5.72 AUG 5.00 0.31 *$ 0.31 24.1% HLYW 8.94 8.06 AUG 7.50 0.50 *$ 0.50 20.6% CLTR 24.00 25.50 AUG 20.00 0.56 *$ 0.56 19.8% GSTRF 10.56 7.63 AUG 7.50 0.56 *$ 0.56 18.2% WAVX 18.06 17.00 AUG 15.00 0.38 *$ 0.38 18.2% R 21.25 21.69 AUG 20.00 0.88 *$ 0.88 15.7% ZIXI 55.00 40.13 AUG 40.00 1.63 *$ 1.63 14.0% STLW 36.69 34.50 AUG 25.00 0.50 *$ 0.50 13.9% NFLD 17.50 16.44 AUG 15.00 1.00 *$ 1.00 13.2% ATMS 11.44 8.88 AUG 7.50 0.31 *$ 0.31 13.0% CMRC 46.25 50.13 AUG 35.00 0.56 *$ 0.56 12.4% PSFT 21.88 24.81 AUG 17.50 0.44 *$ 0.44 9.9% THC 31.19 32.13 AUG 30.00 0.81 *$ 0.81 9.7% DRTE 30.38 29.38 AUG 25.00 0.31 *$ 0.31 9.5% ICGE 39.94 30.44 AUG 30.00 0.75 *$ 0.75 9.3% ADPT 24.00 22.44 AUG 20.00 0.31 *$ 0.31 7.6% RHAT 25.31 20.06 AUG 17.50 0.38 *$ 0.38 7.6% JEF 26.56 27.44 AUG 25.00 0.50 *$ 0.50 7.6% MRVT 22.63 21.25 AUG 17.50 0.50 *$ 0.50 7.2% LAMR 49.88 49.94 AUG 45.00 0.50 *$ 0.50 7.0% GELX 28.56 35.50 AUG 25.00 0.38 *$ 0.38 6.7% NXLK 39.69 31.31 AUG 30.00 0.75 *$ 0.75 6.3% INFS 37.00 45.50 AUG 30.00 0.50 *$ 0.50 5.2% PILT 17.81 11.63 AUG 12.50 0.50 $ -0.37 0.0% SQST 14.00 9.09 AUG 10.00 0.50 $ -0.41 0.0% RAZF 22.25 15.88 AUG 17.50 0.56 $ -1.06 0.0% TLXN 19.88 17.84 SEP 15.00 0.44 *$ 0.44 7.2% *$ = Stock price is above the sold striking price. Comments: Zixit (ZIXI) continues to act suspect and has moved below its 150 dma. Northfield Lab's (NFLD) decline on heavy volume Friday is worrisome and there is no news to indicate a change in the company's outlook. Did anyone take the early exit in Tidel Tech (ATMS) this week? We will show the position closed profitably. Dendrite's (DRTE) big whipsaw (Thursday/Friday) marks the issue as an early exit candidate. Internet Capital Group's (ICGE) earnings report was less than pleasing to investors and the stock is now testing the bottom of its price channel. Nextlink (NXLK) has broken down technically and is at a key moment - monitor the issue closely. Evaluate closing out Pilot Networks (PILT) and Sciquest (SQST) versus owning the underlying stock (and selling future covered-calls) as they test the bottom of their respective stage I bases. The same can probably be said for Razorfish (RAZF). Positions Closed: Westell (WSTL), Bluestone Software (BLSW) NEW PICKS ********* Sequenced by Company ***** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CRUS 27.44 SEP 22.50 CUQ UX 0.50 18 22.00 35 6.6% CTIC 39.25 SEP 30.00 CUC UF 1.38 0 28.62 35 13.0% FNSR 29.00 SEP 22.50 FQY UN 0.94 117 21.56 35 12.1% GSTRF 7.63 SEP 5.00 YVQ UA 0.31 5091 4.69 35 14.7% IMAX 28.06 SEP 22.50 IZQ UX 0.94 200 21.56 35 12.4% JDEC 21.88 SEP 17.50 QJD UW 0.69 7 16.81 35 11.8% NDC 30.06 SEP 22.50 NDC UX 0.38 20 22.12 35 5.2% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return GSTRF 7.63 SEP 5.00 YVQ UA 0.31 5091 4.69 35 14.7% CTIC 39.25 SEP 30.00 CUC UF 1.38 0 28.62 35 13.0% IMAX 28.06 SEP 22.50 IZQ UX 0.94 200 21.56 35 12.4% FNSR 29.00 SEP 22.50 FQY UN 0.94 117 21.56 35 12.1% JDEC 21.88 SEP 17.50 QJD UW 0.69 7 16.81 35 11.8% CRUS 27.44 SEP 22.50 CUQ UX 0.50 18 22.00 35 6.6% NDC 30.06 SEP 22.50 NDC UX 0.38 20 22.12 35 5.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** CRUS - Cirrus $27.44 *** On The Move! *** Cirrus Logic designs and manufactures integrated circuits that employ high-performance analog and digital signal processing technologies. Their products, sold under their own name and the Crystal, Maverick and 3Ci brand names, enable system-level applications in the Analog, Internet, and Mag-storage markets. On Friday, Cirrus Logic rallied after the company's CEO's said their revenue in fiscal 2001 will increase as much as 50% next year on sales of audio chips for consumer electronic products. He also commented that profit, margin and the company's share price will rise in the coming months because of strong demand from every segment of the audio business. Based on the trading activity, investors believe the bullish forecasts and we are inclined to, as well. SEP 22.50 CUQ UX LB=0.50 OI=18 CB=22.00 DE=35 MR=6.6% Chart = ***** CTIC - Cell Therapeutics $39.25 *** Own This One! *** Cell Therapeutics is focused on developing and commercializing novel treatments for cancer. Their research and in-licensing activities are concentrated on identifying new, less toxic and more effective ways to treat cancer. In May, CTIC announced that the FDA had accepted its New Drug Application for its lead drug candidate, Arsenic TriOxide, for