The Option Investor Newsletter Sunday 08-20-2000 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/082000_1.html Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 8-18 WE 8-11 WE 8-4 WE 7-28 DOW 11046.48 + 18.68 11027.80 +260.05 10767.75 +256.58 -222.39 Nasdaq 3930.34 +140.87 3789.47 + 2.11 3787.36 +124.36 -430.86 S&P-100 813.64 + 8.89 804.75 + 8.90 795.85 + 19.67 - 28.37 S&P-500 1491.72 + 19.88 1471.84 + 8.91 1462.93 + 43.04 - 60.30 W5000 13907.40 +210.60 13696.80 + 84.90 13611.90 +359.60 RUT 515.51 + 5.24 510.27 + 6.64 503.63 + 13.41 - 32.48 TRAN 2837.14 - 90.36 2927.50 + 40.69 2886.81 +117.28 - 38.89 VIX 19.42 - 1.77 21.19 - .35 21.54 - 2.76 + 2.83 Put/Call .57 .41 .59 ****************************************************************** Caution, now entering the twilight zone! The Dow ended the week totally directionless and only +18 points from where it started on Monday. Other than the brief jump over 11100 on Monday the Dow traded in a very narrow range between 11000-11100 all week. The Dow is consolidating from the +650 point gains over the last several weeks. The Nasdaq had a pretty good week gaining over +140 points and edging ever closer to 4000. The intraday high on Friday was 3980 and after trading over its 200DMA it slipped -20 points back below the 3949 barrier. Higher oil prices hit the transports again this week and the index has now bounced off upper resistance at 2930 four times since March. With inventories at low levels and expectations of even higher heating oil prices for winter, Dow theory followers are looking at a drag on future Dow rallies. The challenge now is the low inventories. Nobody wants to buy oil for today's high prices and then be forced to sell it cheaper later if OPEC raises output. The lack of buying could turn into a race to fill winter requirements once OPEC direction is clear. If they are not going to raise output then some analysts project oil could run as high as $50 a barrel by winter. The prospect of even higher oil prices has put a cloud of uncertainty over the market. Somewhat higher oil actually helps the Fed by putting price pressures on the market. This requires fewer interest rate hikes from the Fed. However, over $35 the Fed would start squirming as those prices started filtering through the economy and become critical. Oil prices did not put any pressure on the semiconductor sector this week as Merrill Lynch joined the crowd upgrading the sector. Merrill said on Friday the mid-cycle correction on the chip sector was over and recommended that investors buy chips more aggressively going forward. Late to the party but a good call. With the sector up strongly for the last six days we cold see some profit taking any day. The bluest of the blue chips were in the news on Friday. AT&T was rumored to be in merger talks with British Telecom. With T trading near a three year low at $31 it is not surprising considering the consolidation taking place in the telecom sector. The companies acknowledged that talks had taken place but there was no current deal. Also grabbing a share of the spotlight on Friday was GM after Carl Ichan said he was going to buy up to 15% of the outstanding GM stock. Now that is a trading account to covet!! The reason for the move according to analysts was to force GM to complete the spin off of the remaining portion of GM Hughes (GMH) that it still owns. Analysts theorize that a quick spin off could produce a 22% profit for Ichan. We should teach him about option leverage if he thinks 22% is a good deal! Of course with options he would not have the leverage against the company that actually owning the stock would produce. Also, I would not doubt that he probably will end up with quite a few long calls as well before the deal is over. The bluest chip on the Internet lost some of its shine on Friday with a -$6 drop. Yahoo experienced a wave of selling as the Thursday rating filtered into portfolios. Decreased advertising rates and volume is impacting Internet companies across the sector but as the most visible sector leader Yahoo may lead the decline. As YHOO goes, so goes the sector. This is just another round of deflation as business plans meet reality. We have seen what happened to the E-commerce sector with stocks like ETYS, EFTD, FLWS, BNBN, VSHP and PLRX after they failed to follow through with profits as expected. The Internet stock slide will continue to be a drag on the Nasdaq as investors who bought the expectation and rumors are now faced with selling the news. The slowing economy is slowing? Yes, that is the newest wave of analysis by economists. The slowing is slowing and actually may be reversing into growth mode again. Where most analysts expect no movement on interest rates next Tuesday, some were even expecting the next move to be a rate cut. Now there is a growing rumor that there could actually be more rate hikes after the election. OOPS! Where did that come from? Earnings have been stellar and productivity is still soaring. Employment is still very tight and retail sales are still increasing. Actually the impact of the rate hikes is almost invisible. Previously a string of rate hikes like we have had in the last year could have put a serious dent not only in the economy but also in the markets. Don't look now but the Dow is only about -650 points from its all time high and looking like it is poised to breakout. The Nasdaq is still trading at more than -25% off its highs but most of those highs were Internet related and we all know what is happening there. The rate hikes just have not had the intended impact. The slowing "slowing" is going to bite us eventually. With the Dow only a couple hundred points from an eight month high and the VIX at a 52-week low (19.42) I went back and revisited the Aug-Sept-Oct period from the last two years. Was there really a Labor Day rally? Did a rate hike or no hike at the August FOMC meeting have any impact? What can we really expect next week? Will we have a rally or a "sell on the news" event? What I found was not pretty. In 1999 the Fed met on August 24th and raised interest rates. The Dow hit an all time high of 11365 on that same Tuesday. Go figure? However, two days later the Dow began a better than -10% drop to a low of 9976 on October-18th. Still in the middle of this drop there was a +410 rally from the Sept-2nd intraday low to the Sept-9th intraday high. The Dow lost -1100 points in the next four weeks. The Nasdaq dropped slightly after the Fed rate hike but basically traded flat to up until Sept-23rd when the crashing Dow finally took its toll. Even in this rate hike environment both indexes managed to rally for the week after Labor Day. in 1998 the Fed met on August 18th and did not raise rates. On that day the Dow hit 8753 which was a three week high and almost the high for the month. By September first the Dow had fallen to an eight month low of 7401 or a -1300 point drop. This happened without a rate hike. Beginning on Sept-4th the Dow rallied +781 points by Sept-24th to 8182 only to fall off into the October abyss the following week. The Nasdaq dropped after the Aug-18th meeting from 1874 to a Sept-1st low of 1475 or -400 points. From Sept-1st to Sept-23rd the Nasdaq rallied regaining +300 of those points before hitting the October crash. There was no rate hike but the market crashed after the meeting in August but rallied after Labor Day. At both meetings the Dow was at or near its highs. In 1999 the VIX spiked the day after the meeting to a low of 20.31 as bullish sentiment reigned supreme even in the face of the rate hike. A better than -10% drop began the next day. In 1998 the markets were undergoing extreme volatility and the VIX on the meeting day hit a low of only 26.39 but then soared as the market dropped -1300 points to a high of almost 61, yes, sixty-one! That was and still is the all time high for the VIX on Oct-4th 1998. The previous high was 53.06 on Sept-1st 1998, twelve days after the no-hike Fed meeting and at the market low for the year of 7401. Now that I have bored you with all the important market stats I think the case is clear for a post Labor Day rally. HOWEVER, I also think you could create a very good case for a serious dip between the meeting and Labor Day. The similarities are simply too clear and too precise. The only things in our favor are the recent market sell off earlier this year and the general feeling that the next Fed move may be a cut and not a hike. Now think back to the earlier paragraph where I discussed the murmuring of another hike in our future. Maybe a Fed on hold is not such a sure thing. In 1998 the markets had rallied all spring and summer were very over bought. In 1999 the markets had rallied in the spring and then traded sideways through the summer. This year we hit our high in January and traded sideways or down in a decreasing range ever since. The big question remains the Fed. If the Fed says something in their release on Tuesday that can be taken as indications of a future hike then the remaining August outlook may be grim. The last two weeks of August don't have history on their side regardless of the Fed direction. Factor in worry about $50 oil and that becomes the joker in our stacked deck. If the soft landing the Fed wants becomes a fly by instead then Greenspan will act aggressively in the future. Alan will get a chance to speak to the markets this week at the Kansas City Fed meeting on Thursday and should he desire to use words instead of rates to hold back the markets this would be the day. With the markets nearing recent highs on the rallies from the last several weeks there is a good chance that the expected "no hike" is already priced in. If that is the case then we are setup for a classic "buy the rumor, sell the news" event. Still, if the Fed does the expected and Greenspan stays mum then the "why wait for Labor Day" sentiment may prevail. At this point, I am not betting on that outcome. The extreme net short positions of institutional S&P traders along with the 52-week low for the VIX is weighing on my subconscious. I hope it weighs on yours as well. I am not saying don’t trade since a short covering rally for those institutions would be huge but just keep your eyes open to intraday market conditions and your finger on the trigger. Consider the next two weeks an episode of the Twilight Zone where the least unexpected event is the most likely occurrence. It is with great pleasure that I announce the fall seminar schedule today. The last several seminars have been sold out and the word of mouth is spreading about the content and quality. I expect the bigger cities listed below to fill up quickly based on the outstanding requests we have received. If your city fills up, please consider selecting another location and make a vacation out of improving your trading skills. Unfortunately we cannot be in all cities all the time and it may be quite some time before we get back to your area. All the remaining seminars this year are three days due to the number of requests. We believe this is the best Technical Analysis, Stock and Option seminar available at any price. Date City Aug 28-30 Detroit Sep 14-16 Chicago Sep 21-23 Austin Tx. Sep 28-30 Boston Oct 05-07 Portland Oct 12-14 Charlotte NC Oct 19-21 San Francisco Nov 02-05 Phoenix Nov 09-12 Miami FL Dec 07-09 Philadelphia Dec 14-16 San Antonio http://www.OptionInvestor.com/seminar/seminar.asp Trade smart, sell too soon. Jim Brown Editor **************** SEMINAR SCHEDULE **************** Here we go again! Here is your chance to learn from the pros. The three day Technical Analysis Stock and Option Fall Seminar Series. 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. Date City Aug 28-30 Detroit Sep 14-16 Chicago Sep 21-23 Austin Tx. Sep 28-30 Boston Oct 05-07 Portland Oct 12-14 Charlotte NC Oct 19-21 San Francisco Nov 02-05 Phoenix Nov 09-12 Miami FL Dec 07-09 Philadelphia Dec 14-16 San Antonio 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************************* Investors! Get In On The Ground Floor of the Next Big Idea. Announcing GE Venture Mine, the meeting ground for ideas and money. New on-line technology identifies the kind of opportunities you want to invest in. No more crisscrossing the country looking for the next break through idea. Find entrepreneurs, from start up to early stage business, in a search customized to meet your individual criteria. In privacy. On-line. http://www.sungrp.com/tracking.asp?campaignid=299 ************************************************************** ************** EDITOR'S PLAYS ************** For a double witching options expiration week the volatility was very light. If you were playing the right stocks there were some big moves but others just went without a pulse. The DNA play died a disgusting death. It never recovered above the $167 target for re-entering the play and it has been ruled dead. MERQ also died a quick death. After the drop the prior week it never recovered over our $105 target for re-entry. The new play last week was Coherent. Listed at $68.94 it dipped to $66.88 on Tuesday giving us an entry point and then ran to slightly over $73 on Wednesday. Since Wednesday the technicals have worsened and we would advise exiting the play. While is may still be a longer term hold we feel it is not currently a trading play. Coherent - Prior week This week ************ NEW PLAYS ************ EPNY $99 Call play EPNY is building a classic formation that can produce some explosive trades. Once sellers at $100 run out of stock the pent up buying pressure can move quickly. Many traders are sitting back watching the battle and will entr this trade once $100 has been broken. It needs to hold over $100 for a period of time before entering since you can see where it has broken $100 for a few ticks several times while the sellers enteres new orders. Wait for it to hold over $101 for at least 30 min. EXDS - $60.44 Call play Exodus is building the same formation as EPNY only over a longer time frame. If the Nasdaq remains positive Exodus could rally on a breakout to $70 before hitting resistance again. I would only buy on a positive market and positive stock holding over $60. ************ With the Fed meeting this week I would strongly recommend waiting for the announcement before making any long plays. We could get a pullback on Monday which could give us better entry points should the market rally after the announcement. 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************************ Up To 60% Off At EverythingWireless.com The online super-store for your active lifestyle. Select from the largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.everythingwireless.com\wireless\homepage?id=1601002 ************************************************************ **************** MARKET SENTIMENT **************** Tuesday 8/22, 14:15:00 Hours - Bring It On! By Austin Passamonte Was that really expiration Friday? What a boring day. This makes two months straight of more action on Wednesday & Thursday prior to Friday's non-event. Thursday's expiration of European-style options (SPX & DJX among others) may have a bit to do with this. We'll keep that in mind for next month's week of high-speculation. Back to option investing. The day of FOMC's reckoning draweth nigh. Will there be any rate surprise? 28 out of 29 Primary Fed-Bond dealers polled say no. There's always one vote of dissention in every bunch. These are pros closest to the action if we had any lingering doubts otherwise. Customary to our reports here lately this is a two-part story. We hope you'll enjoy at least one of them. The entire financial world fully expects a major rally to ensue. Tons of cash on the sidelines, summer is ending and interest rates may fall before they rise again. There really isn't one single fundamental reason why these major markets won't be headed up to parts unknown. Can you think of any? We cannot. Still, we're troubled. Something stinks around here and for once it's not the dog. Last government reports disclose institutional traders in the Dow, S&P 500, 30-year bond and 10-year note futures arena are all extremely net-short. Why are the biggest market pros in the game so bearish? Can we assume they are crazy, stupid, the most daring gamblers in the world or what? I am truly perplexed by their sentiment but it scares the bull out of me regardless. The VIX closed at its lowest point since July 16th last year. Big deal, you say; we've been harping that point for weeks now. Well let's just take a little trip down history lane. Including July 16th 1999 the VIX has been near this low five times. 7/19, 1/14, 2/4, 3/3 and today. The first four times all saw Dow corrections within days of 6.3%, 7.2%, 11.2% and 6.6% off their highs. How many of these events do you think were anticipated or predicted as markets soared to new recent highs? All components were in place for leadership stocks to keep making new highs. But if stocks continued to run every time they made new highs, when would they ever pull back? Will history repeat? It very well may not. Nothing is for sure, but how do you wish to lay your bets? Each time we've seen the VIX at this point the Dow pulled back an average of 7.83% That would be 865 Dow points below our close on Friday. Our job here in "Market Sentiment" is to provide you with pertinent mathematical facts and we take that very seriously. Math is an exact science that does not lie. Here is the data, research and assimilate it as you wish. For all we know the markets may rally to the stratosphere while VIX plunges into negative numbers. It could happen. Is that how you want to place your bets? Pay close attention to your charts, ignore media mantra and play any direction this market chooses to go. It promises to be a big one soon! MARKET SENTIMENT INDICATORS --------------------------- VIX The CBOE Market Volatility Index measures certain S&P 100 option pricing to determine investor sentiment. Historically, readings near 30 signal possible market bottoms while levels near 20 indicate possible market tops. Thur 8/17 close: 20.04 Sat 8/19 close: 19.42 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 (8/15) (8/17) (8/19) ************************************************************* CBOE Total P/C Ratio .55 .59 .45 Equity P/C Ratio .46 .53 .41 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 (8/15) (8/17) (8/19) ************************************************************** All index options .80 .95 .92 OEX Put/Call Ratio 1.50 1.06 1.11 OEX Maximum Open Interest Strikes/Contracts: (September) Puts 800/6,942 790/6,376 800/3,947 Calls 810/6,564 810/7,603 800/4,772 Put/Call Ratio 1.06 .84 .83 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: (8/15) (8/17) (8/19) Overhead Resistance: (September) (900-835) 1,064 2,072+ 173.59 (830/810) 5.12 11.11 5.70 OEX close: 811 815 813 Underlying Support: (805-785) 1.56 1.07 1.13 (780-760) 10.21 8.97 7.75 What the S/R measure indicates: Net open-interest ratios are firm above 810 and very high above 835 already. A large move has downside clearance to 785 with relative ease. We consider a test of the 830 range an excellent put entry while a test of 785 might be a strong call entry. 30-yr Bond: 5.69% Light, Sweet Crude, Barrel: $31.95 200 Day Moving Average (as of 8/08) The 200 DMA is widely considered the major benchmark for critical support in a market. DOW: 10,792 11,067 11,055 11,046 NASDAQ: 3,936 3,851 3,940 3,930 NDX: 3,672 3,722 3,830 3,807 SPX: 1434 1484 1496 1491 OEX: 773 811 815 813 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 Recent Rally Week's end strength in the NASDAQ 100 is especially encouraging. 11,000 support level on the Dow has weathered several tests. Interest rates 5.69% on the 30-year Treasury Bond signal rate fears are nil. Fed-Fund futures are pricing no chance a near-term rate hike. We'll learn for sure this week. Benign Government Reports Latest statistics hint the economy is cooling and no further rate hikes may be needed. 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 20 has us in EXTREME danger zone. Last four times this low resulted in serious market corrections. End Of Earnings Season Lack of positive news will direct market focus on August FOMC fears Tuesday should CPI 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 soaring. This affects profit margins and inflation. Light, Sweet Crude closed $31.95 today. 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, 08/20/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 11,047 10,600 11,200 SPX S&P 500 1,492 1,450 1,505 COMPX NASD Composite 3,931 3,650 4,000 OEX S&P 100 813 790 822 RUT Russell 2000 515 485 540 NDX NASD 100 3,809 3,500 3,900 MSH High Tech 1,068 975 1,095 ** BTK Biotech 662 570 700 XCI Hardware 1,556 1,450 1,580 GSO.X Software 439 385 455 SOX Semiconductor 1,135 1,000 1,160 ** NWX Networking 1,321 1,210 1,400 INX Internet 519 460 565 ** BIX Banking 585 550 610 XBD Brokerage 615 570 635 IUX Insurance 706 680 725 RLX Retail 833 810 875 DRG Drug 388 365 415 HCX Healthcare 799 795 855 XAL Airline 161 156 172 OIX Oil & Gas 306 280 320 The MSH, SOX and INX hit our resistance points on Friday, and the INX got hit hard at the 532 level. If you believe that the smaller cap RUT and the INX represent the pulse of aggressiveness in the market, Friday’s activity in the Internets and lackluster movement of the RUT is saying "don’t speculate." Some of the better results have come from buying support in strong sectors, with stops in place. Raising support (COMPX, SOX) Raising resistance (MSH, SOX, INX) Lowering resistance (RLX) which was not reflected in Thursday’s update. ***********************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 ************* Bullish Until the Last Minute By Buzz Lynn sectortrader@OptionInvestor.com Anybody else sweating bullets over the VIX? Don't look now, but it's just hit a 52-week low. That it could get this low indicates a whole bunch of confidence on the continued prosperity of this market. Contrarians must be licking their chops just waiting for the NASDAQ rocket to burn up in re-entry! Maybe, but consider this. Most of us have heard it enough times that we could repeat it in a dead sleep - VIX is low, time to go; VIX is high, time to buy. That's mostly true. However sharply rising markets are perfectly capable of spiking the VIX too. Though it's rare, it's not unheard of. While statistics and empirical evidence suggest the big downer is the most likely outcome, nothing prevents it from being a big upper if Greenspan and company leave rates alone, and lead investors to interpret that the next meeting in the New Year may actually yield a rate CUT! That's a budding, but not yet widely accepted theory on the Street. Love him or hate him, Greenspan has been a master of giving the Street exactly what it expects. Nonetheless, history has shown us that announcements have been greeted with a sense of relief immediately following the meeting. If there is a runup into the meeting, the likely outcome is that investors will "sell the news" no matter what the news as long as it confirms the expectation. If no runup (and we haven't really seen a big one yet), a small relief rally could ensue. It's a little like being a kid and learning there really isn't a monster under the bed. Complacency sets in, and ahhh, relief. (Oh, and the VIX drops further yet!) So what's our expectation on the market's direction from here? Frankly, we don't know for sure, but we do know there is a wall of worry (about the VIX) in which for prices to climb. It is also quite possible that Fed will leave just enough doubt about the future to keep the markets from doing their best impression of a runaway freight train with a stuck throttle. With traders most likely to pump up the volume after returning from a battery- charging summer vacation in early September, we could very well see a major gain in September anyway. A growing number, but still a minority of investors share that view. Business is good, rates are dropping and earnings are still rising as inflation remains under control. That's good for stock prices in the long run. Still a growing number of investors and traders are scared of that low VIX (rightfully so), and like Pavlov's Dogs, are conditioned to think a spike is coming along with a huge stock selloff. That's the conventional and mostly accurate wisdom. However, we leave you with this thought and rule to guide you. In the words of money manger and long standing Forbes columnist, Ken Fisher (son of legendary value investor, Phil Fisher), the market is The Great Humiliator and will seek to prove wrong and embarrass as many people as possible. That means that if we're all on the bandwagon that the VIX can't possibly go any lower and a selloff is immanent, we could be the embarrassed majority as VIX slips again to another low, and the markets to new highs. Even Yahoo! ceased to rise into earnings just when we thought we had the pattern all figured out. The moral is the VIX can go lower still and markets can rise even if the VIX spikes. That is not a prediction, just the least expected and contrarian point of view. Expect the unexpected, but be prepared to sell too soon if the VIX repeats history. I'll return to this column for the Tuesday, August 29th update. In the meantime, the skills and insights of Austin Passamonte will grace this page in my absence. For the few who haven't read his work, it is outstanding and exceptionally educational. Best trading wishes to all of you this week! Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 95.25 1.94 0.00 1.00 1.75 -0.50 4.19 HHH Internet 108.88 2.94 1.75 0.94 0.88 -1.69 4.81 BBH Biotech. 173.38 -1.00 -3.44 -4.06 2.63 -3.50 -9.38 PPH Pharm. 95.06 -0.81 0.00 0.75 0.25 0.00 0.19 TTH Telecom 64.50 0.81 -0.19 -0.63 -0.44 -0.06 -0.50 IAH I-net Arch. 99.25 0.94 -0.25 -0.13 2.44 0.69 3.69 IIH I-net Infr. 54.69 1.00 0.13 1.50 0.38 0.19 3.19 BHH B2B 46.50 0.69 0.25 -1.31 1.00 0.31 0.94 BDH Broadband 94.94 2.63 0.69 0.25 2.13 0.75 6.44 SMH Semicon. 97.44 5.06 2.88 2.63 1.81 2.38 14.75 RKH Reg. Banks 103.75 1.13 -0.69 -2.00 0.19 -0.88 -2.25 UTH Utilities 103.56 1.69 0.81 -0.25 0.88 0.06 3.19 ************** Updates ************** QQQ - NASDAQ 100 $95.25 (+4.19 last week) The NASDAQ and the Q's lost ground on Friday, but only marginal amounts - down 10 to 3930, and down $0.50 to $95.25, respectively. That was also the first time since last Friday we saw a down day on either index, so it wasn't unexpected. That they both held at or near their supporting averages on a summer Friday in front of an FOMC meeting is technically a win. What's supporting the market now is the continued good analyst projections specifically for the semiconductors and optical sectors, and technology in general. Speaking of that, the technical trend remains in tact too. Though the NASDAQ is encountering mild turbulence at its 200-dma of 3949, QQQ has broken clean through its 200-dma of $92.21 this past week. The generals are leading the charge and the troops are not following as willingly. Keep your eyes on MSFT, INTC, CSCO, DELL, WCOM, SUNW and ORCL since these will determine the NASDAQ and QQQ's direction. As of Friday's close, QQQ still managed a close above it's 50-dma of $94.09, the 30-dma of 94.05 and its 5-dma of $94.19. The convergence of these three averages should lend considerable support going forward, especially since it is also a level of previous resistance. If that doesn't hold, the next level of support is around the 200 and the 10-dma between $92 and $92.50. Next major resistance is at $98.50. Calendar Spread: With the support level at $94 where most of the moving averages converge, and the 200-dma not far behind at $92-$92.50, one of these levels (pick your favorite dependent on your risk profile) could make an excellent place to target shoot the long leg of the bullish call spread position. We can simultaneously short a near- term call, or wait for a rise back to and rollover from resistance at $95-96 to "leg in". This trade is just like a covered call, except that instead of buying the stock outright, we buy a longer- term call as our long position instead. The other difference is that unlike a covered call, we don't seek to get called out of this one. At or near expiration date of the short term sold strike, we must buy back the position if it is in the money or when its time value approaches zero. The idea here is to let time decay on the short position defray the cost of the long position month after month. Do this for a couple of months and you have a free long-term option. Don't worry that the price you pay to buy back the short is more than what you sold it for. Your underlying option will also be increasing in value by a greater amount. Just be sure to keep some reserves on hand so you can cover. At the end of the month, you will have defrayed your net cost by the dollar amount of time decay on the short. This is a mildly bullish play with a margin of safety, but you still need to set a mental if not actual stop to exit the whole position in case the Q's make a severe downward about face BUY CALL DEC- 90 QVQ-LL OI= 2662 at $13.50 SELL CALL SEP- 96 QVQ-IR OI= 4451 at $ 4.38, ND = 9.13 or less SELL CALL SEP-100 QVO-IV OI= 7447 at $ 2.63, ND =10.88 or less Long Calls So what's not to like? Ok, QQQ could have risen, but the loss on a Friday before a Fed meeting was negligible. Slowly and methodically, QQQ took out resistance all week long. Now with the convergence of the 5, 30, and 50-dma converging just over $94, that appears to be an excellent area of new support and technically justifiable target at which to shoot. It was barely tested yesterday and it held. While the overall trend appears to be up for now, a severe hiccup (like maybe nervousness before or just after the FOMC meeting?) down to the 10-dma and 200-dma at $92-$92.50 could also make an excellent entry. As long as technology stays strong and the interest rate environment is predictable, QQQ is poised for more gains. BUY CALL SEP- 90 QVQ-IL OI=16596 at $ 8.00 SL=5.75 BUY CALL SEP- 95 QVQ-IQ OI=13257 at $ 4.88 SL=2.75 BUY CALL SEP-100 QVO-IV OI= 7447 at $ 2.63 SL=1.25 Average Daily Volume = 21.75 mln ----- SMH - Semiconductor $97.44 (+14.75 last week) You've got to love this party and everybody at it - even Salomon Smith Barney's Jonathan Joseph, who after starting the semis sliding about a month ago with a bearish outlook, joined in the fun with positive comments on Friday. Let's just hope we haven't found a new contrarian indicator much like Ralph Acampora from last year. In fairness, even the best aren't correct all the time. But J.J. came to the table with an upgrade on MU noting that two OEMs picked up their order pace from MU the first week in August. That came on the back of other analysts' sector upgrades all week. While we've been enjoying the love-fest in this sector, there are some technical gremlins present that could spoil the party. First, SMH broke out of the Bollinger band to the upside, indicating there may be some points to give back soon. Second, the large gap-up on Friday may need to be filled before SMH can move up. Finally, a doji star formed on Friday's daily candlestick indicating investor indecision is setting in, and bulls may be getting tired from charging. $99 resistance proved impenetrable as did support at $96.50. The next level of historical support is at $94.50, then $93.50. It isn't until $92.85 that it runs into it first dma for support - the 5-dma. The rest are below that. For an entry, you can pick your favorite level of support based on your risk tolerance - just wait for the bounce. Otherwise, wait for the break over $99. BUY CALL SEP- 90 SMH-IR OI= 67 at $10.25 SL=7.25 BUY CALL SEP- 95 SMH-IS OI= 96 at $ 7.13 SL=5.00 BUY CALL SEP-100 SMH-IT OI=168 at $ 4.75 SL=3.00 BUY CALL NOV-100 SMH-KT OI= 82 at $ 9.38 SL=6.50 SELL PUT SEP- 90 SMH-UR OI= 52 at $2.50 SL=4.00 Average Daily Volume = 333K K ----- IAH Internet Architecture $99.25 (+3.69 last week) HWP, SUNW, FDRY and SCMR lit up the sector last week, while CSCO, the largest component straggled a bit. IBM was Friday's loser too keeping the hard work of the others on a less than stellar pace. One rotten apple can spoil the bunch. Even so IAH eked out a gain Friday, partially on SUNW's 2:1 split announcement on Thursday after the close. Technically, IAH is above all its major moving averages with historical support at $98.50-$99.50 - in short, now in congestion. Popping its head out over $100 would be a good sign, but a breakout over $101 would shove all recent resistance aside and might make a good entry. There is also solid support at $97, but wait for the bounce if you are going to plan your entry there. Be careful with this one. If it can't break $100, it may roll over and dive for support as low as $95 on any bad news. We can't advise entering at this current level, but a strong move up from here might confirm an entry. Of course, confirm market direction and use stops to protect your profits. BUY CALL SEP- 95 IAZ-IS OI=10 at $ 8.38 SL=6.00 BUY CALL SEP-100 IAZ-IT OI= 2 at $ 5.38 SL=3.25 BUY CALL SEP-105 IAZ-IA OI=55 at $ 3.25 SL=1.75 Average Daily Volume = 54 K ************** New Play ************** BDH - Broadband $94.94 (+6.44 last week) We mentioned this as a sympathy play to IAH in Thursday's update. Hopefully you got it on your radar, but didn't make an entry. While optical stocks like JDSU, GLW, SDLI. BRCM, SCMR, and AMCC really lit up BDH, its two biggest components, LU and NT cancelled each other out. LU is slurping canal water while NT is slowly powering higher. Technically, though up on Friday, it came in the form of a gap followed by flat trading. To that end, BDH may need to fill that gap first before moving convincingly higher. The good news is that it is sitting right on previous solid support at $95, and only needs to go to $94 to fill the gap. A bounce from there would confirm that old resistance at that level is now also solid support. A little lower down, BDH may find some support in the $92-$93 range. That's where all the moving averages are hanging out, indicating that BDH may be slightly over-extended. Target shoot to your level of comfort. Resistance is at $97.50, the top of the Bollinger band. BUY CALL SEP- 90 BDH-IR OI= 22 at $8.00 SL=5.75 BUY CALL SEP- 95 BDH-IS OI=235 at $5.00 SL=3.00 BUY CALL SEP-100 BDH-IT OI=158 at $3.00 SL=1.50 Average Daily Volume = 116 K ************** Dropped Plays ************** BBH - Biotech $173.88 (-9.38 last week) This was a crummy play to be in most of last week. We were looking for a bounce at historical support of $171-$172. BBH is almost there, but lawsuits from one biotech company to another are flying. The sentiment and technical outlook has deteriorated since we brought it into the lineup last week. HGSI, MEDI, AFFX, and DNA are all in need of therapy. When their sentiment mutates back to the positive, we can give it another look. ************** No Play ************** HHH PPH BBH BHH IIH TTH RKH UTH ************* COMING EVENTS ************* For the week of August 21, 2000 Monday None Scheduled Tuesday FOMC Meeting - 9:00am ET Forecast: --- Previous: --- Wednesday None Scheduled Thursday Durable Orders Jul Forecast: -6.0% Previous: 9.7% Initial Claims 08/19 Forecast: 305K Previous: 313K FOMC Minutes 06/28 Forecast: --- Previous: --- Friday GDP - Revised Q2 Forecast: 5.2% Previous: 5.2% GDP Chain Deflator Q2 Forecast: 2.5% Previous: 2.5% Existing Home Sales Jul Forecast: 5.20M Previous: 5.23M Week of August 28th 08/28 Personal Income 08/28 PCE 08/29 New Home Sales 08/29 Consumer Confidence 08/30 Leading Indicators 08/31 Initial Claims 08/31 Chicago PMI 08/31 Factory Orders 08/31 Help-Wanted Index 09/01 Auto Sales 09/01 Truck Sales 09/01 Nonfarm Payrolls 09/01 Unemployment Rate 09/01 Hourly Earnings 09/01 Average Workweek 09/01 NAPM Index 09/01 Construction Spending 09/01 Michigan Sentiment ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Sunday 08-27-2000 Sunday 2 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/082700_2.html ************** TRADERS CORNER ************** Looking For A Real Rally By Mary Redmond There seems to be a dwindling of opportunities to make money in the market, and some indicators which point to a possible consolidation or correction ahead. Many traders have been worried about the VIX.X for weeks now. It is often said that the two emotions which move the market are fear and greed. Of the two emotions, fear is the more powerful. This is perhaps why the VIX.X can spike sharply when put buying is at high levels. The volatility increases because the movements to the downside are usually faster and more intense than slow, gradual movements to the upside. There are a number of companies which made very large run ups from last Fall to Spring, and had major corrections following. Some of these stocks are trading at or near their 52-week lows. For example, both CMGI and QCOM had dramatic run ups and double top chart patterns this Spring before making sharp corrections. For the last two months, both stocks have been relatively flat. I have been watching the implied volatilities of these options, and this month is the first time this summer when the implied volatility of the options is lower than the historical volatility of the stocks. A stock's options can reflect a large downward movement in the implied volatility numbers, which can increase the price of call options even though the stock may be near a low. For example, in September of 1999 CMGI had an historical volatility of 64. This means the market was anticipating that the stock would move 64% above or below its current price in the coming year. QCOM had an historical volatility of 70 in the same month. By April of 2000, CMGI's historical volatility had moved to over 155, and QCOM's had moved to over 103. The historic volatility stayed high with both stocks until just recently, as they have both been basically flat this summer. The implied volatility of CMGI's October call options is 85.7 and the historic volatility of the stock was 94 last month. QCOM's call options have an implied volatility of 66 while the historic volatility last month was 97. Basically, this means that the market is now anticipating that these stocks will not move the way they did in the past. If they surprise the market, the call options could be highly profitable. However, if the stocks stay flat, the implied volatility could go even lower, which means the call options would lose even more value. The volatility numbers can be useful in combination with other analytical tools, but are not indicative of possible future stock performance. Since Sycamore reported earnings Thursday night, there were some wild swings in the stock price this whole week. During the after-hours trading Thursday evening and Friday morning, the stock sold down below $150 at one point. If you had been highly nimble, there was an opportunity to make several points Friday morning after the stock opened, as the red candlestick shows a clear move way outside of the Bollinger bands before the market even opened, from which the stock moved up over 4 points. They key here is that as soon as the market opened, the stock jumped up from 151 to over 155 before settling down into a range. This would have been a trade to get in and out of very quickly. It will be interesting to see what type of pattern develops in this stock, as it has not been a publicly traded stock for very long. The whole week has just been pretty boring in the markets as people who started trading in the last couple of years may not be used to markets which only move 20 to 50 points a day. It can feel like an aberration from the real rallies of the past. While there are a few stocks making big daily moves, we may need higher cash flows to the market to see the Dow and NASDAQ move up over 100 points a day. The IPO schedule was practically non-existent this week with only a few issues raising under $200 million. This was helpful to the market, as the cash flows to equity funds continue to be slow. AMG Data reported that last week's cash flows to equity funds totaled $3.3 billion. The weekly moving average of cash to equity funds is approximately $2.25 billion. In addition, the cash keeps pouring into money market funds. The Investment Company Institute reported that over $9 billion went into money market funds last week. The weekly moving average of cash to money market funds is over $12 billion. The total cash in money market funds is currently $1.747 trillion, up over $70 billion from a couple of months ago. There is no shortage of cash out there. People just aren't putting as much into the market. It is important to note that 13 stocks will begin trading in decimals on Monday, August 28. These are APC, FCE A, FCE B, FDX, GTW, HUG, MNS, RBC, PMD, GBT, ONT, EMA, and MEG.A. Some market analysts have raised questions about the possible impact of decimalization on the equity markets and brokerage firms. The most obvious impact will be in the spread between bid and ask. Previously, the current spread on the NYSE between bid and ask was generally 1/16, although there have been stocks which traded in 1/32 and 1/64 of a point. Now the spread between bid and ask could be as low as one cent. This may result in more competitive pricing. APC, FDX, and GTW have options, so we will have an opportunity to see how decimalization impacts options. Contact Support ****** These Grapes Taste Sour By Molly Evans The bogus release of damaging news about EMLX is obviously the story of the week. Approximately half an hour into the trading day Friday, the stock began a steep plummet that left those of us watching the descent questioning our vision. EMLX began red on the day, down only about 3 - 4 points. The darling of the past several days was due for a pullback so there was no surprise in how it initially opened. However, within moments of an official looking, yet very damaging press release on InternetWire, Comtex and then Bloomberg, the stock fell into a tailspin. The author of the press release had written all the buzzwords: "revised earnings from profits to loss," "accounting irregularities" and "CEO stepping down." The stock plummeted 62% within a fifteen minute time span at which time trading was halted for over two hours. For those of us watching at home on our screens, there was first no news, then there was THE news, and then there was the REAL news. What an utterly confusing time. Not only were fortunes being lost and amassed in EMLX trading within that one half-hour, portfolios containing IMNX, QLGC and BRCD were gyrating wildly too. IMNX, symbol for the biotech company Immunex, dropped over confusion about the similar sounding names. QLGC and BRCD, same sector companies, fell in sympathy but then recovered rather quickly, though both were still down on the day. I was caught up personally in this debacle and I'm sorry to say, I was on the wrong side. Somebody wins so somebody has to lose. There were lots of both. The person or persons responsible for the fraud will most likely have a lot of time to marvel at their 15 minutes of fame locked in a jail cell, but for those of us swept up in the drama, the trades stand and a lot of money traded hands over this saga. Personally, I sold EMLX longs and bought puts on Thursday afternoon. "Great!" you say? I suppose. But I am not a greedy trader. EMLX is a strong stock and buying puts is pretty risky when the market has been so strong. Sure, it was overextended and was due for a pullback, but nutsy gets nutsier sometimes, therefore I am reticent to overstay my welcome in put land. I had my order in for two points above my buy point and couldn't get back in fast enough to change it when I saw it plummet. My puts, just sold for $8.00, were bid at $53.63 by the time the stock was halted. Trying to be smart and capitalize yet another way, I wanted to sell naked puts but couldn't get through to the broker on the phone so I went in to buy calls. I'd just had a big cup of coffee and the adrenalin was pumping so I could barely get my hands to steady my little roller ball mouse to put in the darned order! I got it in, saw twenty contracts for the UML-II (Sept 45 calls) go through for $5 and was so pleased. Pleased until I found out that wasn't my fill. I did get through to my broker then and lo and behold, wouldn't you know it? I was informed that trading had been halted just thirty seconds before my market order hit their desk. I'm not crying about missed money. What I AM crying about is the loss of my QLGC shares when it got trashed in sympathy. I saw it dropping fast too and not knowing what the news was dumped my long QLGC shares for $93.50. In fast markets like this, who knows how far it can go down and why? I've learned my lesson both ways, staying in and getting out. This "lesson" cost me $6 Grand. It's the chicken or the egg story. There was no news; was there a sector problem? Was there a shady deal going on between Emulex and QLogic? Who knew? I could find nothing on the news sources at that moment. Finally, a friend on a chat line told me about restated earnings and blah, blah, blah. Nothing about QLGC of course, but the facts spoke for themselves; QLGC had been slightly down within amateur hour and now it was torpedoing its way into deep waters too. I wasn't going to watch my QLGC drop 60% as, in my mind, inevitable questions would surface regarding the sector and tech stocks in general. How can you think when the red bars are just getting longer and longer? I did feel a sense of relief when I glanced at QLGC trading at $75 and went in to buy back there - but no, it was $100 range within seconds. Unbelievable. My story is very small potatoes here. The fact that all trades on the stock and options were being honored, points to the dramatic opportunities and risk of the market. It's a whole new world when some sick schmuck can pen one page of blasphemy and bring a stock crashing down 60% of its market value. InternetWire itself issued a statement of apology for running the story and they're crying that they too are victims of fraud. They ran the story; I don't want to hear it. CNBC later had guests who lectured viewers about trading on rumor. Excuse me but when someone's portfolio is being sliced up, he is not a cool head. People see their stock plummeting and they're trying to stop the hemorrhaging like EVERY investment and trading advisement recommends. Save your lectures. I'm not dissing the ones who legitimately warn about buying on "hot tips," that's a whole other issue. These were lectures about how investors should check out the story before they act. Even Emulex CEO Paul Folino had the audacity to tell the viewing public that people should have checked out the story before trading. I'll give the guy a break, I'm sure it was one heck of a day, but Sir, these are your shareholders! They see a story on an otherwise apparently reputable news service, they're not going to call up and say, "Hey Paulie, what's goin’ down there besides my entire IRA?" What about all of those people who had conservatively placed GTC stop loss orders while they trudged off to work everyday? Sometimes you do everything right and you still get spanked. Only one other time, with PAIR, has a false story been leaked sending the shares tumbling. How many times has the story been true? Let's look at some of those equities. Let's see...umm... does MSTR, CTXS, PG, LGTO, LHSP, DIAL, or VISX ring any bells? I wonder how many of those shareholders paused to wonder if it was really true that their company was issuing a