The Option Investor Newsletter Thursday 08-24-2000 Copyright 2000, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/082400_1.html Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 08-24-2000 High Low Volume Advance/Decline DJIA 11182.70 + 38.10 11197.80 11120.10 821 mln 1429/1383 NASDAQ 4053.28 + 42.27 4055.44 4004.77 1.53 bln 2200/1772 S&P 100 825.15 + 2.34 826.65 819.90 totals 3629/3155 S&P 500 1508.31 + 2.34 1511.16 1501.25 53.5%/46.5% RUS 2000 523.30 + 5.42 523.32 517.64 DJ TRANS 2764.79 + 11.44 2759.65 2731.83 VIX 19.10 - 0.76 20.10 18.97 Put/Call Ratio .43 ****************************************************************** Not pretty but we will take it! By Jim Brown Three dips and a bounce would be a good description of the Nasdaq for Thursday. After gapping open the Nasdaq dropped back to 4004 which was the low of the day before sprinting back to 4040 a few minutes later. Sellers tried to take it down again and the Nasdaq dropped back into negative territory one more time. Again, slower this time, it recovered to bounce off resistance at 4040 dropping to 4014. There was a real battle all day as buyers and sellers traded salvoes but buyers finally won the battle. With one last push off the 2:30 lows the Nasdaq closed near the high of the day at 4054. The Dow struggled with the 11160 resistance level all day but also rallied at the close to post another respectable +38 point gain. For traders used to huge intraday swings of 100, 200 even 300 points back in the spring the current ranges of 50-75 points is like watching paint dry. Not that we are complaining! We will gladly take these lower volatility ranges that hearken back to trading patterns of 3-4 years ago. The concept of putting on trades and feeling comfortable you won't be stopped out 30 minutes later is refreshing. Many new investors are not even familiar with this type of market. Recent new investors grew up thinking 300 point intraday swings were common. Of course if you owned Next Level Communications today your description of volatility is different than ours. After Lehman Brothers cut them from a buy to neutral the stock dropped -49 from over $90 to a $42 close. The problem here was a reliance on one customer for two-thirds of their sales. US West was the one customer and now that Qwest has bought them they are not as likely to continue in the same direction with NXTV products under Qwest control. Several aggressive funds got killed on the news. Of note the Munder Net Net fund had over one million shares and lost almost $50 million at the open. That could ruin your entire day! The government plans to relax a ban on federally-funded research using embryonic cells continued to spark a run in biotech stocks. The main players, STEM, GERN, ASTM were joined by the bigger biotechs like AFFX +8, HGSI +21, CRA +11, PDLI +8, ABGX +8. The news plus some upgrades pushed this sector to over +75% gains for the year and revitalized the sector after the patent problems from several weeks ago. If you owned them you are a winner but jumping on stocks up +20% to 30% in two days can be dangerous. If you would rather invest in calories than biotechs then Krispy Kreme is your ticket. The "donuts to die for" beat analysts Estimates of .18 with a solid $.25 and the stock jumped +24% or +$15 to $78. For investors that gorged themselves today they may find themselves on a diet soon. KREM had languished recently and it remains to be seen if it can hold on to those gains. Economic reports today confirmed the Fed decision to hold on interest rates with orders for Durable Goods dropping -12.4% in July which was much stronger than the -7.7% decline analysts expected. The biggest ever monthly drop in demand for airplanes and transportation equipment led the way. This was on top of a smaller than expected gain in June. While this was good for the market today the true test will come when companies start posting lower profits from the drop in orders. On the job front new claims for unemployment insurance rose by +4000 to 314,000 last week. Not earth shaking but going in the right direction. On the political front, and I mention this only because all of us are struggling to build as big an estate as possible for our families before our eventual death, congressional leaders are sending another bill to repeal the death tax to Clinton for signature. He will veto it and set the stage for a September veto override attempt in Congress. The bill would phase out the "death tax" over the next ten years at a cost of $105 billion. There was sizeable Democratic support since nobody wants to give the government a huge chunk of money that could have already been taxed when it was earned. No commentary of today's events would be complete without at least a mention of the Survivor hoopla. What a bunch of XXXX. The insulting of American collective intelligence is incredible. Any contest where the winner wimped out of the last test and a 45yr SEAL veteran "forgets" to hold onto an idol and the person who kicked butt on all the "challenges" gets booted by a hostile sore loser, and a pick a number between 1 and 10 idiot, is ridiculous. Please no email on this. I am just venting here. Yes, I know Richard was the most scheming contestant taking the "out wit" challenge literally. He played the way I hope I would have played, in war there are no rules. Remember that Rudy? But still appearing on Letterman last night, buck naked, in front of the other 15 contestants for 15 minutes is an insult not only to them but America in general. If you think this was bad, get ready. This fall there will be a program where four guys will be chained to one woman and cameras will record them 24hrs a day. Each week one man will be voted off with the last one being the Eventual winner. It is going to be called something like "chains of love." Now picture yourself chained to four members of the opposite sex (never mind, some guys are probably fantasizing about being chained to four girls, bad analogy) when nature calls at 3:AM. By the time you get everybody awake and into the bathroom it could be too late. But you get my drift. Is this reality TV thing going to far? You want reality TV? Try showing the trading post at NXTV for 30 minutes after the market opened today. That is reality TV! Back to true reality. The Nasdaq managed to close over 4000 twice now. Not much conviction but still nine positive closes in ten days has got to be swaying some opinions of those still in cash on the sidelines. This is where the rubber hits the road as they say. With many traders planning long weekends this week and next there may still be some hesitation to come off the sidelines. However with the market showing good resilience after that +100 point Nasdaq intraday move on Monday it is looking good! The Nasdaq has come off the opening drop two days in a row and that is exactly opposite from the sell at close pattern of last week. Two days over 4000 is very positive. The confirmation of the up trend and broad market participation is encouraging. Even the Dow is along for the ride. This is investor nirvana. Advances are beating declines, new highs are strongly beating new lows, the Dow and Nasdaq are moving in tandem towards April highs. What could possibly be wrong? Maybe the VIX falling to 18.95 intraday today? Another 52 week Low! Earnings warning season starts next week? We are entering into a period of expectation that has not been seen for months. Everybody is expecting the market to go up. Nobody is looking for it to go down. The Fed is on hold, the economy is slowing, politicians are telling us we are better off today than eight years ago. What we are setting up for is a major rally unless something comes out of left field and hits the market while we are busy counting our profits. Non-farm payrolls are next Friday and they are the next big economic hurdle. The revised GDP is tomorrow and Personal Income/Spending next Monday but neither is expected to be a problem. Using my 4000 benchmark from Tuesday you should be long in the market. We did not get the drop to 3800 since support at 3900 held but I am not complaining. Simply maintain that 4000 benchmark and consider closing those positions should we violate it for any reason. This is easy trading if you follow the rules. Friday could see some profit taking so expect it. Better to expect it and not get it than get hit when you are not expecting it. Did that make sense? I would definitely be a dip buyer, the deeper the better. Enjoy the ride but keep looking for that pothole ahead. Good luck and sell too soon. Jim Brown Editor ********************* FALL 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 in-depth education. Don't miss it! Some comments from recent attendees: Chris & Steve, I would like to thank both of you for a great experience at the Atlanta Workshop. I learned more in the three days of the workshop about investing and trading than all of my undergraduate and graduate courses combined. It was a lot of information in a short time and I hope to put it to use very soon. Mike I attended the Atlanta seminar and wanted to forward my positive comments. The seminar "really lit my fire". I have been a trader for 20 years and often go to seminars and this was the first one that really taught me the most. Dr Lloyd Jim, I had the good fortune of attending the meeting in Orlando. Like your newsletter, it was a CLASS ACT. Chris and the others did a great job. Chris was by far the best performer but the gentlemen beside me was an option trader with several seminars under his belt and almost freaked out when Chris finished his Index Presentation. JC I am writing this note to compliment you and your staff on the great job they did in Atlanta. But more importantly I would like to single out Steve Rhoades as one of the finest speaker/teacher on technical analysis that I have ever had the pleasure of hearing. I am doing my best to persuade other members of the two investment clubs that I belong to, to attend the Detroit seminar. Sincerely, ML 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************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************** MARKET SENTIMENT **************** A Stealth Rally Is Amidst By Austin Passamonte Did everyone load up on Boeing LEAPs this spring? That among many other stodgy, old economy issues would not have been a bad investment at all. Market bulls have quietly