acute promyelocytic leukemia, and had granted priority review for this application. PG-TXL, in clinical trials in the United Kingdom, links paclitaxel, the active ingredient found in Taxol, to a polyglutamate polymer. Taxol is the world's most widely used cancer drug. Clinical trials are expected to be initiated later this year. CT-2584 (Apra) is a novel anti-cancer drug candidate in clinical trials for patients with cancers which are resistant to conventional chemotherapy. Lots of potential for this company but we simply favor the technical trend. Due-diligence is a prerequisite! SEP 30.00 CUC UF LB=1.38 OI=0 CB=28.62 DE=35 MR=13.0% Chart = ***** FNSR - Finisar Corporation $29.00 *** Entry Point! *** Finisar is a leading provider of fiber optic subsystems and network performance test systems that enable high-speed data communications over Gigabit Ethernet-based local area networks, and Fibre Channel-based storage area networks. Finisar also provides unique network performance test systems which assist networking and storage equipment manufacturers in the design of reliable, high-speed networking systems and the monitoring of of these systems. On Thursday, Finisar announced that it had delivered the first units of its SONET OC-48 Small Form Factor optical transceiver which operates at data rates of 2.488 Gb/s over single-mode fiber. According to Finisar's CEO, this opens another important market sector as telecom companies begin the process of upgrading metropolitan networks to handle the enormous demand for bandwidth. With earnings due near August 22, we favor the strong technical support near our cost basis as FNSR forges a stage I base. SEP 22.50 FQY UN LB=0.94 OI=117 CB=21.56 DE=35 MR=12.1% Chart = ***** GSTRF - Globalstar Telecom $7.63 *** Speculation! *** Globalstar Telecommunications provides global mobile telephone service. Their satellites form a global telecommunications network which can reach virtually every populated area of the world. Globalstar uses Qualcomm's patented CDMA technology, and Qualcomm has agreed that they will be the only provider of mobile satellite services to which it will license this technology. Funding has been a problem for satellite communications companies but in mid-July, Globalstar exercised an option giving them access to $250 million in corporate loans. The company said it expects to end the year with a cash balance in excess of $100 million and now they can pursue current business plans, working to establish themselves as a potential competitor in the communications market. The company also recently launched commercial service in Peru and Russia and they now have roaming service in South America as well as advanced coverage in the Caribbean. SEP 5.00 YVQ UA LB=0.31 OI=5091 CB=4.69 DE=35 MR=14.7% Chart = ***** IMAX - Imax Corp. $28.06 *** A Steady Performer for Sale? *** Imax provides a wide range of products and services to the network of Imax theaters. The principal activities of Imax are the design, manufacture and marketing of proprietary projection and sound systems, maintenance of these systems, and the production of films for Imax theaters. The big move back in July was caused by news that Imax had retained Goldman, Sachs & Co. and Wasserstein, Perella & Co. as financial advisors to explore potential strategic alternatives, including the sale or merger of the Company. Nothing like a buyout candidate to bring on the speculators! On Thursday, Imax reported earnings of $0.10 per share, exceeding analyst expectations and representing a 43% increase over last year. The company exhibited a significant increase in System revenues and margin, and had another strong quarter from its Digital Projection International subsidiary. Historically the issue has excellent support above our cost basis and this position offers a conservative method to speculate on the outcome of the current rally. SEP 22.50 IZQ UX LB=0.94 OI=200 CB=21.56 DE=35 MR=12.4% Chart = ***** JDEC - J.D Edwards $21.88 *** Big Mover! *** J.D. Edwards develops, markets and supports enterprise software and supply chain computing solutions that enable customers to translate ideas into practical realities quickly and efficiently using their Idea to Action software. J.D. Edwards' integrated applications deliver e-business solutions that give customers control over their front office, manufacturing, distribution, human resources, finance and