warning. If they did, they choked on the dust of their fellow shareholders who left them holding the bag. So once again, it is the little guys who take the fall while the older and wiser and pompous and arrogant berate us all for sins of trying to make a dollar in their world. And what about the press? The press tells us that oh no, they're not in any way a part of this problem. Well, is this the first or even second time that a false press release has caused market turmoil? Are there no safeguards in the media industry? They don't have to check fax numbers, especially on something that is truly BAD news like that? Wow. I guess we all just live and learn the hard way. In retrospect, I made a bad split second decision in selling my QLGC, but this is the market we are faced with and seconds can mean thousands of dollars. Nobody said it had to be fair. It can be a pretty mean sandbox. Actually, maybe we should look at it this way: in a business where you can lose it that quickly, it means you can also win just as quickly. By the end of the day, those Sept 45 UMLII $5 calls that I tried to scoop were bid at $60.63. Austin, I now have my own fish story for you...but he got away. Contact Support ************************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 ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* SDLI - SDL, Inc. $402.13 -9.75 (+6.88 this week) See details in sector list Put Play of the Day: ******************** UK - Union Carbide $41.06 (-1.75 last week) See details in sector list ***********************ADVERTISEMENT************************ Up To 60% Off At EverythingWireless.com The online super-store for your active lifestyle. Select from the largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.everythingwireless.com/wireless/homepage?id=1601002 ************************************************************ ************* DAILY RESULTS ************* Index Last Week Dow 11192.63 146.15 Nasdaq 4042.68 112.34 $OEX 823.55 5.81 $SPX 1506.46 5.55 $RUT 525.11 9.60 $TRAN 2790.17 -46.97 $VIX 19.10 -0.31 Calls CIEN 197.94 21.25 Increasing its stronghold on optic-networks JNPR 190.94 20.13 Pure momentum equals pure profits VRSN 176.38 16.63 Continuation of last week's uptrend ITWO 166.50 16.50 New, stair-step rally over the $160 level INKT 123.94 15.00 New, "Content Bridge" kickstarts interest NEWP 154.00 14.75 New, institutions accumulating with fervor PLXS 142.50 11.88 Splits after Friday's close, August 31st IMCL 99.88 11.38 New, on the verge of a breakout from $100 QLGC 103.88 10.88 Quite a dose of volatility from EMLX news BRCM 268.13 10.00 Infrastructure stocks see incredible growth VRTS 116.94 9.81 Since clearing $115, looking for momentum TIBX 96.25 7.31 New, residual move from positive B2B news VTSS 89.25 7.19 New, having had a great month, $90 is next SDLI 402.13 6.88 Looking for it to hold its head above $400 NTAP 100.81 6.88 Making it to higher ground above $100 level LSCC 74.25 6.63 Definitely a brighter Semi star on Friday DIGX 86.00 5.44 In the midst of a powerful momentum run IDTI 78.25 5.38 Semi sentiment bringing new highs for IDTI BEAS 59.63 5.13 New, B2B stocks have enjoyed stealth rally EXDS 65.19 4.75 Future growth prospects not factored in? GSPN 133.00 2.63 Bouncing around the $130s in techical trade SUNW 124.75 2.38 Profit takers we warned about showed up EMC 91.50 -3.44 Dropped, lack of strength may be early sign Puts AT 50.81 -5.25 A simple repeat of February outlook hurts KO 56.00 -4.31 New, has lost some of investors' fizz UK 41.06 -1.81 Distaste for Chemicals is clearly evident QCOM 58.88 -0.88 Recent bounces just not convincing yet ************************** 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 EMC $91.50 (-4.44) Meandering between support and resistance all week on low volume, EMC's lack of strength this week was disappointing. As the major indices managed to claw their way higher, EMC managed to take one step forward and two steps back. Wednesday morning did see our play trace a new intraday high, but there was no conviction to the move, and the profit taking that ensued took the price down to $91 before finding any support. Although support at $90 is still intact, the fact that our play couldn't hold above the 10-dma ($91.91), leads us to think the stock may be weaker than it looks on the surface. With so many other great plays out there, we decided to drop EMC this weekend and take our profits. PUTS No dropped puts today. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** TIBX - TIBCO Software $96.25 (+7.31 last week) TIBCO's ActiveEnterprise enables businesses to connect resources with customers and automatically deliver event-driven information across networks and the Web in real-time. The company also offers e-commerce, consulting, and support services. Customers license the software to integrate, personalize, and distribute content. TIBCO is enhancing its business-to-business trading capabilities. Reuters owns more than 60% of the company, and Cisco holds a minority stake of 7%. This B2B software company has seen its stock gyrate along with the rangebound NASDAQ during the past month. Since peaking at $129 on July 14th, TIBX has followed the lead of the general market in a whippy, trade-range fashion. The most recent decline brought TIBX below its 100-dma on Monday, August 21st on heavy volume, indicating that many of the weak hands have been shaken out. The very next day, TIBX came roaring back with strong buying volume, fueled by positive comments by a Bear Stearns analyst. While TIBX was not directly mentioned in the commentary to Bear Stearns clients, the analyst believes that the sector will exploit network scale economies and reduce costs of intensive business tasks. TIBX saw a residual move from the comments that has revived this B2B favorite. Since then, TIBX has been trading along a modest upward trendline with heavy volume. Friday's dip to $90.50 just touched that trendline to bounce back and climb above intraday resistance at $96. Aggresively, bounces from $95 could provide entry. Yet, considering the intraday price swings, look for enter off of bounces near intraday support at $93-$94. This would be near the current trendline, and also the 10-dma at $93.43. Below this, $92 has provided intraday bounces, with the 5-dma at $91.16. Overhead, $100 will be resistance and conservative players may want to wait until TIBX surges through the century mark on stronger volume before entering. The 50-dma at $102.94 will be the next level of contention. Use the NASDAQ sentiment as an indication of TIBX's direction, as well as the other B2B stocks like ARBA and CMRC. Last Monday, TIBX made another stride at making B2B e-commerce easier with its launch of TIB/RendezvousTX (RVTX). It is a robust backbone that enables rapid development and deployment of real-time, reliable e-business systems that can manage customizable B2B transactions. This proves TIBX's continued efforts to provide comprehensive, reliable, and dynamic software to the business community. BUY CALL SEP- 90*PIW-IR OI=409 at $11.75 SL=9.50 BUY CALL SEP- 95 PIW-IS OI=239 at $ 8.75 SL=6.75 BUY CALL SEP-100 PIW-IT OI=439 at $ 6.50 SL=4.75 BUY CALL OCT-100 PIW-JT OI=422 at $12.00 SL=9.50 BUY CALL OCT-105 PIW-JA OI= 18 at $10.00 SL=7.50 SELL PUT SEP- 85 PIW-UQ OI= 72 at $ 2.50 SL=3.50 (See risks of selling puts in play legend) Picked on August 27th at $96.25 P/E = N/A Change since picked +0.00 52-week high=$147.00 Analysts Ratings 5-2-1-0-0 52-week low =$ 6.58 Last earnings 06/00 est= 0.01 actual= 0.04 Next earnings 09-21 est= 0.05 versus=-0.01 Average Daily Volume = 1.55 mln BEAS - BEA Systems, Inc. $59.63 (+5.13 last week) Founded in 1995, BEA Systems, Inc. has become widely known as a leading provider of middleware for enterprise applications. This is largely because of the success of BEA Tuxedo and BEA WebLogic, which together comprise approximately 46 percent of the transaction server market (according to IDC). But the vision of BEA's founders has always been bigger than middleware. Their goal from the beginning was to provide a comprehensive infrastructure for development and deployment of reliable, scalable business applications for e-commerce. With so much talk this month about the semiconductor and biotech sectors driving the market higher, the business-to-business stocks have largely been ignored in the public eye. Despite this, B2B stocks have enjoyed a sort of stealth rally. Contributing its fair share to help the NASDAQ higher, shares of B2B companies have quietly appreciated so far this August. While previously B2B issues needed the help of the media to generate excitement and momentum for price appreciation, the move up this time is with little controversy or fanfare. Noticeably missing are the debates on the viability of the B2B business model. And while the volume in general has quieted down compared to last month's feeding frenzy(thanks to ARBA's blowout earnings report), the buying interest is there. In the B2B space, BEAS has been one of the more volatile issues lately, much to a trader's chagrin (or delight). Much of this volatility can be attributed to BEAS reporting earnings on August 15th. BEAS's month started off with a bounce off the $40 area after a late-July sell-off. From there, the stock had a mini earnings run. Encountering resistance at $57, BEAS headed lower as profit-takers took their money off the table early. BEAS found support and closed right on its 50-dma (now at $51) on the eve of its earnings report. For the quarter, BEAS more than tripled its profit from $6 mln, or 2 cents a year ago to $21.9 mln, or 5 cents per share. Despite only beating the Street by a penny, the Street was pleased and the next day, the stock jumped higher. It was likely aided by an upgrade from Deutsche Banc Alex Brown. This past week has seen BEAS bounce above its 50-dma support. Since that successful test on Monday, the stock has been heading higher, using the 5- and 10-dma (near $57 and $55.50) as support. A bounce off those levels could serve as an aggressive entry point. A break through resistance at $60 on strong volume would be an ideal conservative entry point. Above that, there is resistance at $62.50 and then $64. It's been a busy week for BEAS. On Tuesday, the company made a presentation of WAPBuyBeans, its wireless commerce application, at the Intel Developer Forum. Wednesday was an announcement of the expansion of an alliance with AMS Inc., as well as a significant customer milestone reached with partner Driveway.com. BUY CALL SEP-55 BUC-IK OI=1616 at $ 6.38 SL=4.50 BUY CALL SEP-60*BUC-IL OI=2423 at $ 3.38 SL=1.75 BUY CALL SEP-65 BUC-IM OI= 942 at $ 1.50 SL=0.75 BUY CALL OCT-60 BUC-JL OI= 221 at $ 6.75 SL=4.75 BUY CALL OCT-65 BUC-JM OI= 367 at $ 4.75 SL=2.75 Picked on August 27th at $59.63 P/E = N/A Change since picked +0.00 52-week high=$78.88 Analysts Ratings 11-4-0-0-0 52-week low =$ 5.50 Last earnings 08/15 est= 0.04 actual= 0.05 Next earnings N/A est= 0.06 versus= 0.03 Average Daily Volume = 5.57 mln VTSS - Vitesse Semiconductor $89.25 (+7.19 last week) The name Vitesse, French for speed, expresses what the company epitomizes: the pursuit of ever faster integrated circuits for high-bandwidth, high-performance communications systems. Today, virtually every long distance call passes, at some point, through a Vitesse IC. Most of the world’s telecom systems use Vitesse 2.5Gb/s chips. Vitesse plays a critical role in the superhighway, leading the industry in gigabit datacom and 10Gb/s telecom ICs. Since 1984, the company has pioneered volume manufacturing of gigabit per second VLSI. It's been a great month for the semiconductors, and VTSS is no exception. Since bouncing off the $50 level in early August, the stock has pretty much moved steadily up, with regular visits to the 5-dma and once in awhile short dips near the 10-dma. While VTSS started the month below its 50-, 100-, and 200-day moving averages (now at $73, $66 and $65), it has since cleared them all successfully and moved strongly forward. At this point, VTSS is right about where it was before reporting earnings last month on July 13th. For its third quarter, VTSS reported profits of $32.1 mln, or 17 cents a share. This was more than double last year's net income of $15.2 mln, or 8 cents per share. Despite the strong earnings, expectations on the Street were high and the company was only able to match Street estimates. In a market where merely matching consensus number, no matter how unreasonable, is viewed as a sign of disappointment, the stock spent the rest of the month selling off. This past week saw VTSS attempting to get through resistance at $85. After four attempts, the fifth time was a charm as VTSS cleared that resistance point on Friday, moving up 5.31% on 153% of ADV. For those looking to enter this play, there are numerous opportunities. For traders looking enter on a bounce, support can be found at $85, the 5-dma at $83.30 and the 10-dma in the $80 area. Make sure buying volume confirms a bounce before entering though. Conservative traders will want to see VTSS clear $90 on strengthening volume before entering. Looking ahead, resistance can be found at $95 and then the psychological $100. In the news this week, VTSS along with Intel, Seagate Technology and APT Technologies premiered the first Serial ATA disc drive, providing a taste of things to come in the future of ATA disc drive technology. BUY CALL SEP- 85*VQT-IQ OI=1255 at $ 8.50 SL=6.00 BUY CALL SEP- 90 VQT-IR OI= 974 at $ 5.38 SL=3.50 BUY CALL OCT- 90 VQT-JR OI=1089 at $ 9.75 SL=6.75 BUY CALL OCT- 95 VQT-JS OI= 370 at $ 7.63 SL=5.25 BUY CALL OCT-100 VQT-JT OI= 619 at $ 5.63 SL=3.50 SELL PUT SEP- 80 VQT-UP OI= 125 at $ 2.00 SL=3.75 (See risks of selling puts in play legend) Picked on August 27th at $89.25 P/E = 141.25 Change since picked +0.00 52-week high=$115.69 Analysts Ratings 11-6-0-0-0 52-week low =$ 32.25 Last earnings 07/13 est= 0.17 actual= 0.17 Next earnings 10-12 est= 0.19 versus= 0.13 Average Daily Volume = 4.4 mln NEWP - Newport $154.00 (+14.75 last week) Newport makes precision components and automated assembly, measurement, and test equipment used in the aerospace, fiber- optic communications, and semiconductor manufacturing industries, and by researchers. Industrial components, including lenses and other optics and devices for vibration and motion control, account for two-thirds of sales. With its key markets booming, Newport is expanding its production facilities. Looking for the next QCOM? NEWP is up over 900% in 2000. Although NEWP provides a wide array of products over a broad spectrum of Tech-related industries, it's the company's Fiber Optic-related operations that has caught Wall Street's attention. The company is benefiting from the explosive growth in the optical networking arena. NEWP makes the test equipment and components that are necessary in the manufacturing of high-speed optical networking equipment. Wall Street has caught onto NEWP's blistering earnings growth, which has lead to institutions accumulating the stock with great fervor. NEWP has been under heavy accumulation since late May, which has carried the stock into the stratosphere. Most recently, NEWP broke out of triple top resistance at $120 a little over two weeks, and hasn't looked back since. Wall Street bestowed encouraging words on the stock last week, which boosted NEWP to higher highs. Warburg Dillon Reed reiterated their Buy rating on the stock and raised their price target to $170. The stock has run 30% since breaking out of resistance two weeks ago, and with such rallies, the threat of profit taking remains. However, the momentum investors appear to be willing to take NEWP higher. The stock finished strongly last Friday, and if the buyers return early next week, you might look for an entry if NEWP rallies above its day old 52-week high at $155.50. If, on the other hand, the profit takers rear their ugly heads, NEWP has strong support just below at $150, and again near its 5-dma at $149. Aggressive traders might look to any pullback to gain entry into the play after a round of profit taking runs its course. NEWP joined the list of split candidates by breaking above the $120 level two weeks ago. The company has plenty of shares to authorize a 2-for-1 should the board decide to declare a split. The last time NEWP split its stock was back in February of this year, when it was trading at $112.13 BUY CALL SEP-145 NOQ-II OI=242 at $18.25 SL=13.25 BUY CALL SEP-150*NOQ-IJ OI= 87 at $15.00 SL=11.00 BUY CALL SEP-155 NOQ-IK OI= 0 at $11.50 SL= 8.75 Wait for OI BUY CALL OCT-150 NOQ-JJ OI= 4 at $25.00 SL=18.75 BUY CALL OCT-155 NOQ-JK OI= 0 at $22.00 SL=16.50 Wait for OI Picked on August 27th at $154.00 P/E = 359 Change since picked +0.00 52-week high=$155.50 Analysts Ratings 2-3-0-0-0 52-week low =$ 5.00 Last earnings 06/00 est= 0.12 actual= 0.14 Next earnings 10-19 est= 0.21 versus= 0.08 Average Daily Volume = 1.33 mln ITWO - I2 Technologies $166.50 (+16.50 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. The ITWO breakout that alluded us a week ago finally transpired last Friday. We dropped ITWO last Tuesday after a round of profit taking stopped our play out. However, the selling has since subsided and ITWO subsequently rallied in a stair step fashion to breakout above $160. The news that boosted ITWO into breakout mode was the company's formation of three auto industry exchanges last week. ITWO said it would provide DaimlerChrysler (DCX) with software to form its FastCar program, which is expected to ramp the auto giant's manufacturing. ITWO also said it would build a parts marketplace for Toyota (TM). Finally, the third exchange created was for Volkswagen, who requested ITWO's assistance in building a private supplier network. The three contracts reinforced ITWO's leadership role in the B-2-B sector. The news scared away the profit takers and prompted the bulls to take charge. ITWO has moved convincingly higher over the last three sessions on relatively healthy volume, despite the waning Summer trading activity. But, given ITWO's three consecutive sessions of substantial rallies, the ever-present threat of profit taking looms. If the annoying profit takers do return to ITWO early next week, the stock has near-term support at $165 and major support near its breakout point at $160. Traders might consider entering the play on a pullback confirmed with light volume with a bounce off either support levels. On the other hand, ITWO did finish Friday near its day highs on a surge of volume in the final moments of trading. Although ITWO faces some congestion above its current levels, an aggressive trader might consider entering the play early next week at current levels if Friday's late day buyers return to take the stock higher. ITWO will be attending two high-profile events in the coming weeks. First, the company will be presenting at the Ariba 2000 conference in Miami. Second, ITWO is slated as a headline presenter at the eB-2-B Marketplace World, which is attended by industry consultants and analysts. BUY CALL SEP-160*QYI-IL OI=562 at $13.63 SL=10.25 BUY CALL SEP-165 QYI-IM OI=373 at $10.50 SL= 7.75 BUY CALL SEP-170 QYI-IN OI=544 at $ 8.25 SL= 5.75 BUY CALL OCT-165 QYI-JM OI= 20 at $20.38 SL=14.75 BUY CALL OCT-170 QYI-JN OI= 44 at $17.88 SL=12.75 Picked on August 27th at $166.50 P/E = 520 Change since picked +0.00 52-week high=$223.50 Analysts Ratings 10-18-3-0-0 52-week low =$ 15.13 Last earnings 06/00 est= 0.08 actual= 0.10 Next earnings 10-20 est= 0.11 versus= 0.06 Average Daily Volume = 3.55 mln IMCL - Imclone Systems $99.88 (+11.38 last week) Engaged in the research and development of novel cancer treatments, IMCL focuses on growth factor inhibitors, therapeutic cancer vaccines and angiogenesis inhibitors. The company’s lead product candidate, IMC-C225, is a therapeutic monoclonal antibody that inhibits stimulation of a receptor for growth factors upon which certain tumors depend. Phase I/II clinical trials have been promising. The lead candidate for angiogenesis inhibition, IMC-1C11 is an antibody that binds selectively and with high affinity to KDR, a principal Vascular Endothelial Growth Factor (VEGF) receptor, thus inhibiting angiogenesis. Despite patent-related concerns in the drug sector, the Biotechs have been on fire again this past week. IMCL is an example of what it takes to shine in this sector. Earnings are still secondary as investors try to value the companies according to expected future revenues, so any positive surprises in the development cycles of major products has a tendency to boost the stock price. Accordingly, IMCL got a nice FDA-related injection of emotional capital a couple weeks ago (see news below), and the company's actual earnings announcement 3 days later went largely unnoticed. Since the gap up on August 14th, positive sentiment has been in abundance and the stock is using the 5-dma (currently at $94.91) as support for its ascent. The action on Thursday and Friday brought shares of IMCL right up to resistance at $100-$102, and the light volume was insufficient to scale that wall. Historical support sits at $95, and $92, with the $90 level backed up by the rising 10-dma at $89.94. Volume in the markets is expected to be light next week, so it looks like we could see some consolidation ahead of the Labor Day weekend. Use any weakness as an opportunity to enter the play at a discount, and target shoot new entries on any bounce at support, determined according to your risk tolerance. Should IMCL go against the conventional wisdom and surge higher from current levels, wait for the conviction of strong buying volume to push the price through $103 before playing. On August 15th, IMCL reported a wider-than-expected loss for the second quarter, but the stock held its recent gains and within days had resumed its uptrend. The major reason investors were buying so vigorously was that 4 days earlier, the company met with the FDA to present results from its ongoing Phase II clinical trials of its leading drug candidate, C225, in patients with refractory head, neck, and colorectal cancers. According to Merrill Lynch analyst Eric Hecht, the interim data leads the FDA to believe that the Phase II studies may qualify for accelerated approval for the indications listed above. This could allow the company to bypass Phase III trials, speeding the time to market, putting C225 on the market as soon as the fourth quarter of 2001. BUY CALL SEP- 95 QCI-IS OI=286 at $ 9.75 SL= 6.75 BUY CALL SEP-100*QCI-IT OI=687 at $ 7.25 SL= 5.25 BUY CALL SEP-105 QCI-IA OI= 8 at $ 4.88 SL= 3.00 BUY CALL NOV-100 QCI-KT OI=202 at $14.25 SL=10.50 BUY CALL NOV-105 QCI-KA OI=158 at $12.25 SL= 9.25 SELL PUT SEP-90 QCI-UR OI= 93 at $ 2.63 SL= 4.00 (See risks of selling puts in play legend) Picked on August 27th at $99.88 P/E = N/A Change since picked +0.00 52-week high=$171.98 Analysts Ratings 3-3-0-0-0 52-week low =$ 16.25 Last earnings 08/00 est=-0.43 actual=-0.46 Next earnings 11-14 est=-0.04 versus=-0.44 Average Daily Volume = 552 K INKT - Inktomi Corp $123.94 (+15.00 last week) Inktomi develops and markets scalable software applications to intensify and strengthen larger networks. Their Internet search engine, which provides a fast and customizable Web search, is used by Yahoo! Other products include a large-scale network caching application for ISPs (like AOL) and corporations that need help addressing capacity constraints in high-traffic network routes. Inktomi operates in the US and UK. Shares of INKT jumped 8.2%, or $9.13, Wednesday on news of a "Content Bridge" alliance it entered to improve the delivery, intelligence, and efficiency of Internet content. Other major players include America Online (AOL), Digital Island (ISLD), and Exodus Communications (EXDS). Under the agreement, Inktomi will deliver the network infrastructure technology, which will let customers deliver information across each other's private distribution networks. CEO and president of Inktomi remarked that "the industry is saying it's standardizing Inktomi's architecture, this is what enables the networks to communicate with each other. It says the Internet is growing so fast that no one player can do it themselves, it's going to take the collective efforts of all the major players." Bottom-line: this news launched INKT out of its lull and propelled it through the tough resistance found at the $115 and $120 levels. The volume, at two to five mln shares exchanging hands, is currently backing the moves. Look for similar activity to confirm future upside action. If you want to play conservatively, look for old resistance at $120 or the current level at the 100-dma ($123.30) to develop as short-term support before entering aggressively on deep pullbacks. Keep a tight rein on INKT. This Internet can be a quick mover! On Thursday, INKT got a boost from analysts at Friedman, Billings, Ramsey & Co with a Buy reiteration. BUY CALL SEP-120*KYQ-ID OI=1079 at $10.00 SL= 7.00 BUY CALL SEP-125 KYQ-IE OI= 691 at $ 8.00 SL= 5.75 BUY CALL SEP-130 KYQ-IF OI=2118 at $ 5.75 SL= 3.75 BUY CALL OCT-125 KYQ-JE OI= 609 at $15.88 SL=11.50 BUY CALL OCT-130 KYQ-JF OI= 401 at $13.75 SL=10.25 Picked on August 27th at $123.94 P/E = N/A Change since picked +0.00 52-week high=$241.50 Analysts Ratings 10-6-2-0-0 52-week low =$ 46.91 Last earnings 06/00 est= 0.69 actual= 0.73 Next earnings 10-23 est= 0.05 versus=-0.05 Average Daily Volume = 2.95 mln **********************ADVERTISEMENT************************* Free voicemail, email, fax, and paging - all in one place! Accessible over the phone & Internet. Free Local & 800 Phone Number for Life! Send & receive faxes & email via the web or phone. ThinkLink charges no monthly fees. Plus, for a limited time, sign up now and receive an airline voucher worth up to $100 dollars off any major airline. FREE NOW! 