The Option Investor Newsletter Thursday 08-31-2000 Copyright 2000, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/083100_1.html Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 08-31-2000 High Low Volume Advance/Decline DJIA 11215.10 +112.10 11310.50 11104.90 1.06 bln 1718/1150 NASDAQ 4206.35 +102.54 4208.73 4127.19 1.90 bln 2481/1612 S&P 100 827.41 + 6.48 832.18 822.03 totals 4199/2762 S&P 500 1517.68 + 15.09 1525.21 1504.44 60.3%/39.7% RUS 2000 537.89 + 5.56 539.14 532.36 DJ TRANS 2723.63 - 2.54 2740.66 2711.00 VIX 19.28 - 0.31 20.14 18.85 Put/Call Ratio .43 ****************************************************************** That roaring sound you hear is volume returning to the market! Wow! Just days after the market took a breather when New Home Sales jumped unexpectedly, Factory Orders fell unexpectedly. The -7.5% drop was the biggest drop on record. Traders celebrated with a pair of triple digit gains on the Dow and the Nasdaq. The attempt to breathe life back into the Fed dread failed miserably. Retailers also announced today that slowing sales may impact third quarter earnings and the race was on. The retailer conspiracy consisted of JCP, GPS, TGT and ROST. All of which expressed concerns about slowing summer sales and third quarter profits. While this is bad for the retail sector it is good for the economic outlook. Add this to the slowing Factory Orders and traders could not resist buying before the holiday. Not all is as rosy as it seems. The Dow was up at one point +200 points! 200 points, how long has it been since we have seen a move like that? Unfortunately almost half of the Dow advance was on the back of a +$16 gain in Dow component JPM. Yes, it was a good day but the closing +112 gain included almost +75 points from only one company. We should expect some weakness in the Dow as the Nasdaq nears 4300 when traders head for faster moving tech stocks instead of old economy. The JPM gains came on rumors that the company may be an acquisition target by one of the giants in the space. Chase is rumored to be one of the possibles. Sanford Bernstein said the global mergers are putting pressure on Chase to grow with an acquisition. JPM receives about 50% of their profits from international sources and that makes them an ideal target for the new globally focused giants. Others feel that the current brokerage community is over priced after their recent gains and we are not likely to see another merger until some of the speculation fades from the sector. Still, the gains today helped power the market and we are not complaining. $2,000,000,000 loss + $250,000 gain = 15 years in jail. The person responsible for the Emulex disaster last week was arrested today and faces 15 years in prison if convicted. That is or course if he is not released on bail and killed by an irate investor before his trial. Some analysts estimate that investors lost up to $2 billion dollars in the sharp drop that resulted from the bogus press release. In reality I think it was a lot less since many investors were in too much shock to react before trading was halted. The former Internet Wire employee, Mark Jacobs, sent the news release using a computer at a local community college. He had shorted EMLX stock earlier and had lost -$100,000 on paper when EMLX continued to rise. Investigators said he fabricated the press release to force the stock down and then he covered his shorts for a profit and then bought 3500 shares of EMLX at $52 and sold those for a profit when the hoax was revealed. He pocketed a temporary +$250,000 gain and a probable 15 year sentence for his efforts. Is that a healthy pulse we see in the market? The Dow finished July at 10,521 and closed August at 11,231 or a +7% gain. The Nasdaq closed July at 3766 and August at 4208 for a solid +7% gain as well. The Nasdaq composite index managed to post an even larger +11% gain for the month. Yep, just a sleepy August. Not! The markets have been undergoing a stealth rally for almost the entire month and have managed to finally close above many of their previous resistance levels. The Dow, Nasdaq and OEX are all poised to break their last levels on good news. The roar you hear is the volume returning with the NYSE trading 1.06 billion shares and the Nasdaq posted 1.9 billion. Internet stocks, Biotechs, networkers even mineral and mining stocks were hot. The broad market advance was punctuated by a 3:2 overall advance/decline ratio with new highs swamping new lows. The expectations of a post Labor Day rally are approaching 100%. Before you start popping the champagne corks we need to remember the big Employment Report on Friday morning. Good news is likely to fuel the fire but bad news could cause an entirely new round of profit taking. It would have to be very bad numbers but the question is now mute since the answer will already be known before trading begins on Friday. Professional traders are still skeptical that the rally will hold and this could produce some volatility before the holiday. August window dressing can lead to September window breakage if the sentiment changes quickly. While it appears we have the yellow brick road laid out in front of us we need to keep in mind the results of a slowing economy. Even if the economy is only slightly slowing there will be earnings short falls. We are only about a week away from the start of earnings warning season and the retailers today along with VIAN and HRZ after the bell are just hints of things to come. The market will be torn between good economic data and bad earnings data and bad earnings usually win. The end of August window dressing helped fuel the rally today and traders expecting a rally next week are likely to power the market on good Jobs news tomorrow. Next week will depend on Tuesday. If everybody is expecting a huge rally and Tuesday does not start off with a bang then pessimists will begin second guessing the trend and traders will stay or move to the sidelines again. A good opening jump followed by good volume should provide a fun week. A good report could be the catalyst we need to break out of the last resistance levels. The Dow has bounced off April resistance at 11250 twice this week. The OEX is bouncing off resistance dating back to March at 830 and the Nasdaq is closing on the July 4300 top. It is just like a July 4th fireworks display. The rockets are all in place ready for launch and dark is approaching. Now, if we can just find a match! Good luck and sell too soon. Jim Brown Editor ********************* FALL SEMINAR SCHEDULE ********************* 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: I just got home from attended the Dallas seminar. It was truly the most informative clinic I have ever attended. Lots of AH-AH moments from Steve and Chris. I am so tired of the same old stuff just repackaged in books and seminars, it is about time someone gave us some GREAT stuff to use so we have a chance against the big guns. Keith I am still BLOWN AWAY by the fact that the seminar had 2 presenters that ARE REAL TRADERS - not just "trader wanna-be" speakers delivering someone else's concepts. I do understand the uniqueness of the opportunity we all had at the seminar and the opportunity we all continue to have via email contact with y'all. Thanks, Royce 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 Sep 14-16 Chicago Sep 21-23 Austin TX Sep 28-30 Boston Oct 12-14 Charlotte NC Oct 19-21 San Francisco Nov 02-05 Phoenix Nov 09-12 Miami FL Dec 07-09 Philadelphia Dec 14-16 San Antonio Australia coming soon! Has the market been beating you up? Did you give back your gains from April? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp ************************Advertisement************************* Investors! Get In On The Ground Floor of the Next Big Idea. Announcing GE Venture Mine, the meeting ground for ideas and money. New on-line technology identifies the kind of opportunities you want to invest in. No more crisscrossing the country looking for the next break through idea. Find entrepreneurs, from start up to early stage business, in a search customized to meet your individual criteria. In privacy. On-line. http://www.sungrp.com/tracking.asp?campaignid=343 ************************************************************** **************** MARKET SENTIMENT **************** The Good 'Ole Days Again! By Austin Passamonte Oh that volatile Dow. For awhile there today we all wondered if the stodgy old NASDAQ could ever keep pace. Even though the Dow gave back half today's gains we saw the Comp roll steadily up into the close. Some things are becoming apparent. Everyone and their shoeshine boy expect a major rally to break out post-Labor day. So let's start buying early to get in and front-run the major move. That of course has resulted in substantial gains to date. Will it last? Who cares! Finally we're enjoying some serious market action across the board. These last three days have offered possible daily gains of 20 - 50% of purchase on OEX, SPX, NDX (MNX & QQQ)and DJX calls or puts, depending on which strike price and what day. We can certainly get used to that. Typical Thursday rally into a large report and long holiday weekend. Tomorrow could be volatile either way. The party continues or profits are taken before the afternoon action likely goes to sleep. Buy or sell and let the festivities begin for Wall St tycoons. Most of the action could occur within the first three hours or less. Up or down? Were you looking for an answer - we're asking you! No telling from here. Today's NASDAQ/NDX action was especially fascinating. Both put in bullish outside days with long white candles. Or a bearish one-day reversal top. Was that a runaway gap or exhaustion gap? We'll find out exactly which, starting tomorrow. Nothing new bearish to report. VIX is sub-20 and won't stay there forever. Oil prices are much closer to $40 than $20 per barrel. Whispers are emerging that 3 rd quarter earnings might be weak, and retail is first to pay that price. All systems are go and buy-the dip crowds are being elbowed out by momentum players. New highs are sure to happen soon. Or not. The Dow found major resistance near 11,300 today and the OEX banged it's head near 830 once again. OEX S/R put-call ratios above 840 are monstrous. 