customer service management processes. The share value of JDEC soared recently after the business-to-business e-enabler said that it expects third-quarter earnings per share to be between breakeven and $0.02, with revenue in the $250 million to $260 million range. Analysts currently expect the company to lose $0.05 a share on average and investors are happy with the potential for an upside surprise. Our position allows a technically correct entry in an issue with a bullish outlook. SEP 17.50 QJD UW LB=0.69 OI=7 CB=16.81 DE=35 MR=11.8% Chart = ***** NDC - National Data $30.06 *** Target Shooting! *** National Data Corporation is one of the leading providers of high volume information services to the health care and e-commerce markets through its Health Information Services and e-commerce business units. Their primary products and services include electronic eligibility, claims processing, billing services, business office management services, and other information-based services. NDC is in a bullish industry with strong potential. They have excellent products and services, as well as an enviable financial model; one with strong earnings, margins and cash flow from recurring revenue. They also have demonstrated good growth through innovation and adaptation to new opportunities and the company possesses a shrewd management team. All that combines to produce a very potent formula for success and we favor the issue for a portfolio position. We will "target shoot" the initial credit in this play at $0.50 to increase the overall return on investment. SEP 22.50 NDC UX LB=0.38 OI=20 CB=22.12 DE=35 MR=5.2% Chart = ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ************************ SPREADS/STRADDLES/COMBOS ************************ Blue-Chips To The Rescue! The Dow posted double-digit gains today, closing above 11,000 for the first time in three months amid tame PPI data and a strong retail sales report. ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, August 11 The Dow posted double-digit gains today, closing above 11,000 for the first time in three months amid tame PPI data and a strong retail sales report. The blue-chip average ended up 120 points at 11,027. The Nasdaq Composite also advanced 29 points to 3,789 as strength in biotech and chip stocks outweighed weakness in the hardware sector. Trading volume on the NYSE reached 839 million shares with advances beating declines 2,024 to 852. Activity on the Nasdaq was light at 1.33 billion shares, with advances edging declines 2,116 to 1,781. In the bond market, investors did not respond to the Bank of Japan's decision to eliminate its zero interest rate policy and the U.S. 30-year Treasury fell 13/32, pushing its yield up to 5.70%. Thursday's new plays (positions/opening prices/strategy): Ciena CIEN SEP195C/SEP190C $0.62 credit bear-call Xilinx XLNX SEP100C/SEP95C $0.68 credit bear-call Hew. Packard HWP SEP95P/SEP135C $0.88 debit synthetic Ciena and Xilinx both traded actively and moved higher during the session, providing relatively favorable entry opportunities into our new spread positions. Hewlett Packard slid lower at the open and never recovered, preventing the purchase of the synthetic position at our suggested price. We will watch for an upcoming rally to enter the play near the target debit. Portfolio Plays: The Dow industrials recorded strong gains Friday as investors rotated to "old economy" issues that have slumped in recent months. The transition was inviting to many investors and our portfolio benefited from the upside activity in blue-chip stocks. Charles Schwab (SCH) led the finance group, up $2.62 to $39.68 on strength in the return to classic "value" companies. Our bullish, synthetic position can now be closed for a $0.75 profit after less than one week in play. Bed, Bath and Beyond (BBBY) was the top performer in the retail sector, up $1.56 to $37.75 on speculation of an upcoming stock-split rally . Our "bull-put" spread is at maximum profit above $35. Stocks in the small-cap group performed particularly well with Secure Computing (SCUR) finishing up $1.18 at $21. Our current "call-debit" spread achieves an 86% return above $20. Shares in American Eagle Outfitters (AEOS), Polaroid (PRD), Peoplesoft (PSFT), and Ryder Systems (R) also participated in the bullish activity. In the technology group, Advanced Fiber Communications (AFCI), Cisco Systems (CSCO), i2 