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The Option Investor Newsletter Sunday 08-27-2000 Sunday 3 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/082700_3.html ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ****************** CURRENT CALL PLAYS ****************** SDLI - SDL, Inc. $402.13 -9.75 (+6.88 this week) SDL's products power the transmission of data, voice, video and Internet information over fiber optic networks to meet the needs of telecommunications, cable television and satellite communications applications. They enable customers to meet the bandwidth needs of increasing Internet, data, video and voice traffic by expanding their fiber optic communications networks much more quickly and efficiently than would be possible using conventional electronic and optical technologies. SDL's optical products also serve a variety of non-communications applications, including materials processing and printing. SDLI hasn't given up yet! On July 10th, JDS Uniphase proclaimed its intent to acquire SDLI in a stock-for-stock transaction worth $41 bln. Ever since then, the stock has been on a roller coaster, climbing to a 52-week high of $460.50 on July 24th. Clearly, the profit takers took their cue at that point, sending the stock as low as $315 on July 31st. SDLI peaked at $421.75 last Tuesday, and the stock continues to go up and down like a yo-yo. That about sums up this play: volatile and risky. Wednesday, SDLI traded in a range of $13.63, hitting a low of $393 and a high of $406.63. Following a similar pattern Thursday, the stock hit a low of $399.31 before noon on strong volume. It then regained steam on a second volume surge late in the day, which pushed the stock to the day high of $413 moments before the bell. Following the broader markets Friday, SDLI was relatively quiet, making no strong volume moves after the first half hour of the day. Although the stock violated the 5-dma of $405.49, hitting a day low of $398.88, it recovered midday, peaking at $408. We were encouraged to see SDLI hold its head above the $400 level, which has been offering intraday support. Below that, $398 has also been providing some buying bounces. The nearest technical support is the 10-dma at $391.69. Continue to look for entries to the play on dips towards the day lows, which consistently seem to occur before noon. If you are feeling hesitant, look for a convincing drive through $410 as an indication of continued strength in the stock before taking action. As we have stated previously, stops are a must on this play! On Thursday, Antitrust regulators requested additional documentation from both JDSU and SDLI concerning the proposed merger. Both companies dropped on the news. Calling the request rare, but not unexpected in a deal that could foster significant concentration in an industry, both companies committed to respond promptly to the inquiry. Watch the sector for clues of profit taking. As always, a strong NASDAQ and strong volume in the stock will be indicative of favorable conditions. BUY CALL SEP-400 OSL-IT OI=1244 at $24.13 SL=18.50 BUY CALL SEP-410*OSL-IB OI= 587 at $19.00 SL=14.75 BUY CALL SEP-420 OSL-ID OI=1471 at $14.88 SL=11.50 BUY CALL OCT-400 OSL-JT OI= 1 at $42.75 SL=33.50 BUY CALL DEC-400 OSL-LB OI=1454 at $59.13 SL=47.00 SELL PUT SEP-360 OSL-UL OI= 258 at $ 6.13 SL= 8.00 (See risks of selling puts in play legend) Picked on August 17th at $383.38 P/E = 549 Change since picked +18.75 52-week high=$460.50 Analysts Ratings 12-8-0-0-0 52-week low =$ 30.83 Last earnings 07/20 est= 0.30 actual= 0.33 Next earnings 10-26 est= 0.37 versus= 0.10 Average Daily Volume = 5.5 mln GSPN - GlobeSpan, Inc. $133.00 (+2.63 last week) GlobeSpan, Inc. is a leading provider of integrated circuit, software, and system designs for digital subscriber line (DSL) applications which enable high-speed data transmission over existing copper wire telephone lines at rates over 100 times faster than today's 56 Kilobit modems. Globespan's business is accelerating communications through high-speed solutions based on DSL technologies. The company's innovations make it possible to do the things that technology companies have been promising for years - real-time video conferencing, telecommuting, high-speed Internet surfing, and video-on-demand. Unlike cable, wireless, and direct broadcast satellite transmission services, DSL operates over the "local loop," the vast network of over 800 million copper telephone lines that connect end users to central office switching centers. For the most part, it's been a week of sideways movement for GSPN. Monday was a low-key day which saw the stock trade in a narrow range on low volume. On Tuesday, an early morning sell-off provided traders with an opportunity to enter on a bounce from support in the $125 area. Just after lunch, the stock rallied in an attempt to get through resistance at $135, but some late-day profit-taking brought GSPN back to the $130 area. Another attempt at $135 on Wednesday was unsuccessful, but on Thursday, strong buying during amateur hour allowed the stock to finally clear $135. Encountering resistance at $140, GSPN headed lower but managed to bounce off the $135 level. On Friday morning, GSPN made another attempt at $140, yet without volume to support the move, the stock spent the rest of the day heading lower, closing down $5.25, or 3.80%, on only 47% of ADV. In doing so, this put GSPN below the $135 mark as well as its 5-dma at $133.53. So we're pretty much right back where we started last week. While the close on Friday below the 5-dma could be a cause for concern, the light volume indicates little conviction. Those looking for an aggressive entry may want to targetshoot for a bounce off $130, which is just above its 10-dma. A move above the 5-dma would also be another aggressive entry point. Those looking for some confirmation of strength before entering will want to see GSPN clear $135 on high volume before making a play. Above $135, resistance for GSPN can be found in increments of $5 at $140, $145 and $150. As there has been little material news for GSPN lately, the stock has for the most part moved in step with the NASDAQ. Make sure market direction is in your favor before entering. BUY CALL SEP-125 GHY-IE OI= 50 at $15.63 SL=11.25 BUY CALL SEP-130*GHY-IF OI=280 at $12.88 SL= 9.75 BUY CALL SEP-135 GHY-IG OI=221 at $10.25 SL= 7.00 BUY CALL OCT-135 GHY-JG OI= 1 at $19.50 SL=14.50 BUY CALL OCT-140 GRX-JH OI= 6 at $17.25 SL=12.25 SELL PUT SEP-125 GHY-UE OI= 12 at $ 6.50 SL= 9.50 (See risks of selling puts in play legend) Picked on August 17th at $129.38 P/E = N/A Change since picked +3.63 52-week high=$167.00 Analysts Ratings 3-6-0-0-0 52-week low =$ 16.31 Last earnings 07/31 est= 0.04 actual= 0.11 Next earnings 10-30 est= 0.10 versus= 0.00 Average Daily Volume = 1.20 mln NTAP - Network Appliance $100.81 (+6.88 last week) As indicated by its name, NTAP pioneered the concept of the network appliance, an extension of the industry trend toward specialized devices that perform a specific function in the network. NTAP designs, manufactures, markets and supports high performance network-attached data storage and access devices. These products, including the company's NetApp file servers provide fast, simple, reliable and cost-effective file service for data-intensive network environments. The company is also embracing online business through its NetCache Web caching appliances, which are designed to ease Internet bandwidth demands by storing information physically closer to users. Though a volatile ride, the storage sector has been where it's at. While the rally this month in shares of NTAP has not been as fast and furious as month's, there also hasn't been the deep profit-taking like the one served up in the last week of July. From a low in the $70's to a high in the $110's and back again, July could be described as one wild rollercoaster ride. Whereas August has been more of a steady climb. Beginning the month under its 100-dma (now at $78), the stock made a dip to test $70 support before powering up to resistance at $95. While it took a few attempts to break above that point, NTAP was finally successful this week, managing to close above the psychological $100 level. Reporting earnings on August 14th, NTAP sold off the next day to close right below its 50-dma(now at $90). Since then, the stock has moved to higher ground. At this point, there are a number of support levels contributing to the strength of the stock. Traders looking to enter on intraday bounces have found the 5-dma at $98.25 to be the target to shoot for. There is strong support at former resistance level of $95 which is further reinforced by the 10-dma at the same level. Those looking for a little more confirmation will want to wait until NTAP makes it past $105 with strong volume to confirm continued upward momentum. Above that is resistance at $110 and then $115. As mentioned on Thursday, news this week was good, with FastLane Technologies Inc. announcing support for NTAP products through their FastLane DM/Consolidator 2.5 applications and a Wednesday announcement of a new customer in OpenGrid Inc. BUY CALL SEP- 95 ULM-IS OI=1004 at $11.25 SL= 8.50 BUY CALL SEP-100 ULM-IT OI=2460 at $ 8.13 SL= 5.75 BUY CALL SEP-105*ULM-IA OI=2499 at $ 5.88 SL= 4.00 BUY CALL OCT-105 ULM-JA OI= 141 at $12.13 SL= 9.00 BUY CALL OCT-110 ULM-JB OI= 134 at $10.00 SL= 7.00 SELL PUT SEP- 90 ULM-UR OI= 451 at $ 2.50 SL= 4.00 (See risks of selling puts in play legend) Picked on August 24th at $101.69 P/E = 564.93 Change since picked -0.88 52-week high=$124.00 Analysts Ratings 17-4-0-0-0 52-week low =$ 14.56 Last earnings 08/14 est= 0.07 actual= 0.09 Next earnings N/A est= 0.09 versus= 0.05 Average Daily Volume = 5.5 mln VRSN - VeriSign, Inc. $176.38 (+18.69 this 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. The company also offers the VeriSign Onsite service, which allows an organization to leverage the companys trusted service infrastructure to develop and deploy customized digital certificate services for use by an organizations employees, customers and business partners. 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. This past week has seen the continuation of the uptrend that began in the previous week. Using the 5-dma for support, VRSN has been moving steadily up. Encountering resistance at the $162-163 area during the prior week, VRSN started the week and remained above that level. Spending the better part of the week in a mini consolidation, the stock touched its 5-dma on Wednesday and from there, blasted upwards to close just below resistance at $175. The next day, that level was easily surpassed on a Thursday morning gap up. From there, the stock attempted unsuccessfully to break through resistance at $180. This level is clearly the next hurdle to overcome as Friday's attempt failed to clear it. This led to a move lower as profit-takers stepped in before bouncing off the $173 level. Ending the week on a quiet note, VRSN closed down $2.06 on 56% of ADV. If the current trend continues to hold, then a successful bounce off the 5-dma (now at $171.43) could provide for the ideal entry point. For the more aggressive, a bounce off the $173-174 area could be the target to shoot for. Conservative traders will want to see VRSN clear that hurdle at $180 with convincing volume before making an entry. After $180, resistance could be encountered $183, $185 and $188. Connecting the highs and lows since finding a bottom in mid-August at the $140 level, the stock has traded higher in an upward regression channel spanning 15 points from top to bottom. The 5-dma has closely followed the bottom of the channel, currently near $169, putting the top of the channel near $184 and moving up fast. Nonetheless, even the aggressive player looking to buy a bounce off the lower part of the channel will want to see the stock clear the 5-dma as confirmation before entering. In the news this week, VRSN received an upgrade from Merrill Lynch analyst Mark Fernandes from Accumulate to Buy and a price target of $210. Tuesday was news of an alliance with Response Marketing Group to market matching web site addresses with toll-free numbers in a cross-marketing deal. As well, an announcement of multilingual domain names may extend VRSN's reach in the international market for web addresses. On Friday, competitor Register.com responded to VRSN's Tuesday cross-marketing deal with a similar one with TeleDomains.com. BUY CALL SEP-170 QVZ-IN OI= 976 at $13.88 SL=10.25 BUY CALL SEP-175*QVZ-IO OI=1380 at $11.25 SL= 8.50 BUY CALL SEP-180 QVZ-IP OI=1156 at $ 8.75 SL= 6.00 BUY CALL OCT-180 QVZ-JP OI= 122 at $20.63 SL=14.75 BUY CALL OCT-185 QVZ-JQ OI= 43 at $18.63 SL=13.75 SELL PUT SEP-170 QVZ-UN OI= 496 at $ 6.38 SL= 9.50 (See risks of selling puts in play legend) Picked on August 24th at $178.44 P/E = 1274.55 Change since picked -2.06 52-week high=$258.50 Analysts Ratings 14-11-1-0-0 52-week low =$ 43.75 Last earnings 07/26 est=-0.01 actual= 0.07 Next earnings 10-25 est= 0.05 versus= 0.01 Average Daily Volume = 4.1 mln SUNW - Sun Microsystems $124.75 (+2.38 last week) SUNW is a leading maker of UNIX-based, number crunching computers, storage devices, and servers for powering corporate computer networks and Web sites. The company is the largest to make computers that use its own chips and operating systems. SUNW's most talked about product is Java, a programming language intended to create software that can run unchanged on any kind of computer. We certainly hadn't been missing it, but the inevitable profit taking we had been warning of showed up last Friday. SUNW's 3 point drop last Friday came with volume that was less than half the ADV, hardly convincing. In fact, weakness was rampant across the recently rallied Tech sector, with SUNW taking the brunt of the selling because of its recent, and very impressive, run-up. The Goldman Sachs Computer Hardware Index ($GHA) slipped into the red after a week-long rally. But, like we have been mentioning during the duration of our play, buying SUNW's dips has been working. Going forward, the main catalyst for our play will be the health and direction of the broader Tech sector, with particular emphasis laid on the NASDAQ. The chance for a split run is still a little off in the distance, given the payable date is later in November. But, as long as the NASDAQ continues to edge its way higher, SUNW should continue to lead the charge. There are several possible scenarios to watch for next week in order to gain new entry into our play. SUNW stopped right at its 5-dma last Friday, which is located at $124.69. An aggressive trader might look for a quick bounce off that level early Monday morning if the Tech sector shows signs of rallying. If the sellers continue to lock in their profits, SUNW has major support just below at the $124 level, and again at its 10-dma, which is currently at $121. Make sure to confirm any continued dip with light volume, and wait for the selling to cease before entering on a bounce. A more conservative trader might wait for SUNW to resume its rally and target shoot for an entry on any move above resistance at whole levels, including $125, $126, and $127. Confirm a rally with the return of volume as a sign traders are ready to take SUNW to higher highs. SUNW will kick off its Fall conference season next week with the Real-Time Computer Show, which will focus on data applications. The company will then holds its second Dot-Com Your Business Conference and Exhibition, which will demonstrate SUNW's products that create new opportunities for businesses on the Internet. BUY CALL SEP-120*SUX-ID OI=7461 at $ 8.25 SL=5.75 BUY CALL SEP-125 SUX-IE OI=5236 at $ 5.25 SL=3.25 BUY CALL SEP-130 SUX-IF OI=5043 at $ 2.94 SL=1.50 BUY CALL OCT-125 SUX-JE OI=3377 at $10.63 SL=8.00 BUY CALL OCT-130 SUX-JF OI=3227 at $ 8.25 SL=5.75 SELL PUT SEP-120 SUX-UD OI=6091 at $ 2.44 SL=4.00 (See risks of selling puts in play legend) Picked on August 13th at $112.19 P/E = 116 Change since picked +12.56 52-week high=$128.63 Analysts Ratings 12-10-1-0-0 52-week low =$ 36.38 Last earnings 06/00 est= 0.33 actual= 0.39 Next earnings 10-16 est= 0.25 versus= 0.17 Average Daily Volume = 13.7 mln IDTI - Integrated Device Technology $78.25 (+5.38 last week) The company's high-performance semiconductor products and modules are found in computers, peripherals, and communications and networking devices. About 70% of sales are from communications and high-performance logic components, specialty memory, clock management circuits, and networking devices. IDTI also makes static random-access memories (SRAMs). What a difference a month makes. Think back to July, you might remember the downgrade heard around the Semi sector by Jonathan Joseph. It's safe to say he was early. July's "Chip correction" proved to be nothing more than extended profit taking and a brief pause in the Semi sector's incredible renaissance. Leading Chip stocks have moved on to new highs, including our lovely IDTI. Last week marked a complete reversal of sentiment in the Semi sector. Wall Street's outlook for the Chip stocks had much more of a bullish ring. SG Cowen and AG Edwards issued favorable reports on the entire group, which argued a convincing case for higher prices. Contained within the AG Edwards report, analyst Christopher Chaney said, "Fundamentals within the Semiconductor sector remain quite strong." If it's fundamentals Wall Street is after, IDTI has got them. The company maintains enviable earnings growth with the specialty communications chips it manufactures. IDTI's fundamentals are in place to extend the stock's recent breakout. IDTI ran as high as $80 last week, which marked an all-time high. Of course, the profit takers had to show up last Friday, who took a little steam out of IDTI's momentum. But, buying IDTI's dip might prove to be a profitable proposition. The stock has major support just below its current level at $78, again at $76, and at its 5-dma near $75.50. A bounce off one of IDTI's support levels might provide a solid entry into the play after any light selling subsides. Another possible way to gain entry into the play is to watch for a rally to new highs, past the $80 level. Make sure to confirm direction in the Semi sector, and look for strong volume on a rally above $80 before entering new positions. IDTI received plenty of praise in the latter half of last week. Robinson Humphrey reiterated their Strong Buy rating based on IDTI's tracking of their third-quarter and added a $100 price target. And, SG Cowen also reiterated their Strong Buy rating along with adding a $100 price target. BUY CALL SEP-75 ITQ-IO OI= 439 at $ 7.00 SL=5.00 BUY CALL SEP-80*ITQ-IP OI= 378 at $ 4.38 SL=2.75 BUY CALL SEP-85 ITQ-IQ OI= 359 at $ 2.31 SL=1.25 BUY CALL NOV-80 ITQ-KP OI= 259 at $10.88 SL=8.25 BUY CALL NOV-85 ITQ-KQ OI=2741 at $ 8.50 SL=6.00 SELL PUT SEP-75 ITQ-UO OI= 786 at $ 3.13 SL=5.00 (See risks of selling puts in play legend) Picked on August 15th at $66.88 P/E = 43 Change since picked +11.38 52-week high=$80.00 Analysts Ratings 6-1-0-0-0 52-week low =$15.06 Last earnings 06/00 est= 0.47 actual= 0.58 Next earnings 10-16 est= 0.70 versus= 0.18 Average Daily Volume = 3.17 mln EXDS - Exodus Communications $65.19 (+4.75 last week) Exodus provides Internet system and network management solutions for companies with mission-critical Internet operations. The company offers sophisticated systems along with technology professional services to provide optimal performance for customers’ Web sites. Exodus has a long list of customers, including: EBAY, YHOO, SUNW, and AMAT. The company continues to expand its business through acquisitions and expansion overseas. The Internet sector is re-emerging as a leader of the broader markets. After suffering painful losses last Spring, momentum investors are moving back into the group with haste. The fact is the Internet is big, and it's still growing at a breakneck rate. The explosive growth of the Internet is clearly seen in the Web hosting and services segment, in which EXDS dominates. The company continues to win high-profile contracts and line-up equally lucrative partnerships. Just last week, EXDS teamed up with two of the biggest Tech heavyweights in the sector, SUNW and EMC. EXDS hopes to collaborate with the two Tech giants in an attempt to make the Web an even bigger and better place. Investors applauded EXDS's efforts, and so did Wall Street. Paine Webber reiterated their Strong Buy rating, spurred by the announcements of the alliances, and set a $112 price target on EXDS. Despite its 45% run since the beginning of August, many on Wall Street feel that future growth prospects are not fully factored in the EXDS's stock price. That fact might lead to an extension of EXDS's recent rally. The stock pulled back ever so slightly last Friday on extremely light volume. Buying the dips has been profitable over the last month, and Friday's might provide the aggressive trader with a good entry into the play. If the profit takers show up again early next week, watch for a bounce off current levels at $65. An extended pullback might take EXDS back down to its support at $64, which might be a solid spot for entry. EXDS did finish Friday on another burst of late day buying, which might position the stock to test its channel highs. Watch for a rally in conjunction with robust volume back above the $66 level for an entry into the play if EXDS resumes its climb early Monday. Don't believe the Internet sector is back? Greg Kyle does. The analyst from Pegasus Research recently published a book titled, "100 Best Internet Stocks to Own." Among Kyle's favorites are AOL, YHOO, AMZN, and, of course, EXDS. BUY CALL SEP-60*QED-IL OI=4966 at $7.13 SL=5.00 BUY CALL SEP-65 