28,128 open calls versus 219 open puts above the 840 strike are what we call disparity. The entire equity world is betting heavily on new highs soon. Well, almost everyone. Institutional traders in all equity markets, 10yr notes and 30yr bonds are betting huge that a near-term top is close. One group in this tug-of-war match will be right and frankly, "Market Sentiment" couldn't care which. Call options one day and put options the next on 100 & 200+ point market moves are too good to believe. Please don't pinch us yet! 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 8/29 close: 19.11 Thur 8/31 close: 19.28 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 (8/29) (8/31) (9/02) ************************************************************* CBOE Total P/C Ratio .55 .43 Equity P/C Ratio .47 .37 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 (8/29) (8/31) (9/02) ************************************************************** All index options 1.88 1.27 OEX Put/Call Ratio 2.32 1.48 OEX Maximum Open Interest Strikes/Contracts: Puts 800/5,906 790/6,111 Calls 800/4,873 800/4,543 Put/Call Ratio 1.21 1.35 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: (8/29) (8/31) (9/02) Overhead Resistance: (920-855) 203.77 128.44 (850/830) 3.76 4.68 index close: 827 827 Underlying Support: (825-805) 1.66 1.50 (800-780) 2.21 2.47 What the S/R measure indicates: Net open-interest ratios are firm above 830 and impenetrable above 850 while very light all the way to 780. A large index move has downside clearance to 780 or below with relative ease. We could see 805 in a heartbeat. We still consider another failed test near the 840 range an excellent put entry. 30-yr Bond: 5.75% 5.68% Light, Sweet Crude, Barrel: $32.72 $33.10 200 Day Moving Average (as of 8/29) The 200 DMA is widely considered the major benchmark for critical support in a market. DOW: 10,816 11,216 11,215 NASDAQ: 3,980 4,082 4,206 NDX: 3,728 3,952 4,077 SPX: 1440 1510 1517 OEX: 778 827 827 CBOT Commitment Of Traders Report: Friday 8/25 Biweekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader’s direction. Small Specs Commercials DOW futures Net contracts; +7,165 (long) - 10,913 (short) Total Open Interest % 17.43% net-long 24.29% net-short NASDAQ 100 Net contracts; +1613 (long) +38 (long) Total Open Interest % 11.85% net-long .098% net-long *Corrected figures (flat) S&P 500 Net contracts; + 44,989 (long) -47,946 (short) Total Open Interest % 25.24% net-long 8.5% net-short What COT Data Tells Us: Commercial positions in S&P 500 and DJIA remain at or above five-year extreme short levels. Small specs continue to build net-long extremes. NDX commercials went from net-long to flat while small specs went from net-short to net-long the past two weeks. (Not Shown) Commercial positions in 10-Year Note and 30-Year Bond markets at or near five-year extreme net-short levels. Small specs build net-long. Summary: "Smart money" insiders expect stock market to decline and interest rates to rise. Small traders directly opposite, creating diverse set up favoring commercial sentiment for near-term market direction. BULLISH SIGNALS Interest rates 5.68% 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 show the economy is cooling and no further rate hikes may be needed. 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. Very bullish behavior ****** BEARISH SIGNALS VIX Today’s close near 19 still 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 $33.10 today. All petroleum expected to be extremely high this fall. Prices in low $20s would be welcome relief but remain beyond reality. COT Report - S&P 500 & DJIA 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. COT Report - NASDAQ 100 Sentiment reversal with small speculators switching to net- long while commercials go flat may suggest near-term weakness. ************** MARKET POSTURE ************** As of Market Close - Thursday, 08/31/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 11,215 11,000 11,400 SPX S&P 500 1,517 1,485 1,550 COMPX NASD Composite 4,206 4,000 4,300 ** OEX S&P 100 827 814 845 RUT Russell 2000 537 485 540 NDX NASD 100 4,077 3,900 4,300 ** MSH High Tech 1,116 1,080 1,170 ** BTK Biotech 773 690 800 ** XCI Hardware 1,637 1,500 1,680 GSO.X Software 481 450 500 ** SOX Semiconductor 1,153 1,000 1,200 NWX Networking 1,368 1,325 1,390 ** INX Internet 579 495 600 BIX Banking 608 550 610 XBD Brokerage 677 660 700 ** IUX Insurance 722 680 725 RLX Retail 784 770 815 ** DRG Drug 390 380 415 HCX Healthcare 811 795 855 XAL Airline 156 148 168 OIX Oil & Gas 305 280 320 Up, up and away. Double digit gains for both major indices has put many alerts on the screen. Nasdaq, Software, Networking and Brokerage to name a few. ************** TRADERS CORNER ************** It’s TA Week at OIN By Molly Evans Alright, chop, chop! No time for chitchat tonight. I'm holding class. So many of you wrote to ask about the mysterious "E's" trading system (last Thursday's "You Too Could Be a Writer" article) that I feel I must address those issues right here and now. Pull up a chair and take notes. This must be TA week at OIN - I just got Wednesday night's newsletter and see that Austin and Eric are beating me to the punch. Well, let's just get it all out into the open. There's a nugget in every little indicator and we'll leave no stone unturned in the quest to better read the market. Secrets are whispered in these indicators and we've got to tune in our senses to be able to see and hear them. There are many forms of analyses for determining price forecasting in the market place. Fundamental analysis will tell you all the compelling arguments for why XYZ should be in the stratosphere or the gutter and technical analysis will tell you just how high or low XYZ will probably go based on identifiable and repeatable human behaviors in the form of a chart. I've known both extremes of investor. There're the folks who don't know diddly about where to enter or exit the stock; they just know that they love the story or they drive by a company's storefront everyday and want in. Then there are others who don't even remember the company's name, they just know it's got a great looking chart and want those letters in their portfolio. It is our recommendation that you practice both analyses in your investing careers and that is why we write our plays in the manner that we do. You've got the scoop on the goods and then you're told how we based entry and exit points upon the technical indicators. My friend "E", as I told you previously, is a Williams %R and DMI chartist. Many charting services do not offer the %R indicator but if you can get it, it’s a powerful little tool. For you Q charts users, if you’ll change your %D line of stochastics to white color, your length of %K to 10, the smoothing to 1, the thickness to 2 and the %D smoothing to 3 - you’ll have %R. The %R indicator was developed by Larry Williams, futures trader extraordinaire. The %R is simply, in a nutshell, the fast or %K line of the stochastics indicator that Austin discussed last evening. However, %R is correctly plotted upside down and lacks the smoothing that the stochastics indicator has (%D line). To display the %R indicator on an upside-down scale, it's usually plotted upon negative values such as -20%. We tend to ignore that and just look at the values of the numbers themselves. Readings in the range of 0 to 20% indicate that the equity or index is overbought and in the 80 - 100% range indicate an oversold condition. %R, like fast stochastics, is a leading indicator and puts us "on watch" for a change in trend when it crosses either the 20% or 80% band. As with all overbought and oversold indicators, it is best to await confirmation of a change in the security's price before a trade is made upon it. While price action is always one step further than any indicator, the %R and stochastics can certainly remain in overbought and oversold states for a long period of time as the stock's price continues to rise or fall. Selling simply because the price is overbought may take you out long before the stock price shows signs of deteriorating and vice versa with the buying of an oversold stock. What we can do to confirm it is look at the DMI. The DMI stands for Directional Movement Index and was introduced to the trading world by J. Welles Wilder Jr. in his book "New Concepts in Technical Trading Systems" in 1978. The DMI is valuable to us in that it confirms the presence or absence of a trend. Thus, it deciphers out the noise of directional vs. non-directional phases of stock price movement. DMI is plotted in the graph using three lines: the ADX, or average directional movement, the +DI or positive directional movement and the -DI, negative directional movement. The ADX is a smoothed version of the directional movement and as it rises and falls, points to trending in the stock whether it be up or down. It's the +DI and -DI that whisper the buy and sell signals. If you follow the indicator the way Wilder had intended you would utilize the "extreme point rule". This is a law intended to keep you honest and out of trouble of being whipsawed and from making too many trades. The extreme point rule requires that on the day that the +DI crosses and rises over the -DI, the extreme price is the high price of the stock on that day. Conversely, when the +DI falls below the -DI, the extreme price is the low price on the day that the lines crossed. From here, the extreme point is used as a trigger point at which you may implement the trade. Let's say you saw the buy signal with the +DI crossing the -DI, you should then wait until the stock's price rises above the extreme point (the high price on the day that the +DI and the -DI lines crossed) before you buy the stock or options. If the price fails to take out that extreme point, you have a failed buy signal or you may hold onto your short position. When a stock has risen several days in a row, the +DI is going to be much higher than the -DI and depending on the number of days that the trending higher has been taking place, the ADX will also be rising. The converse is true when the stock has been plunging. The ADX points only to a trend. In Wilder's own words, "The more directional the movement of a commodity or stock, the greater will be the difference between the +DI and the -DI." Shall we review a couple of the charts that Austin put up last night to see how our new signals compare? I know many of you had to have printed his article out last night, it was a