Technologies (ITWO), Network Appliances (NTAP), Qlogic (QLGC), and Sun Microsystems (SUNW) all moved higher. We enjoyed another surprise winner in one of our long-term plays. Paxson Communications (PAX) rallied 28% to $13 following a media report that the company could experience big financial benefits by giving up its UHF airwaves to cellular phone companies. We expect the bullish debit-spread position to achieve a maximum profit of 25% at September option expiration. Philip Morris (MO) was also on the move, up $2.75 to $31.25 after Goldman Sachs said it expects tobacco company valuations to improve significantly over the next 12 to 18 months. The brokerage also said shares of Philip Morris could rise by 50% in the coming year. Our bearish credit position offered a favorable roll-out opportunity for traders that chose to to act on the recent move through technical resistance near $29. The original portfolio play was closed prematurely as the issue crossed the sold strike near $27.50. Our new position in Millipore (MIL) also deserves mention. The bearish issue dropped $5 to $55 on concerns over the company’s valuation and future profits. Our new "call-credit" spread returns maximum profit below $70. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - Once again, the requests for credit spreads have dominated my incoming Email. Fortunately, we have a number of excellent candidates for the strategy this week. The following plays are based on well-known companies in favorable industries. Each position is evaluated for probability of profit using the current price and trading range of the stock and the recent technical history or trend. News and market sentiment will have an effect on these issues. Please review each position individually and make your own decision about the future outcome of the play. ****************************************************************** BUD - Anheuser Busch $86.00 *** Split Rally? *** Anheuser-Busch Company’s principal product is beer, produced and distributed by its subsidiaries, in a variety of containers primarily under the brand names Budweiser, Bud Light, Bud Dry, Bud Ice, Bud Ice Light, Michelob, Michelob Amber Bock, Michelob Pale Ale, Michelob Honey Lager, Michelob Hefe-Weizen, Busch, Natural Light, Hurricane Malt Liquor, Safari Amber Lager and Rhumba, among others. Their products also include non-alcohol malt beverages. The company's beer products are also marketed internationally. In addition, Anheuser Busch is also the parent company to a number of subsidiaries that conduct various other business operations including packaging and entertainment. Anheuser-Busch rallied again last week after Banc of America Securities said it had initiated coverage of a number of major beverage companies. Analyst C. Scott Wilkins said in a research note he had issued a "buy" rating on the company with a $92 price target after the world's biggest brewer reported a 10% increase in second-quarter earnings. The company, citing strong volume, said it now expects full-year 2000 earnings per share growth of 14% to 15%. In addition, Anheuser-Busch also said its board approved a 2-for-1 stock split and a 10% increase in its dividend. The stock split will be effective for shareholders of record on August 17 and will be distributed on September 18. PLAY (conservative - bullish/credit spread): BUY PUT SEP-75 BUD-UO OI=280 A=$0.43 SELL PUT SEP-80 BUD-UP OI=148 B=$1.06 INITIAL NET CREDIT TARGET=$0.75 ROI(max)=17% Chart = ****************************************************************** INFS - Infocus Systems $45.50 *** New Trading Range! *** InFocus Systems develops, manufacture and market innovative projection products. The company's products utilize LCD and Digital Light Processing (DLP) technologies to present output from personal computers and other electronic devices. They also develop, manufacture and market data/video projection products and services to present video, audio, graphics and data from personal computers, workstations, VCRs and laser disc players. Their products are used in business, education and government markets for training sessions, meetings, sales presentations, technical seminars, group collaboration and other applications involving the sharing of computer-generated and/or video information with an audience. Their products are compatible with all major personal computers and most video sources used in