won the battle since a late July market slide. We've had a stealth rally sweep us up several hundred points in the Dow, NASDAQ and NDX from then until now. Fundamentally everything looks terrific. GE leads many other stocks to new all-time highs on a frequent basis. Several sectors take turns each day pushing the broad markets ever higher. Talk on the street has turned once again to measure new market highs. A light-volume rally doesn't prove staying power but it sure beats a market decline for the bulls. Stocks & options rise in value based on market price, not underlying strength. Those who chose well and bought calls have prospered indeed. Will this strength continue indefinitely? Everyone seems to think so. There isn't so much as a muted growl emanating from deep within dank recesses of bear caves. High time we all go long with reckless abandon. Or is it? Technical signals on broad index and individual stock charts show seriously overbought conditions. The VIX hit an intraday low of 18.95 to close just above 19. Our position is well- documented on this one. Equity put/call ratios and OEX put/call ratios on today's volume are within bearish contrarian range. Traders are loading up on calls quite heavily. Oil prices continue to soar as the U.S. admits to being caught in a giant short-squeeze. Will our lame-duck president convince OPEC to forsake massive near-term profits for the good of a sustained petroleum market? He'll have the same success with oil that both major US political parties did spurning questionable donations for long-term good of this country. How easy is it to walk away from a very deep money trough? Interest rates did not directly slow down this economy as the Fed knew they wouldn't. They indirectly slowed the economy by scaring the stock market into submission. Equity markets didn't slow because of the economy, the economy slowed via margin calls and shriveled 401Ks. Everyone we know invested in the market succumbed to wealth effect over the last few years. Watching retirement funds swell several hundred percent can have no other affect. Seeing those gains turn to ash like our precious western forests has about the same emotional toll as well. When faced with gasoline, heating oil and electric bills up by astronomical amounts going into this fall & winter, how do you think Joe & Jane consumer will react? See any wild spending sprees in their future? Biggest Christmas season in years? A new SUV to replace the old one? Exotic vacations booked on falling airline rates? Lots of luxury items just because? Anyone who thinks high oil prices don't impact the economy for sure don't live in the Northern or Northeastern U.S, where most of our per capita reside. $500 monthly heating bills and $200 electric bills from December to April are no fun on top of normal living expenses. That is reality for many U.S. citizens, including me. Luckily we're traders, but what about everyone else? Tomorrow at 3:00pm EST we'll see the latest COT report. We're quite curious to see how the big boys are positioned to date. Are they still laying huge downside bets or have some been taken off the table? We know small specs remain wildly long. This market is in a giant state of flux as we speak. It awaits the next news event to push it one way or the other. Trade nimble and let disciplined stops keep you safe when it makes a decision to roar. Calls or Puts as circumstance dictates will pay all our energy bills and then some. Merry Christmas regardless! MARKET SENTIMENT INDICATORS --------------------------- VIX The CBOE Market Volatility Index measures certain S&P 100 option pricing to determine investor sentiment. Historically, readings near 30 signal possible market bottoms while levels near 20 indicate possible market tops. Tues 8/22 close: 19.08 Thurs 8/24 close: 19.10 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 (8/22) (8/24) (8/26) ************************************************************* CBOE Total P/C Ratio .55 .43 Equity P/C Ratio .47 .38 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 (8/22) (8/24) (8/26) ************************************************************** All index options 1.47 1.22 OEX Put/Call Ratio 1.77 .71 OEX Maximum Open Interest Strikes/Contracts: Puts 800/4,291 790/6,293 Calls 810/4,796 800/4,852 Put/Call Ratio .89 1.30 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: (8/22) (8/24) (8/26) Overhead Resistance: (920-865) 1,483 1582.75 (860/840) 52.59 49.34 (835/820) 5.13 2.11 OEX close: 818 825 Underlying Support: (815-800) 1.06 1.25 (795-780) 2.44 2.84 What the S/R measure indicates: Net open-interest ratios are firm above 840 and ridiculous above 865 while very light all the way to 780. A large index move has downside clearance to 780 or below with relative ease. We would consider a failed test near the 835 range an excellent put entry. 30-yr Bond: 5.71% 5.66% Light, Sweet Crude, Barrel: $31.22 $31.63 200 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 11,182 NASDAQ: 3,936 3,851 4,053 NDX: 3,672 3,722 3,949 SPX: 1434 1484 1508 OEX: 773 811 825 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. Updated Friday 8/25 Small Specs Commercials DOW futures Net contracts; +116 (long) - 599 (short) Total Open Interest % 2% net-long 3% net-short NASDAQ 100 Net contracts; - 1,854 (short) + 1455 (long) Total Open Interest % 18% net-short 4% net-long S&P 500 Net contracts; + 44,924 (long) -51,720 (short) Total Open Interest % 24% net-long 9.5% net-short BULLISH SIGNALS Interest rates 5.66% on the 30-year Treasury Bond make equity markets the only game in town. Fed-Fund futures are pricing slight chance of further rate hikes and dwindling. Benign Government Reports Latest statistics hint the economy is cooling and no further rate hikes may be needed. Today's reports included Strength In Financial Sector, Many Dow Components Financial leaders approach or exceed all-time highs as plenty of old-economy stocks enjoy strong price leadership Broad Market Strength All major indexes are well above 200 DMAs and enjoying solid gains almost every day. 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 near 19 has us in EXTREME danger zone. End Of Earnings Season Earnings season has all but ended with pre-warning cycle to begin in two weeks. It may not be pretty this time, due to.. Third-Quarter Earnings Warnings A number of companies pre-warning slowed earnings later in the year are being met with extreme selling pressure. Energy Prices Prices are still too high. Ultimately this affects profit margins and inflation. Light, Sweet Crude closed $31.63 today. All petroleum expected to be extremely high this fall. Prices in low $20s would be welcome relief but remain just a dream. 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 - Thursday, 08/24/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 11,182 10,600 11,200 SPX S&P 500 1,508 1,475 1,520 COMPX NASD Composite 4,053 3,650 4,100 OEX S&P 100 825 800 830 RUT Russell 2000 523 485 540 NDX NASD 100 3,949 3,500 4,050 ** MSH High Tech 1,104 975 1,110 ** BTK Biotech 741 640 760 ** XCI Hardware 1,601 1,450 1,620 ** GSO.X Software 460 405 470 ** SOX Semiconductor 1,163 1,000 1,200 ** NWX Networking 1,322 1,210 1,400 INX Internet 552 460 565 BIX Banking 595 550 610 XBD Brokerage 618 570 635 IUX Insurance 692 680 725 RLX Retail 823 805 860 DRG Drug 396 365 415 HCX Healthcare 815 795 855 XAL Airline 157 148 168 ** OIX Oil & Gas 307 280 320 Seven alerts were triggered in the past 2 session. Six at resistance levels and one at support. The NDX, MSH, BTK, XCI, GSO.X and SOX hit resistance levels and closed higher. The XAL hit support and closed higher. Market bulls should keep an eye on the RLX. If everything is as good as it looks then this group should hold support. Defensive groups like DRG and HCX are holding tough. Stay with the trend, but snug up those stops. Raising support (BTK, GSO.X). Raising resistance (NDX, MSH, BTK, XCI, GSO.X, SOX) Lowering support (XAL) Lowering resistance (XAL). ************** TRADERS CORNER ************** You Too Could Be a Writer By Molly Evans May I be so bold as to make a few comments on Austin's Trader's Corner article of last evening: "Education in Options Trading"? First, I must be really out of it! I had no idea about the "Survivor" thing going on until I went to work with real people yesterday. Like...whatever! My conscience is clear Austin! The second and more important thing I'd like to highlight were his admonitions to further ourselves as traders and investors by reading and studying more. I can read and read and read until my eyes glaze over but I have just recently started something that is truly educational. I have to be "doing something" and this helps to fulfill that need while teaching me a lot about myself and the markets. Journaling. I know, it sounds like a pain and maybe it is at first but once it's established, the information you have recorded is a treasure chest. For me, it started one day when I reviewed the log of my trades with the brokerage. It was a little disconcerting to see that while I had made progress, there were many, many little trades gone wrong that I had bailed out. It occurred to me that I really didn't have conviction going into those trades in the first place, I was just trying to see if I could scalp a couple of points on a move. Yeah, I win some, but lose a lot too. I'm just spinning my wheels and wasting time where it could be spent more productively searching out the better trade or writing. In truth, the only real money being made was for the broker. My problem with the markets is boredom! I get bored watching the tape and do much better when I simply set my alerts by TA and then wait. Now that sounds so easy, but why is it so hard for me to follow? I rationalized that if I started a journal, I'd have to answer to myself about why I made a particular move. Would it and could it stand up to a court of my peers? Journaling is often cited in texts as a means of recording our progress and putting our goals into black and white. Authors tell us that's what we should do and we all say, "Yeah, I ought to do that" but then don't. I happen to have an online friend who is loyal to keeping her journal. She started April 10th of this year and it has changed her whole process of trading and investing and how she sees the markets. She's very disciplined, doesn't chase, and has consistently improved her return