classic. Get those out and let's look at those charts. While Austin's stochastics and my %R are great for giving you short term trends and trading signals, the DMI will serve to keep you in a play if it's trending. Believe it or not, before this summer we had trending markets and I had some glorious returns on runs where the -DI never even bothered to budge off of the bottom to shake me out. This is how E keeps so disciplined, she awaits the entries and exits based upon the confirmation of buy and sell signals. As I mentioned to you before, E says that every time EMC and SUNW go into oversold on the %R she’s there to scoop it up. It has served her well with those two giants for the most part. Not all stocks will act this way. You have to determine by observation how your favorite stocks move with an indicator. Look for repeatable trends. Your paycheck is in the details. Personally, I tend to want to play the faster lanes and therefore look to the candles, stochastics and coiling stock plays to dictate my own trading but this might be something you throw into your toolbox and pull it out if and when you ever get a position you'd like to stay with for a time. I want to show you one more chart. This is the anatomy of a trade by a bored young woman that needed to get onto something more productive. I can't believe I do these things. Please learn from me. This should be so easy - you read this chart and tell me what you would have done and you can guess what I did. We're going under the microscope here to look at the five-minute chart. You all must think I'm an idiot! I'm not but I can pull some doozies. Pay attention to those signals. They do work. My going short here was just another reality check to me about how quickly the market punishes you if you're careless and just playing. Actually, I didn't get hurt here beyond commissions. As soon as I put on the short, I noticed my tiny order buried in between one lot of 10,000 shares and another of 12,000 shares! And that was at the high of the day at that moment. I've been waiting for this thing to roll over for some time now. Waiting and waiting and waiting. My first clue was that my fill was almost instantaneous at the high of the day even after the stock had momentarily stalled in trading. Do you recall in Jurassic Park where the water in the glass jiggled and you knew a T. Rex was approaching? That very image popped into my head when I got that fill. Then I looked at the time and sales and saw my order in between those two blocks, and I FELT the vibrations of the T. Rex. This little bear cub scampered to the nearest cave she could get to. Woops! Wrong door! Please pardon me for crashing this party, I was just leaving! If you are a novice at technical analysis and are looking for an easy read to learn more, far and away my favorite recommendation is John Murphy's, "The Visual Investor: How to Spot Market Trends." I also happen to like Jack Schwager's "Getting Started in Technical Analysis" but more so for the trading principles and rules in the back than the TA portion of the book. The other thing you can do is get to one of the seminars that Chris Verhaegh is involved with. I had the good fortune to attend the OIN seminar this past spring and now get to do it again in Chicago September 14 - 16th. Chicago is an awesome city and Chris is an exceptional speaker. I hope to meet many of you there. I can't wait! molly@OptionInvestor.com ************************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 ************************************************************** ************* SECTOR TRADER ************* Is the Train Leaving the Station? By Buzz Lynn sectortrader@OptionInvestor.com Volume is what we wanted to justify the markets' recent advances - we got it today. Just when we thought summer was getting boring and we'd have to wait until after Labor Day for a meaningful move, almost 1.9 bln shares traded hands on NASDAQ (and over 1 bln on the NYSE) sending the NASDAQ up over 100 points to 4206, and the Dow up 112 to 11,215. Considering 1.4 to 1.5 bln NASDAQ shares are all we've seen during these slow summer days, 1.4 bln NASDAQ- traded shares with one hour remaining in the day was looking respectable. But 1.9 bln? Whoooo-weeeee!! The train appears to be leaving the station. Barring poorly accepted economic news tomorrow, this may a whistle stop that not many cash-rich fund managers will want to miss, vacation or not. Who wants to wait when there's money to be made? While this is shaping up to be a strong rally, we still want to exercise caution and try to anticipate Murphy and the things he can cause to go wrong. First of all, tomorrow's hourly earnings (est. +0.35%) and unemployment rate (est. 4.0%) could put a damper on the rally if actual figures surpass current expectations. Second, both the NASDAQ and the NYSE are nearing resistance levels again at 4300 and 11,400 respectively. If the market doesn't have enough conviction for a breakout, 4050 could come up pretty fast in the windshield on the NASDAQ as could 11,000 on the Dow. Finally, it's Friday and it's still Summer which means traders could clear the decks for the long weekend just to be safe and wait to re-enter another time, maybe again next week. We're not saying that this is likely, just that it's a possibility we need to be ready for. The conductor appears to be calling "all aboard". Make sure the train is actually leaving the station and that you are on the right train. As for other business, look for some positive changes coming to this section soon! We're going to expand our focus on high volume indexes that are more liquid and efficiently traded. If you have a favorite index that you like to play, OEX, SPX, DIA, SPDRs, SOX, or something else, let us know. We constantly strive to make this site better for you and want your input on likes, dislikes and suggested improvements. Send in those cards and letters (OK, e- mails!). Thanks in advance for your contribution! Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 101.81 0.47 0.63 0.00 2.94 0.00 4.03 HHH Internet 116.75 -4.19 -0.13 4.13 -0.88 0.00 -1.06 BBH Biotech. 201.94 -2.44 -1.50 3.06 6.38 0.00 5.50 PPH Pharm. 94.56 -0.88 -1.38 0.00 -0.06 0.00 -2.31 TTH Telecom 66.88 0.56 -0.69 0.75 0.56 0.00 1.19 IAH I-net Arch. 106.81 2.19 0.06 0.00 2.63 0.00 4.88 IIH I-net Infr. 62.50 0.25 1.13 2.56 2.06 0.00 6.00 BHH B2B 52.44 -0.44 0.13 4.00 0.31 0.00 4.00 BDH Broadband 95.19 0.13 -0.25 -0.88 1.56 0.00 0.56 SMH Semicon. 98.69 0.50 -0.75 -0.94 1.88 0.00 0.69 RKH Reg. Banks 107.13 0.31 -1.56 0.88 2.50 0.00 2.13 UTH Utilities 104.75 1.56 -1.06 0.25 1.50 0.00 2.25 ************** Updates ************** QQQ - NASDAQ 100 $101.81 +2.94 (+4.03 this week) Party hats and horns! Please pass the cake! Finally with the NASDAQ back over 4200, the QQQ has broken $100 resistance and then some on significant volume, which confirms the move and tells us that the gain isn't relegated to a few large trades on an otherwise slow day. $102.06 is the next level to penetrate, which would break QQQ out to a new high since its early April thrashing. After that $105-$107 should act as resistance. That's a double-edged sword since if it doesn't hold that level, it could easily fall back under $100 again for a brief consolidation. However, it looks to us like investors are clearly committed given the high volume. Be careful for any signs of weakness based on economic news releases, or selling before a three-day weekend. Otherwise, dips to perhaps $99.50 are buyable as is a breakout over $102.50 with continued strong volume. Keep watching DELL, MSFT, CSCO, INTC, ORCL, and SUNW for confirmation of a direction. A majority should be on the upswing Calendar Spread: Now looking at mild support at $100 given the last two days, we never did get that rollover at $100 we were looking for to sell the short-term call. QQQ kept right on moving. No matter, at the first sign of a rollover, feel free to sell an ATM current month strike to capture the most time value. The idea is to keep reducing the cost basis of the long-term option eventually giving us a "free" long-term option from credits gained. If you are still looking to initiate a spread, you might be better served by waiting for a pullback to $99.50-$100 to buy the long position, then "legging in" to the short term position as the price moves up to resistance at $102, then $105. Be sure to buy the short position back if it is ITM and time value decays to near zero, or nears expiration. BUY CALL DEC-100 QVO-LV OI= 8993 at $10.25 SELL CALL SEP-100 QVO-IV OI=11586 at $ 3.75, ND = 6.50 or less SELL CALL SEP-102 QVO-IX OI=12491 at $ 2.63, ND = 7.88 or less SELL CALL SEP-105 QVO-IA OI=11883 at $ 1.19, ND = 9.06 or less SELL CALL OCT-110 QVO-JF OI= 673 at $ 2.44, ND = 7.81 or less Long Call: Same as the calendar spread - look for a dip to $99.50-$100 as a buying opportunity. Just make sure you see the bounce. Otherwise a move over $102 backed by volume could make a good breakout entry. Watch DELL, MSFT, CSCO, INTC, ORCL, and SUNW for confirmation of a direction. If these are not mostly positive, it might be better to stand aside. BUY CALL SEP-100 QVO-IV OI=11586 at $4.00 SL=2.50 BUY CALL SEP-105 QVO-IA OI=11883 at $1.38 SL=0.75 BUY CALL OCT-100 QVO-JV OI= 1850 at $7.00 SL=5.00 BUY CALL OCT-105 QVO-JA OI= 619 at $4.38 SL=2.50 Average Daily Volume = 19.56 mln ----- SMH - Semiconductor $98.69 +1.88 (+0.69 this week) Much as we suspected following the stellar gains over the last two weeks, SMH was due for a pullback. While it happened yesterday, the dip was short-lived and only lasted a few minutes as SMH didn't quite hit our target of $95, stopping short at $95.75 before bouncing back up to again test levels near $100. Nice entry and nice exit if you could get it. While the rebound was strong, that pesky resistance at $100 is proving tough to penetrate. Once again, dips to $95 or moves over $100 might make the best entries. However, stochastic and MACD have begun to point south, so make sure to see a bounce before you take a position. Most of today's strength was from INTC and AMAT. BRCM was a big contributor too coming off yesterday's shellacking, despite a new lawsuit from INTC. The good news is that the Street appears not to care. BUY CALL SEP- 95 SMH-IS OI=122 at $ 6.00 SL=4.00 BUY CALL SEP-100 SMH-IT OI=742 at $ 2.75 SL=1.25 BUY CALL OCT-100 SMH-JT OI=370 at $ 7.13 