QED-IM OI=5645 at $3.88 SL=3.00 BUY CALL SEP-70 QED-IN OI=4725 at $1.75 SL=1.00 BUY CALL OCT-65 QED-JM OI= 432 at $7.25 SL=5.25 BUY CALL OCT-70 QED-JN OI= 333 at $5.13 SL=3.00 Picked on August 15th at $57.13 P/E = N/A Change since picked +8.06 52-week high=$89.81 Analysts Ratings 26-5-1-0-0 52-week low =$15.06 Last earnings 06/00 est= -0.12 actual= -0.10 Next earnings 10-23 est= -0.17 versus= -0.07 Average Daily Volume = 8.36 mln CIEN - Ciena Corp $197.94 (+21.31 last week) Ciena makes multiplexing systems that increase the capacity of long-distance fiber-optic telecommunications networks. The company's systems transmit signals simultaneously over the same circuit. Customers such as Sprint, Bell Atlantic, and MCI Worldcom, use its lines for long-distance optical transport and for shorter distances. The company is expanding its product and geographic breadth as it transforms itself from niche market specialist to optical networking supplier. CIEN's stronghold on the optical networking market appears to be increasing. Rival equipment maker, SCMR, reported its quarterly results late last Thursday, which confirmed CIEN's dominance. Despite beating consensus estimates by two pennies, SCMR's recurring revenues actually fell by 4%. Furthermore, during the conference call, analysts questioned whether SCMR had lost a crucial contract to supply networking gear to Williams Communications (WCG), who has been rumored to have switched to CIEN. The two polar reactions to CIEN's and SCMR's respective conference calls reinforces the fact that the former is emerging as a clear leader in the network equipment space, which could lead our play to higher prices in the near-term. Also, let us not forget that CIEN will be splitting 2-for-1 in about four weeks. While the post-split announcement effect may have run its course last week, there exists the potential for a pre-split run to develop over the course of the next several weeks. Despite the confirming report from SCMR, CIEN's momentum took a breather last Friday just as we had cautioned. The $195 level continues to be strong support, off which CIEN bounced last Friday morning. Aggressive traders might continue to look for entries on bounces from support levels at $195 or near $190, which is near CIEN's 5-dma. Make sure to confirm any pullback with light volume as was the case Friday. A more conservative trader might look for an entry early Monday morning if CIEN resumes its climb and rallies back above the $200 level. Thereafter, the only resistance in CIEN's way is Friday's intraday, and new 52-week high, at $201.38. CIEN executives will be busy on the road in the coming weeks attending several investor and industry conferences. The company is scheduled to be a headline presenter at the National Fiber Optical Engineers Conference, which begins early next week. The company will also be presenting to analysts at Dain Rauscher Wessels, DLJ, and SG Cowen over the course of the next two weeks. Positive press from any of the aforementioned events might boost our play well above the $200 level. BUY CALL SEP-195 UEE-IS OI=2135 at $15.38 SL=11.25 BUY CALL SEP-200*UEE-IT OI=3722 at $12.63 SL= 9.50 BUY CALL SEP-210 UEE-IB OI= 659 at $ 8.25 SL= 5.75 BUY CALL OCT-200 UEE-JT OI=6717 at $22.38 SL=16.75 BUY CALL OCT-210 UEE-JB OI= 700 at $18.00 SL=13.00 Picked on August 24th at $201.06 P/E = 495 Change since picked -3.13 52-week high=$201.31 Analysts Ratings 9-11-1-0-1 52-week low =$ 29.38 Last earnings 07/00 est=0.17 actual=0.19 Next earnings 10-20 est=0.24 versus=0.03 Average Daily Volume = 5.20 mln QLGC - QLogic Corporation $103.88 (+10.88 last week) Somebody has to make the equipment that lets your computer talk to all its peripheral equipment, and QLGC does it well. A leading designer and supplier of semiconductor and board-level input/output (I/O) management products, QLGC has been providing SCSI-based connectivity solutions to this market sector for over 12 years. QLGC’s I/O products provide a high performance interface between computer systems and their attached data storage peripherals, such as hard disk and tape drives, removable disk drives and RAID (redundant array of independent disks) subsystems. The company is also the market share leader in Fibre Channel host bus adapters, a market segment that is receiving tremendous attention from investors. Volatility anyone? In what was shaping up to be a quiet and directionless day in the financial markets, QLGC got quite a dose of volatility due to the EMLX story (see news below). Shares of EMLX were halted during the day, and once the halt was lifted the price skyrocketed above the opening price, making entry points nearly impossible after the news story was exposed as a fraud. QLGC was an entirely different story, as the stock traded continuously all day long. Volume nearly 6 times the ADV accompanied the panic selling and then the ensuing panic buying as QLGC plunged from an opening price above $108 to an intraday low of $74, before rocketing back to $107 -- all within the first 90 minutes of trading! A lot of people got hurt because of the news story, but vigilant investors that could piece together what was happening (a rare breed, indeed), were presented with an unexpected entry point just before 11am EDT. A solid bottom formed near $79 at the same time that stories were coming out on the newswires that the original press release was a hoax and that there was nothing wrong with QLGC. It was definitely a HIGH RISK play, but those that jumped aboard were rewarded with a very profitable day trade. So, enough history, where do we go from here? Ignoring the major dip, QLGC still had a negative day on Friday, but admirably held above the $99 level on a closing basis. This is the level that we were focusing on for a breakout earlier in the week. Not only that, but the close was above the 5-dma (currently at $102.63), which has been providing support to the stock's recent ascent. QLGC still looks like a great play, as the company operates in the red-hot Storage Area Network (SAN) arena, a sector that is showing no signs of slowing down. Below $99, there is support at $94 and then $90, and although intraday dips to support look buyable, make sure volume is confirming the bounce before playing. Friday's action should provide a stark reminder of what can happen when you try to catch a falling knife. Waiting for a breakout may be the most prudent course of action at this point. If that fits your risk profile, wait for buying volume to push QLGC through $107, or even $112 before playing. The major story of the week was the EMLX fake press release, which cratered shares of the stock by more than 60% before the fraudulent story was exposed and the stock recovered to nearly unchanged on the day. At the same time, QLGC saw its share price slashed by more than 30% at its low. The company could provide no reason for the sharp intraday decline, other than the fact that it operates in the same industry group as EMLX. BUY CALL SEP-100*QLC-IT OI= 716 at $12.38 SL= 7.50 BUY CALL SEP-105 QLC-IA OI= 311 at $ 9.63 SL= 5.75 BUY CALL SEP-110 QLC-IB OI= 922 at $ 7.25 SL= 4.00 BUY CALL OCT-105 QLC-JA OI= 229 at $15.88 SL=10.25 BUY CALL OCT-110 QLC-JB OI= 514 at $14.00 SL= 8.75 SELL PUT SEP- 95 QLC-US OI= 263 at $ 5.13 SL= 7.00 (See risks of selling puts in play legend) Picked on August 22nd at $98.00 P/E = 127 Change since picked +5.88 52-week high=$203.25 Analysts Ratings 3-3-0-0-0 52-week low =$ 32.50 Last earnings 07/00 est= 0.24 actual= 0.27 Next earnings 10-18 est= 0.26 versus= 0.35 Average Daily Volume = 2.83 mln BRCM - Broadcom Corporation $268.13 (+10.00 last week) Sitting in the sweet spot between the Broadband and Semiconductor sectors, BRCM is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. These integrated circuits permit the cost-effective delivery of high-speed, high-bandwidth networking using existing communications infrastructures that were not originally designed for the transmission of broadband digital content. Using proprietary technologies, the company designs, develops and supplies integrated circuits for several markets including digital cable set top boxes, cable modems, high-speed office networks, home networking, and digital subscriber lines. Who says Internet stocks are dead? Sure the dot.coms have fallen out of favor, because the revenue streams have become quantifiable, but stocks of the companies that are building out the infrastructure are still seeing incredible growth. BRCM is a perfect example of investors' seemingly insatiable appetite, as it is up more than 133% from the Spring lows. Although Friday was a down day for the stock, before it fell back, the bulls managed to push it up to trace another 52-week high at $274.75, fractionally eclipsing Thursday's new high. Given the light volume (less than half the ADV), the pullback on Friday looks very healthy, as it brought the stock back from the upper Bollinger band to bounce right on the 5-dma ($266.75). This is right below the near-term support of $267-268, and if buying volume comes back on Monday, looks like an acceptable entry point. With expected light market activity next week, ahead of the Labor Day weekend, we could get lucky with a dip to stronger levels of support at $265 and then $258-260. With the VIX still lurking below 20, there is still the potential for a broad market decline, and such an event could produce a drop as low as major historical support at $250. As always, volume will be the key to good entry points. Rather than trying to pick the bottom, wait for buying volume to increase and confirm the bounce before playing. Should BRCM head up from here, consider new entries as the stock clears resistance and moves above $275. Aside from the latest installments of BRCM's ambitious acquisition strategy there has been little relevant news recently. In the past 3 weeks, the company has snatched up Altima Communications, Silicon Spice, and NewPort Communications, a privately-held company not to be confused with NEWP on our play list. BRCM has been very astute in its acquisition strategy up to this point, and the frequent comparisons to CSCO in this arena only seem to further whet investors' appetites for shares of the company. BUY CALL SEP-260 YRL-IL OI=1029 at $19.00 SL=14.75 BUY CALL SEP-270*YRL-IN OI=1035 at $13.50 SL=10.25 BUY CALL SEP-280 YRL-IP OI= 993 at $ 8.88 SL= 6.25 BUY CALL SEP-290 YRL-IR OI= 578 at $ 5.50 SL= 3.50 BUY CALL OCT-270 YRL-JN OI= 13 at $25.63 SL=19.25 BUY CALL OCT-280 YRL-JP OI= 21 at $20.63 SL=15.50 SELL PUT SEP-250 RDU-UJ OI= 885 at $ 5.50 SL= 7.75 (See risks of selling puts in play legend) Picked on August 24th at $273.63 P/E = 425 Change since picked -5.50 52-week high=$274.75 Analysts Ratings 8-12-0-0-0 52-week low =$ 51.56 Last earnings 07/00 est= 0.19 actual= 0.23 Next earnings 10-17 est= 0.23 versus= 0.13 Average Daily Volume = 5.25 mln LSCC - Lattice Semiconductor $74.25 (+6.63 last week) Customization is the name of the game for LSCC. The company makes programmable logic devices (PLDs), logic integrated circuits that manufacturers can program to perform specific functions. The company is one of the world’s top suppliers of in-system PLDs, which can be configured and reconfigured even after being attached to a circuit board. LSCC also sells the software needed to customize its chips, which are used in computing, communications, industrial, and military applications. The company focuses its efforts on design and testing, outsourcing its manufacturing to factories in Asia. Shining like a beacon in the night, LSCC was definitely one of the brighter stars in the Semiconductor sector on Friday. While many of the stocks that have been leading the SOX out of the abyss fell victim to profit taking ahead of the weekend, LSCC continued to soar. Okay, maybe that is overstating it a little, as our play did actually give up a fraction, but it came on anemic volume of less than half the ADV. The final 30 minutes of trading tell a different story as volume ramped up and the stock managed to tack on $1.63 to close out the session very near the high of the day. The Semiconductor sector has had an incredible rally over the last 2 weeks, with the SOX gaining an impressive 22%. In that same time, LSCC has managed to plow through resistance at $68, $70, and $72. These levels should now behave as support levels on any pullback, providing attractive entry points for the next surge higher. The stock is riding the upper Bollinger band, Stochastics are deep in overbought territory, and Friday's close is more than $4.50 above the 5-dma (down at $69.69). All of the other moving averages are far below, with the nearest being the 10-dma and 50-dma, at $66.38 and $67, respectively. The next levels of resistance to scale are $76-77, followed by $80. Although LSCC could charge higher from here, a pullback looks like the more likely scenario in the near term. Wait for the profit taking to subside, and then consider new positions as the buying volume returns. On Wednesday, S&P announced several changes to its indexes, with LSCC moving up from the SmallCap 600 Index to the MidCap 400 Index, replacing Santa Fe Snyder. Other than that, there has been little in the way of company specific news since early August. On August 3rd, First Security Van Kasper released their Select List, where they list LSCC as a Strong Buy. For now, we are focused on the positive commentary coming from analysts about the Semiconductor sector. BUY CALL SEP-70*LQT-IN OI=341 at $ 7.13 SL=5.00 BUY CALL SEP-75 LQT-IO OI=773 at $ 4.38 SL=2.75 BUY CALL SEP-80 LQT-IP OI=492 at $ 2.25 SL=1.25 BUY CALL DEC-75 LQT-LO OI= 35 at $12.50 SL=9.50 BUY CALL DEC-80 LQT-LP OI= 44 at $ 9.88 SL=7.00 Picked on August 15th at $62.44 P/E = 33 Change since picked +11.81 52-week high=$83.38 Analysts Ratings 10-3-2-1-0 52-week low =$14.19 Last earnings 07/00 est= 0.55 actual= 0.61 Next earnings 10-16 est= 0.64 versus= 0.23 Average Daily Volume = 1.08 mln VRTS - VERITAS Software $116.94 (+9.81 last week) VERITAS Software is the industry's leading enterprise-class application storage management software provider. They furnish storage management software for protection against data loss and file corruption, efficient file processing and networks back-up. VERITAS (Latin for "truth") has made its name by partnering with such technological heavyweights as Hewlett-Packard, Microsoft, and Sun Microsystems, all of which have licensed and embedded VERITAS products in their operating systems. Its purchase of the network and storage management software group of disk drive maker, Seagate Technology, doubled VERITAS's size and gave Seagate an approximate 33% stake in the company. Let's talk DMAs when it comes to our momentum play on VRTS. On Thursday, VRTS gave a convincing close above the 50-dma and prompted us to add it to our call list. This technical line, which hovered around the $115 mark, has recently served as a staunch adversary ever since the share price broke down following 2Q earnings on July 18th. No matter how active the trading, VRTS just couldn't penetrate that opposition. Now that VRTS broke to the upside, we're anticipating more traders will start nibbling and generate enough momentum to drive the share price upwards. While the $100 level is solid support, there's a strong base at $108 and $112. Use this level on a pullback, where the 100 & 200-dmas converge, to get a more aggressive entry. Of course, look for respectable volume at about 2+ mln shares intraday to provide bullish confirmation. Immediate resistance is now at $118.50, Friday's intraday peak. Our objective is to move through $125 and return to the price levels seen prior to the 2Q earnings' release. VERITAS announced its family of desktop backup solutions last week. The Simple Backup, Backup Exec Desktop, and Backup Exec Desktop Pro each provide customers different levels of protection and functionality. These next-generation solutions augment the company's offerings of desktop to data center protection. Earlier in the month, Daniel Morgan at Noble Financial Group reiterated a Buy recommendation on VRTS. BUY CALL SEP-110 VUQ-IB OI= 1022 at $11.63 SL= 9.25 BUY CALL SEP-115 VUQ-IC OI=12603 at $ 8.75 SL= 6.00 BUY CALL SEP-120*VUQ-ID OI= 1359 at $ 6.25 SL= 4.25 BUY CALL SEP-125 VUQ-IE OI= 2970 at $ 4.38 SL=2.75 BUY CALL OCT-115 VUQ-JC OI= 77 at $15.13 SL=11.00 BUY CALL OCT-120 VUQ-JD OI= 218 at $12.75 SL= 9.50 Picked on August 24th at $115.69 P/E = N/A Change since picked +1.25 52-week high=$174.00 Analysts Ratings 10-12-1-0-0 52-week low =$ 24.92 Last earnings 06/00 est= 0.12 actual= 0.13 Next earnings 10-12 est= 0.14 versus= 0.09 Average Daily Volume = 5.52 mln PLXS - Plexus Corp $142.50 (+11.88 last week) Plexus provides product realization services to original equipment manufacturers (OEMs) in the telecommunications, medical, industrial, computer, and transportation electronics industries. Its Plexus Technology and SeaMED subsidiaries provide the product design and engineering, while its Plexus Electronic Assembly subsidiary handles manufacturing. Lucent and GE account for over 25% of sales. If you like excitement, then PLXS was your play last week. The intraday gyrations offered the more aggressive traders a multitude of entries on pullbacks to the 5-dma line. The subsequent moves to all-time highs, first on Tuesday and then on Friday, provided the opportunity for hefty profits. Besides the flourishing market environment, it's evident that the company's upcoming 2:1 stock split is generating the momentum. But, time is running out quickly, so pay heed to the split date, August 31st after the close. We never recommend holding over the split date. It's much too risky to expose your positions to the possibility of a post-split decline. If you trade over the next four sessions, it's important to be aware of other potential risks. Recall that PLXS's strong momentum has taken it from $90 to over $140 in less than a month's time. And while Prudential analyst, Ellen Chae's, downgrade of PLXS to an Accumulate last week didn't effectively keep it down for more than a few hours of trading, she made a good point. "Although we are impressed with PLXS' capabilities and are confident in the company's ability to maintain its growth momentum, we are concerned that upside on the shares may be limited by valuation." If you have open positions or are considering jumping in on dips at the 5-dma ($138.73), watch for resistance at $144.38, the new 52-week record. Despite Prudential's rating cut on PLXS last week, it maintained its 12-month price target of $160. BUY CALL SEP-135 QUA-IG OI= 95 at $13.13 SL= 9.75 BUY CALL SEP-140*YQH-IH OI= 83 at $10.50 SL= 7.50 BUY CALL SEP-145 YQH-II OI=116 at $ 7.75 SL= 5.50 BUY CALL OCT-130 QUA-JF OI= 15 at $23.38 SL=18.00 BUY CALL OCT-135 QUA-JG OI= 3 at $20.13 SL=14.50 Picked on August 17th at $132.00 P/E = 86 Change since picked +10.50 52-week high=$144.38 Analysts Ratings 6-8-1-0-0 52-week low =$ 24.44 Last earnings 06/00 est= 0.52 actual= 0.57 Next earnings 10-27 est= 0.59 versus= 0.41 Average Daily Volume = 368 K JNPR - Juniper Networks, Inc. $190.94 (+20.13 last week) Juniper Networks develops and provides next-generation Internet infrastructure systems that are designed to meet the scalability, performance, density, and compatibility requirements of IP networking systems. The company's M40 and M20 Internet backbone router use JUNOS network traffic management software, ASICs. Its clients include some of the world's leading service providers such as Ericsson and MCIWorldcom. Pure momentum equals pure profits when it comes to JNPR. Give JNPR a favorable environment and watch it prosper! The party went into full swing on Tuesday with a 7.3%, or $12.63 advance. The spike confirmed the momentum on our play and opened the door for JNPR to stretch into new territory. On Wednesday, JNPR catapulted again to set the newest 52-week record at $194.25 before consolidation set in for the remainder of the week. However, JNPR is demonstrating strength at $188 and $191, which provides bullish confirmation that the momentum is intact. For those readers who've been following JNPR, you know the two important variables of this play. Look for exceptional volume levels, at 2+ mln intraday, to forecast an upside breakout and pay attention to the NASDAQ's sentiment. If you're just joining us, BEWARE. JNPR is a HIGH-RISK Internet play and not suited for anyone. A conservative entry for this aggressive Internet play could be attained with a high volume breakout over $195 as it surges toward $200. This week SG Cowen commented that Juniper gained a 6% market share of Core routers from Cisco (CSCO). The firm maintains a Strong buy rating for JNPR. David Toung, on the other hand, analyst at Argus Research came forwarded on Thursday and downgraded the stock to a Hold from Buy, but offered no comment. BUY CALL SEP-185*JUD-IQ OI= 641 at $13.88 SL=10.50 BUY CALL SEP-190 JUD-IR OI=1553 at $11.00 SL= 8.25 BUY CALL SEP-195 JUD-IS OI= 593 at $ 8.63 SL= 5.00 BUY CALL SEP-200 JUD-IT OI=1737 at $ 6.50 SL= 4.50 BUY CALL OCT-190 JUD-JR OI=1136 at $21.13 SL=16.00 BUY CALL OCT-200 JUD-JT OI= 805 at $16.63 SL=12.00 Picked on August 15th at $169.75 P/E = 2246 Change since picked +21.19 52-week high=$194.25 Analysts Ratings 15-3-0-0-0 52-week low =$ 28.25 Last earnings 06/00 est= 0.04 actual= 0.08 Next earnings 10-19 est= 0.09 versus=-0.01 Average Daily Volume = 6 mln DIGX - Digex Inc $86.00 (+5.44 last week) DIGX is a leading provider of hosting services to businesses and organizations operating mission critical, multi-functional Web sites and Web-based applications. Their hosting services are used by some of the leading Internet companies. The company also offers value-added enterprise and professional services, including performance and security testing, monitoring, reporting and networking services. They operate two data centers in the US and one in the UK that house more than 2,300 company-owned and managed servers. Digex clients include Forbes, J. Crew, and Nissan. Recent performance leaves little doubt we're in the midst of a powerful momentum run! After DIGX consolidated at the $80 level for a few days last week, it broke to the upside with a vengeance. The share price stopped just short of the $90 mark on Thursday before settling back to the vicinity of the 5-dma ($84.15). The downgrade to Maintain from Buy and comments by Joe Eshoo at AG Edwards on Friday very likely influenced the trading activity. He believes "the recent strength in Digex shares over the past two days are due to rumors that Exodus is again looking at acquiring Digex" and that "Digex trades up on takeover rumors." In other words, be careful of short-term deflation. Of course, we have to be aware of a downdraft, however, volume remains healthy and light support at $85 firmed intraday despite the analyst's remarks. If still reserved about entering at this level, then wait for a break through $90 before opening new positions. Otherwise, intraday dips to $85 or $80 accompanied by a bounce would provide a nice aggressive entry. There is historical resistance at $95, but the real obstacle is higher at the century mark. Gerard Klauer Mattison started new coverage on DIGX this week with a Buy recommendation and a 12-month price target of $102. BUY CALL SEP-80*UOM-IP OI= 655 at $ 8.38 SL= 5.75 BUY CALL SEP-85 UOM-IQ OI= 252 at $ 6.13 SL= 4.00 BUY CALL SEP-90 UOM-IR OI= 625 at $ 3.88 SL= 2.50 BUY CALL OCT-85 UOM-JQ OI= 195 at $13.00 SL= 9.75 BUY CALL OCT-90 UOM-JR OI= 163 at $10.50 SL= 7.50 Picked on August 20th at $80.56 P/E = N/A Change since picked +5.44 52-week high=$184.00 Analysts Ratings 11-5-1-0-0 52-week low =$ 21.19 Last earnings 06/00 est=-0.56 actual=-0.54 Next earnings 11-01 est=-0.62 versus=-0.36 Average Daily Volume = 882 K ***********************ADVERTISEMENT************************ Up To 60% Off At EverythingWireless.com The online super-store for your active lifestyle. Select from the largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.everythingwireless.com/wireless/homepage?id=1601002 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 08-27-2000 Sunday 4 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/082700_4.html ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************* NEW PUT PLAYS ************* KO - Coca-Cola Company $56.00 (-4.31 last week) The Coca-Cola Company is the largest manufacturer, distributor and marketer of soft drink concentrates and syrups in the world. Finished beverage products bearing the company's trademarks have been sold in the U.S. since 1886, and are now sold in nearly 200 countries. KO also markets and distributes juice and juice-drink products. Of the nearly 48 billion beverage servings of all types consumed worldwide every day, KO products account for more than one billion. Investors in KO have been "having a Coke and a smile" over the last several months, as shares of the beverage company have enjoyed a nice stealth rally. Part of the impetus for the rally was the uncertainty in the broad markets, particularly technology-related issues. Now that the broad markets are breaking out of their recent trading ranges, KO has lost some of its fizz. After putting in a bottom of $42.25 in the middle of March, the stock started moving higher and got into a well defined uptrend by early May. Since the momentum started flowing, KO has been able to post higher highs and higher lows, using the 30-dma (currently $60.38) as support on the pullbacks. Investors started losing their thirst for Beverage stocks in general and KO specifically about 2 weeks ago. The first signs of weakness can be seen on the daily chart where the bulls couldn't push through resistance at $63, and the price fell back. Rather than regrouping at the 30-dma for another push higher, the bulls were nowhere to be found as they let the price fall right through this level of support and then the 50-dma at $58.88. Then on Friday, Salomon Smith Barney lowered its volume growth estimates for the company from the 5.0-5.5% range to a level of 4.5%. Although the firm continues to rate KO a Buy, with a price target of $68, investors were not in wait-and-see mood. KO gapped down at the open, dropped through the 200-dma (currently $55.56) and lost as much as 5% intraday, before finding support just above the 100-dma (currently $54.63). After bottoming near $55, KO shares managed to gradually regain some of their losses, marking the $55 level as new-found support. The 10-dma, 30-dma, and 50-dma are all converging between $59-61, and this will likely create formidable overhead resistance going forward. Use rallies as entry points and initiate new positions as the stock runs out of juice and rolls over. Conservative investors may want to wait for selling volume to confirm the stock's weakness and a volume-backed penetration of support at $55 could be just the ticket. BUY PUT SEP-60*KO-UL OI=3544 at $4.38 SL=2.75 BUY PUT SEP-55 KO-UK OI=2228 at $1.19 SL=0.00 Average Daily Volume = 4.09 mln ***************** CURRENT PUT PLAYS ***************** QCOM - Qualcomm Inc. $58.88 (-0.88 last week) Qualcomm Incorporated is a leader in developing, delivering, and enabling innovative digital wireless communications products and services based on the Company's digital technologies. As the pioneer of Code Division Multiple Access (CDMA), the technology of choice for next-generation wireless communications, Qualcomm continues to lead the industry in the development of voice, data, and wireless Internet products and solutions. Qualcomm is also transforming industries through its various satellite businesses and technology partnerships. Our put play on QCOM just received a stay of execution. After spending the early part of the week riding down the 5-dma, the stock found buyers just below the $55 level. From there, the stock made a strong bounce on Thursday to close not only above its 5-dma (at $58.31), but its 10-dma (at $59.60) as well. In addition to this, QCOM closed above the $60 level. When we last looked at this play on Thursday, we were trying to determine the nature of the bounce. Was this a genuine bounce thanks to strong buyer support or was it of the dead cat variety? At this point the results are...inconclusive, but $60 certainly is resistance. An early attempt to rally on Friday morning was met with selling for the rest of the day. Bouncing off the 5-dma, the stock moved slightly higher in its final hour of trading to close down $1.75 on 42% of ADV. Volume in general was light for the NASDAQ and Friday's close brought QCOM to close again below the $60 level, as well as its 10-dma. While QCOM did bounce strongly on Thursday, it was merely a temporary relief, and we see the stock continuing to drift lower. Aggressive traders looking to enter this play may want to enter on a failed rally to the $60 mark. As well, an inability for QCOM to make it back up above its 10-dma could serve as an entry. Those who want to see more proof of weakness will want to see QCOM break below its 5-dma on strong selling volume before entering. A break below $57 could see the stock re-testing the conviction of buyers who stepped in at the $55 level. A follow-through day on strong volume that sees the stock close well above $60 could be the signal to close this put play. BUY PUT SEP-65 AAO-UM OI=2515 at $7.25 SL= 5.25 BUY PUT SEP-60*AAO-UL OI=4954 at $3.75 SL= 2.00 BUY PUT SEP-55 AAO-UK OI=5598 at $1.44 SL= 0.75 Average Daily Volume = 18.46 mln UK - Union Carbide $41.06 (-1.75 last week) Chemical giant Union Carbide, which Dow Chemical is buying, keeps a hand in basic chemicals and specialty chemicals. The company produces wire insulation, cleaners, catalysts, personal care items, paint and adhesives, and solvents. UK leads the world in ethylene oxide production, which is used in the making of polyester fibers, as well as ethylene glycol, which is used in the manufacturing antifreeze. UK was booted out of the Dow Jones Industrial Average last October and replaced by younger and faster growing companies. It's a good thing. The blue chip index might be a lot lower this year if UK had remained a member of the lustrous group. The lowly Chemicals sector has taken a beating this year for its inability to produce attractive earnings. The bottom-line is that investors want earnings, and UK's 5% EPS next year isn't sufficient. In fact, UK is expected to experience a -36% quarter over quarter decline in profits when the company reports its fourth-quarter results. Consolidation was thought to spur investors' interests earlier this year when Dow Chemical (DOW) made a bid for UK. Unfortunately for UK shareholders, the DOW offer was an all-stock proposition. The same problems that have plagued UK over the past year have also hurt DOW. And, stockholders have suffered. Investors' distaste for the Chemicals sector was clearly evident last week as both UK and DOW fell to new 52-week lows on heavy volume, despite the attempts from several Wall Street brokerages. The big institutional sellers took an early break going into the weekend last Friday as UK edged ever slightly higher on relatively light volume versus what we have seen during the stock's down days. If the light buying continues early next week, an aggressive trader might look for UK to bump against resistance in its descending channel at its 5-dma at $41.50, and consider entering the play if traders fade the stock's rally. A more conservative trader might wait for the professional selling to resume before entering the play. Look for UK to resume its downward ways, and consider entering the play if the stock falls below support at its current level of $41, or lower below its 52-week low at $40.50. BUY PUT SEP-45*UK-UI OI= 57 at $4.50 SL=2.75 BUY PUT SEP-40 UK-UH OI= 15 at $1.25 SL=0.50 Average Daily Volume = 800 K AT - Alltel Corp $50.81 (-5.25 last week) Alltel is an information technology company that offers telecommunication services in the US. Its operations span 23 states, mainly in the Southeast and Midwest. The company offers its wireline and wireless services, which include local, long distance, cellular, as well as Internet access and paging, to over 9 mln customers. The truth may set you free, but that doesn't mean you won't get put through the wringer. Last Wednesday, August 16th, AT dropped 9.3%, or $5.81, after company executives repeated an outlook for 2000 EPS during a conference call with analysts. The estimate at $2.70 a share for the year is currently below Wall Street's forecast. Because Alltel had reported solid results in the first and second quarters of 2000, many analysts upped their estimates to $2.73 a share for the year. However, Alltel is steadfast on their outlook it first put out in February. Inquiries prompted a spokesman for Alltel to reiterate the declaration, "we've said we're going to be $2.70 and we're not changing that." The shares plummeted in heavy trading that day and hit $55.56, the first in a series of new 12-month lows before basing. Frank Louthan at First Union quickly cut his rating on AT down to a Buy from a Strong Buy, but offered no additional comments. Last week, the situation grew dimmer. Volume levels perked up and on Tuesday, AT cracked the $55 base support. By Thursday, even $54 failed to hold. With the Telecom sector not at its best, AT edged even deeper in Friday's session and dug down to $50.50. The bearish close at a mere fraction from that all-time low provides further confirmation that next week's action could be fatalistic. With no historical bottom left to offer support, the million-dollar question is how far can AT fall? Therefore, it's imperative to keep the stops in place for protection against bargain hunters. The nearest DMA to Friday's intraday resistance ($51.50) was the 5-day line at $53.83. Either of these marks could be used as potential entry points. Confirm the downtrend line before opening new positions. BUY PUT SEP-60 AT-UL OI=715 at $9.63 SL=6.50 BUY PUT SEP-55*AT-UL OI=367 at $5.00 SL=3.00 Average Daily Volume = 986 K ***********************ADVERTISEMENT************************ Up To 60% Off At EverythingWireless.com The online super-store for your active lifestyle. Select from the largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.everythingwireless.com/wireless/homepage?id=1601002 ************************************************************ ***** LEAPS ***** EMLX Hoax Steals The Show On A Quiet Summer Friday By Mark Phillips Contact Support The expected quiet of our next to last summer Friday was shattered by the release of a fraudulent and very damaging press release on EMLX shortly after the open. The details are covered in Molly Evan's Trader's Corner article this weekend and provide a strong reminder of the potential risks and rewards of the arena in which we have chosen to play. I won't rehash any of the details here, but strongly recommend reading her article, as it is a good gut check if you are considering new plays in this market. Much of the story this week remains the same, with the Semiconductors continuing to show strength, and the resurgence in the Biotech sector helping to propel the NASDAQ above the 4000 level. The Internet sector is showing strength, although the real story here is in infrastructure plays (see our new play on BRCD below). Even the DJIA is looking healthy, as it is threatening to break above resistance at 11200. Volume is still weak, but what do you expect for the second half of August? Although there are many factors pointing to more strength ahead, we can't avoid the facts that the Commercials (thanks Austin) are still holding 10-year net short positions and the VIX is continuing to drill into the basement, closing on Friday at 19.10. These two factors combined with the substantial rise on the major indexes lately should have you thinking "DANGER, Profit Taking Ahead". If you have been waiting patiently for new entry points to materialize, the week ahead could be your reward. Just make sure you don't try to jump in and catch a falling knife. The decline this past spring should still be fresh enough in your mind to keep you out of that trap. We are still in the process of weeding out the non-performing plays to make room for those that we think should provide the impressive returns you have come to expect from investing in LEAPS. Accordingly we are jettisoning HD and PCS this weekend, and NXTL is in danger of getting the axe next weekend. As we mentioned a couple months ago, we have continued to track the returns on the 2001 options through the month of August. This is the last newsletter before we usher in the month of September and it is also the last week that we will track those 2001 options. Due to the inherent time decay risk associated with the proximity of those options' short-term status, we can no longer advocate initiating or holding those options, at least not when we are focusing on the long term performance of LEAPS. One final note, and a shameless plug. Have you noticed the glowing comments in the newsletter about the Summer and upcoming Fall seminars? I have, and it really whetted my appetite to further my own education. Therefore, I'll be traveling to Boston to take in the wisdom of Chris and the rest of his team during the weekend of September 28-30. I hope to see you there. In the meantime, trade smart and preserve your capital. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 40 EMB-AH $ 7.69 $52.63 584.33% JAN-2002 $ 45 WUE-AI $ 9.50 $53.13 459.21% JAN-2003 $ 90 VUE-AR $35.50 $34.88 ------ CSCO 11/14/99 JAN-2001 $ 40 CYQ-AH $ 9.56 $27.88 191.58% JAN-2002 $ 45 WIV-AI $11.00 $29.50 168.18% JAN-2003 $ 70 VYC-AN $25.13 $21.75 ------ NT 11/28/99 JAN-2001 $37.5 NT -AU $11.13 $46.75 320.04% JAN-2002 $37.5 WNT-AU $15.13 $50.13 231.30% JAN-2003 $ 80 ODT-AP $28.63 $32.13 ------ SUNW 12/19/99 JAN-2001 $ 80 SUX-AP $17.63 $49.00 177.94% JAN-2002 $ 90 WJX-AR $22.00 $53.13 141.48% JAN-2003 $105 VSU-AA $40.63 $55.63 ------ ERICY 01/30/00 JAN-2001 $16.3 RQC-AO $ 4.94 $ 5.13 3.74% JAN-2002 $16.3 WRY-AO $ 6.75 $ 7.38 9.26% 07/23/00 JAN-2003 $ 25 VYD-AE $ 6.88 $ 5.88 -14.61% NSM 02/27/00 JAN-2001 $ 70 NSM-AN $18.50 $ 3.00 -83.78% JAN-2002 $ 70 WUN-AN $24.25 $10.13 -58.25% JAN-2003 $ 40 VSN-AH $16.50 $22.38 ------ AOL 03/12/00 JAN-2001 $ 60 AOO-AL $14.00 $ 6.88 -50.89% JAN-2002 $ 65 WAN-AM $18.63 $12.50 -32.90% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $22.00 35.61% AXP 03/12/00 JAN-2001 $43.3 AXP-AP $ 7.25 $15.38 112.07% JAN-2002 $46.6 WXP-AQ $ 9.33 $18.25 95.61% JAN-2003 $ 60 VAX-AL $18.38 $15.63 ------ WM 03/19/00 JAN-2001 $ 25 WM -AE $ 5.00 $ 9.25 85.00% JAN-2002 $ 30 WWI-AF $ 5.38 $ 8.38 55.67% JAN-2003 $ 35 VWI-AG $ 7.63 $ 8.25 ------ AMD 04/16/00 JAN-2001 $ 70 AMD-AN $17.50 $14.13 -19.29% JAN-2002 $ 70 WVV-AN $26.00 $25.88 - 0.48% JAN-2003 $ 90 VVV-AR $36.75 $27.38 ------ JDSU 04/16/00 JAN-2001 $ 80 XXZ-AP $27.50 $50.63 84.09% JAN-2002 $ 80 YJU-AP $39.63 $64.75 63.39% 08/27/00 JAN-2003 $130 VEQ-AF $55.25 $55.25 0.00% MOT 05/14/00 JAN-2001 $33.3 MOT-AY $ 6.58 $ 6.38 - 3.12% JAN-2002 $36.6 WMA-AZ $ 9.54 $ 9.50 - 0.42% JAN-2003 $ 40 VMA-AH $13.38 $11.25 ------ NOK 05/21/00 JAN-2001 $ 50 NZY-AJ $10.25 $ 3.25 -68.29% JAN-2002 $ 50 IWX-AJ $17.25 $ 9.00 -47.83% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $13.00 -26.76% HD 05/28/00 JAN-2001 $ 50 HD -AJ $ 6.25 $ 6.50 4.00% JAN-2002 $ 50 WHD-AJ $11.38 $12.50 9.84% 08/06/00 JAN-2003 $ 60 VHD-AL $15.25 $12.75 -16.39% NXTL 06/11/00 JAN-2001 $ 60 FZC-AL $12.25 $ 6.50 -46.94% JAN-2002 $ 60 YFG-AL $19.25 $13.25 -31.17% JAN-2003 $ 60 VFU-AL $21.88 $17.75 ------ C 06/18/00 JAN-2001 $ 65 C -AM $ 7.63 $14.75 93.32% JAN-2002 $ 65 WRV-AM $13.75 $22.13 60.91% JAN-2003 $ 75 VRN-AO $20.50 $21.50 ------ AMGN 07/02/00 JAN-2001 $ 75 YAA-AO $10.75 $10.88 1.16% JAN-2002 $ 75 WQY-AO $20.75 $21.75 4.82% JAN-2003 $ 70 VAM-AN $28.75 $31.00 7.83% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $64.00 - 3.40% JAN-2003 $180 OVS-AP $88.00 $82.50 ------ DELL 07/09/00 JAN-2002 $ 55 WDQ-AK $12.63 $ 5.13 -59.42% JAN-2003 $ 60 VDL-AL $15.38 $ 7.63 -50.42% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $23.50 37.19% JAN-2003 $ 70 OZG-AN $23.13 $29.75 28.62% HWP 07/30/00 JAN-2002 $110 WPW-AB $28.25 $36.25 28.32% JAN-2003 $120 VHP-AD $32.63 $41.00 25.65% PCS 07/30/00 JAN-2002 $ 60 WVH-AL $11.88 $ 8.25 -30.56% JAN-2003 $ 65 VVH-AM $14.38 $10.75 -25.24% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $28.50 37.35% JAN-2003 $ 60 VTQ-AL $25.38 $32.88 29.53% MFNX 08/06/00 JAN-2002 $ 40 WOF-AH $13.75 $12.75 - 7.27% JAN-2003 $ 45 VKW-AI $15.63 $15.25 - 2.43% GM 08/06/00 JAN-2002 $ 65 WGM-AM $ 9.88 $17.75 79.66% JAN-2003 $ 65 VGN-AM $13.25 $21.63 63.21% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $28.75 - 8.38% JAN-2003 $100 VFB-AT $37.38 $35.00 - 6.37% Spotlight Play JDSU - JDS Uniphase $125.31 Three cheers for our Optical hero! After the exciting times that accompanied JDSU's earnings in July (not to mention being added to the S&P 500), volatility has come back to earth and the stock has resumed its uptrend. Major support near $107 was confirmed on August 3rd, as the stock dropped to put in a solid bounce right on the ascending long-term trendline. Since then, the stock has been tracing higher highs and higher lows as it drags all its moving averages back into ascent mode. The first major support level is at $121-122, which also happens to be the convergence point of the 10-dma ($122.31) and the 30-dma ($121.31). Close behind is the 50-dma (currently at $119.69), reinforcing support near $120. Barring a major negative market event, bounces at these support levels (according to your individual risk tolerance) look like a good time to initiate new positions. Should a more drastic decline ensue (after all, the VIX is barely over 19 now), look for JDSU to bounce on the ascending trendline, currently sitting at $116. Of course the enthusiasm for the Optical sector is showing no signs of letting up and with the benefits of the pending SDLI merger, JDSU could very likely head north from current levels. Although you can consider entering on a breakout over resistance at $128 or $130, we think the more prudent strategy will be to wait for the stock to pull back to confirm these levels as support after the breakout. BUY LEAP JAN-2002 $130.00 YJU-AF at $40.88 BUY LEAP JAN-2003 $130.00 VEQ-AF at $55.25 New Plays BRCD - Brocade Communications $211.88 Brocade is a major supplier of Fibre Channel switching solutions for Storage Area Networking (SANs), which apply the benefits of a networked approach to the connection of computer storage systems and servers. Unless you slept through the market action on Friday (or had to be at work), you saw some incredible action in some of the major players in the SAN market. Sure, most of the action was attributable to the fraudulent news story on EMLX (see Molly Evans' Trader's Corner article this weekend for the detailed story), but what was impressive was BRCD's strength relative to competitor QLGC. Although the fake news and subsequent panic led investors to shave as much as $12 from the share price intraday, the $210 level, with the 10-dma ($209.75) backing it up, held up well as support. The stock has had an impressive run since it last tested the 200-dma (then at $90.13) in late May, and the refusal of investors to jump ship, even at the stock's lofty levels, speaks to its impressive strength. Any return to the vicinity of the $210 support level looks like an attractive entry point, but make sure that buyers are still in abundance before jumping aboard. A more conservative strategy would be to wait for the bulls to propel the stock through resistance at $220 before pulling the trigger. BUY LEAP JAN-2002 $220.00 YNU-AD at $65.38 BUY LEAP JAN-2003 $220.00 OMW-AD at $86.50 INKT - Inktomi Corporation $123.94 It's hard to find a good quality Internet play in today's market, but INKT looks like a good candidate. The company provides scalable software applications designed to enhance the performance and intelligence of large-scale networks, particularly the Internet. Beaten up with the rest of the Internet sector, INKT looks like it is about to get moving in the right direction again. After struggling since the selloff this spring, the stock has made some impressive strides in the past week. After consolidating near $105, shares of the company got a news-related boost last Wednesday and surged through the 30-dma, 50-dma, and 200-dma, then at $113.50, $117.81, and $119.88, respectively. The news that prompted the bullish move centered on an alliance called "Content Bridge" with AOL, ISLD and EXDS, among others, and is focused on ensuring that Internet users receive the most up-to-date information available on the Web. INKT continued to move higher for the remainder of the week, scaling the last of its moving averages, the 100-dma at $123.31 on Friday. The fledgling breakout will need continued strong buying volume to sustain it, and with a quiet week expected ahead of the Labor Day weekend, a pullback to support would seem likely. Support should hold at the 200-dma (now at $120.50) or near $117, where the 5-dma and 50-dma are converging. Unless volume is strong, any move above current levels this week will likely be hard to sustain, as there is substantial resistance at $126 and then $130-133. BUY LEAP JAN-2002 $130.00 XOR-AF at $50.13 BUY LEAP JAN-2003 $140.00 VFR-AH at $60.88 Drops HD $50.50 Giving us three very profitable runs, HD performed exactly as we expected. After we added it in late May near $47, the stock quickly surged to $54, before succumbing to market pressures and falling back for another entry point near where our play started. Then riding the recovery of the DJIA, HD ran up to $57 before falling back near the $50 support level and then ran as high as $58.75 ahead of earnings on August 14th. These last two runs gave us gains of 75-100%, depending on entry and exit points. The company's earnings report essentially spelled the end of our play as recent interest rate hikes and a slowing economy are beginning to take their toll, leading to reduced revenue expectations for the remainder of the year. With the markets continuing to move incrementally higher and HD failing to participate, now looks like as good a time as any to drop the play and move on to more exciting possibilities. PCS $48.94 The Telecom sector continues to look sickly, and our play on PCS has definitely been infected. When we added it at the end of July, the stock was bouncing at the 200-dma and we were playing it for a bounce and recovery with the rest of the market. After 2 up days, the stock rolled over at the 10-dma (near $57) and has continued to be pressured over the past month. Even the 200-dma was largely ignored as a support level, as PCS continued to decline on ever increasing volume. Last week's decline actually began with a rollover at the 200-dma, and although support may hold at $47-48, this is clearly a broken play. There are too many exciting and healthy stocks out there to keep our money tied up in a loser like PCS. *********** SPLIT PLAYS *********** It's Only A Matter Of Time By Ryan Nelson With the VIX trying to move below 19, you can expect some cautious words. The funny thing is, the VIX has been in the danger zone for two and a half months while the Nasdaq has gained nearly 550 points in the past three weeks. Go figure. That is why this Great Game is not an exact science. So while the starring contest with the VIX continues, we will continue to ride the momentum until someone blinks. On another topic, congrats to all who benefitted from the split run moves in PLXS and PLCM that we highlighted last week. PLXS has been moving up steadily, while PLCM broke out on Friday to a big gain. It is time to start looking for an exit on both though as the ex-date is rapdily approaching. Current Split Run Plays PLXS - 09/01 ex-date CIEN - 09/19 ex-date SUNW - 12/06 ex-date Current Split Candidate Plays ITWO JNPR GSPN INKT NEWP VRSN VTSS BRCM IMCL NTAP Candidates That Are Not Current Plays BRCD PVN LEH NVDA SCMR ARBA DNA 10 Most Recent Announcements We Predicted SUNW - 08/17 (most recent announcement) GLW - 08/16 HWP - 08/16 CIEN - 08/15 SEBL - 08/08 SAPE - 08/01 AMD - 07/19 PDLI - 07/11 TXN - 04/20 CMVT - 03/07 Major Announcements So Far This Month = 21 PLCM PLXS SNWL ORBK SAPE NETE SEBL EXBD ABMD PKE ERTS SONS XTO CIEN MYGN PCP HWP GLW SUNW SMTC MCHP For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp Symbol Company Name Splits Payable Executable 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 VSAT - ViaSat, Inc. 2:1 08/31/2000 09/01/2000 MER - Merrill Lynch & Co., Inc. 2:1 08/31/2000 09/01/2000 INCY - Incyte Genomics, Inc 2:1 08/31/2000 09/01/2000 PLXS - Plexus Corp. 2:1 08/31/2000 09/01/2000 PLCM - Polycom, Inc. 2:1 08/31/2000 09/01/2000 RATL - Rational Software 2:1 09/01/2000 09/05/2000 NETE - Netegrity, Inc. 3:2 09/01/2000 09/05/2000 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 KVA - K-V Pharmaceutical Co 3:2 09/07/2000 09/08/2000 KVB - K-V Pharmaceutical Co. 3:2 09/07/2000 09/08/2000 PSEM - Pericom Semiconductor 2:1 09/08/2000 09/11/2000 SEBL - Siebel Systems, Inc. 2:1 09/08/2000 09/11/2000 ERTS - Electronic Arts Inc. 2:1 09/08/2000 09/11/2000 PWER - Power-One, Inc. 2:1 09/11/2000 09/12/2000 MYGN - Myriad Genetics, Inc. 2:1 09/11/2000 09/12/2000 LIC - Lynch Interactive Corporation 2:1 09/11/2000 09/12/2000 NDSN - Nordson Corp 2:1 09/12/2000 09/13/2000 FCEL - FuelCell Energy, Inc. 2:1 09/13/2000 09/14/2000 EXBD - Corporate Executive Board Co 2:1 09/15/2000 09/18/2000 SNWL - SonicWALL Inc 2:1 09/15/2000 09/18/2000 ORBK - Orbotech Ltd 3:2 09/15/2000 09/18/2000 BUD - Anheuser-Busch Companies Inc 2:1 09/18/2000 09/19/2000 NSIT - Insight Enterprises Inc. 3:2 09/18/2000 09/19/2000 ACLNF - A.C.L.N. Limited 5:4 09/18/2000 09/19/2000 XTO - Cross Timbers Oil Co. 3:2 09/18/2000 09/19/2000 CIEN - CIENA Corporation 2:1 09/18/2000 09/19/2000 HAR - Harman Intl Industries 2:1 09/19/2000 09/20/2000 IIVI - II-VI, Inc. 2:1 09/20/2000 09/21/2000 SBSE - SBS Technologies, Inc. 2:1 09/20/2000 09/21/2000 PCP - Precision Castparts Corp. 2:1 09/21/2000 09/22/2000 EMKR - EMCORE Corporation 2:1 09/25/2000 09/26/2000 SMTC - Semtech Corporation 2:1 09/25/2000 09/26/2000 MCHP - Microchip Tech. 3:2 09/26/2000 09/27/2000 MAPS - MapInfo Corporation 3:2 09/28/2000 09/29/2000 ABMD - Abiomed, Inc. 2:1 09/29/2000 10/02/2000 CUZ - Cousins Properties Inc. 3:2 10/02/2000 10/03/2000 GLW - Corning Incorporated 3:1 10/03/2000 10/04/2000 SONS - Sonus Networks Inc. 3:1 10/06/2000 10/09/2000 FLEX - Flextronics International Ltd.2:1 10/16/2000 10/17/2000 HWP - Hewlett-Packard Company 2:1 10/27/2000 10/30/2000 PSC - Philadelphia Suburban 5:4 12/01/2000 12/04/2000 SUNW - Sun Microsystems 2:1 12/05/2000 12/06/2000 **********************ADVERTISEMENT************************* Free voicemail, email, fax, and paging - all in one place! 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The Option Investor Newsletter Sunday 08-20-2000 Sunday 5 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/082000_5.html ************* COVERED CALLS ************* Charting Basics: Looking for signals... By Mark Wnetrzak In response to recent requests for discussions about technical analysis, today we will review another type of candlestick reversal pattern. Dark Cloud Cover: The Dark Cloud Cover is a two-candlestick pattern that signals a bearish reversal after an up-trend or, at times, at the top of a congestion area. The first day of this formation is a strong white real body (remember, shadows extend out from the body). The second day's price opens above the high of the prior session (in a perfect world that would be above the upper shadow) but then closes near the low of the day and well within the previous white body. Many technicians require more than 50% penetration by the black body (second candlestick) into the white body to validate the signal. In any case, the greater the degree of penetration into the prior day's white body, the more likely a top will occur. As typical, the bulls were in complete control and even caused a gap-up opening. But, when the rally fails, and the stock closes near the low of the day (well within the previous day's candle), the longs begin to second guess their positions. Those who were waiting to short the issue now have a logical point at which to place a stop loss; above the high of the second candle in the Dark Cloud pattern. Remember, the longer the up-trend prior to reversal pattern, the more valid the signal. If the black body of the second candle completely covers the prior day's entire white body, a bearish engulfing pattern will appear. If the penetration is less than 50% into the previous white candle, another form of "bearish" confirmation is recommended. Any type of technical indication that coincides with the current resistance levels would suggest that buyers are still unable to gain control of the issue. In addition, heavy volume on the second day could be evidence of a buying "blow-off." Piercing Pattern: There is an opposite formation to the Dark Cloud Cover and it is called the Piercing Pattern. This bottom reversal formation is also composed of two candlesticks but appears in a falling issue or market. The first candle is a black real body and the second is a long, white real body. The white candlestick opens sharply lower, under the low of the previous (black) session. Then the issue moves higher, creating a relatively long, white real body that closes above the mid-point of the prior day's black real body. The majority of characteristics for the Dark Cloud Cover apply to the bullish Piercing Pattern, only in reverse. An ideal Piercing Pattern will have a white real body that pushes more than halfway into the prior session's black real body. A strong signal is given when this bullish pattern appears at the bottom of a long downtrend, especially near support. However, if the issue closes under the lows of the Piercing Pattern by way of a long black candlestick, then another down-leg should resume, and the reversal signal is nullified. These reversal patterns can help an investor determine possible changes in the character of a stock. Short-term traders should focus on daily or hourly charts, while covered-call writers or long-term investors might do better with weekly, or even monthly charts. Regardless of the type of trading you favor, it is very important to understand the fundamentals of candlestick analysis and common market-timing strategies. 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 56.94 AUG 45.00 18.63 *$ 4.13 11.0% HLYW 8.94 7.88 AUG 7.50 2.06 *$ 0.62 9.8% ASKJ 17.44 19.50 AUG 15.00 3.25 *$ 0.81 8.3% ACOM 21.75 23.81 AUG 15.00 7.50 *$ 0.75 7.6% CLTR 25.50 25.13 AUG 22.50 3.38 *$ 0.38 7.5% PX 43.00 43.50 AUG 40.00 3.63 *$ 0.63 7.0% ANTC 45.50 41.94 AUG 40.00 6.63 *$ 1.13 6.3% XLNK 16.75 16.00 AUG 12.50 5.25 *$ 1.00 6.3% (DLK) CGO 42.13 44.44 AUG 35.00 8.38 *$ 1.25 5.4% PSFT 18.38 24.50 AUG 15.00 4.38 *$ 1.00 5.2% WFR 18.38 18.19 AUG 15.00 4.38 *$ 1.00 5.2% PMTC 12.69 11.69 AUG 10.00 3.25 *$ 0.56 5.2% MCOM 33.00 33.19 AUG 25.00 9.25 *$ 1.25 4.6% OO 13.94 16.38 AUG 12.50 1.94 *$ 0.50 4.5% IGEN 20.69 17.63 AUG 17.50 3.88 *$ 0.69 4.5% REGN 29.38 33.13 AUG 25.00 4.88 *$ 0.50 4.4% CLTR 22.00 25.13 AUG 17.50 5.00 *$ 0.50 4.3% NPNT 14.63 12.06 AUG 12.50 2.75 $ 0.18 3.3% IMNR 11.00 7.38 AUG 7.50 3.88 $ 0.26 3.2% 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% MAIL 9.44 7.06 AUG 7.50 2.50 $ 0.12 1.5% FRNT 18.44 17.00 AUG 17.50 1.50 $ 0.06 0.5% LOOK 23.00 16.50 AUG 17.50 6.25 $ -0.25 0.0% GPX 5.81 3.88 AUG 5.00 1.25 $ -0.68 0.0% XICO 7.81 9.13 SEP 7.50 1.56 *$ 1.25 17.4% DRMD 5.72 6.13 SEP 5.00 1.13 *$ 0.41 7.8% PCTL 6.03 5.78 SEP 5.00 1.38 *$ 0.35 6.5% ROS 15.75 15.19 SEP 15.00 1.88 *$ 1.13 5.9% ECLP 12.00 13.94 SEP 10.00 2.75 *$ 0.75 5.9% XLNK 18.00 16.00 SEP 12.50 6.25 *$ 0.75 5.5% (DLK) ORG 14.38 14.22 SEP 12.50 2.75 *$ 0.87 5.4% FHS 16.06 16.56 SEP 15.00 1.94 *$ 0.88 5.4% NOVN 35.00 32.69 SEP 35.00 2.88 $ 0.57 1.3% *$ = Stock price is above the sold striking price. Comments: Tumbleweed (TMWD) made it through the month for maximum profit though we will claim $2.31 on the early exit - hindsight makes it look easy to manage these positions. Memc Electronic (WFR) rebounded nicely this week! It is again time to decide which issues you are still bullish on and develop a plan of action: Roll forward, roll down, move to an OTM call, sell the stock and take the current profit, or exit the position and move on. Positions Closed: Ivillage.com (IVIL); back in positive territory (Murphy's Law!), Electric Fuel (EFCX), Bluestone Software (BLSW), and Itxc (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 CCUR 14.63 SEP 12.50 URC IV 2.69 105 11.94 28 5.1% GSTRF 8.44 SEP 7.50 YVQ IU 1.63 6936 6.82 28 10.9% LPTH 41.13 SEP 35.00 HDU IG 8.50 246 32.63 28 7.9% PCTL 5.78 SEP 5.00 PTQ IA 1.19 808 4.59 28 9.7% ROBV 13.63 SEP 10.00 URV IB 4.13 165 9.50 28 5.7% SFAM 18.63 SEP 15.00 FQF IC 4.38 709 14.25 28 5.7% SGNT 12.00 SEP 10.00 GUS IB 2.63 838 9.38 28 7.2% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return GSTRF 8.44 SEP 7.50 YVQ IU 1.63 6936 6.82 28 10.9% PCTL 5.78 SEP 5.00 PTQ IA 1.19 808 4.59 28 9.7% LPTH 41.13 SEP 35.00 HDU IG 8.50 246 32.63 28 7.9% SGNT 12.00 SEP 10.00 GUS IB 2.63 838 9.38 28 7.2% ROBV 13.63 SEP 10.00 URV IB 4.13 165 9.50 28 5.7% SFAM 18.63 SEP 15.00 FQF IC 4.38 709 14.25 28 5.7% CCUR 14.63 SEP 12.50 URC IV 2.69 105 11.94 28 5.1% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** CCUR - Concurrent Computer $14.63 *** Video-On-Demand *** Concurrent Computer is a leading provider of high-performance computer systems, software, and servers. Concurrent Computer's XSTREME Division is a leading supplier in the emerging digital video server marketplace. Concurrent is also a leading provider of high-performance, real-time computer systems, solutions, and software for commercial and government markets. The company provides sales and support from offices throughout the world. On Thursday, Concurrent reported its seventh consecutive quarter of growth (up 36%) in Video-On-Demand (VOD) revenue from its XSTREME Division. The future for this division looks bright with the commercial launch of VOD service in the Tampa Bay region by Time Warner and the preliminary deployment with Cox Communications in San Diego. Raymond James has started coverage on Concurrent with an initial "buy" rating. A favorable entry point in a speculative stock. SEP 12.50 URC IV LB=2.69 OI=105 CB=11.94 DE=28 MR=5.1% Chart = ***** GSTRF - Globalstar Telecom $8.44 *** 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. For speculators only! SEP 7.50 YVQ IU LB=1.63 OI=6936 CB=6.82 DE=28 MR=10.9% Chart = ***** LPTH - LightPath Technologies $41.13 *** Own This One *** LightPath uses its proprietary automated manufacturing processes, including laser fusion and laser polishing, to provide optical components and sub-assemblies to telecommunications manufacturers. Their automated processes significantly increase volume production with reduced cost and improved reliability and performance. LPTH reported favorable earnings this month, reporting a 109% increase in total revenues to $2.3 million compared with $1.1 million from the previous year. Sales bookings increased by over 300% for the 4th quarter primarily due to new collimator and isolator orders taken from Corning and Lucent Technologies. LightPath also has signed an agreement to acquire Geltech, Inc, a leading manufacturer of precision molded aspherical optics, which should help LightPath continue to provide a broad and comprehensive range of optical product solutions to the telecom industry. A reasonable entry point for investors who have a long-term bullish outlook for a growing company. SEP 35.00 HDU IG LB=8.50 OI=246 CB=32.63 DE=28 MR=7.9% Chart = ***** PCTL - PictureTel $5.78 *** 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 and 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=1.19 OI=808 CB=4.59 DE=28 MR=9.7% Chart = ***** ROBV - Robotic Vision $13.63 *** On the Rebound! *** Robotic Vision Systems designs, manufactures and sells products and systems that automate the inspection of semiconductors and semiconductor packages, provide machine-vision-based scrutiny of a broad range of commercial and industrial products where high volume quality control can optimally be accomplished through automated inspection. Its products range from state-of-the-art machine vision systems on a circuit board to wafer inspection systems with fully automated output capabilities. In July Robotic Vision reported earnings with record revenues of $63.3 million (up 12% sequentially) and record net income of $5.8 million. The company sees continued strong sales over the balance of 2000 based on both semiconductor and machine vision activities. The outlook indeed appears bullish with ROBV being added to the S&P SmallCap 600 Index. The company has received several new orders over the last few weeks and the technicals suggest an upside resolution to the recent consolidation phase. SEP 10.00 URV IB LB=4.13 OI=165 CB=9.50 DE=28 MR=5.7% Chart = ***** SFAM - SpeedFam-IPEC $18.63 *** Are Semiconductors Back? *** SpeedFam-IPEC designs, develops, manufactures, markets and supports chemical mechanical planarization , CMP systems and other high-throughput precision surface processing equipment. These systems are used in the fabrication of next-generation integrated circuits, and SpeedFam also manufactures high throughput precision surface processing systems for the thin film memory disk media, silicon wafer and general industrial applications markets. Not too much news on SpeedFam after reporting favorable earning in June, reflecting record CMP orders (up 22%) and revenue (up 35%). SpeedFam continues to take advantage of strong industry fundamentals and the increasing capital spending by their customers. With the semiconductor sector showing strength, SpeedFam appears ready to challenge July high. SEP 15.00 FQF IC LB=4.38 OI=709 CB=14.25 DE=28 MR=5.7% Chart = ***** SGNT - Sagent Technology $12.00 *** New Blood from IBM *** Sagent is a provider of Real-time eBusiness Intelligence Solutions that enable enterprises to win and retain new customers and improve operational effectiveness. Sagent's products and services enable companies to analyze and respond to customer and operational information in real-time. In July, Sagent reported record revenues of $17.5 million for the 2nd quarter, up 21% from last quarter and up 77% from the same quarter last year, which was in line with estimates. On August 8, Sagent named Ben Barnes, a former general manager for IBM's Business Intelligence Solutions unit, as president and chief executive. Shortly after, Chase H&Q analyst James M. Pickrel upgraded the company to a "strong buy" with a $32 price target. This week, Sagent announced a 5-year requirements contract to provide software and professional services with a potential value of $10 million to a customer base of worldwide DOD Commands and Activities. Sagent offers a conservative entry point for investors who have a long-term bullish outlook. SEP 10.00 GUS IB LB=2.63 OI=838 CB=9.38 DE=28 MR=7.2% 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 ************************************************************** ************************* NAKED PUT PERCENTAGE LIST ************************* Naked Put Percentage List By Ryan Nelson Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level AKAM 78.94 75 RUG-UO 5.25 1974 27% 75 ARBA 140.31 135 RBU-UG 8.13 3508 23% 135 BRCD 210.06 200 GUF-UT 10.13 5252 19% 195 BRCM 258.13 250 RDU-UJ 11.75 6453 18% 250 CHKP 127.25 125 KGE-UE 8.00 3181 25% 122 DIGL 105.00 100 DGU-UT 7.25 2625 28% 100 DNA 162.00 160 DNA-UL 8.38 4050 21% 160 EXTR 178.13 170 EXR-UN 12.38 4453 28% 170 GSPN 130.38 130 GHY-UF 12.50 3260 38% 120 HGSI 124.63 120 HHA-TD 9.38 3116 30% 115 ITWO 150.00 145 QYI-UH 6.50 3750 17% 145 JNPR 170.81 165 JUD-UM 9.75 4270 23% 165 MUSE 129.88 130 UZQ-UF 14.50 3247 45% 128 NTAP 93.94 90 ULM-UR 6.75 2349 29% 84 PHCM 85.56 85 UMN-UQ 7.50 2139 35% 80 QLGC 93.00 90 QLC-UR 7.13 2325 31% 85 RBAK 147.50 145 BKK-UI 10.63 3688 29% 145 RMBS 82.25 80 BWR-UP 6.88 2056 33% 75 SAPE 124.56 125 SUJ-UE 12.13 3114 39% 124 SDLI 395.00 380 OSL-UP 20.75 9875 21% 370 SEBL 172.31 170 EZG-UN 11.38 4308 26% 170 SWCM 132.56 130 UGM-UF 11.13 3314 34% 130 TLGD 126.44 120 TQK-UD 9.00 3161 28% 120 TSTN 127.88 125 TUA-UE 9.75 3197 30% 123 TUTS 98.44 90 QSS-UR 6.13 2461 25% 94 VRSN 159.75 150 XVR-UJ 10.00 3994 25% 158 VRTX 143.19 130 VQZ-UF 9.25 3580 26% 130 *********************** CONSERVATIVE NAKED PUTS *********************** Selling Puts: A Simple Approach... By Ray Cummins One of our new subscribers requested a basic explanation of this strategy. In addition, he also suggested that we review the reasons we recommend the "deep-out-of-the-money" technique to conservative option traders. Put writing (selling) is designed to complement a conservative stock trading portfolio because it offers two different methods for generating profits: collecting option premium by selling an out-of-the-money Put or acquiring a stock at a reduced price. The basic strategy involves selling a Put against funds or other collateral held in your brokerage account. The sole purpose of the collateral is to assure that money is available to purchase the stock should the Put be assigned to the account. Generally, the buyer of the Put will exercise the option if the underlying stock drops below the sold strike price at expiration. If the share value remains above the sold strike price at expiration, the Put will expire worthless and the option premium retained by the seller constitute a profit. Put writing takes advantage of the concept of time decay; the time value premium of option declines as it approaches expiration. Unlike stock trading, where an investor can hold on to a stagnant issue indefinitely hoping it will rebound, the value of an option will decline if the underlying stock fails to move in the correct direction. This premium erosion allows a trader to profit without having to correctly predict the future movement of the underlying issue, as long as it remains above the sold strike price. Time value premium decays at a predictable rate and falls rapidly in the final month of option expiration. Writing "naked" puts for monthly income generally involves selling out-of-the-money options on a stock that the investor expects to finish above the sold strike price. With careful selection of the underlying issue, most sold Puts will expire worthless, allowing the investor to keep the premium and receive a reasonable profit, without ever having to buy the underlying stock. There is still the margin requirement but this commitment of collateral funds is almost always less than the outright purchase of an equivalent number of shares. An investor who is interested in buying a stock may also consider selling a cash-secured put as another means of acquiring the issue. Generally, when a person wants to buy a stock at a specific price, he will use some type of "limit" order. The problem is, after the initial order is placed, the stock will not be purchased until it trades at or below the limit price. Instead of waiting for that movement to occur, he could simply write a cash-secured put. A premium (the bid price of the option) will be paid to his account for the obligation to buy the stock. He has determined that the cost basis (the sold strike price minus the option premium) is an acceptable price at which to own this new stock, that he wants to be a part of his portfolio. This strategy is also used by fund managers, as well as large corporations, because it pays them for assuming the obligation to buy a particular stock that they intend to eventually add to their portfolio. 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 6.13 AUG 5.00 0.31 *$ 0.31 24.1% HLYW 8.94 7.88 AUG 7.50 0.50 *$ 0.50 20.6% CLTR 24.00 25.13 AUG 20.00 0.56 *$ 0.56 19.8% GSTRF 10.56 8.44 AUG 7.50 0.56 *$ 0.56 18.2% WAVX 18.06 17.44 AUG 15.00 0.38 *$ 0.38 18.2% R 21.25 21.31 AUG 20.00 0.88 *$ 0.88 15.7% ZIXI 55.00 45.06 AUG 40.00 1.63 *$ 1.63 14.0% STLW 36.69 40.38 AUG 25.00 0.50 *$ 0.50 13.9% NFLD 17.50 15.13 AUG 15.00 1.00 *$ 1.00 13.2% ATMS 11.44 9.50 AUG 7.50 0.31 *$ 0.31 13.0% CMRC 46.25 50.00 AUG 35.00 0.56 *$ 0.56 12.4% PSFT 21.88 24.50 AUG 17.50 0.44 *$ 0.44 9.9% THC 31.19 30.63 AUG 30.00 0.81 *$ 0.81 9.7% DRTE 30.38 26.50 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 22.94 AUG 20.00 0.31 *$ 0.31 7.6% RHAT 25.31 23.44 AUG 17.50 0.38 *$ 0.38 7.6% JEF 26.56 27.19 AUG 25.00 0.50 *$ 0.50 7.6% MRVT 22.63 20.38 AUG 17.50 0.50 *$ 0.50 7.2% LAMR 49.88 48.78 AUG 45.00 0.50 *$ 0.50 7.0% GELX 28.56 34.88 AUG 25.00 0.38 *$ 0.38 6.7% NXLK 39.69 37.44 AUG 30.00 0.75 *$ 0.75 6.3% INFS 37.00 46.59 AUG 30.00 0.50 *$ 0.50 5.2% PILT 17.81 12.00 AUG 12.50 0.50 $ 0.00 0.0% SQST 14.00 9.50 AUG 10.00 0.50 $ 0.00 0.0% RAZF 22.25 15.94 AUG 17.50 0.56 $ -1.00 0.0% GSTRF 7.63 8.44 SEP 5.00 0.31 *$ 0.31 14.6% CTIC 39.25 37.50 SEP 30.00 1.38 *$ 1.38 13.0% IMAX 28.06 27.00 SEP 22.50 0.94 *$ 0.94 12.4% FNSR 29.00 37.50 SEP 22.50 0.94 *$ 0.94 12.1% JDEC 21.88 23.63 SEP 17.50 0.69 *$ 0.69 11.8% TLXN 19.88 18.88 SEP 15.00 0.44 *$ 0.44 7.2% CRUS 27.44 28.69 SEP 22.50 0.50 *$ 0.50 6.6% NDC 30.06 30.00 SEP 22.50 0.38 *$ 0.38 5.2% *$ = Stock price is above the sold striking price. Comments: The week resulted in a favorable bounce for many issues that were testing support areas. Of course, taking the early out on Tidel Tech (ATMS) for half the profit shown above appears a bit too conservative now. Once again, you must evaluate the long-term outlook on any positions that were not closed out. Based on common exercise practices, there is a slim chance Pilot Networks (PILT) or Sciquest (SQST) will not be assigned. 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 CS 34.75 SEP 27.50 CS UY 0.44 134 27.06 28 6.4% FNSR 37.50 SEP 30.00 FQY UF 0.81 364 29.19 28 10.6% GZTC 38.00 SEP 30.00 GEQ UF 0.81 57 29.19 28 10.5% LPTH 41.13 SEP 30.00 HDU UF 1.00 24 29.00 28 11.8% REGN 33.13 SEP 25.00 RQP UE 0.38 1 24.62 28 5.9% RHAT 23.44 SEP 17.50 RCV UW 0.50 538 17.00 28 10.5% SIPX 37.50 SEP 30.00 UQX UF 0.75 2 29.25 28 9.9% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return LPTH 41.13 SEP 30.00 HDU UF 1.00 24 29.00 28 11.8% FNSR 37.50 SEP 30.00 FQY UF 0.81 364 29.19 28 10.6% GZTC 38.00 SEP 30.00 GEQ UF 0.81 57 29.19 28 10.5% RHAT 23.44 SEP 17.50 RCV UW 0.50 538 17.00 28 10.5% SIPX 37.50 SEP 30.00 UQX UF 0.75 2 29.25 28 9.9% CS 34.75 SEP 27.50 CS UY 0.44 134 27.06 28 6.4% REGN 33.13 SEP 25.00 RQP UE 0.38 1 24.62 28 5.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** CS - Cabletron Systems $34.75 *** Spin-off Rally? *** Cabletron Systems is a holding company for subsidiaries focused on the new Internet economy. These companies include Aprisma Management Technologies, Enterasys Networks, GlobalNetwork Technology Services and Riverstone Networks. They enable CS to focus on the high-growth areas of the communications marketplace, including infrastructure management, enterprise e-business, professional services and service providers. Riverstone Networks has been in the news recently, with analysts saying the initial public offering papers are expected to be filed within the next two weeks. They also suggest that Riverstone is likely the most attractive spin-off from Cabletron and will allow the parent company to realize the potential it had two years ago as Yago, before being acquired. Riverstone may also benefit from growing within a larger operation and based on the bullish activity in CS, investors believe the new venture is poised to become the next "hot" network equipment maker in the industry. SEP 27.50 CS UY LB=0.44 OI=134 CB=27.06 DE=28 MR=6.4% Chart = ***** FNSR - Finisar Corporation $37.50 *** Second Chance! *** 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. In early August, Finisar announced that it had delivered the first SONET OC-48 Small Form Factor optical transceiver units, which operate 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. In addition, the provider of fiber optics for high-speed data networks said it expects revenues for its most recent quarter to be up about 95% over last year's results. The fundamental outlook for the company is great but we simply favor the bullish technical condition of the issue. SEP 30.00 FQY UF LB=0.81 OI=364 CB=29.19 DE=28 MR=10.6% Chart = ***** GZTC - Genzyme Transgenics $38.00 *** Biotech Sector *** Genzyme Transgenics is a leader in the application of transgenic technology to the development and production of recombinant proteins for therapeutic and other biomedical uses. GZTC has produced numerous such proteins, both independently and through collaborations with various commercial and academic organizations. GTC also owns and operates a top pre-clinical contract research organization, Primedica Corporation, which provides services such as pre-clinical efficacy and safety testing, IN VITRO testing and formulation development to pharmaceutical, biotechnology, medical device and other companies. The company recently announced that quarterly earnings rose 26%, beating analysts' consensus estimates on better-than-expected therapeutic drug sales. The company's record revenues were led by solid growth of Cerezyme, along with sales of Renagel that surpassed expectations. Those of you with interest in the Biotech sector should consider this issue for a long-term portfolio position. SEP 30.00 GEQ UF LB=0.81 OI=57 CB=29.19 DE=28 MR=10.5% Chart = ***** LPTH - LightPath Technologies $41.13 *** Optical Solutions *** LightPath uses its proprietary automated manufacturing processes, including laser fusion and laser polishing, to provide optical components and sub-assemblies to telecommunications manufacturers. Their automated processes significantly increase volume production with reduced cost and improved reliability and performance. LPTH reported favorable earnings this month, reporting a 109% increase in total revenues to $2.3 million compared with $1.1 million from the previous year. Sales bookings increased by over 300% for the 4th quarter primarily due to new collimator and isolator orders taken from Corning and Lucent Technologies. LightPath also has signed an agreement to acquire Geltech, Inc, a leading manufacturer of precision molded aspherical optics, which should help LightPath continue to provide a broad and comprehensive range of optical product solutions to the telecom industry. A reasonable entry point for investors who have a long-term bullish outlook for a growing company. SEP 30.00 HDU UF LB=1.00 OI=24 CB=29.00 DE=28 MR=11.8% Chart = ***** REGN - Regeneron Pharmaceutical $33.13 *** Own This One! *** Regeneron Pharmaceuticals is a biopharmaceutical company that discovers, develops, and intends to commercialize therapeutic drugs for the treatment of serious medical conditions. They are currently expanding from an initial focus on complex degenerative neuralgic diseases, and the company has recently broadened its product pipeline to include drug candidates for the treatment of obesity, rheumatoid arthritis, cancer, allergies, ischemia, and other diseases and disorders. Regeneron rallied last week after John Burnham of the Burnham funds promoted the company as his "double your money" pick on a CNBC report. Investors apparently agree with the optimistic outlook and a number of traders posted positive comments about the company. Their most promising drugs include; Axokine, which has exhibited excellent phase I trials and VEGF-Trap molecule, designed for the anti-angiogenesis of tumor inhibition, which will be in trials next Spring. This is a great speculation play for those who are bullish on the issue. SEP 25.00 RQP UE LB=0.38 OI=1 CB=24.62 DE=28 MR=5.9% Chart = ***** RHAT - Red Hat $23.44 *** Growing Linux Acceptance! *** Red Hat is a worldwide developer and provider of open source software products and services. Their product offerings include Red Hat Linux and other related tools, open source software applications, documentation, manuals and general merchandise. Professional services offerings include technical support and maintenance, custom development, consulting, training and basic education, developer support and hardware certification. The company is a leader in the Linux software industry, commanding almost 75% of the market. In a bid to increase its dominance, Red Hat recently disclosed plans to buy C2Net Software, the #1 company in the secure Web server market with a 30% share of the industry. International Business Machines (IBM) recently said it would sell computers packaged with Red Hat's Linux system and Motorola (MOT) will also market their products. A speculative opportunity for traders who agree with the bullish outlook. SEP 17.50 RCV UW LB=0.50 OI=538 CB=17.00 DE=28 MR=10.5% Chart = ***** SIPX - Sipex $37.50 *** Semiconductor Recovery! *** Sipex designs, manufactures, and markets high performance analog integrated circuits. Sipex sells its products across the analog semiconductor market and has targeted high-growth sectors that it believes are especially compatible with its design and process capabilities. Applications for their products include networking, telecommunications, computers, industrial instruments, aerospace, and military. Deutsche Banc Alex. Brown recently raised Sipex to a "strong buy" due to confidence the company is making excellent progress in its new California manufacturing. The new facility is expected to help Sipex meet strong demand and reduce overall costs, increasing gross margins over the next two to three years. Deutsche Banc also noted that business remains strong and Sipex has a number of new products which should keep demand robust and third quarter performance "on track." SEP 30.00 UQX UF LB=0.75 OI=2 CB=29.25 DE=28 MR=9.9% Chart = ***********************ADVERTISEMENT************************ Up To 60% Off At EverythingWireless.com The online super-store for your active lifestyle. Select from the largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.everythingwireless.com\wireless\homepage?id=1601002 ************************************************************ ************************ SPREADS/STRADDLES/COMBOS ************************ Another Great Month! The volatile August recovery produced excellent results for the Spreads/Combos portfolio. Wednesday, August 16 Industrial stocks declined today as retailers slumped on concerns of future earnings growth. The Dow Jones industrial average was down 58 points at 11,008. The Nasdaq Composite index managed to achieve small gains, closing up 9 points at 3,861 amid a rebound in the chip sector. The S&P 500 index was down 4 points at 1,479. Trading volume on the NYSE reached 931 million shares with broad market advances beating declines 1,606 to 1,239. Activity on the Nasdaq was average at 1.39 billion shares. Technology advances beat declines 2,039 to 1,903. In the bond market, the 30-year Treasury fell 15/32, pushing its yield up to 5.74%. Tuesday’s new plays (positions/opening prices/strategy): Red Hat RHAT SEP22C/25C $1.50 debit bull-call Red Hat RHAT SEP-20NP $1.00 credit naked put Regeneron REGN SEP25C/30C $3.75 debit bull-call Red Hat traded higher from the open, offering little chance to participate in the new combination position. We will monitor the issue for an entry point at the suggested price during the next few days. Regeneron moved in exactly the opposite manner, slumping at the opening bell and our bullish debit-spread was available near the recommended price. Portfolio Plays: The Dow industrials retreated today amid profit-taking from the recent rally. Tame economic data, which confirmed the view that the Federal Reserve would not raise rates at the upcoming FOMC meeting, had little impact on investors. The retail group was particularly weak with Home Depot (HD) leading the slump after analysts downgraded the company, citing its rich valuation and the slowing economy. Our recent bearish pick, Hewlett Packard (HWP) opposed the Dow’s decline and after the bell, the company reported a third-quarter profit of $0.97 per share, well above consensus estimates. Hewlett Packard also announced a 2-for-1 stock split and based on the optimistic after-hours trading, our position may not be so favorable tomorrow. In the technology sector, semiconductor issues continued to recover and with the recent rally, a number of under-performing portfolio plays are once again profitable. One of our new positions, Sipex (SIPX) is now comfortably in-the-money, providing an overall credit of $1.62 in the bullish, debit-spread combination. Wednesday’s big surprise was Virata (VRTA), which see-sawed back down to the $65 range, and now it appears the issue will again test support at $55. Our cost basis in the current play is near $40, however we have an obligation to buy the stock near that price until late October. Looking back, it may have been easier to close the original position for a small loss, rather than accept the risk of a (future) major correction. One the positive side, Internet stocks also advanced Wednesday, with Amazon.com (AMZN) and American Online (AOL) rallying after Merrill Lynch analyst Henry Blodget said sentiment is improving in the group. Our bullish position in AOL reached a break-even exit (our target) as the issue neared $55. Of course, after we closed the play, AOL continued to climb finishing just below the session high at $55.50. Thursday, August 17 Stocks moved higher today in a broad-based rally that saw almost every sector achieve substantial gains. Financial stocks pushed the Dow 47 points higher to 11,055. Technology issues were also strong with the Nasdaq closing up 79 points at 3,940. The S&P 500 index was up 16 points to 1,496. Trading volume on the NYSE reached 905 million shares with advances beating declines 1,616 to 1,220. Activity on the Nasdaq exchange was moderate at 1.42 billion shares. Technology advances outpaced declines 2,150 to 1,826. In the bond market, the U.S. 30-year Treasury rose 16/32, pushing its yield down to 5.705%. Portfolio plays: Industrial stocks recovered today and because financial issues were the driving force in the move, some analysts are suggesting the FOMC is done raising rates in the near term. J.P. Morgan (JPM) topped the blue-chip effort, up $4 after slumping during the last two sessions. The Wall Street Journal's "Heard on the Street" column said the stock is cheap and currently trades at a favorable price compared to other investment banks. Meanwhile, in the technology group, semiconductor and biotech stocks moved higher and telecom shares also enjoyed bullish activity. In the fiber-optics sector, Ciena (CIEN) was a big gainer, climbing $15 to $179 after posting third-quarter earnings of $0.19 per share, well above analysts' consensus estimates. The recent 2-for-1 stock split announcement and the upside earnings surprise have combined to push the issue far beyond our original expectations. As we reported earlier in the week, our exit strategy began as the issue crossed through recent technical resistance near $175. We closed the short option (SEP-$190C) near that price range at $10.75, and sold the long option (SEP-$195C) at $10.25 later in the day. The price of that option moved up near $11 before the session ended but we were happy with a break-even exit. There is still a high probability that CIEN will fall short of $190 at expiration but with all of the new optimism, it may be better to avoid the risk entirely. In another surprising outcome, shares of Hewlett-Packard (HWP) slid to $108, one day after declaring a 2-for-1 stock split, as analysts expressed disappointment with the firm’s third-quarter revenues. HWP reported a profit of $0.97 per share, including investment gains, on revenues of $11.82 billion and First Call was only looking for an $0.85 profit. Banc of America analyst Kurt King downgraded the stock saying that revenues were below expectations and the company's optimism will now be viewed as "less credible" after last quarter's results. Regardless of the reason for the decline, our new synthetic position closed at $1 profit and that is a favorable, one-week return, considering the potential for loss that existed just one day ago. Friday, August 18 Equity markets slid lower today in a listless session as traders awaited the outcome of next week's FOMC meeting. The Dow Jones industrial average was down 9 points at 11,046 and the Nasdaq ended 10 points lower at 3,930. The S&P 500 index was also down 4 points to 1,491. Trading was extremely light with volume on the NYSE of only 817 million shares. Broad market declines led advances 1,603 to 1,183. On the Nasdaq exchange, volume reached 1.4 billion shares with declines beating advances 2,093 to 1,878. In the bond market, the 30-year Treasury rose 8/32, pushing its yield down to 5.67%. Portfolio Plays: The majority of stocks traded aimlessly today as investors waded through the session with caution ahead of the FOMC meeting next Tuesday. Almost all of the major companies in the market have reported quarterly earnings and there was little incentive to speculate prior to the upcoming interest rate decision. On the Dow, General Motors (GM) rallied after financier Carl Icahn said he would buy $15 million of stock. Analysts said the optimistic move suggests there is additional value in the auto sector. In the technology group, Sun Microsystems (SUNW) was a very popular issue, adding $3 to finish near $122 after declaring a 2-for-1 stock split. Our bullish synthetic position in the issue has returned a $9 profit in less than one month. The semiconductor group was strong again after positive industry forecasts from a number of major brokerages. Our combination position in Sipex (SIPX) participated in the move and it is now trading at a $1.75 credit overall, well above the initial profit target. In the broader market, major drug, biotech and financial stocks slid lower and surprisingly, oil companies also slumped even after a report from Goldman Sachs suggested the risk of an oil shock to the U.S economy is unusually high, and a 10% probability exists that crude prices could exceed $50 a barrel within the next year. The "double witching" expiration of options on stocks and stock indexes had little impact on the market and in our portfolio, there was little activity of significance. A few remaining adjustments were made in long-term positions but there were no major changes in our outlook for any of the underlying issues. A complete list of the current plays and a summary of results for the August expiration period will be posted in Tuesday’s edition of the OIN. Good Luck! Questions & comments on spreads/combos to Contact Support ****************************************************************** - READER’S REQUEST - One of our subscribers reported the increased bullish activity in a number of small-cap magnetic storage companies. We have also observed increased option activity in that group and based on the new technical outlook, there is a potential for upside activity for many of those companies over the next few months. Here are two candidates for your review and as with any positions, they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** MXTR - Maxtor $7.44 *** Cheap Speculation! *** Maxtor is a supplier of hard disk drive storage products for desktop computer systems. The company's DiamondMax product family consists of standard hard disk drives with storage capacities that range from 4.3 gigabytes to 60 gigabytes. These products have high-speed interfaces for greater data throughput, a robust mechanical design for reliability, magneto-resistive head technology to enable high recording density, and a digital signal processor electronic architecture. Their customers include original equipment manufacturers, distributors, and national retailers such as Compaq, Dell, IBM, Hewlett Packard, Apple, Bell Micro, Ingram, Best Buy, Comp USA, and Staples. Additionally, several smaller retailers and resellers carry Maxtor products purchased through its distribution network. It’s strange that stocks in this group are rallying because Salomon Smith Barney recently lowered its ratings and price targets on a number hard disk drive and component companies, citing an equipment demand-supply imbalance. Analysts reported that historically, it takes two to four quarters to recover from this condition but investors don’t appear to have any concerns about the current fundamentals of the industry. The optimistic outlook can be clearly seen in the recent trading activity of MXTR, which is up almost 20% in the past two sessions. With favorable disparities in option premiums, this position offers an excellent speculation play for those who are bullish on the issue. PLAY (conservative - bullish/calendar spread): BUY CALL JAN-10.00 MQL-AB OI=466 A=$1.43 SELL CALL SEP-10.00 MQL-IB OI=112 B=$0.25 INITIAL NET DEBIT TARGET=$1.00-$1.06 TARGET ROI=50% The basic premise in a calendar spread is simple; time erodes the value of the near-term option at a faster rate than it will the far-term option. A bullish type of calendar spread is when the underlying issue is some distance below the strike price of the options. This position is speculative with low initial cost and large potential profits. Two favorable outcomes can occur: the stock rallies in the short-term and the position is closed for a profit as time value erosion in the short option produces a net gain or; the underlying stock consolidates, allowing the sold option to expire and then eventually rallies above the long option strike price. It is generally best to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. Chart = ****************************************************************** RDRT - Read-Rite $5.94 *** Conservative Ownership! *** Read-Rite supplies magnetic recording heads for the hard disk drive market. The company designs, manufactures and markets magnetic recording heads as head gimbal assemblies (HGAs) and incorporates multiple HGAs into headstack assemblies. Their products are sold primarily for use in 3.5-inch form factor HDDs. The company also supplies magneto-resistive tape heads for tape drives including multi-channel heads for super digital linear tape drives. In addition, Read-Rite produces thin film MR tape heads for use in QIC tape drives in the four gigabyte to 10 GB range per cartridge. Shares of disk drive manufacturers rallied last week, buoyed by optimism that many of the companies in the sector may return to profitability in the second half of the year. Investors bought both stock and stock-options in a number of downtrodden issues just one week after Salomon Smith Barney downgraded the sector, based on concerns that the industry will take longer to recover than previously expected. Obviously, someone is not reading the analysts’ reports and those who choose to follow the tape rather than the balance sheet may consider this position for a conservative portfolio. PLAY (very conservative - bullish/covered-combination): BUY STOCK RDRT ASK=$6.00 SELL CALL JAN01-5.00 RDQ-AA OI=14004 B=$2.38 SELL PUT JAN01-5.00 RDQ-MA OI=5182 B=$1.25 AVERAGE COST BASIS=$3.62 COMBINED TARGET ROI=36% Chart = ****************************************************************** - CREDIT SPREADS - ****************************************************************** LWIN - Leap Wireless $73.44 *** New Trading Range? *** Leap Wireless International is a wireless communications carrier that deploys, owns, and operates in wireless networks in domestic and international markets with strong growth potential. Through its operating companies, Leap has launched all-digital wireless service in the United States, Mexico and Chile. The company is dedicated to bringing the benefits of reliable, cost-effective and high-quality wireless communications services to domestic and growth markets. Originally a subsidiary of Qualcomm (QCOM), Leap now expects to own, upon completion of pending asset acquisitions, wireless communications licenses covering almost 140 million potential customers in North America. The company’s major license holdings include: PEGASO, a joint venture formed to construct and operate a wireless communications network in Mexico; SMARTCOM, a wholly owned indirect subsidiary that offers PCS services in Chile; and Chase Telecommunications, which owns spectrum licenses covering almost 7 million potential customers in the Tennessee area. In domestic services, Leap’s strategy is to offer consumers a simple and affordable wireless service plan that allows them to make all local calls for a flat monthly rate. The approach is unique in that most wireless operators offer customers a bundle of services including a maximum amount of usable minutes but with additional charges imposed for using additional airtime. One newsworthy item: Company officials recently announced they will hold a special meeting of shareholders in late September to approve an amendment to increase the authorized common stock of the company from 75,000,000 to 300,000,000 shares. Some traders see this activity as an indication of a future stock split and obviously, the increased liquidity may also boost institutional interest in the company. We simply favor the bullish, technical "breakout" and this play offers a conservative method to speculate on the future movement of the underlying issue. PLAY (aggressive - bullish/credit spread): BUY PUT SEP-60 UIN-UL OI=42 A=$1.75 SELL PUT SEP-65 UIN-UM OI=19 B=$2.62 INITIAL NET CREDIT TARGET=$1.00-$1.12 ROI(max)=28% Chart = ****************************************************************** SMTC - Semtech $94.00 *** Earnings Play! *** Semtech is a supplier of analog and mixed-signal semiconductors. Semtech designs, manufactures, and markets a range of products for commercial applications, the majority of which are sold to the communications, industrial and computer markets. Their semiconductors enable power management, testing, protection and a range of other functions in products that require analog or mixed-signal processing. Semtech is very popular company in the Semiconductor industry and many analysts favor its fundamental outlook. The current analyst ratings include positive recommendations from both Lehman Brothers and Morgan Stanley Dean Witter. Based on the bullish activity in the issue, investors also believe Semtech is on track to deliver future profitability. Unfortunately, the company has a common, undesirable trait. The underlying share value usually rallies prior to earnings, only to correct after the report is issued. The announcement date is on or about August 22, and we plan to "target shoot" a credit of $1.25-$1.38, providing a cost basis at the current technical support near $73-$74. This speculative position offers excellent reward potential for traders who favor the outlook for the semiconductor industry. PLAY (conservative - bullish/credit spread): BUY PUT SEP-70 QTU-UN OI=11 A=$1.25 SELL PUT SEP-75 QTU-UO OI=8 B=$1.93 INITIAL NET CREDIT TARGET=$1.25-1.38 ROI(max)=38% 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 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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