performance because she's writing down her plan, confronting her weaknesses and recording significant events in her journal. Now, you think you don't have time to do this? She is the mother of four under the age of six and the youngest is a newborn! I knew if she could do it, I could. I mean, my kids are old enough that they can fix their own Ramen Noodles. As Austin said, we all can do this, it's the question of whether we choose to or not. We're talking about our money here. Pay attention. This is important. This is a business and should be taken very seriously. We owe it to our families and to ourselves to strive to master the principles of money management, risk adversity, and capital appreciation. As to the actual process, I think journaling is a highly individual endeavor. How we go about it and what we choose to track matters only in the way it is of value to us. It might be a psychological diary or it might be a tracking of stocks to learn their movements intimately. The possibilities are limitless. As for my journal expert, each day she notes the intraday movements of ten stocks only. She picks only the top tier performers because as in her words, "I can trust them not to let me down. I miss the second tier stocks that run like crazy as I favor the slower ones. I'm just very careful not to get entranced by something that can easily go worthless overnight on me. I simply can't afford that." In her posts each night, she does a reading of the daily chart with notations of her technical indicators. She is a DMI chartist, denoting ADX for the presence or absence of a trend and + and - di for the buying/selling pressure. She relies heavily on ADX for the trend and then uses Williams’s %R to determine an entry point. "Every time EMC or SUNW go into oversold on the daily, (below 20 on %R) I buy contracts and only once has it failed me since I've been playing them." So you see, she's not playing everyday. Only when the getting is good, does she act upon it. She is disciplined enough to exit or reduce her position size when she has her 50% gain too. Of course her chart reading helps her to let it run if that's what it's going to do. She's not obsessed with buying the bottom or selling the very top. She is simply looking to capture the bulk of the trend and it's becoming a consistent paycheck for her. E, as I will call her, charts the Nasdaq everyday and has recently started adding in volume flow, block trades on her individual stock watches and the closing VIX value. I'm sure that somewhere there is a subscription site that you can get historical volume levels but E could tell us instantly whether it's dwindling or creeping upwards, if institutions are buying or selling. It's all because she's just simply tracking it each day. What valuable information! NOK is one she watches. We all know that it recently got put on the chopping block, but do you know how many shares were traded that initial day? E will tell you that it was 119M and that wasn't just tiny investors running for cover. Institutions dumped! Of course, I can see that on Q charts myself but the point is, when you're tracking something each and everyday and writing it down, you're going to recognize patterns and little clues about what the stock is doing or is about to do. In her synopsis of the day, E notes the "feel" of the market and remarks on the reactions to important economic reports. She records whether the markets were up or down in reaction to expected or unexpected numbers, to Fed meetings, how the markets acted on the day of options expirations and the first trading day afterwards. All of this comes in handy down the road. Those who do not learn from the past are doomed to repeat it - that is if it was a mistake. E knows the mistakes and is at least doing something to rectify the situation. Favorable conditions might also be exposed. You wouldn't have to be home watching the tape every single day to do this either. Your journal could be very simplistic or quite detailed. The important thing is that you be consistent in recording the observation or statistics and the developing patterns will appear after time for you to be able to act upon it or draw meaningful conclusions. And so back to my own foray into journaling. I'm forced to really think about what I saw in the trade setup. Why did I enter? Why did I exit? What were the technical indicators saying at those points? Did I act on intuition or did I see something really bona fide and HINT HINT - I'm starting to GET IT?? To make journaling work, one has to be committed to and believe in it. Other traders are your competitors. Have you ever read a book about succeeding in business? They all say the same thing. You have to outwork your competitors. Journaling is work but if you'll force yourself to look at every trade and let me emphasize that: EVERY TRADE, you'll be able to see patterns in yourself that you might not have ever realized. You'll see that you perform well on Tuesdays and horrible on Thursdays, or you consistently read the market early and are too quick on the trigger. Whatever. Your writing won't lie if you're honest with it. I type mine up and print out a chart with notations. The possibilities are endless in regards to how you want to set up your own journal. Whether you choose to physically record observations is obviously your own decision but you must familiarize yourself, one-way or another, with your own strengths and weaknesses before you can overcome obstacles that appear on the path towards trading greatness. molly@OptionInvestor.com ***********************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 ************************************************************ ************* SECTOR TRADER ************* Head Faked Times Two! By Austin Passamonte Buzzy, are you home yet? We got faked out of our trades faster than a Michael Jordan fadeaway jumper on Wednesday. Oh yeah, those entry setups came clean when the indexes sold off from the open only to catch fire and die by 11:00 am. Classic bear-trap set by the bulls lying in wait for us put players! Same thing occurred this afternoon. Just when the markets seemed poised to break, buyers came in and hit the pullback for another round of buying. This tight-range trading is not easy, to be sure. Certain sector HOLDRs fared quite well as we'll lament to any who care in a bit. Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 98.56 0.38 -0.13 1.50 1.50 0.00 3.25 HHH Internet 118.25 2.13 0.63 4.06 2.56 0.00 9.38 BBH Biotech 190.25 3.94 4.25 1.19 7.50 0.00 16.88 PPH Pharm. 96.50 1.38 -0.13 0.19 0.06 0.00 1.50 TTH Telecom. 64.81 0.06 -0.63 0.06 0.81 0.00 0.31 IAH I-net Arch. 102.63 0.13 0.25 2.13 0.88 0.00 3.38 IIH I-net Infr. 56.50 0.31 0.50 1.13 -0.13 0.00 1.81 BHH B2B 47.94 -0.19 0.50 0.44 0.69 0.00 1.44 BDH Broadband 94.50 -0.63 0.50 -0.38 0.06 0.00 -0.44 SMH Semicon 99.25 -2.44 0.94 3.81 -0.50 0.00 1.81 RKH Reg. Banks 105.81 0.88 1.88 -0.25 -0.44 0.00 2.06 UTH Utilities 102.75 -0.44 -0.19 2.00 -1.88 0.00 -0.50 ************** Updates ************** QQQ - NASDAQ 100 $98.63 (+3.31 this week) Today's action mirrored the previous few. Selling near resistance and buying at support with very little space in between. Just when we think a breakout or breakdown is imminent, the pattern repeats once again. Technical chart patterns show the NDX greatly overbought but it could continue higher even so. With the short-term trend going up we should only take buy signals with oscillator tools but no clear ones will set up. For this to happen we need a decent price pull back first. Trying to time any drop using oscillators on an uptrend is a bit risky but the moment we pass the trade it will be that nice downside move everyone waited for. What a dilemma! No clear trade setup I can see on the QQQs for tonight. ------ SMH - Semiconductor $99.25 (+1.81 this week) (Is this party over? Near-term indications are it could be. No sector enjoyed better recent gains than this one, which could be one reason why profit-taking may be near) (This daily chart of SMH shows stochastic lines topped out above 80% overbought and turning. MACD histogram bars are on the decline as well. Upper Bollinger Band was pierced over the past two sessions and the three day candle pattern "doji-red-doji" signals negative indecision at a price peak in the market.) We left that text from Tuesday to illustrate SMH action since then. Our bearish candle got engulfed by a bullish one the very next session. Today's candle is another stalemate doji. Again, indecision reigns. We also have stochastic/price action diversion as well. SMH was stopped at the lower-high trendline resistance while stochastic lines made new highs into overbought territory. This portends a market reversal soon. We stand by our original put play on SMH and consider it a better entry point. Waiting for the slow (red) stochastic bar to turn below 80% oversold on the DAILY chart would be a prudent entry signal in our opinion. ------ BBH - Biotech $190.25 (+16.88 this week) Tuesday we privately looked at BBH as a potential call-play in the making. It was trumped by downside posturing the QQQ and other tech HOLDRs seemed to exhibit. Darn! We missed picking out the best one. First time that's ever happened to us...oops, my nose just grew two inches. Again, stochastic bullish divergence with the market greater degree oversold while prices hold higher than last time prove upward bias. Daily slow bar (red) is just turning positive along with MACD. Under favorable conditions this one has plenty of gas in the tank. A run to 200 or beyond is very possible indeed. Pick your call play based on continued sector strength tomorrow. The BBH has a habit of moving counter to the NDX and COMP lately, so this HOLDR may run even if the broad index sells off. Again, pickings are slim until we get a market breakout in either direction. Pray it comes soon and keep an eye on these two plays in the interim. ************** No Play ************** QQQ PPH BHH IIH TTH RKH UTH ************* DAILY RESULTS ************* Index Last Mon Tue Wed Thu Week Dow 11182.74 33.33 59.34 5.50 38.09 92.67 Nasdaq 4053.28 22.81 5.06 52.80 42.27 27.87 $OEX 825.15 4.80 0.14 0.14 2.34 4.94 $SPX 1508.31 7.76 -1.35 -1.35 2.34 6.41 $RUT 523.30 0.94 1.01 0.42 5.42 1.95 $TRAN 2746.79 -18.55 4.49 -87.73 11.44 -14.06 $VIX 19.10 0.14 0.06 0.24 -0.76 0.20 Calls CIEN 201.06 5.38 9.31 2.88 6.81 24.38 New JNPR 189.94 