SL=5.00 Average Daily Volume = 405K K ----- BDH - Broadband $95.19 +1.56 (+0.56 this week) The narrow range continues, but oh what an opportunity to enter yesterday. Just like clockwork, BDH dropped to $92.88, a shade under our $93 trigger, and bounced into the close. The rise continued today and allowed BDH its highest close in over a month. While it broke above $95 and closed there, it came on only average volume and failed to significantly penetrate resistance. With the formation of a doji on today's candlestick chart, a move over $96 would be more convincing. We'd wait for that move backed by volume, or another bounce off $93 before entering. Nonetheless, we could be nearing the end of this play since the MACD and stochastic have both rolled over. There may be more room to fall, so play this one carefully. Most of the individual components look good, but LU, which makes up about 24% of BDH's value, is really putting a damper on the play. BUY CALL SEP- 90 BDH-IR OI= 17 at $6.38 SL=4.25 BUY CALL SEP- 95 BDH-IS OI=302 at $3.00 SL=1.50 BUY CALL OCT-100 BDH-JT OI= 43 at $4.00 SL=2.50 Average Daily Volume = 114 K ----- BBH - Biotech $201.94 +6.38 (+5.50 this week) Five, four, three, Liftoff, two, one. Something out of order here? In fact, the MACD and stochastic rollover from Tuesday proved to be a headfake. Following a bounce off $192 yesterday, BBH rose steadily throughout the day, followed today by a gap up and blast off over $197 resistance. BBH closed at a new recent high and encounters resistance again around $207. Hopefully, barring any bad economic news, $200 may now prove to be good support. Many components exceeded their ADV by a significant margin, and all of them were in the green - not a speck of red ink today. This sector got awfully strong in a hurry and now looks poised for further gains. Still, watch out for that MACD and stochastic on the 30-min chart which still show some weakness. BUY CALL SEP-195 BBH-IS OI= 209 at $12.38 SL= 9.25 BUY CALL SEP-200 BBH-IT OI= 714 at $ 9.63 SL= 6.75 BUY CALL OCT-200 BBH-JT OI= 389 at $16.75 SL=12.00 Average Daily Volume = 632 K ************** No Play ************** HHH PPH BHH IIH IAH TTH RKH UTH ************* DAILY RESULTS ************* Index Last Mon Tue Wed Thu Week Dow 11215.10 60.21 -37.74 -112.09 112.09 22.47 Nasdaq 4206.35 27.91 11.58 21.64 102.54 39.49 $OEX 827.41 5.64 -1.89 -6.37 6.48 3.75 $SPX 1517.68 7.63 -4.25 -7.25 15.09 3.38 $RUT 537.89 1.37 3.15 2.70 5.56 4.52 $TRAN 2723.63 -3.49 -26.24 -34.27 -2.54 -29.73 $VIX 19.28 -0.82 0.69 0.67 -0.31 -0.13 Calls CIEN 221.69 11.50 2.50 -1.81 11.56 23.75 Working hard JNPR 213.75 8.13 -2.94 7.75 9.88 22.81 Surging VRSN 198.88 5.00 6.13 6.25 5.13 22.50 $200 target NTAP 117.00 3.06 5.38 2.19 5.56 16.19 Hurdling IWOV 96.00 2.50 2.75 5.81 -0.06 11.00 Tasting $100 QLGC 113.50 -3.50 2.38 2.63 8.13 9.63 Shaking off IDTI 87.75 -1.13 -0.19 0.31 10.50 9.50 Patience pays BEAS 68.06 0.00 2.25 1.63 4.56 8.44 Racing on ISSX 81.00 -2.94 6.81 2.38 1.75 8.00 New INKT 130.38 -5.94 1.19 6.81 4.38 6.44 Powering ORCL 90.94 2.13 1.00 0.50 2.69 6.32 Another high TIBX 101.94 2.19 -3.69 4.13 3.06 5.69 Broke $100 NEWP 159.00 -5.50 -0.50 2.13 8.88 5.00 Quick rebound DISH 48.75 -0.69 -0.44 1.88 2.88 3.63 New LSCC 77.88 -2.75 -0.13 0.69 5.81 3.63 Staying alive VRTS 120.56 1.81 -0.13 -5.31 7.25 3.63 Coming back ITWO 169.19 -7.75 -1.13 11.13 0.44 2.69 Good outlook NEON 35.06 2.13 1.75 0.81 -2.19 2.50 Pullback SUNW 126.94 3.06 -0.69 0.00 -0.19 2.19 Dropped VTSS 88.81 4.81 -1.94 -5.00 1.69 -0.44 Dropped IMCL 96.38 -1.56 -0.31 -2.44 0.81 -3.50 Dropped BRCM 250.00 -3.00 -13.19 -13.50 11.56 -18.13 Dropped Puts KO 52.63 1.00 -0.69 -2.06 -1.63 -3.38 Hammered NTLI 43.81 -3.00 -2.38 3.94 0.19 -1.25 Acquisition? UK 40.38 0.50 -0.56 -0.38 -0.25 -0.69 Sliding AT 50.56 -0.44 1.06 -0.63 -0.25 -0.25 At resistance 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: ***** SUNW $126.94 -0.19 (+2.19) The NASDAQ posts triple digit gains and SUNW falls? It would appear our shining SUNW has run out of momentum after staging an impressive rally since we picked up the play. Over the last three weeks, SUNW has done its part in carrying the NASDAQ higher by rallying from around the $112 level. Although volume was less than convincing during today's dip, it might be time to let this Tech giant rest. The stock has fallen into a trading range over the last four days, with resistance at $128 preventing SUNW from moving on to new highs. Support has been clearly established at $126, with the 10-dma not far behind at $125.50. At this time, we bid SUNW farewell with profits in hand. VTSS $88.81 +1.69 (-0.44) Is this the beginning of a downtrend for VTSS? Yesterday, the stock slipped below $90 support and its 5-dma to close down $5, or 5.43%. Despite this, the break was on low volume, at 65% of ADV. Considering the relative weakness of semiconductor issues yesterday and the recent amazing run, this was not out of the ordinary. However, today the 5-dma and the former $90 level support served as resistance. In light of the strong day had by its peers, it appears that VTSS may be assuming the role of a laggard. While VTSS managed to finish up 1.94% for the day and has managed to find some support at the $87 level, we think we can do better. That's not to say that VTSS won't bounce from its 10-dma at $86.16. In a strong market with so many stocks making new highs and so many great opportunities, we can choose to be picky. With that we close out this play, to put our money towards stronger stocks with better prospects. BRCM $250.00 +11.56 (-18.13) Take a high-flying tech stock and mix in a lawsuit and you get a painful decline. Although there seemed to be very little cause for the price drop that came on Tuesday, the news came out on Wednesday made the picture much more clear. Intel is suing BRCM for patent infringement, and although company officials have stated this is the first they have heard of the issue, investors sold first and asked questions later. Although the stock saw a very strong bounce this afternoon, recovering from an $8 loss to a nearly $12 gain at the close, the technical picture still causes us some concern. The strong recovery today indicates that the selloff may have been overdone, and BRCM may still be playable. But the stock's inability to clear the $250 resistance level leaves us felling a little nervous, so we'll take our loss and move on to healthier plays. IMCL $96.38 +0.81 (-3.50) Somebody forgot to tell IMCL investors that the Biotechs led the NASDAQ to its first triple-digit gain in a long time. Even though the sector moved strongly, IMCL just couldn't get out of its own way today. Running up to resistance near $100, there was no conviction to push it through and after rolling over in the first hour of the day, it was all downhill for the remainder of the session. Today's bearish candlestick combined with weakness and low volume all week gives us no choice but to drop IMCL. There are plenty of strong Biotech plays right now, so there is no point hanging out with this loser until it can get healthy again. PUTS: ***** No dropped puts today. ***********************ADVERTISEMENT************************ Save Up To 80% Off At Everything Wireless! Click On The Link Below For Store Wide Discounts. 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.sungrp.com/tracking.asp?campaignid=349 ************************************************************ FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Thursday 08-31-2000 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/083100_2.html ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=377 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** NEON $35.06 -2.19 (+2.50) There was no pullback yesterday as NEON moved up over $1 on excellent volume in the first half hour of trading. Volume was heavy at 2 times its ADV and the stock price was volatile hitting a high of $39.13 before it settled into the close, $0.81 higher for the day, at $37.25. Today, NEON decided to take a rest even as the broader market advanced higher. Early this morning, the stock moved into positive territory, although it didn’t stay there long as it moved back to the flatline, where it drifted for most of the day on moderate volume. Late in the day the sellers came out of hibernation and moved the stock deeper into negative territory to a low of $34.50, before drifting slightly higher to close at $35.06, on heavier than normal volume. Traders should continue to look for a low-volume pullback, to intraday support at $34 or to the 50-dma, currently at $32.38, along with a bounce, for an entry point. TIBX $101.94 +3.06 (+5.69) Following the lead of the NASDAQ, TIBX has put in two solid days of gains. Was that an entry point Wednesday morning or what? The midday dip to $92.06 did violate the 10-dma, which was $93.39, yet the stock roared back on better volume. Today, after a brief move over $100, profit takers took a little off the table and TIBX settled in around $97.50. But, just after 1:30pm EDT when the NASDAQ started to go, so did TIBX. Following the midday consolidation, high volume buying drove the stock through $100, fast and furiously. Late in the session, $101 provided some intraday support. Bounces from this short term support, along with a positive NASDAQ could offer a entry into this momentum play. Further pullbacks to $98 could provide more aggressive entries. Support below lies at $96, and then the 10-dma at $93.88. Overhead, watch for resistance at $102, and then the 50-dma at $104.12. TIBX was in the news today as they announced the opening of its new Korean Technical Learning Center in Seoul. This will help Tibco meet the growing demand from its Asia Pacific customers, including Samsung and Hyundai. The news really didn't affect trading. CIEN $221.69 +11.56 (+23.75) It's hard work carrying the NASDAQ higher, but somebody has to do it. In part, that somebody is CIEN. The Networking sector charged nearly 2.5% higher today on the back of CIEN's double digit gains. Our play's brief dip yesterday on typical profit taking volume proved to provide a profitable entry point as CIEN continues along its path of higher lows and highs. Going forward, we'll want to employ similar strategies in search for entry points as we've used during the duration of the play. Given today's burst higher, CIEN's solid support levels are now located just below at $220, lower