business and education. Earnings continue to dominate the market and InFocus shares are moving higher after the company reported a very bullish second quarter. InFocus earned $0.41 a share on $220 million in revenue, up sharply from $0.23 a share on revenue of $163 million a year ago. The latest quarterly results were $0.05 ahead of consensus estimates and the company has now outpaced analysts for the past eight straight quarters. In addition, a recent merger with Proxima Corporation, its top competitor, makes the combined company a giant in both the United States and in European projector industries. With favorable disparities in option premiums, this position offers an excellent speculation play for traders who are bullish on the issue. PLAY (conservative - bullish/credit spread): BUY PUT SEP-35 IQL-UG OI=0 A=$0.50 SELL PUT SEP-40 IQL-UH OI=25 B=$1.18 INITIAL NET CREDIT TARGET=$0.75-$0.88 ROI(max)=21% Chart = ****************************************************************** WLP - Wellpoint Health Network $90.06 *** Hot Sector! *** WellPoint Health Networks is a managed health care company with over 7 million medical members and approximately 32 million specialty members. The company offers a broad spectrum of quality network-based managed care plans, including preferred provider organizations, health maintenance organizations and point-of-service and other hybrid plans and traditional indemnity plans. In addition, the company offers managed care services, including underwriting, actuarial services, network access, medical cost management and claims processing. The company also provides a broad array of specialty and other products, including pharmacy, dental, utilization management, life insurance, preventive care, disability insurance, major behavioral health, COBRA and flexible benefits account administration. Wellpoint shares rallied on Friday and after the market close, the reason became clear. Salomon Smith Barney analyst James Lane increased his long-term target price for WellPoint to $105, based on a positive fundamental outlook for the company. In a research note, the analyst said the key driver of the potential multiple expansion should be less dependence on the company's Blue Cross of California franchise. Additionally, he commented that the recent acquisition of Rush Prudential and the upcoming acquisition of Cerulean Companies should be future drivers of earnings contribution beyond California. It sounds complicated to us but the technical outlook for the underlying issue and the sector provide more than enough cause to participate in this position. PLAY (conservative - bullish/credit spread): BUY PUT SEP-75 WLP-UO OI=6 A=$0.88 SELL PUT SEP-80 WLP-UP OI=10 B=$1.62 INITIAL NET CREDIT TARGET=$0.75-$0.88 ROI(max)=21% Chart = ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** PMCS - PMC-Sierra $200.00 *** Trading Range? *** PMC-Sierra develops, markets and supports new, high-performance semiconductor networking solutions. The company's products are used in the high-speed transmission and networking systems, which are being used to restructure the global telecom and data communications infrastructure. The company provides components for equipment based on Asynchronous Transfer Mode, Synchronized Optical Network, Synchronized Digital Hierarchy, T1/E1/J1 and T3/E3/J2 access transmission, High speed Data Link Control and Ethernet. Their networking products adhere to international standards and are sold on the merchant market to customers either directly or through its worldwide distribution channels. Based on analysis of the historical option pricing and technical background, this position meets the fundamental criteria for a favorable credit-strangle. The issue has overpriced options, a relatively well-defined trading range, and no major activities or events expected in the near future. The probability of profit from this position is higher (near 80%) than other plays in the same strategy based on theoretical option pricing. As with any recommendation, the play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (aggressive - neutral/credit strangle): SELL CALL SEP-270 SAR-IN OI=255 B=$2.50 SELL PUT SEP-150 SZI-UJ OI=162 B=$2.38 INITIAL NET CREDIT TARGET=$5.00-$5.25 ROI(max)=11% UPSIDE B/E=$275.00 DOWNSIDE B/E=$145.00 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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