3.00 12.63 0.31 3.19 19.13 $200 next? VRSN 178.44 2.94 3.50 7.94 4.31 18.69 New QLGC 109.69 2.25 2.75 8.38 3.31 16.69 Booming SDLI 411.88 13.25 -4.50 -3.00 10.88 16.63 Like a yo-yo BRCM 273.63 1.69 2.38 7.72 3.72 15.50 New VRTS 115.69 1.75 2.63 2.50 1.69 8.56 New DIGX 89.00 -0.38 0.25 4.56 4.00 8.44 Nice reward PLXS 139.00 4.38 4.00 -0.88 0.88 8.38 Splits 8/31 GSPN 138.25 -0.56 2.75 0.88 4.81 7.88 Stepping up NTAP 101.69 1.44 -1.00 5.63 1.69 7.75 New LSCC 74.50 -3.25 0.81 4.94 4.38 6.88 Watch trend IDTI 79.44 -3.31 2.88 5.06 1.94 6.56 All-time high EXDS 65.88 1.44 2.19 0.19 1.63 5.44 Break away SUNW 127.75 -0.31 0.13 4.50 1.06 5.38 Momentum MER 139.81 3.69 -0.97 -3.59 -0.13 -1.00 Dropped EMC 92.13 -0.56 0.88 0.13 -2.50 -2.06 Wall at $95 FDRY 87.44 2.31 -3.56 -1.19 -1.81 -4.25 Dropped Puts VSTR 115.50 -9.75 -5.94 4.19 3.63 -7.88 Dropped AT 52.75 0.06 -1.06 -0.69 -1.63 -3.31 New UK 40.97 -0.85 0.28 -0.75 -0.59 -1.90 New TLAB 58.56 -1.25 -3.00 1.44 2.19 -0.63 Dropped QCOM 60.63 -0.75 -2.38 -0.19 4.19 0.88 Dead cat? TIBX 96.00 -4.69 4.69 1.44 5.63 7.06 Dropped YHOO 139.81 5.25 -2.94 6.31 6.00 14.63 Dropped PWER 158.38 -1.63 7.19 4.38 11.75 21.69 Dropped MLNM 135.31 2.88 3.19 9.69 10.50 26.25 Dropped PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** FDRY $87.44 -1.81 (-4.25) FDRY's upward potential showed signs of weakness in the past two sessions. The developing near-term support at $90 and $92 lost its bottom as the share price began trading lower at $87 and $88. Not good. Plus, the volume levels, currently at about 75% of the norm, have not returned to at least average status. Also not good. Now let's consider the market environment. The NASDAQ was flourishing. And to boot, FDRY received new Buy coverage at Argus Research today. It appears that FDRY's recent momentum run has come to an untimely demise. Let's move on to better plays. No matter how hard we try, we can't wish it back up! MER $139.81 -0.13 (-1.00) After leading the DJIA on an impressive rally for the past 2 weeks, the Financials have given up their leadership role to other sectors. With the proximity of its 2-for-1 split, we would have expected MER to show more strength. After moving up to nearly $146 on Tuesday, our play had given up $8.56 before finding support in the middle of today's trading session. Although the bounce came on decent volume, the bulls are looking a little tired and we're not convinced they have the stamina to continue pushing MER to new highs. Although it could still happen, the deteriorating technical picture leads us to drop the play in favor of better plays in the technology sector. PUTS: ***** PWER $158.38 +11.75 (+21.69) Someone must have put some fresh batteries into this one. Ever since finding a bottom at $130 on Monday, PWER has powered up along with the rest of the market. On Tuesday, the stock closed above its 5-dma, currently at $143.37. Wednesday saw PWER close above its 10-dma, now at $145.25. This move came despite encountering some light resistance at the $148 area. Opening down in the early morning, PWER spent the rest of the day moving up to close up $4.38, or 3.08%, on about 91% of ADV. Today, PWER charged up over 8% on over 120% of ADV. The stock dipped briefly in the early morning but for the rest of the day the buyers came in droves, bidding up the stock past key resistance at $150 on accelerating volume. Momentum like this can not be ignored and clearly the bulls have the momentum with this stock. As a result, we are closing this put play. MLNM $135.31 +10.50 (+26.25) The biotech bull is back, much to the dismay of this put play. With no specific news for MLNM, the stock has been moving in sympathy with the biotech sector. Right now, the sympathy is strongly positive. Blow-out earnings from MYGN, positive words from the President stirring up excitement over stem-cell research, and today’s upgrade of HGSI from Robertson Stephens all conspired to lead the biotech sector higher. Yesterday, MLNM took out its 50-dma in the $117 area. In doing so, it not only cleared resistance at $120 but also blew past $125 for good measure, closing up $9.67, or 8.40%, on 81% of ADV. With the 5-dma providing support, today saw more upside for MLNM, closing above not only $130 but also the $135 mark. With strong positive sentiment driving MLNM and the biotech sector higher, we are stepping aside lest we be trampled by stampeding bulls. VSTR $115.56 +3.69 (-7.81) VSTR quickly reversed its downward slide over the past two days on the heels of the approval of another high-profile international merger. President Clinton said he would allow Japan's NTT to buy VRIO. Traders viewed the decision as a positive for the approval of the proposed DT and VSTR merger. The news helped to narrow the spread between DT and VSTR. Coincidentally, DT has stabilized over the last two days of trading in Europe, which added to VSTR's rebound. In light of President Clinton's approval of international mergers, and DT's stabilizing price action, we must narrow our losses and sell too soon. TIBX $96.00 +5.63 (+7.00) TIBX pulled out its relative strength over the past two days to battle off the bears. The news of MSFT entering the e-Business Services sector has faded off into the background. Traders are instead focusing on the strength in the broader B-2-B sector, which has helped to postpone TIBX's recent sell-off. Of note, volume during TIBX's last two up days was much less than that during the stock's big down days last week. TIBX's recent strength may be nothing more than a sympathy rally. However, in sympathy of our trading capital, we're going to step aside from TIBX, and sell too soon. TLAB $58.56 +2.19 (-0.63) After a promising decline to bottom support ($52.31) during amateur hour on Monday, TLAB zigzagged its way upward alongside Ciena (CIEN) and Nortel (NT). The resulting climb placed TLAB just above the $56 mark, setting up for a solid entry if followed by downward movement. Unfortunately, that wasn't the case. Today, the news of Verizon's strike coming to an end and economic data that suggests no more rate hikes effectively benefited the entire sector. TLAB peaked intraday at $58.75 and closed just a fraction away. The strong finish near the 10-dma line is also discouraging. With the current condition pointing to an impending recovery, we're exiting this play. YHOO $139.81 +6.00 (+14.63) Investors seem to have shaken off concerns about stiffening competition for online ad revenue as they stepped forward to support the share price of leading Internet companies like YHOO. After bouncing on the $125 support level yesterday, our play climbed steadily up to and through resistance at $130-131 without so much as a pause. Then, the buyers really piled on and have pushed the stock above the next resistance level at $138. Closing the day at the high of the day on volume nearly 25% above the ADV is not the kind of behavior we look for in a put play. With the improving sentiment in the Internet sector and the bullish technical picture, it is time to drop our play on YHOO. **********************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. 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The Option Investor Newsletter Thursday 08-24-2000 Copyright 2000, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/082400_2.html ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************** PLAY UPDATES - CALLS ******************** GSPN $138.25 +4.81 (+7.88) Another step up for GSPN. While GSPN opened lower on Wednesday morning, it appeared to be continuing its trend of consolidation over the past week. The stock spent most of the day hovering above the $129-130 support level before moving up in the last 2 hours of trading to close the day in the positive, up 88 cents on about 60% of ADV. If yesterday was consolidation, then today would be more akin to a breakout. Gapping up to open at $134.50, the stock blasted off on the first hour of trading, clearing $135 resistance on strong volume. However, after that initial pop the stock spent the rest of the day drifting lower before bouncing above the former resistance level of $135. With selling volume for the day light compared to buying volume, the intraday dip most likely was due to profit-taking. The last hour and a half of trading saw the buyers return to keep the stock above $135 support. Those looking for additional support below this point will be watching the 5-dma, at $132.79 and then $130. A bounce off that level with volume could provide for an aggressive entry point. The next levels of resistance overhead can be found at $140 and $145. SDLI $411.88 +10.88 (+16.63) SDLI hasn't given up yet. Peaking on Tuesday at $421.75 on Tuesday, the stock has been up and down like a yo-yo. Obviously, surviving the profit takers after the peak, SDLI has continued to offer the volatility that make this play risky yet rewarding. Wednesday, SDLI traded in a range of $13.63, hitting a low of $393 and a high of $406.63. Following a similar pattern today, the stock dipped below the 5-dma of $404.06, falling to a low of $399.31 before noon on strong volume. It then regained steam, settling in around the $410 range for most of the afternoon. Another volume surge late in the day pushed the stock to the day high of $413 moments before the bell. Trading on momentum and not much news, SDLI is still attractive for the call play. Closing at $411.88, the nearest support lies in the 5-dma. Below that level, there is intraday support at $400, and then $398. 