near $215, and around the 5-dma at $210. Aggressive traders might look for a quick entry into the play on a bounce off $220 early tomorrow morning if CIEN looks strong heading into the weekend. If the profits takers show up, wait for CIEN to stabilize at either $215 or $210 before considering entry. CIEN did finish right near its day and new 52-week high today, watch for an extension of Thursday's rally early tomorrow in an attempt to catch another big intraday run. IDTI $87.75 +10.50 (+9.50) Our patience paid off in a big way today as IDTI charged into record territory. Our play received a boost early this morning after Chase H&Q initiated coverage on IDTI with a Strong Buy rating and set a $125 price target. The analyst from Chase, Sudeep Balain, said he was "extremely bullish" on IDTI. We'll take that! The action in the Semi sector added fuel to IDTI's momentum as the $SOX charged over 3% higher. After its 5-day consolidation, the rebirth of the $SOX today bodes well for our IDTI play going forward. The buyers showed up in a big way Thursday as over twice IDTI's ADV changed hands. The return of those bullish buyers early tomorrow might carry IDTI even higher into the holiday weekend and warrant consideration for entering the play at its current levels or on a rally above the $90 level. Before doing so, make sure to confirm a follow-through in the $SOX rally. If any light selling transpires tomorrow, a trader might look for IDTI to bounce off support near $85, or lower around the 5-dma at $80, to gain a new entry into the play. ITWO $169.19 +0.44 (+2.69) The B-2-B sector bounced higher yesterday on bullish third-quarter prospects and government cooperation. The FTC said it would approve the proposed auto exchange established by F, GM, and DCX, which ITWO will provide software to run. And, Wall Street bestowed favorable comments on the group, which was confirmed today after ABN AMRO initiated coverage on ITWO with a Buy rating after setting a $200 target price. The return of bullish sentiment to the B-2-B sector helped ITWO to erase nearly all of its losses stemming from Tuesday's rumors surrounding the company's loss of a key contract. ITWO attempted to bolt to new highs in its ascending channel today, but later fell as a round of light profit taking hit the stock. Watch for a rally in the sector early tomorrow and consider entering ITWO on a quick burst above $170. A more conservative trader might wait for momentum to build and look to enter the play if ITWO charges to new highs in its range above $175. A bounce off support at $165 might provide the aggressive traders with an additional entry upon further profit taking. NEWP $159.00 +8.88 (+5.00) The quick rebound we were looking for in NEWP transpired yesterday with a little encouragement from Wall Street. Analysts quickly came to NEWP's defense Wednesday morning after investors punished the stock the previous day on the news the company had terminated its stock repurchase plan. Warburg Dillon Reed reiterated its Buy rating and $170 price target, saying the termination of the dormant repurchase program had no effect on NEWP. On top of the preceding, Merrill Lynch issued a favorable report on GLW, which ignited the entire Fiber Optic sector. NEWP's return of momentum carried the stock to a new 52-week high today, and might continue to do so if the Tech sector extends its recent rally. Consider entering the play on a quick move above the $160 level early tomorrow if the Tech sector rolls higher. Make sure to confirm an attempt at new highs with healthy volume. A pullback to support at $155 or near the 5-dma at $152 might also provide a solid entry into the play after any light selling tapers off. VRSN $198.88 +5.13 (+20.44) Who says you have to live to 200 to celebrate a bicentennial? Investors in VRSN are already bringing out the party hats in anticipation of this milestone. Volume and interest in the stock has been advancing along with the price this past week. These past two days are no exception. Yesterday, VRSN gained $6.25, or 3.33% on higher than average volume. Today was more of the same as VRSN tacked on another 2.65%. Before we start celebrating, however, we would like to point out that $200 is formidable resistance. This will be VRSN's third attempt in the past 3 months. Will the third time be a charm? A strong market will help, but conservative traders looking to ride the wave will want to see VRSN break $200 with conviction before entering. Support for the stock can be found in increments of $5 at $195, $190 and $185. There is additional support at the 5-dma at $187.55. A bounce off support confirmed by volume could serve as an aggressive entry. IWOV $96.00 -0.06 (+11.00) IWOV's all-time high is so close, we can almost taste it. Yesterday, the stock traded sideways for most of the day, but in the last couple hours of trading it took off to close up $5.81, or 6.44%, on 117% of ADV. The strong late-day move came without any specific news, but was probably helped by strength in the NASDAQ. Today, IWOV made an attempt at its all-time high and the psychological resistance level of $100. Spending the first half of the day in the upper part of the range, it got as high as $99.75 before the sellers took over to close the day. At this point, IWOV may need to regroup to its 5-dma (currently at $91) before making another attempt at its all-time high. There also appears to be support in the $94-95 area. A bounce from there on high volume may also serve as an aggressive entry. A break above $100 with conviction would offer an entry for more conservative traders. NTAP $117.00 +5.56 (+15.31) On Wednesday, trading in NTAP was tentative as it approached its July highs in the $112-113 area. The last time the stock was at this level, it quickly and sharply sold off. While volume was low, clocking in at 74% of ADV, the stock managed to advance $2.19. Today that hurdle was easily cleared, thanks to a strong market. Gapping up at the open, NTAP found support at $112 and from there, blasted off past the next level of resistance at $115. Later in the day, the $115 level served as support, with NTAP testing it twice successfully. The past three days of trading has seen NTAP's trend steepen. Previous advances were punctuated by regular visits to the 5-dma, now at $108.44. A pullback to the 5-dma may just be the ideal entry point for aggressive traders. Yet, with a strong market, NTAP may find support above that point at $115, $112 and $110. A break through $120 on high volume would also be a buy signal as it sets up NTAP to challenge its all-time high at $124. BEAS $68.06 +4.56 (+8.44) A quick visit on Wednesday morning to the 5-dma and it was off to the races again for BEAS. Resistance at the $65 area brought in the profit-takers in the final hour of trading. Nonetheless, BEAS closed up $1.63, or 2.63%, on over 150% of ADV. The advance was helped in part by news of a strategic alliance with ecommerce software company Access Commerce Inc., which chose BEAS' WebLogic Server as the Java application platform to build its Cameleon Software suite. Today, the stock continued its strong upward momentum. Like Wednesday, a quick dip to its 5-dma in the morning was quickly erased as buyers stepped in to bid the stock higher. Trading flatly for most of the afternoon, BEAS took off again in the last couple hours of trading to close up 7.19% on a staggering 180% of ADV. The increasing volume accompanying the up moves this week means momentum, and lots of it. Aggressive traders looking to buy on a bounce can find support at $65 and the 5-dma at $62.50. Conservative traders seeking confirmation of continued momentum before entering will look for a strong break above $70. INKT $130.38 +4.38 (+6.44) A couple of righteous words from the analysts and INKT took off! INKT shares picked up over 9% after a pair of brokerage firms upgraded the stock to a Buy rating on Wednesday. First Union Securities raised its recommendation to a Buy from a Market Perform while Lehman Brothers started INKT in new coverage. The latter firm also issued a 12-month price target of $150 p/s. Wednesday's impressive performance by Amazon.com (AMZN) also gave INKT and the Internet sector a boost. Today, $125, just above the 5-dma ($123.49), proved it could hold up as short-term support. Use these levels as a solid platform from which to take an entry into this aggressive Internet play. In a last minute spike, the convincing momentum took INKT over the $130 mark, which cleared a potential obstacle out of the way. Nevertheless, watch for some resistance if INKT challenges tomorrow. Ultimately, we'd like to see INKT stretch upward towards its split-candidate level of $150. JNPR $213.75 +9.88 (+22.81) Juniper Networks, whose share price has climbed almost 35-fold since it first became public in June 1999, exploded in recent trading. On Wednesday, JNPR was named a component of the NASDAQ-100 Index and has since advanced a whopping $17.50, or 9% in heavy trading. Juniper will join the NASDAQ-100 on September 7th and replace VISX, a maker of laser eye-surgery equipment that's delisting from the NASDAQ. Juniper's success is an obvious one. It has emerged as the leading competitor to the #1 network-equipment maker, Cisco Systems (CSCO), in the Internet router market. This in itself is momentous feat. Robert Lee, Senior VP and Portfolio Manager for Sentinel Advisors Company, noted in his examination of portfolio strategies that the market is, by some estimates, doubling every four months and currently Juniper is growing faster than Cisco. Currently, JNPR is shattering 52-week record highs at every turn. Today's pinnacle at $214.38 is the new number to beat! Support is firm at the $200 level, in-line with the 5-dma ($200.71), which is an attractive entry. But, unless there's a strong market pullback or some other event, JNPR's progressive momentum may simply drive the share price upward from here. If so, use intraday dips followed by high-volume advances for a quick in-and-out play. VRTS $120.56 +7.25 (+3.62) VRTS is the "comeback kid" of the computer storage industry. After falling off a cliff at $171 to finally find footing at $82 in mid-April, VRTS is once again trying to scratch its way topside. Today, the share price peaked at $122.06 amid increasing trading activity. The strong challenge at the $120 resistance mark is very attractive. It hints that VRTS is poised for a sharp breakout; especially if you consider that many analysts think the share price is under- appreciated by the market. Salomon Smith Barney analyst H. Clinton Vaughn says VERITAS is "one of the four horsemen of the computer storage industry, alongside such heavyweights as Brocade Communications (BRCD), EMC Corp (EMC), and Network Appliance (NTAP)." Take entries off light support at the $118 mark and 5-dma ($118.11), which held up well all week. More aggressive pullbacks may be too risky for some, but an entry off the 10-dma at $114.31 could prove lucrative. In other news, VERITAS and Infogain, a leader in eCRM and eBusiness connectivity, announced together they have completed over 100 nationwide High- Availability projects in the last six months within the manufacturing, financial service, telecommunication, and wireless technology industries. LSCC $77.88 +5.81 (+3.63) Keeping the rally alive, LSCC zoomed through resistance again today. After the strong move last week, it was only natural to see profit taking appear early this week. By yesterday afternoon, the selling appeared to be abating as buyers stepped in to support the price above the $71 support level. Their conviction was rewarded this morning as more traders flocked to their camp, pushing LSCC to a nearly $6 gain on volume 50% over the ADV. So why the strong move today? How about news from the company that its board approved a 2-for-1 split, payable on October 11th? Stochastics and MACD are still hanging out in bull territory, with today's high testing the upper Bollinger band. So what does this tell us? LSCC continues to be a leader in the Semiconductor sector as it approaches its July highs, but it also fell back this afternoon at the $79 resistance level. With the strong move today, and the Labor Day holiday close at hand, it would not be unexpected to see some sell-the-news profit taking tomorrow. A pullback to intraday support near $75 looks attractive for new entries as long as the bounce is confirmed with strong volume. Otherwise, wait for LSCC to scale the $80 level on strong volume before jumping into the play. ORCL $90.94 +2.69 (+6.31) Another day, another new high. That's the kind of performance we love to see, especially with the NASDAQ charging through 4200 for the first time in six weeks. Providing the workhorse software that powers the Internet, ORCL is benefiting from both its strong financial performance and the resurgence we have seen in many Internet B2B stocks over the past 2 days. Anticipation is building for the company's next earnings announcement, currently scheduled for September 12th. We've been unable to confirm the actual date, as Investor Relations' response has been that the announcement will come after the close in mid-September. That's a little on the ambiguous side, and we will endeavor to get a more precise answer before the weekend. At any rate, ORCL has now broken out to a new all-time high, and this could be the beginning of a nice earnings run. Don't forget that ORCL is into its historical split range (over $80), and with plenty of shares authorized, we are hoping for a split announcement with earnings in September. Intraday support near $88 would provide an attractive entry point on any pre-Labor Day pullback, especially with the supportive 5-dma ($87.69) not far behind. If the NASDAQ continues to run higher, and ORCL goes along for the ride, current levels also look attractive, as long as buying volume remains strong. QLGC $113.50 +8.13 (+9.63) Finally shaking off the specter of last week's EMLX hoax, QLGC managed to penetrate the $110 resistance level today. Investors were snatching up shares of technology companies at a furious pace, and news that authorities have apprehended the culprit behind the hoax may have contributed to QLGC's gain today. Of course, it didn't hurt that Salomon Smith Barney initiated coverage today with a Buy rating. This comes on the heels of a Buy rating from Robertson Stephens on August 20th. Clearly, analysts and investors alike love the stock, and the enthusiasm is being reflected in the chart. Tacking on over $8 in today's session on solid volume (just slightly over the ADV), it looks like the stock is ready to take a run at the next resistance level near $117. A sure sign of strength, QLGC shares have continued to use the 10-dma (currently at $102.81) as support, and bounces near this level still look attractive for new entries. Although buying into continued strength is still permissible, use caution as QLGC fell back a bit this afternoon after testing its upper Bollinger band. A renewed bounce from support looks like the best entry strategy at this point, especially with the possibility of profit taking ahead of the long weekend. ******************* PLAY UPDATES - PUTS ******************* UK $40.06 -0.56 (-1.00) If the Techs are running, the Chemicals are sliding. The recent rebirth of the Tech sector is not helping the cause of old-line stocks such as UK. The simple fact is the Chemicals sector can't provide the sexy earnings growth that Wall Street is after. As long as the NASDAQ, and specifically the Tech sector, continue to roll higher, capital will continue to leave the Chemicals. That fact was clearly evident today as the major indices posted substantial gains, yet, UK sank to a new yearly low. What's more, volume continues to remain relatively brisk as UK sinks into the mire. UK is now on the brink of collapse at the critical $40 level, prices not seen since the Spring of 1999. Watch for a failure of support at $40 as a sign the selling has not subsided. Overhead resistance is now located at the 5-dma at $40.88, the $41 level, and near the 10-dma at $41.50. Aggressive traders might look to enter the play on a bump against one of the aforementioned resistance levels if UK rallies only to face continued institutional selling. AT $50.56 -0.25 (-0.25) Good news, characteristic consolidation, and a decent overall market kept AT afloat in recent trading. Today, ALLTEL and Bank One Corp (ONE) announced they entered into a 10-year software pact. Bank One will utilize ALLTEL's Advanced Loan System (ALS) for its key lending functions in an effort to reduce turnaround time and maximize cost efficiency. After extensive analysis, Forrest Richardson, director of loan accounting for Bank One commented that "the ALLTEL system features and functions represent a 'best of breed' solution for our customers." Nevertheless, the lid remains tight on AT. AT is currently colliding with resistance first at the 5-dma($50.80), and then a smidgen higher at $51.50; whereas $52 marked upper resistance earlier in the week. The fact that the ceiling is pressuring lower provides evidence that AT is still struggling and could break to the downside in a cooperating environment. Wait for the selling to move into high gear and AT to slip under the $50 bottom support if you want to play on the side of caution. Otherwise, if you enter on downward bounces off the current opposition, set tight stops for protection. NTLI $43.81 +0.19 (-0.44) It took two days for the dust to settle, but it appears from today's trading that NTLI is no longer center-stage. Late Tuesday evening, it hit the press that NTL, Inc. had been holding talks with pay-TV firm, ON digital, and intends to form a competitive marketing alliance to rival Europe's #2 pay-TV company, British Sky Broadcasting Group, Plc. The proposal is to bundle its TV Internet and telephone services with ON digital TV channels outside of its cable franchise areas. This move is crucial to NTLI's long-term survival. At this time, NTLI has approximately 230 K customers while BSkyB, which began offering bundled services in 1998, has 3.6 mln digital-satellite TV subscribers. Investors were obviously pleased that NTLI is looking for ways to increase its revenue and build scale. The traders started lining up Wednesday morning to get a piece of the action. Subsequently, the share price spiked over 11% in the past two sessions. On a quick take, it looked as if the encouraging news blew our chance for a put play right out the window. However, we're going to keep NTLI on the books for the meantime. If today's intraday high at $44.44 proves to be the top, then we've got an awesome entry into this momentum play. A slide back under the 5-dma at $42.70 would provide reasonable validation to take an entry. We're looking for NTLI to resume its breakdown on the previous news that it may be hunting for bigger fish, like Britain's Telewest, which ultimately will cost the company more than ON Digital. KO $52.63 -1.63 (-3.38) Investors in KO are definitely not smiling this week. After a brief pause above the 200-dma (currently $55.56), the bears came on with renewed vigor over the past 2 days, pushing shares of the beverage company sharply lower on very strong volume. Nearly twice the average number of shares traded hands today, as KO moved as low as $51.50 before a late day bounce. Prior to today's decline, it was looking like the stock might find support near the $53 level, but there wasn’t so much as a pause as KO continued to fall. Now that the stock is below this level, look for it to act as resistance on any move higher. When the buyers run out of enthusiasm, look to open new positions as KO rolls over from either the $53 or $55 level (also the site of the converged 200-dma and declining 5-dma). It looks like last week's concerns about slowing volume growth are finally coming home to roost, and with improving sentiment on the NASDAQ, investors are taking their money back from disappointing stocks like KO and putting it to work in technology plays again. A failure to hold support near today's low of $51.50 looks like it could be a good conservative opportunity to jump into the play as selling pressure continues to depress KO's price. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** NEW CALL PLAYS ************** DISH - Echostar Communications $48.75 +2.50 ($3.63 this week) DISH is commonly known as the company that sells those great satellite dish television systems that give you access to 500 channels of digital video and CD quality audio programming. However, DISH currently operates three interrelated businesses, with over 8,000 employees worldwide including the DISH Network, Echostar Technologies Corporation and Satellite Services. DISH network is the subscription based portion of the business (i.e. paying them monthly for TV cable service). The other two divisions deal with the design of the set top boxes/satellite receivers and the delivery of the video, audio and data services to business television customers and other satellite users. There is no doubt that DISH has struggled technically since March. The stock hit a 52-week high of $81.25 on March 27 and then drifted lower for the next few months, as low as $30.75 on June 28th. On July 6th, DISH moved up convincingly and closed at $35.94. Since then, DISH had been stuck in a trading range between $36 and $46.63, held captive by its 200-dma (currently at $46.96). During the second quarter of this year, DISH reported that their subscriber base grew to 4.3 mln subscribers, up from 2.6 mln in the second quarter last year. Today, DISH crossed over and closed above its 200-dma for the first time since June 2. Volume came in at 3.1 mln shares (1.3 times ADV) as it closed near the top end of its intraday trading range. Ideally, traders should look for a pullback to $47, the current 200-dma, or intraday support at $44.50, along with a bounce, to enter new trades. However, due to recent performance of the NASDAQ, special attention should be paid to this index for direction and sentiment, to confirm DISH’s bias. Keep a watchful eye out for profit taking after such strong gains in the NASDAQ. Of late, DISH has negotiated further distribution arrangements for their satellite dish television systems, with the likes of Bradlees (a 105 store retail chain), H.H. Gregg (an electronics retailer in the Midwest), and P.C. Richard & Son (a 42 store chain in New York and New Jersey). Business seems to be robust! During the month of August the brokerages came out and showed their love for DISH. CIBC World Markets reiterated coverage with a Strong Buy and a $60 target, Merrill Lynch resumed coverage with a NT Buy/LT Buy and a target of $56. Finally, Lehman Brothers reiterated their Buy rating and target of $85. BUY CALL SEP-40 UAB-IH OI= 988 at $9.25 SL=7.00 BUY CALL SEP-45*UAB-II OI=2781 at $4.88 SL=3.00 BUY CALL SEP-50 UAB-IJ OI=1602 at $2.00 SL=1.00 BUY CALL OCT-50 UAB-JJ OI=1103 at $5.13 SL=3.25 BUY CALL DEC-55 UAB-LK OI=1074 at $6.63 SL=4.75 Picked on August 31st at $48.75 P/E = N/A Change since picked +0.00 52-week high=$81.25 Analysts Ratings 9-7-0-0-0 52-week low =$14.00 Last earnings 06/00 est= -0.32 actual= -0.28 Next earnings 11-01 est= -0.34 versus= -0.28 Average Daily Volume = 2.31 mln ISSX - Internet Security Systems $81.00 +1.75 (+9.00 this week) Internet Security Systems, formerly ISS Group, is the pioneer and leading supplier of adaptive security management systems. They provide enterprise-wide information protection software and are a worldwide innovator of security solutions designed to augment the security performance of existing systems by complementing security safeguards such as firewalls, authentication and encryption. The ISS SAFEsuite family of products empowers organizations to proactively monitor, detect and respond to the growing number of network vulnerabilities and threats to enterprise information. The Company is based in Atlanta, GA. A strong recovery has launched ISSX back to a respectable support level and pinned it as an official split-candidate. The company's current trading price is at a turning point. Take a look at a three-month chart and you can visually confirm the "V" formation. It's now or never. The convincing momentum that took ISSX off a low of $51.13 on August 16th and propelled it to today's intraday high of $81.94 should carry ISSX back towards $110. Today's steady trading at a higher price level of $80 and the strong close over the converged 50, 100, & 200-dmas indicates ISSX is poised for an upside breakout. Besides the promising technicals, the fact that ISSX is back at a split-candidate level could also generate some excitement. Pullbacks to former near-term resistance at $74-75 may appear attractive, but be careful, this strategy poses quite a bit of risk. Aggressive traders may instead want to enter at the current prices. Otherwise, wait for the stock to advance through $85 and challenge $90. On the global front, Internet Security Systems announced its acquisition of privately held ISYI, an Italian leader in advanced network security services for large network and eBusiness environments. This acquisition represents an important development in the Italian security industry. Also, in the news this month, Individual Investor, in its seventh annual ranking, announced ISSX is among this year's list of 100 fastest growing companies in the U.S. They gave ISSX a "thumbs up" vote too, which means they expect the share price to continue to grow. BUY CALL SEP-75*ISU-IO OI= 87 at $ 9.38 SL=7.00 BUY CALL SEP-80 ISU-IP OI=181 at $ 6.63 SL=4.75 BUY CALL SEP-85 ISU-IQ OI= 36 at $ 4.25 SL=2.50 BUY CALL OCT-80 ISU-JP OI= 64 at $11.75 SL=9.50 BUY CALL OCT-85 ISU-JQ OI= 42 at $ 9.50 SL=7.25 Picked on August 31st at $81.00 P/E = 319 Change since picked +0.00 52-week high=$141.00 Analysts Ratings 6-4-0-0-0 52-week low =$ 22.50 Last earnings 06/00 est= 0.08 actual= 0.09 Next earnings 10-23 est= 0.10 versus= 0.05 Average Daily Volume = 692 K ************* NEW PUT PLAYS ************* No new puts today. ********************** PLAY OF THE DAY - CALL ********************** INKT - Inktomi Corp $130.38 +4.38 (+6.44 this week) Inktomi develops and markets scalable software applications to intensify and strengthen larger networks. Their Internet search engine, which provides a fast and customizable Web search, is used by Yahoo! Other products include a large-scale network caching application for ISPs (like AOL) and corporations that need help addressing capacity constraints in high-traffic network routes. Inktomi operates in the US and UK. Most Recent Write-Up A couple of righteous words from the analysts and INKT took off! INKT shares picked up over 9% after a pair of brokerage firms upgraded the stock to a Buy rating on Wednesday. First Union Securities raised its recommendation to a Buy from a Market Perform while Lehman Brothers started INKT in new coverage. The latter firm also issued a 12-month price target of $150 p/s. Wednesday's impressive performance by Amazon.com (AMZN) also gave INKT and the Internet sector a boost. Today, $125, just above the 5-dma ($123.49), proved it could hold up as short-term support. Use these levels as a solid platform from which to take an entry into this aggressive Internet play. In a last minute spike, the convincing momentum took INKT over the $130 mark, which cleared a potential obstacle out of the way. Nevertheless, watch for some resistance if INKT challenges tomorrow. Ultimately, we'd like to see INKT stretch upward towards its split-candidate level of $150. Comments INKT gave us an ideal entry point this morning. The dip on Thursday's open brought the stock down to $124, which was intraday support from Wednesday. INKT hit this level right as amateur hour ended and the stock took off, climbing steadily to $128. It looks like the momentum players are piling back into this issue. What was particularly encouraging today was the 500K shares that drove the stock up to $131 in the final 15 minutes. Look for entry on pullbacks to intraday support at $128 and $127, accompanied by a strong volume bounce. More conservatively, if INKT surges through $131, jump on board toward $136. Watch the NASDAQ for sentiment. BUY CALL SEP-125*KYQ-IE OI= 765 at $10.00 SL= 7.50 BUY CALL SEP-130 KYQ-IF OI=2581 at $ 7.38 SL= 5.50 BUY CALL SEP-135 KYQ-IG OI=1195 at $ 4.88 SL= 3.25 BUY CALL OCT-130 KYQ-JF OI= 498 at $15.75 SL=12.25 BUY CALL OCT-135 KYQ-JG OI= 443 at $13.50 SL=10.75 SELL PUT SEP-125 KQY-UE OI= 273 at $ 3.75 SL= 5.00 (See risks of selling puts in play legend) Picked on August 27th at $123.94 P/E = N/A Change since picked +6.44 52-week high=$241.50 Analysts Ratings 10-6-2-0-0 52-week low =$ 46.91 Last earnings 06/00 est= 0.69 actual= 0.73 Next earnings 10-23 est= 0.05 versus=-0.05 Average Daily Volume = 2.95 mln ***********************ADVERTISEMENT************************ Save Up To 80% Off At Everything Wireless! Click On The Link Below For Store Wide Discounts. 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.sungrp.com/tracking.asp?campaignid=350 ************************************************************ ************************ COMBOS/SPREADS/STRADDLES ************************ Is it "Window Dressing" or the "Real McCoy?" The market rallied today after tame economic data gave investors confidence in the outlook for interest rates and future earnings. Wednesday, August 30 The Dow industrials slumped while the Nasdaq edged higher as strength in technology stocks outweighed weakness in the broader market. Blue-chip shares consolidated after a recent rally and the Dow closed down 112 points at 11,103. At the same time, Internet issues rallied, pushing the Nasdaq Composite 21 points higher to 4,103. The S&P 500 index finished down 7 points at 1,502. Trading volume on the NYSE reached 817 million shares, with declines beating advances 1,420 to 1,413. Activity on the Nasdaq was moderate at 1.54 billion shares traded, with advances beating declines 2,149 to 1,903. Tuesday's new plays (positions/opening prices/strategy): Vitria VITR SEP35P/SEP40P $0.88 credit bull-put Lucent LU OCT50C/OCT40P $0.25 credit synthetic Toronto Dom. TD JAN30C/JAN25P $1.68 debit strangle Vitria and Lucent both slumped during the session, offering the target entry prices in each position. Toronto Dominion was less cooperative, trading in a small range for most of the day. The suggested debit was unavailable on a simultaneous order basis. Portfolio Plays: The broad market suffered from a bout of profit-taking today with stocks losing ground in a number of sectors. On the Dow, most issues slumped with International Business Machines (IBM), General Electric (GE), and Coca-Cola (KO) leading the way down. Retail stocks were mostly lower, after new statistics showed a slowdown in the U.S. economy. Oil stocks also declined even as Banc of America raised its earnings estimates across the board on the major integrated oil companies. The sell-off continued in consumer products and major drug issues as traders expressed uncertainty over corporate earnings and the future outlook for interest rates. In contrast, brokerage stocks moved higher amid news