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 $412 as an indication of continued strength in the stock before taking action. As we have stated previously, stops are a must on this play! SUNW $127.75 +1.06 (+5.38) Go NASDAQ, roll SUNW! Momentum is carrying the stock to new highs day after day, and our play further into the profit zone. SUNW got a boost today from the VA Linux (LNUX) earnings report last night. LNUX reported a narrower-than-expected loss, and provided analysts with a rosy outlook for the Linux market. SUNW makes the servers that power the Linux software. The recent renewed strength in the broader Tech sector should continue to carry our play higher. If the NASDAQ looks strong going into the weekend tomorrow morning, an aggressive trader might consider entering the play at its current levels, or on a quick rally off the $128 level. A more conservative trader might wait for SUNW's momentum to build before initiating new positions, and target shoot for entry points if the stock rallies above its intraday 52-week high at $128.63. SUNW's 5-dma has moved up to $124, and continues to provide support during the stock's climb higher. An aggressive entry might be found on a pullback to support at $126, or lower near the 5-dma. EXDS $65.88 +1.63 (+5.44) The formation of the much-hyped Content Bridge alliance was formally announced yesterday. The new entity will focus on providing content to Web users, and will unify Internet heavyweights including AOL, ISLD, INKT, and our EXDS. The news helped EXDS to shrug off the early sell-off yesterday morning and rally back above the $64 level near the close of trading. EXDS has taken control of the reigns of the Tech sector, and might continue to trade higher as long as the NASDAQ cooperates. By breaking away from the $60 earlier this week, EXDS has bolted into breakout territory. The stock faces some congestion above its current levels, with $70 marking the next major hurdle challenging EXDS's advance. The stock did bounce higher in the final moments of today's trading along with the burst in the NASDAQ. A solid entry might be found early Friday morning if EXDS rallies above resistance at $66. An aggressive trader might look for a bounce off support at $65, or lower at $64, if EXDS pulls back on profit taking. IDTI $79.44 +1.94 (+6.56) The Philly Semi Index ($SOX) posted gains for the third consecutive day today, en route to carrying IDTI to an all-time high. The stock is on an uninterrupted march higher, using its month long ascending channel as a guide to higher prices. The stock's 5-dma, which has moved up to $74.38, continues to provide support during IDTI's advance, and might be a place for the aggressive traders to consider entering the play if the stock falls on light selling. Volume continues to come in at above average levels as IDTI charts new territory. The stock was the recipient of favorable comments from SG Cowen this morning. Analysts at the firm reiterated their Strong Buy rating on the stock and set a $100 price target, citing the solid outlook for the SRAM market. Given IDTI's strong finish this afternoon, an aggressive trader might look to enter the play at current levels if the Semi sector shows strength going into the weekend. Watch for a move above IDTI's intraday high of $79.56. In the event of profit taking in the Chip sector, IDTI has support just below at $78, again at $76, and lower at the 5-dma. PLXS $139.00 +0.88 (+8.38) Did you catch an entry and ride the wave topside? Yesterday, PLXS dipped into the vicinity of the 5-dma at $133.75 before shooting upward to challenge Tuesday's 52-week record ($142.63). Today, the stock's downgrade from a Strong Buy to Accumulate at Prudential cut the share price by over 7 points to $131 before it got fired up again. The cut coincides with a change in analyst coverage from James Thayer to Ellen Chae. She commented that "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." Prudential, however, maintains its 12-month price target of $160. After all was said and done, PLXS resumed its bullish climb and is currently set on the higher spectrum of near-term support ($135-$138). Our anticipation is that PLXS can crack the overhead resistance in the coming days before it splits 2:1 on August 31st. But, be aware of the potential risks. Recall that PLXS's recent momentum has taken it from around $90 to $140 in less than a month! At this level, resistance is strong and profit takers are in the wings waiting to pounce. Keep the stops tight. DIGX $89.00 +4.00 (+8.44) Traders received nice rewards from the momentum play on DIGX. After a mere couple days of consolidation at its newer support of $80, DIGX broke to the upside. Early on Wednesday, the upper resistance at $82.88 became a dot in the rear-view mirror. Again, volume was the master key. Trading activity was dynamic at around one mln shares exchanging and we should look for similar results to pump the stock higher. Currently, there's light support at $85, which is just above the 5-dma ($83.04). If this level stabilizes intraday, use the subsequent dips to get an entry. If you're more adventurous and enter on a straight climb, watch for opposition near the $95 mark. JNPR $189.94 +3.19 (+19.13) We're liking the numbers! JNPR catapulted to another all-time high on Wednesday. The share price crested at $194.25 before some chips were taken off the table. The price level, however, maintained strength at $189 and $191 even into today's session, which clearly demonstrates the momentum is intact. Yet, the ultimate test will be for JNPR to penetrate and hold above the $200 mark over the short- term. While volume levels continue to be robust, look for exceptional levels, at 2 mln or better intraday, to signal more upside action. Pay attention to general market direction too. JNPR likes to strut its stuff on the tailwinds of the NASDAQ's gains. So far, this pure momentum play has offered a multitude of lucrative opportunities. Let's not throw caution to the wind and risk our profits. Set stops, at least mental ones, on this high-flying Internet. EMC $92.13 -2.50 (-3.81) Almost, but no cigar. Going into the noon hour yesterday, it looked like the bulls were going to be triumphant in pushing EMC to new highs. With buying volume on the rise, the price managed to eclipse Tuesday's high, and hitting $96.25 before the move ran out of steam. The buyers ran out of money to spend and when they did, the profit takers were all too willing to take some money off the table. Our play is now right back near the $92 support level, and further investor nervousness could produce a retest of the $90 level before we are ready to make another run at a breakout. Each time the bulls charge at the $95 resistance level and fail, it gets stronger. The strength of this resistance level can be seen in the Put/Call ratio, as there are currently 7 Calls at the $95 strike for every Put. This creates some strong resistance, but once we break through, our play could have another impressive run. Once this level is cleared, the psychological $100 level will be the next target. This brings up another possible bullish factor -- EMC typically splits over $100, and if the bulls are successful in scaling the wall of worry, we could be rewarded with a split announcement. Intraday bounces at support look like the best entry strategy at this point. Target shoot to your level of risk tolerance, but wait for the bounce to be confirmed by increased buying volume. LSCC $74.50 +4.38 (+6.88) Concerns about a slowdown in the Semiconductor sector's current growth cycle have been tossed aside as chip stocks continue to surge higher. Comments from industry leader Intel that demand continues to outstrip supply are continuing to fuel demand for chip stocks. After pulling back to support at $64 earlier in the week, LSCC took off again yesterday morning. Volume was weak until the price penetrated resistance at $68, and then the buyers really started piling on board. The past 2 days have seen volume significantly above the ADV, which has pushed the stock to close at the high of the day. LSCC is quickly closing in on the next level of resistance at $76, followed by $78. Intraday support is forming near $73, and demand for the stock is still looking strong. Better entries can be had on intraday dips to support, so you can look to initiate new positions as buying volume returns. For the more conservative players, wait for continued buying volume to push our play through the $76 resistance level before playing. Keep in mind that LSCC tends to move higher for 2-3 days before pulling back to support. Since it is up strongly over the past 2 sessions, profit taking could occur at any time. QLGC $109.69 +3.31 (+16.69) Looking ripe for a breakout when we picked it up as a new play on Tuesday, QLGC is performing beautifully. After an early morning dip to $93 yesterday, our play quickly recovered to consolidate near $97 before the real fireworks began. Investors came back from lunch in a buying mood, and on a surge of volume pushed shares through the $99 resistance level. Yesterday's session saw QLGC closing near the high of the day, and the enthusiasm continued this morning as the price gapped higher at the open. Today's action pushed our play through the $107 resistance level, and after such a strong move, it's no wonder that it spent the bulk of today's session consolidating its gains. Our play is looking strong, as volume has been well above the ADV over the past week as the share price has risen 33% in the past 6 days. Look for a dip to support near $106-107 to provide a better entry, but don't be afraid to buy this one on strength. QLGC is in the hot Storage Area Networking (SAN) sector, and barring a broad market decline, it looks poised to run even higher. Investors that would prefer to buy on a breakout should wait for shares to trade through the next level of resistance near $110 before initiating new positions. ******************* PLAY UPDATES - PUTS ******************* QCOM $60.63 +4.19 (+0.88) There is no doubt today that QCOM bounced. But what kind of bounce was it? Was it a technical bounce off of a bottom, or was it one of the species feline mortis (aka the dead cat)? Wednesday morning saw the stock gap down at the open. Finding a bottom at the $55 area, the stock spent the rest of the day recovering to close down 19 cents on 74% of ADV. Those who watch the Bollinger bands will note that Tuesday and Wednesday's closes were outside of the bands. This suggested that the stock may have been oversold. Today, we got a bounce back into statistical normalcy as QCOM gapped up at the open. QCOM spent the rest of the day moving higher and in doing so, closed above both its 5-dma ($58.53) and 10-dma ($59.90). At this point, the direction could go either way. Exercise caution considering this and the positive NASDAQ. This could either be a perfect entry point into a put play or it could be a signal to close this put play. A break below the 10-dma with volume could provide for an aggressive entry. The more conservative will want to see QCOM move below its 5-dma with conviction before entering. ***********************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 ************************************************************ ************** NEW CALL PLAYS ************** CIEN - Ciena Corp $201.06 +6.81 (+24.44 this 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. It's time to bring back an OIN favorite in CIEN. The stock has been on a tear during the month of August on the heels of the resurgence in the Telecom Networking sector, with particular bullishness in Fiber Optic related stocks. Not only does CIEN have sector momentum flowing in its favor, the company has the winds of stellar earnings and new contracts blowing in its sails. CIEN was able to beat analysts' estimates by two cents when it reported its second quarter results last Friday with an 80% increase in revenues. Moreover, the company said it had won three lucrative contracts to supply network builders with a new switching product; CIEN didn't disclose the companies involved in the deals. Following the profit and contract announcements, CIEN was greeted with a host of Wall Street praise. ABN AMRO upgraded the stock to an Outperform rating from a Hold and DLJ reiterated its Strong Buy and set a $260 price target. The bullishness with which CIEN is currently engulfed has carried to stock into record territory over the last week, which culminated with a finish above the technically and psychologically significant $200 level today. CIEN has run over 40% this month, with little in the way of resistance. CIEN's uninterrupted run does present some risk in the way of future profit taking. The talking heads on CNBC even suggested the Fiber Optic related issues were due for a pullback. If the profit takers do show up Friday, you might look for a bounce off support at $195, or lower around the 5-dma near $190. Make sure to confirm any pullback with light volume. On the other hand, if CIEN continues its climb higher tomorrow, consider entering the play on a bounce off $200 or after the stock clears its intraday high at $201.31. If for some reason the NASDAQ tanks under selling pressure and the VIX.X spikes up, step aside until the dust settles. In conjunction with its earnings announcement last week, CIEN declared a 2-for-1 stock split. The Board of Directors set the payable date for September 18th, which is not too far off. Along with earnings momentum and sector cooperation, the excitement of a pre-split run might carry CIEN higher in the coming weeks. BUY CALL SEP-195 UEE-IS OI=2116 at $17.38 SL=12.50 BUY CALL SEP-200*UEE-IT OI=3572 at $14.63 SL=10.75 BUY CALL SEP-210 UEE-IB OI= 658 at $ 9.88 SL= 7.00 BUY CALL OCT-200 UEE-JT OI=6732 at $24.13 SL=18.00 BUY CALL OCT-210 UEE-JB OI= 700 at $19.38 SL=14.00 Picked on August 24th at $201.06 P/E = 485 Change since picked +0.00 52-week high=$201.31 Analysts Ratings 9-11-1-0-1 52-week low =$ 26.38 Last earnings 07/00 est=0.17 actual=0.19 Next earnings 10-20 est=0.24 versus=0.03 Average Daily Volume = 5.21 mln NTAP - Network Appliance $101.69 +1.69 (+7.75 this 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. It's been a great month for Network Appliance. Despite a few dips along the way, those who believed in the stock in the beginning of August were amply compensated with some nice returns. It's also been a busy month for NTAP, reporting earnings just ten days ago on August 14th. Revenues for NTAP's first fiscal quarter came in at $231.2 mln. This was a 124% increase over last year's revenues of $103.3 mln. According to CEO Dan Warmenhoven, "Revenue for the quarter was driven by the overall growth of the external storage market, as customer demand for high-end, scalable systems and data management software expanded through the quarter. Storage is becoming the most critical element of IT infrastructures for today's content-centric global businesses and Network Appliance is very well positioned as a leader in network-attached storage and content delivery solutions." Despite these bullish comments of a hot storage market from the CEO, the stock sold off the very next day, putting NTAP right below its 50-dma (now at $88). This did not prove to be much of a resistance point as the stock broke though the next day and has pretty much moved straight up since then. Yesterday, the stock closed right at the all-important psychological level of $100. Waiting for NTAP to pick a side today, the stock moved lower in early morning trading. Finding support above its 5-dma at $97.15, the stock spent the rest of the day moving higher to close above the century mark. Traders looking to buy bounces off support levels will find them at $100, $97.15 and $95. There is additional support from NTAP's 10-dma at $93.22. Overhead resistance may be encountered at $102, $106 and then $110. News this week was good, with FastLane Technologies Inc. announcing support for NTAP products through their FastLane DM/Condolidator 2.5 applications. Wednesday saw NTAP announce a new customer in OpenGrid Inc. Good news will certainly help the stock's attempt to take out its previous all-time high, but make sure volume confirms direction before entering. BUY CALL SEP- 95 ULM-IS OI=1110 at $12.13 SL= 9.00 BUY CALL SEP-100*ULM-IT OI=2356 at $ 9.13 SL= 6.25 BUY CALL SEP-105 ULM-IA OI=2389 at $ 7.00 SL= 5.00 BUY CALL OCT-105 ULM-JA OI= 37 at $12.88 SL= 9.75 BUY CALL OCT-110 ULM-JB OI= 122 at $10.88 SL= 8.00 SELL PUT SEP- 90 ULM-UR OI= 491 at $ 2.56 SL= 4.00 (See risks of selling puts in play legend) Picked on August 24th at $101.69 P/E = 555.56 Change since picked +0.00 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. $178.44 +4.31 (+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. What a comeback! The last time VeriSign was mentioned in the hallowed halls of the OIN playlist it was as a put play, and a profitable one at that. At the time, the stock was caught in a downward spiral of negative momentum. So much so that even a double dose of good news and upgrades could not get the stock to rally. Since finding a bottom at the $140 level, however, the stock has made a beautiful recovery. Bouncing strongly from that area, VRSN has managed to claw its way above its 100-, then 200- and now the 50-dma (at $152, $161, and $166 respectively). Since the bounce off of $140, VRSN has been riding its 5-dma ($168.20) up with little signs of slowing down. The early part of this week was spent attempting to overcome resistance at $170. Yesterday, the stock cleared that level after a successful bounce off its 5-dma but encountered resistance at $175. Today, the $175 level was cleared right at the open as the stock gapped up above that level and spent most of the day moving higher. There was some profit-taking just after lunch time but by the close, buyers stepped in to bid the stock up on accelerating volume. At this point, support levels can be found in increments of $5 at $175, $170 and $165. There is also support from the 5-dma as well as the $160 area, courtesy of the 10-dma and the 200-dma. A bounce off a major moving average could provide for an ideal entry point but confirm any bounces with volume before entering. Overhead, VRSN encountered resistance at $180 today. A break above that level on strong volume may offer an entry point for the conservative. Above that the next levels of resistance may be found at $183, $185 and $188. 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. BUY CALL SEP-175*QVZ-IO OI=1359 at $13.13 SL= 9.75 BUY CALL SEP-180 QVZ-IP OI=1146 at $10.50 SL= 7.25 BUY CALL SEP-185 QVZ-IQ OI= 642 at $ 8.38 SL= 6.00 BUY CALL OCT-180 QVZ-JP OI= 63 at $22.25 SL=17.75 BUY CALL OCT-185 QVZ-JQ OI= 23 at $20.13 SL=14.50 SELL PUT SEP-170 QVZ-UN OI= 487 at $ 6.38 SL= 9.50 (See risks of selling puts in play legend) Picked on August 24th at $178.44 P/E = 1187.05 Change since picked +0.00 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 BRCM - Broadcom Corporation $273.63 +3.72 (+15.50 this 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. If you are looking for a low risk call play, trust me, this is NOT it. However, if you like momentum plays on clear industry leaders, BRCM deserves a good look. Demand for broadband Internet access continues to explode, and the company has positioned itself in a leadership position in the industry. Growing revenues from just $37 mln in 1997, BRCM posted $437 mln for the first half of this year. Many analysts are expecting the company to top $1 bln by the end of the year. Following the lead of networking giant CSCO, BRCM is fueling its rapid growth with strategically wise acquisitions (see below for details), using its stratospheric stock price as currency. One look at the stock's PE ratio (currently north of 400) is enough to keep timid investors at bay, but the frequent $15-25 price moves only serve to whet the aggressive investors' appetites. BRCM tends to trend very well, making it a very tradable stock and the wide daily ranges serve up many attractive entry points. After moving back above the 5-dma (currently $264.75) on August 14th, BRCM has used this moving average as support as it has quickly tacked on nearly $50. The last 2 days have seen our play breaking out to new highs, and today's close near the high of the day is giving the stock a definite bullish bias. There is no overhead resistance at this point, and major support is found at $260-261, followed by historical support at $248-250. Intraday support is beginning to form near $265, which is right on the 5-dma. Consider intraday dips to be attractive entry points for the next run higher. Although this play is not for the faint of heart, a more conservative entry strategy is to open new positions as BRCM breaks to new highs on the back of continuing strong volume. Aside from the latest installments of BRCM's ambitious acquisition strategy there has been little relevant news recently. In the past three weeks, the company has snatched up Altima Communications, Silicon Spice, and NewPort Communications. 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-270 YRL-IN OI=947 at $16.00 SL=11.50 BUY CALL SEP-280*YRL-IP OI=963 at $11.13 SL= 8.25 BUY CALL SEP-290 YRL-IR OI=569 at $ 7.50 SL= 5.25 BUY CALL OCT-280 YRL-JP OI= 14 at $24.38 SL=18.25 BUY CALL OCT-290 YRL-JR OI=228 at $19.88 SL=14.50 SELL PUT SEP-250 RDU-UJ OI=840 at $ 4.13 SL= 6.25 (See risks of selling puts in play legend) Picked on August 24th at $273.63 P/E = 427 Change since picked +0.00 52-week high=$274.50 Analysts Ratings 9-12-0-0-0 52-week low =$ 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 = 5.31 mln VRTS - VERITAS Software $115.69 +1.69 (+8.56 this 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. A strong close over the 50-dma prompted OIN to take a closer look at VRTS. Essentially, this technical indicator has held VRTS a virtual hostage since the stock broke down following 2Q earnings on July 18th. Until today's session, VRTS wasn't able to penetrate $115, no matter what the volume activity. The support base, however, is firm at $108 and $112. The $100 level provides a more solid launching pad, but one that is unlikely to be tested within the span of this play. We're betting that this technical breakout will stir up some momentum as traders start nibbling. Currently, the volume is respectable, but not quite where it needs to promote powerful moves. Before beginning new plays, look for high-volume moves above resistance to confirm an uptrend. Today's intraday high at $116.88 is the only barrier shielding VRTS from future advances. Above that, we're looking at a target of $125. Last week, Daniel Morgan at Noble Financial Group reiterated a Buy recommendation on VRTS. In other news, VERITAS announced its family of desktop backup solutions. 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. BUY CALL SEP-110 VUQ-IB OI= 1022 at $11.50 SL= 9.25 BUY CALL SEP-115*VUQ-IC OI=12557 at $ 8.75 SL= 6.00 BUY CALL SEP-120 VUQ-ID OI= 1288 at $ 6.50 SL= 4.50 BUY CALL OCT-115 VUQ-JC OI= 66 at $15.13 SL=11.00 BUY CALL OCT-120 VUQ-JD OI= 18 at $13.00 SL= 9.75 Picked on August 24th at $115.69 P/E = N/A Change since picked +0.00 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 = 5.66 mln ************* NEW PUT PLAYS ************* UK - Union Carbide $41.00 -0.63 (-1.88 this 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. The Chemicals sector is no place for the bulls. Investors have left the group to the bears this year, in favor of high-growth segments of the economy such as Technology, among others. And rightfully so. In the case of UK, single digit earnings growth just doesn't cut it. Despite merger plans with DOW, which is expected to be completed within the quarter, UK continues to trace new yearly lows. Because of the proposed merger, both stocks trade in sync with one another. And, you guessed it, DOW is also hovering near 52-week lows. Several Chemicals stocks, including the acquirer DOW, received favorable comments from Chase H&Q last week. Analysts initiated coverage on DOW with a Buy rating and set a $35 price target; DOW closed today at $26.50. Despite the attempt from Wall Street last week, the Chemicals sector has gone on to trace new lows. In fact, the losses are accelerating. Both UK and DOW have fallen for two consecutive days on unusually heavy volume. UK slipped to a new low today on more than twice its ADV. The fact that UK is trading at its 52-week low leaves little, if any, support below current levels. If the recent increase in volume is a sign of things to come, UK could be headed much lower, especially if the Tech sector continues to strengthen and draws capital away from the beleaguered Chemicals sector. Consider entering the play Friday morning at current levels if UK continues falling on heavy selling pressure. Make sure to confirm direction in DOW before entering the play. If the stock bounces tomorrow morning on light volume, look for traders to fade the rally, and consider entering the play on a bump against resistance at $41.50, or higher near the descending 5-dma at $42. BUY PUT SEP-45*UK-UI OI=47 at $4.88 SL=3.00 BUY PUT SEP-40 UK-UH OI= 2 at $1.25 SL=0.50 Average Daily Volume = 800 K AT - Alltel Corp $52.75 -1.63 (-3.31) Alltel is an information technology company that offers telecommunication services in the U.S. 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. A repeated outlook for 2000 EPS during a conference call with analysts last Wednesday, August 16th, brought utter devastation to shares of Alltel Corp. AT dropped 9.3%, or $5.81, after executives repeated an estimate, a figure below Wall Street's forecast, for earnings of $2.70 a share for the year. 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. This upgrade came despite the company's steadfast outlook, an outlook first put out in February. Further 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." Investors and analysts didn't take kindly to the re-affirmation. Shares plummeted in heavy trading and hit $55.56, the first in a series of new 12-month lows before base-lining. The stock also made other records that day too. AT was among both the volume leaders and biggest percentage losers on the NYSE! Frank Louthan at First Union Securities may not have offered any additional comments, yet he quickly cut his rating on AT down to a Buy from a Strong Buy. This week the situation worsened. On Tuesday, AT cracked the $55 base support on increasing volume. Then, $54 couldn't hold and now the all- time low to beat is $51.88! The telecom sector isn't at its best and with no bottom support to speak of, we expect AT to edge even deeper in the near-term. While we don't expect AT to have intraday peaks near the 10-dma ($57.55), the 5-dma ($54.88) makes for a reasonable entry point on a downward bounce. Keep stops tight for protection. BUY PUT SEP-60 AT-UL OI=690 at $6.50 SL=4.50 BUY PUT SEP-55*AT-UL OI=272 at $4.00 SL=2.75 Average Daily Volume = 917 K ********************** PLAY OF THE DAY - CALL ********************** EXDS - Exodus Communications $65.88 +1.63 (+5.44 this 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. Most Recent Write-Up The formation of the much-hyped Content Bridge alliance was formally announced yesterday. The new entity will focus on providing content to Web users, and will unify Internet heavyweights including AOL, ISLD, INKT, and our EXDS. The news helped EXDS to shrug off the early sell-off yesterday morning and rally back above the $64 level near the close of trading. EXDS has taken control of the reigns of the Tech sector, and might continue to trade higher as long as the NASDAQ cooperates. By breaking away from the $60 earlier this week, EXDS has bolted into breakout territory. The stock faces some congestion above its current levels, with $70 marking the next major hurdle challenging EXDS's advance. The stock did bounce higher in the final moments of today's trading along with the burst in the NASDAQ. A solid entry might be found early Friday morning if EXDS rallies above resistance at $66. An aggressive trader might look for a bounce off support at $65, or lower at $64, if EXDS pulls back on profit taking. Comments EXDS has been on a tear lately, and we're glad that we're right in the midst of it. It has been a steady climb since initiating coverage, seven days of modest gains. While a pullback my be imminent, we see it as an entry point, especially considering SCMR's earnings release after the close on Thursday. Look for a pullback to $65, $64, or $62.50, along with a bounce, for a nice entry. If the first level doesn't hold, watch for a bounce at the next. Volume has been average, so confirm strong intraday volume on any bounce. Look to the NASDAQ for direction. BUY CALL SEP-60*QED-IL OI=4953 at $7.88 SL=6.25 BUY CALL SEP-65 QED-IM OI=5577 at $4.50 SL=2.75 BUY CALL SEP-70 QED-IN OI=4132 at $2.50 SL=1.25 BUY CALL OCT-70 QED-JN OI= 222 at $5.63 SL=3.75 BUY CALL OCT-75 QED-JO OI=2183 at $4.00 SL=2.50 Picked on August 15th at $57.13 P/E = N/A Change since picked +8.75 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 = 8.31 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! FREE FOREVER! http://www.sungrp.com/tracking.asp?campaignid=322 ************************************************************ ************************ COMBOS/SPREADS/STRADDLES ************************ Now The Summer Rally Begins? The major market indices climbed to recent highs as investors exhibited confidence in the future outlook for the economy. Wednesday, August 23 The market edged higher today as stocks struggled to define a new direction in the wake of the Fed’s interest-rate decision. The Nasdaq closed 52 points higher at 4,011 on strength in chip and Internet issues but the Dow lagged behind, ending only 5 points higher at 11,144. The S&P 500 index was up 7 points at 1,505. Trading volume remained light and investors lacked conviction as 864 million shares changed hands on the Big Board. Broad market losers beat winners 1,499 to 1,293. Activity on the Nasdaq was average at 1.45 billion shares traded, with declines outpacing advances 2,005 to 1,955. In the bond market, the U.S. 30-year Treasury rose 20/32, pushing its yield down to 5.67%. Tuesday’s new plays (positions/opening prices/strategy): Delphi Fin. DFG SEP30P/SEP35P $1.25 credit bull-put Ameritrade AMTD SEP20C/SEP15P $0.06 credit synthetic Both of our new positions offered favorable entry points as the underlying issues dipped during the lackluster session. Portfolio Plays: The stock market drifted higher today as investors generally adopted a "wait-and-see" attitude in the aftermath of the FOMC meeting. Concerns shifted to upcoming reports on retail sales and energy prices and the outcome of the presidential primary. On the Nasdaq, money continued to flow into leading companies with issues in the semiconductor industry rallying to recent highs. Internet and biotech issues also participated in the bullish activity. On the Dow, Intel (INTC), Hewlett-Packard (HWP) and International Business Machines (IBM) led the gainers while stocks in the paper and finance groups consolidated. In the broader market, oil and oil service stocks were very strong as oil prices jumped following data from the American Petroleum Institute, which showed an unexpected drop in stockpiles. The sharp rise in crude prices sent airline stocks lower, however, and Donaldson, Lufkin & Jenrette reduced its earnings estimates on a number of industry leaders, citing higher fuel prices and disappointing revenue data. Almost every one of our technology stocks moved higher during today’s session. Qlogic (QLGC) was the big winner, up $8 on strength in the chip sector and other semiconductor equipment stocks including Altera (ALTR) and Semtech (SMTC) moved higher amid optimism for the industry. Networking, data storage and telecommunications issues also rallied and the leaders in those categories included Advanced Fibre (AFCI), Cisco Systems (CSCO), and Network Appliances (NTAP). Leap Wireless (LWIN), which fell to a low of $72 during the session, recovered to close near $75 and it appears the issue is headed for further upside activity. Echostar (DISH) moved up early in the day to a recent high near $46 and our debit-spread combination traded at a $1.88 credit. The original cost of the position was based on collateral for the SEP-$30 Put, thus the two-week profit is very favorable and traders should consider locking in current gains if the issue struggles at the resistance level near $45. PMC Sierra (PMCS) was active today, falling to a mid-day low near $217, providing a great early-exit opportunity in the neutral credit strangle. The cost to close the position reached $2.88 on a simultaneous order basis. That’s a $2.12 profit with three weeks left until expiration. On the downside, WellPoint Health (WLP) broke through a recent technical support level (and a short-term moving average) amid talk of HMO reform by the Democrats. The discourse on amending the health care system sent a shock through the industry and a number of issues slumped on heavier-than-normal volume. Our position is profitable above $79 but the technical indications are ominous and unless the issue recovers soon, we will consider using future rallies as a potential opportunity to begin an exit strategy. Xilinx (XLNX) is approaching the test that we spoke of a few days ago and we will monitor the issue closely for a move through the resistance area near $95 on increasing volume. Thursday, August 24 The major market indices climbed to recent highs as investors exhibited confidence in the future outlook for the economy. The Dow industrial average ended at its highest close since April, up 38 points to 11,182 while the Nasdaq Composite moved up for a fourth consecutive session amid strength in biotech and Internet stocks. The technology index closed 42 points higher at 4,053. Trading volume on the Big Board reached 820 million shares with winners beating losers 1,438 to 1,384. Activity on the Nasdaq was moderate with 1.54 billion shares changing hands. Technology advances beat declines 2,205 to 1,776. The yield on the 30-year Treasury fell to 5.64%. Portfolio plays: Today was an exciting day for the Spreads/Combos portfolio with a number of unexpected moves. In the technology group, Semtech (SMTC) led the way, up $8 to $111 on market optimism over strong second-quarter earnings and a two-for-one split announced after Tuesday’s session. We were unable to achieve the target entry price in our bullish position but it’s nice to see a profitable outcome for traders that entered the play at a lower credit. In the small-cap group, we had slew of upside surprises. Read-Rite (RDRT) jumped $1.75 to $7.38 after the disk drive equipment maker announced deals with a number of its major customers. Read-Rite’s giant magneto-resistive recording heads, used in the manufacture of hard disks that can hold 20 gigabytes per 3.5 inch platter, have been chosen for use by all four of its major customers and the announcement represents a significant turning point for the company's return to profitability. Our new, covered-combination has a cost basis near $3.62 and the position should easily expire at maximum profit. Caremark RX (CMX) edged up $0.62 to $9.12 on a lack of public news and it appears the recent consolidation has come to an end. Our bullish calendar spread at $10 is once again profitable and we expect the technical recovery to continue. The combination position in Red Hat (RHAT) enjoyed some positive activity after VA Linux, the largest Linux company by revenue and market capitalization, surpassed analyst expectations yesterday by reporting revenue of $50 million and a loss of only $0.10 a share. The stock prices of other Linux companies have received big boosts in August, after solid earnings news and bullish reports on the open-source industry, and our recent debit-spread combination is now trading at a $0.75 profit. Another issue in that category, Echostar (DISH) tested a recent high near $47 in early trading, providing a $2.12 credit in our combination spread. Conservative traders may consider closing the play to protect current gains and limit losses. Regeneron (REGN) rebounded today in a textbook bounce off of the previous trading-range top near $31. Our new "bull-call" debit spread has a cost basis near $28.75 and we expect the position to expire at maximum profit. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** MYG - Maytag $41.00 *** Merger Speculation! *** Maytag is a producer of home and commercial appliances. Its many products are sold to customers throughout North America and other markets overseas. Maytag also is the majority owner in a joint venture in China, Rongshida-Maytag, which produces a wide range of washing machines and refrigerators primarily for the Chinese market. Maytag is among the top three major appliance companies in the North American market, offering consumers a full line of washers, dryers, dishwashers, refrigerators and ovens distributed through large and small retailers across the United States and Canada. In floor care, Maytag owns the Hoover brand, which is the market leader in North America and the brand with the highest consumer recognition and buying preference in the industry. Maytag shares rallied today amid speculation over a report that the home appliance maker is in talks to be acquired by Sweden's AB Electrolux, maker of the Frigidaire brand. The New York Times, citing unidentified executives close to the company, said a deal for close to $4 billion would create the world's largest maker of ovens, dishwashers and washing machines. The report suggested that a deal is not necessarily imminent but that several rivals have also made informal overtures to the company about a possible combination. Maytag had worldwide sales of $4.3 billion in 1999 and they are widely known as the company with a reputation for dependability. Sweden’s AB Electrolux, which makes tractors as well as household appliances and vacuum cleaners, had global sales of $14 billion last year and could give Maytag greater access to overseas markets. We have received lots of positive comments on this strategy in the past few weeks and in most cases, it is a relatively safe method in which to speculate on the future movement of an issue that you wouldn’t mind adding to your portfolio. Those of you who agree with the bullish, long-term outlook for Maytag can use this position to profit from future upside activity, at the risk of owning the issue at a favorable cost basis. We will try to enter the initial position on a short-term pullback as the issue consolidates from today’s gains. PLAY (very conservative - bullish/synthetic position): BUY CALL JAN-50 MYG-AJ OI=2529 A=$1.50 SELL PUT JAN-35 MYG-MG OI=1517 B=$1.31 INITIAL NET CREDIT TARGET=$0.12-$0.25 ROI TARGET=50% B/E=$35.00 Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $1,200 per contract. ****************************************************************** PDLI - Protein Design Labs $85.19 *** Post-Split Rally? *** Protein Design Labs is a leader in the development of humanized monoclonal antibodies for the prevention and treatment of disease. The company has licensed rights to its first humanized antibody product, Zenapax to Hoffmann-La Roche and its affiliates, which markets it in the U.S., Europe and other international countries for the prevention of kidney transplant rejection. The company also has numerous other humanized antibodies in various stages of clinical development for autoimmune and inflammatory conditions, transplantation and cancer. The biotechnology group rallied again today after the National Institutes of Health announced guidelines allowing government funding of research on stem cells from human embryos and fetal tissue. Shares of companies with ties to this type of research were boosted by the news and President Clinton also spoke about the potential for breakthroughs in disease treatment using this controversial approach. The research is unsettling because it involves the destruction of human embryos but scientists hope to use stem cells to improve treatments for a host of illnesses, ranging from diabetes to Parkinson's disease. PDLI is not directly involved in this type of development but the company is one of the leaders in the industry and will benefit from any optimism for the group. Our outlook is based on recent technical trends in the sector and the underlying issue and we believe that this position offers a reasonable risk/reward ratio for traders who are bullish on the company’s share value. PLAY (conservative - bullish/credit spread): BUY PUT SEP-67.50 PQI-UU OI=12 A=$1.38 SELL PUT SEP-70.00 PQI-UN OI=6 B=$1.69 INITIAL NET CREDIT TARGET=$0.43-$0.50 ROI(max)=20% ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** SAPE - Sapient $108.12 *** Technicals Only! *** Sapient is an e-services consultancy providing Internet strategy consulting and sophisticated Internet-based solutions to Global 1000 companies and startup businesses. The company helps its clients define Internet strategies to improve their competitive position and designs, architects, develops and implements various solutions to execute those strategies. These solutions focus on complex business-to-consumer and business-to-business electronic commerce, digital customer relationship management, supply chain optimization, electronic markets and Internet portals. Sapient’s services include digital business strategy development; experience modeling; creative design; technology development and systems integration; and integrated engagement leadership. Based on analysis of the historical option pricing and technical background, this position meets our fundamental criteria for a favorable credit-strangle. The issue has overpriced options, a relatively well-defined trading range, and with the stock split coming up next week, the recent precipitous decline should begin to taper off. The probability of profit from this position is higher (near 75%) than other plays in the same strategy based on theoretical option pricing. As with any recommendation, the play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (conservative - neutral/credit strangle): SELL CALL SEP-140 SUJ-IH OI=179 B=$1.81 SELL PUT SEP-85 SUJ-UQ OI=35 B=$1.75 INITIAL NET CREDIT TARGET=$3.62-$3.75 ROI(max)=15% UPSIDE B/E=$143.75 DOWNSIDE B/E=$81.25 ***********************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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