that Credit Suisse First Boston would acquire Donaldson, Lufkin and Jenrette (DLJ) for $13.4 billion. Shares of J.P. Morgan (JPM) also rallied in the merger-mania, climbing above $150 after ING Barings upgraded the stock, commenting that the company holds a dominant position in global investment banking and clearly represents one of the premier remaining properties in the industry. On the Nasdaq, semiconductor stocks pressured the index, while Internet issues continued to rally, but neither sector generated enough momentum to significantly affect the technology group. There was little activity worth reporting in the Spreads/Combos portfolio today. A few of the big-cap technology stocks enjoyed favorable gains but the big news came in the lower-priced issues. Red hat (RHAT) jumped above $25 after computing heavyweights IBM, NEC, Intel, SGI, Dell Computer and Hewlett-Packard announced they are joining with major Linux companies to develop the operating system for high-end, multiprocessor machines. These companies are combining forces to create a laboratory in Oregon where the leading open-source programmers can improve the performance of Linux and its associated software on the high-end servers. The Open-Source Development Laboratory will provide a location for independent programmers to help the Linux system evolve into a major competitor in the industry. Our debit-spread combination is offering a favorable return and we will look for a potential, early-exit opportunity if the issue continues to rally over the next few sessions. Read-Rite (RDRT) edged up another $0.75 on momentum from the news that several disk-drive manufacturers will utilize its latest generation of magnetoresitive recording heads. Read-Rite officials recently said that Samsung, Maxtor, Quantum Hard Disk Drive and Western Digital will use its components to build drives capable of holding 20 gigabytes on 3.5" platters. Our covered-combination at $5 is expected to expire at maximum profit. In the banks and brokerages sector, Delphi Financial Group (DFG) rallied over $2 to a recent high near $40 and our bullish credit-spread at $35 appears to be safe for now. Our new position in Maytag continued to be plagued by reports from Whirlpool (WHR). Today the company announced it expects its third quarter and yearly earnings to be negatively hit by various factors including Circuit City's (CC) decision to exit the appliance business. WHR also expects the European market conditions to reduce its earnings substantially in the second half of the year. As we said earlier in the week, investors will eventually overlook the troubles at Whirpool and in time, they will likely refocus on the bullish outlook for Maytag and its potential as a merger candidate. Thursday, August 31 The market rallied today after tame economic data gave investors confidence in the outlook for interest rates and future earnings. The Dow closed up 112 points and the Nasdaq was up 102 points at 4,206. The S&P 500 index was up 15 points to 1,517. Trading volume on the NYSE hit 1 billion shares, with advances beating declines 1,727 to 1,151. Activity on the Nasdaq was heavy with 1.88 billion shares exchanged. Technology advances led declines 2,488 to 1,616. The 30-year bond was up 31/32, bid at 108 9/32, where it yielded 5.67%. Portfolio Plays: A renewed confidence in U.S. economic growth as well as future corporate profits helped spur the market-wide rally today. The advance was broad-based and occurred with good volume, signals that point to continued bullish activity. Ongoing interest in the financial sector pushed the industrial average higher while a rebound in biotech stocks started the Nasdaq off in the right direction. Rallies in the semiconductor and networking groups also helped bolster optimism that the day would end with a big upside move. Most sectors enjoyed healthy gains and the main surprises were in the disk-drive/data storage sector, which led the technology index in percentage gains, and the Internet B2B group, which consolidated amid profit-taking. One industry that struggled was retail, which continued its recent slide after reports of disappointing same-store sales figures from a number of major companies. Overall, today’s move highlights a healthy outlook for the market and beyond any short-term dips, stocks should continue to move higher in the coming weeks. The market rally was widespread and well-timed and our portfolio enjoyed upside activity in almost every issue. Obviously, there were far too many favorable moves to cover in this narrative but a number of positions did offer favorable exits. Echostar (DISH) jumped $2.88 to $48.75 and our debit-spread combination provided a $3.25 closing profit during the session. Redhat (RHAT) climbed to a mid-day high near $27.12 and the same strategy produced a $1.38 return for traders who took the early-exit. In the big-cap technology group, the leaders were Advanced Fibre (AFCI), Altera (ALTR), Cisco Systems (CSCO), Infocus (INFS), Network Appliances (NTAP), Polycom (PLCM), Phone.com (PHCM), Qlogic (QLGC), Sapient (SAPE), and Vitria (VITR). Traders who participated in the SAPE credit strangle can now look for an opportunity to close the position for a favorable profit. The market activity was truly amazing and even our current loser, Anheuser Busch (BUD) made a favorable move. The biotechnology rally boosted our position in Regeneron (REGN) and the leading small-cap performers included Caremark (CMX), Maxtor (MXTR), Paxson (PAX) and Read-Rite (RDRT). Questions & comments on spreads/combos to Contact Support ****************************************************************** - SPECULATION PLAYS - ****************************************************************** NOVL - Novell $12.25 *** Bottom Fishing! *** Novell is a leading provider of Net software that delivers many services to secure and power all types of networks; the Internet, intranets and extranets; wired to wireless; corporate and public, across leading operating systems. Novell's Net services software provides the foundation for one Net; a single global network that supports new applications and forms of business. Their worldwide channel, consulting, education and technical support programs, along with strategic alliances, combine Novell services software with other third-party products and services to form complete Net solutions. The recent past has not been good for Novell and continuing the trend that started last year, the company again reported weak earnings for the quarter. Product sales were down sequentially and the gradual decline in revenues from NetWare software was not offset by an upswing in sales of the company's newer products. Novell’s per share earnings were the lowest since November 1997 and the company noted that the recent turmoil in the upper ranks of management has taken its toll. Strangely enough, the issue has rallied over the last few sessions and there are differing opinions as to the cause. Some say the move is based on rumors of a possible takeover by IBM while others suggest that Novell is preparing to spin off its key businesses. Company officials dismissed the speculation in a conference call, but the current consensus is that Novell can no longer rely on its old strategy and "something" must be up for the stock to be reacting in the bullish manner. Our outlook for the issue is neutral-to-bullish and any rally in small-cap technology stocks should propel the share value well clear of our break-even cost basis at October expiration. In the event of a future consolidation, we will adjust the position based on the revised technical outlook for the issue and the available (ATM or OTM) option premiums. PLAY (conservative - bullish/diagonal spread): BUY CALL NOV-10.00 NKQ-KB OI=3030 A=$3.12 SELL CALL OCT-12.50 NKQ-JV OI=1428 B=$1.25 INITIAL NET DEBIT TARGET=$1.75 INITIAL TARGET ROI(max)=42% Chart = ****************************************************************** ENGA - Engage $14.19 *** On The Rebound? *** Engage is a leading provider of next generation online marketing solutions. Engage, a majority-owned operating company of CMGI, helps marketers target online audiences and convert them into loyal customers. The company operates in three segments: Media, Media Management and Software and Consulting. Media provides a comprehensive system for planning, buying, selling, and managing Web advertising to advertisers and agencies. Media Management delivers solutions to help advertisers execute, measure, analyze and optimize their Internet marketing campaigns. Software and Consulting is primarily engaged in the development and sale of software that enables Web publishers, advertisers and merchants to target and deliver advertisements, content and e-commerce offerings to their audiences. The Internet commerce sector is "HOT" and Engage rallied again today as traders speculated that the online ad-serving firm is on a recovery path ahead of its quarterly results expected in late September. A number of well known analysts are expecting upside surprises for the group and ENGA’s report will be one of the earliest indications as to health of the online advertising industry. Investors say the current rally is based on a belief that the company will benefit from renewed interest in the sector and the Internet economy. Our expectation is optimistic as well but regardless of the reason for the new interest in the issue, the technical outlook is favorable and our conservative position offers a way to participate in the future movement of a volatile stock with relatively low risk. PLAY (very conservative - bullish/debit spread combination): BUY CALL DEC-12.50 GZZ-LV OI=329 A=$4.88 SELL CALL DEC-15.00 GZZ-LC OI=297 B=$3.62 SELL PUT DEC-10.00 GZZ-XB OI=131 B=$1.43 DEBIT SPREAD TARGET=$1.12 NAKED PUT TARGET=$1.50-$1.62 OVERALL NET CREDIT TARGET=$0.38-$0.50 TARGET ROI=75% This debit spread combination strategy is nothing more than a sold (short) PUT and a "bull-call" debit spread. The position is actually somewhat aggressive, based on the bullish outlook for both components, but we use "out-of-the-money" options on the sold PUT to lower the potential risk. The premium from the sold PUT is used to finance the purchase of the debit spread. In this play, the collateral requirement for the PUT is approximately $425 per contract. Chart = ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc